Close Brothers Group plc Annual Report 2023

Close Brothers Group plc

Annual Report 2023

Supporting our customers

when it matters

Financial Highlights

for the year ended 31 July 2023

Adjusted

Operating Profit

£113.5m

2022: £234.8m

Employee Engagement

86%

2022: 86%

Adjusted

Basic Earnings Per Share

55.1p

2022 : 111.5p

Total Scope 1 and 2 Emissions Market-Based

(tCO

1,9 9 8

2022: 1,964

Return on Opening Equity

5.0%

2022: 10.6%

Customer Scores

92%

Asset Finance CSAT

+88

Property Finance NPS

+75

Motor Finance

dealer NPS

80%

Savings online CSAT

Ordinary Dividend Per Share

67.5p

2022: 66.0p

Strategic Report

4 At a Glance

6 Chairman’s Statement

8 Chief Executive’s Statement

10 Investment Case

12 Our Business Model

14 Operating Environment

20 Our Strategy

26 Key Performance Indicators

30 Our Culture

34 Stakeholder Engagement

34 Section 172 Statement

38 Sustainability Report

40 Task Force on Climate-related Financial Disclosures Report

65 Non-Financial and Sustainability Information Statement

66 Financial Overview

83 Risk Report

131 Going Concern

132 Viability Statement

Governance Report

134 Chairman’s Introduction to Governance

136 Governance at a Glance

138 Board of Directors

141 Executive Committee

142 Corporate Governance Report

167 Directors’ Remuneration Report

190 Directors’ Report

Financial Statements

194 Independent Auditors’ Report

204 Consolidated Income Statement

205 Consolidated Statement of Comprehensive Income

206 Consolidated Balance Sheet

207 Consolidated Statement of Changes in Equity

208 Consolidated Cash Flow Statement

209 Company Balance Sheet

210 Company Statement of Changes in Equity

211 The Notes

253 Glossary and Definition of Key Terms

258 Investor Relations

259 Cautionary Statement

260 Company Information

1. Adjusted measures are presented on a basis consistent with prior periods

andexclude amortisation of intangible assets on acquisition, to present the

performance of the group’s acquired businesses in a manner consistent with

its other businesses, and also exclude any exceptional and other adjusting

items which do not reflect underlying trading performance. Please refer to note

3 for further details on items excluded from the adjusted performance metrics.

2. Adjusted operating profit attributable to shareholders divided by opening

equity, excluding non-controlling interests.

3. Represents the final dividend proposed for the respective years together

withthe interim dividend declared and paid in those years.

4. Customer satisfaction score (“CSAT”).

5. Property Finance net promoter score (“NPS”) excludes the Commercial

Acceptances business.

At Close Brothers, we are

here to help the people

andbusinesses of Britain

thriveover the long term.

This means supporting our colleagues, customers and clients,

andthe communities and environment in which they operate.

It means helping people and businesses unlock their potential

andplan for the future with confidence, building relationships

thatstand the test of time. It also means that we continue to be

there for the long term, whatever the economic climate, making

decisions that are right for today and for generations to come.

1Close Brothers Group plc Annual Report 2023

Supporting our customers

when it matters

2 Strategic Report

Supporting our customers

when it matters

Consistent

service

Pages 28 to 29

Deep

expertise

Pages 18 to 19

Long-term

relationships

Pages 32 to 33

Consistent service

Case study:

Twenty20 Capital, investors in

staffing and workplace solutions

Twenty20 Capital has seen rapid

expansion in recent years following

thecompletion of a number of deals

supported by Close Brothers.

Deep expertise

Case study:

Incremental Engineering,

industrial 3D printer

Incremental Engineering has seen

itsbusiness double in size since taking

possession of an HP Jet Fusion 5210

3D printer, funded through Finance For

Industry with Close Brothers.

Long-term relationships

Case study:

Briahaze Village Homes,

new residential homes

Briahaze Village Homes, a Yorkshire-

based family business spanning seven

generations, started using Close

Brothers over 30 years ago.

3Close Brothers Group plc Annual Report 2023

c.4,000

employees

Close Brothers is a leading UK merchant banking group providing lending,

deposit taking, wealth management services and securities trading.

Banking: 86% of Adjusted Operating Profit

Commercial

Commercial lends to small and medium-sized enterprises (“SMEs”) through

ourdirect sales force and third-party distribution channels.

Asset Finance provides commercial asset financing, hire purchase and leasing

solutions for a diverse range of assets and sectors to over 28,000 customers.

Invoice and Speciality Finance works with c.6,000 small businesses to provide

debt factoring, invoice discounting and asset-based lending and includes some

ofour smaller specialist businesses.

Asset Finance

Loan book

: £3.4 billion

Average loan size: c.£57,000

Typical loan maturity

: 3 to 4 years

Invoice and Speciality Finance

Loan book

: £1.4 billion

Average loan size: c.£595,000

Typical loan maturity

2,3

: 3 months

Retail

Retail provides finance to individuals and businesses through a network

ofintermediaries.

Motor Finance provides several products at point of sale in a dealership,

oronline via a broker, which allow consumers to buy vehicles from over 4,200

retailers in the UK. Premium Finance helps make insurance payments more

manageable for people and businesses, by allowing them to spread the cost over

fixed instalments. It works with 1,400 insurance brokers in the UK and Ireland.

Motor Finance

Loan book: £1.9 billion

Average loan size: c.£7,000

Typical loan maturity: 4 years

Premium Finance

Loan book: £1.1 billion

Average loan size: c.£500

Typical loan maturity

: 11 months

Property

Property provides short-term residential development finance for experienced

professionals through Property Finance and offers refurbishment and bridging

loans through Commercial Acceptances. Lends to c.700 professional property

developers with a focus on small to medium-sized residential developments.

Property

Loan book: £1.7 billion

Average loan size: £1.5 million

Typical loan maturity: 12 to 24 months

development, 36 to 60 months

investment

Asset Management: 11% of Adjusted Operating Profit

Close Brothers Asset Management (“CBAM”) is a vertically integrated top-20

UK wealth manager, providing financial advice and investment management

services to private clients in the UK. CBAM operates out of 13 offices with

morethan 150 investment professionals and c.780 employees.

Managed assets: £16.4 billion

Total client assets: £17.3 billion

Clients: c.27,000

Securities: 3% of Adjusted Operating Profit

Winterflood is a leading market maker, delivering high-quality execution services

to approximately 600 stockbrokers, wealth managers, institutional investors and

other market counterparties. It also provides corporate advisory services to

investment trusts and institutional sales trading. Winterflood Business Services

(“WBS”) provides outsourced dealing and custody solutions to over 60

corporateclients.

Winterflood

Average bargains per day: c.60,000

Investment trust corporate broking

and advice clients: 50

WBS assets under administration:

£12.9 billion

At a Glance

Who we are

1. Includes operating lease assets of £223.4 million (31 July 2022: £185.4 million) which relate to Asset Finance and £47.8 million (31 July 2022: £54.6 million)

toInvoice and Speciality Finance.

2. Typical loan maturities for new business on a contractual basis, except core Invoice Finance which are on a behavioural basis.

3. Average loan size and typical loan maturity include the Invoice Finance business only.

52 offices

predominantly in the UK and

Ireland

Constituent of the

FTSE 250

Serving more than

three million

customers

4 Strategic Report

Our Values Embody our Distinctive Culture and Customer-centric Approach

Service Expertise Relationships Teamwork Integrity Prudence

The Foundations of our Success Enable us to Deliver on our Purpose

Our purpose

To help the people and

businesses of Britain thrive

over the long term.

Our culture

Combines expertise,

serviceand relationships

with teamwork, integrity

andprudence.

See pages 30 to 31

Our strategy

To provide exceptional

service to our customers

and clients across

lending,savings, trading

and wealth management.

See pages 20 to 25

Our responsibility

To help address the

social,economic and

environmental challenges

facing our business,

employees and clients,

nowand into the future.

See page 38

Our Strategy Focuses on Ensuring our Business Model Continues to Deliver in the Long Term

Protect

See pages 20 to 21 See pages 22 to 23 See pages 24 to 25

Grow Sustain

Enabling us to Create Value and Deliver Positive Outcomes for our Stakeholders

Colleagues Regulators and

government

Customers,

clients, partners

Communities

and environment

Suppliers Investors

See page 35 See page 35 See page 36 See page 36 See page 37 See page 37

5Close Brothers Group plc Annual Report 2023

Chairman’s Statement

The right model to navigate the uncertain environment

and support our customers

As we reflect on the past year, it is undeniable that we

facedsubstantial challenges. The group’s financial

performance was impacted by increased provisions in

relation to Novitas, and our businesses and customers

continued to navigate a difficult UK economic landscape.

These have tested our model and demonstrated its

remarkable resilience. This resilience is a testament to the

strength of our culture, one that encompasses consistent

service, deep expertise, long-term customer relationships,

teamwork, integrity and prudence.

We were all very disappointed with the developments

relating to Novitas and the deviation it represents from our

business model and culture. The strategic review of that

business and the actions taken to resolve the situation

sought to protect the core strengths of our business and to

support our existing customers to ensure good outcomes.

The board and the management team are confident this was

the right course of action, with no read-across to other

books in the group’s portfolio. Moving forward from Novitas,

the group’s financial strength leaves us well placed to

continue delivering on our strategic priorities.

Excluding Novitas, our lending businesses have delivered

good loan book growth, particularly in the second half of the

year, with encouraging momentum in new business volumes.

Close Brothers Asset Management achieved impressive net

inflows of 9% which highlight the success of its growth

strategy. Winterflood’s performance continued to be

impacted by reduced trading activity as retail investor

sentiment remains impacted by heightened market volatility.

As a result, adjusted operating profit decreased to £113.5

million (2022: £234.8 million), with a return on average

tangible equity of 5.9% (2022: 12.2%). In light of the group’s

underlying business performance this year and to reflect the

board’s continued confidence in the business model, we are

pleased to recommend a final dividend of 45.0p per share.

Ifapproved at the Annual General Meeting, this will take the

full-year dividend to 67.5p per share (2022: 66.0p per share).

The Right Model to Navigate the Uncertain

Environment and Support Our Customers

We continued to support almost three million customers,

including over 360,000 small and medium-sized enterprises

(“SMEs”), as we focused on lending consistently and at

responsible terms through this period of uncertainty.

Maintaining the model’s continuity remains a priority for the

board. While the headwinds faced by the UK economy will

continue to put pressure on our customers in the near future,

we believe we have the right business model as well as the

experience to navigate the current environment.

I am pleased to see the progress made on the delivery

ofourstrategic growth initiatives and their significant

contribution is reflected in the loan book growth achieved

this year. We have previously set an initial green finance

ambition to provide £1 billion of funding for battery electric

vehicles by 2027 and have lent £164 million in the first year.

The recently hired specialist teams in the Commercial

business are also performing well. The impressive growth

inassets under administration (“AuA”) of 79% at Winterflood

Business Services and the acceleration of our hiring strategy

at Close Brothers Asset Management are other examples

ofthe management team’s strong focus on delivering

disciplined growth. They also highlight the group’s capability

and track record in expanding our product offering into

adjacent markets that fit with our business model.

The board is encouraged by such growth opportunities

andis confident that the group’s strong capital position

givesus flexibility to deliver both growth and attractive

capital distributions to our shareholders, including our

commitment to paying a progressive dividend.

Michael Biggs,

Chairman

“While the headwinds faced by the UK

economy will continue to put pressure

on our customers in the near future,

we believe we have the right business

model as well as the experience to

navigate the current environment.”

6 Strategic Report

Our Commitment: Preserving Our Strong Culture

and Employee Engagement

Close Brothers’ culture is the bedrock of our long-term

success. The unwavering dedication and expertise of our

team, coupled with strong relationships and unrelenting

commitment to providing exceptional service, represent

theessence of our model.

We remain focused on ensuring that our colleagues remain

engaged, motivated and equipped with the necessary

resources to excel. From training and development

programmes to open lines of communication, we have

worked tirelessly to ensure our people are supported and

heard, especially in light of the impact that the pandemic

continues to have on our colleagues, as well as the

pressures arising from the cost of living crisis.

We recently conducted our latest employee opinion

survey(“EOS”) and I was delighted to see that the levels

ofemployee engagement remained high at 86%. We are

committed to fostering a culture that attracts and retains

talent, whilst also growing and building the expertise of our

people, with 97% of colleagues saying that they believe they

have the skills and knowledge to do their job well. We also

insist on trustworthy behaviour and always acting with

integrity and “doing the right thing” internally and externally,

with 97% of colleagues feeling that their colleagues act with

integrity. These are really strong numbers and demonstrate

that the group’s culture and values remain deeply embedded

in the organisation. You can read more about the EOS

highlights on pages 30 and 31 of this report.

Board Changes

We were pleased to welcome Kari Hale to the board as

anon-executive director on 28 June 2023. Kari brings

considerable audit and commercial expertise and has a deep

understanding of the audit and governance environment in

which our group operates. His skills and expertise will be a

strong complement to the existing board. On appointment to

the board, Kari became a member of the board’s Risk and

Audit Committees.

At the conclusion of the AGM in November 2022 Tracey

Graham became chair of the Remuneration Committee

andPatricia Halliday became chair of the Risk Committee.

Oliver Corbett will not be standing for re-election at the AGM

in November 2023, having completed nine years’ service on

our board. On behalf of the board, I would like to express

mysincere thanks to Oliver for his long and dutiful service

tothe group.

Supporting Our Customers in the Transition

toaLow Carbon Economy

The group’s sustainability agenda remains a key area

offocus. Our ongoing work to identify the risks and

opportunities of climate change to our business model

remains a top priority for the board and the management

team. As a signatory to the Net Zero Banking Alliance

(“NZBA”), we have committed to lowering our operational

and financed emissions by 2050 and will be publishing

further details of our transition plan in due course.

Asbusinesses in the UK develop and deliver their own

transition plans to adopt cleaner technologies, we are

readyto support them by providing financing solutions.

We have made improvements to the data quality of our

financed emissions disclosures, which will support the

setting of our initial wave of intermediate net zero targets

aspart of our commitment to NZBA. CBAM has also made

strong progress, becoming a signatory to the Net Zero Asset

Managers initiative (“NZAM”). You can read more about our

climate disclosures on pages 40 to 54 of this report.

Finally, I want to express my deepest gratitude to our

colleagues, shareholders and all stakeholders who have

stood by us this year. Your trust and support are the

cornerstones of our success. Thank you for your unwavering

support. Together, I am confident that we will continue to

deliver on our purpose.

Michael N. Biggs

Chairman

26 September 2023

7Close Brothers Group plc Annual Report 2023

Chief Executive’s Statement

We have the right model to thrive in this environment and are confident

in the opportunity it creates for us to lean in and support consumers

and SME businesses

We have performed well in the second half, with an

acceleration of loan book growth, strong margins and a

stable credit performance in our Banking business.

Wecontinued to attract new client assets in CBAM, with

strong net inflows, although Winterflood’s performance

remains impacted by subdued trading activity. Despite the

second half momentum, our financial results for the full year

were significantly impacted by provisions in relation to

Novitas announced in our Half Year 2023 results in March.

This year has been marked by a challenging market

backdrop, where mixed economic conditions in the UK have

created substantial uncertainty for our consumer and SME

customers. Although demand levels have remained robust,

the uncertain external environment led to higher forward-

looking impairment provisions and difficult conditions for

ourmarket-facing businesses, CBAM and Winterflood.

Whilst headwinds facing SME firms have abated

somewhat,uncertainty and challenges for these firms

persist, with interest rates rises and cost of funds remaining

a key concern for many business owners. We recently

published the Close Brothers Asset Finance Business

Sentiment Index, which provides insights about our core

customers’ plans for the future. The research shows that

SME business confidence continues to recover, and we are

reassured to see a reversal of 2022’s downward trends,

witha cautious optimism continuing to return. Overall, the

appetite to invest remained stable, with three-quarters of

thefirms aiming to seek funding for investment in the

next12 months.

We are confident that we have the right model to thrive

in this environment and are confident in the opportunity

it creates for us to lean in and support consumers and

SME businesses.

Adrian Sainsbury,

Chief Executive

Our through-the-cycle business model and financial strength

mean we can support customers even during these uncertain

times. By leveraging our long-term relationships, the deep

expertise of our people and our customer-centric approach

we can deliver disciplined growth and are well positioned to

resume our long-term track record of earnings growth and

returns, building on the second half’s momentum and a

goodstart to the 2024 financial year.

Financial Performance

The financial results were impacted by a significant increase

in provisions in relation to Novitas incurred in the first half,

aswe have taken measures to address the issues relating

tothat business. As a result, statutory operating profit before

tax decreased to £112.0 million (2022: £232.8 million).

Whilewe are disappointed with thesedevelopments and

theimpact they have had on our performance this year,

thefinancial strength of the group leaves us well placed to

move forward on the delivery of ourstrategic priorities.

Weevaluate continuously our businessesand initiatives

against a set of criteria, our “Model Fit Assessment

Framework”, to ensure they are aligned with the key

attributes of our model that have and will continue to

generate long-term value. We are confident that there is no

read-across from Novitas to other books in our portfolio and

our prudent underwriting continues to be reflected in the

asset quality and performance of the rest of our loan book.

In Banking, excluding Novitas, profit performance

primarilyreflected good loan book growth of 6% and

strongnet interest margin of 7.6%, more than offset by

higher impairment charges to take into account the

uncertainmacroeconomic outlook and increased costs

related to our investment programmes and inflation,

including wage awards. Our Asset Management division

delivered strong net inflows of 9%, although profit reduced,

reflecting wider market conditions and costs related to our

successful hiring strategy, as we accelerated our efforts to

grow CBAM. Although performance at Winterflood reflected

the continuation of challenging trading conditions, we remain

confident in the track record of our trading business and are

well positioned to retain our market position and benefit

when investor appetite returns. Winterflood has made good

progress on the diversification of its revenue streams and is

exploring growth opportunities to balance the cyclicality

seen in the trading business.

Our capital, funding and liquidity positions remained strong.

The events impacting the global banking sector earlier this

year highlighted the benefits of our prudent approach to

managing financial resources, with our diverse funding

baseenabling us to adapt our position, based on market

conditions and demand. Our funding base was further

strengthened by the successful issuance of a £250 million

senior unsecured bond in June 2023, and we maintained

ourprudent liquidity position, with the 12-month average

liquidity coverage ratio (“LCR”) of 1,143% substantially

above regulatory requirements. Our common equity tier 1

(“CET1”) capital ratio was 13.3% at 31 July 2023 (31 July

2022: 14.6%), significantly above the applicable minimum

8 Strategic Report

regulatory requirement of 9.5%. We remain committed to

optimising further our capital structure, targeting a CET1

capital ratio range of 12% to 13% over the medium term.

This will allow the group to maintain a buffer to minimum

regulatory requirements while also retaining flexibility to

growthe business. We remain encouraged by the available

opportunities to deploy capital to deliver disciplined growth,

which remains a key strategic priority. We will continue to

assess the potential for further distributions to shareholders

based on future opportunities.

We are pleased to propose a final dividend of 45.0p per

share, resulting in a full-year dividend per share of 67.5p

(2022: 66.0p). This reflects our underlying performance and

the Board’s confidence in the group’s outlook. We remain

committed to our dividend policy, which aims to provide

sustainable dividend growth year-on-year, while maintaining

a prudent level of dividend cover.

Well Placed to Resume Our Track Record of

Earnings Growth and Returns

We have made good progress against our strategic priorities

and remain committed to resuming our track record of

earnings growth and returns.

Our investment programmes are progressing well and

enableus to protect the key attributes of our business

model, maintain regulatory compliance and enhance

efficiency, as well as future-proof our income generation

capabilities. We continue to see tangible benefits from

theseinvestments. We advanced our strategic cost

management initiatives, including our technology

transformation programme focused on the rationalisation

ofIT infrastructure, as well as making operational

enhancements in Retail. Theseactions aim to create

capacity to accommodate growth, inflation and investment

to support our business. Wecontinue to evaluate additional

opportunities for efficiency with a view to achieving positive

operating leverage over the medium term. Furthermore, we

undertook work across our businesses to ensure readiness

for the implementation of the FCA’s Consumer Duty, which

came into force on 31 July, completing product reviews and

enhancing frameworks to incorporate the new requirements.

We remain focused on delivering disciplined growth and

continue to review a range of opportunities in line with our

model, with our growth initiatives delivering a significant

contribution to loan book growth in the year. Our recently

hired agricultural equipment and materials handling teams

inAsset Finance have written healthy levels of new business

and are building strong pipelines. In Invoice Finance, we

participated in our first syndication deal and the newly hired

team, providing bespoke term loan structures to SME clients,

closed their first deal this year. Wesaw good demand for the

new offerings in Property Finance, including our specialist

buy-to-let proposition to existing bridging finance customers.

We are delighted to have recently announced our agreement

to acquire Bluestone Motor Finance (Ireland) DAC, which is

aligned toour commitment to Ireland as a strategic market

and provides a platform for us to build our Irish Motor

Finance business. Following last year’s announcement of

ourinitial green growth ambition of providing funding for

£1.0 billion ofbattery electric vehicles by2027, we are

pleasedto have funded £164 million in the first year.

In CBAM, our hiring strategy is proving successful, with a

strong pipeline of new hires and significant contribution from

new portfolio managers to the inflows. We also continue to

build our pipeline of in-fill acquisitions to support the long-term

growth potential of the business. In addition, WBS exceeded

the targeted £10 billion of total AuA and is well positioned for

further growth, both organically and supported by a solid

pipeline of clients. We expect WBS to grow AuA to over

£20 billion by 2026.

We continued to make progress against the group’s

sustainability agenda. We set our group-wide climate

commitment, becoming signatories to the Net Zero Banking

Alliance and Net Zero Asset Managers initiatives in September

2022, and I look forward to sharing our initial intermediate

2030 targets for the most carbon-intensive sectors in our

loan book over the coming months. We remain focused on

improving the quality of our emissions reporting, including

our financed emissions.

Our People

We consistently focus on employee engagement to

supportthe wellbeing and needs of our colleagues. I am

delighted withthe positive scores achieved in our most

recentemployee opinion survey, reflecting our teams’ strong

sense ofbelonging and our distinctive culture. I am particularly

impressed that we have retained our high engagement score

of 86%. Our colleagues play a key role in driving our

organisation towards lasting success, and I would like to

extend my gratitude to all our people for their dedication and

resilience, especially in the face of the financial pressures

brought about by higher inflation and the cost of living.

Together, I am confident that we will continue to deliver on our

purpose to help the people and businesses of Britain thrive

over the longterm.

Outlook

We are making the most of opportunities and are encouraged

by the momentum generated in Banking in the second half.

We have seen a good start to the 2024 financial year and our

underlying business is well positioned to maintain stable

returns this year, as we sustain growth momentum and pricing

discipline, with a resilient credit performance, despite the

near-term cost pressure.

Our proven model and financial strength leave us well

placedto resume our track record of earnings growth and

returns by focusing on disciplined growth, cost efficiency

andcapital optimisation.

Adrian Sainsbury

Chief Executive

26 September 2023

9Close Brothers Group plc Annual Report 2023

Investment Case

Specialism, expertise and discipline,

with a strong historical track record

Key points of difference at

CloseBrothers are our specialism

andexpertise, long-term approach

and thediscipline behind our proven

and resilient model. These ensure

weare well positioned to deliver

growth, profitability and returns

toourshareholders, building on

ourstrong historical track record.

A diversified portfolio

(Adjusted operating profit, £ million)

Specialism, service and expertise

92%

Asset Finance

CSAT

+88

Property

Finance NPS

80%

Savings online

CSAT

15.9 3.534.7 69.515.9

Banking: Commercial

Asset Management

Banking: Retail

Securities

Banking: Property

10 Strategic Report

Prudent Management of Financial Resources

with a Strong Balance Sheet

We have a strong balance sheet to support the delivery of

our strategy and take a prudent approach to managing our

financial resources.

Our disciplined underwriting criteria and the expertise of our

people give us confidence in the quality of our loan book,

which is diverse and over 90% secured or structurally

protected. Our funding base is well diversified, sourced from

both wholesale sectors and customer deposits, and has a

prudent maturity profile.

We follow the “borrow long, lend short” principle and take a

conservative approach to liquidity management, with liquidity

levels comfortably ahead of both internal risk appetite and

regulatory requirements.

A fundamental part of our business model is ensuring we

have a strong capital position which allows us to grow, invest

and meet all regulatory requirements. Our primary objective

is to deploy capital to support disciplined loan book growth

in Banking and to make the most of strategic opportunities.

Focused on Delivering Disciplined Growth,

Building on our Long History of Loan Book

Growth Through the Cycle

Delivering disciplined growth is important to us and is a

keystrategic priority. We do not manage our business to

agrowth target but instead prioritise consistency of our

lending criteria in Banking and maintaining strong returns

across the businesses.

Historically, we have capitalised on this consistent

application of our business model through the cycle,

reflecting the differing market and competitive dynamics

across our portfolio of businesses. We are there for our

clients, lending responsibly even when others may pull back.

We have a strong track record of delivering disciplined

growth both through our existing book and in new markets.

We are constantly looking for new opportunities which fit

with our business model.

Generating shareholder value

Net loan book trend

(£ million)

Dividend per share

(pence)

Covid-19

2020

8,000

6,000

4,000

2,000

10,000

p.a.

Credit crunch

2009-2012

+17%

avg.

p.a.

Benign credit

2013-2017

+11%

avg.

p.a.

Moderation

2018-2019

+6%

avg.

p.a.

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Return on average tangible equity

(%)

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Strong capital, with CET1 capital ratio of 13.3%

c.380bps headroom over minimum requirement

Prudent liquidity position

Liquidity coverage ratio over 1,000%

Borrow long, lend short

Average maturity of funding exceeds the average

loanbookmaturity by five months

Diverse funding base

(% of total funding)

Equity 13%

Unsecured funding 10%

TFSME funding 5%

Secured funding 9%

Retail deposits 34%

Non-retail deposits 29%

£12.4

billion

11Close Brothers Group plc Annual Report 2023

Our Business Model

How we generate value

What we do How we do it

We are a leading UK merchant banking

group providing lending, deposit taking,

wealth management services and securities

trading. We deliver excellent service in niche

sectors we know and understand.

We maintain a long-term approach,

applying this consistently through the cycle

Banking

Specialist lending and deposits for

smallbusinesses and individuals

Banking offering includes:

• Hire purchase, leases and loans for capital assets

• Debt factoring

• Invoice discounting

• Asset-based lending

• Other specialist financing for SMEs

• Used car, motorcycle and light commercial

vehiclefinancing

• Insurance premium financing

• Development finance for residential housing

• Refurbishment and bridging finance

• Savings products for individuals and corporates

Close Brothers Asset Management

A vertically integrated top-20 UK wealth manager

CBAM offering includes:

• Bespoke investment management

• Socially responsible investment service

• Inheritance tax service

• Financial planning

• Investment solutions for both CBAM clients

anddistributed through third-party IFAs

• Platform and custody services

Securities

A leading market maker providing continuous

liquidity in all market conditions

Securities offering includes:

• Market making

• Investment trusts advisory and broking

• Winterflood Business Services

• Institutional sales trading

Disciplined

underwriting

and pricing

Prudent management

of financial resources

Customer-centric

approach

Conservative approach

to risk

Diversified portfolio

Our distinctive culture

12 Strategic Report

The value we create

We apply our lending criteria and pricing discipline

consistently at all stages of the cycle, with the net interest

margin we generate reflecting the specialist expertise of

our teams. Our lending is predominantly secured or

structurally protected, with conservative loan to value

ratios, small loan sizes and short maturities.

A fundamental part of our model is having a strong capital

position and taking a conservative approach to liquidity

management and funding, as we focus on diversity of

funding and a prudent maturity profile.

We listen to our customers, putting their needs at the

heart of our business. We are there for our customers

across all market conditions and seek to build long-lasting

relationships with them.

Our prudent and conservative appetite to risk remains

unchanged throughout the cycle. We adhere to all

applicable regulations and are committed to sustaining

high standards of business conduct.

We lend in a variety of sectors and locations to a

diverserange of assets including transport, industrial

equipment, renewable energy, wholesale finance,

brokerfinance, used cars, light commercial vehicles

andresidential property.

Our distinctive culture and long-term approach are

embodied by our values of service, expertise,

relationships, teamwork, integrity and prudence.

Colleagues

86%

Employee engagement

Customers, clients and partners

Strong customer satisfaction scores

92%

Asset Finance

CSAT

+88

Property

Finance NPS

Suppliers

63%

of suppliers described our

relationship as strategic

andcollaborative

Regulators and government

13.3%

CET1 capital ratio

Communities

£120,000

donated to charities aligned

to our ESG goals

Environment

54.7%

reduction in Scope 1 and 2

emissions (market-based) since 2019

Investors

67.5p

dividend per share

13Close Brothers Group plc Annual Report 2023

Climate agenda

What we are seeing

Sustainability, and in particular the climate agenda,

continues to grow in importance. It is an area that

impactsall of our stakeholders and the decisions they

make, and it guides our activities and operations as a

business. The landscape is also rapidly evolving,

whetherthat be through expectations of our business

strategy, enhanced disclosure requirements or the need

to incorporate climate factors into our stress testing.

The expectations on us as a business are increasing

alongside this. We recognise that we have an important

role to play in helping people and businesses transition

toa lower carbon future, supporting them to invest in

green assets including electric vehicles, renewables,

gridinfrastructure and energy efficiency. We also need

tosupport our stakeholders in making decisions by

providing sufficient information on our climate strategy.

Investors are increasingly taking ESG factors into

consideration as part of their investment decisions

andreporting standards require us to align our climate

reporting to the recommendations of the Task Force

onClimate-related Financial Disclosures (“TCFD”).

How we are responding

We have made significant progress in developing our group

climate strategy, considering both our operational impacts and

the implications across our financed activities. As part of our

group-wide climate commitment, we have become signatories

to the Net Zero Banking Alliance (“NZBA”) and Net Zero Asset

Managers (“NZAM”) initiatives, and will be outlining our interim

targets for reducing emissions over the coming months.

As part of our role in helping people and businesses transition

to a lower carbon future, we have set an initial green growth

ambition in our transport businesses – to provide funding of at

least £1 billion for electric vehicles over five years. We have

financed £164 million in the first year of this period.

Our lending spans a diverse array of green assets including

wind and solar generation and grid infrastructure, with new

battery electric storage systems and sustainable house

construction financed during the year. We continue to invest

inbuilding further our expertise in green and transition assets,

reinforcing our reputation for specialist knowledge and finance.

We are also working hard at reducing our operating emissions.

Our third-party management team has been engaging with

keysuppliers on ways we can work together to reduce our

environmental impact. We have established an employee

climate committee and we engage our colleagues in monthly

spotlights on sustainability, featuring guest speakers.

Read more about our climate commitments in our TCFD

reporton pages 40 to 54.

Regulatory environment

What we are seeing

The UK regulatory environment continues to evolve,

witha focus on ensuring the stability of the UK banking

system and achieving positive outcomes for customers.

Operational and financial resilience continue to be

important to UK regulators and monitoring of regulated

firms takes place on an ongoing basis through stress

testing, capital and liquidity requirements including

recovery planning, increasing regulatory data reporting

requirements and regular supervisory meetings.

The FCA’s Consumer Duty has recently taken effect,

withthe objective of driving better customer outcomes.

The PRA also published its consultation paper on Basel

3.1 standards in November 2022, with a final policy

statement expected in late 2023, and proposed reforms

of the UK’s audit and corporate governance regime are

expected to come into effect relevant to the group from

its financial year starting 1 August 2025.

How we are responding

We continually monitor the landscape for regulatory change.

We maintain a cooperative relationship with our regulatory

bodies, including the FCA and PRA, who conduct regular

monitoring of our position, including reviewing our stress

testing of our liquidity and capital requirements.

We have conducted in-depth reviews across our businesses

and updated our processes and documentation where needed

to align with the FCA’s recently implemented Consumer Duty.

Our focus is now on continuing to embed our compliance

withConsumer Duty requirements and implementing

Consumer Duty changes for books of business not open

tonew customers.

We have assessed the expected impact of the Basel 3.1

standards, which, if implemented in their current form, would

add up to 10% to our capital requirements. We have engaged

with the consultation process to understand the impacts as

proposed and to express our views on possible improvements.

Operating Environment

Adapting to changes in our operating environment

14 Strategic Report

Customer behaviour

What we are seeing

The expectations of customers when dealing with their

financial services providers continue to evolve, with a

customer’s overall experience across the end-to-end

journey key for building loyalty. Customer service,

clarityof communication, price and value of products,

theease of doing business and, critically, how

customersfeel about their overall experience,

are highly valued by customers.

Over recent years, we have seen a continued shift in

behaviour as customers trend towards an increasing

use of online channels and digital offerings, including

self-service products. However, in spite of this digital

shift, customers perceive experiences that combine

physical and digital channels as better than single-

channel experiences. Hybrid customer experience

tends to create the most emotionally positive experience

and as such, strong human relationships combined with

high-quality customer service continue to be key

drivers for delivering great customer experience

and earning brand loyalty.

In light of the pressures on customers and businesses

from the rising cost of living and higher interest rate

environment, customers are increasingly seeking out

better value for money with their choices, with switching

between providers becoming more commonplace across

many financial servicesproducts.

How we are responding

We have created our Customer Commitment to provide a

framework for further embedding customer-centricity into our

culture and daily decision-making. This framework outlines

how we want our customers, clients and partners to feel when

doing business with us – valued, happy, understood, confident

and that it is easy.

Across the organisation, we have different products, routes to

market and customer segments. Nevertheless, our Customer

Commitment helps ensure that customer-centricity continues

to be at the heart of our business and aligned with our

purpose. We focus on providing excellent service and building

long-term relationships with our customers, who benefit from

the deep expertise of our people, with technology supporting

our relationship-based model.

We have invested significantly in our digital capabilities across

the organisation. In Savings, our deposit platform has enabled

us to broaden our product offering with the launch of easy

access accounts and cash ISAs, whilst achieving excellent

customer satisfaction scores. In Motor Finance, we have

introduced new channels for our customers who fall behind

with their vehicle finance payments to catch up and pay. Our

Property business has more widely rolled out the use of

electronic signing, and our EkegPlus offering in Brewery

Rentals gives customers greater visibility over usage and costs.

We used regularly captured feedback and insights from our

customers, clients and partners across the end-to-end journey

to evolve our proposition and meet their changing needs, and

we are looking at how to enhance further our “voice of

customer” capability. We consistently achieve good net

promoter and customer satisfaction scores across our

businesses, and are also working to improve further our

complaints management process to complement this.

We value the long-term relationships we have with our

customers and look for ways to reward their loyalty, for

example by raising the interest rates offered to our Savings

customers. Given the cost of living pressures facing our

customers, we continue to work with them closely and look to

provide additional support where needed.

15Close Brothers Group plc Annual Report 2023

Operating Environment continued

Technology and digital adoption

What we are seeing

As technology advances, we have seen a shift in

customer behaviour towards an increasing use of digital

channels and self-service models. Technology is also

being used to drive improvements to customer

experiences, for example through providing richer data

insights, better monitoring of customer journeys and

automating non-value-adding processes.

The pace of technology change continues to increase,

with digital disruption a key theme across the markets

weoperate in, albeit most industry activity to date has

been targeted towards the more mainstream areas of

retailbanking.

This increasing adoption of technology also poses a

threat of cyber attacks and the need for continued

investment in operational resilience.

How we are responding

As a customer-centric organisation, we are focused on

enhancing technology to support our relationship-based model

and make our experts more valuable. We are continually

looking at technology propositions to service our customer

journeys and respond to the wants of our customers based on

the feedback we receive, ultimately enabling us to improve

customer satisfaction.

Investment in our Customer Deposit transformation programme

in Savings has enabled us to diversify our product offering and

grow customer numbers as we adapt to changing customer

preferences to utilise digital channels. In Premium Finance, we

are using technology to reduce the time taken to make credit

underwriting decisions for large business applications. We are

also increasing our use of cloud-based services, which provide

more flexibility and adaptability for delivering change and

further enable our agile ways of working.

We benefit from a degree of protection given our niche focus

and relationship-based approach and have not yet seen the

same level of digital disruption in our more specialist markets

as other areas of the banking landscape has. Nevertheless, we

continue to invest in enhancing our digital infrastructure and

proposition, as well as our operational and cyber resilience,

with a multi-year strategic cyber resilience programme

covering our people, systems and processes.

Economic outlook

What we are seeing

The last year has seen a heightened level of uncertainty in

the economic environment from a combination of factors

including the ongoing conflict in Ukraine, UK inflation

reaching its highest level in more than 40 years and the

Bank of England base rate rising to 5%, at 31 July 2023.

As a result, individuals have faced rising cost of living

pressures and SMEs have experienced increased

operating costs. Furthermore, the long-term effects

of the pandemic and the cessation of government

support schemes could have an impact on both

individuals and businesses.

Volatility in the economic environment also impacted debt

markets, with few wholesale issuances completed during

periods of the year given the heightened uncertainty.

Although current economic forecasts reflect

improvements in variables including higher GDP growth,

less pronounced house price reductions and less risk of

further increases to the Bank of England base rate,

economic uncertainty and cost of living pressures are

expected to persist.

How we are responding

We recognise the challenging economic conditions and

continue to monitor closely the potential impact on our

customers, offering additional support where needed.

Notwithstanding the economic uncertainty, we continue

tosupport our customers and lend throughout the cycle

onresponsible terms, consistently applying our prudent

underwriting and pricing discipline. The secured nature

ofourlending continues to offer some protection to the

group’sprofitability.

Our diverse funding sources enable us to adapt our position

through the cycle, based on market conditions and demand.

Although our average cost of funding rose during the year due

to rapidly rising interest rates, we took actions to optimise our

liability mix. Whilst wholesale debt markets were disrupted, we

actively grew our retail deposit base, and subsequently

successfully issued a £250 million unsecured bond when

market conditions were more conducive.

Our IFRS 9 models are regularly updated to reflect current

economic scenarios and forecasts from Moody’s and we have

overlaid adjustments to recognise additional risk from the

heightened uncertainty that persists.

16 Strategic Report

Competitive landscape

What we are seeing

Given the highly diversified nature of our business,

thecompetitive landscape is playing out differently

across the group.

In Banking, the significant changes in the interest rate

environment are impacting lenders differently, with

currentaccount banks benefiting from improved net

interest margins while small, specialist and non-bank

lenders reliant on wholesale funding are facing a more

challenging outlook. Theconditions may also drive

consolidation in the sector, particularly at the smaller

end as conditions for larger transformational M&A

remain difficult.

In the Republic of Ireland, while the economic outlook

remains strong, the landscape is not as competitive as

the UK following the decision by some established

lenders to exit the market over recent years.

The savings market remains highly competitive,

withsavings rates having risen from record lows to their

highest levels since the financial crisis in 2008. We have

seen a number of new entrants to the savings market in

recent years, with high street banks, specialist lenders

and fintechs all competing across the UK savings market.

In the wealth management industry, consolidation remains

a key theme, with private equity backed consolidators

looking to acquire IFAs and a number of large wealth

management transactions driven by a need for scale.

For Winterflood, difficult market conditions have led to

challenges for market makers and brokers, with a focus

on managing costs and diversifying revenue streams

while awaiting a sustained improvement in retail and

institutional investor activity.

How we are responding

In Banking, we anticipate the changes in the interest rate

environment may result in a reduction in credit supply,

similarto what we have seen in previous cycles. Given our

through-the-cycle model and strong balance sheet, the

challenging outlook could provide opportunities for us as

weretain our pricing and underwriting appetite and seek to

maximise opportunities for loan book growth. We continually

assess existing and new markets for growth opportunities

thatfit withour model.

We continue to believe that Ireland represents an attractive

long-term market for Close Brothers. In September 2023,

weannounced our agreement to acquire Bluestone Motor

Finance (Ireland) DAC, providing a platform for us to build

ourMotor Finance business in Ireland.

Our Savings business has become increasingly agile in its

pricing to take advantage of market opportunities arising from

increasing market rates and frequent competitor repricing.

Weare continually assessing the market to ensure our rates

are priced fairly for ourcustomers.

In CBAM, we continue to look for opportunities for small infill

acquisitions in line with our growth strategy. Furthermore,

weare seeing a number of wealth managers moving to a

morecentralised investment proposition, which presents

opportunities for us to attract talented individuals to CBAM

byoffering portfolio managers the flexibility to service their

clients’ needs in a more decentralisedmodel.

In Winterflood, we continue to diversify our revenue

streamsand explore growth opportunities, such as through

WBS, balancing the cyclicality seen in the trading business.

The diversification of our trading desk has also enabled us

to take advantage of the increased retail investor interest in

fixedincome markets.

17Close Brothers Group plc Annual Report 2023

18 Strategic Report

Deep

expertise

Deep expertise

Case study:

Incremental Engineering,

industrial 3D printer

How we Helped

Incremental Engineering has seen its business double in

sizesince taking possession of an HP Jet Fusion 5210 3D

printer, funded through Finance For Industry (“FFI”) with

Close Brothers.

The machine allows the manufacture of multi-jet fusion parts

to SMEs who do not have the technological manufacturing

capability in-house.

Having started the business in 2018 with a few small

printers, Incremental Engineering quickly outgrew the

demand placed on it by customers and needed to increase

output. The flexibility of FFI has been a real eye-opener for

the business and allowed it to double capacity in a very

shortspace of time.

Our deep knowledge of the industry sectors and asset

classes we cover enables informed lending decisions to

bemade by our experts, allowing faster access to funds

when businesses need it most. We completed the deal

withIncremental Engineering in three days.

By empowering our specialists to make fast, firm lending

decisions, we give the businesses we serve, such as

Incremental Engineering, the opportunity to take the

nextstep, exactly when they need to.

“Having a funder that prefers to work

in partnership with its customers

really suits us because we can draw

on their expert knowledge, and know

that they will advise and challenge,

when necessary.”

Jerry Sutton

Managing Director and Founder, Incremental Engineering

19Close Brothers Group plc Annual Report 2023

Keeping it safe

Maintaining and enhancing the key strengths of our business model

Our Strategy

Our key strengths differentiate our proven and resilient

business model and have contributed to our long-term

trackrecord over many years, positioning us well to deliver

growth, profitability and returns to shareholders.

Our high levels of personal service and specialism are key

points of differentiation. Our people have deep knowledge

ofthe industry sectors and asset classes we cover, leading

to lending decisions informed by experts and faster access

to funds when our customers need them most.

We run our business prudently, maintaining a strong funding,

liquidity and capital position. Our loan book is predominantly

secured or structurally protected, with a focus on maintaining

strong credit quality. We adopt a consistent and disciplined

approach, as we maintain pricing and prudent underwriting

in our lending.

We ensure that we are operating efficiently and are

usingtechnology that appropriately supports our

relationship-based model, enabling us to deliver for

each of our stakeholders.

Whilst we constantly focus on the strict management of

costs, it is essential that we invest in protecting the key

attributes of our model, maintain regulatory compliance

andcontinually enhance our operational and cyber resilience.

Ourinvestments and cost base support the generation of

ourstrong margins, enabling our operational and financial

resilience, while also supporting our ability to maximise

opportunities as they arise.

Our strategic objectives

• Maintaining a strong capital, funding and liquidity position.

• Consistently applying our prudent business model through

our disciplined approach to underwriting and pricing.

• Balancing investment needs and cost discipline.

• Maintaining regulatory compliance, whilst enhancing

operational and cyber resilience.

Progress during 2023

• Strengthened our funding base with growth in customer

deposits and the issuance of a five-year senior unsecured

£250 million note.

• Continued to support our customers and lend through

thecycle on responsible terms, adhering to our disciplined

approach to underwriting and pricing, whilst maintaining

astrong margin.

• Advanced our ongoing investment programmes, whilst

intensifying our focus on cost discipline and efficiency and

progressing strategic cost management initiatives.

• Accelerated our efforts to resolve the issues relating to

Novitas, following our decision to withdraw from the legal

services financing market in July 2021.

• Undertook work across the business to prepare for

theimplementation of the Financial Conduct Authority’s

(“FCA”) Consumer Duty, for example by enhancing

frameworks to incorporate new requirements and

completing enhanced product reviews.

• Submitted additional documentation to the Prudential

Regulation Authority (“PRA”) as part of our Internal

Ratings Based (“IRB”) application, with positive

engagement continuing.

• Further enhanced our operational and cyber resilience,

whilst undertaking a continuous cycle of improvements.

Future priorities

• Retaining our strong capital, funding and liquidity position.

• Continuing to focus on pricing and prudent underwriting

whilst lending through the cycle.

• Progressing further our strategic cost management

initiatives and evaluating additional opportunities for

efficiency, with a view to achieving positive operating

leverage over the medium term.

• Continuing preparations for a transition to the IRB

approach, although the timetable remains under

thedirection of the PRA.

• Complying with regulatory changes, whilst further

strengthening our operational and cyber resilience.

• Continuing to embed our compliance with Consumer Duty

requirements and implementing Consumer Duty changes

for books of business not open to new customers.

• Monitoring and mitigating external threats, including

theheightened uncertainty in the economic and

geopolitical environment and competition from both

established and emerging players.

Protect

20 Strategic Report

Protecting our business: Accelerating

our efforts to resolve the issues

surrounding Novitas

The decision to wind down Novitas, a provider of finance

forthe legal sector we acquired in 2017, and to withdraw

from the legal services financing market, followed a strategic

review in July 2021. This concluded that the overall risk

profile of the business was no longer compatible with our

long-term strategy and risk appetite. Some of the key

attributes of our model, such as in-house lending expertise,

a strong track record of performance and underlying security

of the loans, had proven not to be evident in Novitas.

Wealso seek to act in the best interests of our customers,

with a focus on ensuring good outcomes where it is within

Novitas’ ability to do so.

During 2023, we have recognised a charge in relation to

Novitas of £116.8 million, with £114.6 million recognised

inthe first half of 2023, which we believe adequately

reflectsthe remaining risk of credit losses for the Novitas

loan book. We have accelerated our efforts to resolve the

issues surrounding this business, including the initiation of

formal legal action against one of the After the Event (“ATE”)

insurers. Novitas has also entered into a settlement with

another smaller ATE insurer.

Our actions taken to accelerate the resolution of issues

surrounding Novitas seek to protect the core strengths

of our business and support our existing customers to

ensure good outcomes.

Further disclosure on the impact of Novitas can be found

in note 10.

21Close Brothers Group plc Annual Report 2023

Our Strategy

Delivering disciplined growth

Maximising opportunities in existing and new markets

Our focus on delivering disciplined growth is critical in

enabling us to protect our model, whilst still maximising

opportunities and taking the business forward. This focus

allows us to prioritise consistent and prudent underwriting

criteria and maintain strong returns across our businesses.

We do not manage the group to a growth target; rather,

loanbook growth is an output of the business model.

We continually assess existing and new markets for

growthopportunities that fit with our model. We have a long

history of delivering disciplined growth and, to support us in

building on this track record, we developed our “Model Fit

Assessment Framework”. This framework supports our

review of opportunities, assessing their fit with our model,

culture and responsible way of doing business, alongside

their suitability from a strategic perspective.

Our strategic objectives

• Maximising opportunities available to us in the current

environment and capitalising on cyclical opportunities

ineach business.

• Extending our product offering and launching initiatives in

line with our business model in new and existing markets.

Progress during 2023

• Delivered over £400 million of loan book growth and a

strong net interest margin, as we made the most of good

demand in our Banking business.

• Execution of deals by our recently hired agricultural

equipment and materials handling teams, with a strong

pipeline built.

• Hired a new team providing bespoke term loan structures

to SMEs requiring growth and investment capital.

• Taken advantage of opportunities in the asset-based

lending space, with participation in our first syndication

deal and offering larger loan facilities.

• Provided £164 million of funding for battery electric

vehicles, towards our £1 billion aim.

• Continued to enhance our proposition for dealers,

partners and customers in Motor Finance.

• Made progress expanding our new business capabilities

in Premium Finance, including through the use of a

customer relationship management platform.

• Successfully piloted a specialist buy-to-let extension

to our existing bridging finance customers, which is

continuing into 2024.

• Expanded our Savings proposition with the launch of

aneasy access account and successfully grew our

retailcustomer base.

• Accelerated our growth strategy in CBAM, as we recruited

15 portfolio managers during the year and delivered

strong net inflows of 9%, with a significant contribution

from new hires.

• Accelerated growth of Winterflood Business Services, with

assets under administration of £12.9 billion, exceeding our

£10 billion target.

Future priorities

• Continue to capitalise on cyclical and structural growth

opportunities in each of our businesses.

• Assess opportunities in new and existing markets,

in line with the “Model Fit Assessment Framework”.

• Expand further our presence in Ireland, which remains

a strategic growth market for the group.

• Provide further funding for battery electric vehicles,

as we progress towards our aim of £1 billion by 2027.

• Broaden our sustainability offering to capture demand

within the green lending space.

• Grow CBAM further through new hires and

selectiveacquisitions.

• Continue to grow Winterflood Business Services,

supported by our solid pipeline of clients.

Grow

22 Strategic Report

Growing our business: Taking

advantage of opportunities in

Invoiceand Speciality Finance

Delivering disciplined growth by extending our product

offering and participating in our first syndication deal

We have achieved significant growth in our Invoice and

Speciality Finance business in recent years, with the loan

book exceeding £1 billion for the first time in 2023.

One growth area that we have focused on is the asset-based

lending (“ABL”) space. During the year, we completed our

first syndication deal, participating alongside other banks as

part of an ABL facility of £230 million to support a sponsor-

backed financial services firm. Syndication deals offer us the

potential to partner with other lenders on deals that would

ordinarily exceed our maximum lending appetite for both

new and existing customers.

We have also expanded our Invoice Finance offering with

thehiring of a new team providing bespoke term loan

structures to SMEs requiring growth and investment capital.

This team closed its first deal earlier this year and has built

ahealthy pipeline.

Long-term

growth

prospects

Strong

margin

Conservative

funding

profile

Cultural

fit

Strong

track

record

Diversified

business

Prudent

underwriting

and secured

lending

Expert,

relationship-

based,

specialist

Growing our business

Delivering disciplined growth by

ensuring the right fit in line with our

“Model Fit Assessment Framework”

The eight criteria are all factors that we consider

when assessing growth opportunities. They

capture the key strengths of our model, which

means that by taking them into account we

ensure we are following a disciplined approach

to growth and preserving the attributes that

generate value for our shareholders.

Assessing

growth

opportunities

Growing our business: Funding

battery storage as we support

greenlending opportunities

Delivering disciplined growth by maximising

commercial opportunities as the UK aligns towards

anet zero economy

We recently provided an £85 million facility to Conrad Energy

to fund 10 battery storage projects.

One of these battery storage projects is already operational,

with the remaining units being built in various locations over

the coming two years in the North West, South West and

South East of the United Kingdom. These projects will vary

insize from 7MW to 40MW, with the batteries storing the

oversupply of energy generated during windy and sunny

weather, and releasing capacity when required.

Our specialist energy team has provided finance for over

1,000MW of installed generation capacity to date and we

continue to build our expertise in green and transition

assets,cementing our reputation for specialist knowledge

and financing.

23Close Brothers Group plc Annual Report 2023

Our Strategy

Doing it responsibly

Securing the long-term future of our business, customers and the world we operate in

Our long-term approach is embedded throughout our

organisation and guides all of our decisions, so it is

important that we evolve our business to sustain it

for the long term.

For our customers, this involves recognising and

respondingto changes in their behaviour, adapting our

business accordingly and improving our digital capabilities

and the customer journey to enhance their user experience.

We continue to value the importance of long-standing

relationships with our customers, which allow us to provide

them with exceptional service and the deep industry

knowledge and expertise of our people.

For our people, this means maintaining our focus on

employee engagement to support the wellbeing and needs

of our colleagues. We will continue to promote the ongoing

development of our people, as we look to retain talent and

support our succession planning, whilst also nurturing an

inclusive culture where our people feel valued and respected.

We are also focused on our impact. We create value in our

local communities by understanding the needs of SMEs and

helping them achieve their ambitions, and by creating equal

opportunities for all, regardless of background. We maintain

our focus on reducing our environmental impact and

responding to the risks and opportunities brought by

climate change.

Our strategic objectives

• Promoting an inclusive culture and supporting new ways

of working and social mobility.

• Ensuring our business model is sustainable for the

longterm.

• Reducing our impact on the environment and responding

to the threats and opportunities of climate change.

• Promoting financial inclusion, helping borrowers

who might be overlooked and enabling savers and

investors to access financial markets and advice to

plan for their future.

• Supporting our customers, clients and partners in

thetransition towards more sustainable practices.

Progress during 2023

• Positive scores in our employee opinion survey reflect

astrong sense of belonging felt by colleagues.

• Invested in our digital capabilities to support changing

customer behaviour, for example through new payment

channels in Motor Finance and the use of electronic

signing in our Property business.

• Evolved our Savings product offering, with the launch

ofeasy access savings accounts.

• Supported the wellbeing of our employees in the hybrid

working environment, with flexible working arrangements

and events and initiatives from internal networks,

virtualworkshops and online fitness classes.

• Continued to support social mobility programmes,

hosting37 interns across the group in partnership

with10,000 Black Interns and upReach.

• Extended our partnership with the University of Sheffield

AMRC Training Centre to fund up to a further 20

apprenticeships through the Close Brothers SME

Apprentice Programme.

• Had six ASPIRE school leaver trainees

on placements in 2023.

• Offered employees access to our financial

education website, provided by CBAM.

• Reduced our Scope 1 and 2 emissions

by 55% since 2019.

• Set our group-wide climate commitment, becoming

signatories to the NZBA and NZAM initiative.

Future priorities

• Retain and attract talent and maximise productivity

byengaging, training and developing our people,

nurturingan inclusive and diverse culture.

• Expand our expertise in green and transition assets

andbroaden our sustainability offering as we support

thetransition to a net zero carbon economy.

• Achieve a net zero company car fleet by 2025

andbecome operationally net zero through our

Scope 1 and 2 emissions by 2030.

• Set intermediate 2030 targets for the most carbon-

intensive sectors of our loan book in line with our

NZBAcommitment.

• Continue to adapt our offering based on horizon

scanningand trends in the marketplace, as well as

theevolving needs of our customers and clients,

whiletaking into account the feedback they provide.

Sustain

24 Strategic Report

Sustaining our business:

Implementing the FCA’s

ConsumerDuty

Securing the long-term future of our business

anddriving good customer outcomes in line

withtheFCA’sConsumer Duty

The FCA’s Consumer Duty requires firms to act to deliver

good outcomes for retail customers, setting a higher

standard of consumer protection and further equipping

customers to make effective decisions. As an FCA-regulated

business, the new Duty covers retail customers across our

Asset Finance, Motor Finance and Premium Finance

businesses, our Savings business, Close Brothers Asset

Management and Winterflood.

The consumer principle incorporates cross-cutting

rules,requiring firms to act in good faith towards retail

customers; avoid causing foreseeable harm to retail

customers; and enable and support retail customers

topursue financial objectives.

These rules are supported by four outcomes, which are

focused on key areas of the customer journey – products

and services, price and value, consumer understanding,

andconsumer support.

In response to the new rules, we have implemented a

programme with objectives and key deliverables directly

aligned to the Consumer Duty requirements. Examples of

workstreams include completing fair value assessments

andenhanced product reviews, developing enhanced

training, enhancing customer communications where

necessary, and enhancing our data to ensure we can

effectively monitor outcomes. Our focus is now on

continuingto embed our compliance with Consumer Duty

requirements and implementing Consumer Duty changes

forbooks of business not open to new customers.

25Close Brothers Group plc Annual Report 2023

Key Performance Indicators

Tracking our progress

Protect

Common equity tier 1 capital ratio

(%)

Banking expense/income ratio

(%)

Net interest margin

(%)

Liquidity coverage ratio, 12-month

average (%)

Our CET1 capital ratio is significantly

above the minimum regulatory

requirements, whilst allowing us

flexibility for growth. Maintaining a

strong capital position is a fundamental

component of our model.

We are focused on achieving positive

operating leverage over the medium

term and have intensified our focus

oncost discipline and efficiency,

whilstdelivering disciplined growth.

Net interest margin is a key measure

ofprofitability and reflects both our

pricing discipline on new lending and

our funding costs. Prioritising margin

over volumes is a key facet ofour

lending approach.

Our liquidity coverage ratio is

substantially above regulatory

requirements, as we continue to

adopt a conservative liquidity

position and prudently manage

our financial resources.

2023

2022

7.8

7.7

2021

Total funding as a percentage of

loan book (%)

We adopt a conservative approach

tofunding based on the principle of

“borrow long, lend short”, with a

prudent maturity profile. Our funding

base is diverse, enabling us to adapt

our position through the cycle, based

on market conditions and demand.

2023

2022

127

130

128

2021

2023

2022

14.6

13.3

15.8

2021

Bad debt ratio, excluding Novitas

(%)

Our bad debt ratio (excluding Novitas)

remains slightly below our long-term

average of 1.2%. The consistent

application of our underwriting

andresponsible lending criteria

at all stages of the economic

cycle is fundamental to our

long-term approach.

2023

2022

0.5

0.9

0.2

2021

2023

2022

2021

2023

2022

924

1,143

1,003

2021

Grow

Return on average tangible equity

(%)

We are focused on delivering for our

shareholders and resuming our track

record of earnings growth and returns

remains a key priority.

Net inflows

(% of opening AuM)

CBAM has a long track record

ofgenerating healthy net inflows,

witha target range of 6% to 10%.

2023

2022

2021

Loan book growth

(%)

Loan book growth remains an output

of our business model, as we prioritise

our margins and credit quality.

Nevertheless, we have a strong

trackrecord of delivering disciplined

growth by maximising incremental

andnew opportunities in existing

andadjacent markets.

2023

2022

2021

2023

2022

12.2

5.9

16.5

2021

1. 2023 bad debt ratio including Novitas of 2.2% (2022: 1.2%).

2. 2021 metrics have been re-presented to include operating lease assets.

26 Strategic Report

Sustain

Customer scores

Total Scope 1 and 2 emissions

(market-based) (tonnes CO

Employee engagement

(%)

Dividend per share

(pence)

Adjusted basic earnings per share

(pence)

Customers are at the heart of our

model, as we focus on delivering high

levels of service and sharing our deep

industry expertise to meet their needs.

We are committed to supporting the

transition to a low carbon economy

and have set ambitious short-term net

zero targets for our Scope 1 and 2

operational emissions.

We are committed to fostering a

culture that attracts and retains

engaged and motivated employees.

We are committed to our dividend

policy, which aims to provide

sustainable dividend growth year-on-

year, while maintaining a prudent level

of dividend cover.

Whilst adjusted basic earnings per

share has been adversely impacted

byprovisions taken in relation to

Novitas in the year, we remain

focusedon resuming our track record

of earnings growth.

80%

+88

92%

+75

Savings online CSA

Asset Finance CSAT

Property Finance NP

Motor Finance (dealer) NPS

2023

2022

2021

2023

2022

1,964

1,998

2,542

2021

2023

2022

66.0

67.5

60.0

2021

WBS assets under administration

(£ billion)

Winterflood Business Services

(“WBS”)has seen strong growth in

recent years, supported by a solid

pipeline of clients. The growth of

WBSsupports the diversification of

income streams in Winterflood.

2023

2022

7.2

12.9

6.2

2021

2023

2022

111.5

55.1

140.4

2021

Resuming our track record of earnings growth and returns

We remain dedicated to resuming our track record of earnings growth and returns with a focus on:

Disciplined growth

We are focused on delivering disciplined

growth, actively evaluating potential

growth opportunities that are aligned

with our Model Fit Assessment

Framework.

Cost efficiency

We have intensified our focus on cost

discipline and efficiency, particularly

inlight of inflationary pressures.

Wecontinue to evaluate additional

opportunities for efficiency with a view

to achieving positive operating leverage

over the medium term.

Capital optimisation

We are committed to optimising

furtherour capital structure, including

the issuance of debt capital market

securities if appropriate. We are

targeting a CET1 capital ratio range of

12% to 13% over the medium term.

The full definitions of these key performance indicators can be found on pages 253 to 257.

Non-financial metrics forming part ofbalanced scorecard

27Close Brothers Group plc Annual Report 2023

28 Strategic Report

Consistent

service

Consistent service

Case study:

Twenty20 Capital,

investors in staffing

and workplace solutions

How we Helped

Twenty20 Capital has seen rapid expansion in recent years

following the completion of a number of deals supported

byClose Brothers.

Initially founded in 2017, it is now the largest investor in

staffing solutions within the UK, operating globally.

Close Brothers’ most recent partnership with Twenty20

Capital supported their acquisition of six of the UK’s

best-known staffing and workforce solutions, by providing

anasset-based lending facility.

Our focus on service and personal approach gave us a deep

understanding of the needs of Twenty20 Capital. It allowed

us to offer high service levels and flexible solutions to

support their ambitions for growth and innovation in their

expanding business.

We believe in putting our customers and clients first and our

long-term strategic approach places exceptional service at

the heart of everything we do.

“Close Brothers has been very

professional. The level of service,

communication and support has

beenoutstanding. We are genuinely

delighted in the unique partnership

wehave formed together.”

Tristan Ramus

Founder, Investment Principal, Twenty20 Capital

29Close Brothers Group plc Annual Report 2023

Our distinctive culture and

long-term approach are embedded

throughout the organisation and

embody our values.

This culture combines our values of service, expertise

and relationships with our ways of working: teamwork,

integrity and prudence. These values ensure we continue

to provide excellent service for our customers and clients

over the long term, bringing out the best in our people

and supporting our strong reputation.

Our Culture

30 Strategic Report

We pride ourselves on our

excellent level of service

and on encouraging

thinking that is both

entrepreneurial and

disciplined.

We promote teamwork in a

fair and open environment,

where individuals and their

contributions are valued

and respected.

We are committed to

fostering a culture that

attracts and retains talent,

whilst also growing and

building the expertise of

our people.

We insist on trustworthy

behaviour and always

acting with integrity –

“doing the right thing”,

internally and externally.

We take the time to

understand our customers

and clients, and build

strong long-term

relationships with them.

We always take a

prudent, robust and

transparent approach

to risk management.

All scores are taken from Close Brothers’ Employee Opinion Survey, conducted from December 2022 to January 2023.

Service

Teamwork

Expertise

Integrity

Relationships

Prudence

92%

of colleagues believe Close Brothers puts

customers and clients at the centre of

businessdecisions

(2022: 92% see colleagues go the extra mile to meet

the needs of customers and clients)

97%

of colleagues believe they have the skills

andknowledge to do their job well

(2022: 97%)

High

customer satisfaction and strong levels of repeat

business across the group

97%

of colleagues feel their immediate team supports

each other to get the job done

(2022: 97%)

97%

feel their colleagues act with integrity

(2022: 96% believe our culture encourages us to treat

customers and clients fairly)

93%

of colleagues feel confident in the ability of people

in their area to identify risks

(2022: 95% of colleagues believe we are committed to

prudent risk management)

31Close Brothers Group plc Annual Report 2023

Long-term

relationships

Long-term relationships

Case study:

Briahaze Village Homes,

new residential housing

How we Helped

Briahaze Village Homes, a Yorkshire-based family business

spanning seven generations, started using Close Brothers

over 30 years ago.

Having experienced difficulties with a previous lender during

the recession in the early 1990s, Briahaze Village Homes

wasreferred to Close Brothers and has borrowed from us

ever since to fund the building of new residential houses.

During this time they have built 130 family homes, helping

the local community and creating jobs for local workers.

In today’s increasingly impersonal world, we recognise

thevalue of building strong long-term relationships with our

customers and clients, many of which span decades and

generations, just like Briahaze Village Homes.

Our commitment to lend through the economic cycle

hasenabled our customers and clients to make the right

decisions, and build plans for the future, knowing they

havea partner to stand by them.

“We have been through three

recessions with Close Brothers

andthey have always been there for

us. It is a great working relationship,

and they understand the property

market and how it fluctuates.”

Jonathan Kitching

Owner, Briahaze Village Homes

32 Strategic Report

33Close Brothers Group plc Annual Report 2023

Stakeholder Engagement

Delivering for our stakeholders

Section 172 Statement and Statement

ofEngagement with Employees and

OtherStakeholders

Section 172(1) of the Companies Act 2006 requires the

directors of a company to act in a way that they consider,

ingood faith, would be most likely to promote the success

ofthe company for the benefit of its members as a whole,

and in doing so have regard (amongst other factors) to

various other considerations and stakeholder interests:

• the likely consequences of any decision in the long term;

• the interests of the company’s employees;

• the need to foster the company’s business relationships

with suppliers, customers and others;

• the impact of the company’s operations on the community

and the environment;

• the desirability of the company maintaining a reputation

for high standards of business conduct; and

• the need to act fairly as between members of

thecompany.

The board is responsible for establishing and overseeing the

company’s values, strategy and purpose, all of which centre

around the interests of key stakeholders and other factors

set out in section 172(1).

The directors are conscious that their decisions and actions

have an impact on stakeholders, including employees,

customers, suppliers, communities and investors, and they

have had regard to stakeholder considerations and other

factors in section 172(1) during the year.

Regular engagement with stakeholders, both directly and

indirectly via management, has continued to be an important

focus for the board and has ensured that the directors are

aware of and have effective regard to the matters set out in

section 172(1). Throughout the year, the board received and

discussed stakeholder insight and feedback and it ensured

that stakeholder considerations were taken into account in

the board’s deliberations and decision-making.

Whilst the board acknowledges that, sometimes, it may have

to take decisions that affect one or more stakeholder groups

differently, it seeks to treat impacted groups fairly and with

regard to its duty to act in a way that it considers will be

most likely to promote the success of the company for the

benefit of its members as a whole, having regard to the

balance of factors set out in section 172(1).

Considerations relating to the factors in section 172(1) are an

important part of governance processes and decision-

making at both board and executive level, and more widely

throughout the group. For example, the Schedule of Matters

Reserved to the Board and the terms of reference for each of

the board’s committees emphasise the importance of

decision-making with regard to relevant factors under

section 172(1) and broader stakeholder considerations.

Necessarily in a large and regulated group, some decisions

are taken by management or the directors of subsidiary

companies. These decisions are taken within parameters

setby the board and there is a robust framework that

ensures ongoing oversight, monitoring and challenge by

theboard and its committees (including certain decisions

and activities that are always reserved to the board or its

committees). The board has regard to relevant factors set

out in section 172(1) in its activities in these areas, including

considerations relating to the potential impact of delegated

decisions on the long-term success of the group as a whole,

the group’s reputation for high standards of business

conduct and the consequences of local decisions on

thegroup’s stakeholders.

Detail on the board’s engagement with, and consideration of,

the company’s stakeholders can be found on pages 152 to

153 of the Corporate Governance Report.

At Close Brothers, we have a long-term track record of creating

value and delivering positive outcomes for all of our stakeholders.

We work hard to understand and meet the needs of our

different stakeholder groups, engaging with them and adapting

our service and offering to create value for them. We undertake

a comprehensive programme of stakeholder engagement

and consider the feedback provided, embedding this in the

decision-making process throughout the group.

34 Strategic Report

Colleagues

Customers, clients and partners

With approximately 4,000 employees around the

UK, in Ireland, the Channel Islands and Germany,

we have a diverse and motivated workforce

which delivers the highest levels of service to

ourcustomers, clients and partners. We are

committed to the development of our colleagues,

ensuring they are supported and engaged.

Listening to our colleagues enables us to

build an engaged workforce, allowing us to

develop and retain high levels of expertise.

Weare able to ensure we are considering the

views of all colleagues and making sure everyone

feelsincluded.

Key priorities of our colleagues

• A safe working environment.

• A fair, supportive, diverse and inclusive culture

where employee feedback is valued.

• Being appropriately rewarded for their

contributions.

• Opportunities for training and development.

Our engagement during the year

• We conducted our latest employee

opinionsurvey, which closed in February

2023, togather feedback from our colleagues

anonymously. The results of our employee

opinion survey gave us insight into key topics

including customers and clients, leadership,

wellbeing, culture, a sense of belonging,

andreward and recognition.

• Follow-up focus groups were conducted

withdifferent teams to understand more

around colleague sentiment, with action

planscreated to ensure we are focusing on

the areas that matter most to our colleagues

as well as ensuring we are meeting the needs

of other stakeholders.

• We have seven employee-led inclusion

networks which control their own agendas

andact as a voice for our minority

colleague groups.

Our long-term success depends on the

strengthof our relationships with customers,

clients and partners, our specialist expertise

andthe maintenance of high standards of

service. Central to all decision-making is

doingthe right thing for customers, clients

andpartners, by helping them access financial

solutions to meet their needs across all market

conditions. We engage with our customers

throughout their end-to-end journey and

activelyseek theirfeedback.

Key priorities of our customers,

clientsandpartners

• Building and maintaining strong personal

relationships based on trust, understanding

and specialist expertise.

• Understanding, treating and valuing them

asindividuals.

• Fair and equitable conduct of business.

• Receiving consistent, responsive and

supportive service delivered with simplicity,

clarity and ease.

• Meeting their needs throughout changing

economic cycles.

• Implementing customer-led propositions that

meet their individual needs.

Our engagement during the year

• We undertook an independent customer

experience assessment, versus other

organisations and sectors, which identified

opportunities for enhancing the experience

wedeliver to our customers.

• We continued to hold customer forums across

each of our businesses, with feedback

proactively reviewed, areas of improvement

identified, and actions taken to meet our

customers’ changing needs.

• We created our Customer Commitment to

provide a framework for further embedding

customer centricity into our culture and

decision-making and outlining how we want

customers, clients and partners to feel in

doing business with us.

• We conducted an independent assessment of

how we are supporting vulnerable customers,

are sharing good practice via our Vulnerable

Customer forum, and building a charter that

articulates our commitment and approach.

35Close Brothers Group plc Annual Report 2023

Stakeholder Engagement continued

Suppliers

Regulators and government

Our business is supported by a broad range of

suppliers, enabling us to provide high standards

of service to our customers, clients and partners.

We are focused on ensuring we have transparent

and sustainable working relationships with our

suppliers. Engagement is focused on driving an

open and collaborative approach with our

suppliers, as we work together to ensure services

support us to meet our goals, whilst considering

areas for improvement.

Key priorities of our suppliers

• Strong and sustainable relationships with

Close Brothers.

• Fair and equitable conduct of business.

• Appropriate and clear payment procedures.

• An understanding of the Close Brothers Group

purpose and strategy.

• Robust risk management framework.

Our engagement during the year

• We conducted our annual supplier survey to

engage with our suppliers on topics such as

how they feel about doing business

with us, how likely they would be to

recommend us as a client and the

transparency of our strategies and priorities.

This year’s survey has indicated that:

– 41% of our suppliers have described

thesupport they receive in delivering their

services to Close Brothers as “Excellent”,

a14% increase from last year.

– 43% of our suppliers have described Close

Brothers’ transparency and fairness in doing

business as “Excellent”, a 22% increase

from last year.

– 33% of our suppliers have described Close

Brothers’ understanding of their business as

“Excellent”, a 14% increase from last year.

• We piloted an enhanced Code of Conduct

withseven suppliers to be used within our

supply chain.

• Engagement took place with suppliers on

arange of sustainability topics.

• Regular review meetings were held with our

suppliers, with strategic meetings taking place

at least quarterly with our top-tier suppliers.

We are committed to sustaining high standards

of business conduct in line with regulatory,

governmental and legal expectations and

operateprudently within the laws and

regulationsthat apply to us.

We foster an open and transparent relationship

with all our regulators, government authorities

and trade associations in the jurisdictions in

which we operate. Active engagement helps

toensure we are aware of and adapting to

theevolving regulatory framework.

Key priorities of our regulators

andgovernment

• Customer outcomes.

• Operational and financial resilience.

• Financial crime prevention.

• Environmental, social and governance.

• Digitisation and analytics.

Our engagement during the year

• We engaged with relevant regulatory

supervision teams through regular meetings

and maintained dialogue through event-driven

discussions.

• We undertook reporting and analysis as

requested, enabling these stakeholders to

better understand our business activities and

how we are operating in a controlled and

prudent manner in line with their expectations.

• We continued to engage with the PRA on

ourIRB approach application, with additional

documentation submitted to the regulator

during the year.

• We have provided information in support

ofthe FCA’s focus on the cost of living.

• We have actively monitored the FCA’s

formaland informal guidance regarding

theimplementation of Consumer Duty

tohelpus align our approach with

regulatoryexpectations.

36 Strategic Report

Communities and environment

Investors

Close Brothers is committed to contributing

lasting value and making a positive impact on

thecommunities in which we operate and the

environment more broadly. This underpins the

growing range of programmes and initiatives we

support that benefit society and the environment.

Engaging with local communities helps the

boardand our employees develop their

understanding of our clients, customers and

partners so that we can support them and help

them to achieve their ambitions, whilst also

building employee engagement. We firmly

believe that environmental considerations

shouldform an integral part of our business

decisions, and employees across the group

areactively engaged on responsible

behavioursand environmental issues.

Key priorities of our communities and

theenvironment

• A suitable strategy for approaching

sustainability issues.

• Support for community initiatives.

• Take active steps to ensure equity

ofopportunity, regardless of

backgroundorexperience.

• A long-term focus on addressing the impacts

of climate change.

Our engagement during the year

• Colleagues completed numerous volunteering

activities to positively impact local

communities, including volunteering at food

banks and supporting youth groups such as

Guides, Scouts and Cadet groups and

children’s sports teams.

• Several colleagues, including members of our

Group Executive Committee, continue to fulfil

trustee roles for various charities to support

local communities.

• Extended our partnership with the University

of Sheffield AMRC Training Centre to fund up

to a further 20 apprenticeships through the

Close Brothers SME Apprentice Programme.

• Continued to partner with upReach, offering

placements to six university students from

lower socioeconomic backgrounds.

Close Brothers has a proven and resilient

business model and is focused on generating

long-term, sustainable value for its investors,

while also maintaining a strong balance sheet.

Our investors are the providers of capital to

ourbusiness so it is important that we engage

actively with them and listen and respond to

theirfeedback through an established and

comprehensive programme throughout the year.

Key priorities of our investors

• Strong returns and financial resilience

throughthe cycle.

• Capital generation and distributions.

• Sustainable and consistent business model.

• Appropriate governance practices and regard

for environmental and social responsibility.

Our engagement during the year

• We maintained our comprehensive programme

of communication throughout the year,

providing regular market updates, holding two

analyst presentations and presenting at seven

sales desk briefings and two conferences.

• We undertook investor roadshows

covering the UK, Europe and North America,

meeting more than 70 existing and prospective

shareholders.

• Our chairman held a corporate governance

roadshow, meeting with six of our top

shareholders.

• As part of the senior bond issuance in June

2023, we held several meetings with existing

bond holders and prospective investors.

• Retail investors had the opportunity to

engagewith board members at our AGM

andask questions.

• Following our update announcement on

Novitas in January 2023, we engaged with

approximately 50% of our shareholders and

allof our sell-side analyst followers, as well

asour credit rating agencies.

• We instructed one of our advisers to

conductasurvey covering a significant

proportion of our share register to collect

anonymous feedback on our strategy

andcommunications.

37Close Brothers Group plc Annual Report 2023

Sustainability Report

Our responsibility

Our purpose is to help the people and businesses of Britain

thrive over the long term. Our strategy to achieve this

purpose is built on our responsibility – being to help

address the social, economic and environmental challenges

facing our business, our people, customers and clients,

now and into the future.

In the following pages, we provide updates on our progress

during the year across all aspects of our sustainability

strategy. We see responsibility as a core part of our

business and central to our success. It encourages us to

look at how we operate our business, as we focus on

achieving the best outcomes for our stakeholders whilst

making a positive impact on society and the environment

we operate in. We believe this will enable us to make a

difference for our people, customers and clients, both now

and in the future.

Our climate strategy includes our ambitions for net zero

operations, reducing our financed emissions and

supporting the transition.

We recognise the important role we play in supporting UK

SMEs and other businesses to deliver their own climate

transition plans and adopt clean technologies. Some of our

existing lending sectors, such as surface transport, are

already experiencing change through new, cleaner

technologies.

Our Asset Management division has recently announced

the initial percentage of its assets under management

(“AuM”) that will be managed in line with net zero, following

its commitment to the Net Zero Asset Managers initiative.

They expect to publish their own inaugural TCFD report

in 2024.

Creating an inclusive culture where all of our people are

supported to thrive is fundamental to the continued success

of our business. As an inclusive employer, we strongly

support social mobility, creating a sense of belonging for

everyone, irrespective of their background.

It is crucial we continue to keep the customer at the heart of

all we do. In the past year, we have developed our Customer

Commitment Framework which sets out how we want our

customers to feel: valued, happy, understood, confident and

easy when doing business with us.

“We are supporting the transition

to a low carbon economy and will

work with our customers and wider

stakeholders on the journey to a net

zero future.”

Adrian Sainsbury

Group Chief Executive

Our Sustainability Objectives

Supporting our customers, clients and

partners in the transition towards more

sustainable practices

Promoting an inclusive culture

in everything we do

Reducing our impact on the environment

and responding to the threats and

opportunities of climate change

Promoting financial inclusion, helping

borrowers that might be overlooked by

larger finance providers and enabling savers

and investors to access financial markets

and advice to plan for their future

38 Strategic Report

What sustainability means at Close Brothers

At Close Brothers, we are here to help the people and businesses of Britain thrive now and in the future working

together to embrace change and capitalise on the opportunities it presents. This means supporting our colleagues,

customers and clients, and the communities and environment in which we operate.

Our car fleet is now

46.1%

battery electric with average emissions

now down to 23.5 gCO

/km

Our car fleet

£1 billion

lending ambition for zero emissions battery

electric vehicles over the five years to 2027

2023: £164m

achieved in this financial year

Our green lending

Last summer, we welcomed 37 students to complete

six-week internships with Close Brothers. Thirty-one

students joined us as part of the 10,000 Black Interns

programme and six university students from lower

socioeconomic backgrounds joined us through our

partnership with upReach.

Our social mobility

As a signatory to the NZBA, we commit to transition our

lending and investment portfolios to align with net zero

pathways by 2050. We work closely with the Partnership for

Carbon Accounting Financials and its local members in

developing accounting principles for financial carbon

emissions.

Our alliances

Our customer service awards

Scope 1 and 2 emissions (market based)

54.7%

reduction since 2019

54.8%

renewable energy as a proportion of our energy use

across our offices and Brewery Rentals business

Our emissions

200

employees used their volunteering day

Our communities

96%

of our colleagues feel included

Our inclusivity

2023

2022

32.9

23.5

57.3

76.6

2021

2020

Renewables Non-renewables

Environmental Social Governance

39Close Brothers Group plc Annual Report 2023

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

We present our second Task Force on Climate-related Financial Disclosures (“TCFD”) report. Our disclosures comply with

the FCA’s Listing Rule 9.8.6R (8) and are consistent with the 2017 Recommendations of the Task Force on Climate-related

Financial Disclosures. We have also considered the additional 2021 Annexes where practical to do so.

TCFD recommendations Our progress Future focus

Governance

Describe the board’s

oversight of climate related

risks and opportunities.

Describe management’s

role in assessing and

managing climate-related

risks and opportunities.

See pages 52 to 54

• Board monitoring of climate-related risks and

opportunities enabled through clear roles and

responsibilities for the board and board committees.

• Ongoing ESG and climate-specific training delivered

to board and all group employees.

• Group chief risk officer accountable under the Senior

Managers and Certification Regime for identifying

and managing the financial risks associated with

climate change.

• Further review of climate risk governance

recommended a revision to supporting working

groups now all largely chaired by executive

management sponsors (see page 53).

• Climate risk now actively embedded within

management decision making.

• Board to oversee the ongoing

development of transition

pathway.

• Continue to build climate

knowledge at board and senior

management level.

• Continue to address key

challenges on data, models

and tooling.

• Build climate skills and

competencies across our staff

and stakeholders.

• Fully implement revised

governance model and

operationalise the supporting

working groups.

Strategy

Describe the climate-

related risks and

opportunities the

organisation has identified

over the short, medium

and long term.

Describe the impact of

climate risks and

opportunities on the

organisation’s business

strategy and planning.

Describe the resilience of

the organisation’s strategy

taking into consideration

different climate-related

scenarios, including a 2ºC

or lower scenario.

See pages 42 to 43

• Net zero roadmap developed with our main facilities

management partner for our office estate to support

our 2030 Scope 1 and 2 net zero ambition.

• Growth in climate engagement with key suppliers

across the group.

• Continued development of climate-related scenario

analysis to inform commercial development and

strengthen risk management.

• Progress in developing our green growth plans.

• Enhanced data capabilities across our carbon-

intensive sectors to support future intermediate net

zero targets and transition plans.

• New product development to support five year

ambition for funding battery electric vehicles.

• Climate risks and opportunities considered within

financial and strategic planning processes, using the

firm’s standard one to three-year time horizon.

• Development of our transition

plan for our financed emissions.

• Continue to address key

challenges related to the

availability of climate data.

• Build on our climate supplier

engagement strategy to address

our operational emissions.

• Respond to evolving regulatory

requirements and developments

in the broader industry, including

the emergence of best practice.

• Continue to develop capabilities

to assess resilience of our

business model.

40 Strategic Report

TCFD recommendations Our progress Future focus

Risk Management

Describe the organisation’s

processes for identifying

and assessing climate-

related risks.

Describe the organisation’s

processes for managing

climate-related risks.

Describe how processes

for identifying, assessing

and managing climate-

related risks are integrated

into the organisation’s

overall risk management.

See pages 44 to 47

• Enhancements to data capabilities to deliver

oversight, visibility and measurement of climate

risk exposures.

• Embedded processes to continually assess and

monitor climate risk as a cross cutting risk to our

principal risks.

• Transitional risk impacts monitored regularly

within our emerging risk management and

reporting processes.

• Evolving reporting capabilities of credit exposure

relative to climate-related risk impacts.

• Other climate risk impacts embedded in the group wide

Enterprise Risk Management Framework.

• Continued tailoring of climate risk within risk

appetite statements.

• Enhancement of standards and policies documents.

• Maturing climate risk culture and acknowledgement

of corporate responsibility.

• Invest to further develop data to

support quantitative risk

measurement and commercial

strategic development.

• Explore expanded scenario

analysis to align and support our

ICAAP processes.

• Broaden our work with

customers, partners and

suppliers, assessing climate-

related impacts.

• Continued assessment of

climate impacts within our

resilience framework.

• Ongoing review of the analysis

of internal and external risks

and opportunities.

• Continued horizon scanning to

monitor for changes within the

regulatory landscape.

Metrics and Targets

Disclose the metrics used

by the organisation to

assess climate-related risk

and opportunities in line

with its strategy and risk

management process.

Disclose Scope 1 and 2

and, if appropriate, Scope

3 greenhouse gas emissions

and the related risks.

Describe the targets

used by the organisation

to manage climate related

risks and opportunities

and performance

against targets.

See pages 48 to 51

• Broadening of our climate strategy and targets to

cover both net zero Scope 1 and 2 operational

targets, as well as specific targets relating to our

financed emissions.

• Enhanced capabilities to measure the carbon

footprint for our operations, including measurement

across Scope 3 operational emission categories.

• Further enhanced assessment of Scope 3 financed

emissions (primarily our loan book) using evolving

PCAF methodologies.

• Developing transition plans as part of our

commitment to net zero through the Net Zero

Banking Alliance.

• Continued collaboration with industry body forums

including active engagement in Partnership for

Carbon Accounting Financials (“PCAF”) specialist

working groups.

• Setting of intermediate 2030 net

zero targets for the most

carbon-intensive sectors within

our loan book.

• Improved customer climate

datacapabilities across our

portfolios to improve accuracy

offinanced emissions reporting,

risk assessment and business

strategy.

• Progress viability of further

targets across our lending and

investment activities to support

our transition pathway.

41Close Brothers Group plc Annual Report 2023

Climate Strategy

As a financial services provider we recognise the important

role we will play in enabling the transition to a low carbon

economy. We provide expert financing solutions for UK

SMEs, and will need to align our lending with the transition

pathways of our customers. As businesses in the UK

develop and deliver their own transition plans to adopt

clean technologies, greener assets and new business

models, we are ready to support them by providing

appropriate financing solutions; in doing so, facilitating

change and supporting the wider transition of the economy.

Across the organisation we recognise the importance of

addressing the threat of climate change, and the urgency

needed in tackling the environmental, economic and social

impacts that it brings, noting that these extend across all

sections of society, affecting all key stakeholder groups.

Our ongoing work to identify the risks and opportunities of

climate change to our business model remains a key area of

strategic focus for the board and senior management.

We are committed to working with all of our stakeholder

groups to meet the goals of the Paris Agreement. Last year,

we became a signatory to NZBA, committing to transition

all operational and attributable greenhouse gas (“GHG”)

emissions from our lending and investment portfolios to

align with pathways to net zero by 2050 or sooner.

The Three Pillars of our Climate Strategy

1 Achieving net zero operations

Achieving net zero emissions and reducing supply

chain emissions, working with our partners and

suppliers to minimise operational impacts.

Addressing the impact our emissions have on the

environment remains a key focus for us, demonstrating our

commitment to our wider net zero ambition.

We have previously set ourselves challenging net zero

aligned targets for our buildings and fleet (setting a net zero

target for our Scope 1 and 2 emissions by 2030 and a net

zero fleet by 2025), and we have continued this year in

delivering initiatives across our own operations to ensure

we have a plan to meet these.

Further to meeting all of the mandatory reporting

requirements under the Streamlined Energy and Carbon

Reporting (“SECR”) standards, we provide enhanced

disclosure across our operational impacts. As set out in our

emissions reporting on pages 49 and 51, we have assessed

our full operational footprint, covering Scope 1 and 2 as well

as all relevant Scope 3 categories.

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

As we enhance our carbon accounting across all of our

direct and indirect operational carbon emissions, we will be

able to expand our emissions reduction plans, including

work with our suppliers and partners in areas such as

facilities management and IT services.

This year, we have continued to broaden our engagement

with our supply chain on environmental matters, while

working with those who share our ambitions to efficiently

use resources and combat the adverse effects of climate

change. We have commenced direct engagement with our

largest suppliers, to explore ways in which we can

incorporate carbon impact criteria into our choice of

suppliers, enhance our emissions data and develop our

roadmaps to minimise the impacts in our supply chain.

Our facilities team commenced a project with our main UK

facilities management contractor to develop a net zero

strategy for all of our properties (covering offices as well as

our industrial site operated by our beer keg business).

Initially assessing further energy and carbon saving

initiatives across our largest energy consuming sites, this

project has included an energy metering workstream, new

technology feasibility studies, and site energy audits. As it

concludes, it will set out a net zero carbon strategy for the

full estate.

Our drive towards having a net zero emission car fleet has

continued this year. We are proud of our leading strategy,

allowing us to demonstrate to our customers how progress

in decarbonising fleets can be achieved – a growing area of

support we offer our customers across the bank.

Since January 2022 we have only offered fully electric,

battery electric vehicles (“BEVs”) options on our car scheme

(other than in exceptional circumstances). Our fleet of 692

cars is now almost wholly battery electric or plug-in hybrid

(as can be seen in the diagram on the next page) and we

have now reached 46.1% of the fleet being fully electric

vehicles.

One of the barriers for greater adoption of electric car fleets

is the challenges in providing employees with fully

reimbursable electricity payments for business miles (when

they are charging at home or charging stations) –

specifically when HMRC’s cap price (per mile) falls short of

actual electricity prices. During the year, we had our

re-charging processes approved by HMRC, enabling us to

fully reimburse our drivers for electricity costs incurred and

hence removing this barrier to wider adoption of electric

cars on our fleet.

42 Strategic Report

Plug-in hybrid 51.1%

Battery electric 46.1%

Hybrid 1.9%

Petrol and diesel 0.9%

692

cars

Our efforts to transition our fleet (and to progress towards

our net zero target by 2025) have driven our fleet average

emissions down further this year. The average CO

emissions for our car fleet is now 23.5 gCO

/km

(2022: 32.9 gCO

/km).

2 Reducing our financed emissions

Supporting the goals of the Paris Agreement through

re-alignment of our financing and by assisting our

customers in meeting their transitional targets.

Understanding the climate impacts across all of our lending

and investments, alongside developing new green growth

opportunities in our current and future markets, are crucial

steps in us developing our climate transition plan and

aligning our financing to our net zero commitments.

Having carried out our initial assessment of our financed

emissions across our loan book last year, we made some

significant progress in the data quality and coverage of this

area during the current year (as set out on pages 50 to 51).

We have adopted the PCAF methodologies to calculate our

financed emissions and work closely with their working

groups. As signatories to PCAF, we have engaged with our

peers across other banks to share best practice frameworks

to advance accounting for financed emissions and improve

the resolution of our analysis.

We have also carried out a review of our Scope 3

accounting approaches (including our supply chain and our

financed emissions) with an external consultancy. This

engagement considered the latest best practice financed

emissions accounting in the industry and reviewed our loan

book products and portfolios to validate our current

footprinting methodologies based on available data. This

project has supported our year end approach.

Guided by our commitment to align to the Paris

Agreement’s net zero ambition, we will define our targets for

sustainable lending opportunities across both our existing

established finance markets as well as new markets and

technologies sectors that best fit with our established

lending criteria and technical capabilities.

In the next few months, as one of our commitments under

NZBA, we will be setting out our initial intermediate 2030

targets across our most impactful sectors in our loanbook,

likely including transport sectors and powergeneration.

Following commitment to the Net Zero Asset Managers

initiative, in September 2023, our Asset Management

division has disclosed details on the portfolio to be

managed in line with net zero.

3 Financing the transition

Enabling the deployment of cleaner technologies and

business model adaptation through our green growth

lending strategy, leveraging our expertise and ensuring

alignment with agreed risk appetite.

We recognise the significant growth opportunities for green

asset lending across several of our existing asset classes,

as well as new ones. As a specialist, adaptable lender, with

deep understanding of our customers’ needs, we can

support our clients in their transition to new, cleaner

technologies to meet their own sustainability targets.

One of our largest lending sectors is surface transport. We

already see deployment of BEVs in passenger and goods

vehicles, as our fleet customers seek to reduce their

emissions. In testament to our leadership in providing

support for the deployment of zero emission vehicles, in the

past year 42% of new cars financed by our Banking division

have been BEVs. This compares favourably to the UK

market as a whole in the same period where 17.6% of new

cars were BEVs.

Last year, building on our early success in supporting the

electrification of surface transport, we set ourselves our first

green growth ambition, which was to provide funding for at

least £1.0 billion of BEVs in the five years from 2023. In this

first year, we have funded £164 million of BEVs, putting us

close to target to meet this ambition.

During 2023, we established a green growth working group

with representatives from across our lending teams and our

credit risk function. Its aims are to further develop our

existing green lending, and find new, green growth pipelines

including in the energy, transport, energy efficiency and

energy infrastructure categories.

Our own car fleet

43Close Brothers Group plc Annual Report 2023

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

Risk Management

How we Identify, Assess and Manage Climate-related Risks

Our group Enterprise Risk Management Framework, as outlined in pages 83 to 89 of the Risk Report facilitates a consistent

application of all features of the group’s risk management approach to the risks associated with climate change. This extends to

both the physical risks, which are considered a cross-cutting risk impacting across our suite of principal risks, as well as

transitional risks, which are additionally measured and monitored in line with our emerging risks.

Description Timeline Potential impacts

Physical Climate Impacts

Extreme weather events

(including persistent heat

and severe flooding

events) as well as

long-term shifts in climatic

conditions. Increased

frequency and magnitude

of weather events.

Physical damage to customers’

assets. Disruption to sector

productivity (such as labour impacts in

our construction sector customers,

crop yields in our agriculture customer

base).

Medium to long term Credit risk –

counterparty and

collateral

Disruption or damage to our own

properties or those of our suppliers/

partners (such as data centres and call

centres).

Long term Supply chain risk.

Business continuity

impacts and

disruption to

customers.

Transitional Climate Impacts

Changing markets

through the transition to a

low carbon economy –

driven by new regulation,

policy, technologies and

customer appetites

Significant shift in a sector’s

technology – such as the current

impacts on some of our existing

transport activities.

Medium to long term Credit risk –

counterparty and

collateral. Uncertainty

around new and

legacy asset values.

Uncertainty and change in many

sectors in the UK where our SME

customer base operates. Changing

demands and expectations from their

customers. A growing focus on energy

efficiency and environmental

performance.

Medium to long term Credit risk –

counterparty and

collateral. Uncertainty

in markets could lead

to reduced investment

activity by customers

in the short term.

Changing operating models for

customers and higher capital

investments in clean assets – such as

growing opportunity for businesses to

adopt onsite renewable generation,

energy storage and electric vehicle

charging assets. Leading to the need

for new products and underwriting

approaches.

Medium term New business models.

Need for new skills

and capabilities

across the bank.

Changing stakeholder

climate expectations

Our stakeholders (including our

investors, customers, staff)

scrutinising our climate transition plan

and delivery against targets. Evolving

market appetites towards lending to

high carbon sectors (including fossil

fuel extraction, carbon intensive

transport).

Medium to long term Reputational risk –

ability to attract or

retain talent. Impact

on attractiveness to

investors and savers.

44 Strategic Report

Alignment of Group-wide Framework to Climate-

related Risks and Opportunities

The alignment of our risk management framework with

climate-related risks and opportunities remains a priority as

we continue to develop ongoing risk assessment and

monitoring of our banking book and impacts across other

principal risks. Continual enhancement of standards and

policies supports the increasing maturity of climate risk

within our end-to-end risk processes.

We recognise that this is a multi-year journey with the

impacts of physical and transitional risks, and supporting

frameworks to assess these, still evolving across the

industry. The impact of climate change across time horizons

and our proportional response will continue to be

considered within our wider risk assessment financial

planning and strategy development.

Our business planning time horizons

Short term

(0-1 year)

Time horizon for annual budgeting and

capital assessment.

Medium

term (1-3

years)

Time horizon for business strategy and

financial planning. Also aligns with

typical ICAAP scenario analysis

horizon.

Long term

(more than

3 years)

Time horizon beyond typical financial

planning cycle. Impacts primarily

assessed through the use of long-term

scenario analysis noting most material

climate risks will crystallise in this

horizon.

Risk culture and awareness

A risk culture with strong foundations runs throughout the

group, consistent with the group’s purpose, strategy,

cultural attributes and values. The management of climate

risk and opportunities is enveloped within this.

Specialist role-specific training on climate change impacts

is undertaken and all colleagues are offered training and

webinars to ensure they are kept abreast of regulatory

developments, expectations of corporate responsibility and

wider market sentiment.

Internal controls

To support ongoing embedding of climate risk in our

controlenvironment, in-year enhancements have focused

on reinforcing climate risk within our policy documentation

and on ensuring that internal process is complemented by

the activities of our key suppliers and partners.

Governance

A key component of embedding climate risk into our

group-wide framework is a coherent three lines of defence

model. As our climate risk framework has matured, it has

afforded the opportunity to further refine our governance

structure to manage an integrated approach to both climate

risks and opportunities. The structure in the course of

implementation is set out on page 52.

Stress testing

Furthering our previous work on long horizon scenario

analysis. Recognising the short tenor of our loan book

(16 months), our focus is to further integrate climate

exercises into wider group stress testing exercises, e.g.

ICAAP and resilience scenarios. Specific concentration

focus expected to be on transport, energy and property

sectors.

Risk appetite

Consideration of climate risk is integrated into the group’s

risk appetite statements, which align risk management with

group strategy. While quantitative measures are, in the

main, currently included for monitoring purposes, we are

continuing to develop more tailored, formal risk appetites,

particularly for credit risk where measurement of

quantifiable metrics against limits specific to business

considerations is more readily achievable. We expect these

to be based on sectoral transition risk assessments, aligned

to our ambition to meet the goal of the Paris Agreement to

reach net zero by 2050.

Addressing Data and Future Enhancements

Data quality remains a key challenge and we are committed

to developing enriched climate credit risk data that will

support more accurate measurement and monitoring. In

turn, this will support effective risk mitigation and strategic

alignment.

Enhancement to our climate data provision across the

group is being led by our climate data working group – a key

element within our revised climate governance structure

under implementation (see page 52).

Addressing climate data quality will support the

development of a second-generation climate assessment

methodology which will incorporate a more sophisticated

approach utilising both qualitative and quantitative inputs.

This will:

• facilitate customer and asset assessment scorecards for

each exposure as relevant;

• leverage a wider range of data attributes (both customer

and asset); and

• incorporate customer outreach to better understand

counterparty-specific climate and ESG sensitivities.

Progress reporting and management information

capabilities will facilitate more decision-useful insights,

supporting the evolution of the group’s strategy for

managing risks and opportunities and the development of

more tailored risk appetites.

45Close Brothers Group plc Annual Report 2023

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

A Cross-cutting Risk Impacting Across Multiple

Principal Risks

In assessing both the risks and opportunities of climate

impacts and in preparing our TCFD disclosures, we have

sought to provide sufficient granularity, proportionate to the

materiality of the climate-risks identified across the group.

An extensive analysis of risks has been completed across

our risk universe which indicates we are not materially

exposed to loss or disruption over the short to medium

term. Over the long term, increased risk has been identified,

primarily driven by potential transitional impacts. In respect

of physical risk, we consider severe impacts are only likely

to present in the long term, albeit we recognise acute

physical events are already happening. Risks identified are

largely mitigated through our resilient business model,

benefiting from an average tenor of 16 months, and a

customer base that is predominantly in the UK and Republic

of Ireland, with strategic management actions to support

our customers and strategic partners on their own transition

pathways.

Our focus remains primarily centred on credit and

operational risk impacts consistent with our view that these

represent greatest potential impact. We acknowledge that

developments which may have a transitional impact over the

medium to longer term could carry additional exposure

should appropriate, timely management actions not be

taken to maintain the resilience of our business operating

model. For more details of our management of emerging

risks please see page 90 of the Risk Report.

Complementary to our data strategy outlined on page 45

we anticipate incremental enhancements to assessment,

monitoring and reporting to support a greater quantitative

lens, augmenting the qualitative assessment already

established.

Credit risk

The focus remains largely on credit risk, given its materiality

to the banking division and wider group, and importantly its

sensitivity to potential climate impacts, noting that both

physical and transitional drivers have the potential to impact

both counterparty and collateral risk.

Our current methodology deployed across £8.3 billion (86%)

of the Banking division loan book continues to identify

exposures deemed to have the most sensitivity to climate

change, noting it does not account for time horizons over

which climate impacts are expected to crystallise. It does,

however, prove useful in identifying those exposures

deemed as having the most potential sensitivity to climate

change, including energy-consuming assets such as motor

vehicles in our Motor Finance and Asset Finance

businesses, non-renewable energy generation assets,

and general business lending in high-impact sectors.

Climate risk

Risks identified across the group with

potential climate-related impacts

Impacts arising from

the physical nature of

climate change have

the potential to affect

several of our existing

principal risks.

Noting the longer time

horizons for some

transitional climate

impacts to crystallise

(such as on policy and

regulation) we track

climate risk as one of

our core emerging

risks.

See page 94

Credit

Counterparty and collateral impacts

Operational

Premises, people and third-party partners

Traded market

Regulatory

Conduct

Business/strategic

Funding/liquidity

Reputational

Climate-related data

(enhancement in progress)

Climate Cross-cutting Risks

46 Strategic Report

Work continues to develop a second-generation reporting

capability based on a more data-led quantitative approach

replacing the current qualitative, expert-judgement

drivenassessment.

Sensitivity dashboards continue to be presented at regular

risk committees, ensuring engagement in the climate risk

agenda occurs vertically throughout the organisation. For

an overview of risk committees see page 85.

Operational risk

Recognising the potential for climate change to impact

buildings and service provision capabilities, the group has

conducted a review of its existing business continuity plans

as well as its broader approach to crisis management to

ensure potential impacts on our people, customers and

infrastructure have been assessed and that the group is

adequately prepared.

Relevant operational risk standards consider the causal

impacts presented by climate change, while work continues

to incorporate climate impact considerations within our

assessment of operational resilience for critical services

and change management risk assessments.

The group also recognises the potential for key third parties

and suppliers to be impacted by climate change (due either

to physical or transitional factors), causing disruption to

day-to-day business operations. To maintain pace with the

evolving regulatory landscape, the group’s third party

management framework has been strengthened to include

enhanced supplier due diligence questionnaires to gather

climate and ESG data for all of our tier 1 and tier 2 suppliers,

while our tendering process has been updated to consider

environmental and climate considerations alongside

sustainability innovation and performance.

Other risks

Work to integrate consideration of climate risk across other

identified risk areas continues to progress. Climate change,

and the group’s response to it, forms an integral part of our

business strategy. This includes continued assessment of

the resilience of our model, to ensure we are sufficiently

prepared to manage the risks posed by it. As outlined in the

Governance section (pages 52 to 54) strong oversight of

strategic delivery is maintained through our committee

framework, with consideration of climate risks now

embedded within our strategic planning.

The rapidly evolving regulatory landscape also presents risk

and we recognise our responsibility to comply with new and

emerging requirements. Horizon scanning capabilities have

been enhanced in response, to ensure new requirements

are identified and assigned to the relevant functions.

Climate impacts are considered part of our overall

commitment and conduct responsibilities to deliver good

customer outcomes.

Funding and liquidity impacts are subject to ongoing

reassessment with regular updates provided to relevant

Treasury committees. Primary focus areas include

implications for debt capital markets, potential behavioural

changes in our investor base, and possible direct and

indirect reputational impacts, including those related to

evolving disclosure requirements.

We continue to assess traded market risk implications for

Winterflood, although the role of the business as a market

maker means we do not take long-term positions, mitigating

potential risk exposure.

Meanwhile, our Asset Management division has integrated

responsible investment practices into our investment

process to aid us in creating long-term value for clients and

beneficiaries. The practices include explicitly considering

and integrating the impact of material environmental, social

and governance factors on the long-term financial risk and

return of our investments. Our Asset Management division

is a signatory to the Principles for Responsible Investment

and has been accepted as a signatory to the Financial

Reporting Council’s Stewardship Code for the second year

running, illustrating our commitment to strong stewardship

of our clients’ capital.

The product offering for clients who wish to further align

their investments to their values continues to grow; we offer

ethical screening, Sustainable Funds and our Socially

Responsible Investment Service. Following its commitment

to NZAM last year, our Asset Management division will be

setting out its climate strategy and ESG risk management in

2024 when it publishes its inaugural TCFD disclosures.

Over the longer term, increased reputational risk

couldcrystallise, primarily driven by failure to address

transitionalimpacts such as changes to regulation,

technological advancement and the evolution of customer

preferences. We will continue to assess the climate

impactsacross the whole spectrum of principal risks to

ensure we meet the expectations of our people,

customers,investors, shareholders, regulators and

otherkey stakeholder partners.

47Close Brothers Group plc Annual Report 2023

Metrics and Targets

Our climate strategy, led by our commitment through the

NZBA, spans both our operational emissions as well as the

emissions related to our lending and investment portfolios.

Set out in this section are our targets, measurement and

reduction of our operational emissions on pages 48 to 50,

followed by our assessment and ambitions for our financed

emissions in our loan book on pages 50 to 51.

Operational Emissions

Our approach to developing our carbon reduction plan to

achieve these net zero targets is set out in our strategy

section on pages 42 to 43.

Our methodology for calculating and disclosing our GHG

emissions and energy use is in accordance with the

requirements of the World Resources Institute GHG

Protocol Corporate Standard, GHG Protocol Corporate

Value Chain Accounting and the SECR standards. We

report on all material Scope 1 and 2 emissions associated

with our operations. Scope 1 includes fuel emissions from

buildings and company vehicles and Scope 2 includes our

emissions from electricity. We have also reported our

indirect Scope 3 operational emissions across all categories

where we have any material emissions.

For our building emissions (including our industrial

processes in our Brewery Rentals sites) we have

continuedto develop our energy efficiency plans for our

sites, workingwith our facilities management partner.

Theseplans consider our 2030 net zero ambition, ensuring

we make investment choices for each of our sites that lead

us towards that ambitious goal. Important considerations

include energy-efficient equipment, control and monitoring

infrastructure, electrification solutions and renewable

energy options.

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

Company car fleet (gCO

/km)

Proportion of renewable energy used in our offices

and Brewery Rentals sites (MWh)

Become operationally

net zero

through our Scope 1 and 2 emissions by 2030

Achieve a net zero company car fleet

by 2025

Our ambitions

2023

2022

32.9

23.5

57.3

76.6

2021

2020

Renewables Non-renewables

2023

2022

4,737 3,907

3,184 5,982

4,518 3,501

10,14490

2021

2020

Renewables Non-renewables

We have continued to electrify our company car fleet (total

of 692 cars). Of these, 46.1% are now battery electric cars,

with 97.3% either fully electric or plug-in hybrid. With the

aim to only introduce battery electric vehicles to our car

fleet, we have continued to see the average emissions

across our fleet falling each year.

Through the last year, we have greatly enhanced our

in-house climate data capability, allowing us to enhance our

operational footprinting across all Scope 1 and 2 as well as

relevant Scope 3 categories. Our climate data working

group is working closely with all relevant departments

internally to fully operationalise these carbon accounting

processes and providing more frequent management

information across the group and the other working groups

to support the delivery of carbon reduction strategies.

48 Strategic Report

Our operational impacts

Market-based Location-based

Greenhouse gas emissions

1,2,4

Emissions source

2023

tCO

2022

tCO

2023

tCO

2022

tCO

Scope 1 Buildings – fuel

331 344 349 368

Owned vehicles – fuel 964 1,058 964 1,058

Total Scope 1 1,295 1,402 1,313 1,426

Of which UK total Scope 1 1,217 1,324 1,235 1,348

Scope 2 Buildings – electricity

442 400 1,152 1,051

Owned vehicles – electricity 261 162 261 162

Total Scope 2 703 562 1,413 1,213

Of which UK total Scope 2 669 530 1,374 1,182

Total Scope 1 and 2 (Operational) 1,998 1,964 2,726 2,639

Of which UK total Scope 1 and 2 1,886 1,854 2,609 2,530

Scope 3 (Operational) Category 1 – Purchased goods

and services 41,934 44,219

Category 2 – Capital goods 13,762 19,291

Category 3 – Fuel and energy-

related emissions 846 693

Category 4 – Upstream

transportation and distribution 36 86

Category 5 – Waste generated

in operations 190 206

Category 6 – Business travel 750 1,110

Category 7 – Employee

commuting 4,500 4,212

Category 9 – Downstream

transport and distribution 388 408

Total Scope 3 (Operational) 62,406 70,225

Total Scope 1, 2 and 3 (Operational) 65,132 72,864

Energy use

2023

GWh

2022

GWh

Total energy use 14.79 14.01

Of which UK total energy use 14.24 13.47

Emissions intensity

Market-based

tCO

e per employee

Location-based

tCO

e per employee

2023 2022 2023 2022

Operational Scope 1 and 2 emissions intensity 0.49 0.52 0.67 0.69

Operational Scope 1, 2 and 3 emissions intensity 16.04 19.12

Calculated using: Average number of employees in year 4,060 3,810 4,060 3,810

1. We have reported on all emission sources required under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon

Report) Regulations 2018. Our reporting year runs from August 2022 to July 2023. The emissions reporting boundary is defined as all entities and

facilities either owned or under our operational control.

2. Emissions have been calculated using the Greenhouse Gas Protocol Corporate Standard and covers all greenhouse gases (converted to tCO

e). We

have used emissions factors published by the UK government’s Department for Business, Energy & Industrial Strategy, and the International Energy

Agency.

3. During the year-end carbon accounting process we identified some adjustments needed to our 2022 comparable Scope 1 and 2 emissions. The 2022

Scope 1 and 2 emissions above have been restated to ensure consistency with this year’s disclosed emissions.

4. These reported emissions have not been audited by a third party.

49Close Brothers Group plc Annual Report 2023

Our ongoing approach across our operations of energy

efficiency and sourcing of renewable energy continues to

drive down our Scope 1 and 2 emissions. We have now

achieved a reduction of 54.7% in our Scope 1 and 2

emissions since 2019 under a market-based approach,

which demonstrates good progress towards becoming

operationally net zero by 2030.

In the 2023 financial year, our total Scope 1 and 2 location-

based GHG emissions were 2,726 tonnes of carbon dioxide

equivalent (tCO

e), equating to 0.67 tCO

e per employee, up

3.3% overall but down by 3.1% per employee from 2022.

Throughout the year, our premises have continued to

sourcerenewable energy wherever under our control.

Thishas helped our market-based building emissions to

track 49% lower than our location-based building

emissionsat just 773 tCO

The continued challenge of rising energy prices and our

strategic journey towards a net zero portfolio of premises

has increased the focus on responsibly reducing our energy

consumption. Across the year, energy audits have been

completed within larger premises and are being used to

develop our carbon reduction roadmap out to 2030. During

the past year, our energy efficiency programme has

implemented a number of energy-saving initiatives across

our office estate, including:

• Full modernisation of our Burton office, including LED

lighting with controls, efficient HVAC systems and smart

sensor energy monitoring.

• LED lighting upgrade in our Southampton office.

• Reduction of plant operational time zones to match staff

hours across all our offices.

• Following ASHRAE standards we have been able to

increase our temperature set points for all our IT/

communications rooms up to 22.5

• Improvements to the plant controls at one of our newer

offices in Birmingham.

Financed Emissions

The greatest opportunity we have to support reductions in

greenhouse gas emissions is by working with our customers

on their transition to a low carbon economy – helping them

to adopt energy-efficient and low carbon technologies.

To measure our progress requires us to measure the

attributable emissions of the assets and businesses in our

loan book, enabling us to meet our targets and ambitions

within our climate strategy.

In 2022 we made our initial assessment of financed

emissions across our loan book. Our Asset Management

business is conducting analysis on investment portfolio

emissions to be published in its standalone TCFD report in

the first half of 2024.

In the past year, we have significantly improved our

methodologies in assessing our financed emissions –

combining our own loan book data with a number of

external data sources, providing a more accurate

assessment of these emissions, especially across our

carbon-intensive sector of transport.

We have worked closely with PCAF – meeting regularly with

the UK chapter as well as the specialist group focused on

developing the business loans methodology.

PCAF is a collaboration of 405 financial institutions (with

financial assets totalling $92 trillion) that aims to harmonise

the assessment and disclosure of GHG emissions

associated with their lending and investments.

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

To reach net zero emissions

by 2050

across attributable GHG emissions from our

lending and investment portfolios

Provide over

£1 billion

of lending for zero emission battery electric

vehicles over the next five years (2023 to 2027)

Our ambitions

50 Strategic Report

Our financed impacts

2,4

Financed emissions in loan book – bank PCAF methodology

Proportion of

loan book

Financed

emissions

1,2

tCO

PCAF data

quality score

(1-high, 5-low)

Economic

emissions intensity

ktCO

e/£m

Scope 3 (category 15

– loan book only) Motor vehicle loans 34.7% 648,755 2.4 0.20

Business loans 59.8% 589,463 5.0 0.11

Project finance 4.9% 241,149 5.0 0.53

Not assessed/out of scope

0.6% n/a n/a n/a

Total emissions 1,479,367 4.1

0.16

Other emissions related to

financing activities – bank

Scope 3 (category 13 –

downstream leased assets) Vehicle hire fleet – in use 252,602 1.0

Total financed emissions

(tCO

e) 1,731,969

1. Currently, our financed emissions calculations only include the customer or asset’s Scope 1 and 2 emissions. In the future, we will consider the wider

emissions related to financed assets and businesses. Initial sectors are likely to include (i) motor vehicles (upstream embedded emissions of manufacture)

and (ii) property construction finance (embedded emissions from materials and in-use emissions of housing).

2. PCAF data quality score in our first assessment in 2022 was around 5. We have made significant improvements to our data sourcing from both internal

systems and third-party sources. In particular, for motor vehicles, we have sourced vehicle-specific emissions and actual mileage from UK government

agencies.

3. A small proportion of our loan book has not been assessed this year (or is out of scope) due to lack of market agreed carbon accounting methodologies.

We continue to work with PCAF and other banks to consider these areas.

4. These reported emissions have not been audited by a third-party.

In our assessment of our loan book this year, we have used

the PCAF approaches, applying their latest guidance from

their Financed Emissions Standard 2

edition, and drawing

on three of their developed methodologies: business loans,

project financing and motor vehicle loans. On review, 99.4%

of our loan book is in scope of GHG assessment under the

current PCAF standard. Of this, 59.8% has been assessed

under the business loans methodology, and we have

apportioned an amount of emissions from these businesses

which is in line with the value we finance. A further 4.9% of

our total loan book has been assessed under the project

finance methodology. Here, we have accounted for the

apportioned emissions of the project due to our contribution.

The final 34.7% of our loan book has been assessed using

the motor vehicle loans methodology, and covers the annual

in-use emissions of the vehicles that we finance.

During the year under review, we made significant progress

on the availability, granularity and accuracy of the data

underpinning our financed emissions reporting. As an

example, we have built regular data processes for all our

motor vehicle lending, utilising not just our own data (which

covers over 340,000 vehicles) but also by harnessing API

keys, publicly available vehicle registration details and MOT

data from UK government agencies including the DVLA and

DVSA. This has enabled our overall data quality score (as

defined by the PCAF scoring system, where 1 is the highest

ranking and 5 the lowest) for financed emissions of motor

vehicles to improve to 2.4 this year.

In the table on this page, we have set out our financed

emissions calculations for our loan book against each

category,as well as the emissions relating to our operating

lease business, which we have also included under Scope 3

category 13 – downstream leased assets.

51Close Brothers Group plc Annual Report 2023

Sustainability and Climate Governance

The Integration of Climate into our Governance

Structure

The group has an established governance framework into

which climate has been integrated. This ensures effective

oversight and delivery of our sustainability and climate

strategy, as well as climate risk.

As our climate risk framework has matured we have further

refined our governance structure to manage an integrated

approach to both climate risks and opportunities and are in

the course of implementing the structure set out below.

Oversight of climate-related risks and opportunities has

been supported by the establishment of clear roles and

responsibilities, extending across board and executive

committees, and the three lines of defence more generally.

Integral to this has been the provision of regular framework

status updates to appropriate committees and forums.

Reporting and management information are provided to

relevant committees, providing important insights to enable

climate considerations to be embedded within both

strategic planning and the setting of group-level risk

appetites. An established link exists between the delivery of

the group’s climate strategy and executive remuneration

through the inclusion of climate/ESG objectives within both

the Executive Committee’s scorecard and Long-Term

Incentive Plan.

Further details of the roles and responsibilities of the board

and management with regard to climate risk are outlined

from page 53.

Sustainability and Climate Governance

Strategy Disclosures Risk management

Close Brothers board

Audit

Committee

Commercial

green growth

Operational

climate

impacts

Asset

Management

– climate

strategy

Climate targets

and reporting

Climate risk

Climate data Tooling People Partnerships

Group Climate CommitteeGroup Sustainability Committee

Nomination and

Governance Committee

Group Executive

Committee

Board Risk

Committee

Group Risk and

Compliance Committee

Credit Risk Management

Committee

Local Risk and

Compliance Committee

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

52 Strategic Report

Board Oversight

Board

The board is responsible for the long-term success of

thegroup and the delivery of sustainable value to its

shareholders and wider stakeholders. It discharges some

ofits responsibilities directly and others through its

subsidiary committees.

In ensuring the long-term sustainability of the group, the

board is also responsible for the overall delivery of the firm’s

climate and ESG strategy. It reviews and approves the

strategy and receives regular updates on its execution from

relevant members of the executive team. The board is also

responsible for approving the group’s risk appetite

statements, including risk appetites associated with

climate risk.

Board Risk Committee

Operating on authority delegated by the board, the Board

Risk Committee (“BRC”) oversees the management of risk

across the group, including the risks presented by climate

change.

The BRC provides oversight of the measures taken to

manage climate risk and receives regular updates on the

development and subsequent embedding of the firm’s

climate risk framework. This includes the ongoing review of

emerging portfolio MI, monitoring the evolution of

associated risk appetites and the consideration of climate-

related risks and opportunities assessed through the

completion of long-term scenario analysis exercises.

Audit Committee

Operating on authority delegated by the board, the Audit

Committee oversees the management of financial and

regulatory reporting across the group, as well as the firm’s

internal financial controls. The committee is responsible for

ensuring the clarity and completeness of environmental and

sustainability disclosures and climate commitments

included within the group’s Annual Report.

Nomination and Governance Committee

The Nomination and Governance Committee monitors

environmental, social and governance (“ESG”) and

sustainability developments relevant to the group (including

developments relating to climate change).

The role of management

The chief executive has ultimate responsibility for climate-

related issues affecting the group and its customers and

overall accountability to the board and shareholders for

ensuring sustainable and responsible practices, including

those associated with the environment. Accountability for

the group’s climate and ESG strategy similarly rests with the

chief executive, albeit with various responsibilities delegated

to members of the executive team as appropriate to ensure

strategic delivery and embedment within ways of working.

Within the Banking division, and in line with expectations

under the Senior Managers Regime, the group chief risk

officer (“GCRO”) is specifically responsible for climate risk

management. This includes:

• embedding climate change risks within business planning

and risk appetite statements;

• conducting scenario analysis over different time horizons;

• ensuring sufficient board-level visibility and a clear

allocation of roles/responsibilities; and

• considering risk materiality as part of the annual Internal

Capital Adequacy Assessment Process (“ICAAP”).

The GCRO is supported by the board and the executive

team who collectively oversee delivery of the firm’s climate

risk objectives and are also responsible for challenging and

approving the firm’s broader climate and ESG strategy.

Executive Committee

The Executive Committee evaluates and implements

initiatives to ensure a sustainable business model that

considers all risks and opportunities, including ESG

andclimate.

Group Climate Committee

The Group Climate Committee sits alongside the Group

Sustainability Committee and oversees the development of

the group’s climate strategy, including the advancement of

climate ambitions, and associated operational and financing

activities, targets and metrics. It supports the group chief

executive and Executive Committee in their

recommendations to the board for approval.

The Group Climate Committee is supported by five

workinggroups focused on the different aspects of the

group’s climate strategy, each with its own Executive

Committee sponsor.

Working group Executive Committee sponsor

Commercial green

growth

Divisional chief executive officer

Operational climate

impacts (including

supply chain emissions)

Group chief operating officer

Climate strategy of

the group’s Asset

Management business

Asset Management chief

executive

Climate risk Group chief risk officer

Climate targets

and reporting

Group finance director

53Close Brothers Group plc Annual Report 2023

Group Sustainability Committee

The Group Sustainability Committee sits alongside the

Group Climate Committee and oversees all aspects of the

group’s ESG ambitions excluding climate. The committee

reports at least twice a year to the board’s Nomination and

Governance Committee.

Group Risk and Compliance Committee

At an executive level, climate risk management is primarily

overseen by the Group Risk and Compliance Committee

(“GRCC”), which is responsible for reviewing and

challenging the risk framework employed to manage the

financial risks from climate change. To support this, regular

framework updates are presented to the committee with

relevant climate risk MI also embedded within its long-

established risk reporting mechanisms.

Credit Risk Management Committee

The Credit Risk Management Committee (“CRMC”) is

specifically responsible for monitoring the group’s credit

risk profile. Accordingly, it is responsible for overseeing the

management of climate-related credit risk considerations.

Over the last year it has received regular updates on the

development and subsequent implementation of the

Banking division’s inaugural credit risk assessment

framework, as well as the initial MI reporting stemming from

this, designed to illustrate the potential climate risk

sensitivity of different sectors and asset classes.

The committee has also reviewed and approved the

integration of climate considerations within credit risk

policies and standards, most notably to reflect new

requirements introduced to support the management of

associated credit risk impacts.

Training and competency

Both the board and executive team are committed to

building and embedding a requisite skill set across climate

and ESG competencies. The regular updates provided to

the board and management committees over the course of

the last year have played a key role in this regard, helping to

educate key populations on the risks and opportunities that

climate change presents, as well as the firm’s progress in

addressing these.

To support awareness more broadly across the

organisation, a new mandatory training module was issued

to all UK-based staff across the group during the year to

support the development of a core level of understanding of

climate risk considerations. Tailored updates on the group’s

sustainability and climate strategies were delivered to

relevant business and function-specific forums.

Going forward, additional capability and expertise will be

enabled through further training of our people, including the

undertaking of accredited climate qualifications where

relevant, as well as the augmentation of new capabilities via

recruitment and/or the use of external specialist expertise.

Sustainability Report continued

Task Force on Climate-related Financial Disclosures Report

54 Strategic Report

We are committed to acting responsibly through all our

ways of working, and have a number of group-wide policies

and procedures in place to ensure we continue to operate

ina socially responsible and compliant manner.

Dignity at Work Policy

Our Dignity at Work Policy outlines the type of behaviour

that the company considers to be unacceptable and

explains what solutions there are if any employee has

experienced or believes someone else has experienced any

discrimination, harassment or bullying at work.

We ensure equal opportunities for all, including having a

commitment as part of our Dignity at Work Policy to ensure

no employee is subject to discrimination. This applies to all

work contexts, as well as all employee life cycle events,

for example in recruitment, training, promotion and flexible

working requests.

Additionally, our people with disabilities are encouraged to

share their impairment with us, to ensure any reasonable

adjustments can be made. We are also members of the

Business Disability Forum to support our inclusive approach

to hiring, retention, training, career development and

promotion of employees with disabilities.

Whistleblowing Policy

We provide a simple, transparent and secure environment

for our employees, shareholders and other stakeholders to

raise concerns about any potential wrongdoing within the

company.

We encourage our employees to report any activity that may

constitute a violation of laws, regulations or internal policy,

and reporting channels are provided to staff for this

purpose within the framework of a Whistleblowing Policy.

Employee Health and Safety Policy

Our Health and Safety Policy demonstrates our commitment

to ensuring our employees and visitors are safe and sets the

framework for our safety culture. We continue to provide a

safe and healthy working environment for our employees

and visitors in accordance with the Health and Safety at

Work etc. Act 1974 and the Management of Health and

Safety at Work Regulations 1999.

The Health and Safety Committee continues to meet on a

quarterly basis and we are proud of the ongoing progress in

successfully raising the profile of health and safety across

the business. This year we recorded 83 incidents across all

of our sites. Of these, none were reportable under the

Reporting of Injuries, Diseases and Dangerous Occurrences

Regulations 2013. We continue to use an online risk

assessment tool to manage site-specific risks as

appropriate and our Display Screen Equipment risk

assessment programme. We also carry out annual audits of

all premises and monitor findings through a live dashboard.

Our Privacy Policy codifies our approach to protecting

personal information, in line with the General Data

Protection Regulation and UK Data Protection Act 2018.

Itsets out our core principles for what personal information

we collect and process, and the controls to which the data

is subject through its life cycle.

We have a nominated Data Protection Officer who

isaccountable for the firm’s approach to privacy

management, a Chief Information Security Officer

accountable for our approach to cyber security, and

abroader operating model in which the privacy and

securityrequirements are embedded in operations

throughout the organisation.

Financial Crime Policy

Our policies and standards are intended to prevent the

group, employees, clients and any other associations or

representatives from being used for the purposes of

financial crime, including, but not limited to, money

laundering, terrorist financing, facilitation of tax evasion and

circumvention of financial sanctions.

We are committed to carrying out business fairly, honestly

and openly, operating a zero-tolerance approach to bribery

and corruption. We are dedicated to ensuring full

compliance with all applicable anti-bribery and corruption

laws and regulations, including the UK Bribery Act 2010.

Human Rights and Modern Slavery Act

The board gives due regard to human rights considerations,

as defined under the European Convention on Human

Rights and the UK Human Rights Act 1998. We are aware of

our responsibilities and obligations under the Modern

Slavery Act, with the appropriate policies and training in

place to enable compliance across the organisation.

The Banking division has also committed to the CIPS

Ethical Code of Conduct, which supports our commitment

to preventing modern slavery from existing within our

supply chain. Further details of our compliance with the

Modern Slavery Act can be found on our group website.

Tax Strategy

We are committed to complying with our tax obligations

and doing so in a manner consistent with the spirit as well

as the letter of tax laws. This includes a transparent and

cooperative relationship with the tax authorities. Our tax

obligations arise mainly in the UK where our operations and

customers are predominantly based. Our straightforward

business model reduces the complexity of our tax affairs

and helps us maintain a lower risk tax profile. Further details

of our approach to tax can be found on our website.

Sustainability Report continued

Our policies

55Close Brothers Group plc Annual Report 2023

Sustainability Report continued

Our people

Valuing our Colleagues

We pride ourselves on building a culture where everyone

feels as though they belong and are able to thrive. Our

colleagues are passionate about what they do, using their

expertise to provide the highest levels of service to our

customers, partners and clients. We take the time to build

long-standing relationships and insist on trustworthy

behaviour where our people can be relied on to “do the right

thing”. We encourage teamwork and believe in the value of

diversity of thought where all individuals and their

contributions are respected.

We celebrate diversity and are committed to creating an

inclusive culture where all colleagues can feel proud to work

for us, regardless of their gender, age, ethnicity, disability,

sexual orientation or background. 91% (2022: 90%) of

colleagues feel we treat all employees fairly, regardless of

their characteristics or how they identify, and we are proud

that 96% (2022: 94%) of colleagues feel included.

We are signatories to a wide range of charters and

commitments across a broad spectrum of inclusion themes

and social enterprises, including the Race at Work Charter,

the Social Mobility Pledge, the Women in Finance Charter

and the Valuable 500. We partner with leading diversity

organisations, including Stonewall, the Business Disability

Forum and the charity Stop Hate UK, to help inform our

thinking and subsequent actions.

Our inclusive culture is portrayed by our senior leadership

teams, setting the tone from the top by which we operate.

We continue to run inclusive leadership training sessions

forour managers, senior managers and group executives,

highlighting how actions and behaviours can shape our

inclusive culture.

Our “Licence to Recruit” programme has been developed

for all managers, senior managers and group executives, to

provide consistency and best practice in talent acquisition.

The modules provide a focus on inclusion and unconscious

bias, and ensure our managers have the skills and

knowledge to make fair recruitment decisions.

We continue to champion inclusive recruitment practices

including using gender decoders to avoid gender bias

wording in adverts and job descriptions, and seeking

balanced shortlists and diverse interview panels to alleviate

bias in the hiring process. We also make use of bespoke job

boards to target a broader talent pool of candidates, such

as advertising roles to military veterans. We aim to promote

flexibility through offering positions as full time, part time or

job share opportunities where possible.

Overall diversity has increased across the group this year,

specifically with greater representation of females and

colleagues from an ethnic minority background.

Disappointingly, we have moved backwards against both

our senior level gender and ethnicity representation targets.

However, by improving representation at more junior levels,

we have achieved greater diversity of our talent pipeline.

This supports our strategy to develop our own talent,

enabling a more sustainable approach which is likely to

bring meaningful change in senior level representation.

We strive to achieve a 50:50 gender split for our entry-level

and formal development programmes including our Aspire

school leaver programme, our graduate schemes and our

summer internships.

91% of colleagues feel we treat all

employees fairly, regardless of their

characteristics or how they identify,

and we areproud that 96% of

colleagues feel included.

56 Strategic Report

Engagement

Listening to the views of our colleagues is essential to drive

and maintain employee engagement, ensuring our culture is

one where everyone feels like they belong, can thrive and is

proud to work for us.

Our latest employee opinion survey closed in February

2023. Our high engagement score of 86% was retained and

we received an excellent response rate of 90% (2022: 86%),

giving us the confidence that our results are reflective of all

colleagues. This year’s employee opinion scores remained

closely aligned to last year and we retained high scores

around expertise, teamwork, treating customers and clients

fairly and believing in our shared purpose.

86% 90%

Engagement rate Response rate

Our organisational culture remains particularly strong when

compared to other financial services firms, with high

scoring questions against the Financial Services Culture

Board benchmarks including positive comparisons

regarding our resilience, honesty and responsiveness.

Employee opinion survey feedback

demonstrated a strong sense of

belonging, with 96% (2022: 94%) of

colleagues feeling included and 94%

(2022: 94%) feeling they are treated

with respect.

Developing our People

We provide a full range of training and development for our

people irrespective of where they are in their careers. We

work with our colleagues from induction and technical

training to management, leadership and talent development

programmes.

All colleagues have access to our learning portal where

theycan access a broad range of learning offerings

including practical tools and e-learning modules on a

widevariety of topics.

The average number of training hours across the group was

20 per employee during the year, reflecting an increase in

regulatory process and local training initiatives.

We require all employees to complete relevant regulatory

training on an annual basis with further training offered

when required.

We continue to run open application processes for cross-

company mentoring schemes that are delivered in

partnership with Moving Ahead; these include both Mission

Include (supporting those who identify as being from an

ethnic minority background) and Gender Equity (with a

focus on supporting females in progressing to senior roles).

In 2023 we were shortlisted as a “Mentor Organisation of

the Year” for both Mission Include and Gender Equity.

We run several tailored junior training programmes across

the business which are aimed at growing high-potential

individuals to progress into senior roles. Similar to our

mentoring schemes, these programmes are open to

everyone by means of an application process to promote

inclusivity at all levels.

The formal development of our talent pipeline remains a key

focus. We continue to support our entry-level programmes

through our school leaver programme, Aspire. This two-year

scheme offers placements in two business areas within our

Banking division, where individuals rotate around client-

facing and front office teams whilst also having the

opportunity to gain an apprenticeship qualification. Upon

completion, we also offer the option for Aspire trainees to

complete degree-level apprenticeship qualifications should

they wish to do so.

To enhance our graduate programme, we have designed

and implemented a new and comprehensive development

pathway aligned to our management competency

framework. This includes soft skill development, networking

events with our Group Executive Committee, corporate

social responsibility challenges and group projects as well

as the opportunity to complete professional qualifications.

To support our high potential

colleagues, this year’s emerging

leaders’ programme saw 20

individuals across the group taking

part, with a 50:50 gender split. 35%

of the cohort received a promotion

either during or following completion

of the programme.

Building our inclusive culture through further embedding our

code of conduct, we continue to ensure all our new starters

receive our “Close Brothers Way” e-learning module,

focusing on our cultural attributes and expected behaviours.

This year, we worked with members of our employee

inclusion networks to update the content for all colleagues,

which was rolled out in 2023.

57Close Brothers Group plc Annual Report 2023

Our executive-sponsored inclusion networks

Gender

balance

Mental

wellbeing

Unity

(LGBTQ+)

R.E.A.C.H

(Race, Ethnicity

and Cultural

Heritage)

Working

parents and

carers

Social

mobility

Accessibility

Gender Diversity

At Close Brothers, we are passionate about creating an

inclusive culture where everyone feels as though they

belong and are supported to reach their full potential. As

part of building this culture, we are committed to reducing

our gender pay gap. The gender pay gap shows the

difference in average pay between women and men.

It is important to note the gender pay gap is different from

equal pay, which ensures equivalent pay for genders

performing at similar levels in similar roles. We remain

confident that men and women are paid equally for

performing equivalent roles across our business.

At April 2022, our mean group-wide gender pay gap was

34.0% (April 2021: 38.7%). At Close Brothers, the gap is

mainly driven by a higher proportion of male incumbents in

both senior and front office roles, and a higher number of

females who work part-time. Further details of our gender

pay gap can be found on our website.

At Close Brothers, we understand that gender identity is

broader than male and female and we want to affirm that we

welcome colleagues of all gender identities. In recognition

of this, we support all colleagues to be able to openly make

their identity known, through adding their pronouns to email

signatures and personal profiles on our internal intranet. Our

Unity network has been instrumental in raising awareness of

challenges faced by the LGBTQ+ community and

reinforcing the importance of allyship.

As signatories of the Women in Finance Charter, we

continue to work towards our target to achieve 36%

ofsenior manager roles being held by a female by 2025.

At31 July 2023, 31% (31 July 2022: 33%) of our senior

manager roles were held by females. At the end of the

financial year, 36% (2022: 50%) of our board members

werefemale, remaining broadly in line with FTSE

WomenLeaders’ gender targets for executives and

theirdirect reports.

As well as celebrating both International Women’s Day

andInternational Men’s Day in this financial year, our

genderbalance network coordinated a successful speed

networking event and releases a quarterly newsletter with

an increasing number of subscribers across the group.

As part of our gender balance network, we have a very

active forum focused specifically on the menopause.

Thisgroup actively promotes awareness of the menopause,

creating a community of employees to share and discuss

experiences. This year, we launched our Menopause

Policyto help colleagues and line managers understand

how they can support each other in relation to the

menopause. Wealso have a membership with Henpicked

which providesmenopause-related resources for the

workplace and provides routes to becoming accredited as

menopause-friendly.

We continue to partner with the 30% Club through which we

provide cross-company mentoring for our talented females.

We also have a close relationship with the UK Automotive

30% Club, with which we have collaborated to conduct

virtual panel discussions and school presentations, talking

to female students about careers in the motor industry. We

are proud that two colleagues from our Motor Finance

business won awards at the latest “Inspiring Automotive

Women Awards”, including our senior HR business partner

being named “HR game-changer”.

Our workforce remains diverse, with 45% (2022: 44%)

female employees, and we have a broad age range of

employees, with 22% (2022: 22%) of our employees being

under 30 years old and 21% (2022: 20%) over 50.

Bradley

Dyer

Rebekah

Etherington

Robert

Sack

Eddy

Reynolds

Naz

Kazi

Matt

Roper

Angela

Yotov

Sustainability Report continued

Our people

58 Strategic Report

Gender diversity

31 July 2023

Male Female

Number of board directors

7 4

Number of directors of subsidiaries

44 7

Number of senior managers, other than board directors

226 115

Number of employees, other than board directors and senior employees 1,962 1,715

Total 2,239 1,841

1. Includes non-executive directors, excluded from group headcount calculations.

2. Includes subsidiary directors who are excluded from group headcount calculations.

3. Senior managers defined as those managers with line management responsibility for a line manager, in accordance with the representation identified in

our gender pay gap report. They are generally heads of departments, functions or larger teams. This figure excludes 43 male and seven female

employees who are reported under directors or subsidiary directors.

Supporting our People

We are acutely aware of the impact the pandemic has had,

and continues to have, on our colleagues. In response to

this, we want to provide as much support to our people as

possible. Recognising the cost of living crisis, we offered a

number of webinars to our colleagues focusing on financial

wellbeing and self-care.

We understand that flexibility has become increasingly

important to people, and we want to offer flexibility in as

many ways as we can. This year we have introduced a new

“Working from Abroad” policy to give colleagues flexibility

to work in different locations where possible. We also

understand that more informal flexibility is appreciated by

colleagues to support with balancing other commitments in

their everyday lives. Our newly established Working Parents

and Carers’ Network aims to create a community for those

with caring responsibilities to share experiences and advice.

All colleagues are offered company-funded private

healthcare, with high take-up rates across the group.

Aspart of the UK offering, BUPA provides a wealth of

healthand wellbeing support as well as dedicated

mentalhealth support.

We have over 75 trained mental health first aiders across

the group as well as an active mental wellbeing network.

Maintaining the positive wellbeing of our colleagues is of the

upmost importance to us and we are proud that, in our last

employee opinion survey, 89% of colleagues stated they

believe we are genuinely concerned for employee wellbeing,

which is higher than the external benchmark of 83%.

This year, we introduced two new benefits to colleagues to

enhance our overall benefits offering. Colleagues are now

able to access dental cover and an online GP service. We

are confident that these additional offerings help to ensure

our benefit package remains fit for purpose and satisfies the

expectations of our colleagues.

59Close Brothers Group plc Annual Report 2023

We understand that many of our colleagues have additional

neurological or physical accessibility needs. Our

accessibility network, sponsored by our group legal

counsel, actively supports colleagues with disabilities

through sharing stories and holding events to raise

awareness. This year, we invited Kelly Grainger, a

neurodiversity advocate, to talk to us about reducing the

stigma and improving education surrounding neurodiverse

diagnoses such as autism.

The group continues to pay all staff at or above the national

living wage. For members of the group’s pension plans, we

contribute between 6% and 10% towards colleagues’

pensions, which is above required levels. We offer both a

Save As You Earn scheme as well as a Buy As You Earn

share incentive plan, which allow employees to acquire

shares on a monthly basis out of pre-tax earnings.

Participation rates in our long-term ownership schemes

remain strong at 44% of all permanent and fixed term

employees who are eligible.

Racial Equality

As signatories to the Race at Work Charter, we demonstrate

our commitment to their seven key actions to help improve

representation of ethnic minorities across all levels of the

organisation. In support of this commitment, we continue to

monitor our ethnicity disclosure rates. At the end of this

financial year, our disclosure rate has increased to 85% in

comparison to 83% at the end of the previous year.

Our target to have at least 14% of our managers to identify

from an ethnic minority background by 2025 forms part of

our Long-Term Incentive Plan objectives and demonstrates

our commitment towards improving representation of all

colleagues from an ethnic minority background. At 31 July

2023, 9% (31 July 2022: 10%) of our managers were from an

ethnic minority background.

Last summer, we welcomed 31 students to join us for

six-week placements as part of the 10,000 Black Interns

programme. Our partnership enables us to support the

career development of students with an ethnic minority

background, as well as supporting the career progression

of our colleagues from an ethnic minority background

across the group.

Ofthe31 summer interns, five individuals secured roles with

us following their placements and are still working for the

firm. Two former interns also re-joined Close Brothers for a

secondary internship in summer 2023.

The board continues to support the recommendations of

the Parker Review and the composition of the board is in

line with the advice to have at least one director of colour.

The board will continue to take opportunities to further

strengthen the diversity of backgrounds and experience

among its directors as part of future board-level

recruitmentsearches.

The R.E.A.C.H. (Race, Ethnicity and Cultural Heritage)

network, sponsored by our group head of internal audit,

continues to raise awareness by promoting events

throughout the year. For example, during Black History

Month, numerous engagement events were arranged,

encouraging everyone to get involved and demonstrate

allyship. The network also hosted a panel discussion during

Ramadan for colleagues to share their own experiences and

help others gain a greater understanding. These activities

are instrumental in supporting our overall diversity and

inclusion agenda.

Supporting Social Mobility

As an inclusive employer, we strongly support social

mobility, creating a sense of belonging for everyone,

irrespective of their background. Our social mobility

network is sponsored by our commercial CEO and,

alongside raising awareness, is committed to ensuring

equity of opportunity, regardless of background

andexperience.

We continue to partner with upReach, a charity committed

to transforming social mobility. In summer 2022, we again

offered six-week placements to six university students from

lower socioeconomic backgrounds. These internships

continue to have a positive impact on broadening our talent

pool for entry-level roles, with interns applying for and

successfully securing permanent roles within the firm.

Over the past eight years we have worked in partnership

with the University of Sheffield’s Advanced Manufacturers

Research Centre to support 55 apprentices working in local

SMEs. We anticipate up to a further 20 apprenticeships

being funded on the programme from September 2023.

Simi Uddin is a previous upReach

intern who joined Close Brothers

as a permanent employee in

Treasury. This year, she has joined

our Social Mobility Network to share

her story with others.

Sustainability Report continued

Our people

60 Strategic Report

Employees in the Community

Creating long-term, lasting value in the communities

wherewe operate remains a key priority for the group.

Weunderstand that volunteers are often the driving force

behind many community and charity activities and we are

committed to supporting our employees to get involved in

these wherever possible.

As part of the relationships we have with our charity

partners, we encourage employee engagement through

involvement in the volunteering initiatives offered.

For every hour of volunteered time, we donate £8 directly

tothe charity under our Matched Giving Scheme, and we

also encourage people to take advantage of one paid

volunteering day each year through our Employee

Volunteering Policy.

Our partnership with the children’s literacy charity,

Bookmark, continues and we are proud to be confirmed

astheir biggest corporate volunteering partner. As well as

delivering over 300 reading sessions during this academic

year, we have also had teams of colleagues giving their

timeto help build a new school library and take part in

Bookmark’s “Box for Ukraine” initiative, packing boxes of

literacy and language resources as well as tools to support

children’s wellbeing, personal and social development, to

give to Ukrainian children who had to flee their homes and

move to the UK.

Our colleagues have also volunteered with our other

corporate charities, including helping at wardrobe days and

clothing sales with Smart Works and carrying out “Wild at

Work” days with The Wildlife Trusts.

A team from our Motor Finance

business supported the Yorkshire

Wildlife Trust in planting reed beds at

their North Cave Wetland Reserve,

and a team from our Invoice Finance

business supported the Sussex

Wildlife Trust in carrying out a beach

clean. They collected 552 items of

rubbish weighing nearly 5kg.

Almost 200 colleagues have made use of their volunteering

day to support with a wide range of charitable activities,

including helping at food banks, running charity events and

volunteering at homeless shelters.

Charity

Our two main corporate charity partners are chosen by our

colleagues as part of our employee opinion survey and these

remain Make-A-Wish Foundation, who grant wishes for

children with life-threatening illnesses, and Cancer Research

UK, which we have now supported for 10 consecutive

years. To date, we are proud to have raised over £600,000

for Cancer Research UK as well as donating clothing and

items to be sold across their 600 shops, nationwide.

Over the last four years, we have

raised over £200,000 for Make-A-

Wish Foundation, enabling them to

grant over 80 magical wishes for

critically ill children and their families.

This year, a number of our teams have been volunteering in

Cancer Research shops through the UK. Colleagues from

our Company Secretarial team volunteered for a day in the

Marylebone shop. The team’s contribution made a huge

difference, with sales on the day totalling £800 more than

the shop’s nearest rival. They also processed 179 items,

which created the opportunity to raise a further £4,000 for

Cancer Research UK.

We have a dedicated committee for charitable and community

activities chaired by our group head of human resources

and supported by employees from across the group. This

committee meets regularly to discuss and propose new

initiatives, with input from our control functions when required.

We also have several local committees which plan and run

initiatives to raise funds for local charities.

We match 50% of funds that our colleagues raise for charities

under the Close Brothers Matched Giving Scheme. We also

encourage our employees to collaborate on raising money

for causes that are most meaningful to them by matching

funds raised through locally organised fundraising events

and activities.

This year we have continued to support additional charities

that align with our ESG goals, donating a total of £120,000

to Stop Hate UK, The Wildlife Trusts, Smart Works and

Bookmark. In response to the earthquake that struck Turkey

and Syria, we have donated over £25,000 to date, including

matching 100% of colleague donations to the British Red

Cross in support of their Earthquake Appeal.

Our Payroll Giving Scheme matches charitable contributions

while allowing employee donations to be made directly from

pre-tax salary. Approximately 13% of employees across the

group were signed up to Payroll Giving at 31 July 2023,

achieving us a 13

consecutive year of the Payroll Giving

Quality Mark Gold Award and ensuring that we have met

our target of maintaining this standard.

61Close Brothers Group plc Annual Report 2023

Sustainability Report continued

Our Customer Commitment

The needs and expectations of our customers

(andpartners) are accelerating. At Close Brothers we

continue toevolve and innovate to meet and exceed

theseneeds and expectations.

Continuing to keep the customer at the heart of all we do

and building on our foundations, in 2022 we took our

customer principles: we do the right thing for customers,

clients and partners; we are flexible, responsive and

execute with speed; we make decisions informed by our

specialist expertise; and we build relationships based on

quality and trust, and developed our Customer Commitment

Framework which sets out how we want our customers and

our colleagues to feel: valued, happy, understood,

confident, and that it is easy to do business with us.

This commitment embeds our customer-centric approach

across the Close Brothers Group and helps us to “walk in

the shoes of customers”, designing and delivering

products,services and experiences for our customers,

gaining their loyalty.

We do the right thing for

customers, clients and partners.

We are flexible, responsive

and execute with speed.

We make decisions informed

by our specialist expertise.

We build relationships based

on quality and trust.

There are four key pillars to

our Customer Commitment:

Rewards and Recognition

Embedding delivering good customer

experience as part of colleagues’

objectives.

Metrics

Evolving our customer metrics to continue

to identify where we can further enhance

the customer experience and earn their

loyalty.

Communication and Learning

Developing and enhancing customer

experience skills for colleagues across a

range of roles and communicating how the

Customer Commitment supports our

purpose to help the people and businesses

of Britain thrive over the long term.

Governance

Maturing the structures to ensure the voice

of the customer is anchored and

embedded in critical decisions and forums

to listen, act, learn, to continue to deliver

for our customers.

62 Strategic Report

Delivering for Our Customers

Invoice Finance: Invoice discounting enables

recruitment firm to continue to grow.

Invoice Finance helped Twenty20 Capital achieve

growth by providing them with an invoice discounting

facility and a term loan, enabling the company to fund

the acquisition of a large recruitment business and to

fund working capital to achieve their goals. “They

have been very professional. The level of service,

communication and support has been outstanding.

We are genuinely delighted in the unique partnership

we have formed together.” Tristan Ramus, Founder,

Investment Principal, Twenty20 Capital.

Voice of the Customer

Close Brothers continues to invest in strengthening its

capability around customer experience.

We have established regular tracking and reporting on how

we are delivering for our customers through our customer

governance bodies and forums at a business unit level and

through our established Bank Customer Forum.

We continue to listen, learn, and act. We have been running

our customer forums for over nine years and in that time we

have been developing our capabilities and governance to

bring the voice of the customer into our day-to-day

decision-making processes, which remains a key priority

forClose Brothers.

We continue to embed our Customer Experience

OperatingFramework across Close Brothers Group,

settingout our customer journeys and vision, with clear

accountability and engagement to act on the insights

todeliver for our customers.

At Close Brothers, we have dedicated local and group

levelforums for complaints and vulnerable customers.

Weacknowledge there is always more that we can do to

support and learn from these customers. At a group-level,

we use these forums to share best practice, collaborate

andinnovate on opportunities to enhance the

customerexperience.

Close Brothers has been consistently recognised over many

years by several external bodies for our continued customer

focus and customer excellence.

Customer Sentiment Scores

2023 2022

Our Customer, Partner and Client Summit

In February 2023, we held our annual summit, bringing our

colleagues together to reflect, celebrate and accelerate on

delivering on our Customer Commitment.

Colleagues heard from Adrian Sainsbury on how our

customer ambition and Customer Commitment supports

our vision for 2027. Setting the tone from the top, there was

a Q&A with some of our Executive Committee members on

the importance of the Customer Commitment. At the event

we heard from external speakers on why earning loyalty

matters and the importance of customer centricity. It was

also a chance for us to celebrate our achievements in

demonstrating the emotional outcomes we want to achieve

for our customers, with a focus on how we progress our

Customer Commitment and embed the framework into our

everyday activities.

Customer Sentiment

In 2023 we have continued to see sustained positive

customer sentiment, against a backdrop of market

uncertainty and the broader cost of living crisis. Close

Brothers continues to provide continuity of positive

customer experiences in a time of uncertainty.

Motor

dealer

NPS

+75

+73

Motor

customer

Net Ease

+79

+81

Property

NPS

+88

+87

Savings

online

CSAT

80%

86%

Asset

Finance

CSAT

92%

88%

63Close Brothers Group plc Annual Report 2023

ROI from customer experience

We are aiming to

accelerate

towards the

summit by 2027

Climb

Results delivered from

a CX playbook that

strengthens individual

capability and builds

organisational capacity

Summit

An engine that delivers

results from CX

through consistency,

confidence and

momentum across

your end-to-end

experience

Walk

Proof points delivered

from a common CX

framework that builds

momentum

Stretch

Improvements

delivered that are

usually made in

isolation of a common

CX ambition

2023

2027

2022

2018

The Way Ahead

• Looking forward, we are committed to continuously

improving our ability to capture, consolidate and act

upon customer, client and partner sentiment across all

end-to-end journeys that will helps us to deliver a

differentiated experience and earn customer loyalty.

• To achieve our ambition of earning customer loyalty,

continued high levels of employee engagement are

critical. We will therefore actively engage, enable and

empower our employees, so they are equipped to bring

the Customer Commitment to life in their daily work, and

act as our brand ambassadors.

• We also recognise the challenging macroeconomic

environment facing our customers; we have conducted

an independent assessment of how we are currently

supporting vulnerable customers to enable us to identify

opportunities where we can provide further support.

As a result, we are already sharing good practice via

ourVulnerable Customer Forum, are in the process of

building a charter that articulates our future commitment

and approach to customers and colleagues, and have

developed a new Group Quality Assurance Forum to

share and drive best practice.

• We are open to change and continuous improvement,

having conducted a bank-wide external complaint

reviewacross seven of our businesses, to establish

bestpractice comparison to industry peers, with a focus

on customer experience and regulatory requirements.

• We regularly measure and track customer

performancevia several key customer metrics:

NetPromoter, Customer Satisfaction or Net Ease

scores.Weare continuing to enhance our customer

metrics to enable usto track customer performance

across the end-to-end customer journey so that we

deliver good customer outcomes.

Evolving our Customer Experience

In 2022 we undertook an independent customer experience (“CX”) assessment with TribeCX, benchmarking our maturity

versus other organisations and sectors. Whilst Close Brothers stood up well versus other companies in the financial services

sector, and indeed versus other industries, we also identified opportunities for further enhancing and differentiating the

experience we deliver to our customers. Research tells us that building strong emotional connections with customers is key

for earning and retaining customer loyalty and driving future customer growth.

Sustainability Report continued

Our Customer Commitment

Key Milestones in the Evolution of our Customer Experience

Note: Developed with TribeCX.

64 Strategic Report

In line with the non-financial reporting requirements contained in sections

414CAand 414CB of the Companies Act 2006, the table below contains

references to non-financial information intended to help our stakeholders

understand the impact of our policies and activities.

Reporting requirement Policies and standards

Information necessary to understand our

impact and outcomes

Environmental

Matters

• Bank Credit Policy Underwriting

Standards

• Environmental Policy

• Operating Environment, page 14

• Stakeholder Engagement, pages 34 to 37

• Our Strategy, pages 20 to 25

• Our Responsibility, page 38

• Sustainability Report, pages 38 to 64

• Climate-related Disclosures, pages 40 to 54

Employees

• Health and Safety Policy

• Whistleblowing Policy

• Key Customer Principles

• Equal Opportunity and Dignity

atWorkPolicy

• Business Model, pages 12 and 13

• Our Culture, pages 30 and 31

• Stakeholder Engagement, pages 34 to 37

• Our Strategy, pages 20 to 25

• Our Responsibility, page 38

• Sustainability Report, pages 38 to 64

• Corporate Governance Report,

pages 134 and 135

Social Matters

• Key Customer Principles

• Bank Credit Policy Underwriting

Standards

• Stakeholder Engagement, pages 34 to 37

• Our Strategy, pages 20 to 25

• Our Responsibility, page 38

• Sustainability Report, pages 38 to 64

Respect for Human

Rights

• Human Rights and

Modern Slavery Act

• Privacy and Data Protection Policy

• Cyber Security Policy

• Sustainability Report, page 55

Anti-Corruption and

Anti-Bribery

• Anti-Money Laundering Policy

• Anti-Bribery and Corruption Policy

• Cyber Security Policy

• Sustainability Report, page 55

Description ofthe

Business Model

• Investment Case, pages 10 and 11

• Business Model, pages 12 and 13

• Our Culture, pages 30 and 31

• Our Strategy, pages 20 to 25

Description of

Principal Risks and

Impact ofBusiness

Activity

• Principal Risks, pages 90 to 93

• Emerging Risks and Uncertainties,

pages94 to 95

• Risk Committee Report, pages 164 to 166

Non-Financial Key

Performance

Indicators

• Our Strategy, pages 20 to 25

• Key Performance Indicators,

pages 26 and 27

• Sustainability Report, pages 38 to 64

Climate-related

Disclosures

• TCFD – Climate-related disclosures,

pages 40 to 54

Non-Financial and Sustainability

Information Statement

65Close Brothers Group plc Annual Report 2023

Summary Group Income Statement

2023

£ million

2022

£ million

Change

Operating income 932.6 936.1 –

Operating expenses (615.0) (598.0) 3

Impairment losses on financial assets (204.1) (103.3) 98

Adjusted operating profit 113.5 234.8 (52)

Banking 120.1 227.2 (47)

Commercial 15.9 91.0 (83)

Of which: Novitas (106.6) (39.3) 171

Retail 34.7 61.0 (43)

Property 69.5 75.2 (8)

Asset Management 15.9 21.7 (27)

Winterflood 3.5 14.1 (75)

Group (26.0) (28.2) (8)

Amortisation and impairment of intangible assets on acquisition (1.5) (2.0) (25)

Statutory operating profit before tax 112.0 232.8 (52)

Tax (30.9) (67.6) (54)

Profit after tax 81.1 165.2 (51)

Profit attributable to shareholders 81.1 165.2 (51)

Adjusted basic earnings per share

55.1p 111.5p (51)

Basic earnings per share

54.3p 110.4p (51)

Ordinary dividend per share 67.5p 66.0p (2)

Return on opening equity 5.0% 10.6%

Return on average tangible equity 5.9% 12.2%

1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the

performance of the group’s acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect

underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in note 3.

2. Refer to note 7 for the calculation of basic and adjusted earnings per share.

Financial Overview

Basis of Presentation

Results are presented both on a statutory and an adjusted

basis to aid comparability between periods. Adjusted

measures are presented on a basis consistent with prior

periods and exclude amortisation of intangible assets on

acquisition, to present the performance of the group’s

acquired businesses consistent with its other businesses;

and any exceptional and other adjusting items which do

not reflect underlying trading performance. Please refer to

note 3 for further details on items excluded from the

adjusted performance metrics.

Adjusted Operating Profit and Returns

Statutory operating profit before tax decreased to

£112.0 million (2022: £232.8 million), primarily driven by

higher impairment charges in relation to Novitas, with

adjusted operating profit down 52% to £113.5 million

(2022: £234.8 million). Excluding Novitas, adjusted operating

profit reduced 20% to £220.1 million (2022: £274.1 million),

mainly reflecting an increase in impairment charges and a

reduction in income in Winterflood.

Return on average tangible equity (“RoTE”) reduced to 5.9%

(2022: 12.2%) with the loss after tax recorded by Novitas

reducing the group’s RoTE by 6.1%.

66 Strategic Report

Adjusted operating profit in the Banking division reduced

47% to £120.1 million (2022: £227.2 million), primarily

reflecting higher impairment charges related to Novitas.

Growth in income, driven by good loan book growth and a

strong net interest margin, was offset by higher costs as we

continue to invest in the business and to reflect the

inflationary environment. In the Asset Management division,

we delivered strong net inflows, although adjusted operating

profit reduced 27% to £15.9 million (2022: £21.7 million),

driven by a modest decline in income, reflecting lower

income from advice and other services, and higher costs,

as we accelerated our new hiring strategy. Operating profit

in Winterflood decreased by 75% to £3.5 million

(2022: £14.1 million), with performance adversely impacted

by the continued market-wide slowdown in trading activity,

particularly in higher margin sectors and difficult market

conditions. Group net expenses, which include interest

expense from debt issued by the holding company, as well

as costs related to the central functions such as finance,

legal and compliance, risk and human resources, reduced to

£26.0 million (2022: £28.2 million), mainly reflecting lower

charges from share-based awards and a reduction in

variable compensation.

Operating Income

Operating income was broadly stable at £932.6 million

(2022: £936.1 million), with growth in Banking offset by lower

income in Asset Management and Winterflood. Income in the

Banking division increased by 3%, reflecting good loan book

growth and a strong net interest margin of 7.7%

(2022: 7.8%), partly offset by the run-off of Novitas and the

Irish Motor Finance business. In the Asset Management

division, we saw an increase in investment management

income resulting from growth in AuM delivered by our

bespoke investment manager hires. This was more than

offset by a decrease in income from advice and other

services, which reflected the impact of difficult market

conditions on client assets, and managements’ strategic shift

to focus on higher value clients. As a result, income in the

Asset Management division decreased by 2%. Income in

Winterflood reduced 21%, driven by lower trading revenues

reflecting the continued market-wide slowdown in activity.

Operating Expenses

Operating expenses increased 3% to £615.0 million

(2022: £598.0 million) with higher staff costs and investment

in Banking and CBAM more than offsetting lower variable

costs in Winterflood. In the Banking division, whilst we

remained focused on cost control, expenses rose 7%,

mainly driven by salary increases and continued investment

in strategic programmes. Costs increased 2% in Asset

Management as lower variable compensation was more

than offset by higher fixed staff costs in the inflationary

environment, as well as reflecting the onboarding of new

hires and technology spend, driven by the success of

the hiring strategy and investment for future growth.

Winterflood’s costs fell 11% as the slowdown in trading

activity led to lower staff compensation and settlement fees.

Overall, the group’s expense/income ratio increased to 66%

(2022: 64%), while the group’s compensation ratio remained

stable at 37% (2022: 37%) as the reduction in variable

compensation across the group was offset by inflation-

related wage increases and new hires.

Impairment Charges and IFRS 9 Provisioning

Impairment charges increased significantly to £204.1 million

(2022: £103.3 million), corresponding to a bad debt ratio of

2.2% (2022: 1.2%). This increase was driven primarily by

impairment charges of £116.8 million taken in relation to

Novitas (2022: £60.7 million), of which £114.6 million was

incurred in the first half of the year. As a result, there was an

increase in overall provision coverage to 3.9% (31 July

2022: 3.1%).

Excluding Novitas, the increase in impairment charges was

primarily driven by higher provisions as a result of weaker

macroeconomic variables and outlook, as well as an ongoing

review of provisions and coverage across our loan portfolios

and an increase in Motor Finance arrears, which have

stabilised since the first half. The bad debt ratio, excluding

Novitas, increased to 0.9% (2022: 0.5%) and the coverage

ratio increased marginally to 2.1% (31 July 2022: 1.9%).

Since the previous financial year end, we have updated

the macroeconomic scenarios to reflect the latest

availableinformation regarding the macroeconomic

environment and outlook, although the weightings assigned

to them remain unchanged. At 31 July 2023, there was a

30% weighting to the strong upside, 32.5% weighting to

thebaseline, 20% weighting to the mild downside, 10.5%

weighting to the moderate downside and 7% weighting to

the severe downside.

Whilst we have not seen a significant impact on credit

performance at this stage, we continue to monitor closely the

evolving impacts of rising inflation and cost of living on our

customers. We remain confident in the quality of our loan

book, which is predominantly secured or structurally

protected, prudently underwritten, diverse, and supported by

the deep expertise of our people.

67Close Brothers Group plc Annual Report 2023

Tax Expense

The tax expense was £30.9 million (2022: £67.6 million),

which corresponds to an effective tax rate of 27.6%

(2022: 29.0%).

The standard UK corporation tax rate for the financial year

is 21.0% (2022: 19.0%). However, an additional headline

banking surcharge of 6.3% (2022: 8.0%) applies to banking

company profits as defined in legislation (and only above a

threshold amount), resulting in a c.5.5% surcharge impact.

The effective tax rate is above the UK corporation tax rate

primarily due to the surcharge applying to most of the

group’s profits.

Earnings per Share

Profit attributable to shareholders reduced 51% to

£81.1 million (2022: £165.2 million). As a result, adjusted

basic earnings per share (“EPS”) reduced to 55.1p

(2022: 111.5p) and basic EPS reduced to 54.3p

(2022: 110.4p). The loss after tax recorded by Novitas

reduced the group’s adjusted basic EPS by 56.4p.

Dividend

The board is proposing a final dividend of 45.0p per share,

resulting in a full-year dividend per share of 67.5p

(2022: 66.0p). Although the proposed level of dividend cover

for 2023 is below our historical range, driven primarily by the

adverse impact of increased provisions in relation to Novitas

on our profitability, the proposed dividend reflects our

underlying performance and the board’s confidence in

the group’s outlook.

We remain committed to our dividend policy, which aims to

provide sustainable dividend growth year-on-year, while

maintaining a prudent level of dividend cover.

Summary Group Balance Sheet

31 July 2023

£ million

31 July 2022

£ million

Loans and advances to customers and operating lease assets

9,526.2 9,098.9

Treasury assets

2,229.4 1,855.1

Market-making assets

787.6 887.2

Other assets 1,007.1 837.1

Total assets 13,550.3 12,678.3

Deposits by customers 7,724.5 6,770.4

Borrowings

2,839.4 2,870.1

Market-making liabilities

700.7 796.1

Other liabilities 640.8 584.2

Total liabilities 11,905.4 11,020.8

Equity 1,644.9 1,657.5

Total liabilities and equity 13,550.3 12,678.3

1. Includes operating lease assets of £223.4 million (31 July 2022: £185.4 million) that relate to Asset Finance and £47.8 million (31 July 2022: £54.6 million) to

Invoice and Speciality Finance.

2. Treasury assets comprise cash and balances at central banks and debt securities held to support the Banking division.

3. Market-making assets and liabilities comprise settlement balances, long and short trading positions and loans to or from money brokers.

4. Borrowings comprise debt securities in issue, loans and overdrafts from banks and subordinated loan capital.

Financial Overview continued

Subject to approval at the Annual General Meeting, the final

dividend will be paid on 24 November 2023 to shareholders

on the register at 20 October 2023.

Summary Group Balance Sheet

The group maintained a strong balance sheet and prudent

approach to managing its financial resources. The

fundamental structure of the balance sheet remains

unchanged, with most of the assets and liabilities relating to

our Banking activities. Customer loans and advances make

up the majority of assets. Other items on the balance sheet

include treasury assets held for liquidity purposes, and

settlement balances in Winterflood. Intangibles, property,

plant and equipment, andprepayments are included as other

assets. Liabilities arepredominantly made up of customer

deposits and both secured and unsecured borrowings to

fund the loan book.

Total assets increased 7% to £13.6 billion (31 July

2022: £12.7 billion), reflecting growth in the loan book,

higher treasury assets due to an increased cash balance,

an increase in other assets as higher collateral was held

dueto swap movements, and a reduction in market-making

assets. Total liabilities were also 8% higher at £11.9 billion

(31 July 2022: £11.0 billion), driven primarily by higher

customer deposits, partly offset by a reduction in market-

making liabilities.

Total equity reduced 1% to £1.6 billion (31 July

2022: £1.7 billion), with profit in the year more than

offset by dividend payments of £99.1 million (31 July

2022: £95.5 million). The group’s return on assets

decreased to 0.6% (2022: 1.3%).

68 Strategic Report

Group Capital

31 July 2023

£ million

31 July 2022

£ million

Common equity tier 1 capital 1,310.8 1,396.7

Total capital 1,510.8 1,596.7

Risk weighted assets 9,847.6 9,591.3

Common equity tier 1 capital ratio (transitional)

13.3% 14.6%

Tier 1 capital ratio (transitional) 13.3% 14.6%

Total capital ratio (transitional) 15.3% 16.6%

Leverage ratio

11.4% 12.0%

1. The impact of Novitas on the CET1 capital ratio at 31 July 2023 was -c.115bps, of which -c.85bps relates to retained earnings, -c.40bps relates to the IFRS

9 transitional arrangements and c.10bps relates to RWAs.

2. The leverage ratio is calculated as tier 1 capital as a percentage of total balance sheet assets excluding central bank claims, adjusting for certain

capital deductions, including intangible assets, and off-balance sheet exposures, in line with the UK leverage framework under the UK Capital

Requirements Regulation.

Movements in Capital and Other

Regulatory Metrics

The CET1 capital ratio reduced from 14.6% to 13.3%,

mainly driven by loan book growth in the year (–c.80bps),

a decrease in IFRS 9 transitional arrangements (–c.45bps)

and deduction of dividends paid and foreseen (–c.105bps),

partly offset by capital generation through profit (c.85bps)

and a decrease in risk weighted assets (“RWAs”) associated

with derivatives and credit valuation adjustment (“CVA”)

(c.30bps). The impact of Novitas on the CET1 capital ratio

was –c.115bps and consists of impact on retained earnings

(c.85bps) and IFRS 9 transitional arrangements (c.40bps),

offset by a reduction in loan book RWAs (c.10bps).

CET1 capital decreased 6% to £1,310.8 million (31 July

2022: £1,396.7 million), reflecting a decrease in the

transitional IFRS 9 add-back to capital of £51.1 million, the

regulatory deduction of dividends paid and foreseen of

£100.5 million and an increase in the intangible assets

deducted from capital of £12.1 million. This was partially

offset by the capital generation through profit of

£81.1 million. Total capital decreased 5% to £1,510.8 million

(31 July 2022: £1,596.7 million).

RWAs increased by 3% to £9.8 billion (31 July

2022: £9.6 billion), mainly driven by growth in the

Commercial and Property loan books, partly offset by a

decrease in RWAs associated with derivatives and CVA

following changes to the derivatives calculation to recognise

netting agreements and to implement the standardised

approach to counterparty credit risk.

As a result, CET1, tier 1 and total capital ratios were 13.3%

(31 July 2022: 14.6%), 13.3% (31 July 2022: 14.6%) and

15.3% (31 July 2022: 16.6%), respectively.

During the 2023 financial year higher countercyclical buffer

rates for our UK and Irish exposures have come into force,

increasing the group’s applicable countercyclical buffer by

c.190bps to 1.9%. At 31 July 2023, the applicable minimum

CET1, tier 1 and total capital ratio requirements, excluding

any applicable Prudential Regulation Authority (“PRA”)

buffer, were 9.5%, 11.2% and 13.4%, respectively.

Accordingly, we continue to have headroom significantly

above the applicable minimum regulatory requirements of

c.380bps in the CET1 capital ratio, c.210bps in the tier 1

capital ratio and c.190bps in the totalcapital ratio.

The group applies IFRS 9 regulatory transitional

arrangements which allow banks to add back to their capital

base a proportion of the IFRS 9 impairment charges during

the transitional period. Our capital ratios are presented on a

transitional basis after the application of these arrangements.

On a fully loaded basis, without their application, the CET1,

tier 1 and total capital ratios would be 13.0%, 13.0% and

15.1%, respectively.

The leverage ratio, which is a transparent measure of capital

strength not affected by risk weightings, remained strong at

11.4% (31 July 2022: 12.0%).

The PRA Consultation Paper 16/22 on Basel 3.1 standards

was published in November 2022, with changes expected to

be implemented or phased in from 2025-2030. As

highlighted at the half year 2023 results, following initial

analysis, we estimate that if implemented in its current form,

it would represent an increase of up to c.10% in the group’s

RWAs calculated under the standardised approach. This is

primarily as a result of the proposed removal of the SME

supporting factor and the proposed approach to the

classification of Retail SMEs and associated risk weights.

We continue to make positive progress in our preparations

for a transition to the Internal Ratings Based (“IRB”)

approach. Following the submission of our initial application

to the PRA in December 2020, our application has

successfully transitioned to Phase 2 of the process.

Additional documentation has been submitted to the

regulator and engagement continues. Our Motor Finance,

Property Finance and Energy portfolios, where the use of

models is most mature, were submitted with our initial

application, with work on subsequent portfolios in progress.

69Close Brothers Group plc Annual Report 2023

Financial Overview continued

Capital Management Framework

The prudent management of the group’s financial resources

is a core part of our business model. Our primary objectiveis

to deploy capital to support disciplined loan book growth in

Banking and to make the most of strategic opportunities.

These include strategic initiatives and small acquisitions in

existing or adjacent markets that fit with our business model.

The board remains committed to the group’s dividend policy,

which aims to provide sustainable dividend growth year-on-

year, while maintaining a prudent level of dividend cover.

We remain committed to optimising further our capital

structure, including the issuance of debt capital market

securities if appropriate, targeting a CET1 capital ratio range

of 12% to 13% over the medium term. This will allow the

group to maintain a buffer to minimum regulatory

requirements while also retaining the flexibility to grow the

business. We remain encouraged by the available

opportunities to deploy capital to deliver disciplined growth,

which remains one of our key strategic priorities. The board

will assess the potential for further distributions to

shareholders based on future opportunities.

Group Funding

Our Treasury function is focused on managing funding and

liquidity to support the Banking businesses, as well as

interest rate risk. This incorporates our Savings business,

which provides simple and straightforward savings products

to both individuals and businesses, whilst being committed

to providing the highest level of customer service.

The volatile backdrop over the year, resulting in the failure of

several domestic US banks and the sale of Credit Suisse,

with a consequential impact on the availability of wholesale

funding markets for significant periods, did not adversely

affect the group due to our diverse funding sources,

enablingus to adapt our position to changing market

conditions and demand.

Our conservative approach to funding is based on the

principle of “borrow long, lend short”, with a spread of

maturities over the medium and longer term, comfortably

ahead of a shorter average loan book maturity. Our funding

draws on a wide range of wholesale and deposit markets

including several public debt securities at both group and

operating company level, as well as public and private

secured funding programmes and a diverse mix of

customerdeposits.

We increased total funding in the year by 7% to £12.4 billion

(31 July 2022: £11.6 billion) which accounted for 130%

(31 July 2022: 127%) of the loan book at the balance sheet

date. Although the average cost of funding in Banking

increased to 3.2% (2022: 1.2%) due to rapidly rising interest

rates, we took actions to mitigate this pressure by optimising

the group’s liability mix based on funding needs, customer

demand and market pricing. While we are well positioned to

continue benefiting from our diverse funding base, we expect

cost of funds to further increase in the next financial year as

a result of higher interest rates and customer deposit pricing

pressure, particularly in notice accounts.

Customer deposits increased 14% to £7.7 billion (31 July

2022: £6.8 billion) with non-retail deposits decreasing 5%

to£3.5 billion (31 July 2022: £3.7 billion) and retail deposits

increasing by 35% to £4.2 billion (31 July 2022: £3.1 billion),

as we actively sought to grow our retail deposit base and

optimise our funding mix in light of market conditions.

Our retail deposits are predominantly term, with

approximately 85% protected by the Financial Services

Compensation Scheme. We remain focused on delivering

fairoutcomes for our customers and are on track for the

implementation of the FCA’s Consumer Duty, with our

focusnow on continuing to embed our compliance.

We continue to realise benefits from the investment made in

the customer deposit platform. In May 2023, we expanded

our product offering with the introduction of easy access

accounts, complementing our fixed rate cash ISA and notice

Group Funding

31 July 2023

£ million

31 July 2022

£ million

Customer deposits 7,724.5 6,770.4

Secured funding 1,676.6 1,598.7

Unsecured funding

1,308.6 1,544.3

Equity 1,644.9 1,657.5

Total available funding

12,354.6 11,570.9

Total funding as % of loan book

130% 127%

Average maturity of funding allocated to loan book

21 months 21 months

1. Numbers relate to core funding and exclude working capital facilities at the business level.

2. Unsecured funding excludes £44.3 million (31 July 2022: £22.1 million) of non-facility overdrafts included in borrowings and includes £190.0 million (31 July

2022: £295.0 million) of undrawn facilities.

3. Includes £250 million of funds raised via a senior unsecured bond with a five-year tenor by Close Brothers Group plc, the group’s holding company, in June

2023, with proceeds currently held for general corporate purposes.

4. Total funding as a % of loan book includes £271.2 million (31 July 2022: £240.0 million) of operating lease assets in the loan book figure, as per the definition

of “total funding as a % of loan book including operating lease assets” revised in the 2022 financial year.

5. Average maturity of total available funding, excluding equity and funding held for liquidity purposes.

70 Strategic Report

account range. We are focused on identifying opportunities

to continue to expand our product range, which will support

us in growing and diversifying our retail deposit base and

further optimise our cost of funding and maturity profile.

Secured funding increased 5% to £1.7 billion (31 July

2022: £1.6 billion) as we renewed and extended our Premium

Finance warehouse securitisation to £650 million (31 July

2022: £500 million). We maintained our current drawings

under the Term Funding Scheme for Small and Medium-

sized Enterprises (“TFSME”) at £600 million (31 July

2022: £600 million). Over the next 12 months, £228 million

ofTFSME will mature, which we expect to replace in line with

our diverse funding profile, dependent on market conditions

and demand.

Unsecured funding, which includes senior unsecured and

subordinated bonds and undrawn committed revolving

facilities, reduced to £1.3 billion (31 July 2022: £1.5 billion) as

we adapted our funding mix in light of market conditions. In

June 2023, Close Brothers Group plc successfully issued a

£250 million senior unsecured bond at an interest rate of

7.75% with the net proceeds to be used for general

corporate purposes.

We have maintained a prudent maturity profile. The average

maturity of funding allocated to the loan book was

21 months (31 July 2022: 21 months), ahead of the average

loan book maturity at 16 months (31 July 2022: 17 months).

This is in line with our “borrow long, lend short” principle,

reflecting the timing and mix of funding raised over the year.

Our credit ratings remain strong, reflecting the group’s

profitability, capital position, diversified business model and

consistent risk appetite. Moody’s Investors Services

(“Moody’s”) reaffirmed their rating for Close Brothers Group

as “A2/P1” and Close Brothers Limited as “Aa3/P1”, whilst

upgrading the outlook from “negative” to “stable” for both in

November 2022. Fitch Ratings (“Fitch”) reaffirmed their rating

for both Close Brothers Group and Close Brothers Limited as

‘‘A-/F2’’, whilst downgrading the outlook from ‘‘stable’’ to

“negative” in March 2023.

Group Liquidity

The group continues to adopt a conservative stance on

liquidity, ensuring it is comfortably ahead of both internal

riskappetite and regulatory requirements.

We continued to maintain higher liquidity relative to the

pre-Covid-19 position to provide additional flexibility given

the uncertain UK economic outlook, whilst enabling us to

maximise any opportunities available. Over the year,

treasuryassets increased 20% to £2.2 billion

(31 July2022: £1.9 billion) and were predominantly held

ondeposit with the Bank ofEngland.

We regularly assess and stress test the group’s liquidity

requirements and continue to meet the liquidity coverage

ratio regulatory requirements, with a 12-month average LCR

to 31July 2023 of 1,143% (31July 2022: 924%). In addition

to internal measures, we monitor funding risk based on the

UK Capital Requirements Regulation (“CRR”) rules for the

net stable funding ratio (“NSFR”) which became effective on

1 January 2022. Thefour-quarter average NSFR to 31July

2023 was 126.0% (point in time at 31July 2022: 118.3%).

Group Liquidity

31 July 2023

£ million

31 July 2022

£ million

Cash and balances at central banks 1,937.0 1,254.7

Sovereign and central bank debt

186.1 415.4

Covered bonds

106.3 –

Certificates of deposit – 185.0

Treasury assets 2,229.4 1,855.1

1. There was £nil encumbered sovereign debt, central bank debt and covered bonds at 31 July 2023 (31 July 2022: £216.9 million).

71Close Brothers Group plc Annual Report 2023

Key Financials

2023

£ million

2022

£ million

Change

Operating income 713.8 693.1 3

Adjusted operating expenses (389.7) (362.6) 7

Impairment losses on financial assets (204.0) (103.3) 97

Adjusted operating profit 120.1 227.2 (47)

Adjusted operating profit, pre provisions 324.1 330.5 (2)

Net interest margin 7.7% 7.8%

Expense/income ratio 54.6% 52.3%

Bad debt ratio 2.2% 1.2%

Return on net loan book 1.3% 2.6%

Return on opening equity 6.6% 12.5%

Closing loan book and operating lease assets 9,526.2 9,098.9 5

Key Financials (Excluding Novitas)

2023

£ million

2022

£ million

Change

Operating income 694.9 657.1 6

Adjusted operating expenses (381.0) (348.0) 9

Impairment losses on financial assets (87.2) (42.6) 105

Adjusted operating profit 226.7 266.5 (15)

Adjusted operating profit, pre provisions 313.9 309.1 2

Net interest margin 7.6% 7.5%

Expense/income ratio 54.8% 53.0%

Bad debt ratio 0.9% 0.5%

Closing loan book and operating lease assets 9,466.3 8,939.5 6

1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the

performance of the group’s acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect

underlying trading performance. Further detail on the reconciliation between statutory and adjusted measures can be found in note 3.

Continued Demand and Loan Book Growth, as

we Maintained our Pricing Discipline and Margin

in an Uncertain Market Environment

This year has seen a heightened level of uncertainty in the

market backdrop from a combination of factors, including

the ongoing conflict in Ukraine, UK inflation reaching its

highest level in more than 40 years and the Bank of England

base rate rising to 5% in June 2023, which have all created

challenges for our individual and SME customers. The

deterioration in the external environment has also adversely

impacted the economic variables our businesses are

sensitive to, which has been reflected in higher forward-

looking impairment provisions. Notwithstanding the

economic uncertainty, we continued to support our

customers and lend throughout the cycle on responsible

terms, consistently applying our prudent underwriting and

pricing discipline. We are confident that we have the right

model to thrive in this environment and are confident in the

opportunity it creates for us to lean in and support

consumers and SME businesses.

Banking adjusted operating profit reduced 47% to

£120.1 million (2022: £227.2 million), primarily reflecting

higher impairment charges related to Novitas. On a pre-

provision basis, adjusted operating profit reduced 2% to

£324.1 million (2022: £330.5 million) as growth in income,

driven by good loan book growth and a strong net interest

margin, was offset by an increase in costs. Statutory

operating profit decreased to £120.1 million (2022:

£227.1 million).

Excluding Novitas, Banking adjusted operating profit

decreased 15% to £226.7 million (2022: £266.5 million),

primarily driven by higher impairment charges to reflect the

uncertain macroeconomic outlook and increased costs,

which more than offset income growth.

The loan book increased 5% over the year to £9.5 billion

(31 July 2022: £9.1 billion), driven by strong demand in our

Commercial businesses and high drawdowns in Property,

partly offset by the reduction in the Novitas net loan book.

Growth in our Premium Finance and UK Motor Finance

Financial Overview continued

Banking

72 Strategic Report

books was more than offset by the run-off of the Republic of

Ireland Motor Finance loan book. We saw an acceleration of

growth in the second half of the year to 5%, following a 1%

decline in the loan book in the first half of 2023.

Excluding our businesses in run-off, Novitas and the

Republic of Ireland Motor Finance, the loan book grew 8% to

£9.3 billion (31 July 2022: £8.6 billion).

Operating income increased 3% to £713.8 million

(2022: £693.1 million), reflecting the loan book growth and

strong net interest margin, partially offset by the run-off of

Novitas and the Irish Motor Finance business. Excluding

Novitas, operating income grew 6%.

The net interest margin decreased marginally to 7.7%

(2022: 7.8%) principally due to reduced income from

Novitas. Excluding Novitas, the net interest margin was

stable at 7.6% (2022: 7.5%), reflecting both pricing discipline

on new lending and actions taken to optimise the group’s

liability mix and funding costs in a rising rate environment.

We are well positioned to maintain a strong net interest

margin and pass on increases in cost of funds as we remain

focused on asset pricing.

Adjusted operating expenses increased 7% to £389.7 million

(2022: £362.6 million) as we continued to invest in strategic

programmes. 57% (£15.4 million) of the increase related to

higher staff costs, driven mainly by inflation-related salary

rises and growth-driven hires. This was partly offset by lower

performance-linked compensation due to the reduction in

profit for the year. The expense/income ratio increased to

55% (2022: 52%) and the compensation ratio increased

marginally to 30% (2022: 29%).

Business-as-usual (“BAU”) costs rose 6% to £303.1 million

(2022: £284.8 million), with over half of the increase driven

bysalary increases, as well as an uplift in property running

costs to reflect the current inflationary environment

Costsrelated to Novitas reduced to £8.7 million

(2022: £14.6 million) as we continue to wind down

thebusiness.

Investment costs rose 23% to £77.9 million (2022:

£63.2 million), of which £40.0 million (2022: £29.4 million)

was driven mainly by spend on our strategic cost

management initiatives, growth initiatives and operational

resilience. Depreciation charges related to our investment

projects rose to £37.9 million (2022: £33.8 million).

We see investment through the cycle as vital in protecting

our model, enhancing efficiency and future-proofing our

income generation capabilities. Our investments in cyber and

data centres are part of a programme to continually enhance

our business and operational resilience.

We have implemented a programme directly aligned to

therequirements of the FCA’s Consumer Duty, with

workstreams including fair value assessments, enhanced

product reviews and enhancing customer communications.

Our focus is now on continuing to embed our compliance

and implementing Consumer Duty changes for books of

business not open to new customers.

Across our businesses, we have been investing in our digital

capabilities to support our relationship-based model and

make our experts even more valuable. Our Asset Finance

transformation programme will introduce a single platform,

adding new functionality, improved customer insights and

increased efficiency. In Motor Finance we have seen a

significant increase in new business proposals through our

digital channels and in Premium Finance, we are using

technology to reduce the time taken to make credit

underwriting decisions for large business applications and

have introduced a digital payment link for customers in

arrears. Our previous investment in our Customer Deposit

platform has enabled us to grow our Savings proposition,

introduce new offerings and increase customer numbers,

whilst achieving good customer satisfaction scores.

We have intensified our focus on cost efficiency, particularly

in light of recent inflationary pressures. We have a number of

strategic cost management initiatives in progress, which aim

to create capacity to accommodate growth, inflation and

investment to support our business, and are evaluating

additional opportunities for efficiency. Our multi-year

technology transformation programme focused on strategic

IT services is well under way. As part of this, we are moving

to a new operating model, making use of third-party

providers to reduce our cost base and create efficiencies.

The programme will enhance the service we provide to our

customers and increase our operational resilience and

flexibility. Our Retail simplification programme is focused on

transforming operations and reducing the cost of running the

business, whilst enhancing the operational risk and control

environment. The programme also aims to increase broker,

customer and colleague satisfaction and loyalty. A new

customer relationship platform has been introduced in

Premium Finance, as well as case management and

automation tools, which are driving a reduction in case

handling and credit decisioning times.

Whilst we remain focused on achieving positive operating

leverage over the medium term, we expect costs for the

2024 financial year to increase between c.8-10%, primarily

as a result of higher average salary awards at the end of the

2023 financial year and a normalisation of performance-

linked compensation. As we progress our strategic cost

management initiatives, investment costs and related

depreciation are expected to increase and will be partly

offset by efficiency savings.

1. Related ongoing costs resulting from investment projects are recategorised from investment costs to BAU costs after one year. For comparison purposes,

£6.5 million has been recategorised from investment costs to BAU costs in the 2022 financial year to adjust for investment projects’ ongoing costs that

commenced prior to the 2023 financial year.

73Close Brothers Group plc Annual Report 2023

In the 2025 financial year, we expect cost growth to more

closely align with income growth, reflecting volume and

activity-related expenses, a projected stabilisation of

inflationary pressures, as well as further benefits from

efficiency gains resulting from our strategic cost

management initiatives. Investment spend is expected to

stabilise, with depreciation costs related to our existing

investment programmes peaking in the 2025 financial year.

Impairment charges increased significantly to £204.0 million

(2022: £103.3 million), corresponding to a bad debt ratio of

2.2% (2022: 1.2%). This was driven primarily by increased

provisions in relation to Novitas of £116.8 million

(2022: £60.7 million), of which £114.6 million was incurred in

the first half of the year.

Additionally, a further £87.2 million of impairment charges

were recognised to take into account weaker

macroeconomic variables and outlook, as well as higher

arrears in the Motor Finance business as a result of cost of

living pressures on customers. They also reflect an ongoing

review of provisions and coverage across our loan portfolios

and model refinements. Excluding Novitas, the bad debt

ratio increased to 0.9% (2022: 0.5%), although remains

slightly below our long-term bad debt ratio of 1.2%, and the

coverage ratio increased marginally to 2.1% (31 July

2022: 1.9%). There was also an increase in overall provision

coverage to 3.9% (31 July 2022: 3.1%).

Whilst we have not seen a significant impact on credit

performance, we continue to monitor closely the evolving

impacts of rising inflation and cost of living on our

customers. We remain confident in the quality of our loan

book, which is predominantly secured or structurally

protected, prudently underwritten, diverse, and supported by

the deep expertise of our people. We expect the bad debt

ratio in the 2024 financial year to remain below our long-term

average, based on current market conditions.

Accelerating our Efforts to Resolve Issues

Relating to Novitas

The decision to wind down Novitas, a provider of finance for

the legal sector we acquired in 2017, and to withdraw from

the legal services financing market, followed a strategic

review in July 2021 which concluded that the business was

not aligned with the Close Brothers model. Some of the key

attributes of our model such as in-house lending expertise, a

strong track record of performance and underlying security

of the loans, have proven not to be evident in Novitas.

The business continues to work with solicitors and insurers,

to support existing customers and manage the existing book

to ensure good customer outcomes. As announced in

January 2023, we have accelerated our efforts to resolve the

issues relating to Novitas. We initiated formal legal action

against one of the After the Event (“ATE”) insurers regarding

the potential recoverability of funds in relation to failed cases

and we are considering our position in respect of other

insurers. As a result, an increased provision to reflect the

expectation of a longer time frame to recovery for related

loans was included in the £24.8 million of provisions taken in

the first five months of the 2023 financial year. We have since

entered into a settlement with another smaller ATE insurer.

In the first half of the year, we also undertook a review of

certain cases being funded which had limited prospects of

successfully progressing through the courts. As a result of

this review, an additional provision of £89.8 million was

recognised, which assumed a material increase in the

Probability of Default (“PD”) and Loss Given Default (“LGD”)

assumptions and a longer time frame to recovery across the

majority of the portfolio. It also assumed reassessed

estimates for recoverability of interest on the relevant loans,

in line with accounting requirements.

Consequently, we recognised provisions of £114.6 million in

relation to Novitas in the first half. While we will continue to

review provisioning levels in light of future developments,

including the experienced credit performance of the book

and the outcome of the group’s initiated legal action, we

believe the provisions adequately reflect the remaining risk of

credit losses for the Novitas loan book (£59.9 million net loan

book at 31 July 2023).

In addition, in line with IFRS 9 requirements, a proportion of

the expected credit loss is expected to unwind, over the

estimated time to recovery period, to interest income. The

group remains focused on maximising the recovery of

remaining loan balances, either through successful outcome

of cases or recourse to the customers’ ATE insurers, whilst

complying with its regulatory obligations and always

focusing on ensuring good customer outcomes.

We expect net income related to Novitas to reduce from

£18.9 million in 2023 to c.£9 million in 2024. Further

disclosure on the impact of Novitas can be found in note 10.

Continued Focus on Delivering

DisciplinedGrowth

We remain focused on delivering disciplined growth whilst

prioritising our margins and credit quality, with our growth

initiatives delivering a significant contribution of loan book

growth. We continue to actively work to identify incremental

and new opportunities in line with our business model and

overall remain confident in the growth outlook for the loan

book over both the short and medium term. We are confident

that we have the right model to thrive in this environment and

are confident in the opportunity it creates for us to lean in

and support consumers and SME businesses.

As the UK aligns towards a net zero economy,

werecognisea significant opportunity for delivering

disciplined growth. Our specialist energy team has provided

finance for over 1,600MW of installed generation and storage

capacity to date and we continue to broaden our expertise

Financial Overview continued

Banking

74 Strategic Report

ingreen and transition assets. In line with our ambition to

provide funding for £1.0 billion of battery electric vehicles by

the end of the 2027 financial year, we have lent £164 million

over the last year.

The Asset Finance business remains well positioned to

capitalise on continued demand for finance from SMEs. Our

new initiatives are proving successful, with the recently hired

agricultural equipment and materials handling teams both

having written healthy levels of new business over the year

and building strong pipelines, as we continue to expand our

coverage into adjacent asset classes and markets.

In Invoice Finance, we continue to focus on taking advantage

of opportunities in the asset-based lending (“ABL”) space,

building on the success we have seen this year with our first

syndication deal and our expansion to cover larger loan

sizes. We have also expanded our offering with our new

bespoke lending team, which offers loan structures to SMEs

requiring growth and investment capital, and closed its first

deal earlier this year.

The Motor Finance transformation programme, which has

now concluded, has created the digital capabilities for us to

enhance our proposition for dealers, partners and customers.

We are currently rolling out a new dealer partner onboarding

process and our partnership with iVendi has driven an uplift

in proposal volumes. Our partnership with AutoTrader,

providing dealers with data and insights to effectively

manage their forecourts, continues to prove successful and

we are leveraging the investment made in our commercial

partner programme to support additional routes to market.

Inaddition, we have expanded our credit policy to provide

broader coverage of Alternatively Fuelled Vehicles (“AFVs”)

as they become more prevalent in the second hand car

market. In September 2023, we announced our agreement

toacquire Bluestone Motor Finance (Ireland) DAC, which

willprovide a platform for us to build our Motor Finance

businessin Ireland.

In Premium Finance, we continue to focus on our digital,

data and insight capabilities to enhance our offering, with our

Foresight model helping to support brokers’ decisioning by

providing unique customer behaviour insights. We are

expanding our new business capabilities through the use of

a customer relationship management platform and the

launch of a programme to support commercial lines brokers

with the promotion and sale of premium finance.

In Property, following the successful piloting of a specialist

buy-to-let extension to our existing bridging finance

customers, we are continuing to offer this product and wrote

a healthy level of business during the year. We are seeing

good demand for initiatives including our enhanced loan-to-

value product for select customers, alongside our continued

focus on growing our regional loan book. We are also looking

to expand further our partnership with Travis Perkins, which

enables SME housebuilders to access discounted building

supplies and materials directly via a credit facility. Although

the economic uncertainty is expected to continue to impact

activity in the property market, our pipeline of undrawn

commitments remains strong.

Continued Demand Across our Banking

Businesses with Good Loan Book Growth

The Commercial loan book grew 6% to £4.8 billion

(31 July2022: £4.6 billion), despite the roll-off of government

supported lending under schemes such as the Coronavirus

Business Interruption Loan Scheme (“CBILS”), supported by

strong demand and growth initiatives. Excluding Novitas,

theCommercial book increased 8% to £4.8 billion

(31 July2022: £4.4 billion). The net loan book of government

supported lending over the pandemic period (covering

lending under the CBILS, Coronavirus Large Business

Interruption Loan Scheme and Bounce Back Loan Scheme)

stood at £456 million at 31 July 2023

(31 July2022: £748 million).

Loan Book Analysis

31 July 2023

£ million

31 July 2022

£ million

Change

Commercial 4,821.3 4,561.4 6

Commercial – Excluding Novitas 4,761.4 4,402.0 8

Asset Finance

3,387.1 3,217.4 5

Invoice and Speciality Finance

1,434.2 1,344.0 7

Invoice and Speciality Finance – Excluding Novitas

1,374.3 1,184.6 16

Retail 3,001.8 3,064.0 (2)

Motor Finance

1,948.4 2,051.2 (5)

Premium Finance 1,053.4 1,012.8 4

Property 1,703.1 1,473.5 16

Closing loan book and operating lease assets

9,526.2 9,098.9 5

Closing loan book and operating lease assets – Excluding Novitas 9,466.3 8,939.5 6

1. The Asset Finance and Invoice and Speciality Finance loan books have been re-presented for 31 July 2022 to reflect the recategorisation of Close Brothers

Vehicle Hire (“CBVH”) from Invoice and Speciality Finance to Asset Finance.

2. The Motor Finance loan book includes £206.7 million (31 July 2022: £367.2 million) relating to the Republic of Ireland Motor Finance business, which is

in run-off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022.

3. Includes operating lease assets of £223.4 million (31 July 2022: £185.4 million) that relate to Asset Finance and £47.8 million (31 July 2022: £54.6 million)

to Invoice and Speciality Finance.

75Close Brothers Group plc Annual Report 2023

Asset Finance grew 5% as we saw strong new business

volumes in our Leasing business, particularly from our

Contract Hire and Energy portfolios, and good demand for

our new initiatives including our agriculture offering. Invoice

and Speciality Finance grew 7%, notwithstanding the

reduction in the Novitas net loan book, as we saw strong

new business and higher utilisation in Invoice Finance and

good growth in our Irish business. The Invoice Finance

business also completed its first syndication deal during the

year. Excluding Novitas, the Invoice and Speciality Finance

loan book increased 16%.

The Retail loan book contracted 2% to £3.0 billion (31 July

2022: £3.1 billion), driven mainly by the decline in the

Republic of Ireland loan book. Motor Finance decreased 5%

as the run-off of the Irish book more than offset 3% growth

in the UK Motor book as we enhanced our proposition and

focused on new routes to market through our commercial

partners. Premium Finance grew 4% year-on-year, driven by

an increase in new business volumes from individuals and

larger premium sizes reflecting inflation.

The Republic of Ireland Motor Finance business accounted

for 11% of the Motor Finance loan book (31 July 2022: 18%)

and 2% of the Banking loan book (31 July 2022: 4%).

Asannounced in September 2023, we have reached an

agreement to acquire Bluestone Motor Finance (Ireland),

with the acquisition expected to complete in the fourth

quarter of calendar year 2023. This will provide a platform

for us to build our Motor Finance business in Ireland,

following the cessation of our previous partnership in that

country last year.

The Property loan book grew 16%, despite uncertainty in

thehousing market, as we saw strong drawdowns from our

healthy pipeline and normalising repayments from the

elevated levels seen in the prior year, as the buoyant UK

property market had resulted in heightened unit sales by

developers. We are seeing good demand for initiatives

including our specialist buy-to-let extension and our

enhanced loan-to-value product for select customers,

alongside our continued focus on growing our regional

loan book.

Banking: Commercial

2023

£ million

2022

£ million

Change

Operating income 347.8 343.4 1

Adjusted operating expenses (194.4) (180.0) 8

Impairment losses on financial assets (137.5) (72.4) 90

Adjusted operating profit 15.9 91.0 (83)

Adjusted operating profit, pre provisions 153.4 163.4 (6)

Net interest margin 7.4% 7.8%

Expense/income ratio 56% 52%

Bad debt ratio 2.9% 1.7%

Closing loan book and operating lease assets

4,821.3 4,561.4 6

Commercial Key Metrics Excluding Novitas

2023

£ million

2022

£ million

Change

Operating income 328.9 307.4 7

Adjusted operating expenses (185.7) (165.4) 12

Impairment losses on financial assets (20.7) (11.7) 77

Adjusted operating profit 122.5 130.3 (6)

Adjusted operating profit, pre provisions 143.2 142.0 1

Net interest margin 7.2% 7.3%

Expense/income ratio 56% 54%

Bad debt ratio 0.5% 0.3%

Closing loan book and operating lease assets

4,761.4 4,402.0 8

1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the

performance of the group’s acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect

underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in note 3.

2. Operating lease assets of £223.4 million (31 July 2022: £185.4 million) relate to Asset Finance and £47.8 million (31 July 2022: £54.6 million) to Invoice and

Speciality Finance.

Financial Overview continued

Banking

76 Strategic Report

Strong Demand in Commercial as we Continue to

Support our SME Customers

The Commercial businesses provide specialist,

predominantly secured lending principally to the SME

marketand include Asset Finance and Invoice and Speciality

Finance. We finance a diverse range of sectors, with Asset

Finance offering commercial asset financing, hire purchase

and leasing solutions across a broad range of assets

including commercial vehicles, machine tools, contractors’

plant, printing equipment, company car fleets, energy

projectfinance, and aircraft and marine vessels, as well as

our Vehicle Hire business. The Invoice and Speciality

Financebusiness provides debt factoring, invoice

discounting and asset-based lending, as well as covering

two of our specialist businesses, Brewery Rentals and

Novitas. As previously announced, Novitas ceased lending

tonew customers in July 2021.

Despite the market uncertainty, our Commercial businesses

saw good customer demand over the year, with Invoice

Finance experiencing strong new business levels and an

uptick in utilisation. We have focused on asset pricing

discipline in line with our model, actively choosing to pass

through higher rates on new lending where appropriate

notwithstanding the competitive market. Our new initiatives

have proven successful, with our agriculture and materials

handling teams writing healthy levels of new business over

the year and our first syndication deal completed.

Adjusted operating profit for Commercial declined

significantly to £15.9 million (2022: £91.0 million), driven

primarily by a significant increase in impairment charges

related to Novitas. Statutory operating profit reduced to

£15.8 million (2022: £90.9 million).

On a pre-provision basis, adjusted operating profit

decreased 6% to £153.4 million (2022: £163.4 million) as an

increase in costs more than offset income growth.

Excluding Novitas, adjusted operating profit decreased 6%

to £122.5 million (2022: £130.3 million) as income growth

was more than offset by higher costs.

Operating income increased 1% to £347.8 million

(2022: £343.4 million), reflecting good loan book growth and

higher average volumes in Invoice and Speciality Finance.

The net interest margin decreased to 7.4% (2022: 7.8%),

driven mainly by the reduction in Novitas income. Excluding

Novitas, the net interest margin decreased marginally to

7.2% (2022: 7.3%), primarily reflecting the timing delay in

passing through higher interest rates to customers compared

to increased funding costs, partly offset by increased

activity-driven fees and benefits of central funding mix

actions taken in light of the rising interest rate environment.

Adjusted operating expenses grew 8% to £194.4 million

(2022: £180.0 million), driven by investment spend in relation

to the Asset Finance transformation programme and

strategic growth initiatives, as well as higher staff costs to

reflect the inflationary environment. This was partly offset by

lower advisory costs in relation to Novitas. The expense/

income ratio increased to 56% (2022: 52%) as higher costs

more than offset the growth in income.

Impairment charges rose significantly to £137.5 million

(2022: £72.4 million), with £116.8 million incurred in relation

to Novitas, £114.6 million of which were recognised in the

first half of the year. As a result, there was an increase in

provision coverage to 5.2% (31 July 2022: 4.0%).

Excluding Novitas, impairment charges increased to

£20.7 million (2022: £11.7 million), corresponding to a bad

debt ratio of 0.5% (2022: 0.3%). This increase primarily

reflected additional provisions to take into account weaker

macroeconomic variables and outlook. The coverage ratio

reduced marginally to 1.4% (31 July 2022: 1.6%).

Banking: Retail

2023

£ million

2022

£ million

Change

Operating income 248.1 237.0 5

Operating expenses (164.4) (151.6) 8

Impairment losses on financial assets (49.0) (24.4) 101

Operating profit 34.7 61.0 (43)

Operating profit, pre provisions 83.7 85.4 (2)

Net interest margin 8.2% 7.8%

Expense/income ratio 66% 64%

Bad debt ratio 1.6% 0.8%

Closing loan book

3,001.8 3,064.0 (2)

1. The Motor Finance loan book includes £206.7 million (31 July 2022: £367.2 million) relating to the Republic of Ireland Motor Finance business, which is in run-

off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022.

77Close Brothers Group plc Annual Report 2023

Expanding Our Presence in Ireland

In September 2023, we announced that we had reached an

agreement to acquire Bluestone Motor Finance (Ireland)

DAC (“Bluestone Motor Finance”), with the acquisition

expected to complete in the fourth quarter of calendar year

2023. Close Brothers is already a well-known and trusted

brand in Ireland, having helped over 130,000 customers

finance vehicles. We are confident that the acquisition

presents the right opportunity to re-enter the Irish motor

finance market and provide a platform for delivering

disciplined growth.

Bluestone Motor Finance is an award-winning business

with a specialist lending approach that aligns with the

Close Brothers Motor Finance offering. It has an

established distribution network of over 650 dealer partners

and an experienced sales and underwriting team, focusing

on the prime and specialist segments of the Irish motor

finance market. Customers score the offering “Excellent”

on Trustpilot. Bluestone Motor Finance has invested in its

digital capabilities and its online application offering is

industry-leading in Ireland.

The acquisition will enable us to share our specialist

knowledge with Bluestone Motor Finance customers and

dealer partners and offer an expanded product offering.

The acquisition is aligned to our commitment to Ireland as

a strategic, long-term market.

Remained Focused on Prioritising our Margins

and Underwriting Discipline

The Retail businesses provide intermediated finance,

principally to individuals and small businesses, through

motor dealers and insurance brokers.

We have seen a solid performance in our Retail businesses

this year despite the challenging market backdrop. In Motor

Finance, we have focused on prioritising our margin and

pricing discipline in line with our model, passing through

higher rates on new lending. As reported at the half year

2023 results and in line with comparable trends observed

across the wider industry, we have seen arrears increase and

then stabilise at a higher level in our Motor Finance loan

book, reflecting cost of living pressures on our customers.

Nonetheless, we remain comfortable with the quality of our

portfolio, underpinned by our underwriting discipline and

prudent level of provisions. In Premium Finance, volumes in

our consumer business have increased year-on-year,

benefiting from premium inflation in the second half of the

year, with growth in average loan sizes.

Operating profit for Retail reduced to £34.7 million

(2022: £61.0 million), as income growth was more than offset

by higher costs and increased impairment charges.

Operating income rose 5% to £248.1 million

(2022: £237.0 million), driven by growth in the UK Motor

Finance loan book and an increase in the net interest margin

to 8.2% (2022: 7.8%) despite higher funding costs, as we

continued to focus on pricing discipline and benefited from

central funding mix actions taken in light of the rising interest

rate environment.

Operating expenses increased 8% to £164.4 million

(2022: £151.6 million), primarily driven by investment in the

Retail businesses to create efficiencies whilst delivering

customer and control benefits, including depreciation costs

related to these investments, as well as higher staff costs,

particularly in legal and compliance.

In Premium Finance, we have continued to invest in further

enhancing our processes in line with regulatory

requirements. As a result, the expense/income ratio

increased to 66% (2022: 64%).

Following the FCA’s Motor Market review in 2019, the group

continues to receive a number of complaints, some of which

are with the Financial Ombudsman Service, and is subject to

a number of claims through the courts regarding historical

commission arrangements with intermediaries on its Motor

Finance products. Whilst the review of these complaints and

claims is ongoing, any potential financial impact remains

uncertain.

Impairment charges rose to £49.0 million

(2022: £24.4 million), corresponding to a bad debt ratio of

1.6% (2022: 0.8%). Thiswas driven by the uncertain

macroeconomic outlook and increased arrears and

forbearance levels in Motor Finance, as well as an ongoing

review of provisions and coverage. As a result, the provision

coverage ratio increased to 2.9% (31 July 2022: 2.2%).

We remain confident in the credit quality of the Retail loan

book. The Motor Finance loan book is predominantly

secured on second hand vehicles which are less exposed to

depreciation or significant declines in value than new cars.

Our core Motor Finance product remains hire-purchase

contracts, with less exposure to residual value risk

associated with Personal Contract Plans (“PCP”), which

accounted for c.9% of the Motor Finance loan book at

31 July 2023 (c.11% at 31 July 2022). The Premium Finance

loan book benefits from various forms of structural protection

including premium refundability and, in most cases, broker

recourse for the personal lines product.

Financial Overview continued

Banking

78 Strategic Report

Strong Loan Book Growth Driven by Drawdowns

from our Healthy Pipeline

Property comprises Property Finance and Commercial

Acceptances. The Property Finance business is focused on

specialist residential development finance to established

professional developers in the UK. Commercial Acceptances

provides bridging loans and loans for refurbishment projects.

This year has seen a slowdown across the UK property

market following a period of heightened activity, with rising

interest rates negatively impacting buyer sentiment. Whilst

we have seen a fall in housebuilding levels and some

contraction in house prices, we have delivered a strong

performance, with record drawdowns, growth in active

customer numbers and our pipeline remaining healthy at

over £1 billion. We have also focused on retaining our margin

and pricing discipline as we adhere to our through-the-cycle

lending approach.

Operating profit in Property declined 8% to £69.5 million

(2022: £75.2 million), as an increase in impairment charges

more than offset income growth. On a pre-provision basis,

operating profit grew 6% to £87.0 million (2022: £81.7 million)

as we achieved positive operating leverage in the business.

Operating income increased 5% to £117.9 million

(2022: £112.7 million), driven by strong loan book growth and

higher fee income. The net interest margin decreased to

7.4% (2022: 7.6%), reflecting higher cost of funds and the

benefit of interest rate floors in the prior year.

Operating expenses were stable at £30.9 million

(2022: £31.0 million) as we maintained our strict focus on

cost discipline. As a result, the expense/income ratio

reduced to 26% (2022: 28%).

Impairment charges increased to £17.5 million

(2022: £6.5 million), resulting in a bad debt ratio of 1.1%

(2022: 0.4%), as we recognised additional provisions to

reflect weakening macroeconomic variables and outlook, in

particular lower projected house prices, and an ongoing

review of provisions and coverage. The provision coverage

ratio remained stable at 2.4% (31 July 2022: 2.4%).

The Property loan book is conservatively underwritten, with

typical LTVs below standard market levels. We work with

experienced, professional developers, with a focus on

mid-priced family housing, and have minimal exposure to the

prime central London market, with our regional loan book

making up over 50% of the Property Finance portfolio. Our

long track record, expertise and quality of service ensure the

business remains resilient to competition and continues to

generate high levels of repeat business.

Banking: Property

2023

£ million

2022

£ million

Change

Operating income 117.9 112.7 5

Operating expenses (30.9) (31.0) 0

Impairment losses on financial assets (17.5) (6.5) 169

Operating profit 69.5 75.2 (8)

Operating profit, pre provisions 87.0 81.7 6

Net interest margin 7.4% 7.6%

Expense/income ratio 26% 28%

Bad debt ratio 1.1% 0.4%

Closing loan book 1,703.1 1,473.5 16

79Close Brothers Group plc Annual Report 2023

Key Financials

2023

£ million

2022

£ million

Change

Investment management 113.3 110.4 3

Advice and other services

29.9 36.1 (17)

Other income

1.6 1.5 7

Operating income 144.8 148.0 (2)

Adjusted operating expenses (128.8) (126.3) 2

Impairment losses on financial assets (0.1) – n/a

Adjusted operating profit 15.9 21.7 (27)

Revenue margin (bps) 84 87

Operating margin 11% 15%

Return on opening equity 15.5% 28.6%

1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the

performance of the group’s acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect

underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in note 3.

2. Income from advice and self-directed services, excluding investment management income.

3. Other income includes net interest income and expense, income on principal investments and other income.

Acceleration of Growth Strategy, Building on

Long-term Track Record and Driving Strong

Net Inflows

Close Brothers Asset Management provides personal

financial advice and investment management services to

private clients in the UK, including full bespoke management,

managed portfolios and funds, distributed both directly via

our advisers and investment managers, and through

third-party financial advisers.

Adjusted operating profit in CBAM reduced 27% to

£15.9 million (2022: £21.7 million), driven by a modest

decline in income, reflecting lower income from advice and

other services, and higher costs as we accelerated our hiring

strategy. The operating margin reduced to 11% (2022: 15%).

Statutory operating profit before tax was £14.4 million

(2022: £19.8 million).

We saw an increase in investment management income

resulting from growth in AuM delivered by our bespoke

investment manager hires. This was more than offset by a

decrease in income from advice and other services, which

reflected the impact of difficult market conditions on client

assets, and managements’ strategic shift to focus on more

higher value clients. As a result, income in the Asset

Management division decreased by 2%. The revenue

marginreduced to 84bps (2022: 87bps) due primarily to

flows into lower margin investment management and

non-advised products.

Adjusted operating expenses rose 2% as we exercised

disciplined cost control whilst accelerating our growth

strategy. We increased our rate of hiring, recruiting 15

bespoke investment managers during the year (2022: 10) and

opened offices in Birmingham and Cheltenham to support

new teams, whilst also implementing inflationary-driven

salary increases and incurring spend on technology,

which was partly offset by lower variable compensation.

The expense/income ratio increased to 89% (2022: 85%),

with the compensation ratio also increasing to 59%

(2022: 56%). The acceleration of our hiring strategy will

continue to be reflected in the cost trajectory going forward.

CBAM has achieved substantive compliance with the

FCA’s Consumer Duty requirements. In preparation for the

implementation of the FCA’s Consumer Duty, we completed

a number of workstreams focused on mapping client

journeys and enhancing our data collection and client

communications, with Consumer Duty embedded into the

CBAM strategy.

Strong Net Inflows Notwithstanding Market

Uncertainty

Continued uncertainty over the economic outlook has led to

volatility in returns from equity markets over the year,

negatively impacting investor sentiment. Nevertheless, we

saw strong net inflows of £1.3 billion (2022: £844 million) and

delivered a net inflow rate of 9% (2022: 5%). Our hiring

strategy is proving successful, with a strong pipeline and the

new bespoke investment managers contributing significantly

to the overall inflow rate. We continue to invest in supporting

the long-term growth potential of CBAM through both new

hires and building our acquisition pipeline.

Total managed assets grew 7% to £16.4 billion (31 July

2022: £15.3 billion), driven by strong net inflows, partly offset

by negative market performance. Total client assets, which

includes both advised and managed assets, increased 5% to

£17.3 billion (31 July 2022: £16.6 billion).

The integration of PMN Financial Management into CBAM

has outperformed initial expectations, with the business

having now been fully integrated and the migration of assets

expected to be completed by July 2024.

Financial Overview continued

Asset Management

80 Strategic Report

Movement in Client Assets

31 July

2023

£ million

31 July

2022

£ million

Opening managed assets 15,302 15,588

Inflows 2,729 2,330

Outflows (1,411) (1,486)

Net inflows 1,318 844

Market movements (201) (1,130)

Total managed assets 16,419 15,302

Advised only assets 907 1,272

Total client assets

17,326 16,574

Net flows as % of opening managed assets 9% 5%

1. Total client assets include £4.9 billion of assets (31 July 2022: £5.1 billion) that are both advised and managed.

Fund Performance

Our funds and segregated bespoke portfolios are designed

to provide attractive risk-adjusted returns for our clients,

consistent with their long-term goals and investment

objectives. Fund performance has been mixed, reflecting

volatile markets across asset classes which has been the

case throughout the year. As a result, we have seen some of

our funds outperform their peer group, with others

underperforming, mainly reflecting their exposure to

exchange rate movements.

Our Sustainable Funds and Net Zero

Commitment

In March 2023, we created the Sustainable Select Fixed

Income fund through merging our existing Select Fixed

Income fund and Sustainable Bond fund. This new fund

utilises an updated sustainable investment methodology,

making use of CBAM’s experience and understanding of

sustainable investment strategies gained over recent

years to target a reduction in CO

emissions intensity

versus its benchmark.

Our Sustainable Select Fixed Income fund has seen good

traction so far and we are exploring options for enhancing

further our sustainable offering.

In line with our commitment to actively contribute towards

the UK government’s net zero climate goals, CBAM is a

signatory of the Net Zero Asset Managers initiative and is

on track to disclose its net zero targets by the end of

September 2023.

Well Positioned for Future Growth

We remain confident that our vertically integrated, multi-

channel business model positions us well for ongoing

demand for our services and the structural growth

opportunity presented by the wealth management industry.

Our focus remains on providing excellent service, building

onthe strength of our client relationships, whilst investing in

new hires and building our pipeline of acquisitions to support

the long-term growth potential of our business. While CBAM

is sensitive to financial market conditions, we remain

committed to driving growth both organically and through

in-fill acquisitions.

81Close Brothers Group plc Annual Report 2023

Performance Impacted by Continued Slowdown

in Trading Activity but Well Positioned to Benefit

When Market Conditions Improve

Winterflood is a leading UK market maker, delivering

high-quality execution services to execution platforms,

stockbrokers, wealth managers and institutional investors, as

well as providing corporate advisory services to investment

trusts and outsourced dealing and custody services via

Winterflood Business Services (“WBS”).

We have seen significant macroeconomic uncertainty over

the year, with geopolitical and economic events, particularly

the ongoing war in Ukraine and continual rises in the cost of

debt, causing substantial market challenges. Interest rates

are at their highest since the 2008 financial crisis and,

collectively, this has negatively impacted investor confidence

and appetite. Against this backdrop, the domestically

focused UK indices have suffered sustained market declines,

with the FTSE 250 and AIM All-Share index declining 5% and

17% respectively this year.

This year has seen subdued retail trading activity, particularly

in higher margin sectors (AIM and Smaller Companies) as

investors turned to safer and better performing sectors such

as Fixed Income and Exchange-Traded Funds or withdrew

from the market as they await more certainty in the

macroeconomic environment. This sentiment inevitably led

to reduced retail-driven trading situations and our volumes

have fallen as a result. Average daily bargains reduced 26%

to 60k (2022: 81k), although trading volumes remain

marginally above pre-pandemic levels (2019: 56k) and we

have maintained our market-leading position, trading over

280 billion shares in the year

Trading income reduced to £58.6 million (2022: £80.7 million)

as diversification in trading sectors and the expertise of our

traders, evidenced by only one loss day (2022: eight loss

days), helped mitigate the difficult market environment.

Operating income decreased to £75.3 million

(2022: £95.2 million), primarily driven by lower trading

revenues. All trading sectors reported a decline on the prior

year except Fixed Income, which benefited from volatility in

bond markets following the fallout from the UK mini-budget

and changes in investor risk appetite. We also saw a

reduction in fee income generated by our Investment Trusts

Corporate team as corporate activity slowed market-wide as

the risk-off market sentiment impacted issuance and

transaction volumes, with just one IPO launched this year.

Our Investment Trusts Corporate business, which is

corporate broker to over 50 investment trusts, delivered

revenue of £2.5 million (2022: £3.9 million), largely

representing retainer fee income.

We are at the forefront of initiatives to simplify participation

in equity, debt and private markets for UK retail investors

through our collaborations with PrimaryBid and JP Jenkins,

and our proprietary solution, Winterflood Retail Access

Platform (“WRAP”).

WBS has continued its positive trajectory, growing AuA to

£12.9 billion (2022: £7.2 billion) despite sustained equity

market declines. Net inflows were £5.5 billion

(2022: £1.3 billion) following the successful completion of the

planned migration of custody assets of Fidelity International

in the first quarter of 2023. WBS grew income 45% to

£14.8 million (2022: £10.2 million), with recurring income up

38% to £14.1 million. We are confident that WBS is well

positioned for further growth, both organically and supported

by a solid pipeline of clients, and expect WBS to grow AuA

to over £20 billion by 2026.

Operating expenses reduced 11% to £71.8 million

(2022: £81.1 million) due to decreased variable costs as the

slowdown in activity led to lower staff compensation and

settlement fees. The reduction in income was not fully offset

by lower expenses, reflecting operational gearing in the

business. Looking ahead, Winterflood’s variable cost base is

expected to reflect a recovery in income as investor

confidence returns.

Operating profit decreased 75% to £3.5 million

(2022: £14.1 million) against a backdrop of difficult

conditions and sustained market declines.

Winterflood has a long track record of trading profitably

through a range of conditions and we remain well positioned

to retain our market position and benefit when investor

appetite returns. We continue to diversify our revenue

streams and explore growth opportunities to balance the

cyclicality in the trading business.

Financial Overview continued

Winterflood

Key Financials

2023

£ million

2022

£ million

Change

Operating income 75.3 95.2 (21)

Operating expenses (71.8) (81.1) (11)

Operating profit 3.5 14.1 (75)

Average bargains per day (‘000) 60 81

Operating margin 5% 15%

Return on opening equity 2.6% 10.5%

Loss days 1 8

1. Bloomberg data covering 1 August 2022 to 31 July 2023.

82 Strategic Report

Protecting our established business

model is a key strategic objective.

Effective management of the risks we

face is central to everything we do.

The group faces a number of risks in the normal course of its

business providing lending, deposit taking, wealth

management services and securities trading. To manage

these effectively, a consistent approach is adopted based on

a set of overarching principles, namely:

• adhering to our established and proven business model,

as outlined on pages 12 to 13;

• implementing an integrated risk management approach

based on the concept of three lines of defence; and

• setting and operating within clearly defined risk appetites,

monitored with defined metrics and limits.

This Risk Report provides a summary of our approach to risk

management, covering each of the key aspects of the

group’s Enterprise Risk Management Framework.

Information on each of the group’s principal risks, including

an overview of the frameworks in place to manage them, is

also included, together with an overview of current emerging

risks and uncertainties.

All disclosures in the Risk Report are unaudited unless

otherwise stated.

Risk Report

Enterprise Risk Management

An enterprise-wide framework designed to provide

the board and senior management with oversight of

the group’s financial position as well as the risks

that might adversely affect it.

The framework details the core risk management

components and structures used across the group,

and defines a consistent and measurable approach to

identifying, assessing, controlling and mitigating,

reviewing and monitoring, and reporting risk – the risk

process life cycle.

This sets out the activities, tools, techniques and

organisational arrangements that ensure all principal

risks facing the group are identified and understood;

and that appropriate responses are in place to protect

the group and prevent detriment to its customers and

colleagues. This enables the group to meet its goals

and enhances its ability to respond to new

opportunities.

The framework is purposely designed to allow the

capture of business opportunities whilst maintaining an

appropriate balance of risk and reward within the

group’s agreed risk appetite.

Enterprise Risk Management Framework

Principal and

emerging risks

83Close Brothers Group plc Annual Report 2023

Risk CultureRisk Culture and Awareness

An effective risk culture is embedded throughout the

group

Maintenance of an effective risk management culture is

integral to the group in meeting its regulatory conduct

requirements and assisting the accomplishment of key

strategic goals.

The risk culture:

• supports the group and its directors in meeting their legal

and regulatory obligations, particularly with respect to the

identification and management of risks and the need for a

robust control environment;

• underpins the group’s purpose, strategy, cultural

attributes and divisional values;

• provides enhanced awareness of risk in business

operations by highlighting strengths and weaknesses and

their materiality to the business and, in turn, facilitating

informed decision-making;

• optimises business performance by facilitating challenge

of ineffective controls and improving the allocation of

resources;

• improves the group’s control environment; and

• assists in the planning and prioritisation of key projects

and initiatives.

While risk management is led centrally, it is embedded

locally within our businesses. Managers actively promote a

culture in which risks are identified, assessed, managed and

reported in an open, transparent and objective manner, and

staff conduct is viewed as critical.

All members of staff are responsible for risk identification and

reporting within their area of responsibility and are

encouraged to escalate risks and concerns where necessary,

either through line or business management or by following

the provisions of the group Whistleblowing Policy.

The group risk management function operates independently

of the business, providing oversight and advice on the

operation of the risk framework, assurance that agreed

processes operate effectively and that a risk and conduct

culture is embedded within the business.

The relationship between risk and reward is also a key

priority with all staff evaluated against both agreed objectives

(the “what”) and desired behaviours (the “how”). This

encourages long-term, stewardship behaviours together with

a strong and appropriate risk and conduct culture.

For further information on our approach to remuneration for

the group’s directors see pages 167 to 189.

Open escalation

channels

Locally

embedded

Risk and reward

Independent

second line

Locally embedded

Risks managed in an open, transparent and objective

manner.

Independent second line

Providing oversight, advice and assurance.

Open escalation channels

Escalation of risks and concerns encouraged; driving

individual accountability.

Risk and reward

Regular evaluations encourage long-term stewardship

behaviours.

Risk Report continued

84 Strategic Report

Role of the board

The board retains overall responsibility for overseeing the

maintenance of a system of internal control, which ensures

that an effective risk management framework and oversight

process operate across the group. The risk management

framework and associated governance arrangements are

designed to ensure a clear organisational structure with

distinct, transparent and consistent lines of responsibility

and effective processes to identify, manage, monitor and

report the risks to which the group is, or may become,

exposed. On an annual basis, the board reviews the

effectiveness of the group’s risk management and internal

control systems.

Risk management across the group is overseen by the Risk

Committee. The committee is responsible for reviewing risk

appetite, monitoring the group’s risk profile against this and

reviewing the day-to-day effectiveness of the risk

management framework. In addition, the committee is

responsible for overseeing the maintenance and

development of an appropriate and supportive risk culture

and for providing risk input into the alignment of

remuneration with performance against risk appetite.

The committee’s key areas of focus over the last financial

year are set out on pages 164 to 166.

The group closely monitors its risk profile to ensure that it

continues to align with its strategic objectives as

documented on pages 20 to 25. The board considers that

the group’s current risk profile remains consistent with its

strategic objectives.

Together, these committees facilitate an effective flow of

key risk information, as well as functioning to support

appropriate risk management at each stage of the risk

process life cycle. They also provide an escalation channel

for any risks or concerns, supporting the maintenance of an

effective risk culture. During the year the effectiveness of

these committees was reviewed and all committees

continue to work efficiently and effectively.

Over the past 12 months the group has further enhanced

its risk governance framework and specifically the

organisation’s risk and compliance committees, at both

group and divisional level. This has included the continued

refinement of committee terms of reference and the

evolution of reporting packs and management

informationsuites.

Risk Committee Structure

Group board

Risk-specific committees

Credit Risk Management

Committee, Group Credit

Committee, Impairment Adequacy

Committee and Operations and

Technology

Risk Committee

Executive committees

Group Risk and Compliance

Committee, Model Governance

Committee, Capital Adequacy

Committee, Bank Asset and

Liability Committee and Group

Asset and Liability Committee

Divisional committees

Divisional risk and

compliance committees

Risk Committee

Risk Governance

85Close Brothers Group plc Annual Report 2023

Three lines of defence

The group’s risk management approach is underpinned by a

strong governance framework founded on a three lines of

defence model.

The governance framework is considered appropriate to

both the size and strategic intentions of the group. The key

principles underlying this approach are that:

• business management owns all the risks assumed

throughout the group and is responsible for their

day-to-day management to ensure that risk and

reward are balanced;

• the board and business management together promote

a culture in which risks are identified, assessed and

reported in an open, transparent and objective manner;

• the overriding priority is to protect the group’s long-term

viability and produce sustainable medium to long-term

revenue streams;

• risk functions are independent of the businesses and

provide oversight of and advice on the management of

risk across the group;

• risk management activities across the group are

proportionate to the scale and complexity of the group’s

individual businesses;

• risk mitigation and control activities are commensurate

with the degree of risk; and

• risk management and control supports decision-making.

Risk Report continued

Risk Committee overview

Aligned to these core principles, the governance framework operates through various delegations of authority from the board

downwards. These cover both individual authorities as well as authorities exercised via the group’s risk committee structure.

Group Risk and Compliance

Committee

Provides oversight of the group’s risk profile, alignment to risk appetite and effectiveness

of the risk management and compliance framework.

Model Governance

Committee

Provides oversight of the group’s exposure to model risk through the review, approval

and monitoring of all high-materiality models.

Capital Adequacy

Committee

Monitors group and bank capital adequacy, incorporating capital planning, stress testing,

governance, processes and controls.

Bank Asset and Liability

Committee

Provides oversight of the Banking division’s risk management and internal controls and

its subsidiaries across liquidity, funding and market risk.

Group Asset and Liability

Committee

Provides oversight of the company and wider group’s risk management and internal

controls across liquidity, funding and market risk.

Credit Risk Management

Committee

Monitors the group’s credit risk profile, examining current performance and key portfolio

trends, ensuring compliance with risk appetite.

Group Credit Committee Reviews material credit transactions and exposures from a credit, reputational, funding

structure and business risk perspective.

Impairment Adequacy

Committee

Governs the Banking division’s impairment process, reviewing the financial position

relating to impairment and ensuring adequate coverage is held across the portfolio.

Operations and Technology

Risk Committee

Monitors and oversees group-wide operational resilience, including technology, security,

supplier and operational risk appetite, examining industry, regulatory and technical risks.

Divisional risk and

compliance committees

Provide oversight of risk profile, alignment to risk appetite and effectiveness of the risk

management and compliance framework at a divisional or business level.

86 Strategic Report

Three Lines of Defence

Key features

The businesses

Group Risk and

Compliance Committee

(reports to the Risk Committee)

The chief executive delegates to

divisional and operating business chief

executives the day-to-day

responsibility for risk management,

regulatory compliance, internal control

and conduct in running their divisions

or businesses.

Business management has day-to-day

ownership, responsibility and

accountability for:

• identifying and assessing risks;

• managing and controlling risks;

• measuring risk (key risk indicators/

early warning indicators);

• mitigating risks, including controls

framework and effectiveness;

• reporting risks;

• committee structure and reporting;

and

• management and self-assessment

of operational resilience capabilities.

Risk and compliance

Risk Committee

(reports to the board)

The Risk Committee delegates

day-to-day responsibility for oversight

and challenge on risk-related issues to

the group chief risk officer.

Risk functions (including compliance)

provide support, assurance and

independent challenge on:

• the design and operation of the risk

framework and methodologies;

• risk assessment;

• risk appetite and strategy;

• performance management;

• risk reporting;

• adequacy of mitigation plans and

effectiveness of risk decisions taken

by business management;

• group risk profile; and

• committee governance

and challenge.

Internal audit

Audit Committee

(reports to the board)

The Audit Committee mandates the

head of group internal audit with

day-to-day responsibility for

independent assurance.

Internal audit provides independent

assurance on:

• first and second lines of defence;

• appropriateness/effectiveness of

internal controls; and

• effectiveness of policy

implementation.

• Promotes a strong risk culture and

focus on sustainable risk-adjusted

returns.

• Implements the risk framework.

• Promotes a culture of adhering to

limits and managing risk exposures

and ongoing self-assessment.

• Promotes a culture of customer

focus and appropriate behaviours.

• Promotes responsibility for ongoing

monitoring of positions and

management and control of risks

and controls effectiveness, including

testing, alongside portfolio

optimisation.

• Oversees embedding of the risk

framework and supporting

methodologies, taking an integrated

approach to risk and compliance

(qualitative and quantitative).

• Promotes a strong and effective

risk and control culture across

the group.

• Undertakes compliance monitoring

and risk assurance activities.

• Supports through developing and

advising on risk and compliance

strategies.

• Facilitates constructive check and

challenge.

• Oversight of business conduct.

• Draws on deep knowledge of the

group and its businesses.

• Provides independent assurance on

the activities of the group, including

the risk management framework.

• Assesses the appropriateness and

effectiveness of internal controls.

• Incorporates review of culture

and conduct.

First line of defence

Second line of defence

Third line of defence

87Close Brothers Group plc Annual Report 2023

Internal Control System

Supporting the foundation of a strong risk

management structure

Aligned to the risk governance framework, oversight across

the group is supported by the maintenance of a range of

internal controls. These cover risk and financial management

and reporting and control processes. The controls are

designed to ensure the accuracy and reliability of the group’s

financial information and reporting.

The main features of these controls include consistently

applied accounting policies, clearly defined lines of

responsibility and processes for the review and oversight of

disclosures within the Annual Report. These controls are

overseen by the Audit Committee.

The group policy framework, overseen by the board, is a key

component of the group’s Enterprise Risk Management

Framework, supporting the foundation of a strong risk

management structure. Group policies are supported by

group standards, and by divisional/business-level policies

and procedures which, together, outline the way in which

policy is implemented and detail the process controls in

place to ensure compliance. The accounting policies form

part of this broader policy framework. Policies and standards

relating to the group’s principal risks are fully covered within

the framework, and include specific documents relating to

financial crime compliance (e.g. anti-money laundering,

anti-bribery and corruption) and whistleblowing.

This structure establishes a link between group strategy and

day-to-day operations in a manner consistent with agreed

risk appetite. Simultaneously they facilitate board and

executive-level oversight and assurance as to the application

of the strategy via conformance with underlying policy and

standard requirements.

Review of effectiveness of risk management and

internal control systems

Throughout the year, the board, assisted by the Risk

Committee and the Audit Committee, monitors the group’s

risk management and internal control systems and reviews

their effectiveness. This covers all material controls, including

financial, operational and compliance controls. Monitoring

and effectiveness occurs via regular risk management

information and commentary; reviews of group-wide risk and

control self-assessments and associated mitigation

activities; and review of audit reports which focus upon risk

management capabilities and the control framework. The

board also reviews the effectiveness of both committees on

an annual basis. The board has reviewed the group’s risk

management and internal control framework and the

committees’ effectiveness, and considers that, overall, the

group has in place adequate systems and controls with

regard to its profile and strategy.

Group Policy Framework

Enterprise Risk Management Framework

Group policies

Group standards

Divisional and business policies

Procedures

Risk Report continued

88 Strategic Report

Risk Appetite

Enabling key risk decisions in delivering the group’s

strategic objectives

Risk appetite forms a key component of the group’s risk

management framework and refers to the sources and levels

of risk that the group is willing to assume in order to achieve

its strategic objectives and business plan. It is managed via

an established framework that facilitates ongoing

communication between the board and management with

respect to the group’s evolving risk profile. This enables key

decisions concerning the allocation of group resources to be

made on an informed basis.

Risk appetite is set on a top-down basis by the board with

consideration to business requests and executive

recommendation. Appetite measures, both qualitative and

quantitative, are applied to inform both decision-making and

monitoring and reporting processes. Early-warning triggers

are also employed to drive required corrective action before

overall tolerance levels are reached.

The group conducts a formal review of its risk appetites

annually to align risk-taking with the achievement of strategic

objectives. Adherence is monitored through the group’s risk

committees on an ongoing basis, with interim updates to

individual risk appetites considered as appropriate through

the year.

Stress Testing

Assessing and understanding future levels of risk

Stress testing represents another core component of the risk

management framework and is employed, alongside

scenario analysis, to support assessment and understanding

of the risks to which the group might be exposed in the

future. As such, it provides valuable insight to the board and

senior management, playing an important role in the

formulation and pursuit of the group’s strategic objectives.

Stress testing activity within the group is designed to meet

three principal objectives:

1. inform capital and liquidity planning – including liquidity

and funding risk assessment, contingency planning and

recovery and resolution planning;

2. support ongoing risk and portfolio management –

including risk appetite calibration, strategic decisioning

and planning, risk and reward optimisation and business

resilience planning; and

3. provide a check on the outputs and accuracy of risk

models – including the identification of non-linear effects

when aggregating risks.

To support these objectives, stress testing is designed to

cover the group’s most material risks, with activity

conducted at various levels, ranging from extensive group-

wide scenario analysis to simple portfolio sensitivity analysis.

Stress testing also represents a critical component of both

the group’s Internal Capital Adequacy Assessment Process

(“ICAAP”) and Internal Liquidity Adequacy Assessment

Process (“ILAAP”), with scenario analysis additionally

employed as part of the group’s Recovery Plan.

89Close Brothers Group plc Annual Report 2023

Principal Risks

At the core of the Enterprise Risk Management Framework

and risk process life cycle sits the group’s suite of principal risks.

These are the risks which have been identified as those most

material in the delivery of the group’s strategic objectives.

This suite is subject to ongoing review to ensure that the

framework remains aligned to the prevailing risk environment.

The group’s activities, business model and strategy remain

unchanged; as a result, several of the principal risks faced

and the approach to mitigating them remains broadly

consistent with prior years. However, reflective of the current

environment, legal and regulatory risk has been added as a

principal risk and business and strategic risk has been

updated (previously business risk). Three risks previously

included have been reclassified to non-principal risks to

reflect their relative immateriality to the group risk profile.

Climate risk remains a cross-cutting risk that could impact

across all principal risks.

The table on pages 92 and 93 gives an overview of these

principal risks and possible impacts, as well as the outlook

pertaining to these. More detailed information on each of

these follows on pages 96 to 130 which set out the

frameworks in place to manage these risks.

This should not be regarded as a complete and

comprehensive statement of all potential risks faced by the

group but reflects those which the group currently believes

could have a significant impact on its future performance.

Climate Risk

Running alongside the suite of principal risks is climate risk,

which the group categorises as a cross-cutting risk, as the

impacts arising from climate change have the ability to

impact across the spectrum of principal risks. In addition,

transitional risks from climate change which may have a

medium- to longer-term impact on the group’s product

offering, operations and strategic direction are captured in

the group’s emerging risks. For further information on the

group’s climate risk response, see the group Sustainability

Report on pages 38 to 65.

Climate risk represents a continued area of focus and the

group continues to closely monitor government and

regulatory developments in parallel to managing its own

carbon footprint and supporting its customers to manage

their climate risk impacts. The short-dated tenor of the

lending book and strong business model resilience

capabilities mitigate current risk exposure while the

continued embedding of the climate framework will enable

the group to review the evolution of the risk landscape on an

ongoing basis.

Emerging Risks

The group’s suite of principal risks is accompanied by a

portfolio of emerging risks reflecting broader market

uncertainties. The group defines an emerging risk as a risk

that may potentially become material in the delivery of the

group’s strategic objectives but the risk and its applicability

to the group may not yet be fully understood or assessed.

This incorporates input and insight from both a top-down

and bottom-up perspective:

• Top-down: identified by directors and executives at a

group level via the Group Risk and Compliance

Committee (“GRCC”) and the board.

• Bottom-up: identified at a business level and escalated,

where appropriate, via risk updates to the GRCC.

This year, to reflect the evolving nature of risks that

accompany the implementation of group strategy, change

execution risk has been included as a new emerging risk.

Pages 14 to 17 of the Strategic Report provide further

information on how the group is adapting to changes in the

operating environment. Strategic disruption has also been

included as a new emerging risk, a reposition of the previous

technological change and new business models risk.

The established framework for monitoring these risks

supports the group’s organisational readiness to respond.

Additionally, active monitoring of the correlation impacts

across emerging risks, uncertainties and principal

risks is undertaken.

Group-level emerging risks are monitored by the GRCC and

Risk Committee on an ongoing basis, with agreed mitigating

actions in place to ensure the group’s preparedness should

a risk crystallise. Ongoing monitoring also tracks several

sub-risks to support identification of key themes and any

patterns of deterioration or potential risk crystallisations.

Risk Report continued

Principal and Emerging Risks

90 Strategic Report

Principal and Emerging Risks

Emerging risks

E1: Economic uncertainty

E2: Geopolitical uncertainty

E3: Legal and regulatory change

E4: Supply chain risk

E5: Medium to long-term transitional climate risks

E6: Strategic disruption

E7: Change execution risk

Risk emergence time frame

Short term

Medium term

Long term

Emerging risks key

Internal

External

Business and strategic

Capital

Conduct

Credit

Funding and liquidity

Legal and regulatory

Non-traded market

Operational

Reputational

Traded market

91Close Brothers Group plc Annual Report 2023

Principal risk Outlook

Business and Strategic Risk

The risk of realising lower than anticipated profits

or experiencing a loss rather than a profit due to

changing market conditions, pursuing an

ineffective strategy or ineffective implementation

of strategy. See page 96

• Notwithstanding the continued uncertain macroeconomic

environment, the group’s business model remains proven

and resilient.

• The group continues to focus on supporting customers, maintaining

underwriting standards and investing in its business.

• The group remains prepared for a range of different economic and

business scenarios to ensure it has the resources and operational

capability to perform effectively.

Capital Risk

The risk that the group has insufficient regulatory

capital (including equity and other loss-absorbing

debt instruments) to operate effectively,

including meeting minimum regulatory

requirements, and to operate within board-

approved risk appetite and support its strategic

goals. See page 97

• Although the continuing macroeconomic uncertainty may impact

capital in the short to medium term, the group’s capital position is

expected to remain well above risk appetite.

• Capital requirements for Coronavirus Business Interruption Loans

(“CBILS”) will increase as these loans refinance without a

government guarantee.

• The PRA Consultation Paper 16/22 on Basel 3.1 standards was

published in November 2022, with changes expected to be

implemented or phased in from 2025-2030. As highlighted in the first

half results, following initial analysis, it is estimated that if

implemented in its current form, it would represent an increase of up

to c.10% in the group’s RWAs calculated under the standardised

approach. This is primarily as a result of the proposed removal of the

SME supporting factor and the proposed approach to the

classification of Retail SMEs and associated risk weights. The group

looks forward to the publication of the final regulatory rules and has

sufficient management actions available to address the impact

should the proposals remain unchanged.

Conduct Risk

The risk that the group’s behaviours, or those of

its colleagues, whether intentional or

unintentional, result in poor outcomes for

customers or the markets in which it operates. It

is rooted in the importance of delivering good

customer outcomes at every stage of the

customer journey. See page 100

• Pressure due to the external macroeconomic environment continues

to increase financial pressure on consumers as a result of the higher

cost of living.

• Consumer Duty sets a higher standard of care for retail customers

including the need to act to deliver good customer outcomes and

avoid foreseeable harm. Activities introduced as part of the

implementation programme will continue to embed and may

necessitate further evolution of the conduct risk framework.

Credit Risk

The risk of a reduction in earnings and/or value

due to the failure of a counterparty or associated

party, with whom the group has contracted or is

exposed as part of its operations, to meet its

obligations in a timely manner. See page 102

• Uncertainty in the macroeconomic and geopolitical environment

leading to high inflation and rising interest rates which could result in

higher credit losses in the future. The loan book continues to display

resilience due to consistent prudent lending criteria and risk appetite,

however the need for proactive monitoring remains.

• Target financial institutions remain of appropriate credit quality.

Funding and Liquidity Risk

Funding risk is the risk of loss caused by the

inability to raise funds at an acceptable price or

to access markets in a timely manner. Liquidity

risk is defined as the risk that liabilities cannot be

met when they fall due or can only be met at an

uneconomic price. See page 119

• Despite ongoing macroeconomic uncertainty which has increased

market competitiveness, the Banking division’s ability to fund the

loan book is expected to be unaffected with continued access to a

wide range of funding sources.

Risk Report continued

Principal risks

92 Strategic Report

Principal risk Outlook

Legal and Regulatory Risk

The risk of non-compliance with laws and

regulations which could give rise to fines,

litigation, sanctions and the potential for material

adverse impact upon the group. See page 121

• The inherent risk arising in financial services as an industry in the

jurisdictions in which we operate continues to increase.

• Notwithstanding the strong controls in effect limiting residual risk

exposure arising from regulatory expectations, external changes may

have a follow-on impact to the group’s residual exposure.

• Legal risks such as complaints in relation to historic commission

arrangements may give rise to a potential future obligation to

compensate customers.

Non-traded Market Risk

The risk to the value of assets or liabilities

outside the trading book that arises from

changes in market prices such as interest rates,

credit spreads and foreign exchange rates. See

page 122

• The group expects exposure to interest rate risk and foreign

exchange (“FX”) risk to remain at similar levels to those seen this

year but credit spread risk in the banking book (“CSRBB”) is

expected to increase as the group restructures its high quality liquid

assets (“HQLA”) portfolio.

Operational Risk

The risk of loss or adverse impact resulting from

inadequate or failed internal processes, people

and systems or from external events. This

includes the risk of loss resulting from fraud/

financial crime, cyber attacks and information

security breaches. See page 125

• Established group-wide operational risk framework and methodology

continues to mature, with expectation on best practice increasing.

• A changing internal and external environment raises challenges and

may impact managing our people.

• The group continues to plan and predict resource needs to support

its strategy, business change execution and wider technology and

information security transformation.

• Additionally, financial crime and fraud risks are inherent in doing

business, necessitating the requirement to maintain effective

systems and controls.

Reputational Risk

The risk of detriment to stakeholder perception

of the group, leading to impairment of its

reputation and future goals, due to any action or

inaction of the company, its employees or

associated third parties. See page 127

• Established group-wide and employee-level focus on responsibility

and sustainability enables an approach in all businesses that aligns

to a range of stakeholder expectations, which is supported by

group-level oversight.

Traded Market Risk

The risk that a change in the value of an

underlying market variable will give rise to an

adverse movement in the value of the group’s

assets. See page 129

• The impacts of inflation, rising interest rates, supply chain issues and

industrial action, coupled with geopolitical uncertainty, are expected

to continue to be themes over the next 12 months, and have the

potential to keep market liquidity low and suppress market

valuations.

Protect Grow Sustain Risk decreaseRisk increase Stable

93Close Brothers Group plc Annual Report 2023

Risk Report continued

Emerging risks

Emerging risk/

uncertainty Mitigating actions and key developments

Cross-cutting Risks

Geopolitical

uncertainty

• The group operates predominantly in the UK and Republic of Ireland, covering approximately 98% of

the loan book exposure.

• Monitoring is in place to track changes in the geopolitical landscape that could have an impact on

the group and its operations, its customers and its supply chain, either directly or indirectly.

• The group has a strong financial position and maintains capital and liquidity levels well in excess of

regulatory minima.

• Regular stress testing is undertaken on performance and financial position in the event of various

adverse conditions to test the robustness and resilience of the group.

• The group adopts a prudent and conservative approach and regularly reviews its risk appetite to

ensure it remains appropriate in the prevailing geopolitical and economic environment.

Medium to

long-term

transitional

climate risks

• Transitional climate risks across the medium to long term may potentially impact the group’s product

offering, operations and strategic direction.

• The group continues to mature its climate risk framework, overseen by the Group

Climate Committee.

• Regular updates are provided to the Risk Committee, which retains oversight responsibility,

while senior management responsibility is assigned to the group chief risk officer.

• Monitoring is in place to continually identify and assess climate risks and opportunities, supported by

annual consideration of climate-related scenario analysis.

• The group conducts ongoing reviews and consideration of new green-growth lending opportunities

through the Commercial Green Initiatives Working Group to align with its transition roadmap.

Financial Risks

Economic

uncertainty

• The persistence of macroeconomic uncertainty within the UK and/or globally (for example, from

financial volatility or changes to macroeconomic policies) can impact business, customer and

broader market confidence.

• The group’s business model aims to ensure that it is able to trade successfully and support clients in

a wide range of economic conditions. By maintaining a strong financial and capital position, the

group aims to be able to absorb short-term economic downturns, respond to any change in activity

or market demand, and in so doing build long-term relationships by supporting clients when it

really matters.

• The group focuses on credit quality and returns rather than overall growth or market share and

continues to invest in the business for the long term, to support customers and clients through

the cycle.

• Regular stress testing is undertaken on performance and financial position in the event of various

adverse conditions to test the robustness and resilience of the group.

• The group adopts a prudent and conservative approach and regularly reviews its risk appetite to

ensure it remains appropriate in the prevailing macroeconomic environment.

Short-term emergence Medium-term emergence Long-term emergence

94 Strategic Report

Emerging risk/

uncertainty Mitigating actions and key developments

Operational Risks

Legal and

regulatory

change

• The group operates in a developing, complex and demanding regulatory environment. An established

horizon scanning and monitoring framework is maintained to identify regulatory and legal changes

that could materially impact its operations, including legislative and regulatory reform, changes in

regulatory practice and case law developments.

• The group engages regularly with regulators in the jurisdictions in which it operates, including the

PRA and Financial Conduct Authority (“FCA”) in the UK, as well as industry bodies and external

advisers, to understand relevant changes.

• High-level gap and impact analyses are undertaken to assess new compliance requirements and

identify any changes required to the group’s systems and controls, processes and procedures,

with programmes of work initiated as necessary. The extent and nature of this work ranges from

simple isolated process changes to large multi-year projects, depending on the complexity and scale

of the change.

Supply

chain risk

• The group faces emerging supply chain risk through growing exposure to more complex supply

chains and reliance on third-party suppliers for the provision of key services.

• The group’s third-party management framework ensures a risk-based approach is adopted with

regard to the identification, classification and management of the many potential business impacts

that can result from failures in the supply chain.

• Through the identification of inherent risks at the outset of all third-party engagements, appropriate

due diligence is completed prior to onboarding, suitably robust contracts are put in place and

effective life cycle management is implemented.

• Ongoing reporting of key risk and performance indicators coupled with periodic supplier reviews

from the third-party monitoring team help to manage supply chain risk. Oversight of all material

suppliers is retained via the GRCC while continuity of service is a key focus for all critical

relationships, with risks mitigated through resilience planning and identification of potential

alternative solutions where possible.

• The group is also continuing to improve its understanding and management of concentration risk

across critical third parties and their extended supply chains.

Strategic Risks

Change

execution risk

• The group faces change execution risk through its projects and investment in delivering change

across the group, in line with its strategic objectives and regulatory obligations.

• Delivering and successfully embedding change in line with these priorities can lead to delivery

pressures for complex projects and initiatives with concurrent demands impacting the operational

capability of the group’s people and systems.

• Regular project updates are provided to senior management to support effective management of any

execution risks and ensure transformation is implemented efficiently with strong governance in place.

Strategic

disruption

• Strategic disruption may arise from technological change or new business models that have the

potential to impact the group’s market position and future profitability.

• While regulation remains a barrier to entry for many potential new competitors, consumer

expectations continue to evolve, challenging existing capabilities and traditional approaches.

Competitors are adapting in response, while new financial technology companies continue to

develop alternative business models.

• For example, cloud-delivered solutions reduce barriers to entry and new product time to market,

which allows new competitors and start-ups to compete in the marketplace more rapidly.

• In addition, the growing prevalence of artificial intelligence in the market represents a potential threat

given the current rate of adoption, and is difficult to predict. Notwithstanding, artificial intelligence

also introduces an opportunity to rapidly expand the group’s product and customer base to enter

new markets.

• Market developments are closely monitored through horizon scanning to identify and understand

emerging dynamics as well as the evolving preferences of the group’s customers. The group prides

itself on its deep knowledge of its customers and clients and the industries and sectors in which

they operate.

95Close Brothers Group plc Annual Report 2023

Alongside these measures, the status of key group initiatives

and projects is also tracked and discussed, noting the

importance of their successful delivery to the group’s

strategic trajectory.

Mitigation

To support the management of its core strategy, and help

mitigate potential business and strategic risk, the group

maintains a comprehensive framework covering both the

design and approval of strategy, and the ongoing monitoring

of its implementation.

The group’s core strategic pillars are regularly reviewed

toensure continued focus on strategic priorities that

supportthe business model and enable the group to

adaptto changes and expectations in the external

operatingenvironment.

The group’s long track record of successful growth and

profitability is supported by a consistent and disciplined

approach to pricing and credit quality. This allows the

group to continue to support customers at all stages in

the financial cycle.

The group also builds and maintains long-term relationships

with its clients and intermediaries based on:

• speed and flexibility of services;

• its local presence and personal approach;

• the experience and expertise of its people; and

• an offering of tailored and client-driven product solutions.

This differentiated and consistent approach results in strong

customer relationships and high levels of repeat business.

The group is further protected by the diversity of its

businesses and product portfolio, which provides resilience

against competitive pressure or market weakness in any one

of the sectors it operates in.

Monitoring

On an ongoing basis, strategy is formulated and managed at

an individual business level through local executive

committees with top-down oversight maintained through the

group’s Executive Committee. Outputs also feed into the

group’s annual budgeting and planning process which

typically operates on a three-year time horizon. The group’s

budget and plan are subject to review and challenge, initially

at a business level and subsequently by the group’s

Executive Committee, ahead of final submission to the

board, which reviews, challenges and finally agrees the

group’s budget for the following year.

Business and strategic risk is the risk of realising lower

than anticipated profits, or experiencing a loss rather

than a profit, due to changing market conditions,

pursuing an ineffective strategy or ineffective

implementation of strategy.

Exposure

The group operates in an environment where it is exposed to

an array of independent influencing factors. Its profitability

can be impacted by: the broader UK economic climate;

front-line sales performance; changes in technology,

regulation and customer behaviour; cost movements; and

competition from traditional and new players. All of these can

vary in both nature and extent across its divisions.

Changes in these factors may affect the Banking division’s

ability to write loans as it seeks to maintain its desired risk

and reward criteria, result in lower new business levels in

Close Brothers Asset Management (“CBAM”), impact levels

of trading activity at Winterflood, or result in additional

investment requirements and higher costs of operation

across the group.

Risk Appetite

The group seeks to address business and strategic risk

through the execution of a sustainable business model

based on:

• focusing on specialist markets where the group can build

leading market positions based on service, expertise and

relationships;

• focusing on credit quality and returns rather than overall

loan book growth or market share;

• investing in the business for the long term;

• maintaining a strong balance sheet and prudently

managing the group’s financial resources;

• consistently supporting our customers and clients through

the cycle; and

• acting sustainably and responsibly, considering the

interests of all stakeholder groups and growing demand

for sustainable products and services.

Measurement

Business and strategic risk is measured through a number of

key performance metrics (including those set out on pages

26 and 27) and risk indicators at a business, divisional and

group level which provide transparency on progress and

execution against strategy. These indicators are typically

reported monthly via relevant committees, with oversight

also exercised via the board, most notably through its review

of key financial metrics and underlying performance trends.

Business and Strategic Risk

Risk Report continued

Principal risks

96 Strategic Report

The ongoing strategic planning process is supplemented

by an annual board strategy day, which takes a thematic

approach to the review and challenge of group and

business-level strategic priorities. In addition, a deep dive

on strategy for each business is presented to the board for

discussion on a regular basis.

New growth initiatives and potential acquisitions are

assessed against both the group’s strategic objectives and

its Model Fit Assessment Framework, to ensure consistency

with the group’s strategic priorities and the key attributes of

its business model.

Capital and liquidity adequacy planning conducted as part of

both the annual ICAAP and ILAAP is also used to assess the

resilience of the group’s current strategy and business model

in the event of different stress scenarios. Although not

formally linked, outputs and analysis from both exercises are

used to guide strategic planning.

The annual risk appetite statement review also ensures that

the group’s risk appetite and supporting key risk indicators

are fully aligned with the financial and strategic plan. Agreed

appetite is communicated throughout the group through the

review and approval of divisional risk appetite statements

and business-level key risk indicators.

The group also conducts monitoring focused on the external

environment (for example, key market indices, and growth of

sustainable products and services). Within credit risk, all

banking businesses monitor agreed external early warning

indicators (for example, movement in housing indices) with a

view to supporting the early identification of negative trends,

and enhancing the group’s ability to respond appropriately,

minimising potential impact on performance.

Outlook

Notwithstanding the continued uncertain

macroeconomic environment and the impact of rising

inflation and interest rates on our customers and wider

financial market conditions, the group’s business

model, as outlined on pages 12 to 13, remains resilient.

The group continues to focus on supporting

customers, maintaining prudent underwriting

standards and investing in the business.

The group remains prepared for a range of different

economic and business scenarios to ensure it has the

resources and operational capability to continue to

perform effectively through this period of uncertainty.

For further details on emerging risks and uncertainties

see pages 94 to 95. In addition, further commentary on

the market environment and its impact on each

division is outlined on pages 66 to 82.

In addition to business-level monitoring, emerging risks are

also monitored and debated on an ongoing basis at all levels

of the group and across all functions. These include

developments in areas such as technology, regulation and

sustainability, which have the potential to present both

opportunities and threats. Within the risk function

specifically, reporting capabilities continue to be enhanced

to further support the group’s ability to identify and, more

importantly, respond effectively to changes in the external

environment and in customer behaviours with a view to

mitigating any potential impact on business performance.

Capital risk is the risk that the group has insufficient

regulatory capital (including equity and other loss-

absorbing debt instruments) to operate effectively,

including meeting minimum regulatory requirements,

operating within board-approved risk appetite and

supporting its strategic goals.

Exposure

The group’s exposure to capital risk principally arises from

its requirement to meet minimum regulatory requirements set

out in the CRR and from related additional requirements and

guidelines specified by the PRA, and is usually specified in

terms of minimum capital ratios which assess the level of

regulatory capital and risk weighted assets. The group

operates a prudent business model which results in

comparatively low levels of leverage and so risk-based

capital requirements are, and are likely to remain, the group’s

binding constraint.

The PRA supervises the group on a consolidated basis and

receives information on the capital adequacy of, and sets

capital requirements for, the group as a whole. In addition, a

number of subsidiaries are regulated for prudential purposes

by either the PRA or the FCA. The aim of the capital

adequacy regime is to promote safety and soundness in the

financial system. It is structured around three “pillars”: Pillar

1 on minimum capital requirements; Pillar 2 on the

supervisory review process; and Pillar 3 on market discipline.

The group’s Pillar 1 information is presented in the first table

of the “measurement” section. Under Pillar 2, the group

completes an annual self-assessment of risks known as the

ICAAP. The ICAAP is reviewed by the PRA, which culminates

in the PRA setting a Total Capital Requirement (“TCR”) that

the group and its regulated subsidiaries are required to hold

at all times. The TCR is currently set at 9.0%, of which 5.1%

needs to be met with CET1 capital. This includes the Pillar 1

Capital risk

97Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Measurement

The group maintains a strong capital base to support the

development of the business and to ensure the group meets

the TCR and additional regulatory buffers at all times. As a

result, the group maintains capital adequacy ratios above

minimum regulatory requirements, which are currently set at

a minimum CET1 capital ratio of 9.5% and a minimum total

capital ratio of 13.4%. The minimum capital requirements are

inclusive of the capital conservation buffer (currently 2.5% for

both CET1 capital and total capital) and the countercyclical

buffer (currently 1.9% effective rate for the group, for both

CET1 capital and total capital) and exclusive of any

applicable PRA buffer.

Analysis of the composition of regulatory capital and

Pillar 1 RWAs and a table showing the movement in

CET1 capital during the year are shown on the following

pages. Acomprehensive analysis of the composition of

regulatory capital and RWAs is provided in the group’s

Pillar 3 disclosures.

The CET1 capital ratio reduced from 14.6% to 13.3%,

mainlydriven by loan book growth in the year, a decrease

inthe IFRS 9 transitional arrangements and deduction

of dividends paid and foreseen, partly offset by capital

generation through profit and a decrease in risk weighted

assets associated with derivatives and CVA. The impact

of Novitas on the CET1 capital ratio was c.115bps, and

consists of impact on retained earnings (c.85bps) and IFRS 9

transitional arrangements (c.40bps), offset by a reduction in

loan book RWAs (c.10bps).

CET1 capital decreased to £1,310.8 million (31 July

2022: £1,396.7 million) primarily due to a decrease in the

transitional IFRS 9 add-back to capital, the regulatory

deduction of dividends paid and foreseen and an increase in

the intangible assets deducted from capital. This was

partially offset by capital generation through profit.

RWAs, calculated using the standardised approaches,

increased to £9,847.6 million (31 July 2022: £9,591.3 million)

driven mainly by growth in the Commercial and Property

business loan book, offset by a decrease in RWAs

associated with derivatives and CVA following changes to

the derivatives calculation to recognise netting agreements

and to implement the standardised approach to counterparty

credit risk.

requirements (4.5% and 8% respectively for CET1 and

totalcapital) and a Pillar 2a component of 1.0%, of which

0.6% needs to be met with CET1 capital. Pillar 3 requires

firms to publish a set of disclosures which allow market

participants to assess information on the firm’s capital,

riskexposures and risk assessment process. The group’s

Pillar 3disclosures, which are unaudited, can be found

onthegroup’s website at www.closebrothers.com/investor-

relations/investor-information/results-reports-and-

presentations.

Risk Appetite

The group maintains a strong base level and composition of

capital, sufficient to:

• support the development and growth of business;

• continue to meet Pillar 1 requirements, TCR, additional

Capital Requirements Directive buffers and leverage ratio

requirements; and

• be able to withstand a severe but plausible stress scenario

with satisfactory capital and leverage ratios.

The group’s policy is to be well capitalised and its approach

to capital management is driven by strategic and

organisational requirements, while also taking into account

the regulatory and commercial environments in which it

operates. Accordingly, a prudent capital position is a core

part of the group’s business model, allowing it to grow and

invest in the business, support paying dividends to

shareholders and meet regulatory requirements.

Capital triggers and limits are maintained within the risk

appetite framework and are approved by the board at

least annually.

The group has set a management target for the CET1 capital

ratio to operate in a range between 12.0% and 13.0% in the

medium term, which provides for a significant surplus

amount of capital to support the group’s strategic objectives

whilst respecting the board’s risk appetite and ensuring

shareholders’ equity is commercially deployed.

98 Strategic Report

Composition of regulatory capital and Pillar 1 RWAs

31 July 2023

£ million

31 July 2022

£ million

CET1 capital

Shareholders’ equity per balance sheet 1,644.9 1,657.5

Regulatory adjustments to equity

Intangible assets, net of associated deferred tax liabilities (262.8) (250.7)

Foreseeable dividend

(67.0) (65.6)

Cash flow hedging reserve (34.4) (21.7)

Pension asset, net of associated deferred tax liabilities (1.0) (5.3)

Prudent valuation adjustment (0.4) (0.5)

Insufficient coverage for non-performing exposures

(0.4) –

IFRS 9 transitional arrangements

31.9 83.0

CET1 capital

1,310.8 1,396.7

Tier 2 capital – subordinated debt 200.0 200.0

Total regulatory capital

– audited 1,510.8 1,596.7

RWAs

Credit and counterparty credit risk 8,655.4 8,389.0

Operational risk

1,084.0 1,085.8

Market risk

108.2 116.5

9,847.6 9,591.3

CET1 capital ratio

13.3% 14.6%

Total capital ratio

15.3% 16.6%

1. Under CRR Article 26, a deduction has been recognised at 31 July 2023 and 31 July 2022 for a foreseeable dividend, being the proposed final dividend as

set out in note 8 to the financial statements.

2. In line with CRR, effective on 1 January 2022, the CET1 capital includes a regulatory deduction where there is insufficient coverage for non-performing

exposures, amounting to £0.4 million at 31 July 2023 (31 July 2022: £0.0 million).

3. The group has elected to apply IFRS 9 transitional arrangements for 31 July 2023, which allow the capital impact of expected credit losses to be phased in

over the transitional period.

4. Shown after applying IFRS 9 transitional arrangements and the CRR transitional and qualifying own funds arrangements in force at the time. Without their

application, at 31 July 2023 the CET1 capital ratio would be 13.0% and total capital ratio 15.1% (31 July 2022: CET1 capital ratio 13.8% and total capital

ratio 15.9%).

5. Operational and market risk include an adjustment at 8% in order to determine notional RWAs.

Movement in CET1 capital during the year

2023

£ million

2022

£ million

CET1 capital at 1 August 1,396.7 1,439.3

Profit in the period attributable to shareholders 81.1 165.2

Dividends paid and foreseen (100.5) (98.4)

IFRS 9 transitional arrangements (51.1) (34.8)

Change in software assets treatment

– (50.2)

Increase in intangible assets, net of associated deferred tax liabilities (12.1) (19.7)

Other movements in reserves recognised for CET1 capital (7.3) 0.1

Other movements in adjustments from CET1 capital 4.0 (4.8)

CET1 capital at 31 July 1,310.8 1,396.7

1. Upon implementation of CRR, effective 1 January 2022, the CET1 ratio no longer included the benefit related to software assets which were previously

exempt from the deduction requirements for intangible assets from CET1.

99Close Brothers Group plc Annual Report 2023

Outlook

Although the continuing macroeconomic uncertainty

may impact capital in the short to medium term, the

group’s capital position is expected to remain well

above risk appetite.

Capital requirements for CBILS loans will increase as

these loans refinance without a government guarantee.

Changes in requirements as a result of IFRS 9

transitional effects and changes in capital buffer

structures are captured in the group’s capital

planning process.

The PRA Consultation Paper 16/22 on Basel 3.1

standards was published in November 2022, with

changes expected to be implemented or phased in

from 2025-2030. As highlighted in the Half Year 2023

results, following initial analysis, the group estimates

that if implemented in its current form, it would

represent an increase of up to c.10% in the group’s

RWAs calculated under the standardised approach.

This is primarily as a result of the proposed removal of

the SME supporting factor and the proposed approach

to the classification of Retail SMEs and associated risk

weights. The group looks forward to the publication of

the final regulatory rules and has sufficient

management actions available to address the impact

should the proposals remain unchanged.

Risk Appetite

The group recognises the importance of delivering good

customer outcomes and seeks to reasonably avoid customer

detriment or foreseeable harm resulting from inappropriate

judgements or behaviours in the execution of business

activities. To support this, it strives to maintain a culture

aligned to its values which places the customer at the heart

of the business model, and remains dedicated to addressing

customer dissatisfaction or detriment in a timely and fair

manner to ensure good customer outcomes.

The group is committed to maintaining the integrity of the

markets in which it operates, avoiding any abusive or

anti-competitive behaviour.

Conduct risk is the risk that the group’s behaviours, or

those of its colleagues, whether intentional or

unintentional, result in poor outcomes for customers or

the markets in which it operates. It is rooted in the

importance of delivering good customer outcomes at

every stage of the customer journey.

Exposure

The group is exposed to conduct risk in its provision of

products and services to customers either directly or via its

distributors, and through other business activities that enable

delivery. The group faces a significant volume of regulatory

change, which is expected to continue over the near term

and which is aimed at enhancing consumer protection and

maintaining market integrity given the current

macroeconomic environment. Failure to evidence delivery of

good customer outcomes may lead to reputational harm,

legal or regulatory sanctions and/or customer redress.

Conduct risk

Risk Report continued

Principal risks

Mitigation (audited)

The group retains a range of capital risk mitigants, the

most notable being its strong capital generating capacity,

as evidenced by its track record of sustained profitability.

It also maintains access to capital markets and in recent

years has successfully renewed and increased its tier 2

capital instrument.

Monitoring

Both actual and forecast capital adequacy are reported

monthly through the group’s governance framework, with

oversight from the Capital Adequacy Committee (“CAC”).

Annually, as part of the ICAAP, the group also undertakes its

own assessment of its capital requirements against its

principal risks (Pillar 2a) together with an assessment of how

capital adequacy could be impacted in a range of stress

scenarios (Pillar 2b). Under both assessments, the group

ensures that it maintains sufficient levels of capital adequacy.

The CAC is responsible for measuring and monitoring the

capital position and reporting to the board on a regular basis,

with any changes to the capital structure of the group

reserved for the group board. On a monthly basis, the

group’s latest and forecast capital positions are reported to

the CAC, whose membership consists of finance, business

and risk executives and senior management. The CAC also

monitors actual, forecast and stressed capital metrics using

an IRB approach in order to prepare for anticipated future

transition to this approach.

100 Strategic Report

Measurement

Conduct risk is measured through a number of business

activities which form part of the Conduct Risk Framework.

These activities span several areas where harm could occur,

whether intentional or unintentional.

In addition, a number of quantitative and qualitative key risk

indicators are determined at an individual business level,

with reporting to and oversight via the relevant divisional Risk

and Compliance Committee (“RCC”). Performance against

the key risk indicators is reported to the GRCC and the Risk

Committee as needed.

Mitigation

The following controls and procedures are in place to help

mitigate conduct risk:

• The group takes steps to proactively identify conduct risks

and encourages all individuals across the organisation to

feel responsible for managing conduct risks within their

business area and/or function.

• The group provides support to colleagues to enable

them to improve the conduct of their business or

function, including group-wide and specialist training

where required.

• The group’s remuneration strategy is designed to

incentivise good behaviours and due consideration is

given to individual conduct as part of any remuneration.

• Policies and standards set out expectations of employees

and key controls to ensure conduct risk is managed within

the agreed risk appetite, including for essential areas such

as dealing with clients, dealing with markets, complaint

handling, vulnerable customers, and conflicts of interest.

Mandatory staff training on key conduct areas is provided

on a regular basis.

• All products are subject to a robust risk-based product

development and review process.

Monitoring

Risk identification and timely management action are

undertaken by management and employees as the first line

of defence. The risk and compliance functions provide

support, review and independent challenge to ensure

conduct risk reporting is robust, remains fit for purpose,

and agreed management actions appropriately mitigate the

identified risks.

The compliance monitoring function undertakes regular

reviews of key areas, such as complaint handling and

vulnerable customer processes, to confirm customers are

experiencing good outcomes. Group internal audit provides

independent assurance on the control effectiveness of key

areas using a risk-based approach.

All risk and compliance committees are required to review

conduct risk reporting and outputs and consider any

required action. Where appropriate, issues may be escalated

to both the GRCC and the Risk Committee.

Over the past year, conduct risk reporting has continued to

mature to provide increased transparency and visibility to

monitor conduct risk. Reporting on, and monitoring of,

conduct risk will continuously evolve with the introduction of

new regulatory requirements per the FCA’s Consumer Duty

for retail customers for in-scope businesses, and in light of

the ever-changing regulatory landscape.

Conduct Risk Framework

101Close Brothers Group plc Annual Report 2023

Credit risk is the risk of a reduction in earnings and/or

value, as a result of the failure of a counterparty or

associated party, with whom the group has contracted,

to meet its obligations as they fall due. Credit risk across

the group arises mainly through the lending and treasury

activities of the Banking division.

The Banking division applies consistent and prudent lending

criteria to mitigate credit risk. Its lending activities are

predominantly secured across a diverse range of asset

classes. Details of average tenor and loan size by business

can be found on page 4 of the Strategic Report. This ensures

concentration risk is controlled in both the loan book and

associated collateral. Credit risk appetites are set around

unsecured and structurally protected lending to ensure

portfolios remain predominantly secured. At 31 July 2023,

secured lending accounts for 90.4% (31 July 2022: 89.6%)

of the loan book.

The group has established limits for all financial

counterparties with whom it places deposits, enters into

derivative contracts or whose debt securities are held, and

the credit quality of the counterparties is monitored. While

these amounts may be material, the counterparties are all

regulated institutions with investment grade credit ratings

assigned by international credit rating agencies and are

monitored in accordance with the regulatory large

exposures framework.

The group’s principal credit risk exposure is to the loan

book, which is the focus of the credit risk part of the

riskreport.

Managing Credit Risk

Exposure

As a lender to businesses and individuals, the group is

exposed to credit losses if customers are unable to repay

loans and outstanding interest and fees. At 31 July 2023,

loans and advances to customers was £9.6 billion (31 July

2022: £9.1 billion).

Further details on loans and advances to customers and

debt securities held are in notes 10 and 11 on pages 224

to 229 of the financial statements. Further commentary

on the credit quality of the loan book is outlined on

pages 106 to 118.

Risk appetite

The group seeks to maintain the discipline of its lending

criteria, both to preserve its business model and to maintain

an acceptable return that appropriately balances risk and

reward. This is underpinned by a strong customer focus

and credit culture that extend across people, structures,

policies and principles. This in turn provides an environment

for long-term sustainable growth and low, predictable

loan losses.

Credit risk

Risk Report continued

Principal risks

Outlook

Conduct risk increased in the year as the macroeconomic

environment continues to increase financial pressure on

consumers as a result of the higher cost of living, caused

by rising inflation and interest rates which remain volatile

due to various factors. Whilst there have been some

improvements, the medium to long-term outlook remains

uncertain. This may widen or increase the number of

individuals and businesses requiring credit. As a result,

support for customers in financial difficulty, including

vulnerable customers, is expected to increase.

To enhance consumer protection, in addition to various

publications and “Dear CEO” letters to support retail

customers facing rising costs or financial difficulty, the

FCA has outlined new requirements under Consumer

Duty. This introduces a new Principle 12 that requires

firms to act to deliver good outcomes for retail customers,

as well as cross-cutting rules which require firms to act in

good faith, avoid causing foreseeable harm and enable

and support retail customers to pursue their financial

objectives. It sets a higher standard than the existing

Principle 6 (a firm must pay due regard to the interests

of its customers and treat them fairly) and Principle 7

(a firm must pay due regard to the information needs

of its clients and communicate information to them in a

way which is clear, fair and not misleading) for

retail customers.

Implementation activities for Consumer Duty were

successfully delivered ahead of the FCA’s implementation

deadline of 31 July 2023, including enhancements to the

Conduct Risk Framework to incorporate additional

mechanisms for monitoring the delivery of good customer

outcomes going forward.

Whilst these activities continue to embed, the group is

focused on maintaining its culture of tailoring its approach

to supporting customers to drive good customer

outcomes and implementing Consumer Duty changes for

books of business not open to new customers. Further

details on Consumer Duty can be found on page 25.

102 Strategic Report

To support this approach, the group maintains a credit risk

appetite framework to define and align credit risk strategy

with its overall appetite for risk and business strategies, as

defined by the board.

The group Credit Risk Appetite Statement (“CRAS”) outlines

the specific level of credit risk that the group is willing to

assume, utilising defined quantitative limits and triggers

against agreed measures, and covers both credit

concentration and portfolio performance measures.

The measures supporting the group CRAS are based on the

following key principles:

1. To lend within familiar asset classes, in well-known and

understood markets.

2. To operate as a predominantly secured, or structurally

protected, lender against identifiable and accessible

assets, and maintain conservative loan-to-value (“LTV”)

ratios across the Banking division’s portfolios.

3. To maintain a diversified loan portfolio (by business, asset

class and UK geography), as well as a short average tenor

and low average loan size.

4. To rely on local underwriting expertise, with authority

delegated from the Risk Committee, with ongoing

central oversight.

5. To maintain rigorous and timely collections and arrears

management processes.

6. To operate strong control and governance within the

lending businesses, overseen by a central group

credit risk team.

Ultimate responsibility for the approval and governance of

the group CRAS lies with the board, on recommendation

from the GRCC, with support from the Credit Risk

Management Committee (“CRMC”). Performance is

monitored against agreed appetites on a monthly basis.

The CRAS is embedded into business unit credit risk

management through a hierarchy of local triggers and limits,

which are approved by the CRMC. Performance is also

monitored monthly via divisional RCCs. Material breaches

are escalated via established governance channels.

CRAS metrics are closely aligned with the group’s

overall strategy to facilitate monitoring of the composition

and quality of the loan book to ensure it remains within

defined appetite.

Credit Risk Governance Framework

Risk Committee

Group internal audit

Divisional Risk Committees

Risk-specific committees

Impairment

Adequacy

Committee

Group Risk and

Compliance

Committee

Model

Governance

Committee

Credit Risk

Management

Committee

Group

Credit

Committee

Policy and governance

Credit Risk Appetite Statements/

Early warning indicators

Exceptions and large deals

Third-line oversight

103Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Exposure to credit losses is minimised by applying these

strict lending criteria when testing the credit quality of the

borrower and maintaining consistent and conservative LTV

ratios with low average loan size and short-term tenors. All

lending criteria and assessment procedures are thoroughly

documented in robust credit policies and standards, at both

a bank and business level .

Expertise

Across the various businesses, credit risk employees are

specialists in their area and can support loan book growth in

a manner that is consistent with both risk strategy and

appetite. This local distribution allows the formation of strong

relationships with customers and intermediaries based on a

deep understanding of their needs and the markets in which

they operate. Consistent underwriting discipline and lending

against assets that are known and understood benefits

customers through the cycle and allows maintenance of a

track record of strong margins and profitability.

Governance Framework and Oversight

Lending is underpinned by a strong control and governance

framework both within the lending businesses and through

oversight via a central group credit risk team.

Credit underwriting is undertaken either centrally or

through regional office networks, depending on the nature

of the business and the size and complexity of the

transaction. Underwriting authority is delegated from the

Risk Committee, with lending businesses approving

lower-risk exposures locally subject to compliance with

credit policy and risk appetite.

Local risk directors assure the quality of underwriting

decisions for all facilities within the business’ delegated

sanctioning authority level via a quality assurance

programme. This programme samples new business

underwritten, with a particular focus on lending hotspots: for

example, long-tenor agreements, new asset classes or high

LTVs. Outputs are reported biannually with consolidated

summaries presented to the CRMC.

These underwriting approaches are reinforced by

timely collections and arrears management, working in

conjunction with the customer to ensure the best possible

outcome for customers.

The local model is supported by central oversight and

control. An independent central group credit risk team

provides ongoing monitoring of material credit risks through

regular reviews of appetite and policy.

Monitoring

High-level requirements are outlined in documented

standards covering the identification, monitoring and

management of customers in financial difficulty,

Measurement

A consistent, accurate and consolidated central credit

reporting framework is in place and represents a key tool

for effective credit risk management and measurement by

the central group credit risk team. The framework facilitates

the identification, measurement, monitoring and control of

all material credit risks within the lending portfolios, setting

clear credit risk appetite within which all lending is originated

and ensuring that asset portfolios are grown responsibly

and profitably.

A centralised dataset incorporates:

• the use of common data definitions within Credit

Risk Management Information (“CRMI”) across all

business units;

• consistent and controlled extraction and housing of credit

data from the bank’s core business systems;

• dynamic credit risk management to improve strategic

policy decision-making;

• oversight and control of the profile of the lending book to

manage credit risk appetite; and

• identification, monitoring and control of material credit

risks against a clear and communicated CRAS.

Mitigation (audited)

Credit assessment and lending criteria

The Banking division’s general approach to credit

mitigation is based on the provision of affordable lending on

a secured or structurally protected basis, against assets that

are known and understood. These assets are typically easily

realisable with strong secondary markets and predictable

values, and spread across a broad range of classes within

established sectors.

Whilst diverse, the businesses adhere to a set of common

lending principles resulting in stable portfolio credit quality

and consistently low loss rates through the cycle.

The common lending principles are as follows:

1. Predominantly secured lender: 97.9% of loan book

secured or structurally protected.

2. Short average tenor: portfolio residual maturity of

16 months.

3. Small average loan size and low single-name

concentration risk with balance for the top 10 facility limits

representing less than 6% of book.

4. Further diversification by sector, asset class

and UK geography.

5. Local underwriting expertise with central oversight: focus

on assets that are known and understood, with continued

investments in people and systems.

104 Strategic Report

with detailed credit policy and guidance formalised within

local credit policies, including guidelines on the identification

and treatment of vulnerable customers.

Documented policy includes business-specific definitions for

identifying customers in, or likely to experience, financial

difficulty. There are accompanying courses of action outlined

that protect the group’s position, taking account of the

terms/covenants of facilities, security enforcement options,

legal remedies and third-party intervention (for example,

brokers).

This process is owned by the risk directors, ensuring that

prompt action is taken to review the financial conditions of

customers when warning signs indicate deterioration in

financial health, credit quality, covenant compliance or asset

strength/coverage. Where possible, credit limits are

amended where there is evidence of delinquency or

deteriorating financial condition/capacity to repay.

The credit risk framework aligns with the broader three

lines of defence approach, with a governance structure

flowing from local first-line business teams up to second-line

risk directors (and key oversight committees such as credit

committees, divisional RCCs, the CRMC, the Model

Governance Committee (“MGC”) and the Risk Committee)

overlaid with a third-line formed by the group internal

audit function.

First line of defence: Credit risk management

Banking businesses have primary responsibility for ensuring

that a robust risk and control environment is established as

part of day-to-day operations, and that good-quality credit

applications are brought forward for consideration.

They are also responsible for ensuring that their activities

are compliant with the rules and guidance set out in local

credit policies and processes. Each business unit has its

own formalised credit risk appetite and policy documents,

approved by divisional RCCs. This risk culture is facilitated

by local profit and loss ownership, ensuring a long-term

approach is taken, with an understanding of how loans

will be repaid.

Second line of defence: Risk oversight and control

The second line of defence has three tiers: business-aligned

risk directors and their teams, the central group credit risk

team, and oversight committees. The risk directors in the

bank, who report to the chief credit officer, are responsible

for setting and communicating credit risk strategy, identifying

exceptions and ensuring local compliance. Similarly, the risk

heads in the Asset Management and Securities divisions,

and the asset and liability management risk lead, ensure that

their respective operations are performed in line with the

group financial institution and non-banking financial

institution credit risk standards and also report up through

their divisional RCCs. The central group credit risk team

provides a further layer of oversight and approval, supported

by credit committees, and the CRMC, MGC, GRCC and Risk

Committee. Together, the second line of defence provides a

clear tactical and strategic understanding of credit risk,

proposing enhancements to the credit risk framework for

ongoing effective management and control.

Third line of defence: Internal audit

The third line of defence is the group internal audit function.

This team uses both a risk-based approach and a rolling

programme of reviews to ensure that the first and second

lines of defence are working effectively.

Banking Overview

The Commercial business is a combination of several

specialist, predominantly secured, lending businesses.

The nature of assets financed varies across the businesses.

The majority of the loan book comprises loans of less than

£2.5 million. Credit quality is assessed predominantly on an

individual loan-by-loan basis. During and after the pandemic,

the Commercial business has provided additional support

to customers using the CBILS, Coronavirus Large Business

Interruption Loan Scheme (“CLBILS”), and Recovery Loan

Scheme (“RLS”) products, which benefit from UK

government guarantees. Collection and recovery activity

is executed promptly by experts with relevant experience in

specialised assets. This approach allows remedial action to

be implemented at the appropriate time to minimise

potential loss.

The Retail business is predominantly high-volume secured

or structurally protected lending. The majority of the loan

book comprises loans less than £20,000 and includes both

regulated and unregulated agreements. Credit issues are

identified via largely automated monitoring and tracking

processes. Collections processes and actions, focused on

good and fair customer outcomes, are designed and

implemented to restore customers to a performing status,

with recovery methods applied to minimise potential loss.

The Property business is predominantly a low-volume,

specialised lending portfolio with credit quality assessed on

an individual loan-by-loan basis. The majority of the loan

book comprises residential development loans of less than

£10 million. All loans are regularly reviewed to ensure that

they are performing satisfactorily, with Residential

Development facilities monitored monthly by independently

appointed project monitoring surveyors (“PMSs”) to certify

build payments and the residual cost to complete. This

ensures the thorough supervision of all live developments

and facilitates the monthly checking of on-site progress

against original build plan.

In the Commercial and Property businesses, performing

loans with elevated levels of credit risk may be placed on

watch lists depending on the perceived severity of the

creditrisk.

105Close Brothers Group plc Annual Report 2023

Credit Risk Highlights (audited)

31 July 2023

£ million

31 July 2022

£ million

Gross loans and advances to customers

Property business 1,744.8 1,510.2

Retail business 3,091.2 3,133.9

Commercial business 4,799.6 4,500.4

Of which Novitas: 244.0 272.7

Excluding Novitas: 4,555.6 4,227.7

Total gross loans and advances to customers 9,635.6 9,144.5

Impairment provisions

Property business 41.7 36.7

Retail business 89.4 69.9

Commercial business 249.5 179.0

Of which Novitas: 184.1 113.3

Excluding Novitas: 65.4 65.7

Total impairment provision 380.6 285.6

Provision coverage ratio

Property business 2.4% 2.4%

Retail business 2.9% 2.2%

Commercial business 5.2% 4.0%

Novitas only: 75.5% 41.5%

Excluding Novitas: 1.4% 1.6%

Total impairment coverage ratio 3.9% 3.1%

Part- and non-performing loans

Loans in Stage 2 1,062.0 1,158.9

Of which Novitas: 1.3 96.0

Loans in Stage 3 583.4 358.6

Of which Novitas: 241.7 75.4

Stage 2 coverage 3.0% 6.8%

Excluding Novitas: 3.0% 2.6%

Stage 3 coverage 49.8% 43.8%

Excluding Novitas: 31.2% 36.4%

Outlook

Credit losses increased in the year to 31 July 2023,

primarily reflecting the impact of updated assumptions in

relation to expected case failure, time to recover and

recovery rates for the Novitas portfolio, but also the

underlying impacts of ongoing market uncertainty, which

continue to be monitored closely.

Relative to 31 July 2022, the overall credit risk outlook

reflects a heightened level of uncertainty in the

macroeconomic environment in the short to medium term

due to a combination of evolving factors. These include

the ongoing conflict in Ukraine, the rising cost of living

and inflation. In addition, the long-term effects of the

pandemic and subsequent cessation of various

government support schemes could have an impact on

both consumers and businesses. The impact of this

on our customers, including potential lagging factors,

continues to be closely monitored. These factors could

result in higher credit losses in the future.

Risk appetite has remained consistent with the

Banking division’s prudent, through-the-cycle

underwriting standards.

Forborne balances have increased year-on-year. They

remain lower than peaks observed during the pandemic;

however, they are above pre-pandemic levels.

Further details on loans and advances to customers and

debt securities held are in notes 10 and 11 to the financial

statements on pages 224 to 229.

Risk Report continued

Principal risks

106 Strategic Report

Stage allocation of loans and advances to customers has

been applied in line with the definitions set out on page 213

of the notes to the financial statements.

During the year the staging profile of loans and advances to

customers deteriorated as a result of Novitas migrations into

Stage 3. At 31 July 2023, 82.9% (31 July 2022: 83.4%) of

gross loans and advances to customers were Stage 1. Stage

2 loans and advances to customers decreased to 11.0%

(31 July 2022: 12.7%) as transfers into Stage 3 have offset

migrations into Stage 2 associated with a significant increase

in credit risk. The remaining 6.1% (31 July 2022: 3.9%) of

loans and advances to customers was deemed to be

credit-impaired and was classified as Stage 3.

Overall impairment provisions increased to £380.6 million

(31 July 2022: £285.6 million), following regular reviews of

staging and provision coverage for individual loans and

portfolios. The movement in impairment provisions was

driven by Novitas, which reflects the latest case failure, time

to recover and recovery rate assumptions used. Excluding

Novitas, impairment provisions increased across the

remainder of the Banking division to £196.5 million

(31 July 2022: £172.3 million), reflecting the impact of

external pressures resulting from deterioration in the

macroeconomic environment.

As a result, there has been an increase in provision coverage

to 3.9% (31 July 2022: 3.1%).

Provision Coverage Analysis by Business

(audited)

In Commercial, the impairment coverage ratio increased

to 5.2% (31 July 2022: 4.0%), reflecting the impacts of

updated Novitas assumptions. The significant increase in

credit provisions against the Novitas loan book reflects the

latest assumptions on case failure, time to recover and

recovery rates.

Excluding Novitas, the Commercial provision coverage

ratio decreased to 1.4% (31 July 2022: 1.6%) as additional

provisions to take into account weaker macroeconomic

variables and outlook were offset by write-offs on

Stage 3 balances.

In Retail, the provision coverage ratio increased to

2.9% (31 July 2022: 2.2%), reflecting the uncertain

macroeconomic outlook and increased arrears and

forbearance levels in Motor Finance business as a result

of continued cost of living pressures on customers.

In Property, the provision coverage ratio was stable at 2.4%

(31 July 2022: 2.4%), with write-offs on well-provided single

names offset by deteriorating macroeconomic conditions

and strong levels of new business.

See note 10 to the financial statements for full staging tables

and analysis, and pages 110 to 113 for additional detail on

changes to macroeconomic forecasts that have impacted

provisions during this financial year.

Measuring Credit Risk Across Our Businesses

In order to effectively assess credit risk across the Banking

division, a number of judgements and estimates are used.

These are based on historical experience and reasonable

expectations of future events and are reviewed on an

ongoing basis.

In particular, the calculation of the group’s expected credit

loss provision under IFRS 9 requires the group to make a

number of judgements, assumptions and estimates, which

have a material impact on the accounts. This assessment,

which requires judgement, is unbiased and probability-

weighted and uses historical, current and forward-looking

information. The most significant judgements and estimates

are set out below.

While the impact of climate change represents a source of

uncertainty, the group does not consider climate-related

risks to be a critical accounting judgement or estimate at

31 July 2023. Climate risk continues to be a key area of

focus for the group and the Banking division continues to

assess the sensitivity of assets and customers to climate-

related risks as part of regular credit monitoring. Transitional

climate risks are considered to be largely mitigated by short

average loan book tenors (16 months), conservatively

secured and diversified portfolios, and the rigorous

underwriting, monitoring and control processes that are in

place.

Use of Judgements (audited)

In the application of the group’s accounting policies,

which are described in note 1 to the financial statements,

judgements that are considered by the board to have the

most significant effect on the amounts in the financial

statements are as follows.

Significant increase in credit risk

Assets are transferred from Stage 1 to Stage 2 when there

has been a significant increase in credit risk since initial

recognition. Typically, the group assesses whether a

significant increase in credit risk has occurred based on a

quantitative and qualitative assessment, with a “30 days

past due” backstop.

Due to the diverse nature of the group’s lending businesses,

the specific indicators of a significant increase in credit risk

vary by business and may include some or all of the

following factors:

• quantitative assessment: the lifetime probability of default

(“PD”) has increased by more than an agreed threshold

relative to the equivalent at origination. Thresholds are

based on a fixed number of risk grade movements which

are bespoke to each business to ensure that the increased

risk since origination is appropriately captured;

107Close Brothers Group plc Annual Report 2023

Probability of default

PD estimates represent the likelihood of a borrower

defaulting on their financial obligation. Bespoke model-

based approaches to estimate PDs are employed across the

Commercial, Retail and Property businesses. The framework

applied typically includes an economic response model to

quantify the impact of macroeconomic forecasts and a risk

ranking mechanism (e.g. a scorecard) to quantify obligor-

level likelihood of default. Risk characteristics that feed into

the PD model framework include current and past

information related to borrowers, transaction and payment

profiles, and future economic forecasts. Statistical

techniques, based on evidence observed in historical data,

and business knowledge are used to determine which

characteristics are predictive of default behaviour.

Exposure at default

EAD represents the amounts expected to be owed at the

time of default and is estimated using an amortising

schedule for the large majority of exposures, or a credit

conversion factor, depending on the nature of lending.

Loss given default

LGD represents an expectation of the extent of loss on a

defaulted exposure after taking into account cash recoveries,

including the value of collateral held and other credit risk

mitigants. LGD methodologies vary by the nature of assets

financed and can include estimates for the likelihood of

collateral recovery and a separate calculation for the likely

loss on recovery. For some businesses, LGDs are estimated

using liquidation curves based on historical cash flows.

Recoveries are adjusted to account for the impact of

discounting using the effective interest rate.

Novitas loans

Since 31 July 2022, there has been an increase in the

expected credit loss provision in Novitas. The two

assumptions requiring the most significant judgement relate

to expected recovery rates and time to recover periods in

Novitas. During 2021 and 2022, expected case failure rates

were considered a significant judgement. Due to the

migration of loans to Stage 3, as explained on page 109,

expected case failure rates are no longer considered to be a

significant judgement, while time to recovery periods have

become a significant judgement.

Case failure rates represent a forward-looking probability

assessment of successful case outcomes through court

proceedings or out-of-court settlements. Recovery rates

represent the level of interest and capital that is covered by

an insurance policy and expected to be recoverable once a

case fails. Time to recover periods represent management’s

view on timing using weighted probabilities.

Novitas provides funding to individuals who wish to pursue

legal cases. The majority of the Novitas portfolio, and

therefore provision, relates to civil litigation cases.

Risk Report continued

Principal risks

• qualitative assessment: events or observed behaviour

indicate credit deterioration. This includes a wide range of

information that is reasonably available, including

individual credit assessments of the financial performance

of borrowers as appropriate during routine reviews, plus

forbearance and watch list information; or

• backstop criteria: the “30 days past due” backstop is met.

Definition of default

The definition of default is an important building block for

expected credit loss models and is considered a key

judgement. A default is considered to have occurred if any

unlikeliness to pay criterion is met or when a financial asset

meets a “90 days past due” backstop. While some criteria

are factual (e.g. administration, insolvency or bankruptcy),

others require a judgemental assessment of whether the

borrower has financial difficulties which are expected to have

a detrimental impact on their ability to meet contractual

obligations. A change in the definition of default may have a

material impact on the expected credit loss provision.

Use of Estimates (audited)

Expected credit loss provisions are a key source of

estimation uncertainty which, depending on a wide range of

factors, could result in a material adjustment to the carrying

amounts of assets and liabilities in the next financial year.

The accuracy of expected credit loss provisions can be

impacted by unpredictable effects or unanticipated changes

to modelled estimates. In addition, forecasting errors could

also occur due to macroeconomic scenarios or weightings

differing from actual outcomes observed. Regular model

monitoring, validations and provision adequacy reviews are

key mechanisms to manage estimation uncertainty across

model estimates. Provisions relating to Novitas loans are

also sensitive to specific estimation uncertainty associated

with case failure rates, expected recovery rates and time to

recover periods. Further detail on these most significant

estimates is set out in the following section.

Modelled estimates

The calculation of expected credit losses (“ECL”) for loans

and advances to customers, either on a 12-month or lifetime

basis, is based on the PD, the exposure at default (“EAD”)

and the loss given default (“LGD”), and includes forward-

looking macroeconomic information where appropriate.

PD, EAD and LGD parameters are projected over the

remaining life of each exposure. ECL is calculated for each

future quarter by multiplying the three parameters and is then

discounted back to the reporting date and summed. The

discount rate used in the ECL calculation is the effective

interest rate.

IFRS 9 risk parameters are estimated using historical data

wherever possible, and in the absence of sufficient loss

history an expert judgement approach is considered for

some parameters.

108 Strategic Report

To protect customers in the event that their case fails, it was

a condition of the Novitas loan agreements that an individual

purchased an After the Event (“ATE”) insurance policy which

covered the loan.

As previously announced, following a strategic review,

in July 2021 the group decided to cease permanently the

approval of lending to new customers across all of the

products offered by Novitas and withdraw from the legal

services financing market. Since that time, the Novitas loan

book has been in run-off, and the business has continued to

work with solicitors and insurers, with a focus on supporting

existing customers and managing the existing book to

ensure good customer outcomes, where it is within

Novitas’ ability to do so.

In the first half of the financial year under review,

management reviewed and updated its assumptions for

expected case failure rates, expected time to recover

periods and expected recovery rates to reflect experienced

credit performance and ongoing dialogue with customers’

insurers. This included initiating formal legal action against

one of the ATE insurers regarding the potential recoverability

of funds in relation to failed cases and considering its

position in respect of other insurers. As a result, a number of

updates were made to the expected credit loss provision

calculation, resulting in an increase of £70.8 million to

£184.1 million (31 July 2022: £113.3 million). The increase to

the expected credit loss provision is net of write-offs

previously provided for and does not include write-offs and

costs taken directly to the income statement.

Based on the current position, the majority of loans in the

portfolio have been assessed as credit-impaired and have

been migrated to Stage 3, with expected case failure rates

increased accordingly. Expected credit losses for the

portfolio have been calculated by comparing the gross loan

balance to expected cash flows discounted at the original

effective interest rate, over an appropriate time to recovery

period. In line with IFRS 9, a proportion of the expected

credit loss is expected to unwind, over the estimated time to

recover period, to interest income, which reflects the

requirement to recognise interest income on Stage 3 loans

on a net basis.

Since 31 July 2022, a material increase in the expected case

failure rate assumptions and decrease in the expected

recovery rate assumptions have been recognised and the

recoverability of interest on relevant loans has been

reassessed.

Further detail on the impairment provision is included in note

10 to the financial statements.

Given that the majority of the Novitas portfolio is in Stage 3,

the key sources of estimation uncertainty for the portfolio’s

expected credit loss provision are time to recover periods

and recovery rates. On this basis, management have

assessed and completed sensitivity analysis when compared

to the expected credit loss provision for Novitas of

£184.1 million (31 July 2022: £113.3 million). At 31 July 2023,

a 10% absolute deterioration or improvement in recovery

rates would increase or decrease the ECL provision by

£11.0 million. Separately, a12-month improvement in the £11.0 million. Separately, a 12-month improvement in the

time to recover period will reduce the ECL provision by

£12.1 million, while a 12-month delay in the time to recover

period will increase the ECL provision by £10.0 million.

Forward-looking information

Determining expected credit losses under IFRS 9 requires

the incorporation of forward-looking macroeconomic

information that is reasonable, supportable and includes

assumptions linked to economic variables that impact losses

in each portfolio. The introduction of macroeconomic

information introduces additional volatility to provisions.

In order to calculate forward-looking provisions, economic

scenarios are sourced from Moody’s Analytics. These

scenarios cover a range of plausible economic conditions

that are then used to project potential credit outcomes for

each portfolio. An overview of these scenarios using key

macroeconomic indicators is provided on pages 110 to 113.

Ongoing benchmarking of the scenarios to other economic

providers is carried out monthly to provide management with

comfort on Moody’s Analytics scenario paths.

Five different projected economic scenarios are currently

considered to cover a range of possible outcomes. These

include a baseline scenario, which reflects the best view of

future economic events. In addition, one upside scenario and

three downside scenario paths are defined relative to the

baseline. Management assigns the scenarios a probability

weighting to reflect the likelihood of specific scenarios, and

therefore loss outcomes, materialising, using a combination

of quantitative analysis and expert judgement.

The impact of forward-looking information varies across the

group’s lending businesses because of the differing sensitivity

of each portfolio to specific macroeconomic variables.

This is reflected through the development of bespoke

macroeconomic models that recognise the specific response

of each business to the macroeconomic environment.

The modelled impact of macroeconomic scenarios and their

respective weightings is reviewed by business experts in

relation to stage allocation and coverage ratios at the

individual and portfolio level, incorporating management’s

experience and knowledge of customers, the sectors in

which they operate, and the assets financed .

109Close Brothers Group plc Annual Report 2023

Scenario Forecasts and Weights

Baseline Upside (strong) Downside (mild) Downside (moderate) Downside (protracted)

2023 2024 2023 2024 2023 2024 2023 2024 2023 2024

At 31 July 2023

UK GDP growth 0.5% 0.3% 1.3% 3.0% (0.2)% (2.3)% (0.6)% (4.8)% (0.8)% (6.2)%

UK unemployment 4.1% 4.4% 3.9% 3.9% 4.2% 4.8% 4.4% 6.5% 4.5% 7.7%

UK HPI growth (6.3)% (1.4)% (0.4)% 8.3% (9.1)% (6.9)% (10.8)% (13.2)% (12.6)% (20.1)%

BoE base rate 4.9% 5.5% 4.9% 5.7% 4.8% 4.8% 4.7% 4.2% 4.5% 3.6%

Consumer Price Index 5.2% 2.2% 4.8% 2.2% 3.8% 1.2% 3.0% (0.3)% 1.5% (2.3)%

Weighting 32.5% 30% 20% 10.5% 7%

Baseline Upside (strong) Downside (mild) Downside (moderate) Downside (protracted)

2022 2023 2022 2023 2022 2023 2022 2023 2022 2023

At 31 July 2022

UK GDP growth 3.4% 0.8% 4.1% 2.9% 2.7% (1.8)% 2.4% (4.4)% 2.1% (5.9)%

UK unemployment 3.8% 4.1% 3.6% 3.6% 4.0% 4.6% 4.1% 6.2% 4.2% 7.4%

UK HPI growth 4.3% 2.6% 10.9% 12.7% 1.1% (3.1)% (0.5)% (9.1)% (2.4)% (15.9)%

BoE base rate 1.1% 1.8% 1.1% 1.7% 1.3% 1.0% 1.4% 1.1% 1.5% 1.2%

Consumer Price Index 10.7% 2.8% 10.3% 2.8% 12.3% 0.4% 14.2% 0.2% 17.1% (2.2)%

Weighting 32.5% 30% 20% 10.5% 7%

Notes:

UK GDP growth: National Accounts Annual Real Gross Domestic Product, Seasonally Adjusted – year-on-year change (%).

UK unemployment: ONS Labour Force Survey, Seasonally Adjusted – Average (%).

UK HPI growth: Average nominal house prices, Land Registry, Seasonally Adjusted – Q4-to-Q4 change (%).

BoE base rate: Bank of England base rate – Average (%).

Consumer Price Index: ONS, All items, annual inflation – Q4-to-Q4 change (%) .

Risk Report continued

Principal risks

This includes assessment of the reaction of the ECL in the

context of the prevailing and forecast economic conditions,

for example where currently higher interest rates and

inflationary conditions exist compared to recent periods.

Economic forecasts have evolved over the course of 2023

and reflect the continued economic challenges and

uncertainty. Forecasts deployed in IFRS 9 macroeconomic

models are updated on a monthly basis. At 31 July 2023, the

latest baseline scenario forecasts GDP growth of 0.5% in

calendar year 2023 and an average base rate of 4.9% across

calendar year 2023. CPI is forecast to be 5.2% in calendar

year 2023 in the baseline scenario, with 1.5% forecast in the

protracted downside scenario over the same period.

At 31 July 2022, the scenario weightings were: 30% strong

upside, 32.5% baseline, 20% mild downside, 10.5%

moderate downside and 7% protracted downside. As

economic forecasts are considered to appropriately

recognise deterioration in the macroeconomic environment,

no change has been made to the weightings ascribed to the

scenarios since 31 July 2022.

Given the current economic uncertainty, further analysis has

been undertaken to assess the appropriateness of the five

scenarios used. This included benchmarking the baseline

scenario to consensus economic views, as well as

consideration of an additional forecast related to

stagflation, which could be considered as an alternative

downside scenario.

Compared to the scenarios in use in the expected credit

losses calculation, the stagflation scenario includes a longer

period of higher interest rates coupled with a shallower but

extended impact on GDP. Due to the relatively short tenor of

the portfolios, the stagflation scenario is considered to be of

less relevance than those deployed. This is supported by the

fact that, due to the higher severity of recessionary factors in

the existing scenarios, using the stagflation scenario instead

of the moderate or protracted downside scenario would

result in lower expected credit losses.

The final scenarios deployed reflect overall deterioration in

the UK economic outlook relative to 31 July 2022, and factor

in recent developments including dampened GDP growth for

2024 and 2025 and a Bank of England base rate peak in late

2023 following persistent high levels of inflation. Under the

baseline scenario, UK headline CPI inflation continues to fall

from its peak owing to sustained base rate increases and

eased supply chain pressures. House price outlook includes

contraction across all scenarios; however, house prices

return to growth sooner than previously anticipated.

Unemployment rate forecasts have marginally improved

compared to 31 July 2022.

110 Strategic Report

Five-year average (calendar years 2023 to 2027)

Baseline

Upside

(strong)

Downside

(mild)

Downside

(moderate)

Downside

(protracted)

At 31 July 2023

UK GDP growth 0.9% 1.7% 0.5% 0.0% (0.1)%

UK unemployment 4.4% 3.9% 4.6% 6.4% 7.3%

UK HPI growth 0.5% 2.1% (1.1)% (2.9)% (5.4)%

BoE base rate 3.8% 3.8% 3.5% 2.8% 2.3%

Consumer Price Index 2.6% 2.6% 2.1% 1.6% 0.7%

Weighting 32.5% 30% 20% 10.5% 7%

Five-year average (calendar years 2022 to 2026)

Baseline

Upside

(strong)

Downside

(mild)

Downside

(moderate)

Downside

(protracted)

At 31 July 2022

UK GDP growth 1.2% 1.7% 0.8% 0.2% (0.1)%

UK unemployment 4.4% 3.8% 4.6% 6.4% 7.2%

UK HPI growth 0.1% 1.8% (1.3)% (2.5)% (4.6)%

BoE base rate 2.0% 2.0% 1.5% 0.9% 0.6%

Consumer Price Index 3.8% 3.8% 3.7% 3.6% 3.4%

Weighting 32.5% 30% 20% 10.5% 7%

Notes:

UK GDP growth: National Accounts Annual Real Gross Domestic Product, Seasonally Adjusted – CAGR (%).

UK unemployment: ONS Labour Force Survey, Seasonally Adjusted – Average (%).

UK HPI growth: Average nominal house prices, Land Registry, Seasonally Adjusted – CAGR (%).

BoE base rate: Bank of England base rate – Average (%).

Consumer Price Index: ONS, All items, annual inflation – CAGR (%).

The forecasts represent an economic view at 31 July 2023,

after which the economic uncertainty has continued. These

trends, including the risk of further interest rate rises, and

their impact on scenarios and weightings, are subject to

ongoing monitoring by management.

The tables on pages 110 to 111 show economic

assumptions within each scenario, and the weighting applied

to each at 31 July 2023. The metrics shown are key UK

economic indicators, chosen to describe the economic

scenarios. These are the main metrics used to set scenario

paths, which then influence a wide range of additional

metrics that are used in expected credit loss models. The

first tables show the forecasts of the key metrics for the

scenarios utilised for calendar years 2022 and 2023. The

subsequent tables show averages and peak-to-trough

ranges for the same key metrics over the five-year period

from 2023 to 2027.

These periods have been included as they demonstrate

the short, medium and long-term outlooks for the key

macroeconomic indicators which form the basis of the

scenario forecasts. The portfolio has an average residual

maturity of 16 months, with c.98% of loan value having a

maturity of five years or less.

The following charts on page 112 represent the quarterly

forecast data included in the above tables incorporating

actual metrics up to 31 July 2023. The dark blue line shows

the baseline scenario, while the other lines represent the

various upside and downside scenarios.

The tables on page 113 provide a summary for the five-year

period (calendar years 2023 to 2027) of the peak-to-trough

range of values of the key UK economic variables used

within the economic scenarios at 31 July 2023 and

31 July 2022.

111Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

-8

-6

-4

-2

Real G

ross Domestic Product (Annual % Change)

2022 20272026

2028

202520242023

GDP Growth (percentage change

in quarter from previous year)

Baseline Mild Downside

Moderate Downside Protracted Downside

Upside

Unemployment Rate (%)

2022 20272026 2028202520242023

Unemployment Rate

(end of quarter percentage values)

Baseline Mild Downside

Moderate Downside Protracted Downside

Upside

Bank of England Base Rate (%)

2022 2027 20282026202520242023

Base Rate

(end of quarter percentage values)

Baseline Mild Downside

Moderate Downside Protracted Downside

Upside

-25

-20

-15

-10

-5

House Price Index – Current Prices

(Annual % Change)

2022 20272026 2028202520242023

HPI Growth (percentage change

in quarter from previous year)

Baseline Mild Downside

Moderate Downside Protracted Downside

Upside

-4

-2

Consumer Price Index (Annual % Change)

2022 2027

2028

2026202520242023

Baseline

Mild Downside

Moderate Downside Protracted Downside

Upside

Consumer Price Index Inflation

(percentage change in quarter

from previous year)

112 Strategic Report

Five-year period (calendar year 2023 to 2027)

Baseline Upside (strong) Downside (mild) Downside (moderate) Downside (protracted)

Peak Trough Peak Trough Peak Trough Peak Trough Peak Trough

At 31 July 2023

UK GDP growth 4.6% 0.1% 8.7% 0.1% 2.5% (3.0)% 0.3% (5.9)% 0.3% (8.1)%

UK unemployment 4.6% 3.9% 4.1% 3.7% 4.9% 3.9% 7.3% 3.9% 8.5% 3.9%

UK HPI growth 2.6% (7.8)% 12.9% (3.1)% (0.5)% (15.4)% (0.5)% (24.0)% (0.5)% (32.1)%

BoE base rate 5.8% 2.3% 5.9% 2.3% 5.4% 2.2% 5.2% 1.3% 5.2% 0.6%

Consumer Price

Index 10.2% 1.8% 10.2% 1.8% 10.2% 0.8% 10.2% (1.0)% 10.2% (3.8)%

Weighting 32.5% 30% 20% 10.5% 7%

Five-year period (calendar year 2022 to 2026)

Baseline Upside (strong) Downside (mild) Downside (moderate) Downside (protracted)

Peak Trough Peak Trough Peak Trough Peak Trough Peak Trough

At 31 July 2022

UK GDP growth 6.3% 0.4% 9.0% 0.4% 4.1% (2.6)% 1.0% (5.1)% 0.8% (6.9)%

UK unemployment 4.8% 3.7% 4.2% 3.5% 4.8% 3.7% 7.4% 3.7% 8.4% 3.7%

UK HPI growth 2.0% (5.0)% 16.7% (1.1)% 2.0% (11.7)% 2.0% (17.9)% 2.0% (26.0)%

BoE base rate 2.5% 0.5% 2.5% 0.5% 2.5% 0.1% 2.4% 0.1% 2.6% 0.1%

Consumer Price

Index 10.7% 2.0% 10.3% 2.0% 12.3% 0.4% 14.2% 0.1% 17.1% (2.2)%

Weighting 32.5% 30% 20% 10.5% 7%

Notes:

UK GDP growth: Maximum and minimum quarterly GDP as a percentage change from start of period (%).

UK unemployment: Maximum and minimum unemployment rate (%).

UK HPI growth: Maximum and minimum average nominal house price as a percentage change from start of period (%).

BoE base rate: Maximum and minimum Bank of England base rate (%).

Consumer Price Index: Maximum and minimum inflation rate over the five-year period (%).

Scenario sensitivity analysis

The expected credit loss provision is sensitive to judgements

and estimations made with regard to the selection and

weighting of multiple economic scenarios. As a result,

management has assessed and considered the sensitivity of

the provision as follows:

• For the majority of the portfolios, the modelled expected

credit loss provision has been recalculated under the

upside strong and downside protracted scenarios

described above, applying a 100% weighting to each

scenario in turn. The change in provision requirement is

driven by the movement in risk metrics under each

scenario and resulting impact on stage allocation.

• Expected credit losses based on a simplified approach,

which do not utilise a macroeconomic model and require

expert judgement, are excluded from the sensitivity

analysis.

• In addition to the above, key considerations for the

sensitivity analysis are set out below, by segment:

– In Commercial, the sensitivity analysis excludes

Novitas, which is subject to a separate approach, as it

is deemed more sensitive to credit factors than

macroeconomic factors.

– In Retail, the sensitivity analysis does not apply further

stress to the expected credit loss provision on loans

and advances to customers in Stage 3, because the

measurement of expected credit losses is considered

more sensitive to credit factors specific to the borrower

than macroeconomic scenarios.

– In Property, the sensitivity analysis excludes individually

assessed provisions, and certain sub-portfolios which

are deemed more sensitive to credit factors than the

macroeconomic scenarios.

Based on the above analysis, at 31 July 2023, application of

100% weighting to the upside strong scenario would

decrease the expected credit loss by £18.1 million whilst

application of 100% weighting to the downside protracted

scenario would increase the expected credit loss by

£32.7 million, driven by the aforementioned changes in risk

metrics and stage allocation of the portfolios.

When performing sensitivity analysis there is a high degree of

estimation uncertainty. On this basis, 100% weighted

expected credit loss provisions presented for the upside and

downside scenarios should not be taken to represent the

lower or upper range of possible and actual expected credit

loss outcomes. The recalculated expected credit loss

provision for each of the scenarios should be read in the

context of the sensitivity analysis as a whole and in

113Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

conjunction with the disclosures provided in note 10 to the

financial statements. The modelled impact presented is

based on gross loans and advances to customers at 31 July

2023; it does not incorporate future changes relating to

performance, growth or credit risk. In addition, given the

change in the macroeconomic conditions, underlying

modelled provisions and methodology, and refined approach

to adjustments, comparison between the sensitivity results at

31 July 2023 and 31 July 2022 is not appropriate.

The economic environment remains uncertain and future

impairment charges may be subject to further volatility,

including from changes to macroeconomic variable forecasts

impacted by geopolitical tensions and sustained cost of

living pressures.

Use of Adjustments (audited)

Limitations in the group’s expected credit loss models or

input data may be identified through ongoing model

monitoring and validation of models. In certain

circumstances, management make appropriate adjustments

to model-calculated expected credit losses. These

adjustments are based on management judgements or

quantitative back-testing to ensure expected credit loss

provisions adequately reflect all known information. These

adjustments are generally determined by considering the

attributes or risks of a financial asset which are not captured

by existing expected credit loss model outputs. Management

adjustments are actively monitored, reviewed and

incorporated into future model developments where

applicable.

Macroeconomic forecasts continue to react to a range of

external factors including the ongoing conflict in Ukraine,

government attempts to address cost of living and

inflationary pressures, and long-term impacts of the

pandemic. In response, our use of adjustments has

evolved. In particular, adjustments have been applied in

the second half of the year in response to improvements

in macroeconomic forecasts that resulted in releases in

modelled provisions. A number of these releases were

considered premature or counterintuitive by

management and adjustments have been made as

aresult.These adjustments recognise the ongoing a result. These adjustments recognise the ongoing

uncertaintyassociated with the current environment.uncertainty associated with the current environment.

The approach to adjustments continues to reflect the use

of expert management judgement which incorporates

management’s experience and knowledge of customers,

the areas in which they operate, and the underlying

assets financed.

The need for adjustments will continue to be monitored as

new information emerges which might not be recognised in

existing models.

At 31 July 2023, £17.0 million (31 July 2022: £(2.8) million)

of the expected credit loss provision was attributable

to adjustments.

Other Credit Risk Tables (audited)

Segmental credit risk

The table on page 115 sets out loans and advances to

customers, trade receivables and undrawn facilities by the

group’s internal credit risk grading and illustrates the

allocation of these per IFRS 9 staging category for

comparative purposes. The analysis of lending has been

prepared based on the following risk categories:

• Low risk: The credit risk profile of the borrower is

considered acceptable with the borrower considered likely

to meet obligations as they fall due. Standard monitoring

is in place.

• Medium risk: Evidence of deterioration in the credit risk

profile of the borrower exists which requires increased

monitoring. Potential concerns over their ability to meet

obligations as they fall due may exist.

• High risk: Evidence of significant deterioration in the credit

risk profile of the borrower exists which requires enhanced

management. Full repayment may not be achieved, with

potential for loss identified.

Low risk loans and advances to customers represent 87%

(31 July 2022: 88%) of the overall portfolio, reflective of a

prudent and consistent approach to credit risk management.

80% (31 July 2022: 80%) of total advances are classified as

low risk Stage 1, driven by the strong quality of the portfolio.

Low risk Stage 2 represents 7% (31 July 2022: 8%) of loans

and advances to customers, largely comprising early arrears

cases, or agreements which have triggered a significant

increase in credit risk indicator, or the “30 days past due”

backstop. Low risk Stage 3 loans and advances to

customers primarily relate to agreements which have

triggered the “90 days past due” backstop but where full

repayment is expected.

Medium risk loans account for 7% (31 July 2022: 8%) of total

loans and advances to customers, of which the majority is in

Stage 2. Medium risk Stage 1 remained stable at 3% (31 July

2022: 3%). Medium risk Stage 2 represents 3% (31 July

2022: 4%) of the overall portfolio. Loans and advances to

customers reflected as medium risk Stage 3 primarily relate

to agreements that have triggered the “90 days past due”

backstop in addition to other significant increases in credit

risk triggers.

High risk loans account for 6% (31 July 2022: 4%) of

total loans and advances to customers, with the majority

corresponding to Stage 3. This increase reflects the

significant migration of Novitas accounts into Stage 3

following updates to assumptions for expected case

failure rates, expected time to recover periods and

expected recovery rates.

114 Strategic Report

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Total

£ million

At 31 July 2023

Gross loans and advances to customers

Low risk 7,702.4 693.9 23.2 8,419.5

Medium risk 278.7 313.1 48.8 640.6

High risk 9.1 55.0 511.4 575.5

Total 7,990.2 1,062.0 583.4 9,635.6

Undrawn commitments

Low risk 1,202.3 21.5 0.1 1,223.9

Medium risk – 2.7 – 2.7

High risk – – 1.9 1.9

Total 1,202.3 24.2 2.0 1,228.5

Trade receivables

Low risk 10.0 – – 10.0

Medium risk – 0.6 – 0.6

High risk – – 0.7 0.7

Total 10.0 0.6 0.7 11.3

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Total

£ million

At 31 July 2022

Gross loans and advances to customers

Low risk 7,356.7 706.9 21.4 8,085.0

Medium risk 259.3 401.9 47.3 708.5

High risk 11.0 50.1 289.9 351.0

Total 7,627.0 1,158.9 358.6 9,144.5

Undrawn commitments

Low risk 1,205.9 10.7 – 1,216.6

Medium risk 0.4 3.8 – 4.2

High risk – 2.4 0.2 2.6

Total 1,206.3 16.9 0.2 1,223.4

Trade receivables

Low risk 8.6 – – 8.6

Medium risk – 0.4 – 0.4

High risk – – 0.8 0.8

Total 8.6 0.4 0.8 9.8

1. Lifetime expected credit losses are recognised for all trade receivables under the IFRS 9 simplified approach. The figures presented are on a net basis after

deducting for expected credit losses of £2.0 million (31 July 2022: £3.2 million) relating to predominantly Stage 3 receivables.

115Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Forbearance

Forbearance occurs when a customer is experiencing

difficulty in meeting their financial commitments and a

concession is granted, by changing the terms of the financial

arrangement, which would not otherwise be considered. This

arrangement can be temporary or permanent, depending on

the customer’s circumstances. The Banking division reports

on forborne exposures as either performing or non-

performing in line with regulatory requirements. A

forbearance policy is maintained to ensure the necessary

processes are in place to enable consistently fair treatment

of all customers and that each is managed based on their

individual circumstances. The arrangements agreed with

customers will aim to create a sustainable and affordable

financial position, thereby reducing the likelihood of suffering

a credit loss. The forbearance policy is periodically reviewed

to ensure it remains effective.

The Banking division offers a range of concessions to

support customers which vary depending on the product

and the customer’s status. Such concessions include an

extension outside terms (for example, a higher LTV or

overpayments) and refinancing, which may incorporate an

extension of the loan tenor and capitalisation of arrears.

Furthermore, other forms of forbearance such as moratorium,

covenant waivers and rate concessions are also offered.

Loans are classified as forborne at the time a customer in

financial difficulty is granted a concession and the loan will

remain treated and recorded as forborne until the following

exit conditions are met:

1. the loan is considered as performing and there is no

past-due amount according to the amended

contractual terms;

2. a minimum two-year probation period has passed from

the date the forborne exposure was considered as

performing, during which time regular and timely

payments have been made; and

3. none of the customer’s exposures with Close Brothers

are more than 30 days past due at the end of the

probation period.

At 31 July 2023, the gross carrying amount of exposures with

forbearance measures was £214.6 million (31 July

2022: £208.9 million). The key driver of this increase has

been movement of high-value individual exposures in

Property and higher volumes of business-as-usual

forbearance in our Motor Finance business resulting from

enduring cost of living pressures on customers.

The reduction in volumes across all segments is driven by

the continued run-off of Covid-19-related concessions, lower

volumes in Premium Finance related to short loan tenors and

general resilience across all portfolios.

As the number of customers supported via Covid-19-related

concessions has continued to reduce (noting no new

Covid-19 forbearance arrangements have been offered in

the period), the low outstanding volumes have been

consolidated into the single forbearance total in the tables

on pages 116 to 117.

An analysis of forborne loans is shown in the table below:

Gross loans and

advances to

customers

£ million

Forborne loans

£ million

Forborne loans as a

percentage of gross

loans and advances

to customers

Provision on

forborne loans

£ million

Number of

customers

supported

At 31 July 2023 9,635.6 214.6 2.2% 56.1 6,996

At 31 July 2022 9,144.5 208.9 2.3% 44.3 11,043

The following is a breakdown of forborne loans by segment:

31 July 2023

£ million

31 July 2022

£ million

Commercial 38.0 62.3

Retail 28.8 23.0

Property 147.8 123.6

Total 214.6 208.9

116 Strategic Report

The following is a breakdown of the number of customers supported by segment:

31 July 2023

Number of

customers supported

31 July 2022

Number of

customers supported

Commercial 243 518

Retail 6,700 10,467

Property 53 58

Total 6,996 11,043

The following is a breakdown of forborne loans by concession type:

31 July 2023

£ million

31 July 2022

£ million

Extension outside terms 105.8 113.0

Refinancing 10.4 3.0

Moratorium 66.1 69.9

Other modifications 32.3 23.0

Total 214.6 208.9

Government lending schemes

Over the pandemic period, following accreditation,

customers were offered facilities under the UK government-

introduced CBILS, the CLBILS and the Bounce Back Loan

Scheme (“BBLS”), thereby enabling the Banking division to

maximise its support to small businesses. At 31 July 2023,

there are 4,364 (31 July 2022: 5,445) remaining facilities,

with a residual balance of £456.3 million (31 July 2022:

£747.5 million) following repayments across the Property,

Asset Finance & Leasing and Invoice & Speciality

Finance businesses.

The Banking division also received accreditation to offer

products under the RLS, and schemes in the Republic of

Ireland. Applications for facilities under phase 2 of the RLS

closed in June 2022 and recently facilities have been offered

under the new RLS phase 3. At 31 July 2023, there are 943

(31 July 2022: 560) live facilities, with balances of

£276.2 million (31 July 2022: £166.1 million), and a further 58

(31 July 2022: 73) approved facilities with limits of

£14.3 million (31 July 2022: £15.6 million).

The Banking division maintains a regular reporting cycle of

these facilities to monitor performance. To date, a number of

claims have been made and payments received under the

government guarantee.

Collateral held

The group mitigates credit risk through holding collateral

against loans and advances to customers. The group has

internal policies on the acceptability of specific collateral

types, the requirements for ensuring effective enforceability

and monitoring of collateral in-life. Internal policies define,

amongst other things, legal documentation requirements,

the nature of assets accepted, LTV and age at origination,

and exposure maturity and in-life inspection requirements.

An asset valuation is undertaken as part of the loan

origination process.

The principal types of collateral held by the group against

loans and advances to customers in the Property and

Commercial businesses include residential and commercial

property and charges over business assets such as

equipment, inventory and accounts receivable. Within Retail,

the group holds collateral primarily in the form of vehicles in

Motor Finance and refundable insurance premiums in

Premium Finance, where an additional layer of protection

may exist through broker recourse.

The Banking division’s collateral policies have not materially

changed during the reporting period. There has been an

increase in the proportion of exposures in higher LTV bands

as exposures backed by government lending schemes have

run-off and been replaced by more normalised LTV profiles.

Unsecured and structurally protected populations have

reduced year-on-year, consistent with limited appetite for

growth in unsecured lending and lower new business

volumes in structurally protected portfolios.

Analysis of gross loans and advances to customers by LTV

ratio is provided on page 118. The value of collateral used in

determining the LTV ratio is based upon data captured at

loan origination or, where available, a more recent valuation .

117Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Commercial

£ million

Retail

£ million

Property

£ million

Total

£ million

LTV

60% or lower 1,021.0 150.3 1,083.9 2,255.2

>60% to 70% 588.6 152.4 475.3 1,216.3

>70% to 80% 468.7 336.3 84.0 889.0

>80% to 90% 777.9 1,067.5 12.3 1,857.7

>90% to 100% 1,285.2 505.0 14.1 1,804.3

Greater than 100% 226.5 387.7 74.7 688.9

Structurally protected

265.5 452.0 – 717.5

Unsecured 166.2 40.0 0.5 206.7

At 31 July 2023 4,799.6 3,091.2 1,744.8 9,635.6

Commercial

£ million

Retail

£ million

Property

£ million

Total

£ million

LTV

60% or lower 1,238.2 179.5 1,011.4 2,429.1

>60% to 70% 471.6 179.5 367.3 1,018.4

>70% to 80% 375.5 374.9 49.8 800.2

>80% to 90% 692.7 1,108.0 4.5 1,805.2

>90% to 100% 1,052.6 477.6 – 1,530.2

Greater than 100% 213.3 318.9 77.2 609.4

Structurally protected

291.7 452.8 – 744.5

Unsecured 164.8 42.7 – 207.5

At 31 July 2022 4,500.4 3,133.9 1,510.2 9,144.5

Gross loans and advances to customers which are credit-impaired split by LTV ratio:

Commercial

£ million

Retail

£ million

Property

£ million

Total

£ million

LTV

60% or lower 48.7 1.7 31.7 82.1

>60% to 70% 4.6 2.3 15.9 22.8

>70% to 80% 4.2 6.9 23.9 35.0

>80% to 90% 8.9 19.3 9.1 37.3

>90% to 100% 19.2 22.2 13.6 55.0

Greater than 100% 4.7 15.7 74.7 95.1

Structurally protected

229.5 5.0 – 234.5

Unsecured 19.6 1.5 0.5 21.6

At 31 July 2023 339.4 74.6 169.4 583.4

Commercial

£ million

Retail

£ million

Property

£ million

Total

£ million

LTV

60% or lower 42.5 1.7 9.2 53.4

>60% to 70% 0.7 2.4 14.2 17.3

>70% to 80% 2.7 7.0 19.1 28.8

>80% to 90% 16.4 17.9 4.4 38.7

>90% to 100% 10.1 19.1 – 29.2

Greater than 100% 4.8 11.9 77.1 93.8

Structurally protected

56.5 4.1 – 60.6

Unsecured 35.4 1.4 – 36.8

At 31 July 2022 169.1 65.5 124.0 358.6

1. Government lending scheme facilities totalling £732.4 million (31 July 2022: £913.5 million) are allocated to a low LTV category reflecting the nature of the

government guarantee and resultant level of lending risk.

2. Exposures are considered structurally protected when, in management’s judgement, they have characteristics which mitigate the credit risk of the exposure

to a significant extent, in spite of not representing tangible security. The increase in credit-impaired structurally protected gross loans and advances is a result

of updates to Novitas assumptions which are detailed on pages 108 to 109.

118 Strategic Report

Funding risk is the risk of loss caused by the inability to

raise funds at an acceptable price or to access markets

in a timely manner.

Liquidity risk is the risk that liabilities cannot be

met when they fall due or can only be met at an

uneconomic price.

Exposure

Funding and liquidity are managed on a legal entity basis

with each of the group’s divisions responsible for ensuring it

maintains sufficient liquidity for its own purposes. The

group’s divisions operate independently of each other with

no liquidity reliance.

The company has relatively few cash requirements and all

requirements are known in advance, for example external

dividends. It meets its cash requirements through deposits

placed with the Banking division and its committed

borrowing facilities.

The Banking division’s funding profile comprises a broad

range of channels. Its diversified approach to funding

includes secured funding, unsecured funding, retail deposits

and non-retail deposits. Funding risk exposure primarily

arises if the Banking division is unable to obtain the

necessary funding to support its asset positions for the

expected maturity. Unsustainable or undiversified funding

bases, such as an over-reliance on short-term deposits, can

increase the level of risk and can lead to a deviation from the

funding plan. In turn, this can increase the costs of raising

new funds, reducing the bank’s ability to originate new

assets and potentially leading to negative market or

customer perception.

The Banking division’s ILAAP covers potential event drivers

from a range of stress testing scenarios, including

idiosyncratic examples. This ensures liquidity management

remains a source of strength and features a robust and

prudent approach to assessing and maintaining liquidity

requirements. The Banking division’s ILAAP is combined

with Internal Capital Adequacy and Risk Assessments

(“ICARA”) from Winterflood and CBAM, alongside the

company considerations, to form the group ILAAP.

Funding and liquidity risk in Winterflood is driven by four

primary sources: long trading book risk positions; overnight

and intraday settlements; margin requirements; and multi-

day client orders. Winterflood maintains risk appetites

sufficient to ensure continued compliance with the rules

under the Investment Firm Prudential Regulation (“IFPR”).

For CBAM, funding and liquidity risks are managed through

the division’s cash flow forecasting, ensuring that sufficient

liquidity is maintained to cover the next three months of

outflows. CBAM also has specific requirements under ICARA

in relation to liquidity which are monitored against.

Further detail on the group’s funding and liquidity exposure

is provided on pages 70 and 71 of the Financial Overview

and page 250 of the financial statements.

Risk Appetite

The group adopts a conservative approach to funding and

liquidity risk and seeks to maintain a funding and liquidity

position characterised by preserving a simple and

transparent balance sheet, sustaining a diverse range of

funding sources and holding a prudent level of high-quality

liquidity. As such, the weighted average maturity of its

funding is longer than the weighted average maturity of its

lending portfolio.

These objectives form the basis for the group Funding and

Liquidity Risk Appetite Statement, approved annually by the

board, which outlines the levels of funding and liquidity risk

that the group is willing to assume. Given the materiality of

the Banking division, this is primarily focused on the levels of

risk assumed within the bank.

Measurement

A variety of metrics are used to measure the Banking

division’s funding and liquidity position to ensure compliance

with both external regulatory requirements and internal risk

appetite. These metrics cover both the short and long-term

view of liquidity and funding and have limits and early

warning indicators in place that are approved via the Asset

and Liability Committee (“ALCO”) and Group Asset and

Liability Committee (“GALCO”). These metrics include term

funding as a percentage of loan book, weighted average

tenor of loan book versus weighted average tenor of funding,

available cash balance with the Bank of England, and liquid

to total assets ratio.

Funding is measured and monitored in accordance with the

Banking division’s funding plan, which seeks to ensure that

the bank maintains a balanced and prudent approach to its

funding risk that is in line with risk appetite. The funding plan

is supplemented by metrics that highlight any funding

concentration risks, funding ratios and levels of

encumbrance. The NSFR was implemented by the PRA on

1 January 2022. The four-quarter average ratio to 31 July

2023 was 126.0% (point in time ratio at 31 July

2022: 118.3%), comfortably in excess of the binding

minimum requirement of 100%.

Funding and liquidity risk

119Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Liquidity is managed in accordance with regulatory

requirements and the ILAAP which is approved by the board.

The group’s LCR is significantly above the regulatory

requirement. This is because the nature of the funding model

means that it holds higher inflows compared to outflows

within the 30-day period and significantly more HQLA than is

required under regulatory metrics. The group’s 12-month

average LCR to 31 July 2023 was 1,143% (31 July

2022: 924%).

In addition to regulatory metrics, the Banking division also

uses a suite of internally developed liquidity stress scenarios

to monitor its potential liquidity exposure daily and determine

its high quality liquid asset requirements. This ensures that

the Banking division remains within risk appetite and

identifies potential areas of vulnerability. The outcomes of

these scenarios are formally reported to the ALCO,

GRCC and board.

Mitigation (audited)

This funding approach is based on the principles of “borrow

long, lend short” and ensuring a diverse range of sources

and channels of funding. In the Banking division, retail and

corporate customer funding is supported by wholesale

funding programmes including unsecured medium-term

notes and securitisation programmes. The bank has also

drawn against the Bank of England’s Term Funding Scheme

(“TFSME”), that was introduced to support lending in the

then prevailing low interest rate environment. Total available

funding is kept well in excess of the loan book funding

requirement to ensure funding is available when needed.

The following tables analyse the contractual maturities of the

group’s on-balance sheet financial liabilities on an

undiscounted cash flow basis.

On demand

£ million

In less than

three

months

£ million

In more

than three

months but

not more

than six

months

£ million

In more

than six

months but

not more

than one

year

£ million

In more

than one

year but

not more

than five

years

£ million

In more

than five

years

£ million

Total

£ million

At 31 July 2023

Deposits by banks 10.3 43.7 89.7 – – – 143.7

Deposits by customers 175.1 1,838.3 1,972.9 1,869.6 2,140.6 – 7,996.5

Loans and overdrafts from banks 31.8 25.2 7.6 243.8 383.2 – 691.6

Debt securities in issue – 46.7 132.3 168.1 1,705.1 416.3 2,468.5

Subordinated loan capital – 2.0 – 2.0 16.0 213.0 233.0

Total 217.2 1,955.9 2,202.5 2,283.5 4,244.9 629.3 11,533.3

On demand

£ million

In less than

three

months

£ million

In more

than three

months but

not more

than six

months

£ million

In more

than six

months but

not more

than one

year

£ million

In more

than one

year but not

more than

five years

£ million

In more

than five

years

£ million

Total

£ million

At 31 July 2022

Deposits by banks 6.0 51.9 98.9 4.1 – – 160.9

Deposits by customers 120.9 1,645.1 2,046.5 1,600.1 1,427.2 – 6,839.8

Loans and overdrafts from banks 12.0 12.0 1.9 3.7 610.5 – 640.1

Debt securities in issue – 30.3 256.2 619.5 890.7 444.2 2,240.9

Subordinated loan capital – 2.0 – 2.0 15.0 218.0 237.0

Total 138.9 1,741.3 2,403.5 2,229.4 2,943.4 662.2 10,118.7

Growth in the balance sheet over the current year has been funded through longer-term customer deposits with maturities

between one and five years, supporting and maintaining the principles of “borrow long, lend short” .

120 Strategic Report

Outlook

Economic uncertainty has continued over the

last 12 months, increasing market competitiveness.

Despite the challenges this has presented, the

Banking division’s ability to fund the loan book has

been largely unaffected and it continues to retain

access to a wide range of funding sources and

products. Similarly, elevated levels of liquidity

havecontinued to be maintained because of

marketvolatility and uncertainty.

Monitoring

Funding and liquidity are measured and monitored on a daily

basis with monthly reports forming standing items for

discussion at both the ALCO, GALCO and GRCC, with the

Risk Committee maintaining overall oversight. Any liquidity

and funding issues are escalated as required to the ALCO, or

GALCO as appropriate, and then onwards to the GRCC and

Risk Committee.

The Banking division operates a three lines of defence

model with the treasury function responsible for the

measurement and management of the bank’s funding and

liquidity position and asset and liability management risk

providing independent review and challenge. ALCO provides

oversight of funding and liquidity and supports the relevant

senior managers in discharging their senior management

function responsibilities.

Legal and regulatory risk is the risk of non-compliance

with laws and regulations which could give rise to fines,

litigation, sanctions and the potential for material

adverse impact upon the group.

Exposure

The group is subject to the laws and regulations of the

various jurisdictions in which it operates. This exposure

includes risks of breaching financial services regulations

andlaws, as well as action resulting from contractual

breachand litigation.

Risk appetite

The group has minimal appetite for legal and regulatory

risk,seeking to operate to high ethical standards and

expecting its staff to operate in accordance with the laws,

regulations and voluntary codes which impact the group and

its activities.

The group seeks to avoid knowingly operating in a

mannerwhich is contrary to the provisions of the

regulatorysystem and has no tolerance for knowingly

transacting business outside the scope of its regulatory

permissions or relevant legislation.

The group will respond in an appropriate, risk-based and

proportionate manner to any changes to the legal and

regulatory environment, as well as changes driven by

anystrategic initiatives.

Measurement

The group monitors and manages its legal, regulatory and

compliance risks through regular engagement and

interaction across the organisation, and the implementation

of appropriate policies, standards and procedures. This

includes reliance on a formal horizon scanning capability to

identify changes, as well as regular management information

which enables oversight and challenge via RCCs.

Mitigation

The group’s Enterprise Risk Management Framework,

including its suite of policies and standards and the

associated three lines of defence operating model, sets

common control objectives across risk disciplines. This

consistent approach to setting and embedding control

expectations acts to mitigate the likelihood and impact of

events which could give rise to legal and regulatory risk.

Dedicated specialist legal and compliance teams with

relevant knowledge and experience provide advice, support

and challenge to the group’s businesses, enabling alignment

with legal and regulatory requirements. These teams further

have the ability to consult with external experts on technical

or otherwise complex matters as appropriate.

Internal change and investment processes consider

regulatory and legal inputs, such that sufficient funding can

be allocated to deliver system and process changes in line

with evolving regulatory and legal expectations.

Monitoring

In line with the group’s three lines of defence model,

businesses monitor their alignment with standards on an

ongoing basis. Relevant management information, including

the output of quality assurance activities, is reviewed by

theRCCs.

An independent compliance monitoring team undertakes

assurance to assess compliance with key regulations and

the effectiveness of associated controls. Reports are

provided to management and any remedial actions identified

are tracked to completion.

Legal and compliance teams monitor for external

developments through both structured horizon scanning

activity and engagement in industry forums.

Legal and regulatory risk

121Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Outlook

Legal and regulatory risk is inherently elevated in financial

services as an industry. The UK government’s current

proposals to reform UK financial services regulation and

potential divergence between the UK and EU regulatory

regimes could affect and provide further challenges for

thegroup.

The inherent risk exposure for the group continues to

increase across the jurisdictions in which it operates. The

nature and scale of any risk exposure related to the

introduction of Consumer Duty by the FCA remains to be

seen as it embeds across industry. Separately, the group’s

retail lending offerings in the Republic of Ireland operate in

an environment with increasing regulatory activity – the

Central Bank of Ireland continues to embed further

regulatory expectations with respect to operational

resilience and customer outcomes.

The group operates strong controls which limit residual

risk exposure arising from regulatory expectations,

however the external drivers increasing inherent risk may

have a follow-on impact to the group’s residual exposure.

The group faces legal risks that could result in substantial

monetary damages or fines. Specifically, the group has

received a number of complaints, some of which are with

the Financial Ombudsman Service, and is subject to a

number of claims through the courts regarding historic

commission arrangements with intermediaries on its Motor

Finance products. This follows the FCA’s Motor Market

Review in 2019. Depending on the outcome of the courts’

rulings and/or regulatory findings on the matter, these

complaints and claims may give rise to a potential future

obligation to compensate customers. It is not currently

possible to estimate the financial impact (if any) or scope

of these or any future related claims.

Non-traded market risk is the risk to the value of assets

or liabilities outside the trading book that arises from

changes in market prices such as interest rates, credit

spreads and foreign exchange rates.

Exposure

The group’s non-traded market risk exposure consists of

interest rate risk in the banking book (“IRRBB”), CSRBB

andFX risk.

IRRBB is predominantly incurred in the Banking division as a

result of its lending and funding activities and from funding

activities for the group holding company. Interest rate risk in

the other divisions is immaterial.

CSRBB arises from the HQLA portfolio held in the

Bankingdivision.

FX risk is incurred across the group and arises from:

• managing the funding requirements of the Banking

division through deposit gathering and wholesale funding,

and managing the associated FX risks;

• conducting foreign exchange payment services on behalf

of the group; and

• non-sterling investments.

Risk Appetite

The group has a restricted appetite for interest rate risk

which is limited to that required to operate efficiently.

Thegroup’s policy is to match repricing characteristics of

assets and liabilities naturally where possible or use interest

rate swaps to secure the margin on its loans and advances

to customers.

The group has a limited appetite for credit spread risk which

occurs due to its holdings of HQLA assets, which primarily

comprise highly rated UK and European supranational debt,

sovereign debt, agency bonds and UK covered bonds.

The group has a restricted appetite for foreign exchange risk.

It avoids large open positions and sets individual currency

limits to mitigate the risk.

Measurement

Interest rate risk

The group recognises three main sources of IRRBB which

could adversely impact future income or the value of the

balance sheet:

• repricing risk – the risk presented by assets and liabilities

that reprice at different times and rates;

• embedded optionality risk – the risk presented by contract

terms embedded into certain assets and liabilities; and

• basis risk – the risk presented by a mismatch in the

reference interest rate for assets and liabilities.

Non-traded market risk

122 Strategic Report

IRRBB is assessed and measured by applying key

behavioural and modelling assumptions including, but not

limited to, those related to fixed rate loans subject to

prepayment risk, the behaviour of non-maturity assets and

liabilities, the treatment of own equity and the expectation

ofembedded interest rate options. This assessment is

performed across a range of regulatory prescribed and

internal interest rate shock scenarios approved by the

bank’sALCO.

Two measures are used for measuring IRRBB, namely

Earnings at Risk (“EaR”) and Economic Value (“EV”):

• EaR measures short-term impacts to earnings,

highlighting any earnings sensitivity should rates

changeunexpectedly.

• EV measures longer-term earnings sensitivity due to rate

changes, highlighting the potential future sensitivity of

earnings, and any risk to capital.

No material exposure exists in the other parts of the group,

and accordingly the analysis below relates to the Banking

division and company.

EaR impact (audited)

The table below sets out the assessed impact on net interest

income over a 12-month period from interest rate changes.

The results shown are for an instantaneous and parallel

change in interest rates at 31 July 2023:

31 July 2023

£ million

31 July 2022

£ million

0.5% increase 4.5 4.3

2.5% increase 22.6 22.3

0.5% decrease (4.5) (1.0)

2.5% decrease (22.8) 16.7

The group also monitors any potential earning exposure from

basis mismatches between its lending and funding activities

on a monthly cadence. To provide a clearer assessment of

the group’s exposure to interest rate changes, this has been

excluded from the EaR numbers disclosed for the current

year and the prior year comparatives. The prior year

comparatives have also been restated to include EaR risk

within the company as compared to Bank only in prior years.

The group’s EaR at 31 July 2023 reflects its policy to ensure

exposure to interest rate shocks is managed within the

group’s risk appetites. The EaR measure is a combination of

the group’s repricing profile, which is positively correlated to

rising rates, and its optionality risk, which is negligible in the

current higher rate environment.

EV impact (audited)

The following table sets out the assessed impact on our

basecase EV, which measures the impact on equity value base case EV, which measures the impact on equity value

ofan instantaneous and parallel change in interest rates at of an instantaneous and parallel change in interest rates at

31 July 2023:

31 July 2023

£ million

31 July 2022

£ million

0.5% increase 4.4 1.5

2.5% increase 21.5 8.4

0.5% decrease (4.4) (1.2)

2.5% decrease (21.9) 3.3

The group’s EV at 31 July 2023 reflects its policy to ensure

exposure to interest rate shocks is managed within the group’s

risk appetites. In a rising rate environment, the distance to the

interest rate floors increases and so the benefit of the floors on

the group’s lending decreases. This explains the movement

seen for the parallel rate up and down 2.5% scenarios. The EV

measure is a combination of our repricing profile, which is

positively correlated to rising rates, offset partially by

embedded optionality to cover interest rate floors within the

bank’s lending and borrowing activities. The prior year

comparatives have been restated to include EV risk within the

company as compared to Bank only in prior years.

Credit spread risk

Treasury holds assets for the purpose of liquidity management;

all treasury assets at 31 July 2023 were LCR Level 1.

Derivatives are used to mitigate interest rate risk exposure

from treasury assets.

Credit spread sensitivity is measured by comparing the impact

of a one basis point change in credit spread on the value of the

Banking division’s liquidity portfolio. CSRBB is assessed by

calculating potential changes in value of the liquidity portfolio,

based on historic stresses to credit spreads. The group has

started the process of restructuring its liquidity portfolio, as

shown in the following table, so its current exposure to credit

spread risk is modest.

The table below sets out the total exposure to each asset class

within the Banking division’s liquidity portfolio at 31 July 2023:

31 July 2023

£ million

31 July 2022

£ million

Cash and balances at central banks 1,937.0 1,254.7

Sovereign and central bank debt

(LCR Level 1) 186.1 415.4

Covered bonds (LCR Level 1) 106.3 –

Supranational bonds (LCR Level 1) – –

Certificates of deposit – 185.0

Total treasury liquid asset holdings 2,229.4 1,855.1

At 31 July 2022, sovereign and central bank debt holdings

included encumbered UK government debt of £216.9 million.

The Banking division did not hold any encumbered assets in

its liquidity portfolio at 31 July 2023.

123Close Brothers Group plc Annual Report 2023

Foreign exchange risk (audited)

The group is exposed to transaction, translation and

structural foreign exchange risk. Transaction risk is

measured daily within treasury based on net cash flows and

contracted future exposures. Translation risk is monitored

within each Banking business monthly, translating non-UK

profits regularly to mitigate fluctuations in foreign exchange

rates. Structural risk is assessed at least annually as part of

the group’s ICAAP and is deemed to be immaterial.

The group’s largest FX exposure is from its euro lending and

funding activities. A change in the euro exchange rate would

increase the group’s equity by the following amounts:

2023

£ million

2022

£ million

20% strengthening of sterling

against the euro 0.3 (1.7)

The bank seeks to match its assets and liabilities by

currency; any remaining gaps are hedged using exchange

rate derivative contracts. Details of these derivatives are

disclosed in note 13.

The group also has exposures which arise from share trading

settled in foreign currency in Winterflood and foreign

currency equity investments. The group has policies and

processes in place to manage foreign currency risk, and as

such the impact of any reasonably expected exchange rate

fluctuations would not be material.

Mitigation (audited)

The group maintains a limited appetite for interest rate risk

with simple hedging strategies in place to mitigate risk. The

Banking division’s treasury is responsible for hedging the

non-traded interest rate risk. Any residual risk which cannot

be naturally matched is hedged utilising vanilla derivative

transactions to remain within prescribed risk limits. The

Group Asset and Liability Committee (“GALCO”) and ALCO

are respectively responsible for approving any changes to

hedging strategies before implementation for the company

and Bank.

Derivative transactions can only be undertaken with

approved counterparties and within the respective credit risk

limits assigned to those counterparties.

All marketable securities are “hold to collect and sell” and

have their interest rate exposure hedged with vanilla interest

rate swaps.

Foreign exchange exposures are generally hedged using

foreign exchange forwards or currency swaps with

exposures monitored daily against approved limits .

Monitoring

The GALCO monitors the non-traded market risk exposure

across the group’s balance sheet. ALCO monitors the

non-traded market risk exposure for the Banking division.

Treasury is responsible for day-to-day management of all

non-traded market risks. Day-to-day oversight is exercised

via a combination of daily reporting by the treasury finance

team, and divisional RCC review and challenge. Further

independent oversight is provided via the second line of

defence through the asset liability management risk team

(“ALM Risk”), with monthly reporting into ALCO and GALCO.

Banking businesses have operational processes and controls

in place to monitor their exposure to IRRBB and ensure it

remains within approved local risk appetites. Any exceptions

are reported to ALM Risk on the same working day. Residual

IRRBB that is not transferred into treasury for central

management through the Banking division’s funding

transference process is monitored by the businesses through

their respective RCCs.

ALM Risk is responsible for maintaining processes and

controls to monitor the divisional position and report

exposures to ALCO and GALCO, and subsequently to GRCC

and the Risk Committee. An ALM system is deployed as the

primary source for IRRBB reporting and risk measurement.

Outlook

The group expects exposure to IRRBB and FX risk to

remain at similar levels to those seen this year but

CSRBB is expected to increase as the group

restructures its HQLA portfolio.

Risk Report continued

Principal risks

124 Strategic Report

Operational risk is the risk of loss or adverse impact

resulting from inadequate or failed internal processes,

people and systems or from external events. This

includes the risk of loss resulting from fraud, financial

crime, cyber attacks and information security breaches.

Exposure

The group is exposed to various operational risks through its

day-to-day operations, all of which have the potential to

result in financial loss or adverse impact.

Losses typically crystallise as a result of inadequate or failed

internal processes, people, models and systems, or as a

result of external factors.

Impacts to the business, customers, third parties and the

markets in which the group operates are considered within a

maturing framework for resilient delivery of important

business services.

Risk Appetite

The group manages its exposure to operational risk through

a balanced consideration of investment case and risk,

accepting that it is not proportionate or feasible to fully

eliminate operational risk.

In line with the group’s conservative approach to risk

management, controls are implemented in a manner that

reduces the likelihood of higher-impact risk events

crystallising. Further, the group monitors aggregate loss

trends and seeks to limit aggregate losses arising in any

given year.

The group has limited appetite for operational risks with

significant residual exposure and as such requires a

near-term mitigation strategy for any such identified risks.

Measurement

Operational risk is measured through key risk indicators

(“KRIs”), observed impact of risk incidents, risk and control

self-assessment and scenario analysis.

Each key risk within operational risk has a set of defined

KRIs. These are regularly monitored via local, divisional and

group committees with exceptions reported to both the

GRCC and the Risk Committee. The population of KRIs is

reviewed annually in line with the scheduled review of the

group’s appetite.

Operational risk incidents are identified and recorded in a

common system. This facilitates root cause analysis, enables

thematic and trend analysis, and enables the consistent

delivery of management information to risk committees.

Risk and control self-assessments are completed by risk

owners on a regular basis. This enables the consistent

identification and assessment of key risks and controls.

Operational risk

Where a risk owner self-assesses elevated levels of residual

risk, additional management action is considered.

Scenario analysis is utilised to identify and consider

potentiallow-frequency/high-impact events.

Complementaryapproaches to desktop scenario analysis

and scenario testing are deployed to test the efficacy of

riskand control self-assessments, evaluate the resilience

ofimportant business services and drive Pillar 2a

operationalrisk capital calculations.

Mitigation

The group seeks to maintain its operational resilience

through effective management of operational risks,

including by:

• sustaining robust operational risk management processes,

governance and management information;

• investment decisions that prioritise risk benefits via key

systems, third-party relationships, processes and teams;

• investing in technology to provide reliable and

contemporary customer service offerings and effective

model outputs;

• attracting, retaining and developing high-quality staff

through the operation of competitive remuneration and

benefit structures and an inclusive environment that

embraces diversity and recognises behaviours aligned to

our cultural attributes;

• investing in cyber security including expertise, tools and

staff engagement;

• maintaining focus on personal data protection;

• adopting fraud prevention and detection capabilities

aligned with its risk profile; and

• planning and rehearsing strategic and operational

responses to severe but plausible stress scenarios.

Operational

risk

Key Operational Risks

Data

protection

Financial

crime

Fraud

Workplace

Third

party

Technology

Process

People

Model

Information

security

125Close Brothers Group plc Annual Report 2023

Risk report continued

Operational risk areas of focus

Model Risk Focus

Robust model risk framework embedded across the

group to reduce the risk of potential adverse

outcomes arising from the use of models.

The group uses models for a range of different purposes,

including provisioning, stress testing, credit approval, risk

management and financial reporting. In doing so, it seeks

to minimise the occurrence of financial loss, lost income

or reputational damage while ensuring transparency

regarding the level of model risk incurred. A model risk

framework is embedded across the group to manage

and mitigate this risk through the model life cycle.

This framework is underpinned by a group Model Risk

Policy and various supporting standards and procedures

outlining clear roles and responsibilities in terms of model

risk management. As part of the model risk framework,

a dedicated model risk management team is also in

place, responsible for the independent validation of all

models, the identification of potential limitations and

assumptions, and the proposal of approval

recommendations, including the use of expert judgement

to adjust model outputs or identify appropriate post-

model adjustments.

The MGC provides oversight of the group’s exposure to

model risk through the review, approval and monitoring

of material models used within the group, alongside

regular reporting on a set of defined KRIs which form

part of the group risk appetite. Ongoing evolution of the

model risk framework is aligned to external regulatory

requirements, best industry practice and the firm’s

ongoing advanced internal-rating-based (“AIRB”)

application.

Data Risk Focus

Growing maturity across a discipline which

underpins the group’s approach to information.

The group views data risk holistically through the life

cycle from acquisition to usage and eventual disposal.

Development of a data governance methodology to

identify, assess, treat and report risk and issues across

our critical data elements continues.

Data governance forums monitor the group’s position

within the established risk governance framework, with

data ownership and accountability as key focus areas.

Data risk interlinks with the group’s approach to

operational risk in key areas such as data protection,

model management, end user computing management

and information security. Complementary frameworks

allow a linked language and shared approach in

policies, standards and controls.

Cyber Risk Focus

The group recognises the importance of protecting

information and systems from the ever-growing

cyber threat faced by the financial services

industry.

The group uses an industry-standard framework to

anchor its cyber risk management, continually

assessing and developing its maturity. The group

acknowledges the challenge of preventing all incidents

as the capabilities and tactics of malicious actors

advance; the group focuses its efforts across a

spectrum of controls to mitigate occurrence and

potential impacts.

A group chief information security officer maintains a

dedicated team and sets the policy for the group’s

approach, with an emphasis on delivering controls

against identified external and internal threats.

The cyber risk management life cycle is aligned to the

group’s broader approach to operational risk

management. The group has strategic partnerships

with external experts, participates in industry forums

and utilises the three lines of defence model to manage

cyber risk. This is underpinned by supporting

standards and baselines which set the terms for the

management of cyber risk. The Risk Committee has

oversight of the group’s cyber risk profile, supported

by detailed oversight from the Operations and

Technology Risk Committee (“OTRC”).

Resilience Focus

Resilience supports successful outcomes over time

for the group’s customers and other stakeholders.

Resilience minimises the impact of operational

disruptions to business services. In particular, the group

has considered the regulatory objectives in this area,

focusing on potential intolerable harm caused by severe

but plausible events.

This goal is aligned to the foundations for the group’s

long-term success, and in particular to its strategy of

providing exceptional service to its customers. The

priority is to improve the experience of and minimise

harm to customers in the event of operational disruption.

The group has an established multi-year programme

to implement and maintains a sustainable approach

to resilience.

Risk Report continued

Principal risks

126 Strategic Report

Monitoring

The board delegates authority to the GRCC to manage

thegroup’s operational risk framework on a day-to-day

basisand provide oversight of its exposure. The committee

is supported by the OTRC which is responsible for

oversightoftechnology, information security, third-party

andcertain other resilience-related risks. Regular

management information is presented to and discussed

bythese committees.

The risk function has a dedicated operational risk team

which is responsible for maintaining the framework, tool

setsand reporting necessary for effective operational risk

management. Operational risk managers are aligned to

businesses, with an additional technical second line of

defence team providing specialist oversight of technology,

information security, data and resilience-related risks.

Monitoring of all operational risk types is conducted via

divisional RCCs with escalation to the GRCC and Risk

Committee as appropriate.

In addition to the delivery of standardised management

information across all operational risks, periodic deep dives

are also conducted on key focus areas and reviewed by the

GRCC and Risk Committee. In the last year, these have

Outlook

The operational risk profile has broadly remained

stable compared to the prior period. Key drivers

remain market-wide people risks relating to

recruitmentand retention, industry-wide security,

cyber threats and some continued supply chain

impacts arising from the Russia/Ukraine conflict

andthe potential for increasing trends in attempted

external fraud coinciding with increasing cost of

livingpressures. The group is investing in data and

tooling capability to support greater management

insights and coupled with continued investments

across its businesses, it continues to deliver and

focuson improved control maturity.

Reputational risk is the risk of detriment to stakeholder

perception of the group, leading to impairment of its

reputation and its future goals, due to any action or

inaction of the company, its employees or associated

third parties.

Exposure

Protection and effective stewardship of the group’s

reputation are fundamental to its long-term success.

Detrimental stakeholder perception could lead to impairment

of the group’s current business and future goals. The group

remains exposed to potential reputational risk in the course

of its usual activities, such as through employee, supplier or

intermediary conduct, the provision of products and

services, crystallisation of another risk type, or as a result of

changes outside its influence.

Risk Appetite

The group has a strong reputation which it has built over

many years and considers it a valuable asset, managing it

accordingly through consistent focus on a set of cultural and

ethical attributes. The group has no tolerance for behaviours

that contradict these attributes in a manner that could harm

it, and avoids engaging with third parties, markets or

products that would inhibit the group’s adherence to them.

Reputational risk

The group seeks to operate in a responsible manner that

hasclient outcomes at the heart of everything that it does.

Protection of the group’s reputation is firmly embedded in

itsbusiness-as-usual activities, and the group, as part of its

overall strategy, adopts a prudent approach to risk taking.

The group also recognises that its reputation is

linkedtobroader responsibilities to help address social,

economicand environmental challenges, and maintains

appropriate sustainable objectives that the group sets

itselfas a business.

Measurement

Risk identification and subsequent management action are

embedded within business as usual activities.

Additionally, the group actively monitors for changes in the

business, legal, regulatory and social environment in which it

operates to ensure the timely identification, assessment and

mitigation of any potential reputation concerns that may arise

following changes in the expectations of key stakeholders.

covered third-party risk, cyber risk and operational resilience

more broadly. Further independent assurance is obtained

through reviews conducted by the compliance monitoring

team, specialist external partners (e.g. regarding cyber risk

management), and group internal audit.

127Close Brothers Group plc Annual Report 2023

Mitigation

Reputational risk management is embedded through the

organisation, including via:

• focus on employee conduct, with cultural attributes

embedded throughout the group;

• supplier and intermediary conduct management through

the relationship life cycle;

• new product approval and existing product review

processes for business products and services;

• a proactive approach to environmental, social and

governance matters;

• embedding of reputational risk management within the

management frameworks of other risk types; and

• proactive communication and engagement with investors,

analysts and other market participants.

In addition, the group maintains policies and standards that

serve to protect the group’s reputation, most notably those

covering anti-bribery, conflicts of interest, dignity at work

and high-risk client policies. These are regularly reviewed

and updated with staff receiving annual training to reinforce

understanding of their obligations.

The group crisis management team supports management of

cases where there is a potential risk of reputational impact

on the group on an exceptional basis. A communications

plan also forms part of the group’s Recovery Plan, which

sets out core principles to ensure fair and transparent

communication, to control the risk of misinformation and

minimise any negative reaction to the implementation of

recovery options.

Outlook

The group’s focus on acting responsibly and

sustainably enables it to respond and adapt to a range

of stakeholder expectations with regard to sustainable

practices and address heightened public interest in

businesses, taking a proactive, responsible approach

to their operations, products and services. Internal

oversight of matters relating to employees, the

environment, wider society and community impact at

both an operational and strategic level ensure the

group gives due considerations to the reputational

impact of its actions.

Monitoring

Reputational risk is considered across all three lines of

defence as part of oversight and assurance activities.

Adherence to the group’s cultural framework is monitored

through the culture dashboard, which is reported to the

board on a quarterly basis and includes key metrics in

relation to culture across the group and each of its divisions.

Customer forums are also in place across the group,

reinforcing its commitment to favourable client outcomes.

Regular engagement with investors also enables open

communication with this stakeholder group.

A series of sustainability forums and committees operate at a

divisional and group level to ensure that the group

appropriately addresses its sustainable and responsible

priorities and expectations of wider stakeholder groups.

Risk Report continued

Principal risks

Core Drivers of Reputational Risk

Reputational

risk

Employee conduct

Supplier and intermediary conduct

Products and services

Changes in business/societal context

Crystallisation of another risk type

Customers and clients

Intermediaries

Employees

Suppliers

Communities and the environment

Regulators and government

Investors

128 Strategic Report

Traded market risk is the risk that a change in the value

of an underlying market variable will give rise to an

adverse movement in the value of the group’s assets.

Exposure

Traded market risk in the group only arises in Winterflood,

whose core business is to provide liquidity and interact with

the market on a principal basis, holding positions in financial

instruments as a result of its client facilitation activity.

Winterflood operates as a market maker in equities,

exchange-traded products, investment trusts and sovereign

and corporate bonds, operating across three primary

markets: the United Kingdom, North America and Europe.

For hedging purposes, a number of derivatives are also

traded, although these are limited to listed futures in UK

equity and fixed income markets and FX forwards.

Risk Appetite

Winterflood’s strategic objectives and business plan are

centred on its ability to continue transacting in the markets in

which it operates, in the manner it has historically. The group

sets its risk appetite accordingly, acknowledging that an

acceptable level of traded market risk must be incurred for

the business to operate effectively.

Winterflood seeks to always ensure sufficient levels of

capitaland liquidity are maintained to cover its traded

marketrisk exposure.

Measurement

Traded market risk is measured against a set of defined risk

limits set at global, desk and individual stock levels, on both

an intraday and end-of-day basis. These limits are monitored

via a combination of internally developed and external,

industry-leading systems on an intraday and overnight basis

against a limit framework aligned to the group’s risk appetite.

The framework incorporates:

• market risk appetite being managed via trading book

exposure limits. These are set using gross cash positions

and the sterling value of a basis point (“SV01”) for

products with interest rate exposure;

• adoption of a real-time limit monitoring system, along with

end-of-day summary reports to track equity, fixed income

and FX exposures against agreed limits; and

• minimal exposure to derivatives (limited to hedging of

interest rate exposures and FX positions resulting from

positions in foreign securities).

Traded market risk

Mitigation (audited)

The management of traded market risk is fully embedded

within Winterflood’s training and governance framework.

Keyattributes include:Key attributes include:

• an established training programme for junior dealers,

requiring their supervision by a senior dealer until deemed

competent to trade on their own;

• the provision of training to all new joiners and newly

certified staff by the front office controls team. This

training includes market risk considerations as well as

details on order entry controls;

• the maintenance of risk mandates for all traders, detailing

the group’s market-making strategy, controls frameworks

and policies and procedures;

• oversight of all risk issues, including traded market risk,

via the Winterflood Risk and Compliance Committee.

Management information and key risk indicators are

reported to the committee on a monthly basis with

escalation to the GRCC and Risk Committee

whereneeded;where needed;

• the maintenance of a group Market Risk Policy and a

specific Traded Market Risk Standard at Winterflood,

outlining minimum governance requirements and

escalation. Implementation of these requirements is

achieved through documented front office procedures;

• order entry controls in place across the trading floor

limiting, amongst other trading variables, the executable

value per order (these are documented in a front office

procedure); and

• daily total value traded caps to limit the amount the

business can trade through a single broker.

Monitoring

Building on the use of real-time limit monitoring, the

monitoring of traded market risk is embedded across all

three lines of defence. Top-down visibility is exercised via

the Winterflood Risk and Compliance Committee, which

retains regular oversight of core traded market risk

management information and key risk indicators, as well as

stress testing outputs and policies and standards.

The Winterflood risk team works in conjunction with the front

office controls team to ensure the management of traded

market risk is correctly aligned to documented controls. To

support this, management information dashboards are

utilised alongside daily reporting to help manage market risk

on a daily and intraday basis.

129Close Brothers Group plc Annual Report 2023

Risk Report continued

Principal risks

Outlook

Several themes have driven markets over the past

12 months: inflation, rising interest rates, supply chain

issues, industrial action and the knock-on impacts these

factors have had on the economy. These factors, coupled

with ongoing geopolitical uncertainty, will continue to be

themes over the next 12 months, with the potential to keep

market liquidity low and suppress market valuations if

recessionary fears play out further.

In a rising interest rate environment seeking to combat

high inflation, following an extended period of low interest

rates, and where the government, institutions and

households may be servicing increased levels of debt, the

probability of another credit event impacting financial

markets is elevated. It is therefore important to ensure

disciplined allocation of capital within the trading book in

line with our prudent approach, and that robust reporting

and control frameworks are embedded to help manage

exposures and the potential for losses.

Trading Financial Instruments: Equity Shares and Debt Securities (Audited)

The group’s trading activities relate to Winterflood. The following table shows the group’s trading book exposure to market risk:

Highest exposure

£ million

Lowest exposure

£ million

Average exposure

£ million

Exposure at 31 July

2023

£ million

For the year ended 31 July 2023

Equity shares

Long 68.3 21.8 28.3 27.8

Short 20.1 4.7 7.7 6.4

Net position 20.6 21.4

Debt securities

Long 37.4 10.6 15.8 15.2

Short 11.8 3.6 6.4 3.5

Net position 9.4 11.7

Highest exposure

£ million

Lowest exposure

£ million

Average exposure

£ million

Exposure at 31 July

2022

£ million

For the year ended 31 July 2022

Equity shares

Long 54.0 25.3 32.6 27.1

Short 28.9 5.3 10.0 7.9

Net position 22.6 19.2

Debt securities

Long 23.8 14.2 19.5 12.4

Short 16.1 7.2 11.5 7.5

Net position 8.0 4.9

With respect to the long and short positions on debt securities, £11.0 million and £0.3 million (2022: £8.0 million and

£1.7 million) were due to mature within one year respectively.

The average exposure has been calculated on a daily basis. The highest and lowest exposure columns reflect the absolute

maximum and minimum long and short debt and equity exposures across the relevant period (rather than the maximum and

minimum net position).

Based upon the 31 July 2023 trading book exposure given above, a hypothetical fall of 10% in equity prices would result in a

£2.1 million decrease (31 July 2022: £1.9 million decrease) in the group’s income and net assets. A hypothetical 10% fall

across the fixed income desk would result in a £1.2 million decrease (31 July 2022: £0.5 million decrease) in the group’s

income and net assets. However, the group’s trading activity is mainly market-making, in which positions are managed

throughout the day on a continuous basis. Accordingly, the sensitivity referred to above is purely hypothetical.

130 Strategic Report

Going Concern

The group’s business activities, financial performance,

capital levels, liquidity and funding position, and risk

management framework, along with the principal and

emerging risks likely to affect its future performance, are

described in the Strategic Report and the Risk Report.

The group continues to have a strong, proven and

conservative business model supported by a diverse

portfolio of businesses, maintaining its consistent track

record of delivering profits. The group remains well

positioned in each of its core businesses, is strongly

capitalised and soundly funded, and has good levels of

liquidity. In making their going concern assessment, the

directors have also considered the operational agility and

resilience of the company and the group. The directors

continually expect to maintain a high level of operational

andsystem performance.

The directors acknowledge that the risk landscape is

constantly evolving and as such continually review the

group’s principal and emerging risks. As part of this review,

risks are assessed with robust oversight exercised at both a

local business unit and group level through risk and

compliance committees and the board.

In order to satisfy the statutory requirement that the

company and the group have adequate resources to

continue to operate for the foreseeable future, the directors

have reviewed the group’s operating plan to 31 July 2026

(“3YSP”). This covers a period of at least 12 months from the

date of approval of the financial statements together with its

funding and capital position, the impact of further stress

scenarios and a number of key risks which are set out in the

Risk Report under the heading Principal risks and

uncertainties: funding and liquidity on pages 119 to 121 and

capital position on page 97 to 100.

As part of the directors’ consideration of the appropriateness

of adopting the going concern basis in preparing the Annual

Report, a range of forward-looking scenario analyses have

been considered. This included the central and downside

scenarios and the Close Brothers high inflation and severe

recession scenarios. For each of the divisions, the directors

have also considered the impact of the central and downside

scenarios on financial performance over the next 12 months.

For Banking, these include expected customer demand,

which underpins loan book growth, as well as the impact of

rising interest rates and inflationary pressures on the group’s

customers and the effect this will have on the bad debt ratio

and net interest margin. For Asset Management, the strength

of financial markets in the UK and volume of net flows as a

percentage of opening managed assets was considered. For

Winterflood, the volume of trading activity within its markets

and expected trading revenue was assessed. Across all the

divisions, the limited impact of the selected downside

scenario demonstrated the resilience of the group

businessmodel.

In addition, two stress testing scenarios are modelled for

the group’s Internal Capital Adequacy Assessment Process

(“ICAAP”) and used for the going concern assessment. One

scenario tested the impact of high inflation combined with a

high Bank of England base rate whilst the other tested the

impact of a sharp UK recession. In all modelled scenarios it

was concluded that no significant structural changes to the

company or group will be required. Further details of these

scenarios are set out in the Viability Statement.

Under all scenarios the company and group continue to

operate with sufficient levels of liquidity and capital for the

next 12 months from the reporting date, with the group’s

capital ratios and liquidity comfortably in excess of

regulatoryrequirements.

In conclusion, the directors have determined that they have

areasonable expectation that the company and the group,

as a whole, have adequate resources to continue as a going

concern for a period of at least 12 months from the date of

approval of the financial statements. Accordingly, they

continue to adopt the going concern basis in preparing

theAnnual Report.

131Close Brothers Group plc Annual Report 2023

Consideration

In accordance with provision 31 of the UK Corporate

Governance Code, the board has assessed the prospects of

the group and confirms that it has a reasonable expectation

that the company and group will continue to operate and

meet their liabilities, as they fall due, for the three-year period

up to 31 July 2026.

Strategic and Financial Outlook

The board has considered the longer-term viability of the

group and considers three years to be an appropriate period

for the assessment to be made. A period of three years has

been chosen given the group’s proven and resilient business

model over the medium term and prudent maturity profile

and this matches the group strategic planning cycle. A

three-year period aligns with the group regulatory and

internal stress testing processes, including: (i) group-wide

internal forecasting and stress testing, which have

undergone significant review and challenge, to confirm the

viability of the group; (ii) the ICAAP, which assesses capital

requirements; and (iii) ILAAP, which identifies liquidity

requirements.

Risk Management and Risk Profile

In making its assessment, the board has identified and

assessed the principal and emerging risks facing the group

and these are highlighted on pages 90 to 130. The group’s

approach to monitoring and managing the principal risks

faced by the group’s business, including financial, business,

market and operational risks, has remained consistent given

the group’s activities, business model and strategy are

unchanged.

The group utilises an established risk management

framework to monitor its portfolio of emerging risks

incorporating the group’s “bottom up” and “top down”

approach. These approaches are monitored by the local and

group risk and compliance committees with agreed actions

regularly tracked. Key emerging risks can be found in the

Risk Report on pages 94 to 95.

Assessment

The group will continue to monitor and assess these risks,

by: adhering to its established and proven business model

as outlined on pages 12 and 13; implementing an integrated

risk management approach based on the concept of “three

lines of defence”; and setting and operating within clearly

defined and monitored risk appetites.

The group’s business model, supported by a solid track

record and sustained profitability, has worked well through a

range of economic, social and environmental conditions over

multiple economic cycles and this is projected to continue

over the medium term. Taking into account the diversified

portfolio of the businesses across the group, the board

considers medium-term economic, social, environmental and

technological trends at the individual business unit level as

part of the strategic planning cycle. This includes focusing

on the long-term strategic approach to protect, grow and

sustain the group business model, with key priorities outlined

on pages 20 to 25.

The board has also assessed the group’s viability by

considering regular forecasting and stress testing undertaken

to reflect uncertainties in the economic environment. A range

of forward-looking scenarios has been considered, with

distinct social and economic assumptions. Various

macroeconomic assumptions have been assessed across

the scenarios including GDP growth, inflation, interest rates,

unemployment, residential house prices and equity prices

(refer to the Risk Report on pages 109 to 114). The modelling

considers the group’s future projections of profitability, cash

flows, capital requirements and resources, and other key

financial and regulatory ratios over the period. In the

modelled scenarios, it has been assumed that no significant

structural changes to the company or group will be required.

These scenarios have been built using the same principles as

those in the going concern assessment, extended out over

the three-year period:

• the central scenario presents our base case assuming

inflation levels remain elevated, reflecting the latest

economic outlook, with minimal GDP growth whilst

unemployment remains low; and

• the downside scenario modelled assumes severe

recession as UK GDP contracts by 5%, driving significant

uptick in impairment losses combined with materially

impacted market-facing businesses.

Viability Statement

132 Strategic Report

Across the divisions, the limited financial impact of each

scenario demonstrates the resilience of the group business

model. In addition, the directors have reviewed the key

management actions which would be taken in the event of a

downside scenario, in order to mitigate the stress, and the

viability of these actions.

The group maintains capital ratios significantly above

regulatory minima, which are currently set at a minimum

common equity tier 1 ratio of 9.5% and a minimum total

capital ratio of 13.4%, excluding any applicable Prudential

Regulation Authority buffer. In all scenarios, the company

and group continue to operate with sufficient levels of

capital, with the group’s capital ratios and funding and

liquidity positions well within internal risk appetite and

comfortably in excess of regulatory requirements.

The group continues to participate in government lending

schemes such as the Term Funding Scheme (“TFSME”),

albeit this only represents around 5% of total funding.

TheTFSME will be replaced as it comes to maturity via

unsecured and secured issuance. Please refer to note 26

forfurther details.

In making this assessment, the directors have considered a

wide range of information, including:

• the board’s risk appetite and robust assessment of the

principal and emerging risks which could impact the

performance of the group, and how these are managed –

please refer to the Risk Report on pages 83 to 130;

• the group’s current financial position and prospects –

please refer to the Financial Overview section on

pages 66 to 82; and

• the group’s business model and strategy – please refer to

the Business Model section on pages 12 to 13, and the

Strategy and Key Performance Indicators sections on

pages 26 to 27.

The directors have also considered the results of the most

recent iterations of the following reviews:

• the annual review of the Recovery Plan, which included

employing a number of scenarios to test the group

Recovery Plan, the wide range of risk indicators and the

recovery options available to the group;

• the 2022 group ICAAP, which included both stress testing

and scenario analysis. At a group level, two severe stress

test scenarios were assessed representing protracted

downside scenarios. These took account of the scope and

likely effectiveness of mitigating actions that could be

taken by management to avoid or reduce the impact or

occurrence of underlying risks. As part of the ICAAP,

reverse stress testing was also undertaken to support the

identification of potential adverse circumstances and

events; and

• the 2022 ILAAP, which was reviewed to assess the

group’s liquidity across a range of market-wide and

idiosyncratic scenarios, confirming the ongoing strength

of the group’s funding and liquidity model. Please refer to

note 26 on financial risk management for further details.

This forward-looking Viability Statement made by the board

is based on information and knowledge of the group at

26 September 2023. Unexpected risks and uncertainties may

arise from future events or conditions, such as economic

changes and business conditions, which are beyond the

group’s control and could cause the group’s actual

performance and results to differ from those anticipated.

In conclusion, the directors have determined that they have a

reasonable expectation that the group and company will be

able to continue its operations and meet its liabilities as they

fall due over the three-year period of the assessment.

This Strategic Report was approved by the board and signed

on its behalf by:

Adrian Sainsbury

Chief Executive

26 September 2023

133Close Brothers Group plc Annual Report 2023

Chairman’s Introduction to Governance

Focused on delivering stakeholder value

Michael N. Biggs

Chairman

Dear Shareholder

On behalf of the board, I am pleased to introduce the

Corporate Governance Report for the year ended

31 July 2023.

The following pages explain the group’s governance

structure and key activities undertaken by the board and

its committees during the year in order to ensure effective

decision making and oversight of the group’s strategy,

business model and performance. The report describes how

we have complied with the UK Corporate Governance Code

2018 (the “Code”) during the year.

At Close Brothers, we firmly believe in the importance of

effective board oversight and high standards of corporate

governance and the role that they play in underpinning the

group’s performance, the delivery of its strategy and the

achievement of long-term sustainable success for the

company’s shareholders and other stakeholders. It continues

to be a focus of the board to maintain a robust and effective

governance, control and risk management framework.

Strategy, Purpose and Culture

The board plays an important role in setting the group’s

strategy, purpose, business model and culture and the board

spends time on each of these areas throughout the year. The

directors recognise the important role that they play in

setting the tone from the top and in monitoring how the

group’s culture and values are formed, communicated and

embedded. As a board, we also acknowledge the crucial link

between culture, governance and leadership and the role

that clear and effective decision-making plays as a key driver

of culture.

Once again, during the financial year under review, in my

own engagement with employees I have been pleased to see

the group’s strong and distinctive culture in action, as shown

by the continuing commitment on the part of our employees

to support our customers, clients and partners.

As a board, we have been mindful throughout the year of the

wider macroeconomic climate within which we are operating

and the impact that this has had on our customers, clients,

partners and employees. We regularly consider these

external factors when reviewing the group’s strategy,

discussing opportunities for growth and seeking to identify

ways in which we can maximise shareholder value.

Changes to the Board

We were pleased to welcome Kari Hale to the board as a

non-executive director on 28 June 2023. More details on the

robust and formal search process leading to Kari’s

appointment can be found on page 156 together with an

overview of his induction process. We are confident that his

skills complement those of the rest of the board.

At the conclusion of the AGM in November 2022, Tracey

Graham became chair of the Remuneration Committee and

Patricia Halliday became chair of the Risk Committee. Oliver

Corbett will not be standing for re-election at the AGM in

November 2023, having completed nine years’ service on

our board. On behalf of the board and everyone at Close

Brothers, I would like to express my sincere thanks to Oliver

for his long and dedicated service to the group.

Board Effectiveness

This year, as required by the Code, the board undertook a

formal and rigorous internal evaluation to review the

effectiveness and performance of the board and its

committees. The findings are set out on page 151 and the

board will develop an action plan to identify opportunities to

implement these findings during the year ahead.

Stakeholder Engagement

Stakeholder engagement continues to be a priority for the

board. During the year, the board used formal meetings and

other opportunities to discuss the group’s performance and

delivery of its strategy with group and divisional executives.

These discussions included consideration of a wide range of

stakeholders and their interests, as well as consideration of

the relevant regulatory, economic and political factors which

are inherent within the environment in which we operate.

During the board’s regular meetings and in sessions

specifically focusing on strategy, the directors spent

considerable time assessing and having regard to the impact

of individual decisions and the group’s operations on

different stakeholder groups. This included extensive

discussion of matters arising from engagement with

shareholders, customers, employees, regulators and other

stakeholder groups.

134 Governance Report

You can find our formal statement in relation to section 172

of the Companies Act 2006, together with further detail

about how the directors have engaged with, and had regard

to the interests of, stakeholders in the Strategic Report on

pages 1 to 133 and in the Corporate Governance Report on

pages 134 to 166.

Sustainability and ESG

The board and its committees also spent time considering a

broad range of sustainability matters, including during

regular discussions about the group’s strategy and through

frequent environmental, social and governance (“ESG”)

updates at both board and committee level. The board and

the Nomination and Governance Committee have also

reviewed our climate risk reporting framework at board and

management level.

I have been pleased to discuss the board’s approach to ESG

during my regular meetings with shareholders. In considering

our wider responsibilities with respect to sustainability, the

board has continued to focus on external and internal

developments in relation to climate change and climate risk.

This has included discussion of the group’s climate strategy

and goals, together with oversight of our progress towards

meeting the disclosure requirements arising out of the Task

Force on Climate-related Financial Disclosures (“TCFD”).

Diversity and Inclusion

The board and the Nomination and Governance Committee

have continued to monitor diversity and inclusion, both as

part of our ongoing board and executive management

succession planning and in relation to activities aimed at

developing a diverse and inclusive talent pipeline below

board level.

The board’s composition continues to be diverse, comprising

directors from a range of backgrounds. Following the

appointment of Kari Hale to the board in June 2023, board

gender diversity has reduced in the short term to 36%.

Weexpect that we will once again meet our target of 40%

female directors from November 2023, when Oliver Corbett

steps down from the board at the conclusion of the

2023AGM.

We aim to comply at all times with the recommendations

of the FTSE Women Leaders and Parker Reviews in terms

of the composition of the board. The composition of the

board does not currently meet the new FCA Listing Rule

requirement to have one of the senior board positions

occupied by a female and the board recognises that

this will be an important consideration for all future

boardappointments.

Further information on the board’s approach to diversity and

inclusion can be found on pages 156 to 158.

Engagement with Shareholders

Engagement and dialogue with shareholders continues to be

a key focus for the board and I have enjoyed meeting with a

number of our shareholders during the year to discuss a

range of topics in order to ensure that the board is aware of,

and can take into account, our shareholders’ views.

We are delighted to welcome shareholders to this year’s

AGM. Further details will be set out in the Notice of AGM

sent to shareholders in due course.

On behalf of the board, I would like to thank shareholders for

their continued support. My fellow directors and I look

forward to continuing to engage with you in the year ahead,

including at the AGM.

Michael N. Biggs

Chairman

26 September 2023

135Close Brothers Group plc Annual Report 2023

Governance at a Glance

The board

The board’s purpose is to promote the long-term success of the group and to deliver value to shareholders

and other stakeholders. The board sets the governance framework and has responsibility for the leadership,

performance and culture of the group.

Nomination and

Governance

Committee

Monitors board

composition, diversity,

and the balance of

skills in the context of

the group’s strategic

objectives.

Leads the process for

new board

appointments,

oversees succession

planning and ensures

the development of a

diverse pipeline of

talent.

Oversees the board’s

governance

arrangements including

the annual board

evaluation and the

group’s ESG strategy.

Audit

Committee

Oversees the group’s

financial reporting and

monitors the integrity

and quality of the

group’s financial

statements to ensure

the group’s financial

reporting is fair,

balanced and

understandable.

Monitors the robustness

of the group’s internal

financial controls and

the efficacy of the

group’s internal audit

function.

Oversees the group’s

relationship and plans

with the external

auditors.

Oversight of going

concern and viability

statement reporting.

Risk

Committee

Reviews and monitors

the group’s principal

and emerging risks.

Reviews the

effectiveness of the

group’s risk

management systems.

Oversees compliance

across the group with

the relevant statutory

and regulatory

requirements.

Remuneration

Committee

Determines the

remuneration policy for

the executive directors,

taking into account

strategic factors,

culture and values, and

the long-term success

of the group.

Sets performance

targets and reviews

remuneration

outcomes, applying

discretion where

appropriate.

Reviews wider

workforce

remuneration policies

and practices and their

alignment to executive

remuneration.

Our Governance Framework

See page 154

See page 167See page 164See page 159

Executive Directors and Executive Committee

The board delegates the execution of the group’s strategy and the day-to-day management of the business to the

Executive Committee, which is led by the Chief Executive and supported by management committees.

Operating Committees

A number of committees at management level provide key business and risk management oversight

across day-to-day operations.

136 Governance Report

Board Statistics Non-executive directors’ skills/experience

Board Highlights this Year

• Completed a successful bond issuance

• Orderly committee chair succession, with Patricia

Halliday and Tracey Graham becoming chairs of the

Risk and Remuneration Committees respectively at

the conclusion of the 2022 AGM

• Oversaw the successful implementation of

Consumer Duty

• Approved enhanced Pillar 3 disclosures

• Completed an internal board evaluation which

concluded that the board and its committees

continue to operate effectively

• Appointed an additional non-executive director,

KariHale, in June 2023

• Initiated a review of ESG and climate risk reporting

Board Priorities for the Next Year

• Continuing to explore new growth opportunities

• Focusing on strategic objectives and investing in

transformation programmes

• Identifying opportunities to maximise shareholder value

• Focusing on further growing and nurturing the

executive talent pipeline, supporting the identification

of high performing employees and championing their

progression through the organisation

• Further enhancing the group’s strategy on managing

climate risk and the wider ESG agenda

• Receiving updates, relevant management information

and training to support the board in ensuring its

continued effectiveness in the evolving technological,

macroeconomic and regulatory landscape

Gender diversity

Ethnic diversity

Board tenure

Board composition

Female 4

Male 7

White/White British 10

Asian/Asian British 1

0-3 years 6

4-6 years 4

7-9 years 1

Executive Directors 2

Non-Executive Directors 9

Broad financial services

Finance, audit & accounting

People & culture

Risk

Regulatory framework

ESG

Technology, digital and operations

Strategy

Listed company governance

Leadership

8 out of 9

9 out of 9

8 out of 9

9 out of 9

8 out of 9

Find our diversity tables on page 157

137Close Brothers Group plc Annual Report 2023

Board of Directors

Appointed to the board on 14March 2017, and as chairman on 1May 2017

Background and experience: Mike was the chairman of Direct Line Insurance

Group plc from 2012 until August 2020. He was previously chairman of Resolution

Limited, then a FTSE 100 UK life assurance business, and has acted as both chief

executive officer and group finance director of Resolution plc. Mike was group

finance director of Aviva plc and is an Associate of the Institute of Chartered

Accountants in England and Wales (“ICAEW”).

Appointed on 21September 2020

Background and experience: From 2016 until September 2020, Adrian was

managing director of Close Brothers’ Banking division. Since August 2013 he has

been a director of Close Brothers Limited, the group’s banking subsidiary. Adrian

has previously held executive roles at Barclays, RBS and Bank of Ireland and was

chief executive of ANZ Bank in Europe. Adrian has also served as chairman of the

Asset Based Finance Association, the UK and Ireland industry body.

Mike Biggs

Chairman

Adrian Sainsbury

Chief Executive

Appointed on 1January 2021

Current external appointments: Mark serves as the chairman of AXA UK plc

where he chairs the nomination committee and he serves on the risk, remuneration

and investment committees, and serves as the non-executive chairman of London

Square Limited and Empiric Student Property plc.

Background and experience: Mark has extensive finance, risk management and

commercial experience, having held board positions at Barratt Developments plc

and Abbey National Group. Mark has previously been a non-executive director of

Yorkshire Building Society (where he served as senior independent director),

Ladbrokes Coral Group plc, Punch Taverns plc, Spirit Pub Company plc, Johnston

Press plc, and Aviva Insurance Limited, among others.

Mark Pain

Senior Independent Director

Directors’ appointments

2014

Oliver Corbett

2017

Mike Biggs

2018

Mike Morgan

2019

Peter Duffy

2020

Adrian Sainsbury

Sally Williams

2021

Mark Pain

Patricia Halliday

Tesula Mohindra

2023

Kari Hale

2022

Tracey Graham

138 Governance Report

Appointed on 15November 2018

Background and experience: From 2010 to 2018 Mike was chief financial officer

of Close Brothers’ Banking division, and since 2010 he has been a director of

Close Brothers Limited, the group’s banking subsidiary. Mike is a chartered

accountant and from June 2013 to June 2019 was a member of the ICAEW

Financial Services Faculty Board, and appointed the Board chair and an ICAEW

Council member from June 2019 to June 2021. Prior to joining Close Brothers,

Mike held a number of senior roles at Scottish Provident and RBS, most recently

as finance director of the Wealth Management Division of RBS.

Mike Morgan

Group Finance Director

Audit Committee member

Risk Committee member

Remuneration Committee member

Nomination and Governance Committee member

Committee chair

Appointed on 3June 2014

Current external appointments: Consultant to McGill and Partners

GroupLimited.

Background and experience: Oliver was formerly chief financial officer of McGill

and Partners Group, Hyperion Insurance Group Limited and finance director of

LCH. Clearnet Group Limited and of Novae Group plc. Oliver is a chartered

accountant and previously worked for KPMG, SG Warburg, Phoenix Securities

(later Donaldson Lufkin Jenrette) and Dresdner Kleinwort Wasserstein, where he

was managing director of investment banking. Oliver was also a non-executive

director of Rathbone Brothers plc.

Appointed on 22March 2022

Current external appointments: Non-executive director of DiscoverIE Group plc,

LINK Scheme Limited and Nationwide Building Society.

Background and experience: Tracey has broad executive experience from

companies operating in the financial and business services sectors, both in the UK

and internationally. She has extensive experience as a remuneration committee

chair and also serving as a senior independent director. Tracey began her career at

HSBC and subsequently held the role of director of customer services at AXA

Insurance plc. She was chief executive officer of Talaris Limited, an international

cash management business. Before that, she held a number of senior roles in De

La Rue plc, including as managing director—Identity Systems, president—

Sequoia Voting Systems and managing director—Cash Systems. Tracey served as

a non-executive director of Royal London Mutual Insurance Society Limited for

nine years until March 2022, as well as Ibstock plc for seven years until April 2023.

Appointed on 1August 2021

Background and experience: Patricia has over 30 years’ experience in risk

management across the investment, corporate and retail banking sectors. Patricia

was chief risk officer (“CRO”) of Santander UK with responsibility for risk

management and oversight across retail and commercial banking. Prior to

Santander, Patricia was CRO of GE Capital International Holdings Limited. She

began her career at NatWest, followed by senior credit risk roles at Barclays

Capital and then Deutsche Bank, including as Head of Leveraged and Structured

Finance and Commercial Real Estate, and chair of the Underwriting Committee,

covering the UK, European and US markets.

Patricia Halliday

Independent

Non-executive Director

Tracey Graham

Independent

Non-executive Director

Oliver Corbett

Independent

Non-executive Director

139Close Brothers Group plc Annual Report 2023

Appointed on 1 January 2020

Current external appointments: Non-executive director of Lancashire Holdings

Limited and of Family Assurance Friendly Society Limited (OneFamily) and chair of

the audit committee at both companies.

Background and experience: Sally is a member of the ICAEW. She has extensive

risk, compliance and governance experience, having held senior executive

positions at Marsh, National Australia Bank and Aviva. Prior to that, Sally held roles

at PricewaterhouseCoopers LLP in both their risk management and audit teams

over a period of 15 years.

Appointed on 15 July 2021

Current external appointments: Non-executive director and chair of risk and

audit committee of RAC Group, non-executive director and chair of consumer

committee at NHBC (National House-Building Council) and trustee of Variety,

theChildren’s Charity.

Background and experience: Tesula qualified as a chartered accountant with

PricewaterhouseCoopers LLP, and held managing director roles at JP Morgan and

at UBS, specialising in corporate finance for financial institutions and pension fund

risk management. She was a founding member of the management team of

Paternoster, the specialist bulk annuity insurer, where she was a member of the

executive committee. Tesula has also worked as an independent corporate finance

consultant on business plans and capital raising.

Appointed on 28 June 2023

Current external appointments: Non-executive director and audit committee

chair at AXA UK plc and currently a senior adviser to the Financial

ReportingCouncil.

Background and experience: Kari held a range of senior roles at Deloitte

including serving on its UK Financial Services Industry Board as head of strategy

for the financial services practice. Previously Kari was an executive director at the

Financial Services Authority.

Sally Williams

Independent

Non-executive Director

Tesula Mohindra

Independent

Non-executive Director

Kari Hale

Independent

Non-executive Director

Board of Directors continued

Appointed on 1January 2019

Current external appointments: Chief executive officer of Moneysupermarket.

com Group plc.

Background and experience: Peter previously served as chief executive officer of

Just Eat Limited, having been interim chief executive officer and chief customer

officer of Just Eat plc before that. Between 2011 and 2018, Peter held a number of

senior roles at easyJet plc, including as chief commercial officer and group

commercial director. Prior to that, Peter held roles at Audi UK Ltd and Barclays

Bank plc over a period of more than 15 years. Peter was also president of the

Incorporated Society of British Advertisers.

Peter Duffy

Independent

Non-executive Director

Audit Committee member

Risk Committee member

Remuneration Committee member

Nomination and Governance Committee member

Committee chair

140 Governance Report

Executive Committee

Adrian Sainsbury

Chief Executive

Rebecca McNeil

Chief Executive Officer Retail

Bradley Dyer

Winterflood Chief Executive

Robert Sack

Group Chief Risk Officer

Mike Morgan

Group Finance Director

Frank Pennal

Chief Executive Officer Property

Rebekah Etherington

Group Head of

Human Resources

Angela Yotov

Group General Counsel

Matt Roper

Chief Executive Officer

Commercial

Eddy Reynolds

Asset Management Chief

Executive

Naz Kazi

Group Head of Internal Audit

Simon Jacobs

Group Chief Operating Officer

141Close Brothers Group plc Annual Report 2023

Corporate Governance Report

Board operations and compliance

Compliance with the UK Corporate

Governance Code

The Code, published by the Financial Reporting Council

(“FRC”), applied to the company throughout the financial

year. A copy of the Code can be found on the FRC’s

website: www.frc.org.uk.

It is the board’s view that, throughout the year, the company

has applied the principles and complied with the provisions

set out in the Code. The table below sets out the relevant

sections of our Annual Report, where shareholders can read

in more detail how we have embedded governance

principles and specific provisions of the Code across our

organisation.

Board leadership Page 142

Division of responsibilities Page 144

Composition, succession and evaluation Page 154

Audit, risk and internal control Page 159

Remuneration Page 167

Governance Framework

Our governance framework supports good governance

across the group and facilitates delivery of the strategy

through effective decision-making.

Certain matters are reserved for the board, primarily in

relation to:

• Setting and monitoring strategy for the group

• Corporate structure, capital, and ensuring adequate

financial resources

• Financial reporting and controls

• Oversight of risk management, regulatory compliance,

internal controls and whistleblowing

• Significant financial matters including acquisitions,

disposals and investments

• Shareholder, market and regulatory communication

• Board and committee membership

• Remuneration of the board and executive management

• Delegation of authority

• Corporate governance matters

When carrying out its duties, the board acts in accordance

with relevant legislative and regulatory requirements and, in

particular, takes into account the directors’ duties set out in

the Companies Act 2006, including s.172, the interests of the

company’s stakeholders, and any other relevant factors.

The board has delegated responsibility for certain matters to

its committees. Each committee has written terms of

reference, which are available at www.closebrothers.com.

The chair of each committee reports at each subsequent

board meeting to the board on matters discussed at

committee meetings. All non-executive directors have

access to the papers of committees and have a standing

invitation to attend any committee meeting. Reports from the

board’s committees are set out later in this Annual Report

and they include further detail on each committee’s role and

responsibilities, and the activities undertaken during the year.

Board Leadership

The board’s primary role is to provide effective leadership

and stewardship for the group as a whole and to ensure that

the company is effectively managed, delivers long-term

shareholder value and contributes to wider society.

The board sets the group’s purpose and strategic objectives

and monitors management’s performance against those

objectives, ensuring alignment with the group’s culture and

stakeholder expectations. The board also supervises the

group’s operations, with the aim of ensuring that it maintains

a framework of prudent and effective controls, enabling risks

to be properly assessed and appropriately managed.

The board considers strategic issues, the group’s business

model and receives regular group and divisional executive

updates on performance against strategic goals and

relevantdevelopments in the wider market, including from

aregulatory perspective. During the year, a range of

activities enabled the board to focus on these areas,

including a strategy session in May 2023 and regular deep

dives, moreinformation about both of which can be found in

thebox below.

May 2023 Strategy Session

• Considered group strategic issues and opportunities

• Facilitated by external strategic experts

• Topics of discussion included the group’s budget,

funding and growth plans, and investor feedback

• Various strategic opportunities across the business

were presented for consideration, challenge

anddebate

• Follow-up actions agreed and tracked

Deep Dives

• A number of “deep-dive” sessions were held during

the year

• Each focused on an individual business area or topic

relevant to the legal and regulatory landscape within

which our businesses operate

• The board aims to cover each of the group’s

businesses at such a session on a rolling two-year basis

142 Governance Report

Meetings of the Board

The board’s role in assessing the basis on which the group

generates and preserves value over the long term is

supported by continuous focus on consumer outcomes and

other stakeholder considerations. It spends time during the

year, in scheduled board meetings, during its annual strategy

discussions and in other sessions with senior management

and stakeholders, considering how opportunities and risks to

the future success of the group’s business should be

addressed. These discussions include extensive

consideration of the sustainability of the group’s business

model. Further information on these considerations can be

found in the Strategic Report on pages 38 to 64 of this

Annual Report.

Each scheduled board meeting also includes time for

discussion between the chairman and the non-executive

directors, without the executive directors present.

Another key function of the board is to define, promote and

monitor the group’s culture and values, setting the tone from

the top. More on our culture and values can be found on

pages 30 to 31 of this Annual Report. When making

decisions, the board has regard to the interests of a range of

stakeholders, including employees, customers, clients and

shareholders, as well as its broader duties under section 172

of the Companies Act 2006. The company’s section 172

statement can be found on page 34 of this Annual Report.

Case studies illustrating key decisions of the board while

having regard to section 172 can be found on page152.

Attendance at Board and Committee Meetings

Board

Nomination and

Governance

Committee

Risk

Committee

Audit

Committee

Remuneration

Committee

Executive Directors

Adrian Sainsbury 7/7 – – – –

Mike Morgan 7/7 – – – –

Non-executive Directors

Mike Biggs 7/7 5/5 – – 6/6

Mark Pain 7/7 5/5 6/6 – 6/6

Oliver Corbett 7/7 5/5 6/6 4/5 –

Patricia Halliday 7/7 – 6/6 5/5 –

Tracey Graham

7/7 2/2 6/6 – 6/6

Peter Duffy

7/7 2/2 6/6 – 6/6

Sally Williams 7/7 – 5/6 4/5 –

Tesula Mohindra 7/7 – 6/6 5/5 –

Kari Hale

2/2 – – – –

Former Non-executive Directors

Lesley Jones

2/2 1/2 1/2 1/2 0/1

Bridget Macaskill

2/2 2/2 2/2 – 1/1

1. Tracey Graham and Peter Duffy were appointed as members of the Nomination and Governance Committee with effect from 26 January 2023.

2. Kari Hale was appointed as a director and as a member of the Audit and Risk Committees with effect from 28 June 2023.

3. Lesley Jones and Bridget Macaskill retired as non-executive directors at the conclusion of the company’s AGM on 17 November 2022.

In addition, the board appoints one of the directors to act as

the group’s whistleblowing champion and this is currently

Oliver Corbett. As part of this role, Oliver engages with the

group head of operational risk and compliance regularly in

relation to whistleblowing matters during the course of the

year. For more details about the company’s whistleblowing

procedure, see page 55.

The board also appoints one of its directors to act as the

group’s consumer duty champion and this is currently Sally

Williams. For more details about the company’s compliance

with the new consumer duty regulation, see page 25.

The annual schedule of board meetings is decided a

significant length of time in advance in order to ensure,

so far as possible, the availability of all directors. In the

event that, in exceptional circumstances, directors are

unable to attend a meeting, they receive papers as usual

and have the opportunity to relay their comments and

questions in advance, as well as follow up with the chairman

if necessary. The same process applies in respect of the

board committees.

In addition to these meetings, a number of ad hoc meetings

were held to consider specific items of business. All directors

attended a strategy session with senior management in May

2023, more details of which can be found on page 142.

143Close Brothers Group plc Annual Report 2023

Corporate Governance Report continued

Board operations and compliance

Division of Responsibilities

Role Responsibilities

Mike Biggs

Chairman

• Responsible for leading the board and ensuring that it operates effectively

• Sets the agenda for meetings and promotes balanced and effective decision-making and

challenge of executive management with sufficient time for constructive debate and discussion

• Ensures that the board as a whole develops and monitors the group’s strategy

• Ensures that the culture in the boardroom promotes effective debate and good governance

• Supports the development of the group’s culture and sets the tone from the top

• Promotes effective engagement between the board, its shareholders and other stakeholders

• Leads the annual board evaluation process

• Chairs the Nomination and Governance Committee and monitors the board’s composition and

non-executive succession planning

Mark Pain

Senior Independent

Director

• Provides a sounding board for the chairman

• Provides an alternative channel of communication for shareholders and other stakeholders

• Meets with non-executive directors annually without the chairman present to appraise the

chairman’s performance

Non-executive

Directors

• Provide constructive challenge and scrutiny of the performance of management

• Bring external perspective, knowledge and experience to the board

• Assist in the development of strategy and the decision-making process

• Promote the highest standards of integrity and governance

• Through membership of the group’s committees, determine appropriate levels of remuneration,

review the integrity of the financial statements, review succession plans for the board and the

Executive Committee and monitor the risk profile of the group

• Gather the views of the workforce through attendance at key business events and through

employee engagement

Adrian Sainsbury

Chief Executive

• Executes the group’s strategy as agreed with the board

• Leads the Executive Committee in the day-to-day management of the group

• Ensures that the group’s business is conducted with the highest standards of integrity aligned

with the group’s culture

• Manages the group’s risk exposure in line with board policies and risk appetite

• Leads the group’s investor relations activities

Sarah Peazer-

Davies

Company Secretary

• Advises the directors on governance and legal matters, and the discharge of their duties

• Ensures the board receives high-quality information and in sufficient time

• Supports relationship-building and the flow of information between the board and the

ExecutiveCommittee

• Facilitates board induction and training

• Available to provide advice and services to support all directors

• Organises all board and committee meetings as well as the Annual General Meeting (“AGM”)

Roles and Responsibilities

In line with the Code, the role of the chairman is distinct and

separate from that of the chief executive and there is a clear

division of responsibilities between the two roles. The roles

of the chairman, chief executive and senior independent

director, as approved by the board in July 2019, can be

found on the company’s website at www.closebrothers.com.

The roles of certain members of the board are

summarisedbelow.

In addition, the chairman and chief executive have various

prescribed responsibilities under the Senior Managers

Regime overseen by the PRA. Some board members also

take on additional responsibilities required by legislation

such as whistleblowing champion or Consumer Duty

champion. More information about these specific roles can

be found on page 143.

Powers of Directors

The directors are responsible for the management of the

company. They may exercise all powers of the company,

subject to any directions given by special resolution and the

articles of association. The directors have been authorised to

allot and issue ordinary shares and to make market

purchases of the company’s ordinary shares by virtue of

resolutions passed at the company’s 2022 AGM.

Further detail regarding these authorisations is set out on

page191.

144 Governance Report

The chairman, Mike Biggs, was considered to be

independent on appointment in line with the provisions

ofthe Code.

The board is satisfied that each non-executive director is

able to dedicate the necessary amount of time to the

company’s affairs, following consideration of each non-

executive director’s other time commitments. The letters of

appointment for each of the company’s non-executive

directors set out a minimum time commitment in discharging

their duties as a director and require them to seek prior

board approval before they take on additional commitments.

As required by the Code, the board assesses whether

external appointments should be approved, with significant

consideration being given in advance of proposed additional

appointments being taken on by any of our directors.

In September 2022, Tesula Mohindra and Tracey Graham

were appointed as non-executive directors of the RAC group

and Nationwide Building Society respectively, with Tesula

also being appointed as a non-executive director of several

subsidiaries within the RAC group. These appointments were

considered and approved by the board in July 2022,

sufficiently far in advance of the appointments taking effect.

In January 2023, Sally Williams was appointed a trustee of

Ovarian Cancer Action and chair of the audit and risk

committees. This appointment was considered and

approved by the board in November 2022.

As part of its assessment in each case, the board considered

whether the external appointment was likely to give rise

to any actual or potential conflicts of interest, how any

such conflicts could be managed or mitigated, and whether

the proposed external appointment would be likely to

compromise the director’s ability to dedicate appropriate

time and diligence to their existing responsibilities to the

group. Following review and discussion, the board was

satisfied that none of the proposed external appointments

would restrict or prevent any of the directors above from

carrying out their duties and responsibilities as directors

of the company and accordingly, the appointments

wereapproved.

Non-executive Directors’ Independence and Time

Commitment

The board has assessed the independence of each of the

non-executive directors. It is of the opinion that each

non-executive director acts in an independent and objective

manner under provision 10 of the Code, free from any

relationship that could affect their judgement. The board

considers, for each non-executive director, among

otherthings:

• whether they are independent in character and judgement;

• how they conduct themselves in board and

committeemeetings;

• whether they have any interests which may give rise to an

actual or perceived conflict of interest; and

• whether they act in the best interests of the company, its

shareholders and other stakeholders at all times.

Each non-executive director is required to confirm at least

annually whether any circumstances exist which could impair

their independence. At the start of each board meeting, all

directors are reminded of their obligations relating to

conflicts of interest and are asked to declare any changes

since the last meeting. The company secretary maintains a

As part of its consideration of non-executive independence,

the board has given particularly rigorous consideration to the

overlapping directorships held by Kari Hale and Mark Pain

on the boards of the company and AXA UK plc. It has

considered the nature of those directorships, and the

character, behaviour, contribution and judgement of Kari and

Mark during the proportion of the year for which they have

each been directors of the company. It has concluded that

both directors continue to demonstrate independence as

evidenced by, among other things, their contribution to

board meetings and their challenge of senior management.

The board has also given particular consideration to the

independence of Oliver Corbett who has been a non-

executive director for more than nine years, having been

appointed in June 2014. The board has determined that,

notwithstanding his term of office, Oliver is independent

in character, judgement and in his valuable contributions to

the board and its committees, including in his challenge

ofmanagement.

145Close Brothers Group plc Annual Report 2023

Conflicts of Interest

The articles of association include provisions giving the

directors authority to approve conflicts of interest and

potential conflicts of interest, as permitted under the

Companies Act 2006.

Directors are responsible for notifying the chairman and the

company secretary of any actual or potential conflicts as

soon as they become aware of them. A procedure has been

established whereby actual and potential conflicts of interest

are regularly reviewed and appropriate authorisation sought.

This procedure includes mechanisms for the identification of

conflicts prior to the appointment of any new director or if a

new conflict arises during the year. The decision to authorise

a conflict of interest can only be made by non-conflicted

directors and in making such a decision the directors must

act in a way they consider, in good faith, will be most likely

to promote the success of the company. The company

secretary maintains a register of conflicts authorised by the

board. The board believes that this procedure operated

effectively throughout the year.

Election and Re-election of Directors at the 2023

AGM

In accordance with the Code, all directors retire and

submit themselves for re-election at each AGM. The board

will only recommend to shareholders that executive

and non-executive directors be proposed for election or

re-election at an AGM after evaluating the performance

of the individual directors and considering their suitability,

time commitment and ability to continue to contribute to

theboard.

Kari Hale joined the board on 28 June 2023 and will be

proposed for election at the AGM in November 2023.

Following individual performance evaluations undertaken

during the year of both the executive and non-executive

directors, an assessment of the board’s skills, knowledge

and experience, and completion of the annual evaluation of

the board and its committees, the board has determined that

all directors continue to be effective and demonstrate

sufficient commitment to their role. At the recommendation

of the Nomination and Governance Committee, the board

will therefore be recommending that all serving directors be

elected or re-elected by shareholders at the 2023 AGM, with

the exception of Oliver Corbett, who will step down from the

board at the conclusion of the AGM, having completed nine

years’ service on the board.

Corporate Governance Report continued

Board operations and compliance

Risk Management and Internal Controls

The board considers a range of routine and one-off matters

in relation to risk management and internal controls, and the

group chief risk officer attends all scheduled board meetings

to report to the board on risk management activities across

the group. For example, in 2023 the board approved the

group risk appetite statements, core risk management

policies, and the group’s enhanced Pillar 3 disclosures.

In addition, throughout the year under review, the board paid

particular attention to liquidity risk across the group. As a

result of broader macroeconomic and geopolitical factors

across Europe and market shocks within the UK economy

which resulted in capital market volatility, the decision was

made to delay a bond issuance which had been built into the

group’s funding plans. The board considered and monitored,

over a period of time, a range of liquidity scenarios in the

context of the group’s risk appetite triggers and limits and

the bond issuance successfully went ahead in June 2023.

Further information on the bond issuance can be found on

page 152.

The board confirms that throughout the year ended 31 July

2023 and up to the date of approval of this Annual Report,

there have been rigorous processes in place to identify,

evaluate and manage the principal risks faced by the group.

These principal risks include those that would threaten the

group’s business model, future performance, solvency or

liquidity. The board has also assessed the likelihood of a risk

occurring and the costs of control in accordance with the

Guidance on Risk Management, Internal Control and Related

Financial and Business Reporting published by the FRC.

Whistleblowing

The board has responsibility for oversight of the group’s

whistleblowing arrangements. It monitors the operation and

effectiveness of these arrangements, ensuring that

processes are in place for the proportionate and independent

investigation of matters raised through the mechanisms

available to the workforce and for follow-up action.

During the year, the board received half-yearly updates from

the group head of operational risk and compliance. These

updates covered:

• an overview of the group’s whistleblowing arrangements

across all jurisdictions in which the group operates and an

assessment of the effectiveness of those arrangements;

• information on steps taken by the group to ensure the

protection of those using the group’s whistleblowing

arrangements; and

• a summary of whistleblowing events, outcomes and any

follow-up actions.

146 Governance Report

Corporate Governance Report continued

Board activities

The board and its committees engaged in a range of

activities during the year under review, including in relation to

the following:

Strategy

• Reviewed the strategic aims and the performance of

businesses across the Banking, Winterflood and the Asset

Management divisions, as well as for the group as a whole

• Supported the implementation of transformational projects

• Reviewed the competitive landscape

• Reviewed and approved the group’s budget and three-year

strategic plan

• Held a strategy session in conjunction with the

ExecutiveCommittee

• Reviewed the investment programme strategy and

updates

• Reviewed the group’s sustainability strategy

• Received regular business unit updates

• Received deep-dive reviews of selected business areas

• Received regular updates on climate and sustainability

activities

• Approved the group’s annual tax strategy

Financial and Corporate Reporting

• Received regular reports from the group finance director

on financial performance

• Reviewed rolling forecasts and approved the 2024 budget

• Approved full-year and half-year results

• Received reports from the group’s internal audit function

• Reviewed the new disclosure framework to ensure

compliance with TCFD reporting

Structure, Capital and Liquidity

• Reviewed the group’s stress testing policy

• Reviewed the group’s treasury policy

• Considered the group’s capital strategy

• Approved a senior bond issuance of £250 million in June

2023, following a period of market volatility and adverse

market conditions

Stakeholders

• Received regular updates on customers and clients

• Received and discussed the annual Employee Opinion

Survey results

• Reviewed periodic updates on the culture dashboard

• Received regular feedback on investor relations activities

including meetings with shareholders and post-results

roadshows

• Approved the annual Modern Slavery Statement

• Held the 2022 Annual General Meeting

Risk and Control

• Received reports from the chief risk officer

• Approved the group’s Enterprise Risk Management

Framework

• Approved the annual review of the Group and Bank ICAAP

and ILAAP

• Reviewed and considered the group’s risk appetite

statements

• Reviewed and approved enhanced Pillar 3 disclosures

• Reviewed and discussed the group’s principal risks and

considered emerging risks

• Reviewed the group’s annual compliance plan

• Reviewed the group’s Whistleblowing Policy and received

an update on activity

• Approved the annual renewal of the group’s insurances

• Approved the group Credit Risk Policy, Financial

Management Policy, Reporting and Control Policy,

Disclosure Policy and ICAAP Policy

• Approved the implementation of the actions set out within

the Period Summary Meeting letter from the Prudential

Regulation Authority

Site visit to Close Brothers’

businesses in Doncaster and Derby

Site visits are designed to provide non-executive

directors with first-hand insights into the operational

activities of the group and with opportunities to

enhance their understanding of colleagues’

experiences by engaging with them directly within their

working environment.

As more travel became possible in the financial year,

following the relaxation of the Covid-19 restrictions,

directors visited some Close Brothers’ business sites

over the course of two days in February 2023. Three

non-executive directors were joined by the then

company secretary and general counsel on a visit to

South Yorkshire and the East Midlands which focused

on the retail and commercial businesses. The activities

included shadowing colleagues, informal roundtables

and networking with management, and touring a

vehicle dealership.

The site visit gave the non-executive directors a better

understanding of the group’s customer and colleague

experiences, as it supplemented the reports that the

board had received on culture during the year. It was

an opportunity to interact with a diverse group of

colleagues and learn about their experiences, the

challenges they face and their opportunities for career

development. The site visit also provided a good

opportunity for board members to get to know each

other better.

147Close Brothers Group plc Annual Report 2023

2022

2023

November

• Annual General

Meeting 2022

• Committee chair

changes

• Trading update

February

• Doncaster and

Derby site visit

May

• Trading update

• Strategy day

July

• Trading update

• Roadshows

September

• Full-year results

and roadshow

• Review of risk

appetite and

certain policies

January

• Trading update

• Whistleblowing

update

• Project updates

• Approval of

Modern Slavery

Statement

March

• Half-year results

and roadshow

• Money laundering

update

• Various policy

approvals

June

• Appointments and

resignations

• Chairman’s

governance

roadshow

• Bond

announcement

Governance

• Appointed Kari Hale as an independent non-executive

director

• Appointed Tracey Graham as the chair of the

Remuneration Committee and Patricia Halliday as the

chair of the Risk Committee

• Conducted and reviewed the outcome of the board and

committee performance evaluation and supported the

review of the chairman’s performance by the senior

independent director

• Monitored progress on actions from previous years’ board

and committee performance evaluations

• Reviewed the terms of reference of the Audit,

Remuneration, Risk, and Nomination and Governance

Committees

• Reviewed and approved minor amendments to the

matters reserved for the board

• Approved the updated board Diversity and

InclusionPolicy

• Received regular training and updates

• Undertook a review of, and approved an appropriate

increase in, non-executive director fees to align with

themarket

• Approved the arrangements for the Annual General

Meeting in 2022

• Recommended the reappointment of directors by

shareholders

Customers

• Oversaw the use of new segmental data modelling to

deepen and refine the group’s understanding of customer

needs and financial behaviours, and to allow the group to

tailor its products to meet the expectations and needs of

its customers

• Considered customer vulnerability

• Consideration of the Customer Commitment Framework

• Discussed the impact of inflationary pressures on its

customer base, in light of macroeconomic factors

Regulatory and Compliance

• Received updates from management on meetings held

with the PRA and FCA during the year to discuss,

amongst other topics, securities issuances and liquidity

• Received updates on Consumer Duty implementation

• Approved the group Recovery Plan, designed to maintain

the viability and the financial position of the group through

an effective and robust set of recovery options in the

event of a broad range of stress scenarios and in

accordance with the recommendations of the PRA

• Received detailed reports on progress made against the

Annual Compliance Plan

• Received updates from the Money Laundering

ReportingOfficers

Corporate Governance Report continued

Board activities

148 Governance Report

Induction

On appointment, and in accordance with the director

induction policy which was approved by the Nomination

and Governance Committee and is reviewed periodically,

all new directors receive a comprehensive and personalised

induction programme. The programme is developed and

overseen by the company secretary to familiarise new

directors with the group and the regulatory, market,

risk and governance framework within which it operates.

Thecompany also offers additional support and information

to directors when they are appointed as a committee chair

ormember.

Induction programmes are tailored to a director’s particular

requirements, but typically include site visits, one-to-one

meetings with executive directors, the company secretary

and senior management, and a confidential meeting with the

external auditor. Directors also receive guidance on their

statutory and regulatory responsibilities, together with a

range of relevant current and historical information about

the group and its business. A key aim of the induction is

to ensure that new board members are equipped to

contribute to the group and the work of the board as

quickly as possible.

Directors provide input on how their individual inductions

should be tailored in terms of both content and structure.

The company secretary engages regularly with individual

directors as their inductions progress and, once they have

served on the board for a period, seeks their input on any

further induction or development requirements they may

have. The chairman also discusses induction plans, and

training and development more broadly, with new joiners as

part of regular one-to-one meetings.

Training and Professional Development

A central training programme is in place for members of the

board, which is reviewed at least annually by the Nomination

and Governance Committee. The directors attend sessions

focusing on specific topics of interest or regulatory and

operational relevance. During the year, these sessions

included detailed guidance on cyber security, Consumer

Duty and directors’ duties. Annual training is also provided

on the Senior Managers and Certification Regime. In addition,

the chairman discusses and agrees any specific requirements

as part of each non-executive director’s regular review.

Corporate Governance Report continued

Board induction, training and evaluation

Induction Programme for Kari Hale

Kari Hale’s induction programme commenced in

June2023 and has included the following elements:

• one-to-one meetings with executive directors

covering strategy, operational and financial matters,

people, the regulatory framework, and culture

andvalues;

• briefings from executive committee members and

senior managers, including the company secretary,

about their respective business areas and central

functions including legal, risk and compliance,

internal audit, investor relations and corporate

development, IT and cyber security, and various

financial functions;

• a private meeting with the external audit partner;

• access to reference materials including relevant

current and historical information about the group

and its business such as financial data;

• access to board papers through the online board

materials portal; and

• future planned site visits to the group’s offices with

the relevant senior management.

Regular touchpoints with the chairman and company

secretary were established to monitor progress and

ensure that Kari Hale was receiving all the information

required to fulfil his role.

In the coming year, Kari Hale is expected to meet

individually with the committee chairs to understand

the role of, and interaction between, each committee.

He will also visit our regional sites to see the

businesses in action and engage with our workforce.

149Close Brothers Group plc Annual Report 2023

Evaluation

In accordance with the Code, the board undertakes a formal

and rigorous evaluation annually to assess the effectiveness

of its individual directors, its committees and the board as a

whole, with the evaluation process being externally facilitated

every three years.

The evaluation process during the year under review was

conducted internally by the company secretary and led by

the chairman. Each of the directors completed a

questionnaire which considered a range of different areas

relevant to board effectiveness and corporate governance

including:

• the role and composition of the board and its committees;

• culture, strategy, purpose and values;

• stakeholder engagement;

• the business of the board, board behaviours, and the

information and resources available to the board; and

• progress against the recommendations of prior years’

evaluations.

The results of the evaluation were presented to the

Nomination and Governance Committee and the board in

July 2023 and will be considered and discussed further in the

coming months. The overall conclusion of the evaluation was

that the board and its committees remain strong and

continue to operate effectively, with clarity as to their role

and purpose. In terms of the operation of the board, the

evaluation found that the board is chaired well, with all board

members given sufficient opportunity to contribute to board

discussions, which involve an appropriate level of

constructive challenge as well as clear and collective focus

on the link between strategy, the group’s business model

and the customer proposition.

A detailed review of the findings from the evaluation will be

undertaken and a programme scheduled to continue to

implement the matters raised throughout the course of the

following year.

Evaluation Cycle

Corporate Governance Report continued

Board induction, training and evaluation

150 Governance Report

Implementation of the Findings of the 2022 Evaluation

Key recommendations Actions taken

Reduction in length and density of board papers and review

of board meeting frequency to enhance the flow of

information from senior management to the board

Additional board paper guidance and templates were

provided to authors. The frequency of board meetings

was reviewed and some minor adjustments were made as

aresult

Increased reporting on stakeholder considerations

and stakeholder engagement, particularly for less

visiblestakeholders

The revised board paper guidance includes greater focus on

stakeholders. Additional deep dives and site visits have been

scheduled, focusing on less visible areas of the business

Recognition of the strategic focus of the board and the

success of the dedicated strategy session, which should be

repeated on an annual basis with the Executive Committee

The dedicated strategy session was repeated in May 2023,

and actions agreed at the session were tracked

Additional topical areas for board training and development

identified for inclusion in the annual training programme

Specific training sessions and materials were provided

inresponse

Directors’ Performance

In addition to the formal evaluation, the chairman holds

regular meetings with individual directors at which, among

other things, their individual performance is discussed.

Informed by the chairman’s continuing observation of

individual directors during the year, these discussions form

part of the basis for recommending the election and

re-election of directors at the company’s AGM, and include

consideration of the director’s performance and contribution

to the board and its committees, their time commitment and

the board’s overall composition.

Chairman’s Performance

As in previous years, Mark Pain, in his role as the senior

independent director, led the annual assessment of the

chairman’s performance. This involved discussions with

the other non-executive directors individually, without

the chairman being present, and consultation with the

chief executive and group finance director. The senior

independent director subsequently provided feedback to

thechairman.

Directors’ Fitness and Propriety

In line with its regulatory obligations, the group undertakes

annual reviews of the fitness and propriety of all those in

senior manager functions, including all of the company’s

directors and a number of other senior executives. This

process comprises assessments of individuals’ honesty,

integrity and reputation, financial soundness, competence

and capability, and continuing professional development.

This year’s reviews have confirmed the fitness and propriety

of all of the company’s directors and other senior executives

who perform senior management functions. Consideration of

matters relating to fitness and propriety also form an

important part of the board’s recruitment process for

non-executive directors.

151Close Brothers Group plc Annual Report 2023

Corporate Governance Report continued

Stakeholder engagement

The board recognises that, for the company to be successful

over the long term, it is important to build and maintain

successful relationships with a wide range of stakeholders

and for the board to understand the views of the group’s key

stakeholders. When taking decisions, the board considers

the interests of, and the group’s impact on, its relationships

with shareholders, customers, partners, suppliers, regulators,

employees andlocal communities.

During the year, as part of the group’s responsibility to

contribute to wider society, the board discussed the group’s

charitable efforts and community activities during the year,

which included donations totalling £120,000 to Stop Hate

UK, The Wildlife Trusts, Smart Works and Bookmark.

Board Decision Making

The board makes decisions and provides oversight with the

aim of promoting the Company’s success for the long-term

sustainable benefit of its shareholders, while having due

regard for the interests of all stakeholders and the likely

consequences of a particular decision. Further information

about the Company’s key stakeholder groups can be found

in the Strategic Report on pages 35 to 37.

The board recognises that different stakeholders have

different values and priorities, even within the same

stakeholder group. The board diligently weighs up these

differences and takes them into account when making

decisions. Feedback from stakeholders, both before and

after decisions have been made by the board, represents an

important input into the decision-making process.

Further detail of the company’s stakeholder groups, as well

as the company’s section 172 statement, can be found in the

Strategic Report on pages 34 to 37.

The two case studies at right provide practical examples

of how the board takes into account the Company’s

different stakeholders as an integral part of its decision-

making process.

Investment in Retail Finance

We see investment through the cycle as vital in

protecting our model, enhancing efficiency and

future-proofing our income generation capabilities,

whilst enabling us to meet emerging regulatory

requirements and implement system upgrades. Each

year, the consolidated investment plan is presented to

the board for its review and challenge, and if thought

fit, approval. Any material changes proposed

subsequently are also presented for approval.

The board initially approved investment in a Retail

simplification programme that will transform operations

and reduce the cost of running the business, while

enhancing the operational risk and control

environment. The board then considered subsequent

proposals from the Retail Finance business to deliver

the projects over a longer time scale than originally

anticipated, to balance the operational capacity for

delivery and the investment demands across other

areas of the business.

The board explored the need to balance thorough

planning with the ability to react and adapt. It discussed

the impact of various investment options on different

stakeholder groups, including the Retail Finance

business, its colleagues and customers. Having

considered all factors in depth, the board agreed that

extending the time frame for delivery was in the best

interests of the company and its stakeholders as a

whole. The board continues to monitor the progress of

the investment programme and any further proposals

that may be made in the future.

Bond Issuance

The company issues bonds from time to time as part

of its funding strategy. In May 2023, a committee of

the board considered a proposal to issue fixed rate

senior notes of up to a principal amount of £250 million

to the market. The issuance was part of the group’s

funding strategy including replacing a £250 million

2.75% bond which matured in April 2023. The company

was monitoring market conditions over the preceding

months and had kept the board updated on

marketdevelopments.

The committee considered the proposal in light of the

best interests of the company, its members and other

stakeholders. It considered factors including likely

demand for the bond, the company’s immediate and

longer term funding requirements, and market

sentiment. The bond issuance went ahead, being a

£250 million 7.75% 5-year Senior fixed rate bond with

strong demand and a successful uptake. The board

will continue to monitor the company’s funding

strategy and consider future financing proposals.

152 Governance Report

for board members to engage directly with employees and

also to receive feedback on relevant issues from

management. The framework takes account of guidance and

suggestions published by the FRC in this area.

The board acknowledges the benefits of meaningful two-way

engagement between the directors and senior management

and the group’s employees. To this end, the board and

senior management provide employees with regular

information on matters of interest or concern to them and

consult with them or relevant representatives when making

relevant decisions which are likely to affect their interests.

Examples of engagement and consultation in the

yearincluded:

• non-executive directors’ participation at town hall events

in a number of functions such as finance, risk and human

resources, attended by significant numbers of employees.

These events typically include Q&A sessions, with

employees having the opportunity to submit questions

and topics in advance;

• non-executive director site visits to Doncaster, Derby and

Brighton to meet employees at different levels of the

group’s operations across the UK and to understand

employee-related issues and priorities, as well as more

informal meet and greet events attended by the directors;

• participation by directors in focused initiatives operated

for different groups of employees such as the 10,000

Black Interns programme, the upReach internship

programme which focuses on social mobility, the

Emerging Leaders Programme for high potential

employees, our ASPIRE programme for school leavers,

and graduate networking sessions; and

• regular communications from executive directors to

employees on the performance and operations of the

group, in relation to the half-year and full-year results.

The board considers that its employee engagement activities

during the year have been effective and have allowed a

number of directors to engage widely with employees across

a broad manner of settings and engagement styles. The

board considers that the activities above have helped to

achieve a common awareness on the part of employees and

contributed to a better understanding of the group’s

activities, purpose, strategic aims, and the long-term

success of the company.

Workforce Engagement

Culture and values

The board recognises the importance that culture and values

play in the long-term success and sustainability of the group,

and the role of the board in establishing, monitoring and

assessing culture. The board also acknowledges the

importance of individual directors, and the board as a whole,

acting with integrity, leading by example and promoting the

desired culture. The board spends time monitoring, and

satisfying itself as to, the alignment of the group’s purpose,

values and strategy with its culture.

During the year, the board monitored, assessed and

promoted the group’s culture in the following ways:

• The chief executive’s updates to the board included

dedicated reporting on people and culture within each

division to allow the board to consider cultural issues with

appropriate granularity.

• Site visits and non-executive directors’ attendance at

various employee events and meetings such as that of the

group Asset and Liability Committee, the group Risk and

Compliance Committee, and various business risk and

compliance committees as well as business sites such as

the trip to Doncaster and Derby, more information about

which can be found on page 147.

• The board received updates on the Employee Opinion

Survey, which tracks against our own and sector-wide

cultural markers; the quarterly culture dashboard which

includes external stakeholder considerations; and external

guidance and insight on culture, including from regulators

and industry bodies. Allof these are used by the board to

benchmark the group’s approach and plans, and other

initiatives across the group to embed the desired

behaviours and the “Close Brothers Way”.

• The Remuneration Committee considered culture,

behaviour and conduct issues and the inclusion of

culture-related objectives as part of the executive

directors’ performance assessment (further detail on

which can be found in the Directors’ Remuneration Report

on pages 177 to 179).

• The board reviewed the group’s whistleblowing

arrangements by which employees can raise concerns in

confidence and, if they wish, anonymously, and the Risk

Committee reviewed a conduct risk dashboard covering

an assessment of relevant issues and developments for

each of the group’s divisions.

Engagement with Employees

As permitted by the Code, the board has put in place its

own arrangements to engage with employees across the

group and, following discussion by the Nomination and

Governance Committee, a framework for board engagement

with employees is managed by the company secretary,

in conjunction with the group head of human resources.

This framework presents a range of different opportunities

153Close Brothers Group plc Annual Report 2023

Corporate Governance Report continued

Nomination and Governance Committee Report

Mike Biggs

Chairman

Membership

Mike Biggs (Chair), Oliver Corbett, Tracey Graham,

PeterDuffy and Mark Pain.

Other regular attendees by invitation

• Group chief executive

• Group head of human resources

Meetings

• Number of scheduled meetings: five

• For details of attendance, see page 143

Interaction with other committees

The Nomination and Governance Committee makes

recommendations to all other committees regarding the

appointment and removal of their members and chair.

How time was spent

Dear Shareholder

On behalf of the board, I am pleased to present the report

of the Nomination and Governance Committee for 2023.

Thereport sets out an overview of the Committee’s role and

responsibilities and its key activities during the year.

Non-executive director succession remained an important

focus for the Committee. Following a detailed review of

the board’s composition, it was agreed that an additional

non-executive director would be a valuable addition

to the board. Following an extensive recruitment process,

KariHale was appointed to the board in June 2023 and is

recommended for election as a director at the 2023 AGM.

TheCommittee reviewed the skills and experience of the

non-executive directors to ensure that the board continues

to be able to perform its role effectively, following which it

recommended to the board that all serving directors be

re-elected at the 2023 AGM, with the exception of

OliverCorbett, who will not stand for re-election having

completed nine years of service.

The Committee also spent time considering succession planning

and talent management for roles below board level, monitoring

activities and initiatives to develop the group’s talent pipeline

and improve gender balance and other types of diversity

among senior management.

The Committee has received and considered updates on

sustainability and environmental, social and governance (“ESG”)

developments relevant to the group, including consideration

of matters arising from engagement with shareholders and

other stakeholders, diversity and inclusion, and the impact of

climate change on the group. These will continue to be key

areas for the Committee and the board as a whole in the

coming years.

Michael N. Biggs

Chairman

26 September 2023

2023 Highlights

• Considered board composition and succession,

including successfully concluding the search for an

additional non-executive director and appointing

two new members to the Committee.

• Reviewed talent and executive management

succession planning, including oversight of activities

to support and encourage the development of a

diverse and inclusive talent pipeline.

• Recommended the approval of a number of

changes to the board diversity and inclusion policy.

• Oversaw the board and committee evaluation

process undertaken during the year.

• Monitored sustainability and ESG developments

and considered their implications for the group.

• Reviewed the TCFD framework and

proposeddisclosures.

Succession planning

37%

Director appointments

and other NED matters

12%

Other governance

matters (including

administration)

27%

ESG - diversity,

inclusion and climate

16%

Board evaluation

154 Governance Report

Committee Memberships

The Committee monitors the composition of each of the

board’s committees, which is as follows:

Nomination

and

Governance

Committee

Audit

Committee

Risk

Committee

Remuneration

Committee

Mike Biggs Chair •

Mark Pain • • •

Oliver Corbett • Chair •

Patricia Halliday • Chair

Tracey Graham • • Chair

Peter Duffy • • •

Sally Williams • •

Tesula Mohindra • •

Kari Hale • •

Key Responsibilities and Activities of the

Committee

• regularly reviewing the structure, size and composition of

the board and its committees, and making recommendations

to the board with regard to any changes;

• considering the leadership needs of the group and

succession planning for directors and senior executives;

• considering the appointment or retirement of directors;

• reviewing the continued independence of the

non-executive directors;

• assessing the board’s balance of skills, knowledge

andexperience;

• evaluating the skills, knowledge and experience required

for a particular appointment, where appropriate with the

assistance of external advisers to facilitate the search for

suitable candidates;

• assessing the contribution and time commitment of the

non-executive directors; and

• monitoring ESG and sustainability developments relevant

to the group (including diversity and inclusion and

developments relating to climate change and associated

reporting requirements).

Appointments to the Committee

During the year, each of Tracey Graham and Peter Duffy

were appointed to the Committee. This followed a review of

the Committee’s composition and a recognition of the

additional skills and perspectives it would benefit from.

Non-executive Directors’ Skill Sets

The Committee has considered and reaffirmed the skill sets

and experience of the company’s non-executive directors,

including their extensive experience within financial services

and in regulated or listed companies. The Committee also

assessed the contribution and time commitment of the

non-executive directors.

The chart on page 137 indicates the number of non-

executive directors who bring the broad cross-section of

skills expected of the board, as well as highlighting the

particularly strong skills and experiences of non-executive

directors and where there are opportunities to further

enhance the board’s collective knowledge.

Further information on the background and experience of

each of the non-executive directors can be found in their

biographies on pages 138 to 140.

Given the regulated environment within which the group

operates, directors are required to undertake the annual PRA

fitness and propriety assessment.

Director tenure (in years)

Mike Morgan

Oliver Corbett

Patricia Halliday

Tracey Graham

Peter Duffy

Sally Williams

Tesula Mohindra

Kari Hale

Executive directors Non-executive directors

Mark Pain

Mike Biggs

Adrian Sainsbury

155Close Brothers Group plc Annual Report 2023

Non-executive Director Succession

As part of the Committee’s considered and orderly approach

to succession planning, it oversaw the formal and robust

search process in relation to the appointment of Kari Hale

as an independent non-executive director.

The Committee reviewed and approved a detailed

description for the role having considered the particular

skills, experience and background required. As part of the

board recruitment search, the Committee assessed the

balance of knowledge and expertise needed to ensure the

continued effective leadership of the group, and the

development and oversight of its strategy, purpose and

culture. In identifying and recommending candidates for

appointment to the board, the Committee considered

candidates from a wide range of backgrounds, assessing

them on merit against objective criteria and with due regard

to the benefits of diversity on the board.

The search for Kari Hale followed the usual detailed and

considered approach and was conducted in conjunction

with an external search firm, Russell Reynolds. The firm

was instructed to consider candidates with a diversity of

backgrounds and experiences. The firm is not connected to

the company in any way and is a signatory to the Voluntary

Code of Conduct for Executive Search Firms.

Following the preparation of a long-list of candidates, a

shortlist was selected by the Committee and interviews were

held with the involvement of both non-executive and

executive directors. The Committee considered the other

commitments of candidates to ensure that they would have

sufficient time to devote to their duties to the group.

Following completion of the processes to the Committee’s

satisfaction and receipt of all necessary regulatory approvals,

it recommended Kari’s appointment to the board, and his

appointment to the Audit and Risk Committees.

Kari brings significant experience from audit and financial

services and is a strong addition to the existing range of

skills and expertise on the board.

Further details on Kari’s experience can be found in his

biography on page 140.

The Committee adopts a proactive and structured approach

to succession planning and remains mindful of board

changes that will occur in the future as directors reach the

end of their terms, and of the need to ensure continuity of

knowledge and experience within the board as a whole.

TheCommittee notes the Chairman’s tenure, which is now

at six years, and is aware of the eventual need to ensure the

orderly succession of his role in the future.

Following the retirement of Lesley Jones and Bridget

Macaskill from the board, during the year each of Patricia

Halliday and Tracey Graham were appointed as chair

of the Risk and Remuneration Committees, respectively.

Inaddition, the Committee determined that it would benefit

from an extended membership and so each of Tracey

Graham and Peter Duffy were appointed to the Committee

on 26 January, following the approval of the board.

Election and Re-election of Directors at the

2023 AGM

The Committee is responsible for considering and making

recommendations to the board concerning the election and

re-election of directors, having regard to their performance,

suitability, time commitment and ability to continue to

contribute to the board. Following this year’s review in advance

of the 2023 AGM, the Committee has recommended to the

board that all serving directors, with the exception of Oliver

Corbett, be elected or re-elected at the AGM. Oliver has

served nine years on the board of the company and will retire

at the conclusion of the AGM.

You can read more about the board’s recommendation that

all directors be elected or re-elected at the 2023 AGM on

page 146.

Senior Management Talent Development and

Succession Planning

The Committee spent considerable time during the year

reviewing talent and considering the group’s succession

planning at board and senior management level. Activities

included a formal review by the Committee of senior

management succession planning, assessing the capability

and potential of incumbents in key roles and the succession

pipeline across the group. The Committee also considered

specific appointments to senior management roles at both

group and divisional level. The Committee recognises the

importance of talent development and ensuring that the

group continues to attract, retain and develop skilled,

high-potential individuals, and this will remain an important

focus in the year ahead. All non-executive directors are

invited to attend Committee meetings which consider talent

and development to give them full visibility of the

successionpipeline.

Further information on talent and succession planning can

be found in the Sustainability Report on page57.

Diversity and Inclusion

Diversity and inclusion remains a key focus of the

Committee, at board level, across senior management and

within our wider workforce. The Committee recognises the

importance of ensuring that the board and its committees

collectively possess the appropriate range and balance of skills,

knowledge and expertise, and embrace the advantages to

be derived from having a diversity of gender, social and

ethnic backgrounds represented on the board, bringing

different perspectives and the challenge needed to ensure

effective decision-making. It is recognised that the group’s

Corporate Governance Report continued

Nomination and Governance Committee Report

156 Governance Report

stakeholders are diverse and they have a variety ofneeds.

These needs are met by the diversity of thought, culture,

background and perspectives that are reflected within our

board through an inclusive environment which allows

different perspectives to be given due consideration in

strategic matters, and enables the board to consider the

needs and expectations of all stakeholders. The Committee

considers that the board remains diverse, drawing on the

knowledge, skills and experience of directors from a range of

backgrounds, but will seek to take opportunities to further

improve the diversity of the board, where this is consistent

with the skills, experience and expertise required at a

particular point in time. Diversity and inclusion at board level

will continue to be an area of focus for the Committee.

During the year, the Committee undertook its annual

review of the board diversity and inclusion policy, and

recommended a number of enhancements in line with the

FTSE Women Leaders Review (previously the Hampton-

Alexander Review) and the Parker Review. The updated

policy was subsequently approved by the board and is

available at www.closebrothers.com. The policy sets out

specific objectives with regard to diversity and inclusion

in the boardroom, the recruitment of new directors,

and longer-term targets, as well as corresponding

governance responsibilities.

The Committee also considered the group’s diversity in

the context of the new Listing Rule requirements on diversity

metrics and reporting which apply to the company for

the first time this year. As at 31 July 2023, being the

reference date for the purposes of Listing Rule 9.8.6R(9)(a),

which requires the disclosure of certain diversity statistics,

and as shown in the tables below:

• women represented 36% of our board following the

appointment of Kari Hale as a director; however, we expect

to once again meet our target of having 40% female

directors from November 2023 when Oliver Corbett steps

down from the board at the conclusion of the 2023 AGM;

• the board met its target of having one director from a

minority ethnic background; and

• the board does not currently meet the requirement to have

one of the senior board positions (chair, senior

independent director, chief executive or chief financial

officer) occupied by a female director. The directors who

hold these roles were appointed following formal, rigorous

and transparent nomination procedures and are the most

suitable and experienced individuals for their roles and the

group’s needs. The board recognises that this will be a

consideration for future appointments to these roles.

Diversity in the group’s senior manager population continues

to improve, and the board expects this trajectory to continue

in the years ahead. The tables below illustrate the gender

and ethnic diversity of the executive management

population, which comprises the executive committee and

includes the company secretary, but excludes administrative

or support staff, pursuant to Listing Rule (LR) 9.8.6R(10).

The Committee continues to monitor the approach to

diversity and inclusion across the group, which is described

in detail on pages 156 to 158.

Gender identity reporting

under LR9.8.6R(10)

Number of

board

members

Percentage of

the board

Number of senior

positions on the

board (CEO, CFO,

SID and Chair)

Number in

executive

management

Percentage of

executive

management

Men 7 64% 4 8 67%

Women 4 36% – 4 33%

Not specified/prefer not to say – – – – –

Ethnic background reporting

under LR9.8.6R(10)

Number of

board

members

Percentage of

the board

Number of senior

positions on the

board (CEO, CFO,

SID and Chair)

Number in

executive

management

Percentage of

executive

management

White British or other White (including minority-white groups) 10 91% 4 9 75%

Mixed/Multiple Ethnic Groups – – – 1 8%

Asian/Asian British 1 9% – 2 17%

Black/African/Caribbean/Black British – – – – –

Other ethnic group, including Arab – – – – –

Not specified/prefer not to say – – – – –

1. The numerical data detailing gender identity and ethnic background is as disclosed by the relevant individuals as at 31 July 2023, being the chosen reference

date for the purposes of LR9.8.6R(9)(a), and reflects the composition of the board and executive management as at that date.

157Close Brothers Group plc Annual Report 2023

The Committee takes seriously its role in overseeing the

development of a diverse pipeline for senior management

positions and the link between diversity and inclusion and

delivery of the company’s purpose and strategic aims. To

that end, it considered updates during the year in relation to

diversity and inclusion initiatives across the group. Among

other things, the Committee discussed the group’s approach

to recruitment, training and development programmes for

employees, management’s work with diversity and inclusion

campaign groups, and activities of discrete employee

networks including in the areas of gender, ethnic diversity,

accessibility, LGBTQ+, working parents and carers, mental

wellbeing and social mobility. The group is a member of

Moving Ahead, Mission Include and is a signatory to the

Women in Finance Charter, the Race at Work Charter and

the Business Disability Forum. The group also participates in

the 10,000 Black Interns Initiative.

Please see the charts on this page for a breakdown of

the group’s gender diversity. More detail on the group’s

approach to diversity and inclusion can be found in the

Sustainability Report on pages 38 to 64.

Environmental, Social and Governance Matters

Throughout the year, the Committee received and

considered dedicated updates on ESG matters relevant to

the group. The group’s head of sustainability attends

relevant sections of the Committee’s meetings to provide

updates on the group’s activities in this area. The Committee’s

consideration of ESG matters throughout the year covered a

wide range of topics and was informed by, among other things,

engagement with shareholders and other stakeholders,

legislative and regulatory initiatives and wider market

developments. Areas of focus this year included the group’s

sustainability strategy and targets (including progress in the

year and future plans), wider market themes and trends,

andthe group’s progress towards disclosure requirements

relating to the TCFD. TheCommittee will continue to

consider ESG, climate change and broader sustainability

matters in the year ahead and make such recommendations

to the board as it considersnecessary.

Sustainability

The Committee recognises and welcomes the continuing

and increasing focus on sustainability and the contribution

that the group makes to the wider community. On behalf of

the board, during the year, the Committee regularly discussed

sustainability considerations across a broad range topics,

inparticular in relation to customer and client expectations of

the group and the increasing focus on sustainable

businessoperations.

Further information on the group’s approach to sustainability

can be found in the Sustainability Report on pages 38 to 64

of this Annual Report.

Committee Effectiveness

As described in more detail on pages 150 to 151,

an internal evaluation of the effectiveness of the board and

its committees was undertaken during the year in line with

the requirements of the UK Corporate Governance Code.

During the year, the Committee reviewed and updated its

terms of reference to ensure that they remain appropriate.

The Committee considers that it has access to sufficient

resources to enable it to carry out its duties and it has

continued to perform effectively.

Corporate Governance Report continued

Nomination and Governance Committee Report

Female 39%

Male 61%

Female 45%

Male 55%

1. Comprises all members of the executive committee as shown on

page141 and the company secretary, as well as their direct reports.

2. Comprises all employees of the group including senior management.

Board diversity

Senior management

Workforce diversity

Female 36%

Male 64%

158 Governance Report

Corporate Governance Report continued

Audit Committee Report

Oliver Corbett

Chair of the Audit Committee

Dear Shareholder

On behalf of the board, I am pleased to present the report of

the Audit Committee for 2023, outlining how the Committee

discharged its responsibilities and met its objectives.

The Committee oversees and challenges the group’s

financial reporting and maintenance of an effective internal

control environment.

We have remained focused on challenging the key

accounting judgements, assessing the integrity and fair

presentation of the group’s financial reporting and reviewing

the maintenance and effectiveness of the group’s internal

controls. The Committee also monitored and reviewed the

activities and performance of internal and external audit.

Looking ahead to 2024, along with the core responsibilities,

the Committee will continue to monitor opportunities for

improvement across financial reporting and internal control.

Finally, I would like to extend my thanks to my fellow members

of the Committee for their contribution and engagement.

After nine years, at the AGM, I will be stepping down from

both the board and as chair of the Audit Committee.

Oliver Corbett

Chair of the Audit Committee

26 September 2023

Membership

Oliver Corbett (Chair), Kari Hale, Patricia Halliday,

Tesula Mohindra and Sally Williams.

Other regular attendees by invitation

• Chairman of the board

• Executive directors

• Group head of internal audit

• Group chief risk officer

• Group financial controller

• Group financial planning and analysis director

• Group head of operational risk and compliance

• External auditor

Meetings

• Number of scheduled meetings: five

• For details of attendance, see page 143

The chair of the Audit Committee must be a member of

the Risk Committee. The Audit Committee jointly

oversees, along with the Risk Committee, the

recommendations of the Group’s internal and external

auditors and the effectiveness of the Group’s internal

control and risk management systems.

How time was spent

Financial reporting

32%

Business and

accounting updates

27%

External audit

17%

Internal audit

24%

2023 Highlights

• Discussing and challenging key accounting

judgements with a particular focus on provisioning,

goodwill and revenue recognition.

• Assessing the impact of a wide range of

macroeconomic factors on the group.

• Reviewing the integrity of the group’s financial

reporting, including climate-related disclosures.

• Assisting with the determination of the

appropriateness of adopting the going concern

basis of accounting and in performing the

assessment of the viability of the group.

• Monitoring the impact of corporate governance and

audit reforms on the group.

• Reviewing, challenging and approving the annual

internal audit plan and internal audit reports.

• Overseeing the effectiveness and continuous

improvement of internal control.

159Close Brothers Group plc Annual Report 2023

Key Responsibilities

The Committee’s key responsibilities, on behalf of the board,

are to:

• monitor significant accounting judgements;

• monitor the integrity of financial reporting including

recommending to the board whether it is fair, balanced

and understandable;

• oversee the effectiveness of the group’s internal controls;

• review the activities and effectiveness of the group internal

audit function;

• review the effectiveness and quality of the

external audit process and the independence of the

externalauditor;

• recommend the external auditor of the group and their

fees; and

• review the findings of the audit with the external auditor.

The Committee reports to the board on how it discharges its

responsibilities and makes recommendations to the board,

all of which have been accepted during the year.

Committee Composition, Operation and

Effectiveness

The Committee acts independently of management to

ensure the interests of shareholders are properly protected in

relation to financial reporting and internal control.

The Committee members bring a diverse range of experience

in finance, risk, control and business, with particular

experience in the financial services sector. The board has

confirmed that the members of the Committee have the

necessary expertise to provide effective challenge to

management; this includes the chair.

Thequalification for each of the members is outlined on

pages 138to 140.

In addition to the standing invitations set out on page 159,

invitations are also extended to other members of management

as necessary. The chair meets with management ahead of

meetings to discuss specific items offocus.

During the course of the year, the Committee held separate

sessions with the internal and external audit teams, without

management present.

An internal evaluation of the board and its committees was

undertaken this year in line with the requirements of the UK

Corporate Governance Code. The results of this review

confirmed that the Committee is operating effectively.

TheCommittee considers that during the financial year it had

access to sufficient resources to enable it to carry out

itsduties.

External Audit

The Committee oversees the relationship with

PricewaterhouseCoopers LLP (“PwC”), its external auditor,

covering engagement terms, fees and independence.

Boththe Committee and the external auditor have policies

and procedures designed to protect independence

andobjectivity.

PwC has been auditor to the group since August 2017.

Heather Varley has been the group’s lead audit partner since

March 2022. Heather attended all meetings of the Committee.

During the year the Committee reviewed the external audit

plan and the resulting findings, which included control

observations and areas of focus.

Principal matters discussed with PwC are set out in its report

on pages 194 to 203.

External Auditor Effectiveness and Appointment

The Committee assesses the independence and objectivity,

qualifications and effectiveness of the external auditor on an

annual basis as well as making a recommendation on the

reappointment of the auditor to the board. This year the

evaluation focused on the following key areas:

• the quality of audit expertise, judgement and dialogue with

the Committee and senior management;

• the independence and objectivity demonstrated by the

audit team;

• the senior leadership of the audit team; and

• the quality of the service including consistency of

approach and responsiveness.

The process was facilitated by a group-wide survey, a survey

of the PwC senior audit team and a review of audit and

non-audit fees. Overall, the Committee has concluded that

PwC remains independent, and it was satisfied with the

auditor’s performance and recommended to the board a

proposal for reappointment at the AGM.

Looking ahead, subject to shareholder approval, PwC will

undertake the audit of the company and the group for the

year ended 31 July 2024.

In conformance with the required rules, provisions and good

corporate governance in respect of audit tendering and

rotation, the group will be required to tender for the external

audit in the 2027 financial year end. The Committee will

consider in due course its plan for the tender.

Corporate Governance Report continued

Audit Committee Report

160 Governance Report

Financial Reporting and Key Accounting Judgement

The Committee spent considerable time reviewing the Interim Report and Annual Report. The Committee discussed and

challenged the key accounting judgements made by management in preparing the financial statements. This also included

consideration of the internal controls over financial reporting. The Committee noted that there were no new material standards,

or amendments to standards, relevant to the group that became effective for the reporting period.

The key judgement areas were largely unchanged from the prior year, reflecting the group’s adherence to its business model

and the consistency of its approach to financialreporting. The main areas of focus are outlined below. Each of these matters

were discussed with the external auditor and, whereappropriate, has been addressed in the external auditors’report.

Key issue Committee review and conclusion

Expected credit loss (“ECL”)

provision

31 July 2023: £380.6 million

31 July 2022: £285.6 million

The group’s ECL provision is

dependent on management’s

judgements.

Given the materiality of the group’s

loan book, ensuring that the group’s

ECL models and related IFRS 9

judgements and disclosures are

appropriate remains a key priority

for the Committee.

Regular IFRS 9 updates were provided to the Committee throughout theyear.

The Committee challenged the level of provisions held by the group, and the

judgements and estimates used to calculate these provisions. Particular focus

was given to:

• the latest macroeconomic backdrop and the extent to which models are able to

capture these risks;

• the ongoing use and approval of model adjustments;

• the high level of estimation uncertainty in setting forward-looking

macroeconomic assumptions, and their associated weights;

• management’s model enhancement plans; and

• provisioning for Novitas and the related assumptions.

Credit risk and provisions disclosures were discussed to ensure they were clear

and gave a transparent articulation of the group’s credit risk profile, and key

drivers of the ECL charge. This included considering the changes in presentation

to the Risk Report and audited credit risk disclosures.

In the next financial year, the Committee will monitor provisions and disclosures to

ensure they continue to reflect the economic risks for customers and the credit

risk in the loan book.

Conclusion: the Committee was satisfied that the impairment provision and

the disclosures provided in the financial statements were appropriate.

Goodwill

31 July 2023: £94.6 million

31 July 2022: £94.7 million

Goodwill is allocated to eight cash

generating units (“CGUs”), all of

which must be tested annually for

impairment. This assessment is

based on management judgement.

The Committee was presented with the goodwill impairment assessment through

the course of the year. These updates included enhancements to the impairment

assessment methodology for discount rates, cash flow assumptions and

sensitivity analysis.

The Committee challenged the appropriateness of the assessment, including

discussing the outcome with the group’s auditor. Particular focus was given to the

cash flow assumptions for Winterflood Securities, which recorded lower profits in

the year driven by difficult market conditions. The Committee noted the long track

record of the business balanced against future market conditions remaining

uncertain.

Conclusion: the Committee was satisfied that there was no impairment and

the disclosures provided in the financial statements were appropriate.

161Close Brothers Group plc Annual Report 2023

Key issue Committee review and conclusion

Revenue recognition

The group offers a range of

products and services for which

revenue is recognised under IFRS 9,

IFRS 15 and IFRS 16. Appropriate

recognition is a key focus of

theCommittee.

The Committee reviewed management’s approach to revenue recognition,

highlighting the key areas where judgement is required across interest, fee and

commission income. The Committee noted the consistency of approach with prior

years and the detailed assessment that is performed by management and

challenged by PwC.

Conclusion: the Committee was satisfied that revenue recognition for each

of the group’s key businesses is appropriate.

Going concern and

ViabilityStatement

The directors are required to

confirm whether they have a

reasonable expectation that the

company and the group will be able

to continue to operate and meet

their liabilities as they fall due for a

specified period. The Viability

Statement must also disclose the

basis for the directors’ conclusions

and explain why the period chosen

is appropriate.

The Committee assisted the board in determining the appropriateness of adopting

the going concern basis of accounting and in performing the assessment of the

viability of the group.

The Committee reviewed papers from management in support of the going

concern basis and the longer-term viability of the group.

The Committee assessed the proven stability of the group’s business model,

which is supported by:

• a diverse portfolio of businesses;

• resilience when subjected to internal stress testing;

• a strong capital base; and

• adequate access to liquidity.

The Committee discussed the group’s principal risks which may affect future

development, performance and financial position. The Committee considered

projected profitability and capital ratios along with funding and liquidity forecasts,

over a period of three years; in addition, it considered changes in the economic,

technological and regulatory environment. Particular focus was given to the

macroeconomic backdrop, including funding markets and macroeconomic

uncertainty and volatility.

Conclusion: the Committee concluded that it remained appropriate to

prepare the accounts on a going concern basis, advised the board that three

years was a suitable period of review for the Viability Statement, and

recommended the Viability Statement to the board for approval, as set out on

pages 132 and 133.

Fair, balanced and

understandable

Under the UK Corporate

Governance Code, the board is

required to perform an assessment

of fair, balanced and

understandable reporting.

On behalf of the board, the Committee reviewed the financial statements as a

whole to assess whether they were fair, balanced and understandable.

Ahead of presentation to the Committee, a robust review process of the Annual

Report from across the business was conducted to ensure disclosures were

balanced and accurate.

The Committee reviewed the group’s performance in light of the principal and

emerging risks. The Committee discussed and challenged the balance and

fairness of the overall report with the management and considered the views of

the external auditor.

Conclusion: the Committee was satisfied that the Annual Report, taken as a

whole, could be regarded as fair, balanced and understandable and

proposed that the board approved the Annual Report in that respect.

Corporate Governance Report continued

Audit Committee Report

162 Governance Report

Financial reporting controls

Risk management and internal controls

In conjunction with the Risk Committee, we have satisfied

ourselves that the group’s internal financial control

framework is effective and adequately aligned with the

group’s risk profile. We are satisfied that internal financial

controls are appropriately designed and effective in

identifying risks faced by the group.

Full details of the internal control framework are given within

the Risk management section on pages 83 to 89.

At each meeting the Committee is presented with a report

from the head of internal audit, and reviews major findings

relating to control weaknesses and management’s response.

In addition, a year-end update was provided to the

Committee covering the Group Financial Control Framework.

Restoring trust in audit and corporate governance

The Committee has evaluated, and will continue to evaluate,

the impact on the group of the proposals for restoring trust in

audit and corporate governance.

During the year, the Committee discussed a number of the

proposed reforms including the effectiveness of internal

controls and the potential for an Audit and Assurance Policy

(“AAP”). This has extended to discussions with the external

auditor, considering specifically IT controls. Impact

assessments are under way based on the latest consultation

released in May 2023.

Group Internal Audit

A new group head of internal audit was recruited and joined

the group in September 2022.

The Committee reviewed, challenged and approved the

six-monthly internal audit plan and amendments made during

the year. It also approved an updated internal auditcharter,

which sets out the mandate and remit of thefunction.

It received regular reports on internal audit activities across

the group detailing areas identified during audits for

strengthening across the group’s risk management and

internal control framework and management’s progress on

remediation of issues.

The Annual Internal Audit Assessment, which found the

governance and risk and control framework of the group to

be generally effective, was received by the Committee in

accordance with the Chartered Institute of Internal

Auditors’guidance.

The Committee completed its annual review of the

effectiveness of the internal audit function and its level of

independence. The evaluation for the year under review was

completed internally and supported by feedback from the

Committee and management. The internal audit function was

found to be working well with a good culture of engagement

between management and internal audit.

In addition to reviewing the internal audit function’s

effectiveness, the Committee assessed the level of internal

audit resource and the appropriateness of the skills and

experience of the internal audit function. It concluded the

function was adequately resourced with additional co-source

available for specialist skills.

Whistleblowing Champion

The chair of the Audit Committee is the group’s

whistleblowing champion. The group continues to place a

high priority on employees’ understanding of the process to

enable them to speak out with confidence when appropriate.

Further information on the board’s activities in this area can

be found on page 146 of the Corporate Governance Report.

Non-audit Services

The Committee oversees the group’s policy on the provision

of non-audit services by the external auditor, which

incorporates the Financial Reporting Council’s Revised

Ethical Standard from March 2020.

The group’s policy is that permission to engage the external

auditor will always be refused where there is an actual or

potential threat to independence. However, the Committee

will give permission where the service complies with the

group policy and where:

• work is closely related to the audit;

• a detailed understanding of the group is required; and

• the external auditor can provide a higher quality and/or

better value service.

The group follows the mandatory regulatory cap requirement

of 70% which compares the annual value of non-audit

services compared to the average of three years’ audit fees.

During the year, total audit fees amounted to £3.9 million

(2022: £2.9 million) while total non-audit fees including those

relating to services required by legislation amounted to

£0.8 million (2022: £0.8 million), representing 21%

(2022: 28%) of the current year audit fee. This includes

non-audit services not required by legislation of £0.2 million

(2022: £0.3 million), 5% (2022: 10%) of the audit fee,

predominantly relating to the review of the group’s interim

financial statements and funding assurance work.

The Committee was satisfied that these fees, individually and

in aggregate, were consistent with the non-audit services

policy and did not believe that they posed a threat to the

external auditors’ independence.

Statutory Audit Services Order Compliance

The company confirms compliance with the provisions of the

Statutory Audit Services for Large Companies Market

Investigation (Mandatory Use of Competitive Tender

Processes and Audit Committee Responsibilities) Order 2014

for the year to 31 July 2023.

163Close Brothers Group plc Annual Report 2023

Corporate Governance Report continued

Risk Committee Report

Patricia Halliday

Chair of the Risk Committee

Membership

Patricia Halliday (Chair), Oliver Corbett, Peter Duffy,

Tracey Graham, Kari Hale, Tesula Mohindra, Mark Pain

and Sally Williams.

Other regular attendees by invitation

• Chairman of the board

• Executive directors

• Group head of internal audit

• Group chief risk officer

• General counsel

• Group head of operational risk and compliance

• External auditor

Meetings

• Number of scheduled meetings: six

• For details of attendance, see page 143

Interaction with other committees

The Risk Committee must include, as one of its members,

the chair of the Audit Committee. It jointly oversees, along

with the Audit Committee, the recommendations of the

Group’s internal and external auditors and the effectiveness

of the Group’s internal control and risk management systems. It

also provides advice and input to the Remuneration Committee

on remuneration policies and performance objectives.

2023 Highlights

• Delivery of substantive improvements to meet

Consumer Duty requirements by the regulatory

deadline.

• Continued oversight and challenge of our

operational resilience plans, including investment in

our cyber maturity, oversight of third-party service

providers, regular review of risk management of the

IT change portfolio and enhancements to controls to

manage financial sanctions risk.

• Review and challenge of stress event planning

activities to ensure the group remains well-equipped

to adapt operationally to macroeconomic conditions

and associated effects, supplemented by credit

portfolio deep dives and model reviews.

• Continuation of embedding the management of risks

and opportunities associated with climate change

around the group (see page 38).

How time was spent

Dear Shareholder

On behalf of the board, I am pleased to introduce the Risk

Committee report for the year ended 31 July 2023. The report

sets out an overview of the Risk Committee’s key responsibilities

and the principal areas of risk we have focused on during the year.

Over the last 12 months, the group has continued to manage

risk effectively notwithstanding the challenges presented by

a dynamic and volatile external environment, and maintained

strong capital and liquidity levels.

The backdrop of ongoing economic uncertainty and the potential

impact on our customers continues to be a priority area of focus

for the group. Agenda items at the Risk Committee this year have

reflected this, including the considerable work undertaken to

meet Consumer Duty requirements and monitoring our

operational risk indicators and operational resilience.

The rise in cost of living from higher inflation and interest

rates has yet to have a material impact on our lending book,

but we maintained strong bad debt coverage levels to capture

lagging factors. We have also maintained our prudent lending

criteria, and appropriately set our risk appetite. As previously

announced, we also recognised increased provisions in

relation to Novitas in the first half, which based on our

current assessment, adequately reflects the remaining risk of

credit losses for the Novitas loan book. Further details on our

risk management approach and the internal controls are

provided in the Risk Report on pages 83 to 95.

Looking back on my first year as chair of the Risk

Committee, an embedded, strong risk culture and risk

management framework are evident. The year ahead is likely

to remain challenging and we will continue to focus on credit

risk and operational risk, and continue to progress against

the regulatory agenda, particularly in the areas of operational

resilience, conduct risk and climate risk.

Patricia Halliday

Chair of the Risk Committee

26 September 2023

Principal risks and

monitoring

26%

Business updates

42%

Risk appetite and

operational resilience

Regulatory matters

26%

164 Governance Report

Key Responsibilities

The Risk Committee’s principal roles and responsibilities are

to support the board in its oversight of risk management

across the group. The identification, management and

mitigation of risk is fundamental to the success of the group.

The Risk Committee also plays an important role in setting

the tone and culture that promotes effective risk

management across the group. The Risk Committee’s key

responsibilities are to:

• oversee the maintenance and development of a

supportive culture and “tone from the top” in relation to

the management of risk;

• review and recommend to the board for approval the

group’s risk appetite, which is the level of risk the group is

willing to take in pursuit of its strategic objectives;

• monitor the group’s risk profile against the prescribed

riskappetite;

• review the effectiveness of the risk management

framework to ensure that key risks are identified and

appropriately managed;

• provide input from a risk perspective into the alignment of

remuneration with performance against risk appetite

(through the Remuneration Committee); and

• undertake a robust assessment of both the principal and

emerging risks facing the group over the course of the

year, and review reports from the risk and compliance

functions on the effectiveness of the processes that

support the management and mitigation of those risks.

Overview of Main Activities During the Year

As consumers and borrowing businesses have faced

increased borrowing costs and supply chain pressures, we

remain vigilant and are focused on identification of signs of

stress. In addition to our usual schedule of client monitoring,

we maintain a rolling programme of credit portfolio reviews.

Oversight of key lending portfolios including motor, property,

energy and invoice finance have been regular features on the

Risk Committee agenda this year.

During this financial year we have continued to revisit our

stress event planning activities; our annual stress testing

exercises continue to demonstrate our resilience and

sufficient resources of both capital and liquidity. In addition,

we have implemented enhancements to our monitoring of

credit spread risk in the banking book to further strengthen

our funding and liquidity framework.

Our risk management framework underpins our operational

culture to enable a responsive and forward-looking approach

to the risks we face as a group. During this financial year we

conducted our regular review of principal and emerging

risks, with changes reflected in our Risk Report on pages 90

to 95. This year has also seen a further evolution and

expansion of our conduct risk reporting to the entire group to

enable further focus on good customer outcomes and this is

presented quarterly to the Risk Committee.

As ever, the risks posed by the external environment are

multi-faceted and work on our operational resilience agenda

to manage these has continued apace throughout the year,

with updates to the Committee a regular agenda item. Fraud

risk and identification remain high on our radar and during

the year we have also implemented enhancements to our

controls to manage financial sanctions risk. In addition, we

have benefited from frequent updates on progress in our

cyber maturity plan.

We have maintained robust and healthy liquidity levels

throughout the year consistent with our borrow long, lend

short approach. The Risk Committee maintains good

visibility and oversight of ALCO.

The linkage between culture, risk and compensation remains

an important one and the Risk Committee and the group

chief risk officer have provided input to the Remuneration

Committee again this year to ensure that risk behaviours and

the management of operational risk incidents over the course

of the financial year are appropriately reflected in decisions

taken about performance and reward.

165Close Brothers Group plc Annual Report 2023

Looking Ahead to 2024

We expect the macroeconomic environment to remain

challenging and we will continue to focus on the regulatory

agenda, with enhanced monitoring in place to comply with

Consumer Duty requirements and delivery of our operational

resilience plans. As the organisation continues to evolve and

enhance its operational capabilities, a level of risk exists in

relation to the execution of that change; accordingly, the

Risk Committee recognises change as a key risk and the

importance of effective oversight to monitor this. Change

execution risk was therefore reflected as an emerging risk

during this financial year and we will monitor and manage in

line with our risk mitigation measures and controls.

The 2024 financial year will see a continued focus on further

embedding our approach to operational resilience in line with

the policy and framework that has been established. We will

expand our next round of scenario testing of important

business services and associated impact tolerances in line

with regulatory expectations. The risk posed by cyber crime

continues to increase in severity and the Committee has

received regular updates on latest initiatives and progress

which will continue apace into the new financial year

andbeyond.

The measures taken in this financial year in response to

the macroeconomic environment and its impact on our

borrowers stand us in good stead for any ongoing

uncertainty as we move forward. In particular, we remain

vigilant for early signs of credit stress and are focused on

ensuring we retain an appropriate control framework with an

ability to react as required. At the centre of this will be a

focus on identifying vulnerable customers and delivering

good customer outcomes. The Risk Committee will continue

to receive and review regular updates and management

information to facilitate visibility on this.

Identification of emerging risks and possible emergence

periods form part of the regular monthly reporting suite to

our risk committees. This, along with our business-as-usual

horizon scanning activities, should ensure that we are able to

anticipate and take appropriate management actions.

Central to our ability to do this is our established risk

measurement, monitoring and reporting framework. Our

focus on products and markets we know and understand

aligns with a consistent risk appetite against which we

measure ourselves. Our model risk landscape will continue

to evolve in 2024 financial year as we progress through the

process of our IRB application.

Having continued our positive trajectory in this financial year

to embed climate-related financial risk into our group risk

management framework, as we define our transition

pathways we will tailor risk appetites in line with our strategic

ambitions and alignment with our net zero aspirations by

2050. The actions already taken to accelerate the resolution

of issues surrounding Novitas will protect the core strengths

of our business moving forward and enable support to our

existing customers to ensure good outcomes.

Corporate Governance Report continued

Risk Committee Report

166 Governance Report

Directors’ Remuneration Report

Tracey Graham

Chair of the Remuneration Committee

Membership

Tracey Graham (Chair), Mike Biggs, Peter Duffy

and Mark Pain.

Other regular attendees by invitation

• Group chief executive

• Group head of human resources

• Head of reward and HR operations

Meetings

• Number of scheduled meetings: five

• For details of attendance, see page 143

Interaction with other committees

The Remuneration Committee works with the Audit and

Risk Committee chairs on the design and implementation

of remuneration policies and the determination of

remuneration outcomes.

How time was spent

Remuneration Policy

and disclosure

30%

Risk and reward

16%

Annual Remuneration

discussions

54%

Dear Shareholder

Following my appointment as the chair of the Remuneration

Committee at the AGM in November 2022, I am pleased to

present the Directors’ Remuneration Report for the 2023

financial year. I would like to place on record my sincere

thanks to my predecessor, Bridget Macaskill, for her service

to the Remuneration Committee and for her support in

ensuring a smooth handover. I would also like to thank my

fellow Remuneration Committee members for their support

and contribution to the work of the Remuneration

Committeethroughout the year. This report sets out our pay

decisions for the year, including how we implemented the

Remuneration Policy approved by shareholders at the 2021

AGM. The report also provides the proposed 2024 executive

directors’ bonus and group LTIP measures, where we have

made a limited number of changes.

How the group performed during the 2023

financial year

This year has seen a challenging market backdrop, with the

weaker UK macroeconomic outlook creating significant

uncertainty for both our consumer and SME customers.

Against this volatile backdrop, we continued to support our

customers and apply our consistent, lending criteria.

As described in the Chairman’s and Chief Executive’s

Statements, the financial results for the year were impacted

by a significant increase in provisions in relation to the

Novitas loan book in the first half, as we have taken

measures to address the issues relating to that business.

Asa result, adjusted operating profit before tax decreased to

£113.5 million (2022: £234.8 million) and we achieved a

return on opening equity of 5.0% (2022: 10.6%).

This report sets out our approach to remuneration for

the group’s employees and directors for the 2023

financial year.

The Directors’ Remuneration Report is divided into

three sections:

• Annual Statement from the Remuneration

Committee Chair – pages 167 to 170

• Annual Report on Remuneration – pages 171 to186

• Summary of the Directors’ Remuneration Report

– pages 186 to 189

167Close Brothers Group plc Annual Report 2023

In Banking, excluding Novitas, profit performance reflected

growth in income, more than offset by higher forward-looking

provisions to take into account the uncertain macroeconomic

outlook, and increased costs related to our investment

programmes and wage inflation. We accelerated our efforts

to grow CBAM and delivered strong net inflows of 9%

(2022: 5%), although profit reduced, reflecting wider market

conditions and costs related to our successful hiring strategy.

Performance at Winterflood reflected the continuation of

challenging trading conditions, with retail investor appetite

remaining subdued. Nevertheless, Winterflood has a long

track record of trading profitably in a range of market

conditions and remains well positioned to retain its market

position and benefit when investor appetite returns.

We have maintained our strong capital, funding and liquidity

positions, in line with our prudent and conservative

approach. Our common equity tier 1 (“CET1”) capital ratio

was 13.3%, significantly above the applicable minimum

regulatory requirement of 9.5%.

Reflecting our underlying performance and the Board’s

confidence in the group’s outlook, the board is proposing a

final dividend of 45.0p per share. This will result in a full-year

dividend per share of 67.5p (2022: 66.0p per share).

While developments at Novitas and the impact they have

had on our financial performance in the 2023 financial year

are disappointing, the financial strength of the group leaves

us well placed to move forward on the delivery of our

strategicpriorities.

The table below sets out an overview of our one-year and

three-year key performance indicators which provide context

for the Remuneration Committee’s decisions taken this year.

Key performance indicator 2023 2022

Return on opening equity 5.0% 10.6%

Average return on opening equity

over three years

10.0% 11.0%

CET1 capital ratio 13.3% 14.6%

Adjusted operating profit (£ million) 113.5 234.8

Adjusted earnings per share growth

over three years

(26.0)% (18.4)%

Distributions to shareholders

(£million)

99.1 98.4

1. For the three-year periods ended 31 July 2023 and 31 July 2022.

2. For the 2023 financial year, interim dividend paid and proposed final

dividend.

Executive director remuneration outcomes for the 2023

financial year

In light of shareholder experience of the last year, the

executive directors advised the Remuneration Committee

that they wished to forgo their bonus for the 2023 financial

year. Additionally, acknowledging that there have been a

number of headwinds over which our executive team have

had no control, the Remuneration Committee determined, in

agreement with the executives, that there will be no pay-out

under the group LTIP for the 2023 financial year.

However, the Remuneration Committee recognises that

there has been strong progress against key strategic, people,

customer and risk priorities, including an acceleration of the

efforts to address the issues relating to Novitas. As announced

in January 2023, we initiated formal legal action against one

of the After the Event (“ATE”) insurers regarding the potential

recoverability of funds in relation to failed cases. We have

since entered into a settlement with another smaller ATE

insurer. We have also prioritised and maintained strong

employee engagement, as evidenced by our engagement

score of 86% achieved in our most recent employee opinion

survey. This progress against key priorities together with the

CET1 capital ratio outcome would have resulted in an annual

bonus of 31.8% and 35.8% of maximum opportunity for

Adrian Sainsbury and Mike Morgan, respectively. The 2020

group LTIP would have vested at 35.3% of maximum

opportunity based on the RoE outcome and performance

against risk management objectives. Further details on

performance against the financial metrics and non-financial

objectives are set out on pages 174 to 179.

Prior to the grant of the 2022 LTIP awards, external factors

resulted in significant market volatility, resulting in a decline

in the value of Close Brothers shares. The Remuneration

Committee therefore decided, supported by the executive

directors, to scale back the number of LTIP shares granted,

in order to mitigate the risk of windfall gains at the point of

vesting as a result of this market-related decline in the Close

Brothers share price. Instead of granting LTIP awards in line

with the company’s standard approach (being the average

share price for the five business days following the company’s

preliminary results announcement, which would have resulted in

a grant price of £9.231) the share price at the year end of £11.10

was used to determine the number of LTIP shares granted.

Supporting the wider workforce

As a responsible business, we are committed to paying all staff

at or above the national living wage, which is in excess of the

national minimum wage. We have continued to support our

people with the challenges they are facing as a result of the

difficult economic environment and the increasing cost of living.

Directors’ Remuneration Report continued

168 Governance Report

During the 2023 financial year the average staff salary increase

was 4.7%, excluding executive directors. At the start of the

2024 financial year a further average salary increase of 6.6%

was awarded across the group. These base salary uplifts

have been targeted to more junior staff to ensure those most

susceptible to the economic environment are best protected.

We are committed to creating an inclusive environment where

all our colleagues can thrive. The Remuneration Committee

has overseen the publication of our gender pay gap report,

which is published on our website. We are confident that

men and women are paid equally for performing equivalent

roles across our businesses and are committed to taking

steps to continue to reduce our gender pay gap, which is

primarily driven by a lower proportion of women in senior

and front office roles, where market rates are higher.

Our focus on closing the gender pay gap is through

increasing female representation at all levels by setting

representation targets and supporting development

programmes. Whilst gender pay provides the most direct link

to remuneration, our broader focus on inclusion ensures we

prioritise fairness and equality for all colleagues. We are

signatories to a wide range of charters and commitments

across a broad spectrum of inclusion themes and social

enterprises, including the Race at Work Charter, the Social

Mobility Pledge, the Women in Finance Charter and the

Valuable 500. We also partner with leading diversity

organisations, including Stonewall, the Business Disability

Forum and the charity Stop Hate UK, to help inform our

thinking and subsequent actions. We have seven executive-

sponsored inclusion networks which actively lead internal

events and initiatives to raise awareness across the group.

Objectives to support inclusion are linked to executive pay

through risk management objectives within our executives’

long-term incentive plan. We are pleased that our employees

continue to feel that we are an inclusive organisation, as

demonstrated by responses to this question in the employee

opinion survey 96% (2022: 94%) and we continue to push

forward and implement activities and initiatives in this sphere

to ensure we are building an inclusive environment where all

our colleagues feel proud to work for us.

Proposed implementation of the Policy for the 2024

financial year

Neither the chief executive nor the group finance director

have received a salary increase since the 2021 Policy review.

Over the same period, the average increase for the wider

workforce has been 10.9%. For the 2024 financial year,

theRemuneration Committee has decided to apply a 2%

increase to executive directors’ salaries. These increases

are below the average increase of 6.6% awarded to the

widerworkforce.

There will be no change to the incentive opportunities

available to the executive directors, which will remain at 95%

and 125% of salary for both directors under the annual

bonus and LTIP respectively. There will also be no change to

the level of pension provision, which will remain aligned with

the wider workforce at 10% of salary.

The Remuneration Committee believes the current Policy

continues to maintain a fair balance between the interests of

all our stakeholders, while rewarding the management team

for delivery against the group’s key strategic priorities.

For the 2024 financial year, we are making some limited

changes to the performance measures and weightings used

across the annual bonus and LTIP, as well as our approach

to targetsetting.

The proposed annual bonus and LTIP measures and

weightings for the 2024 financial year are set out below.

Annual bonus Long-term incentive

Measure Weighting Measure Weighting

Return on average

tangible equity

(“RoTE”)

30% Return on average

tangible equity

(“RoTE”)

30%

Cost:Income ratio

(“C:I”)

15% Adjusted EPS

growth

20%

Adjusted

operating profit

(“AOP”)

15% Relative TSR vs.

FTSE 250 FS

companies

20%

Strategic

scorecard

40% Strategic

scorecard (10%

each on Risk,

Capital and

Liquidity, and

ESG objectives)

30%

CET1 underpin applies

across the 2024 financial

year bonus

169Close Brothers Group plc Annual Report 2023

The key changes, which are permitted within the

Remuneration Policy agreed by the shareholders in 2021,

are as follows:

Annual bonus

We will add a Costs metric (C:I) and a Profit metric (AOP) to

the annual bonus for the 2024 financial year. Our Capital

(CET1) metric will become an underpin across the whole

bonus. This change aims to ensure executive focus on

resuming the group’s track record of earnings growth and

returns, while focusing on cost efficiency. The CET1 metric

underpin will ensure appropriate capital levels are maintained

against/above the regulatory minimum requirements.

Currently we use return on opening equity as a measure of

return. We will move to RoTE; this change means the return

measure will be based on the equity profile of the group

across the performance period, and strips out intangible

equity (e.g. goodwill) from the calculation basis. This change

is aligned with market practice as RoTE is a widely used

measure in the reward frameworks of other UK banks.

We have evolved our approach to target setting for our

financial metrics (i.e. the RoTE, AOP and C:I targets).

Historically, we have set annual bonus target ranges

for RoE that are static through the cycle. We will move

to an approach of setting target ranges that are dynamic

year-to-year and set taking into account market conditions

as well as budgetary outlook and market forecasts. This is

aligned with the approach taken by the majority of FTSE-

listed companies, including banking peers. Annual bonus

targets will be disclosed retrospectively in line with market

practice where targets are commercially sensitive.

LTIP

Taking into account the feedback we have had from

investors, we are adding a relative total shareholder return

(“TSR”) metric to the LTIP. This is to ensure executive focus

on capital markets performance and to align outcomes more

directly with the shareholder experience. We propose to

evaluate TSR performance against other FTSE 250 Financial

Services businesses. The use of relative TSR is widespread

among peer banks and the wider listed environment.

We are splitting the strategic scorecard into three distinct

elements: based on “Risk”, “Capital and Liquidity” and

“ESG” objectives. We are simplifying the number of

objectives within each element to ensure there is clarity for

executives around priorities and expectations for the year.

The introduction of a distinct “ESG” category allows clear

promotion of our group priorities around sustainability and

diversity and inclusion.

These important changes to the remuneration framework

are somewhat limited, they fully align with stakeholder

interest and follow best corporate governance practice.

Webelieve they are important in incentivising consistency

with our proven and resilient model and will position us well

to navigate the uncertainty in the external environment,

continue supporting our customers and clients, and

resuming on our long track record of profitability and

disciplined growth.

Looking ahead – key focus areas for the Remuneration

Committee for 2024

During the course of the 2024 financial year we will be

reviewing our Remuneration Policy, in advance of its triennial

renewal atthe 2024 AGM, to ensure that it continues to

support our strategic priorities and appropriately rewards

and incentivises executive performance. The external

environment is expected to remain uncertain in the 2024

financial year. We will continue to monitor the operation of

the Remuneration Policy to ensure that targets remain

relevant and stretching and that it provides an appropriate

level of reward to attract and retain high-calibre individuals in

a competitive market.

We will continue to consider the experiences of colleagues,

our shareholders and other stakeholders and to remunerate

executives fairly and responsibly. We remain committed to a

responsible approach to executive pay, as I hope this

Directors’ Remuneration Report demonstrates.

We remain committed to ongoing dialogue with our

shareholders on remuneration matters. I hope that you will

find this report on the directors’ remuneration accessible

andclear, that you agree with the decisions we have taken,

which balance the interests of all stakeholders, and may vote

in favour of the resolution to approve the Annual Report on

Remuneration.

Tracey Graham

Chair of the Remuneration Committee

26 September 2023

Directors’ Remuneration Report continued

170 Governance Report

Annual Report on Remuneration

Remuneration Committee

The Remuneration Committee’s main responsibilities are to:

• review and determine the total remuneration packages of

executive directors and other senior executives, including

group material risk-takers and senior control function staff

in consultation with the chairman and chief executive and

within the terms of the agreed policy;

• approve the design and targets of any performance-

related pay schemes operated by the group;

• review the design of all-employee share incentive plans;

• ensure that contractual terms on termination and any

payments made are fair to the individual and the group,

that failure is not rewarded and that a duty to mitigate risk

is fully recognised;

• review any major changes in employee benefits structures

throughout the group;

• ensure that the remuneration structures in the group are

compliant with the rules and requirements of regulators,

and all relevant legislation;

• ensure that provisions regarding disclosure of

remuneration are fulfilled; and

• seek advice from group control functions to ensure

remuneration structures and annual bonuses are

appropriately aligned to the group’s risk appetite.

Membership activity in the 2023 financial year

There were seven meetings of the Remuneration Committee

held during the year. There is a standing calendar of items

which is supplemented by other significant issues that arise

during the year. The key matters addressed during the year

were as follows:

September

2022

Additional

December

2022

January

2023

Additional

March

2023

April

2023

June

2023

July

2023

Remuneration policy and disclosures

Annual remuneration governance review •

Annual review of Total Reward Principles •

Review and approve Remuneration Policy Statement,

Directors’ Remuneration Report and the remuneration

section of the Pillar 3 disclosure for 2022 •

Gender pay gap review •

Risk and reward

Review and approve risk-adjustment process/outcomes • • • •

Annual review whether to apply malus and clawback to

remuneration •

Material Risk Takers identification for 2023 • •

Annual remuneration discussions

Approve EDs’ annual bonus and group LTIP financial and

non-financial targets for 2023 •

Review and determine 2023 EDs’ annual bonus outcome • • • •

Review and approve 2020 group LTIP vesting • •

Review and approve approach to year-end compensation • • •

Year-end all-employee group-wide salary and bonus

analysis/proposals for 2023 • • •

Review proposed 2023 compensation for Material

RiskTakers • • •

Initial review of EDs’ annual bonus targets and objectives

for 2024 •

Review of formulaic incentive schemes and approval

ofschemes for 2024 • • • •

Committee remit and effectiveness

Review terms of reference •

171Close Brothers Group plc Annual Report 2023

Statement of voting on the Directors’ Remuneration Policy at the 2021 AGM

For Against

Number of

abstentions

Directors’ Remuneration Policy 84.2% 15.8% 3,218,903

Statement of voting on the Directors’ Remuneration Report at the 2022 AGM

For Against

Number of

abstentions

Directors’ Remuneration Report 95.6% 4.4% 685,758

Advice

During the year under review and up to the date of this

report, the Remuneration Committee consulted and received

input from the chairman of the board, the chief executive, the

group head of human resources, the head of reward and HR

operations, the group chief risk officer and the company

secretary. Where the Remuneration Committee seeks advice

from employees, this never relates to their own remuneration.

The Remuneration Committee’s remuneration advisers are

Deloitte LLP (a member of the Remuneration Consultants

Group) who were appointed by the Remuneration Committee

following a competitive tendering process. During the year,

separate teams within Deloitte provided advice and

supportin a range of areas including, operations, corporate

development and regulatory compliance. The Remuneration

Committee is satisfied that the provision of these other

services does not affect the objectivity and independence of

the remuneration advice provided by Deloitte as the other

services are unrelated to reward matters. Total fees paid to

Deloitte were £115,300 during the 2023 financial year,

calculated on a time and material basis.

Slaughter and May provided legal advice on the company’s

equity scheme rules. Fees paid to Slaughter and May were

£22,000, calculated on a time and material basis.

UK Corporate Governance Code

We continue to be compliant with the executive pay provisions of the 2018 UK Corporate Governance Code. Our pay

arrangements are also consistent with the following principles set out in the Code:

Clarity

This Directors’ Remuneration Report provides open and transparent disclosure of our

executive remuneration arrangements for our internal and external stakeholders.

Predictability

Our incentive arrangements contain maximum opportunity levels with outcomes

varying depending on the level of performance achieved against specific measures.

The charts on page 107 of the 2021 Annual Report provide estimates of the potential

total reward opportunity for the executive directors under the Policy.

Simplicity and alignment to

culture

Incentive arrangements for our executives are straightforward, with individuals eligible

for an annual bonus and, at more senior levels, a single long-term incentive plan.

Performance measures used in these plans are designed to support delivery of the

group’s key strategic priorities and our commitment to adopt a responsible,

sustainable business model, in line with our purpose and values.

Proportionality and risk

Our variable remuneration arrangements are designed to provide a fair and

proportionate link between group performance and reward. In particular, partial

deferral of the annual bonus into shares, five-year release periods for LTIP awards and

stretching shareholding requirements that apply during and post-employment provide

a clear link to the ongoing performance of the group and therefore long-term alignment

with stakeholders. We are also satisfied that the variable pay structures do not

encourage inappropriate risk-taking. Notwithstanding this, the Remuneration

Committee retains an overriding discretion that allows it to adjust formulaic annual

bonus and/or LTIP outcomes so as to guard against disproportionate out-turns. Malus

and clawback provisions also apply to both the annual bonus and LTIP and can be

triggered in circumstances outlined in the Policy.

Directors’ Remuneration Report continued

172 Governance Report

Implementation of the Policy in 2023

The single total figure of remuneration for executive directors for the years ended 31 July 2023 and 31 July 2022 is set

out in the tables below. (Audited

)

2023

Salary

£’000

Benefits

£’000

Pension

£’000

Total fixed

remuneration

£’000

Annual

bonus

£’000

Performance

awards

£’000

Total variable

remuneration

£’000

Total

remuneration

£’000

Adrian Sainsbury 930 30 93 1,053 – – – 1,053

Mike Morgan 560 8 56 624 – – – 624

2022

Salary

£’000

Benefits

£’000

Pension

£’000

Total fixed

remuneration

£’000

Annual

bonus

£’000

Performance

awards

£’000

Total variable

remuneration

£’000

Total

remuneration

£’000

Adrian Sainsbury

930 37 93 1,060 412 130 542 1,602

Mike Morgan 560 8 56 624 248 121 369 993

1. All disclosures in the Directors’ Remuneration Report are unaudited unless otherwise stated.

2. 60% of Adrian Sainsbury’s and Mike Morgan’s annual bonus is deferred into shares.

3. The figures for the performance awards for 2022, granted in 2019, have been recalculated using the actual share price on the date of vesting for the LTIP of

£9.345. The three-month average to 31 July 2022 was used for the 2022 report given that the awards were vesting after publication of the report.

4. Adrian Sainsbury’s performance awards for 2022 were granted before he was appointed to the board. The full awards relate to vested LTIPs that were

subject to the performance criteria outlined in the 2022 Annual Report on page 136.

Additional disclosures on the single total remuneration figure for executive directors table (Audited)

Salary

The per annum salaries paid during the year are as shown in the single total remuneration figure table above. When reviewing

salary levels, the Remuneration Committee takes into account the individual’s role and experience, pay for the broader

employee population, market and external factors, where applicable. No salary increase was awarded to the executive

directors for the 2023 financial year, whilst the average increase for the general employee population was 4.7%.

Benefits

Adrian Sainsbury received an £18,000 allowance in lieu of a company car. Mike Morgan does not receive an allowance in lieu

of a company car. They also received private health cover. The discount to the share price on grant of SAYE options is

included in the year of grant. In line with disclosure requirements, taxable expenses are included.

Pension

Adrian Sainsbury and Mike Morgan received a pension allowance equivalent to 10% of base salary, in line with the upper limit

contribution the general employee population can elect to receive.

Link between reward and performance

The group performed well in the last six months of the financial year, following a challenging first half, with the full-year 2023

results significantly impacted by the increased provisions in relation to Novitas. There was an acceleration of loan book growth

since the first half, with strong margins and a stable credit performance in Banking. CBAM continued to attract new client

assets and achieved strong net inflows, though Winterflood’s performance remained impacted by significantly subdued trading

activity. Group adjusted operating profit reduced 52% to £113.5 million (2022: £234.8 million). Excluding Novitas, adjusted operating

profit reduced 20% to £220.1 million (2022: £274.1 million), mainly reflecting an increase in impairment charges and a reduction

in income in Winterflood.

The group achieved an RoE of 5.0% (2022: 10.6%). RoTE reduced to 5.9% (2022: 12.2%), with the loss after tax recorded by

Novitas reducing the group’s RoTE by 6.1%.

The board is proposing a final dividend of 45.0p per share, resulting in a full-year dividend per share of 67.5p (2022: 66.0p).

This reflects the group’s underlying performance and the board’s confidence in the group’s outlook.

Whilst there has been strong progress against non-financial objectives, due to the challenging first half of the financial year,

theexecutive directors have forgone their bonuses for the 2023 financial year. Additionally, the Remuneration Committee,

inagreement with the executives, decided there will be no pay-out for the group LTIP for the 2023 financial year.

173Close Brothers Group plc Annual Report 2023

Annual bonus in respect of 2023

Financial metric Weighting

Threshold

(33.3% of

maximum)

Target

(50% of

maximum)

Maximum

(100% of

maximum)

2023

outcome

achieved

Bonus outcome

after weighting

(% of max)

RoE 40% 10.0% 13.0% 18.0% 5.0% 0.0% 0.0%

CET1 capital ratio 20% 12.6% 14.6% 15.6% 13.3% 39.0% 7.8%

Total financial metrics 60%

7.8%

Adrian

Sainsbury

Mike

Morgan

Group-wide strategic

scorecard

40% 24.0% 28.0%

Percentage of maximum

annual bonus awarded 100% 31.8% 35.8%

Assessed outcome £280,953 £190,456

Discretionary

adjustment (-100%) (£280,953) (£190,456)

Bonus-turn (including

application of discretion) £0 £0

1. The group-wide strategic scorecard objectives relating to the 2023 bonus can be found on pages 175 and 176.

Group-wide performance and executive directors’

objectives for the 2023 financial year

Annual performance objectives are determined by the

Remuneration Committee at the start of each financial year,

and are designed to support the group’s wider strategic

priorities to “Protect”, “Grow” and “Sustain” our

businessmodel.

The table on pages 175 and 176 sets out examples of the

strategic scorecard objectives which were in place in 2023,

performance metrics against these objectives where

appropriate, and an overview of the factors that the

Remuneration Committee has taken into account when

assessing the performance of the executives.

The Remuneration Committee determines the overall

outcome of the balanced scorecard and, if appropriate,

adjusts the final individual rating to take into account the

individual contributions to successful outcomes of the

scorecard objectives. This year, overall performance against

the strategic scorecard was rated at target or above target

for most goals, except for the operating margin achieved in

Asset Management. The outcome, before the discretionary

downward adjustment, was assessed as 60% of the

maximum award. For Mike Morgan, the outcome, before the

discretionary downward adjustment, was assessed as 70%

of the maximum to acknowledge the considerable additional

effort undertaken to cover the Senior Manager Function 24

(chief of operations) for six months, whilst we sought to

replace this role.

For reasons of commercial sensitivity, not all performance

criteria and factors taken into consideration by the

Remuneration Committee have been disclosed.

Directors’ Remuneration Report continued

Annual bonus

As set out in the Remuneration Committee Chair’s letter, notwithstanding the performance delivered against these targets,

inlight of shareholder experience, the executive directors advised the Remuneration Committee that they wished to forgo their

bonus for the 2023 financial year. Details of the targets and performance are outlined on pages 175 and 176.

174 Governance Report

Performance assessment against strategic scorecard objectives

Objective Measured through reference to Progress

Objective

achieved?

Strategic

initiatives

Delivery of disciplined growth and

strategic milestones, including

• Review of single name

exposurelimit.

• Launch syndication product.

Notable progress against the group’s strategic

growth agenda with our growth initiatives

delivering a significant contribution to loan book

growth in the year.

• Expansion to cover larger loan sizes, taking

advantages of opportunities in the asset-

based lending space.

• In Invoice Finance, syndication product

approved at GRCC. First participation deal

closed in the 2023 financial year, with lead

opportunities under consideration.

• On track

• Expanded offering in Invoice

Finance.

• New team in Invoice Finance providing

bespoke term loan structures for SMEs,

requiring growth and investment capital

hired, and closed their first deal in the

2023 financial year.

• On track

• Asset Management set stretching

targets:

– Net inflows of 7.3%.

– Operating margin of 16%.

• Net inflows within the target range and

operating margin of 11%.

– Strong net inflows of 9% in the 2023

financial year, demonstrating successful

execution of our growth strategies through

new hires.

– Lower than budgeted operating margin

asincome down by 7% in the 2023

financial year.

• Ahead

oftrack

• Behind

track

• Winterflood

– WBS onboarding of new

flagship client.

– Winterflood to maintain number

1 position by volume.

• WBS grew AuA to £12.9 billion at 31 July

2023, supported by the successful

onboarding of Fidelity International.

• Winterflood ranked number one by volume

traded (per Bloomberg rankings) in the

calendar year 2022.

• On track

Prepare for

downturn

• Undertake economic stress-based

Crisis Management Test playbook

simulation in preparation for

adownturn.

• Downturn planning overview covering

both Bank-wide and business-specific

initiativesundertaken.

• On track

Deliver against

agreed cost

workstreams

• Deliver the 2023 financial year

benefits of strategic cost

management initiatives.

• Multi-year technology transformation

programme is well under way, with reduction

in the cost base and efficiency gains through

the use of a third-party service provider.

• Retail operations simplification programme is

on track to deliver operational enhancements

whilst improving broker and customer

experience. New customer relationship

management platform has been introduced in

Premium Finance.

• Ontrack

• On track

175Close Brothers Group plc Annual Report 2023

Long-term performance awards (Audited)

The overall vesting of the 2020 LTIP grant is outlined in the table below.

Details of the overall vesting for the LTIP

Performance measure Threshold target

Maximum target Actual achieved Overall vesting

Adjusted EPS growth

(35% weighting) 10% 30% (26.0)% 0.0%

RoE

(35% weighting) 10% 18% 10.0% 8.8%

Risk management objectives (“RMO”) (30% weighting) n/a n/a 88.3% 26.5%

Assessed outcome (before discretion) 35.3%

Discretionary adjustment (-100%) (35.3)%

Overall vesting (including application of discretion) 0.0%

1. 25% of the awards vest for satisfying the threshold target.

2. Over three years.

3. Average over three-year performance period.

Objective Measured through reference to Progress

Objective

achieved?

People

Maintain current

engagement scores

• Group 2023 financial year EOS

engagement scores at or

above 86% (2022: 86%).

• Engagement score of 86% retained and

compares favourably to external benchmark

of 83%.

• On track

Turnover within

riskappetite

• Group employee turnover at or

below 16.5%.

• Voluntary annual turnover at 13.4% in

May2023 and consistently below 16.5%

throughout the 2023 financial year.

• Ahead

oftrack

Customer

Maintain high levels

of customer

satisfaction

• Key customer satisfaction

metrics above peer

benchmarks.

• Key metrics (including NPS, NET Ease

and Repeat Buying) remained stable

and compared well against available

peerbenchmarks.

• On track

Meet regulatory

requirements in

respect of

Consumer Duty

• Delivery against implementation

plan agreed with the board,

including creation of

appropriate dashboard to

measure customer outcomes

in relation to Consumer Duty.

• Implemented a programme directly aligned

to regulatory requirements.

• Conduct Risk MI enhanced to provide

increased customer outcome visibility.

• Key milestone for sharing information with

distributors met across all relevant businesses.

• On track

Borrow long, lend

short

• Complete behaviouralisation

exercise on customer deposits

by end of January.

• 1

generation model launched in January

2023 and reported at ALCO and BRC on a

monthly basis. 2

generation model results

presented at June 2023 ALCO.

• On track

Directors’ Remuneration Report continued

176 Governance Report

As explained in the Remuneration Committee chair’s letter,

despite the RoE performance measure meeting threshold

target and making strong progress against the risk

management objectives, the Remuneration Committee, with

the support of the Board, including the executive directors,

determined that there should be no pay-out from the LTIP.

This decision acknowledges the shareholder experience over

the last year and the impact of Novitas on the group’s

financial performance.

Details of the assessment of the risk management

objectives for the LTIP

The Remuneration Committee considers it to be of critical

importance that remuneration arrangements continue to

incentivise discipline in the management of the firm’s capital

and balance sheet and in the delivery of the business model.

The Remuneration Committee undertakes a robust assessment

of performance against the risk management objectives to

ensure that payments to executive directors are fair and

appropriate with consideration for individual and corporate

performance. In doing so, the Remuneration Committee

assesses performance against a number of key measures in

making its determination.

Performance was assessed after each of the three years of

the LTIP performance period, with each year’s review carrying

a weighting of one-third towards the overall vesting for the award,

ensuring a fair assessment of progress over the three-year period.

Year one and year two assessments were set out in the 2021 and

2022 Directors’ Remuneration Reports respectively. The year

three performance assessment is detailed below.

Year three performance assessment against risk management objectives

Objective Measured through reference to Progress

Objective

achieved?

Capital

Implement formal

capital strategy and

framework

• Capital optimisation strategy

to be formalised and

communicated.

• Strategy published as part of the 2022

financial year results.

• Committed to optimising capital structure

including issuance of debt capital market

securities if appropriate.

• On track

Dividend

Maintain

progressive and

sustainable

dividend

• Commitment to the group’s

dividend policy, which aims to

provide sustainable dividend

growth year-on-year, while

maintaining a prudent level of

dividend cover.

• Progressive dividend maintained. Although

the proposed level of dividend cover for

2023 is below the group’s historical range it

reflects our underlying performance and the

Board’s confidence in the group’s outlook.

• On track

Funding

Maintain prudent

amount of term

funding

• Prudent term funding maintained,

that supports our “borrow

long, lend short” strategy.

• Average maturity of funding allocated to

loan book was 21 months, well in excess

of the loan book at 16 months.

• Slightly

ahead of

track

Maintain

appropriate Net

Stable Funding Ratio

• Maintain Net Stable Funding

Ratio above 110%.

• Net Stable Funding Ratio of 126.0%

improved over the course of the 2023

financial year due to growth in

RetailBanking.

• Slightly

ahead of

track

Liquidity

Maintain prudent

level of headroom

to Liquidity

Coverage Ratio

• Maintain a prudent level

of headroom to LCR.

• Liquidity metrics well in excess of internal

target and regulatory requirements, with a

12-month average to 31 July 2023 LCR of

1,143% (2022: 924%).

• Events impacting the global banking sector

earlier this year highlighted the benefits of

our prudent approach to managing

financialresources.

• Ahead

oftrack

177Close Brothers Group plc Annual Report 2023

Objective Measured through reference to Progress

Objective

achieved?

Risk priorities

Conduct Risk

Framework roll-out

• Complete roll-out of Conduct

Risk Framework to remainder

of the business.

• The Conduct Risk Framework has now been

rolled out to all key business areas.

• On track

Effective

management of

Novitas run-off

• Ensure work is completed to

achieve good customer

outcomes.

• Work substantively completed on time

fulfilling all objectives and residual activities

absorbed into normal business activities,

with FCA updated.

• On track

Operational risk and resilience

Operational

resilience to align

with regulatory

compliance

• Completion of refreshed

group operational resilience

self-assessment, including

board approval.

• Execution of remediation

activity for the 2023 financial

year completed in line with

approved plan to ensure full

compliance by March 2025.

• Operational resilience self-assessments

were updated as planned and approved by

the board.

• All three divisions remain on track to

complete remediation by the regulatory

deadline of March 2025.

• On track

Improve technology

resilience and risks

• Remediate significant risks

and reduce high-level residual

technology risks.

• Significant risks have been remediated.

• The number of high rated IT Security and

Data Loss risks have been reduced.

• On track

Sustainability

Develop the group’s

sustainability

strategy, to include

targets and

transition plans

• Develop improved climate data

across the group to enhance

the Scope 3 reporting and

improve the quality of analysis

across lending activities.

• Set and meet milestones needed

to achieve net zero targets.

• Significant advancements made in our

approach to assessing the carbon

emissions relating to the assets we finance

in the bank.

• Assessment of carbon-intensive sectors

(including transport) across the loan book to

enable setting of intermediate reduction

targets to be completed by March 2024.

• On track

Meeting operational

emissions reduction

targets and support

transition to green

growth in lending

• Evolve to a fully electric car

fleet by 2025.

• Ambition to provide £1 billion

of funding for battery electric

vehicles by 2027.

• Progress on bringing the average fleet

emissions down, reaching 23.5 gCO

/km

(2022: 32.9 gCO

/km).

• UK fleet is now almost wholly battery

electric or plug-in hybrid cars and c.50% of

our fleet is fully electric.

• Against our disclosed ambition of financing

£1 billion of battery electric vehicles by the

2027 financial year, we were on track with

£164 million lent in the first year.

• On track

Improve diversity –

make progress

towards 2025

targets

• 2025 gender balance and

ethnicity targets:

– Female senior managers,

target of 36%.

– Managers with an ethnic

background, target of 14%.

• Female senior managers: current position

July 2023: 31%.

• Managers with an ethnic background:

current position July 2023: 9%.

• Behind

track

Directors’ Remuneration Report continued

178 Governance Report

Objective Measured through reference to Progress

Objective

achieved?

Culture

Review and enhance

employee

communications

• Ensure appropriate “tone from

top” questions included in

2023 financial year EOS and

strong scores achieved.

• 95% of colleagues felt the leaders “take risk

and compliance issues seriously”.

• 91% of colleagues also felt that “senior

leadership act in line with our values and

business principles”.

• Ahead

oftrack

Show strong

leadership in

managing

remediation of

control issues

• No overdue high or significant

audit or assurance review

items unless specifically

agreed by the relevant

committees.

• The group has maintained zero overdue

audit issues for the past three months.

• Ahead

oftrack

The table below summarises the Remuneration Committee’s assessment of performance against the risk management

objectives after each of the three years of the LTIP performance period.

Element

Year one

assessment

Year two

assessment

Year three

assessment

Overall

vesting

Capital and balance sheet management 100% 95% 95% 96.7%

Risk, compliance and controls 90% 75% 75% 80.0%

Overall vesting 88.3%

Implementation of the Policy in 2024

Base salary

Salary

effectivefrom

1 August2023 Increase

Group chief executive – Adrian Sainsbury £948,600 2.0%

Group finance director – Mike Morgan £571,200 2.0%

As set out in the chair letter, neither the group chief executive or group finance director has received a salary increase since

the 2021 Policy review. For the 2024 financial year the Remuneration Committee has decided to apply a 2% salary increase

to the directors’ salaries. These base salary increases are lower than the 3% increases awarded to higher-earning colleagues

and significantly lower than the average employee salary increase of 6.6% for the 2024 financial year. The Remuneration

Committee was mindful of the changes made to the Remuneration Policy in 2021 in order to comply with the variable to fixed

pay cap imposed by CRD V. Taking into account the feedback received from shareholders at that time, instead of applying a

3% increase to the current base salaries in line with higher-earning colleagues, the increase for the 2024 financial year was

determined by reference to the group chief executive and the group finance director base salaries of £550,000 and £400,000

that had applied at the date they were appointed to the board in 2020 and 2019 respectively.

Adrian Sainsbury and Mike Morgan’s allowance in lieu of pension will be 10% of base salary, in line with the upper limit

contribution the general employee population can elect to receive.

The executive directors will receive benefits in line with those outlined in the Remuneration Policy table on page 187.

Therewill be no other increases to allowances or benefits other than any potential increase in the cost of providing them.

179Close Brothers Group plc Annual Report 2023

2024 annual bonus (i.e. bonus awarded in respect of the 2024 performance year)

As set out in the chair’s letter, a Costs metric (C:I) and a Profit metric (AOP) have been added to the annual bonus for the 2024

financial year. Our Capital metric (CET1) will become an underpin across the whole bonus.

RoTE will replace return on opening equity as a measure of return. This change is aligned with market practice as RoTE is a

widely used measure in the reward frameworks of other UK banks.

The approach to target setting for the financial metrics (i.e. the RoTE, AOP and C:I targets) has evolved. Historically, annual

target ranges set for RoE were static through the cycle. The Remuneration Committee has decided to move to an approach of

setting target ranges that are dynamic year-to-year and take into account market conditions as well as budget outlook and

market forecasts. This is aligned with the approach taken by the majority of FTSE-listed companies, including banking peers.

Annual bonus targets will be disclosed retrospectively in line with market practice where targets are commercially sensitive.

Nature of measures Choice of measures

Percentage of

bonusopportunity Vesting ranges

Financial RoTE 30%

Threshold – 33%

Maximum – 100%

AOP 15%

Cost:income ratio 15%

Non-financial Strategic scorecard 40% Minimum – 0%

Strategic, People, Customer and Risk objectives Maximum – 100%

1. Performance below threshold in the financial measures would result in zero vesting of financial measure.

The Remuneration Committee retains discretion to adjust the targets if the board gives approval for a material transaction,

toensure that performance is measured on a fair and consistent basis.

2023 LTIP (i.e. LTIP awarded in respect of the 2024 to 2026 cycle)

The 2023 LTIP awards due to be granted in October 2023 are shown in the table below.

Chief executive

Adrian Sainsbury

Group finance

director

Mike Morgan

2023 LTIP award £1,185,750 £714,000

Percentage change in LTIP award from 2022 2% 2%

2023 LTIP award as a percentage of 2024 salary 125% 125%

The Remuneration Committee determined that it was appropriate to grant the executive directors an LTIP award at the

maximum level of 125% of their 2024 base salary. The Remuneration Committee will review the level of vesting upon

completion of the performance period.

The 2023 LTIP targets are detailed in the table below.

Nature of measures Choice of measures Targets Weightings Vesting ranges

Financial RoTE 10% to 18%

30%

Threshold – 25%

Maximum – 100%

Relative TSR vs. FTSE

250 FS companies Median to upper quartile ranking 20%

Adjusted EPS growth 10% to 30% over 3 years 20%

Non-financial Risk management

objectives

Discretionary assessment

against specific goals 30%

1. Average over three-year performance period.

Directors’ Remuneration Report continued

180 Governance Report

The RoTE and adjusted EPS growth targets for the 2023 LTIP are consistent with those that applied for the last three LTIP

awards. The Remuneration Committee believes that these targets are appropriately stretching and effectively align the

executive directors’ interest with those of shareholders through many economic cycles. The stretch in the targets was also

considered to be appropriate when viewed on a holistic basis and in the context of the modest levels of LTIP vesting over a

number of years, as shown in the table on page 183.

The risk, ESG, and capital and liquidity elements within the risk management objectives for the 2024 financial year are detailed

in the following table.

Risk and operational resilience

Continue annual achievement of outcome reviews and maintenance to long-term goals

Sustainably embedded compliance with corporate audit and governance reforms

Ensure full regulatory compliance with operational resilience requirements

ESG

Define and publish transition pathways to meet our net zero ambition

Improve diversity through meeting defined targets

Capital and liquidity

Maintain a strong and prudent capital position that is above regulatory minimum

Maintain a progressive dividend that is sustainable over the medium term

Maintain a prudent amount of liquid assets over the period

Maintain a prudent amount of term funding that supports our “borrow long, lend short” strategy

Due to commercial sensitivity, the full details of the milestones for the objectives will be outlined in the Directors’ Remuneration

Report throughout the performance period rather than prospectively.

Relative spend on pay

The following table shows the total remuneration paid compared to the total distributions to shareholders.

2023

£ million

2022

£ million

Percentage

change

Remuneration paid 347.0 344.5 0.8%

Distributions to shareholders

100.5 98.4 0.7%

1. Interim dividend paid and final dividend proposed for the financial year.

Changes in remuneration of the directors and all employees

The table on the following page shows how the remuneration for the directors changed compared to employees of the

parent company of the group and the average group-wide employee population for each year between the 2020 and 2023

financialyears.

The decrease in executive directors’ annual bonus is due to their decision to forgo their bonus for the 2023 financial year,

asdetailed in the Remuneration Committee chair’s letter on page 168. The change to benefits relates to costs of providing

private medical cover and, for Adrian Sainsbury, the inclusion of the discount of share price for a SAYE option granted.

The year-on-year movement in salary for the average group employee and average group-wide employee between the 2020

and 2023 financial years reflects the annual review implemented in August 2022 and ad hoc salary changes throughout the 2023

financial year.

The average decrease in bonus for the average group-wide employee population is greater than the average Group employee;

this is largely driven by the reduction in average bonus for Winterflood employees due to business performance.

181Close Brothers Group plc Annual Report 2023

Non-executive directors who joined on or after 1 August 2022 are not included. The changes in fees shown below relate to

changes in responsibility for the non-executive directors.

2023 2022 2021 2020

Salary/Fee Benefits

Bonus Salary/Fee Benefits

Bonus

Average Group

employee

7.0% 16.2% (11.7)% 5.8% 21.3% 29.5% 2.4% 6.6% 34.3% 11.7% 2.3% (32.9)%

Average employee

4.7% 4.7% (27.6)% 5.7% 5.7% (32.8)% 0.0% 0.0% 21.2% 1.8% 1.8% 13.1%

Executive directors

Adrian Sainsbury

0.0% 2.7% (100.0)% 95.7% 62.2% (51.1)% – – – – – –

Mike Morgan

0.0% (0.1)% (100.0)% 40.0% 30.8% (54.9)% 0.0% 20.2% 152.2% 0.0% 0.0% (54.7)%

Chairman and non-executive directors

Mike Biggs 0.0% – – 0.0% – – 0.0% – – 0.0% – –

Oliver Corbett 0.0% – – (1.7)% – – (0.1)% – – 5.6% – –

Peter Duffy 0.0% – – 7.7% – – 2.8% – – 0.0% – –

Sally Williams 0.0% – – 3.8% – – 0.0% – – – – –

Mark Pain 0.0% – – 27.5% – – – – – – – –

Patricia Halliday

23.9% – – – – – – – – – – –

Tracey Graham

23.9% – – – – – – – – – – –

Tesula Mohindra 0.0% – – – – – – – – – – –

Lesley Jones 0.0% – – 3.5% – – 0.0% – – 5.6% – –

Bridget Macaskill 0.0% – – 0.1% – – (1.8)% – – 5.6% – –

1. Non-executive directors have received other benefits that relate to reimbursement for expenses incurred in the course of duties. Reimbursement of these

expenses does not provide an accurate comparison to benefits received by employees and they are therefore not included.

2. Changes for employees of the parent company excluding executive directors.

3. Changes for group-wide employees, as this is more representative of changes across the wider workforce excluding executive directors.

4. Calculated using the data from the single figure table in the Annual Report on Remuneration excluding reimbursement for expenses incurred in the course of

duties. For Adrian Sainsbury and Mike Morgan, their expenses were £6,020 and £6,328 for the 2023 financial year and £16,441 and £5,939 for the 2022

financial year respectively.

5. Adrian Sainsbury was appointed as group executive director in September 2020 and his 2021 figures are pro-rated based on part-year. Adrian’s 2022 salary

and benefits increase is driven by the part-year in 2021 and the compensation mix adjustment awarded during the 2022 financial year.

6. Mike Morgan’s 2022 benefits increased 30.8%, this is driven by an increase in pension allowance based on the compensation mix adjustment awarded

during the 2022 financial year.

7. Calculated using the fees from the single figure table for non-executive directors on page 185. Where non-executives have pro-rated fees, the prior year has

either been pro-rated up or down accordingly.

8. Patricia Halliday and Tracey Graham’s fees have increased year-on-year and this is driven by their appointment to the chair of the Risk Committee and the

chair of the Remuneration Committee respectively during the 2023 financial year.

Pay ratios

The table below compares the chief executive’s single total remuneration figure to the remuneration of the group’s UK

employees at 31 July, over the last four financial years. The Remuneration Committee is satisfied that the median ratio

isconsistent with the pay, reward and progression policies for our employee population.

The ratio for 2023 has declined on the previous year. This is largely as a result of the executive directors’ decision to forgo their

bonus for the 2023 financial year and the joint decision by the Remuneration Committee and the executives that the 2020 LTIP

should not vest this year.

Directors’ Remuneration Report continued

Year Method

percentile Median

percentile

Lower quartile employee Median employee Upper quartile employee

Total

remuneration Salary

Total

remuneration Salary

Total

remuneration Salary

2023 A 29: 1 18: 1 11: 1 £36,093 £30,000 £59,000 £50,000 £92,969 £72,600

2022 A 48: 1 28: 1 17: 1 £33,571 £26,314 £56,952 £40,983 £93,459 £85,000

2021 A 79: 1 37: 1 29: 1 £32,437 £28,820 £54,729 £38,500 £89,927 £70,000

2020 A 64: 1 38: 1 23: 1 £32,194 £27,167 £54,245 £36,950 £90,029 £75,000

Our ratios have been calculated using the most robust methodology option “A” prescribed under the UK Companies

(Miscellaneous Reporting) Regulations 2018. Under this option, the ratios are calculated using the following:

• the full-time equivalent salaries and allowances for

employees in the UK;

• pensions and benefits paid during the financial years;

• annual bonus awarded for the financial years;

• actual and projected gains realised from exercising

awards from taxable employee share plans;

• sales incentives paid during the financial years; and

• projection of vested performance awards.

182 Governance Report

The group chief executive’s total remuneration over the past ten years

The chart below illustrates the group chief executive’s single total remuneration figure over the past 10 years and compares it

to the total shareholder return of the company’s shares and the FTSE 250 over this period. Further detail on the single total

remuneration figure outcomes and how variable pay plans have paid out each year is shown in the table below.

Preben Prebensen Adrian Sainsbury

2014 2015 2016 2017 2018 2019 2020 2021

2021

2022

2023

Single figure of

total remuneration

(’000) £7,411 £5,962 £3,995 £3,337 £2,541 £2,770 £2,043 £860 £1,720 £1,602 £1,053

Annual bonus

against maximum

opportunity 100% 98% 95% 91% 86% 82% 40% 78% 78% 47% 0%

LTIP, SMP and

Matching Share

Award vesting

4,5,6

95% 97% 68% 51% 19% 30% 42% 40% 40% 21% 0%

1. Preben Prebensen’s remuneration for the 2021 financial year was time pro-rated to 21 September 2020, the day he stepped down as chief executive.

2. Adrian Sainsbury was appointed chief executive on 21 September 2020 and his remuneration included in the single figure for the 2021 financial year was time

pro-rated accordingly.

3. The figures for the performance awards for 2022 have been recalculated using the actual share price on the date of vesting for the LTIP of £9.345. In the

2022 report, the three-month average to 31 July 2022 was used, given that the awards were vesting after publication of the report.

4. The figures for 2014 include the Matching Share Awards that were granted in 2009 at the time of Preben Prebensen’s appointment as chief executive.

5. The 2019 LTIP award vested at 20.6%, the assessed outcome before the 25% discretionary reduction was 27.5%.

6. SMP and Matching Share Awards were last granted in the 2016 financial year.

Group Chief Executive’s single

total remuneration figure (’000)

Value of £100 invested

on 31 July 2014

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

31 July

2014

31 July

2015

31 July

2016

31 July

2017

31 July

2018

31 July

2019

31 July

2020

31 July

2021

31 July

2021

31 July

2022

31 July

2023

Brothers

Preben

Prebensen

Adrian

Sainsbury

FTSE 250

Index

100

150

200

250

300

Scheme interests granted during the year (Audited)

The face value and key details of the share awards granted in the 2023 financial year are shown in the table below. These were

all delivered as nil cost options. The Deferred Share Award (“DSA”) is a mandatory deferral of a portion of the annual bonus.

The share price used to calculate the number of shares awarded for the DSA was £9.231, the average mid-market closing

price for the five days from and including the date the preliminary results were announced.

As set out in the Remuneration Committee chair’s letter, instead of granting the LTIP in line with the company’s standard

approach (being the average share price for the five business days following the company’s preliminary results announcement,

which would have resulted in a grant price of £9.231) the closing mid-market share price on the final trading day of the 2022

financial year (29 July 2022) of £11.100 was used to calculate the number of shares awarded for the LTIP.

Name Award type

Vesting period

Performance

conditions

Face value

‘000

Percentage

vesting at

threshold

Number of

shares Vesting end date

Adrian Sainsbury DSA

1-3 years No £247 n/a 26,799 11 October 2025

LTIP

3,4

3 years Yes £1,163 25% 104,730 11 October 2025

Mike Morgan DSA

1-3 years No £149 n/a 16,137 11 October 2025

LTIP

3,4

3 years Yes £700 25% 63,064 11 October 2025

1. The awards are all delivered as nil cost options.

2. The DSA vests in equal tranches over three years.

3. Performance targets are detailed in the 2022 Annual Report on page 136.

4. LTIPs vested from 2020 have an additional two-year holding period.

183Close Brothers Group plc Annual Report 2023

Directors’ Remuneration Report continued

External appointments

No executive directors held external directorships during the financial year.

Payments for loss of office and past directors (Audited)

There were no payments for loss of office or payments to past directors during the year other than vesting of outstanding

share awards as disclosed in previous remuneration reports.

Executive directors’ shareholding and share interests (Audited)

The interests of the directors in the ordinary shares of the group at 31 July 2023 are set out below:

Name

Shareholding

requirement

Number of

shares owned

outright

Outstanding options not subject

to performance conditions

Outstanding options subject to

performance conditions

2023

2023 2023 2022 2023 2022

Adrian Sainsbury 202,339 142,200 73,476 46,435 383,452 322,287

Mike Morgan 121,839 115,919 38,592 39,001 204,929 194,802

1. Based on the closing mid-market share price of 919p on 31 July 2023.

2. This includes shares owned outright by closely associated persons and SIP.

3. This includes DSA and SAYE options.

4. This includes LTIP awards.

At 31 July 2023, Adrian Sainsbury held 40,873 vested but unexercised shares. There were no changes in notifiable interests

between 1 August 2023 and 11 September 2023, other than the purchase of shares by Adrian Sainsbury within the SIP which

increased his shareholding to 142,236 shares.

Executive directors’ shareholding

The chart below compares the current executive directors’ shareholding versus shareholding policy, as a percentage of salary.

At the end of the 2021 financial year, both executive directors exceeded the minimum requirement under the Directors’ Remuneration

Policy. Following the implementation of the compensation mix adjustments in response to CRD V in the 2022 financial year,

Adrian Sainsbury and Mike Morgan are building up their shareholding over a reasonable time frame to meet the revised

minimum requirement.

Adrian Sainsbury

200%

190%

200%

141%

Mike Morgan

Policy Actual

Details of executive directors’ share exercises during the year (Audited)

Name Award type

Held at

1 August

2022 Called

Lapsed

Market price

onaward

Market price

oncalling

Total value

oncalling

Dividends

paidon

vestedshares

Mike Morgan 2019 DSA 4,996 4,996 – 1,366.4 1,082.0 54,057 7,698

2020 DSA 4,421 4,421 – 987.9 1,082.0 47,835 7,341

2021 DSA 7,128 7,128 – 1,545.8 1,082.0 77,125 10,492

2017 LTIP 12,276 12,276 – 1,459.0 1,082.0 132,826 41,125

1. These are the actual number of shares and values realised on calling. Any variances in totals are due to rounding.

Adrian Sainsbury did not exercise any shares during the year.

184 Governance Report

Notes to the details of executive directors’ share exercises during the year

The DSA is a mandatory deferral of a portion of the annual bonus.

The DSA and LTIP give executive directors the right to call for shares in the company from the employee benefit trust or

Treasury Shares, at nil cost, together with a cash amount representing accrued notional dividends thereon. They may be called

for at any time up to 12 months from the date of vesting. The DSA and LTIP awards may be forfeited in certain circumstances

if the executive director leaves employment before the vesting date. The value of the awards is charged to the group’s income

statement in the year to which the award relates for the DSA and spread over the vesting period for the LTIP award.

Details of executive directors’ option exercises during the year (Audited)

Name Award type

Held at

1 August 2022 Exercised Lapsed

Exercise price

Market price on

exercise

Gain on calling

Adrian Sainsbury 2020 SAYE (Spring) 1,013 1,013 – 888.0 968.0 810

Single total figure of remuneration for non-executive directors (Audited)

Name

2023 2022

Basic

fee

£’000

Committee

chair

£’000

Committee

member

£’000

Senior

independent

director

£’000

Benefits

£’000

Total

£’000

Basic

fee

£’000

Committee

chair

£’000

Committee

member

£’000

Senior

independent

director

£’000

Benefits

£’000

Total

£’000

Mike Biggs 300 – – – 22 322 300 – – – 22 322

Lesley Jones

21 10 4 – 2 37 71 34 12 – 1 118

Bridget

Macaskill

21 10 2 – 2 35 71 34 6 – 16 127

Oliver Corbett 71 34 6 – 1 112 71 34 6 – – 111

Peter Duffy 71 – 12 – 1 84 71 – 12 – – 83

Sally Williams 71 – 12 – 2 85 71 – 12 – 1 84

Mark Pain 71 – 12 34 1 118 71 – 12 34 – 117

Tesula Mohindra

71 – 12 – 1 84 74 – 12 – – 86

Patricia Halliday

71 24 8 – 1 104 71 – 12 – – 83

Tracey Graham

71 24 8 – 2 105 26 – 4 – – 30

Kari Hale

7 – 1 – – 8 – – – – – –

1. Non-executive director fees were last increased with effect from 1 August 2021.

2. Benefits include travel-related expenses in respect of attendance at board meetings which are taxable. Amounts disclosed have been grossed up using the

appropriate tax rate as the company pays the non-executive directors’ tax.

3. Lesley Jones and Bridget Macaskill both retired as a non-executive director on 17 November 2022.

4. Tesula Mohindra was appointed a non-executive director on 15 July 2021 and fees relating to the 2021 financial year (15 July 2021 to 31 July 2021) were

paid in the 2022 financial year.

5. Patricia Halliday and Tracey Graham were appointed chair of the Risk Committee and chair of the Remuneration Committee respectively on 17 November 2022.

6. Kari Hale was appointed a non-executive director on 28 June 2023.

Notes to the single total figure of remuneration for non-executive directors

The fees payable to non-executive directors for the 2023 and 2024 financial years are as follows. The committee membership

fee increased with effect from 1 August 2023.

Role 2024 2023

Chairman

£300,000 £300,000

Non-executive director £71,000 £71,000

Supplements

Senior independent director £34,000 £34,000

Chair of Audit Committee £34,000 £34,000

Chair of Remuneration Committee £34,000 £34,000

Chair of Risk Committee £34,000 £34,000

Committee membership

£7,000 £6,000

1. The chairman receives no other fees for chairmanship or membership of board committees.

2. No fees are payable to the chairman, or for membership, of the Nomination and Governance Committee.

185Close Brothers Group plc Annual Report 2023

Directors’ Remuneration Report continued

Non-executive directors’ share interests (Audited)

The interests of the non-executive directors in the ordinary shares of the company are set out below:

Name

Shares held

beneficially at

31 July 2023

Shares held

beneficially at

31 July 2022

Mike Biggs 3,500 1,500

Oliver Corbett – –

Peter Duffy 848 848

Sally Williams – –

Mark Pain – –

Bridget Macaskill

2,500 2,500

Lesley Jones

– –

Tesula Mohindra – –

Patricia Halliday – –

Tracey Graham 1,000 –

Kari Hale – –

1. Bridget Macaskill and Lesley Jones’s shareholding is at 17 November 2022, the date they retired as non-executive directors.

There were no changes in notifiable interests between 1 August 2023 and 11 September 2023.

This report was approved by the board of directors on 26 September 2023 and signed on its behalf by:

Tracey Graham

Chair of the Remuneration Committee

186 Governance Report

Directors’ Remuneration Policy

The Directors’ Remuneration Policy was approved by shareholders at the 2021 AGM on 18 November 2021. It is intended that

the policy will apply for three years up to the 2024 AGM, unless amendments are required, in which case further shareholder

approval will be sought.

The policy can be read in full on pages 100 to 110 of the 2021 Annual Report, which is available on our website at

www.closebrothers.com. A summary of the main elements of the Remuneration Policy is set out in the table below.

Information on how the Remuneration Policy will be applied in 2024 is included in the Annual Report on Remuneration section,

on pages 179 to 181.

Remuneration Policy for executive directors

Element and how it supports the

group’s short-term and long-term

strategic objectives Operation and maximum payable

Base salary

Attracts and retains high calibre

employees.

Reflects the individual’s role and experience and external factors, as applicable. Paid

monthly in cash. Increases will generally not exceed those for the broader employee

population unless there is a change in role, responsibility or the regulatory environment.

Performance framework, recovery and withholding: Not applicable.

Benefits

Enables the EDs to perform their

roles effectively by contributing

to their wellbeing and security.

Provides competitive benefits

consistent with the role.

Benefits may include private medical cover, health screening, life assurance,

income protection cover and an allowance in lieu of a company car. Other benefits

may also be provided in certain circumstances, such as relocation expenses.

Performance framework, recovery and withholding: Not applicable.

Pension

Provides an appropriate and

competitive level of personal and

dependant retirement benefits.

EDs receive a level of pension contribution (in the form of a cash allowance or

contribution to a pension arrangement) that is in line with the wider workforce.

Performance framework, recovery and withholding: Not applicable.

Annual bonus

Rewards good performance.

Motivates executives to support

the group’s goals, strategies and

values over both the medium

and long term.

Aligns the interests of senior

employees and executives with

those of key stakeholders,

including shareholders, and

increases retention for senior

employees, through the use

ofdeferrals.

60% of the annual bonus will usually be deferred into shares (in the form of nil cost

options or conditional awards) and will usually vest in equal tranches over three

years, subject to remaining in service. The remaining annual bonus will be delivered

immediately in cash. The annual bonus is capped at 95% of base salary. At the

Remuneration Committee’s discretion, dividend equivalents will usually be paid in

cash or additional shares when the deferred awards vest.

Performance framework, recovery and withholding: Individual bonuses are

determined based on both financial and non-financial performance measures in the

financial year, including adherence to relevant risk and control frameworks. At the

Remuneration Committee’s discretion, an element of the bonus may also be based

on personal performance. At least 60% of the annual bonus opportunity will be based

on financial performance. The non-financial element will be determined based on

performance measured against a balanced scorecard, including (but not limited to):

• strategic objectives; and/or

• people and customer metrics; and/or

• risk, conduct and compliance measures.

The Remuneration Committee has overriding discretion to adjust vesting outcomes

where it considers appropriate. The cash element is subject to clawback and the

deferred element is subject to malus and clawback conditions.

187Close Brothers Group plc Annual Report 2023

Directors’ Remuneration Report continued

Element and how it supports the

group’s short-term and long-term

strategic objectives Operation and maximum payable

Long-Term Incentive Plan

Motivates executives toachieve

the group’s longer-term strategic

objectives and aligns their

interests with those of

shareholders.

Aids the attraction and retention

of key staff.

Awards are made in the form of nil cost options or conditional awards and usually

vest after three years subject to achieving performance conditions and remaining in

service. On vesting, awards will usually be subject to a further two-year post-

vesting retention period before options can be exercised by, or conditional awards

paid to, EDs. EDs are eligible to receive an annual award of shares with a face

value of up to 125% of base salary, excluding dividend equivalents.

Performance framework, recovery and withholding: Individual awards vest based

on performance against both financial and non-financial performance measures. At

least 70% of the award will be based on performance against financial measures.

The remainder will be based on non-financial performance. The Remuneration

Committee has overriding discretion to adjust vesting outcomes where it considers

appropriate. LTIP awards are subject to malus and clawback provisions.

Shareholding requirement

Aligns the interests ofexecutives

with those ofshareholders.

EDs are expected to build and maintain a holding of company shares equal

to at least 200% of base salary. EDs will normally be expected to maintain a

minimum shareholding of 200% of base salary for the first two years after stepping

down as an ED.

Performance framework, recovery and withholding: Not applicable.

Other

The group will pay legal, training and other reasonable and appropriate fees,

including any relevant tax liabilities, incurred by the EDs as a result of doing their

job. The EDs are also permitted to participate in the group-wide Save As You Earn

schemes and Share Incentive Plan.

Legacy arrangements

Share awards granted under the previous Remuneration Policy will continue to vest

and be released on their usual timescales. These awards to executive directors are

also subject to a three-year performance period and usually post-vesting to a

two-year retention period.

Additional details on the

directors’ Remuneration Policy

The Remuneration Committee has discretion to amend performance conditions in

appropriate circumstances, provided that the performance condition is not made

either materially easier or materially more difficult to achieve. The Remuneration

Committee also has discretion to adjust vesting outcomes where it considers the

application of formulaic performance conditions to be inappropriate. The Remuneration

Committee may make minor amendments to this Policy (for regulatory, exchange

control, tax or administrative purposes, to correct clerical errors or to take account

of a change in legislation) without obtaining shareholder approval for that amendment.

Rationale for choice of

performance conditions

The Remuneration Committee selects financial and non-financial performance

measures that strengthen the alignment of the remuneration arrangements to the

business model and the interests of our shareholders. The Remuneration

Committee believes the current combination of metrics provides a good balance

between financial and non-financial measures, and supports the medium and

long-term strategic objectives of the group.

Malus and clawback

Malus and clawback provisions apply to the variable pay that can be earned by

executive directors. The specific circumstances in which malus and clawback can

be applied are set out in our full Policy on pages 105 and 106 of the 2021 Annual

Report, which is available on our website.

Dates of Executive Directors’ service contracts

Date Date of service contract

Adrian Sainsbury 1 May 2020

Mike Morgan 15 November 2018

188 Governance Report

Consideration of shareholders’ and employees’views

The chairman of the board consults our major shareholders

on a regular basis on key issues, including remuneration.

Aformal consultation exercise was undertaken during 2021

with our major shareholders and shareholder advisory bodies

as part of the process of reviewing this Policy.

The pay and terms and conditions of employment of

employees within the group are taken into consideration

when setting the Directors’ Remuneration Policy and pay

ofthe EDs. The Remuneration Committee does not formally

consult with employees when setting the Policy, although

theemployee opinion survey conducted every year includes

remuneration as one of the topics surveyed.

The Remuneration Committee also receives feedback from

engagement with, and communication to, employees on

matters relating to remuneration issues, which it uses to

inform its broader approach to remuneration, including with

respect to the alignment between executive remuneration

and the approach to compensation for employees across the

group. At each scheduled meeting, the Remuneration

Committee reviews a “Remuneration Dashboard” containing

metrics, analysis and other information, which the Remuneration

Committee uses as part of its decision-making, including

aspart of the annual compensation process. It covers a

widerange of areas throughout the year, such as workforce

demographics, pay and reward at different levels across

thegroup, gender pay and SAYE participation.

Remuneration Policy for the chairman and non-executive directors

Element and how it supports the

group’s short-term and long-term

strategic objectives Operation and maximum payable

Fees

Attract and retain a chairman and

independent non-executive

directors who have the requisite

skills and experience to determine

the strategy of the group and

oversee its implementation.

• Fees are paid in cash and are reviewed periodically.

• Fees for the chairman and non-executive directors are set by the board.

Thenon-executive directors do not participate in decisions to set their

ownremuneration.

• The chairman of the board receives a fee as chairman but receives no other fees

for chairmanship or membership of any committees.

• Non-executive directors receive a base fee.

• The senior independent director receives an additional fee for this role.

• Additional fees are paid for chairmanship of each of the Audit, Remuneration and

Risk Committees. Additional fees are paid for membership of committees, with

the exception of the Nomination and Governance Committee, for which no

additional fees are payable.

• Additional fees may be payable for other additional board responsibilities and/or

time commitments. The chairman and non-executive directors are entitled to

claim reimbursement for reasonable expenses and associated tax liabilities

incurred in connection with the performance of their duties for the company,

including travel expenses.

• Overall aggregate fees will remain within the £1.25 million authorised by our

articles of association. There is no performance framework, recovery or withholding.

Non-executive directors’ appointment letters

Name Date of appointment Current letter of appointment start date

Mike Biggs 14 March 2017 21 September 2020

Oliver Corbett 3 June 2014 17 November 2022

Peter Duffy 1 January 2019 17 November 2022

Sally Williams 1 January 2020 17 November 2022

Mark Pain 1 January 2021 1 January 2021

Tesula Mohindra 15 July 2021 15 July 2021

Patricia Halliday 1 August 2021 17 November 2022

Tracey Graham 22 March 2022 17 November 2022

Kari Hale 28 June 2023 28 June 2023

189Close Brothers Group plc Annual Report 2023

Directors’ Report

The directors of the company present their report for the year

ended 31 July 2023.

The Strategic Report set out on pages 1 to 133 of this Annual

Report, together with the Corporate Governance Report, the

reports of the committees and the Directors’ Remuneration

Report set out on pages 167 to 189 of this Annual Report,

include information that would otherwise need to be included

in this Directors’ Report. Readers are also referred to the

cautionary statement on page 259 of this Annual Report.

Disclosures by Reference

Additional information, which is incorporated into this Directors’

Report by reference, including information required by the

Companies Act 2006, Disclosure and Transparency Rule 7.2,

and Listing Rule 9.8.4R, can be located by page reference

elsewhere in this Annual Report as follows:

Content Page reference

Strategic Report

Business activities 4

Likely future developments 20 to 25

Business relationships 35 to 37

Employment, human rights and environmental matters

Assessing and monitoring culture 30 to 31

Employment practices and approach to

disabled employees 55 to 60

Employee engagement 35 and 57

Approach to diversity and inclusion 56 to 60

Investing in and rewarding the workforce 57

Charitable donations 61

Greenhouse gas emissions 49 to 51

Climate-related financial disclosures 51

Directors

Biographical details 138 to 140

Powers and appointment 144 and 190

Induction and continuing

professionaldevelopment 149

Agreements for loss of office 184

Remuneration, including waiver ofemoluments 169 to 189

Contracts or service agreements 188 to 189

Interests in share capital 186

Miscellaneous

Section 172 statement 34

Going concern 131

Viability statement 132

Corporate governance statement 134 and 142

Risk management objectives and policies 83 to 130

Credit, market and liquidity risks 102 to 124 and

129 to 130

Financial instruments

Note 13

on pages 229

to 231

Shareholder dividend waivers 192

Results and Dividends

The consolidated results for the year are shown on page 204

of the financial statements. The directors recommend a final

dividend for the year of 45.0p (2022: 44.0p) on each ordinary

share which, together with the interim dividend of 22.5p

(2022: 22.0p) paid in April 2023, makes an ordinary

distribution for the year of 67.5p (2022: 66.0p) per share.

The final dividend, if approved by shareholders at the 2023

Annual General Meeting (“AGM”), will be paid on

24 November 2023 to shareholders on the register on

20 October 2023.

Further information on the final dividend recommended

by the directors can be found on page 68 of this

Annual Report.

Directors

The names of the directors of the company at the date of this

report, together with biographical details, are given on pages

138 to 140 of this Annual Report. All the directors listed on

those pages were directors of the company throughout the

year, apart from Kari Hale, who was appointed as a director

on 28 June 2023.

In accordance with the UK Corporate Governance Code, the

board proposes the election of Kari Hale to the board at the

upcoming AGM. All other serving directors will retire at the

2023 AGM and offer themselves for re-election at that

meeting, with the exception of Oliver Corbett who has served

nine years and will retire from the board at the conclusion of

the AGM.

Appointment and Removal of Directors

The appointment and removal of directors is governed by the

company’s articles of association, the Companies Act 2006

and other applicable regulations and policies. Directors may

be elected by shareholders in a general meeting or

appointed by the board of directors in accordance with the

provisions of the articles of association. The company’s

articles of association may only be amended by a special

resolution of the shareholders in a general meeting.

Directors’ Indemnities and Insurance

In accordance with its articles of association, the company

has granted a deed of indemnity to each of its directors on

terms consistent with the applicable statutory provisions.

The deeds indemnify the directors in respect of liabilities

(and associated costs and expenses) incurred in connection

with the performance of their duties as directors of the

company or any associated company. Qualifying third-party

indemnity provisions for the purposes of section 234 of the

Companies Act 2006 were accordingly in force during the

course of the year, and remain in force at the date of this

Annual Report.

The company also maintains directors’ and officers’

liabilityinsurance.

190 Governance Report

Share Capital

The company’s share capital comprises one class of ordinary

share with a nominal value of 25p per share.

At 31 July 2023, 152,060,290 ordinary shares were in issue,

of which 1,601,475 were held by the company in treasury.

Under section 551 of the Companies Act 2006, the directors

may allot equity securities only with the express authorisation

of shareholders which may be given in general meeting, but

which cannot last more than five years. Under section 561 of

the Companies Act, the board may not allot shares for cash

(otherwise than pursuant to an employee share scheme)

without first making an offer to existing shareholders to allot

such shares to them on the same or more favourable terms

in proportion to their respective shareholdings, unless this

requirement is waived by a special resolution of the

shareholders.

Details of directors’ authorities approved by shareholders at

the 2022 AGM can be found in the 2022 Notice of AGM and

subsequent results announcement.

Since the date of the company’s 2022 AGM, with the

exception of the authority to make market purchases, the

directors have not used these authorities. Details of market

purchases of the company’s ordinary shares during the year

can be found in the purchase of own shares section below.

The existing authorities to allot and purchase shares given to

the company at the last AGM will expire at the conclusion of

the forthcoming AGM. At this AGM, shareholders will be asked

to renew these authorities. Details of the relevant resolutions

to be proposed will be included in the Notice ofAGM.

New Issues of Share Capital

No ordinary shares were allotted or issued during the year.

Specifically, no ordinary shares were allotted or issued

during the year to satisfy option exercises. Full details of

options exercised, the weighted average option exercise

price and the weighted average market price at the date of

exercise can be found in note 24 on pages 241 to 242 of the

financial statements.

Rights Attaching to Shares

The company’s articles of association set out the rights and

obligations attaching to the company’s ordinary shares. All of

the ordinary shares rank equally in all respects.

On a show of hands, each member has the right to one vote

at general meetings of the company. On a poll, each member

would be entitled to one vote for every share held. The

shares carry no rights to fixed income. No person has any

special rights of control over the company’s share capital

and all shares are fully paid.

The articles of association and applicable legislation provide

that the company can decide to restrict the rights attaching

to ordinary shares in certain circumstances (such as the right

to attend or vote at a shareholders’ meeting), including

where a person has failed to comply with a notice issued by

the company under section 793 of the Companies Act 2006.

Restrictions on the Transfer of Shares

There are no specific restrictions on the transfer of the

company’s shares which are governed by the general

provisions of the articles of association and prevailing

legislation. The articles of association set out certain

circumstances in which the directors of the company can

refuse to register a transfer of ordinary shares.

The company is not aware of any arrangements between its

shareholders that may result in restrictions on the transfer of

shares and/or voting rights.

Directors and employees of the group are required to comply

with applicable legislation relating to dealing in the

company’s shares as well as the company’s share dealing

rules. These rules restrict employees’ and directors’ ability to

deal in ordinary shares at certain times, and require the

employee or director to obtain permission prior to dealing.

Some of the group’s employee share plans also contain

restrictions on the transfer of shares held within those plans.

Purchase of Own Shares

Under section 724 of the Companies Act 2006, a company

may purchase its own shares to be held in treasury

(“Treasury Shares”).

The existing authority given to the company at the last AGM

to purchase Treasury Shares of up to 10% of its issued

share capital will expire at the conclusion of the next AGM.

The board considers it would be appropriate to renew this

authority and intends to seek shareholder approval to

purchase Treasury Shares of up to 10% of its issued share

capital at the forthcoming AGM in line with current investor

sentiment. Details of the resolution renewing the authority

will be included in the Notice of AGM.

Awards under the company’s employee share plans are met

from shares purchased in the market (and held either in

treasury or in the employee share trust).

During the year, the company made market purchases of

100,000 Treasury Shares with an aggregate nominal value of

£25,000 and representing 0.07% of its issued share capital,

for an aggregate consideration of £1.1 million. It transferred

103,625 shares out of treasury to satisfy share option

awards, with an aggregate nominal value of £25,906 and

representing 0.07% of the company’s issued share capital,

for a total consideration of £0.9 million.

At 31 July 2023, the company held 1,601,475 Treasury

Shares with a nominal value of £0.4 million and representing

1.05% of its issued share capital. The maximum number of

Treasury Shares held at any time during the year was

1,699,578, with a nominal value of £0.4 million and

representing 1.12% of its issued share capital.

191Close Brothers Group plc Annual Report 2023

Significant Shareholdings

The table below sets out details of the interests in voting

rights notified to the company under the provisions of the

Financial Conduct Authority’s Disclosure Guidance and

Transparency Rules. Information provided by the company

pursuant to the Disclosure Guidance and Transparency

Rules is publicly available via the regulatory information

services and on the company’s website.

19 September 2023

Voting rights

31 July 2023

Voting rights

abrdn plc 11.67% 11.67%

FIL Limited 5.06% 5.06%

Royal London Asset

Management 4.99% 4.99%

BlackRock, Inc. 4.95% 5.13%

M&G plc 4.83% 4.83%

Substantial shareholders do not have different voting rights

from those of other shareholders.

Employee Share Trust

Ocorian Trustees (Jersey) Limited is the trustee of the Close

Brothers Group Employee Share Trust, an independent trust

which holds shares for the benefit of employees and former

employees of the group. The trustee will only vote on those

shares in accordance with the instructions given to the

trustee and in accordance with the terms of the trust deed.

The trustee has agreed to satisfy a number of awards under

the employee share plans. As part of these arrangements the

company funds the trust from time to time, to enable the

trustee to acquire shares to satisfy these awards, details of

which are set out in note 24 on pages 241 to 242 of the

financial statements. The trustee has waived its right to

dividends on all shares held within the trust.

During the year, the Close Brothers Group Employee Share

Trust made market purchases of 410,803 ordinary shares.

Auditor

PricewaterhouseCoopers LLP (“PwC”) has expressed its

willingness to continue in office as the company’s external

auditor. Resolutions to reappoint PwC and to determine its

remuneration will be proposed at the forthcoming AGM.

Thefull text of the relevant resolutions will be set out in the

Notice of AGM.

Significant Agreements Affected by a Change

of Control

A change of control of the company, following a takeover

bid, may cause a number of agreements to which the

company is a party to take effect, alter or terminate. These

include certain insurance policies, bank facility agreements

and employee share plan rules.

The group had committed facilities totalling £1.75 billion at

31 July 2023 which contain clauses requiring lender consent

for any change of control. Should consent not be given, a

change of control would trigger mandatory repayment of

those facilities.

All of the company’s employee share plan rules contain

provisions relating to a change of control. Outstanding

awards and options may vest and become exercisable

on a change of control, subject, where applicable, to the

satisfaction of any performance conditions at that time and

pro-rating of awards.

Research and Development Activities

During the normal course of business, the group continues

to invest in new technology and systems and to develop new

products and services to improve operating efficiency and

strengthen its customer proposition.

Post-Balance Sheet Events

There were no material post-balance sheet events.

Political Donations

No political donations were made during the year (2022: £nil).

Branches

The company has no branches outside the UK.

Disclosure of Information to the Auditor

Each of the persons who are directors at the date of

approval of this Annual Report confirms that: so far as the

director is aware, there is no relevant audit information of

which the company’s auditor is unaware; and they have

taken all the reasonable steps that they ought to have taken

as a director in order to make themselves aware of any

relevant audit information and to establish that the

company’s auditor is aware of that information.

This confirmation is given and should be interpreted in

accordance with the provisions of section 418 of the

Companies Act 2006.

The Directors’ Report has been approved by the board and

signed by order of the board by:

Sarah Peazer-Davies

Company Secretary

26 September 2023

Directors’ Report continued

192 Governance Report

Statement of Directors’ Responsibilities in

Respect of the Financial Statements

The directors, whose names and functions are listed on

pages 138 to 140, are responsible for preparing the Annual

Report and the financial statements in accordance with

applicable law and regulation.

Company law requires the directors to prepare financial

statements for each financial year. Under that law the

directors have prepared the group financial statements in

accordance with UK-adopted international accounting

standards and the company financial statements in

accordance with United Kingdom Generally Accepted

Accounting Practice (United Kingdom Accounting Standards,

comprising FRS 102 “The Financial Reporting Standard

applicable in the UK and Republic of Ireland”, and

applicablelaw).

Under company law, directors must not approve the financial

statements unless they are satisfied that they give a true and

fair view of the state of affairs of the group and company and

of the profit or loss of the group and the company for that

period. In preparing the financial statements, the directors

are required to:

• select suitable accounting policies and then apply them

consistently;

• state whether applicable UK-adopted international

accounting standards have been followed for the group

financial statements, and United Kingdom Accounting

Standards comprising FRS 102 have been followed

for the company financial statements, subject to any

material departures disclosed and explained in the

financial statements;

• make judgements and accounting estimates that are

reasonable and prudent; and

• prepare the group and company financial statements on

the going concern basis unless it is inappropriate to

presume that the group and company will continue

inbusiness.

The directors are responsible for safeguarding the assets of

the group and company and hence for taking reasonable

steps for the prevention and detection of fraud and

otherirregularities.

The directors are also responsible for keeping adequate

accounting records that are sufficient to show and explain

the group’s and company’s transactions and disclose with

reasonable accuracy at any time the financial position of the

group and company and enable them to ensure that the

financial statements and the Directors’ Remuneration Report

comply with the Companies Act 2006.

The directors are responsible for the maintenance and

integrity of the corporate and financial information included

on the company’s website. Legislation in the United Kingdom

governing the preparation and dissemination of financial

statements may differ from legislation in other jurisdictions.

Directors’ Confirmations

Each of the current directors, whose names and functions

are listed on pages 138 to 140, confirms that, to the best of

his or her knowledge:

• the group financial statements, which have been prepared

in accordance with UK-adopted international accounting

standards give a true and fair view of the assets, liabilities,

financial position and profit of the group;

• the company financial statements, which have been prepared

in accordance with United Kingdom Accounting Standards

comprising FRS 102, give a true and fair view of the assets,

liabilities, financial position and profit of the company;

• the Strategic Report, together with the Directors’ Report

and the Corporate Governance Report, includes a fair

review of the development and 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; and

• the Annual Report and financial statements, taken as a

whole, are fair, balanced and understandable and provide

the information necessary for shareholders to assess the

group’s and company’s position and performance,

business model and strategy.

Signed on behalf of the board by:

Adrian Sainsbury Mike Morgan

Chief Executive Group Finance Director

26 September 2023

193Close Brothers Group plc Annual Report 2023

Independent Auditors’ Report to the Members of

Close Brothers Group plc

Report on the audit of the financial statements

Opinion

In our opinion:

• Close Brothers Group plc’s group financial statements and parent company financial statements (the “financial statements”)

give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 July 2023 and of the group’s

profit and the group’s cash flows for the year then ended;

• the group financial statements have been properly prepared in accordance with UK-adopted international accounting

standards as applied in accordance with the provisions of the Companies Act 2006;

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally

Accepted Accounting Practice (United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting

Standard applicable in the UK and Republic of Ireland”, and applicable law); and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and company

balance sheets as at 31 July 2023; the consolidated income statement, the consolidated statement of comprehensive income,

the consolidated cash flow statement, and the consolidated and company statements of changes in equity 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 5, we have provided no non-audit services to the parent company or its controlled

undertakings in the period under audit.

Our Audit Approach

Overview

Audit scope

• The scope of our audit and the nature, timing and extent of audit procedures performed were determined by our risk

assessment, the financial significance of components and other qualitative factors (including history of misstatement through

fraud or error).

• We performed audit procedures over components considered financially significant in the context of the group (full scope

audit) or in the context of individual primary statement account balances (audit of specific account balances).

• We performed other procedures including analytical review procedures to mitigate the risk of material misstatement in the

residual components.

Key audit matters

• Determination of expected credit losses on loans and advances to customers (group)

• Impairment assessment of goodwill held in relation to Winterflood Securities (group)

• Impairment assessment of investment in subsidiaries (parent company)

Materiality

• Overall group materiality: £11.6m (2022: £11.6m) based on 5% of average adjusted profit before tax of the past 3 years

(2022: 5% of profit before tax).

• Overall parent company materiality: £12.8m (2022: £11.1m) based on 1% of Total Assets.

• Performance materiality: £8.7m (2022: £8.7m) (group) and £9.6m (2022: £8.3m) (parent company).

194 Financial Statements

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.

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 impairment assessment of goodwill held in relation to Winterflood Securities is a new key audit matter this year. Otherwise,

the key audit matters below are consistent with last year.

Key audit matter How our audit addressed the key audit matter

Determination of expected credit losses (“ECL”) on

loans and advances to customers (group)

s at 31 July 2023, the Group has gross loans and advances

to customers of £9,635.6m, with ECL provisions of £380.6m

held against them.

The determination of ECL provisions is inherently

udgemental and involves setting assumptions using forward

looking information reflecting the Group’s view of potential

future economic events. This can give rise to increased

estimation uncertainty.

There continues to be uncertainty in the determination of

ECL provisions, including assessing how a high inflation

environment coupled with high interest rates, falling real

estate values and other economic developments may impact

the credit performance of the lending book.

The Group has initiated formal legal action against one

of the After the Event (“ATE”) insurers in relation to the

failed cases of the Novitas Loans business. This has resulted

in a significant change to the model methodology in the

current year however this remains subjective and the

ECL is sensitive to potential outcomes and estimated time

to recovery.

Models are used to collectively assess and determine

ECL allowances on loans and advances. We consider the

following elements of the determination of modelled ECL

to be significant:

• The application of forward-looking economic scenarios used in

the models and the weightings assigned to those scenarios;

• The sufficiency and completeness of post-model

adjustments that are recorded to take into account

economic risks not captured by the models;

• In respect of the Novitas portfolio, the appropriateness of

assumptions used in the determination of the recoveries

from insurers and the estimated time to recover; and

• The Loss Given Default (“LGD”) component for the Asset

Finance business, given that the LGD model was developed

over a period with more benign macroeconomic conditions

than the expected conditions over the forecast period.

With the support of our credit risk modelling specialists and

economics experts, we performed the following procedures:

For collectively assessed ECL provisions:

• We understood and critically assessed the

appropriateness of the ECL accounting policy and model

methodologies used by management;

• We independently replicated ECL models for the Asset

Finance and Motor Finance businesses, using

managementʼs model methodology and assumptions;

• We tested model performance through review and

replication of key model monitoring tests. We assessed the

performance of key model elements, including LGD, and

considered if they indicated that the models continued to

perform appropriately or if any post-model adjustments

were required;

• We critically assessed the reasonableness of managementʼs

selected economic scenarios and associated scenario

weightings, giving specific consideration to current

and future economic uncertainty. We assessed their

reasonableness against known or likely economic events

including relating to UK economic uncertainty;

• We compared the severity and magnitude of the

assumptions used in the base scenario to external

forecasts and historic trends;

• Based on our knowledge and understanding of the

limitations in managementʼs models and emerging industry

risks, we evaluated the completeness and sufficiency of

the post model adjustments proposed by management;

• We evaluated the LGD model performance for the Asset

Finance business and the sufficiency of the extent to

which LGD is impacted by macroeconomic factors; and

• We evaluated managementʼs model used to derive the

Novitas Loans ECL and critically assessed the

assumptions for time to recover and recovery rate.

We met with management's external legal counsel to

corroborate assumptions.

195Close Brothers Group plc Annual Report 2023

Independent Auditors’ Report to the Members of

Close Brothers Group plc continued

Key audit matter How our audit addressed the key audit matter

ECL provisions on individually large exposures to

counterparties who are in default at the reporting date,

are estimated on an individual basis. We consider that only

the individually assessed loans of the Property business

constitute a significant risk in the current year. The risk

relates to the assumptions made on the amount and timing

of the expected future cash flows under multiple, probability

weighted scenarios.

Relevant references:

• Note 2 - Critical accounting estimates and judgements;

and

• Note 10 - Loans and advances to customers.

Individually assessed provisions:

For a sample of individually assessed loans in default and

related ECL allowances in the Property business, we:

• Evaluated the basis on which the allowances were

determined and the evidence supporting the analysis

performed by management;

• Independently challenged whether the key assumptions

used, such as the recovery strategies, collateral values and

ranges of potential outcomes were appropriate given the

borrowerʼs circumstances;

• Re-performed managementʼs provision calculation,

critically assessing key inputs including expected future

cash flows, discount rates, valuations of collateral held

and the weightings applied to scenario outcomes; and

• Considered the extent to which the exposure is impacted

by economic conditions including high inflation and

interest rate levels and whether these factors had been

appropriately reflected in the ECL provision.

We tested and evaluated the reasonableness of relevant

disclosures made in the financial statements.

Based on the evidence obtained, we concluded

that the methodologies, modelled assumptions and

management judgements used in the determination

of collective and individually assessed expected credit

losses to be appropriate.

196 Financial Statements

Key audit matter How our audit addressed the key audit matter

Impairment assessment of goodwill held in relation to

Winterflood Securities (group)

The Group has a total goodwill balance of £94.6 million,

of which £23.3 million relates to the Winterflood Securities

(“Winterflood”).

Winterflood is considered a Cash Generating Unit (“CGU”) under

IAS36 Impairment of Assets which requires an annual impairment

assessment of the goodwill associated with each CGU.

Management performs this assessment by comparing the

present value of the future cash flows expected to the

generated by the business, with the current carrying value of

the CGU (including the goodwill associated with the CGU).

Winterfloods’ financial performance is largely driven by the

performance of the equity markets in which it operates and

levels of trading activity. Poor market conditions have

negatively impacted Winterflood’s financial performance in

the period, and there is a heightened uncertainty as to the

timing and extent of the recovery of the performance of

relevant equity markets and trading activity.

That uncertainty has increased the level of judgement in

management’s determination of the cash flows projected for

the next five years used in the annual impairment

assessment of the goodwill held in relation to Winterflood.

Relevant disclosure references:

• Note 2 - Critical accounting estimates and judgements;

and

• Note 14 - Intangible assets.

With the support of our valuation experts, we performed the

following audit procedures:

• We reviewed managementʼs five year cash flow forecasts

and critically assessed the reasonableness of underlying

assumptions based on our understanding of the business;

• We performed a look-back analysis comparing the cash flow

projections made in prior years to the actual results achieved to

assess the accuracy of the budgeting and forecasting process.

Where the projections differed materially to the actual results,

we inquired with management and assessed whether the

explanations were reasonable;

• We evaluated managementʼs forecast cash flows from

trading activity, including the use of historical daily

averages of trading volumes and related variable costs;

• In assessing the reasonableness of management

assumptions on the timing and the extent of market

recovery, we researched the expectation of future market

volumes (with input from equity market research and

economic experts), and developed alternative scenarios to

assess the impact of a range of outcomes on the forecast

trading revenues;

• We assessed the reasonableness of the non-trading

revenue; and

• Compared actual post year-end performance to that in

the forecasts.

In addition, we have performed the following tests of details,

amongst others:

• We obtained evidence of Board approval of the three year

plan and agreed these plans were appropriately reflected

in the cash flow forecasts;

• With support of our internal experts, we evaluated the

discount rate range determined by managementʼs expert;

• We verified the mathematical accuracy of the goodwill

impairment assessment, including the discounted cash

flow projections;

• We compared the long term growth rate used to the UK

long term inflation rate; and

• We verified the accounting policy and the adequacy of the

information disclosed in the consolidated annual accounts.

Based on the procedures performed we were satisfied with

management’s conclusion that the goodwill is not impaired.

Impairment assessment of investment in subsidiaries

(parent company)

The parent company holds an investment in a subsidiary

of £287.0m.

Identifying and measuring any impairment of the investment

is subjective.

Relevant disclosure references:

• Note 28 - Investments in subsidiaries

We tested management’s evaluation of impairment and are

satisfied that the investment in the subsidiary is not impaired.

197Close Brothers Group plc Annual Report 2023

Independent Auditors’ Report to the Members of

Close Brothers Group plc continued

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 parent company, the accounting processes and

controls, and the industry in which they operate.

We performed a risk assessment, giving consideration to relevant external and internal factors, including climate change,

economic risks, relevant accounting and regulatory developments, as well as the group’s strategy. We also considered our

knowledge and experience obtained in prior year audits. We continually assessed the risks and updated the scope of our audit

where necessary. 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 in the Sustainability Report, including their conclusion that there is

no material impact on the financial statements. In particular, we considered management’s assessment of the impact on ECL

on loans and advances to customers, being the financial statement line item we determined to be most likely to be impacted

by climate risk. Management’s assessment gave consideration to a number of matters, including the exposure of underlying

portfolios to transition risk. Management’s conclusion that there is no material impact is consistent with our audit findings.

The group is structured into three primary components being the Close Brothers Limited Group (also referred to as the Bank),

Winterflood Securities and Asset Management. The consolidated financial statements are a consolidation of these

components. The Bank is a subgroup of Retail, Commercial and Property business segments.

In establishing the overall approach to the group audit, we determined the type of work that is required to be performed over

the components by us, as the group engagement team, or auditors within the PwC network of firms operating under our

instruction (‘component auditors’). Where the work was performed by component auditors, 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 consolidated financial statements as a whole. This included regular

communication with the component auditors throughout the audit, the issuance of instructions, a review of the results of their

work on the key audit matters and formal clearance meetings. Any components which were considered individually financially

significant in the context of the group’s consolidated financial statements (defined as components which represent more than

or equal to 15% of the total profit before tax of the consolidated group) were considered full scope components. We

considered the individual financial significance of other components in relation to primary statement account balances. Our

scoping also considered the presence of any significant audit risks and other qualitative factors (including history of

misstatements through fraud or error). For our group audit, the Bank is the only financially significant component. Specific

account balances and disclosures were scoped in for Winterflood Securities and Asset Management based on their financial

significance and risk. Certain account balances were audited centrally by the group engagement team mainly where the

processes are centralised. The remaining balances and components, in our judgement, did not present a reasonable possibility

of a risk of material misstatement either individually or in aggregate. We performed other procedures such as tests of

information technology controls and group level analytical review procedures.

198 Financial Statements

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 - parent company

Overall materiality

£11.6m (2022: £11.6m). £12.8m (2022: £11.1m).

How we determined it

5% of average adjusted profit before tax

of the past 3 years (2022: 5% of profit

before tax)

1% of Total Assets.

Rationale for benchmark applied

Profit before tax (PBT) is a primary

measure used by the shareholders in

assessing the performance of the group

and is a generally accepted benchmark

for determining audit materiality. We

have decided to use three-year average

adjusted PBT to normalise the volatility

in the profits. In performing this

calculation, we adjusted the PBT to

remove the impact of significant one off

gains and losses in those periods,

including adding back the £90m ECL

charge related to Novitas in 2023.

We have selected total assets as an

appropriate benchmark for company

materiality, as it is an investment

holding company.

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 £2.65 million and £10.5 million. 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% (2022: 75%) of overall materiality, amounting to £8.7m

(2022: £8.7m) for the group financial statements and £9.6m (2022: £8.3m) for the parent company financial statements.

In determining 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

was appropriate.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.5m

(group audit) (2022: £0.5m) and £0.5m (parent company audit) (2022: £0.5m) as well as misstatements below those amounts

that, in our view, warranted reporting for qualitative reasons.

199Close Brothers Group plc Annual Report 2023

Independent Auditors’ Report to the Members of

Close Brothers Group plc continued

Conclusions Relating to Going Concern

Our evaluation of the directors’ assessment of the group's and the parent company’s ability to continue to adopt the going

concern basis of accounting included:

• A detailed risk assessment to identify factors that could impact the going concern basis of accounting, including both

internal risk (i.e strategy execution) and external risk (i.e macroeconomic risk in the UK including cost of living and banking

sector volatility);

• Understanding and evaluating the group’s financial forecasts, liquidity and capital position over the going concern period,

including consideration of whether the stress scenarios applied were appropriate for assessing going concern;

• Consideration of credit rating agency ratings and any actions by the agency; and

• Reading and evaluating the adequacy of the disclosures made in the financial statement in relation to going concern.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,

individually or collectively, may cast significant doubt on the group's and the parent company’s ability to continue as a going

concern for a period of at least twelve months from when the financial statements are authorised for issue.

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 parent 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 this report.

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. 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 of this other information, we are required to report that fact. We have nothing to report based

on these responsibilities.

With respect to the Strategic Report and Directors’ Report, 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 Directors’ Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and

Directors’ Report for the year ended 31 July 2023 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 parent company and their environment obtained in the course of

the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.

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.

200 Financial Statements

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 parent 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, included within the Corporate Governance Report 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 parent 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 parent 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 parent 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.

Our review of the directors’ statement regarding the longer-term viability of the group and parent company 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 parent 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 parent 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 parent

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 parent company’s ability

to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis

of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have

no realistic alternative but to do so.

201Close Brothers Group plc Annual Report 2023

Independent Auditors’ Report to the Members of

Close Brothers Group plc continued

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 breaches of laws and regulations principally those determined by the Prudential Regulatory Authority

(“PRA”) and the Financial Conduct Authority (“FCA”), 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, UK tax legislation and the Listing Rules of the FCA. 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 posting manual journal entries to manipulate

financial performance, management bias in the application of judgements and assumptions in significant accounting estimates

and significant one-off or unusual transactions. 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:

• Discussions with management and those charged with governance including consideration of known or suspected instances

of non-compliance with laws and regulation and fraud;

• Assessment of matters reported on the Groupʼs whistleblowing helpline and the results of managementʼs investigation of

such matters;

• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in

relation to the allowance for ECL;

• Identifying and testing any higher risk journal entries;

• Incorporating unpredictability into the nature, timing and/or extent of our testing; and

• Reviewing key correspondence with the FCA and PRA.

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.

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 parent 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.

202 Financial Statements

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 parent company, or returns adequate for our audit have not been

received from branches not visited by us; or

• certain disclosures of directorsʼ remuneration specified by law are not made; or

• the parent 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 17 May 2017 to audit the

financial statements for the year ended 31 July 2018 and subsequent financial periods. The period of total uninterrupted

engagement is 6 years, covering the years ended 31 July 2018 to 31 July 2023.

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.

Heather Varley (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

26 September 2023

203Close Brothers Group plc Annual Report 2023

Consolidated Income Statement

For the year ended 31 July 2023

Note

2023

million

2022

£ million

Interest income 4 897.5 690.0

Interest expense 4 (304.9) (112.0)

Net interest income 592.6 578.0

Fee and commission income 4 262.9 259.5

Fee and commission expense 4 (17.9) (17.2)

Gains less losses arising from dealing in securities 58.6 81.6

Other income 4 114.2 106.1

Depreciation of operating lease assets and other direct costs 15 (77.8) (71.9)

Non-interest income 340.0 358.1

Operating income 932.6 936.1

dministrative expenses 4 (615.0) (598.0)

Impairment losses on financial assets 10 (204.1) (103.3)

Total operating expenses before amortisation of intangible assets on acquisition (819.1) (701.3)

Operating proﬁt before amortisation of intangible assets on acquisition 113.5 234.8

mortisation of intangible assets on acquisition 14 (1.5) (2.0)

Operating proﬁt before tax 112.0 232.8

Tax 6 (30.9) (67.6)

Profit after tax 81.1 165.2

Profit attributable to shareholders 81.1 165.2

Basic earnings per share 7 54.3p 110.4p

Diluted earnings per share 7 54.2p 109.9p

Interim dividend per share paid 8 22.5p 22.0p

Final dividend per share 8 45.0p 44.0p

204 Financial Statements

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2023

2023

£ million

2022

£ million

Profit after tax 81.1 165.2

Items that may be reclassiﬁed to income statement

Currency translation gains/(losses) 0.7 (0.5)

Gains on cash flow hedging 17.6 30.6

Losses on financial instruments classified at fair value through other comprehensive income (3.9) (1.1)

Tax relating to items that may be reclassified (4.3) (7.9)

10.1 21.1

Items that will not be reclassiﬁed to income statement

Defined benefit pension scheme losses (5.7) (0.1)

Tax relating to items that will not be reclassified 1.6 0.3

(4.1) 0.2

Other comprehensive income, net of tax 6.0 21.3

Total comprehensive income 87.1 186.5

ttributable to

Shareholders 87.1 186.5

205Close Brothers Group plc Annual Report 2023

Consolidated Balance Sheet

At 31 July 2023

Note

31 July

2023

£ million

31 July

2022

£ million

ssets

Cash and balances at central banks 1,937.0 1,254.7

Settlement balances 707.0 799.3

Loans and advances to banks 9 330.3 165.4

Loans and advances to customers 10 9,255.0 8,858.9

Debt securities 11 307.6 612.8

Equity shares 12 29.3 28.4

Loans to money brokers against stock advanced 37.6 48.4

Derivative financial instruments 13 88.5 71.2

Intangible assets 14 263.7 252.0

Property, plant and equipment 15 357.1 322.5

Current tax assets 42.3 47.0

Deferred tax assets 6 10.8 32.5

Prepayments, accrued income and other assets 16 184.1 185.2

Total assets 13,550.3 12,678.3

Liabilities

Settlement balances and short positions 17 695.9 796.1

Deposits from banks 18 141.9 160.5

Deposits from customers 18 7,724.5 6,770.4

Loans and overdrafts from banks 18 651.9 622.7

Debt securities in issue 18 2,012.6 2,060.9

Loans from money brokers against stock advanced 4.8 –

Derivative financial instruments 13 195.9 89.2

ccruals, deferred income and other liabilities 16 303.0 334.5

Subordinated loan capital 19 174.9 186.5

Total liabilities 11,905.4 11,020.8

Equity

Called up share capital 20 38.0 38.0

Retained earnings 1,608.5 1,628.4

Other reserves (1.6) (8.9)

Total shareholders’ equity 1,644.9 1,657.5

Total equity 1,644.9 1,657.5

Total equity and liabilities 13,550.3 12,678.3

The consolidated financial statements were approved and authorised for issue by the board of directors on 26 September

2023 and signed on its behalf by:

Michael N. Biggs

Chairman

drian J. Sainsbur

Chief Executive

Registered number: 520241

206 Financial Statements

Consolidated Statement of Changes in Equity

For the year ended 31 July 2023

Other reserves

Called up

share capital

£ million

Retained

earnings

£ million

FVOCI

reserve

£ million

Share-

based

payments

reserve

£ million

Exchange

movements

reserve

£ million

Cash flow

hedging

reserve

£ million

Total

attributable to

equity holders

£ million

Non-

controlling

interests

£ million

Total

equity

£ million

t 1 August 2021 38.0 1,555.5 0.8 (22.4) (1.3) (0.3) 1,570.3 (1.0) 1,569.3

Profit for the year – 165.2 – – – – 165.2 – 165.2

Other comprehensive

income/(expense) – 0.2 (0.7) – (0.2) 22.0 21.3 – 21.3

Total comprehensive

income for the year – 165.4 (0.7) – (0.2) 22.0 186.5 – 186.5

Dividends paid (note 8) – (95.5) – – – – (95.5) – (95.5)

Shares purchased – – – (9.5) – – (9.5) – (9.5)

Shares released – – – 4.9 – – 4.9 – 4.9

Other movements – 4.1 – (2.2) – – 1.9 1.0 2.9

Income tax – (1.1) – – – – (1.1) – (1.1)

t 31 July 2022 38.0 1,628.4 0.1 (29.2) (1.5) 21.7 1,657.5 – 1,657.5

Profit for the year – 81.1 – – – – 81.1 – 81.1

Other comprehensive

(expense)/income – (4.1) (2.8) – 0.2 12.7 6.0 – 6.0

Total comprehensive

income for the year – 77.0 (2.8) – 0.2 12.7 87.1 – 87.1

Dividends paid (note 8) – (99.1) – – – – (99.1) – (99.1)

Shares purchased – – – (5.0) – – (5.0) – (5.0)

Shares released – – – 5.6 – – 5.6 – 5.6

Other movements – 2.3 – (3.4) – – (1.1) – (1.1)

Income tax – (0.1) – – – – (0.1) – (0.1)

t 31 July 2023 38.0 1,608.5 (2.7) (32.0) (1.3) 34.4 1,644.9 – 1,644.9

207Close Brothers Group plc Annual Report 2023

Consolidated Cash Flow Statement

For the year ended 31 July 2023

Note

2023

£ million

2022

£ million

Net cash inﬂow from operating activities 25(a) 1,021.4 158.7

Net cash (outﬂow)/inﬂow from investing activities

Purchase of:

Property, plant and equipment (8.7) (7.1)

Intangible assets – software (53.2) (51.3)

Subsidiaries 25(b) (0.5) (0.1)

Sale of:

Subsidiaries 25(c) – 0.1

(62.4) (58.4)

Net cash inﬂow before ﬁnancing activities 959.0 100.3

Financing activities

Purchase of own shares for employee share award schemes (5.0) (9.5)

Equity dividends paid (99.1) (95.5)

Interest paid on subordinated loan capital and debt financing (10.9) (10.4)

Payment of lease liabilities (16.2) (15.1)

Issuance of senior bond 248.5 –

Redemption of senior bond (250.0) –

Redemption of subordinated loan capital – (23.4)

Net increase/(decrease) in cash 826.3 (53.6)

Cash and cash equivalents at beginning of year 1,383.0 1,436.6

Cash and cash equivalents at end of year 25(d) 2,209.3 1,383.0

208 Financial Statements

Company Balance Sheet

At 31 July 2023

Note

31 July

2023

£ million

31 July

2022

£ million

Fixed assets

Intangible assets 14 – –

Property, plant and equipment 15 8.9 10.2

Investment in subsidiary 28 287.0 287.0

295.9 297.2

Current assets

mounts owed by subsidiaries due within one yea

567.8 590.1

mounts owed by subsidiaries due after more than one yea

201.9 201.1

Corporation tax receivable 1.5 3.3

Deferred tax asset 6 0.4 –

Other debtors 2.1 13.6

Cash at bank 3.5 1.9

777.2 810.0

Creditors: Amounts falling due within one year

Debt securities in issue 18 2.5 251.5

Subordinated loan capital 19 1.5 1.6

Provisions 16 0.7 1.4

Deferred tax liability 6 – 0.2

Other creditors 1.8 1.0

ccruals 9.6 8.3

16.1 264.0

Net current assets 761.1 546.0

Total assets less current liabilities 1,057.0 843.2

Creditors: Amounts falling due after more than one year

Debt securities in issue 18 248.0 –

Subordinated loan capital 19 198.9 198.5

Provisions 16 1.7 2.0

Net assets 608.4 642.7

Capital and reserves

Called up share capital 20 38.0 38.0

Profit and loss account 602.4 633.9

Other reserves (32.0) (29.2)

Total shareholders’ funds 608.4 642.7

1. Restated – see note 1(b).

The company reported a profit for the financial year ended 31 July 2023 of £70.6 million (2022: £116.0 million).

The company financial statements were approved and authorised for issue by the board of directors on 26 September 2023

and signed on its behalf by:

Michael N. Biggs

Chairman

drian J. Sainsbur

Chief Executive

209Close Brothers Group plc Annual Report 2023

Company Statement of Changes in Equity

For the year ended 31 July 2023

Other

reserves

Share capital

£ million

Profit

and loss

account

£ million

Share-based

payments

reserve

£ million

Total

shareholders’

funds

£ million

t 1 August 2021 38.0 608.5 (22.4) 624.1

Profit for the year – 116.0 – 116.0

Other comprehensive income – 0.2 – 0.2

Total comprehensive income for the year – 116.2 – 116.2

Dividends paid (note 8) – (95.5) – (95.5)

Shares purchased – – (9.5) (9.5)

Shares released – – 4.9 4.9

Other movements – 4.7 (2.2) 2.5

t 31 July 2022 38.0 633.9 (29.2) 642.7

Profit for the year – 70.6 – 70.6

Other comprehensive income – (4.1) – (4.1)

Total comprehensive income for the year – 66.5 – 66.5

Dividends paid (note 8) – (99.1) – (99.1)

Shares purchased – – (5.0) (5.0)

Shares released – – 5.6 5.6

Other movements – 1.1 (3.4) (2.3)

t 31 July 2023 38.0 602.4 (32.0) 608.4

210 Financial Statements

The Notes

1. Significant Accounting Policies

(a) Reporting entity

Close Brothers Group plc (“the company”), a public limited

company by shares incorporated and domiciled in the UK

(England), together with its subsidiaries (collectively, “the

group”), operates through five (2022: five) operating

segments: Commercial, Retail, Property, Asset Management

and Securities, and is primarily located within the UK.

(b) Basis of preparation

The audited consolidated financial statements have been

prepared in accordance with UK-adopted International

Accounting Standards (“IAS”).

The company financial statements have been prepared in

compliance with United Kingdom Accounting Standards,

including Financial Reporting Standard 102 ‘‘The Financial

Reporting Standard applicable in the United Kingdom and

the Republic of Ireland’’ (‘‘FRS 102’’) and the Companies Act

2006, under the provision of the Large and Medium-sized

Companies and Groups (Accounts and Financial

Instruments: Recognition and Measurement Reports)

Regulations 2008 (SI 2008/410).

As permitted by FRS 102, the company has chosen to adopt

IFRS 9 Financial Instruments where applicable and taken

advantage of the disclosure exemptions available under that

standard in relation to the presentation of a cash flow

statement, share-based payments and related party

transactions. Where required, equivalent disclosures are

given in the consolidated financial statements of the group.

The company has also taken advantage of the exemption in

section 408 of the Companies Act 2006 not to present its

company income statement and related notes.

Where relevant, the accounting policies of the company are

the same as those of the group set out in this note except for

(l) Leases. For the company, rental costs under operating

leases are charged to the income statement in equal

instalments over the period of the lease.

The consolidated and company financial statements have

been prepared on a going concern basis and under the

historical cost convention, except for financial assets

and liabilities held at fair value through profit or loss and

financial assets held at fair value through other

comprehensive income.

The prior year company balance sheet has been restated to

correct a misstatement relating to the maturity of the

company’s senior bond issuance and an associated

intragroup transaction. An amount of £139.7 million has been

transferred from ‘Amounts owed by subsidiaries due after

more than one year’ to ‘within one year’, resulting in an

increase in the ‘within one year’ balance to £590.1 million. In

addition, an amount of £249.7 million has been transferred

from ‘Debt securities in issue falling due after more than one

year’ to ‘within one year’, resulting in an increase in the

‘within one year’ balance to £251.5 million.

Standards adopted during the year

The accounting policies applied this financial year are set out

in this note and are consistent with those of the previous

financial year.

Finance (No.2) Act 2023 was substantively enacted in June

2023, and introduced the Pillar Two global minimum tax rate

of 15% and a UK domestic minimum top-up tax with effect

from 1 January 2024. The group has adopted the IAS 12

exception from recognition and disclosure regarding the

impact on deferred tax assets and liabilities arising from this

legislation. The company has adopted the same exception

under FRS 102.

Future accounting developments

IFRS 17 Insurance Contracts and minor amendments to

IFRSs issued by the IASB are effective for the group from

1 August 2023. These changes are expected to have no or

an immaterial impact on the group.

(d) Consolidation and investment in subsidiary

Subsidiaries

Subsidiaries are all entities over which the group has control.

The group controls an entity when it is exposed to, or has

rights to, variable returns from its involvement with the entity

and has the ability to affect those returns through its power

over the entity. Such power generally accompanies a

shareholding of more than one half of the voting rights.

Subsidiaries are fully consolidated from the date on

which the group effectively obtains control. They are

de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for

the acquisition of subsidiaries. Under the acquisition method

of accounting, with some limited exceptions, the assets,

liabilities and contingent liabilities of a subsidiary are

measured at their fair values at the date of acquisition.

Any non-controlling interest is measured either at fair value

or at the non-controlling interest’s proportion of the net

assets acquired. Acquisition related costs are accounted for

as expenses when incurred, unless directly related to the

issue of debt or equity securities. Any excess of the cost

of acquisition over net assets is capitalised as goodwill.

All intra-group balances, transactions, income and expenses

are eliminated.

The company’s investment in its subsidiary is valued at cost

less any accumulated impairment losses.

(e) Foreign currency translation

For the company and those subsidiaries whose balance

sheets are denominated in sterling, which is the company’s

functional and presentation currency, monetary assets and

liabilities denominated in foreign currencies are translated

into sterling at the closing rates of exchange at the balance

sheet date. Foreign currency transactions are translated into

sterling at average rates of exchange at the date of the

transaction and exchange differences arising are taken to the

consolidated income statement.

211Close Brothers Group plc Annual Report 2023

The Notes continued

1. Significant Accounting Policies (continued)

The balance sheets of subsidiaries denominated in foreign

currencies are translated into sterling at the closing rates.

The income statements for these subsidiaries are translated

at the average rates and exchange differences arising are

taken to equity. Such exchange differences are reclassified

to the consolidated income statement in the period in which

the subsidiary is disposed of.

(f) Revenue recognition

Interest income

Interest on loans and advances made by the group, and fee

income and expense and other direct costs relating to loan

origination, restructuring or commitments are recognised in

the consolidated income statement using the effective

interest rate method.

The effective interest rate method applies a rate that

discounts estimated future cash payments or receipts over

the expected life of a financial instrument to the gross

carrying amount of a financial asset or to the amortised cost

of a financial liability. The cash flows take into account all

contractual terms of the financial instrument including

transaction costs and all other premiums or discounts but

not future credit losses. Interest income is recognised on a

contractual basis where it is not possible to reliably estimate

the cash flows or expected life of a financial instrument.

Fees and commissions

Where fees that have not been included within the effective

interest rate method are earned on the execution of a

significant act, such as fees arising from negotiating or

arranging a transaction for a third party, they are recognised

as revenue when that act has been completed. Fees and

corresponding expenses in respect of other services are

recognised in the consolidated income statement as the right

to consideration or payment accrues through performance

of services. To the extent that fees and commissions are

recognised in advance of billing they are included as accrued

income or expense.

Dividends

Dividend income is recognised when the right to receive

payment is established.

Gains less losses arising from dealing in securities

Net realised and unrealised gains arising from both buying

and selling securities and from positions held in securities,

including related interest income and dividends.

(g) Adjusted measures

Adjusted measures exclude amortisation of intangible assets

on acquisition. Amortisation of intangible assets on

acquisition is excluded to present the performance of the

group’s acquired businesses consistent with its other

businesses. Exceptional items are income and expense

items that are material by size and/or nature and are non-

recurring. The separate reporting of these items helps give

an indication of the group’s underlying performance.

(h) Financial assets and liabilities

(excluding derivatives)

Classification and measurement

Financial assets are classified at initial recognition on

the basis of the business model within which they are

managed and their contractual cash flow characteristics.

The classification categories are amortised cost, fair value

through other comprehensive income (“FVOCI”) and fair

value through profit or loss (“FVTPL”).

Financial assets that are held to collect contractual cash

flows where those cash flows represent solely payments

of principal and interest are measured at amortised cost.

Initial recognition is at fair value plus directly attributable

transaction costs. Interest income is accounted for using the

effective interest rate method.

Financial assets that are held to collect contractual cash

flows and for subsequent sale, where the assets’ cash flows

represent solely payments of principal and interest, are

classified at FVOCI. Directly attributable transaction costs

are added to the initial fair value. Gains and losses are

recognised in other comprehensive income, except for

impairment gains and losses, until the financial asset is either

sold or matures, at which time the cumulative gain or loss is

recognised in the income statement. Impairment gains and

losses are recognised in the income statement.

Financial assets are classified at FVTPL where they do not

meet the criteria to be measured at amortised cost or

FVOCI or where they are designated at FVTPL to reduce

an accounting mismatch. Financial assets at FVTPL are

recognised at fair value. Transaction costs are not added to

or deducted from the initial fair value, they are immediately

recognised in profit or loss on initial recognition. Gains and

losses that subsequently arise on changes in fair value are

recognised in the income statement.

Financial liabilities are classified at initial recognition at

amortised cost except for the following instruments which

are classified at FVTPL: derivatives; financial liabilities held

for trading; and financial liabilities designated at FVTPL to

eliminate an accounting mismatch.

Financial liabilities at amortised cost are measured at fair

value less directly attributable transaction costs on initial

recognition. Interest expense is accounted for using the

effective interest rate method. Financial liabilities at FVTPL

are measured at fair value on initial recognition. Transaction

costs are not added to or deducted from the initial fair value,

they are immediately recognised in profit or loss on initial

recognition. Subsequent changes in fair value are recognised

in the income statement except for financial liabilities

designated at FVTPL; changes in fair value attributable

to changes in credit risk are recognised in other

comprehensive income.

212 Financial Statements

The fair values of quoted financial assets or financial

liabilities in active markets are based on bid or offer prices.

If the market for a financial asset or financial liability is not

active, or they relate to unlisted securities, the group

establishes fair value by using valuation techniques.

These include the use of recent arm’s length transactions,

discounted cash flow analysis and other valuation

techniques commonly used by market participants.

Derecognition

Financial assets are derecognised when the contractual

rights to receive cash flows from the financial assets have

expired or where the group has transferred the contractual

rights to receive cash flows and transferred substantially all

risks and rewards of ownership. If substantially all the risks

and rewards have been neither retained nor transferred the

assets continue to be recognised to the extent of the group’s

continuing involvement. Financial liabilities are derecognised

when they are extinguished.

Modifications

The terms or cash flows of a financial asset or liability may

be modified due to renegotiation or otherwise. If the terms or

cash flows are substantially different to the original, then the

financial asset or liability is derecognised and a new financial

asset or liability is recognised at fair value. If the terms or

cash flows are not substantially different to the original, then

the financial asset or liability carrying value is adjusted to

reflect the present value of modified cash flows discounted

at the original EIR. The adjustment is recognised within

income on the income statement.

(i) Impairment of financial assets

Expected credit losses

In accordance with IFRS 9, expected credit losses (“ECL”)

are recognised for loans and advances to customers and

banks, other financial assets held at amortised cost, financial

assets measured at FVOCI, loan commitments and financial

guarantee contracts. The impairment charge in the income

statement includes the change in expected credit losses and

fraud costs.

At initial recognition, financial assets are considered to be in

Stage 1 and a provision is recognised for 12 months of

expected credit losses. If a significant increase in credit risk

since initial recognition occurs, these financial assets are

considered to be in Stage 2 and a provision is made for the

lifetime expected credit losses. As a backstop, all financial

assets 30 days past due are considered to have experienced a

significant increase in credit risk and are transferred to Stage 2.

A financial asset will remain classified as Stage 2 until the

credit risk has improved and it can be returned to Stage 1 or

until it deteriorates such that it meets the criteria to move

to Stage 3.

Where a financial asset no longer represents a significant

increase in credit risk since origination it can move from

Stage 2 back to Stage 1. As a minimum this means that all

payments must be up-to-date, the quantitative probability of

default assessment trigger is no longer met, and the account

is not evidencing qualitative assessment triggers .

When objective evidence exists that a financial asset is credit

impaired, such as the occurrence of a credit default event or

identification of an unlikeliness to pay indicator, the financial

asset is considered to be in Stage 3. As a backstop, all

financial assets 90 days or more past due are considered to

be credit impaired and transferred to Stage 3.

Cure definitions are in operation where financial assets in

Stage 3 can move back to Stage 2, subject to Stage 3

indicators no longer being in effect, and meeting the

appropriate cure period.

In all circumstances loans and advances to customers are

written off against the related provisions when there are

no reasonable expectations of further recovery. This is

typically following realisation of all associated collateral

and available recovery actions against the customer.

Subsequent recoveries of amounts previously written off

decrease the amount of impairment losses recorded in the

income statement.

The calculation of expected credit losses for loans and

advances to customers, either on a 12-month or lifetime

basis, is based on the probability of default (“PD”), the

exposure at default (“EAD”) and the loss given default

(“LGD”), and includes forward-looking macroeconomic

information where appropriate. Further information on this

calculation methodology can be found in the ‘Use of

estimates’ section on pages 109 to 114 of the Risk Report.

The calculation of expected credit losses for some loan

portfolios, receivables relating to operating lease assets and

settlement balances is based on a simplified lifetime only

expected credit loss approach. Under the simplified

approach, stage classification represents management’s

internal assessment of credit risk.

Expected credit losses are assessed against actual loss

experience via a series of provision adequacy reviews.

These reviews also incorporate management judgement to

ensure that our ECL coverage ratios remain appropriate.

(j) Settlement accounts

Settlement balance debtors and creditors are the amounts

due to and from counterparties in respect of the group’s

market-making activities and are carried at amortised cost.

The balances are short term in nature, do not earn interest

and are recorded at the amount receivable or payable.

(k) Loans to and from money brokers against

stock advanced

Loans to money brokers against stock advanced is the cash

collateral provided to these institutions for stock borrowing

by the group’s market-making activities and is carried at

amortised cost. Interest is paid on the stock borrowed and

earned on the cash deposits advanced. The stock borrowing

to which the cash deposits relate is short term in nature and

is recorded at the amount receivable. Loans from money

brokers against stock collateral provided are recorded at the

amount payable. Interest is paid on the loans.

213Close Brothers Group plc Annual Report 2023

The Notes continued

1. Significant Accounting Policies (continued)

(l) Leases

Lessor

A finance lease is a lease or hire purchase contract that

transfers substantially all the risks and rewards incidental to

ownership of an asset to the lessee. Finance leases are

recognised as loans at an amount equal to the gross

investment in the lease, which comprises the lease payments

receivable and any unguaranteed residual value, discounted

at its implicit interest rate. Finance charges on finance leases

are taken to income in proportion to the net funds invested.

An operating lease is a lease that does not transfer

substantially all the risks and rewards incidental to ownership

of an asset to the lessee. Rental income from operating

leases is recognised in equal instalments over the period of

the leases and included in other income in the consolidated

income statement.

Lessee

A lease liability and right of use asset are recognised on the

balance sheet at the lease commencement date. The lease

liability is measured at the present value of future lease

payments. The discount rate is the rate implicit in the lease,

or if that cannot be determined, the group’s incremental

borrowing rate appropriate for the right of use asset.

The right of use asset is measured at cost, comprising

the initial lease liability, payments made at or before the

commencement date less lease incentives received, initial

direct costs, and estimated costs of restoring the underlying

asset to the condition required by the lease.

Lease payments are allocated between the liability and

finance cost. The finance cost relating to the lease liability is

charged to the consolidated income statement over the

lease term. The right of use asset is depreciated over the

shorter of the asset’s useful life and the lease term on a

straight line basis.

(m) Sale and repurchase agreements and other

secured lending and borrowings

Securities may be sold subject to a commitment to

repurchase them. Such securities are retained on the

consolidated balance sheet when substantially all the

risks and rewards of ownership remain with the group.

The transactions are treated as collateralised borrowing

and the counterparty liability is included within loans and

overdrafts from banks. Similar secured borrowing

transactions, including securities lending transactions and

collateralised short-term notes, are treated and presented in

the same way. These secured financing transactions are

initially recognised at fair value, and subsequently valued at

amortised cost, using the effective interest rate method.

(n) Securitisation transactions

The group securitises its own financial assets via the sale

of these assets to special purpose entities, which in turn

issue securities to investors. All financial assets continue

to be held on the group’s consolidated balance sheet

together with debt securities in issue recognised for the

funding – see derecognition policy (h).

(o) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net

amount presented on the consolidated balance sheet if, and

only if, there is a legally enforceable right to set off the

recognised amounts and there is an intention to settle on

a net basis, or to realise an asset and settle the liability

simultaneously.

( p) Derivatives and hedge accounting

On adoption of IFRS 9 Financial Instruments in 2018, the

group elected to continue applying hedge accounting under

IAS 39 Financial Instruments: Recognition and Measurement.

In general, derivatives are used to minimise the impact of

interest, currency rate and equity price changes to the group’s

financial instruments. They are carried on the consolidated

balance sheet at fair value which is obtained from quoted

market prices in active markets, including recent market

transactions and discounted cash flow models.

On acquisition, certain derivatives are designated as a hedge

and the group formally documents the relationship between

these derivatives and the hedged item. The group also

documents its assessment, both at hedge inception and on

an ongoing basis, of whether the derivative is highly effective

in offsetting changes in fair values or cash flows of hedged

items. If a hedge was deemed partially ineffective but

continues to qualify for hedge accounting, the amount of the

ineffectiveness, taking into account the timing of the

expected cash flows where relevant, would be recorded in

the consolidated income statement. If the hedge is not, or

has ceased to be, highly effective, the group discontinues

hedge accounting.

For fair value hedges, changes in the fair value are

recognised in the consolidated income statement, together

with changes in the fair value of the hedged item. For cash

flow hedges, the fair value gain or loss associated with the

effective proportion of the cash flow hedge is recognised

initially directly in equity and recycled to the consolidated

income statement in the period when the hedged item

affects income.

214 Financial Statements

(q) Intangible assets

Computer software (acquired and costs associated with

development) and intangible assets on acquisition (excluding

goodwill) are stated at cost less accumulated amortisation

and provisions for impairment which are reviewed at least

annually. Amortisation is calculated to write off their cost

on a straight-line basis over the estimated useful lives

as follows:

Computer software 3 to 5 years

Intangible assets on

acquisition

8 to 20 years

Goodwill on acquisitions of subsidiaries is included in intangible

assets. Goodwill is assessed annually for impairment and

carried at cost less any accumulated impairment.

(r) Property, plant and equipment

Property, plant and equipment is stated at cost less

accumulated depreciation and provisions for impairment

which are reviewed at least annually. Depreciation is

calculated to write off their cost on a straight-line basis over

their estimated useful lives as follows:

Long leasehold property 40 years

Short leasehold property Over the length of the

lease

Fixtures, fittings and equipment 3 to 5 years

ssets held under operating

leases

1 to 20 years

Motor vehicles 1 to 5 years

(s) Share capital

Share issue costs

Incremental costs directly attributable to the issue of new

shares or options, including those issued on the acquisition

of a business, are shown in equity as a deduction, net of tax,

from the proceeds.

Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity

in the period in which they are paid or, if earlier, approved

by shareholders.

Treasury shares

Where the company or any member of the group purchases

the company’s share capital, the consideration paid is

deducted from shareholders’ equity as treasury shares until

they are cancelled. Where such shares are subsequently sold

or reissued, any consideration received is included in

shareholders’ equity.

(t) Employee benefits

The group operates defined contribution pension

schemes for eligible employees as well as a defined

benefit pension scheme which is closed to new members

and further accrual.

Under the defined contribution scheme the group pays fixed

contributions into a fund separate from the group’s assets.

Contributions are charged in the consolidated income

statement when they become payable.

The expected cost of providing pensions within the funded

defined benefit scheme, determined on the basis of annual

valuations using the projected unit method, is charged to the

consolidated income statement. Actuarial gains and losses

are recognised in full in the period in which they occur and

recognised in other comprehensive income.

The retirement benefit obligation recognised in the balance

sheet represents the present value of the defined benefit

obligation, as adjusted for unrecognised past service cost,

and as reduced by the fair value of scheme assets at the

balance sheet date. Both the return on investment expected

in the period and the expected financing cost of the liability,

as estimated at the beginning of the period, are recognised

in the results for the period. Any variances against these

estimates in the year form part of the actuarial gain or loss.

The assets of the scheme are held separately from those of

the group in an independently managed fund.

(u) Share-based payments to employees

The group operates three (2022: three) share-based award

schemes: the Deferred Share Awards (“DSA”) scheme, the

Long Term Incentive Plan (“LTIP”), and the HMRC approved

Save As You Earn (“SAYE”) scheme.

The costs of the awards granted under the DSA scheme are

based on the salary of the individual at the time the award is

made. The value of the share award at the grant date is

charged to the group’s consolidated income statement in the

year to which the award relates.

The costs of LTIP and SAYE are based on the fair value of

awards on the date of grant. Fair values of share-based

awards are determined using the Black-Scholes pricing

model, with the exception of fair values for market-based

performance conditions, which are determined using Monte

Carlo simulation. Both models take into account the exercise

price of the option, the current share price, the risk-free

interest rate, the expected volatility of the company’s share

price over the life of the option award and other relevant

factors. For non-market-based performance conditions,

vesting conditions are not taken into account when

measuring fair value, but are reflected by adjusting the

number of shares in each award such that the amount

recognised reflects the number that are expected to, and

then actually do, vest. The fair value is expensed in the

consolidated income statement on a straight-line basis over

the vesting period, with a corresponding credit to the share-

based payments reserve. At the end of the vesting period,

or upon exercise, lapse or forfeit if earlier, this credit is

transferred to retained earnings. Further information on the

group’s schemes is provided in note 24 and in the Directors’

Remuneration Report.

215Close Brothers Group plc Annual Report 2023

The Notes continued

1. Significant Accounting Policies (continued)

(v) Provisions and contingent liabilities

Provisions are recognised in respect of present obligations

arising from past events where it is probable that outflows of

resources will be required to settle the obligations and they

can be reliably estimated.

Contingent liabilities are possible obligations whose existence

depends on the outcome of uncertain future events or those

present obligations where the outflows of resources are

uncertain or cannot be measured reliably. Contingent liabilities

are not recognised in the financial statements but are

disclosed unless they are deemed remote.

(w) Taxes, including deferred taxes

Current tax is the expected tax payable on the taxable profit

for the year. Taxable profit differs from net profit as reported

in the consolidated income statement because it excludes

items of income and expense that are taxable or deductible

in other years and items that are never taxable or deductible.

The group’s liability for current tax is calculated using tax

rates that have been enacted or substantively enacted by the

balance sheet date.

To enable the tax charge to be based on the profit for the

year, deferred tax is provided in full on temporary timing

differences, at the rates of tax expected to apply when these

differences crystallise. Deferred tax assets are recognised

only to the extent that it is probable that sufficient taxable

profits will be available against which temporary differences

can be set. Deferred tax liabilities are offset against deferred

tax assets when there is both a legal right to set off and an

intention to settle on a net basis.

(x) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash

equivalents comprises cash and demand deposits with

banks, together with short-term highly liquid investments

that are readily convertible to known amounts of cash .

(y) Segmental reporting

Operating segments are reported in a manner consistent

with the internal reporting provided to the Executive

Committee, which is considered the group’s chief operating

decision maker. All transactions between business segments

are conducted on an arm’s length basis, with intra-segment

revenue and costs being eliminated on consolidation.

Income and expenses directly associated with each segment

are included in determining business segment performance.

2. Critical Accounting Judgements and Estimates

The reported results of the group are sensitive to the

judgements, estimates and assumptions that underlie the

application of its accounting policies and preparation of its

financial statements. UK company law and IFRS require the

directors, in preparing the group’s financial statements, to

select suitable accounting policies, apply them consistently

and make judgements, estimates and assumptions that

are reasonable.

The group’s estimates and assumptions are based on

historical experience and reasonable expectations of future

events and are reviewed on an ongoing basis. Actual results

in the future may differ from the amounts estimated due to

the inherent uncertainty.

The group’s critical accounting judgements, made in

applying its accounting policies as described in note 1, and

the key sources of estimation uncertainty that may have a

significant risk of causing a material adjustment within the

next financial year are set out below. There are no critical

accounting judgements or key sources of estimation

uncertainty relating to the company.

The impact of climate change on the group’s judgements,

estimates and assumptions has been considered in

preparing these financial statements. While no material

impact has been identified, climate risk continues to be

monitored on an ongoing basis as set out in more detail on

page 135 in the Risk Report.

Critical accounting judgements

The critical accounting judgements of the group relate to

expected credit loss provisions calculated under IFRS 9 and

are as follows:

• Establishing the criteria for a significant increase in credit

risk; and

• Determining the appropriate definition of default.

Further information on these areas of judgements can be

found in the ‘Use of judgements’ section on pages 107 to

108 in the Risk Report.

Key sources of estimation uncertainty

The key sources of estimation uncertainty of the group relate

to expected credit loss provisions and goodwill and are as

follows:

• Two key model estimates, being time to recover periods

and recovery rates, underpinning the expected credit loss

provision of Novitas. The key Novitas estimates in the

prior year were case failure rates and recovery rates;

• Forward-looking macroeconomic information incorporated

into expected credit loss models. This was also a key

estimate in the prior year;

• Adjustments by management to model calculated

expected credit losses due to limitations in the group’s

expected credit loss models or input data, which may be

identified through ongoing model monitoring and

validation of models. This is a new key estimate this year

due to an increase in the size of the adjustment; and

• Estimate of future cash flow forecasts in the calculation of

value in use for the testing of goodwill for impairment in

relation to the Winterflood Securities cash generating unit.

This is a new key estimate this year due to increased

market uncertainty.

Additional disclosures on the estimation uncertainty relating

to forward-looking macroeconomic information, model

adjustments and goodwill can be found in the ‘Use of

estimates’ section on pages 109 to 114, ‘Use of

Adjustments’ section on page 114, both in the Risk Report,

and Note 14 ‘Intangibles Assets’ on pages 232 to 233

respectively.

216 Financial Statements

3. Segmental Analysis

The directors manage the group by class of business and present the segmental analysis on that basis. The group’s activities

are presented in five (2022: five) operating segments: Commercial, Retail, Property, Asset Management and Securities.

In the segmental reporting information that follows, Group consists of central functions as well as various non-trading head

office companies and consolidation adjustments and is set out in order that the information presented reconciles to the

consolidated income statement. The Group balance sheet primarily includes treasury assets and liabilities comprising cash and

balances at central banks, debt securities, customer deposits and other borrowings.

Divisions continue to charge market prices for the limited services rendered to other parts of the group. Funding charges

between segments take into account commercial demands. More than 90% of the group’s activities, revenue and assets are

located in the UK.

Banking

Commercial

£ million

Retail

£ million

Property

£ million

Asset

Management

£ million

Securities

£ million

Group

£ million

Total

£ million

Summary income statement

for the year ended 31 July 2023

Net interest income/(expense) 251.2 218.4 117.1 6.7 0.5 (1.3) 592.6

Non-interest income 96.6 29.7 0.8 138.1 74.8 – 340.0

Operating income/(expense) 347.8 248.1 117.9 144.8 75.3 (1.3) 932.6

dministrative expenses (171.5) (142.8) (26.5) (123.3) (67.5) (22.2) (553.8)

Depreciation and amortisation (22.9) (21.6) (4.4) (5.5) (4.3) (2.5) (61.2)

Impairment losses on financial assets (137.5) (49.0) (17.5) (0.1) – – (204.1)

Total operating expenses before

amortisation of intangible assets on

acquisition (331.9) (213.4) (48.4) (128.9) (71.8) (24.7) (819.1)

djusted operating proﬁt/(loss)

15.9 34.7 69.5 15.9 3.5 (26.0) 113.5

mortisation of intangible assets on

acquisition – – – (1.5) – – (1.5)

Operating proﬁt/(loss) before tax 15.9 34.7 69.5 14.4 3.5 (26.0) 112.0

External operating income/(expense) 451.1 308.6 170.3 144.2 75.3 (216.9) 932.6

Inter segment operating (expense)/income (103.3) (60.5) (52.4) 0.6 – 215.6 –

Segment operating income/(expense) 347.8 248.1 117.9 144.8 75.3 (1.3) 932.6

1. Adjusted operating proﬁt/(loss) is stated before amortisation of intangible assets on acquisition and tax.

The Commercial operating segment above includes Novitas, which ceased lending to new customers in July 2021 following a

strategic review. Novitas recorded an operating loss of £84.2 million (2022: loss of £39.3 million), driven by impairment losses

of £116.8 million (2022: £60.7 million).

Novitas’ income was £18.9 million (2022: £36.0 million) and expenses were £8.7 million (2022: £14.6 million). In line with IFRS

9’s requirement to recognise interest income on Stage 3 loans on a net basis, income includes the partial unwinding over time

of the expected credit loss recognised in the year following the transfer of the majority of loans to Stage 3. Further information

on Novitas can be found in the Credit Risk section of the Risk Report.

217Close Brothers Group plc Annual Report 2023

The Notes continued

3. Segmental Analysis (continued)

Banking

Commercial

£ million

Retail

£ million

Property

£ million

Asset

Management

£ million

Securities

£ million

Group

£ million

Total

£ million

Summary balance sheet information at

31 July 2023

Total assets

4,821.3 3,001.8 1,703.1 177.9 870.5 2,975.7 13,550.3

Total liabilities – – – 64.1 778.1 11,063.2 11,905.4

1. Total assets for the Banking operating segments comprise the loan book and operating lease assets only. The Commercial operating segment includes the

net loan book of Novitas of £59.9 million.

2. Balance sheet includes £2,977.4 million assets and £11,151.9 million liabilities attributable to the Banking division primarily comprising the treasury balances

described in the second paragraph of this note.

Equity is allocated across the group as set out below. Banking division equity, which is managed as a whole rather than on a

segmental basis, reflects loan book and operating lease assets of £9,526.2 million, in addition to assets and liabilities of

£2,977.4 million and £11,151.9 million respectively primarily comprising treasury balances which are included within the Group

column above.

Banking

£ million

Asset

Management

£ million

Securities

£ million

Group

£ million

Total

£ million

Equity 1,351.7 113.8 92.4 87.0 1,644.9

Banking

Commercial Retail Property

Asset

Management Securities Group Total

Other segmental information for the year

ended 31 July 2023

Employees (average number)

1,450 1,194 201 814 320 81 4,060

1. Banking segments are inclusive of a central function headcount allocation. The company’s average number of employees is equivalent to the Group number.

Banking

Commercial

£ million

Retail

£ million

Property

£ million

Asset

Management

£ million

Securities

£ million

Group

£ million

Total

£ million

Summary income statement

for the year ended 31 July 2022

Net interest income/(expense) 257.1 210.8 112.1 (0.7) (1.1) (0.2) 578.0

Non-interest income 86.3 26.2 0.6 148.7 96.3 – 358.1

Operating income/(expense) 343.4 237.0 112.7 148.0 95.2 (0.2) 936.1

dministrative expenses (158.3) (131.3) (27.0) (120.7) (77.2) (25.8) (540.3)

Depreciation and amortisation (21.7) (20.3) (4.0) (5.6) (3.9) (2.2) (57.7)

Impairment losses on financial assets (72.4) (24.4) (6.5) – – – (103.3)

Total operating expenses before

amortisation of intangible assets on

acquisition (252.4) (176.0) (37.5) (126.3) (81.1) (28.0) (701.3)

djusted operating proﬁt/(loss)

91.0 61.0 75.2 21.7 14.1 (28.2) 234.8

mortisation of intangible assets on

acquisition (0.1) – – (1.9) – – (2.0)

Operating proﬁt/(loss) before tax 90.9 61.0 75.2 19.8 14.1 (28.2) 232.8

External operating income/(expense) 391.7 268.3 129.4 148.1 95.2 (96.6) 936.1

Inter segment operating (expense)/income (48.3) (31.3) (16.7) (0.1) – 96.4 –

Segment operating income/(expense) 343.4 237.0 112.7 148.0 95.2 (0.2) 936.1

1. Adjusted operating proﬁt/(loss) is stated before amortisation of intangible assets on acquisition and tax.

218 Financial Statements

Banking

Commercial

£ million

Retail

£ million

Property

£ million

Asset

Management

£ million

Securities

£ million

Group

£ million

Total

£ million

Summary balance sheet information at

31 July 2022

Total assets

4,561.4 3,064.0 1,473.5 172.8 972.3 2,434.3 12,678.3

Total liabilities – – – 70.5 880.6 10,069.7 11,020.8

1. Total assets for the Banking operating segments comprise the loan book and operating lease assets only. The Commercial operating segment includes the

net loan book of Novitas of £159.4 million.

2. Balance sheet includes £2,425.0 million assets and £10,181.9 million liabilities attributable to the Banking division primarily comprising the treasury balances

described in the second paragraph of this note.

Equity is allocated across the group as set out below. Banking division equity, which is managed as a whole rather than on a

segmental basis, reflects loan book and operating lease assets of £9,098.9 million, in addition to assets and liabilities of

£2,425.0 million and £10,181.9 million respectively primarily comprising treasury balances which are included within the Group

column above.

Banking

£ million

Asset

Management

£ million

Securities

£ million

Group

£ million

Total

£ million

Equity 1,342.0 102.3 91.7 121.5 1,657.5

Banking

Commercial Retail Property

Asset

Management Securities Group Total

Other segmental information

for the year ended 31 July 2022

Employees (average number)

1,348 1,153 190 722 318 79 3,810

1. Banking segments are inclusive of a central function headcount allocation. The company’s average number of employees is equivalent to the Group number.

4. Operating Profit before Tax

2023

£ million

2022

£ million

Interest income

Cash and balances at central banks 64.5 5.9

Loans and advances to banks 4.2 0.3

Loans and advances to customers 807.4 680.4

Other interest income 21.4 3.4

897.5 690.0

Interest expense

Deposits by banks (3.2) (0.1)

Deposits by customers (203.6) (64.1)

Borrowings (90.2) (33.2)

Other interest expense

(7.9) (14.6)

(304.9) (112.0)

Net interest income 592.6 578.0

1. Interest income calculated using the effective interest method.

2. Other interest expense includes interest income of £8.3 million relating to derivative assets and liabilities (2022: £0.1 million interest expense).

219Close Brothers Group plc Annual Report 2023

The Notes continued

4. Operating Profit before Tax (continued)

2 023

£ million

2022

£ million

Fee and commission income

Banking 110.6 98.1

sset Management 138.7 148.8

Securities 13.6 12.6

262.9 259.5

Fee and commission expense (17.9) (17.2)

Net fee and commission income 245.0 242.3

Fee income and expense (other than amounts calculated using the effective interest rate method) on financial instruments that are

not at fair value through profit or loss were £110.6 million (2022: £98.1 million) and £15.1 million (2022: £14.7 million) respectively.

Fee income and expense arising from trust and other fiduciary activities amounted to £138.7 million (2022: £148.8 million) and

£1.6 million (2022: £1.8 million) respectively.

2023

£ million

2022

£ million

Other income

Operating lease assets rental income 91.1 85.4

Other

23.1 20.7

114.2 106.1

1. Includes income from services provided in relation to operating lease assets.

2023

£ million

2022

£ million

dministrative expenses

Staff costs:

Wages and salaries 288.0 283.9

Social security costs 38.1 38.8

Share-based awards 2.0 4.9

Pension costs 18.9 16.9

347.0 344.5

Depreciation and amortisation 61.2 57.7

Other administrative expenses 206.8 195.8

615.0 598.0

Staff costs of the company total £12.5 million (2022: £16.6 million) comprising largely of wages and salaries of £11.4 million

(2022: £11.9 million).

5. Information Regarding the Auditors

2023

£ million

2022

£ million

Fees payable

udit of the company’s annual accounts 0.9 0.6

udit of the company’s subsidiaries pursuant to legislation 3.0 2.3

udit related services 0.6 0.5

Other services 0.2 0.3

4.7 3.7

1. During the year, an additional audit fee of £0.2 million (2022: £0.2 million) was paid to the auditors in relation to scope changes in the prior year audit, which

is not included above.

The auditors of the group was PricewaterhouseCoopers LLP (2022: PricewaterhouseCoopers LLP).

220 Financial Statements

6. Taxation

2023

£ million

2022

£ million

Tax charged/(credited) to the income statement

Current tax:

UK corporation tax 18.1 53.7

Foreign tax 2.3 1.9

djustments in respect of previous years (8.2) (2.8)

12.2 52.8

Deferred tax:

Deferred tax charge for the current year 11.4 11.8

djustments in respect of previous years 7.3 3.0

30.9 67.6

Tax on items not (credited)/charged to the income statement

Current tax relating to:

Share-based payments (0.2) –

Deferred tax relating to:

Cash flow hedging 4.9 8.6

Defined benefit pension scheme (1.6) (0.3)

Financial instruments classified as fair value through other comprehensive income (1.1) (0.4)

Share-based payments 0.3 1.1

Currency translation gains/(losses) 0.5 (0.3)

2.8 8.7

Reconciliation to tax expense

UK corporation tax for the year at 21.0% (2022: 19.0%) on operating profit before tax 23.5 44.2

Effect of different tax rates in other jurisdictions (0.3) (0.3)

Disallowable items and other permanent differences 1.6 0.9

Banking surcharge 6.2 14.9

Deferred tax impact of decreased tax rates 0.8 7.7

Prior year tax provision (0.9) 0.2

30.9 67.6

The standard UK corporation tax rate for the financial year is 21.0% (2022: 19.0%). However, an additional 6.3% (2022: 8.0%)

surcharge applies to banking company profits as defined in legislation (and only above a threshold amount). The 6.3%

surcharge rate for the financial year arises due to the reduction in the surcharge from 8% to 3% from April 2023. The effective

tax rate of 27.6% (2022: 29.0%) is above the UK corporation tax rate primarily due to the surcharge applying to most of the

group’s profits.

221Close Brothers Group plc Annual Report 2023

The Notes continued

6. Taxation (continued)

Movements in deferred tax assets and liabilities were as follows:

Capital

allowances

£ million

Pension

scheme

£ million

Share-based

payments and

deferred

compensation

£ million

Impairment

Losses

£ million

Cash flow

hedging

£ million

Intangible

assets

£ million

Other

£ million

Total

£ million

Group

t 1 August 2021 36.1 (2.2) 15.5 8.8 0.1 (1.7) (0.6) 56.0

(Charge)/credit to the income

statement (10.9) – (1.5) (3.0) – 0.4 0.2 (14.8)

Credit/(charge) to other

comprehensive income 0.3 0.3 – – (8.6) – 0.4 (7.6)

Charge to equity – – (1.1) – – – – (1.1)

t 31 July 2022 25.5 (1.9) 12.9 5.8 (8.5) (1.3) – 32.5

(Charge)/credit to the income

statement (12.1) – (3.9) 0.1 – 0.4 (3.2) (18.7)

(Charge)/credit to other

comprehensive income (0.5) 1.6 – – (4.9) – 1.1 (2.7)

Charge to equity – – (0.3) – – – – (0.3)

t 31 July 2023 12.9 (0.3) 8.7 5.9 (13.4) (0.9) (2.1) 10.8

The group’s deferred tax asset comprises £0.7 million (31 July 2022: £12.5 million) due within one year and £10.1 million

(31 July 2022: £20.0 million) due after more than one year.

Capital

allowances

£ million

Pension

scheme

£ million

Share-based

payments and

deferred

compensation

£ million

Total

£ million

Company

t 1 August 2021 (0.6) (2.2) 2.0 (0.8)

Credit to the income statement 0.3 – – 0.3

Credit to other comprehensive income – 0.3 – 0.3

t 31 July 2022 (0.3) (1.9) 2.0 (0.2)

Charge to the income statement (0.1) – (0.9) (1.0)

Credit to other comprehensive income – 1.6 – 1.6

t 31 July 2023 (0.4) (0.3) 1.1 0.4

The company’s deferred tax asset comprises £0.2 million (31 July 2022: £0.4 million) due within one year and £0.2 million

(31 July 2022: £0.6 million liabilities) due after more than one year.

As the group has been and is expected to continue to be consistently profitable, the full deferred tax assets have been

recognised.

222 Financial Statements

7. Earnings per Share

The calculation of basic earnings per share is based on the profit attributable to shareholders and the number of basic

weighted average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is

adjusted for the effects of all dilutive share options and awards.

2023 2022

Basic 54.3p 110.4p

Diluted 54.2p 109.9p

djusted basic

55.1p 111.5p

djusted diluted

55.0p 111.0p

1. Excludes amortisation of intangible assets on acquisition and tax.

2023

£ million

2022

£ million

Proﬁt attributable to shareholders 81.1 165.2

djustments:

mortisation of intangible assets on acquisition 1.5 2.0

Tax effect of adjustments (0.3) (0.4)

djusted proﬁt attributable to shareholders 82.3 166.8

2023

million

2022

million

verage number of shares

Basic weighted 149.4 149.6

Effect of dilutive share options and awards 0.2 0.7

Diluted weighted 149.6 150.3

8. Dividends

2023

£ million

2022

£ million

For each ordinary share

Final dividend for previous financial year paid in November 2022: 44.0p (November 2021: 42.0p) 65.6 62.7

Interim dividend for current financial year paid in April 2023: 22.5p (April 2022: 22.0p) 33.5 32.8

99.1 95.5

A final dividend relating to the year ended 31 July 2023 of 45.0p, amounting to an estimated £67.0 million, is proposed. This

final dividend, which is due to be paid on 24 November 2023 to shareholders on the register at 20 October 2023, is not

reflected in these financial statements.

9. Loans and Advances to Banks

On demand

£ million

Within three

months

£ million

Between three

months and

one year

£ million

Between

one and

two years

£ million

Between

two and

five years

£ million

Total

£ million

t 31 July 2023 290.9 21.6 2.0 3.0 12.8 330.3

t 31 July 2022 147.0 1.9 10.0 2.4 4.1 165.4

223Close Brothers Group plc Annual Report 2023

The Notes continued

10. Loans and Advances to Customers

(a) Maturity analysis of loans and advances to customers

The following table sets out a maturity analysis of loans and advances to customers. At 31 July 2023 loans and advances to

customers with a maturity of two years or less was £7,158.8 million (31 July 2022: £6,733.0 million) representing 74.3% (31

July 2022: 73.6%) of total gross loans and advances to customers:

On demand

£ million

Within three

months

£ million

Between

three months

and one year

£ million

Between

one and

two years

£ million

Between

two and

five years

£ million

After

more than

five years

£ million

Total gross

loans and

advances to

customers

£ million

Impairment

provisions

£ million

Total net

loans and

advances to

customers

£ million

t 31 July 2023 76.5 2,597.8 2,636.5 1,848.0 2,337.2 139.6 9,635.6 (380.6) 9,255.0

t 31 July 2022 141.3 2,354.2 2,369.0 1,868.5 2,235.0 176.5 9,144.5 (285.6) 8,858.9

(b) Loans and advances to customers and impairment provisions by stage

Gross loans and advances to customers by stage and the corresponding impairment provisions and provision coverage ratios

are set out below:

Stage 2

Stage 1

£ million

Less than 30

days past due

£ million

Greater than

or equal to 30

days past due

£ million

Total

£ million

Stage 3

£ million

Total

£ million

t 31 July 2023

Gross loans and advances to customers

Commercial 3,686.1 750.9 23.2 774.1 339.4 4,799.6

Of which: Commercial excluding Novitas 3,685.1 749.6 23.2 772.8 97.7 4,555.6

Of which: Novitas 1.0 1.3 – 1.3 241.7 244.0

Retail 2,839.1 159.1 18.4 177.5 74.6 3,091.2

Property 1,465.0 85.7 24.7 110.4 169.4 1,744.8

7,990.2 995.7 66.3 1,062.0 583.4 9,635.6

Impairment provisions

Commercial 25.1 13.9 2.4 16.3 208.1 249.5

Of which: Commercial excluding Novitas 24.9 13.6 2.4 16.0 24.5 65.4

Of which: Novitas 0.2 0.3 – 0.3 183.6 184.1

Retail 27.9 11.6 2.6 14.2 47.3 89.4

Property 5.1 1.4 0.3 1.7 34.9 41.7

58.1 26.9 5.3 32.2 290.3 380.6

Provision coverage ratio

Commercial 0.7% 1.9% 10.3% 2.1% 61.3% 5.2%

Within which: Commercial excluding Novitas 0.7% 1.8% 10.3% 2.1% 25.1% 1.4%

Within which: Novitas 20.0% 23.1% – 23.1% 76.0% 75.5%

Retail 1.0% 7.3% 14.1% 8.0% 63.4% 2.9%

Property 0.3% 1.6% 1.2% 1.5% 20.6% 2.4%

0.7% 2.7% 8.0% 3.0% 49.8% 3.9%

224 Financial Statements

Stage 2

Stage 1

£ million

Less than 30

days past due

£ million

Greater than

or equal to 30

days past due

£ million

Total

£ million

Stage 3

£ million

Total

£ million

t 31 July 2022

Gross loans and advances to customers

Commercial 3,433.1 778.8 119.4 898.2 169.1 4,500.4

Of which: Commercial excluding Novitas 3,331.8 776.6 25.6 802.2 93.7 4,227.7

Of which: Novitas 101.3 2.2 93.8 96.0 75.4 272.7

Retail 2,937.6 121.4 9.4 130.8 65.5 3,133.9

Property 1,256.3 83.8 46.1 129.9 124.0 1,510.2

7,627.0 984.0 174.9 1,158.9 358.6 9,144.5

Impairment provisions

Commercial 25.6 14.3 52.0 66.3 87.1 179.0

Of which: Commercial excluding Novitas 16.8 13.3 2.5 15.8 33.1 65.7

Of which: Novitas 8.8 1.0 49.5 50.5 54.0 113.3

Retail 22.1 4.9 1.7 6.6 41.2 69.9

Property 2.6 4.2 1.2 5.4 28.7 36.7

50.3 23.4 54.9 78.3 157.0 285.6

Provision coverage ratio

Commercial 0.7% 1.8% 43.6% 7.4% 51.5% 4.0%

Within which: Commercial excluding Novitas 0.5% 1.7% 9.8% 2.0% 35.3% 1.6%

Within which: Novitas 8.7% 45.5% 52.8% 52.6% 71.6% 41.5%

Retail 0.8% 4.0% 18.1% 5.0% 62.9% 2.2%

Property 0.2% 5.0% 2.6% 4.2% 23.1% 2.4%

0.7% 2.4% 31.4% 6.8% 43.8% 3.1%

Stage allocation of loans and advances to customers has been applied in line with the definitions set out on page 213 in

Note 1 ‘Significant Accounting Policies’.

Additional disclosures on the stage allocation and movements of loans and advances to customers can be found on page 107

in the Risk Report.

225Close Brothers Group plc Annual Report 2023

The Notes continued

10. Loans and Advances to Customers (continued)

By their nature, limitations in the group’s expected credit loss models or input data may be identified through ongoing model

monitoring and validation of models. In certain circumstances, management make appropriate adjustments to model-

calculated expected credit losses. Adjustments have been identified as a key source of estimation uncertainty as set out in

Note 2 ‘Critical Accounting Judgements and Estimates’.

(d) Reconciliation of loans and advances to customers and impairment provisions

Reconciliations of gross loans and advances to customers and associated impairment provisions are set out below.

New financial assets originate in Stage 1 only, and the amount presented represents the value at origination.

Subsequently, a loan may transfer between stages, and the presentation of such transfers is based on a comparison of the

loan at the beginning of the year (or at origination if this occurred during the year) and the end of the year (or just prior to final

repayment or write off).

Repayments relating to loans which transferred between stages during the year are presented within the transfers between

stages lines. Such transfers do not represent overnight reclassification from one stage to another. All other repayments are

presented in a separate line.

ECL model methodologies may be updated or enhanced from time to time and the impacts of such changes are presented

on a separate line. During the year, a number of enhancements were made to the models in the Premium business.

The enhancements were made to address known model limitations and to ensure modelled provisions better reflect future

loss emergence.

Enhancements to our model suite are a contributory factor to ECL movements and such factors have been taken into

consideration when assessing any required adjustments to modelled output and ensuring appropriate provision

coverage levels.

A loan is written off when there is no reasonable expectation of further recovery following realisation of all associated collateral

and available recovery actions against the customer.

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Total

£ million

Gross loans and advances to customers

t 1 August 2022 7,627.0 1,158.9 358.6 9,144.5

New financial assets originated 6,604.0 – – 6,604.0

Transfers to Stage 1 276.2 (373.2) (6.8) (103.8)

Transfers to Stage 2 (1,068.6) 878.6 (16.1) (206.1)

Transfers to Stage 3 (303.6) (194.4) 421.5 (76.5)

Net transfers between stages and repayments

(1,096.0) 311.0 398.6 (386.4)

Repayments while stage remained unchanged and final repayments (5,118.8) (403.5) (100.4) (5,622.7)

Changes to model methodologies (25.6) (4.0) 29.6 –

Write offs (0.4) (0.4) (103.0) (103.8)

t 31 July 2023 7,990.2 1,062.0 583.4 9,635.6

1. A signiﬁcant proportion of the Stage 3 movements is driven by Novitas with £174.4 million of transfers to Stage 3 and £37.4 million of write-offs. In addition,

£49.2 million of Novitas movements are included within ‘Repayments while stage remained unchanged and ﬁnal repayments’, comprising largely of accrued

interest. The accrued interest is partly offset by ECL increases included within the adjacent ECL reconciliation, in line with IFRS 9’s requirement to recognise

interest income on Stage 3 loans on a net basis. Further information on Novitas can be found in the Credit Risk section of the Risk Report.

2. Repayments relate only to ﬁnancial assets which transferred between stages during the year. Other repayments are shown in the line below.

226 Financial Statements

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Total

£ million

Gross loans and advances to customers

t 1 August 2021 7,434.3 960.2 330.4 8,724.9

New financial assets originated 6,537.4 – – 6,537.4

Transfers to Stage 1 196.2 (278.6) (5.3) (87.7)

Transfers to Stage 2 (1,056.3) 959.9 (21.4) (117.8)

Transfers to Stage 3 (206.9) (137.5) 278.6 (65.8)

Net transfers between stages and repayments

(1,067.0) 543.8 251.9 (271.3)

Repayments while stage remained unchanged and final repayments (5,241.7) (354.2) (157.8) (5,753.7)

Changes to model methodologies (33.3) 31.6 1.8 0.1

Write offs (2.7) (22.5) (67.7) (92.9)

t 31 July 2022 7,627.0 1,158.9 358.6 9,144.5

1. Repayments relate only to ﬁnancial assets which transferred between stages during the year. Other repayments are shown in the line below.

The gross carrying amount before modification of loans and advances to customers which were modified during the year while

in Stage 2 or 3 was £152.3 million (2022: £288.3 million). No gain or loss (2022: £nil) was recognised as a result of these

modifications. The gross carrying amount at 31 July 2023 of modified loans and advances to customers which transferred from

Stage 2 or 3 to Stage 1 during the year was £14.8 million (31 July 2022: £110.2 million).

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Total

£ million

Impairment provisions on loans and advances to customers

t 1 August 2022 50.3 78.3 157.0 285.6

New financial assets originated 46.7 – – 46.7

Transfers to Stage 1 1.2 (7.7) (1.0) (7.5)

Transfers to Stage 2 (8.7) 27.7 (5.7) 13.3

Transfers to Stage 3 (11.2) (53.3) 227.2 162.7

Net remeasurement of expected credit losses arising from transfers between

stages and repayments

(18.7)

(33.3) 220.5 168.5

Repayments and ECL movements while stage remained unchanged and final

repayments (17.8) (10.7) (20.0) (48.5)

Changes to model methodologies (2.2) (1.9) 2.3 (1.8)

Charge to the income statement 8.0 (45.9) 202.8 164.9

Write offs (0.2) (0.2) (69.5) (69.9)

t 31 July 2023 58.1 32.2 290.3 380.6

1. A signiﬁcant proportion of the Stage 3 movements is driven by Novitas with £147.6 million of transfers to Stage 3 and £11.9 million of write-offs. Further

information on Novitas can be found in the Credit Risk section of the Risk Report.

2. Repayments relate only to ﬁnancial assets which transferred between stages during the year. Other repayments are shown in the line below.

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Total

£ million

Impairment provisions on loans and advances to customers

t 1 August 2021 80.0 84.2 116.2 280.4

New financial assets originated 37.7 – – 37.7

Transfers to Stage 1 1.3 (12.2) (1.7) (12.6)

Transfers to Stage 2 (17.1) 59.4 (9.9) 32.4

Transfers to Stage 3 (9.0) (28.8) 123.2 85.4

Net remeasurement of expected credit losses arising from transfers between

stages and repayments

(24.8) 18.4 111.6 105.2

Repayments and ECL movements while stage remained unchanged and final

repayments (37.6) (0.7) (9.8) (48.1)

Changes to model methodologies (2.2) (1.1) 1.9 (1.4)

Charge to the income statement (26.9) 16.6 103.7 93.4

Write offs (2.8) (22.5) (62.9) (88.2)

t 31 July 2022 50.3 78.3 157.0 285.6

1. Repayments relate only to ﬁnancial assets which transferred between stages during the year. Other repayments are shown in the line below.

227Close Brothers Group plc Annual Report 2023

The Notes continued

10. Loans and Advances to Customers (continued)

2023

£ million

2022

£ million

Impairment losses relating to loans and advances to customers:

Charge to income statement arising from movement in impairment provisions 164.9 93.4

mounts written off directly to income statement, net of recoveries and other costs 39.4 8.5

204.3 101.9

Impairment (gains)/losses relating to other financial assets (0.2) 1.4

Impairment losses on ﬁnancial assets recognised in income statement 204.1 103.3

Impairment losses on financial assets of £204.1 million (2022: £103.3 million) include £116.8 million in relation to Novitas

(2022: £60.7 million).

The contractual amount outstanding at 31 July 2023 on financial assets that were written off during the period and are still

subject to recovery activity is £32.3 million (31 July 2022: £17.3 million).

(e) Finance lease and hire purchase agreement receivables

31 July 2023

£ million

31 July 2022

£ million

Net loans and advances to customers comprise

Hire purchase agreement receivables 3,671.3 3,725.1

Finance lease receivables 803.9 694.4

Other loans and advances 4,779.8 4,439.4

t 31 July 9,255.0 8,858.9

The following table shows a reconciliation between gross investment in finance lease and hire purchase agreement

receivables included in the net loans and advances to customers table above to present value of minimum lease and hire

purchase payments.

31 July 2023

£ million

31 July 2022

£ million

Gross investment in finance leases and hire purchase agreement receivables due:

One year or within one year 1,849.3 1,740.2

>One to two years 2,002.8 1,927.1

>Two to three years 972.5 943.9

>Three to four years 438.5 475.1

>Four to five years 115.5 123.7

More than five years 41.1 36.2

5,419.7 5,246.2

Unearned finance income (820.7) (731.4)

Present value of minimum lease and hire purchase agreement payments 4,599.0 4,514.8

Of which due:

One year or within one year 1,567.2 1,496.9

>One to two years 1,691.7 1,654.4

>Two to three years 830.2 815.7

>Three to four years 375.3 410.0

>Four to five years 99.2 106.6

More than five years 35.4 31.2

4,599.0 4,514.8

The aggregate cost of assets acquired for the purpose of letting under finance leases and hire purchase agreements was

£7,167.5 million (2022: £7,443.8 million). The average effective interest rate on finance leases approximates to 11.0%

(2022: 9.9%). The present value of minimum lease and hire purchase agreement payments reflects the fair value of finance

lease and hire purchase agreement receivables before deduction of impairment provisions.

228 Financial Statements

11. Debt Securities

Fair value

through profit

or loss

£ million

Fair value

through other

comprehensive

income

£ million

Amortised

cost

£ million

Total

£ million

Long trading positions in debt securities 15.2 – – 15.2

Certificates of deposit – – – –

Sovereign and central bank debt – 186.1 – 186.1

Covered bonds – 106.3 – 106.3

t 31 July 2023 15.2 292.4 – 307.6

Fair value

through profit

or loss

£ million

Fair value

through other

comprehensive

income

£ million

Amortised

cost

£ million

Total

£ million

Long trading positions in debt securities 12.4 – – 12.4

Certificates of deposit – – 185.0 185.0

Sovereign and central bank debt – 415.4 – 415.4

Covered bonds – – – –

t 31 July 2022 12.4 415.4 185.0 612.8

Movements on the book value of sovereign and central bank debt comprise:

2023

£ million

2022

£ million

Sovereign and central bank debt at 1 August 415.4 192.5

dditions 269.7 335.3

Redemptions (459.2) (80.0)

Currency translation differences (0.3) (1.2)

Movement in value (39.5) (31.2)

Sovereign and central bank debt at 31 July 186.1 415.4

Movements on the book value of covered bonds comprise:

2023

£ million

2022

£ million

Covered bonds at 1 August – –

dditions 105.4 –

Movement in value 0.9 –

Covered bonds at 31 July 106.3 –

12. Equity Shares

31 July

2023

£ million

31 July

2022

£ million

Long trading positions 27.8 27.1

Other equity shares 1.5 1.3

29.3 28.4

13. Derivative Financial Instruments

The group enters into derivative contracts in the normal course of its business with a number of financial institutions to

minimise the impact of interest and currency rate changes on its financial instruments. The group’s total derivative asset and

liability position as reported on the consolidated balance sheet is as follows.

31 July 2023 31 July 2022

Notional

value

£ million

Assets

£ million

Liabilities

£ million

Notional

value

£ million

Assets

£ million

Liabilities

£ million

Exchange rate contracts 198.1 0.8 0.4 109.8 0.7 0.3

Interest rate contracts 3,493.3 87.7 195.5 4,408.7 70.5 88.9

3,691.4 88.5 195.9 4,518.5 71.2 89.2

229Close Brothers Group plc Annual Report 2023

The Notes continued

13. Derivative Financial Instruments (continued)

Notional amounts of interest rate contracts totalling £2,402.7 million (31 July 2022: £3,828.8 million), which are held for interest

rate risk management and interest margin stabilisation purposes, have a residual maturity of more than one year.

Included in the derivatives above are the following cash flow and fair value hedges:

31 July 2023

31 July 2022

Notional

value

£ million

Assets

£ million

Liabilities

£ million

Notional

value

£ million

Assets

£ million

Liabilities

£ million

Cash ﬂow hedges

Interest rate contracts 297.7 8.5 2.9 1,552.0 33.2 1.6

Fair value hedges

Interest rate contracts 1,614.7 42.2 173.3 1,475.4 28.3 82.3

The group generally enters into fair value hedges and cash flow hedges with changes in the relevant benchmark interest rate

risk being the predominant hedged risk.

The fair value hedges seek to hedge the exposure to changes in the fair value of recognised assets and liabilities or firm

commitments attributable to interest rate risk. Changes in interest rate risk are considered the largest component of the overall

change in fair value. Other risks such as credit risk are managed but excluded from the hedge accounting relationship.

The interest rate risk component is the change in fair value of the fixed rate hedging items arising solely from changes in the

benchmark interest rate.

Cash flow hedges seek to hedge the exposure to variability in future cash flows due to movements in the relevant benchmark

interest rate with interest rate swaps. These future cash flows relate to future interest payments or receipts on recognised

financial instruments and on forecast transactions for periods of up to seven (2022: six) years. The group applies portfolio cash

flow hedging for interest rate risk exposures on a portfolio of actual and forecast variable interest rate cash flows arising from

variable rate borrowings.

Certain items which are economically hedged may be ineligible for hedge accounting in accordance with IAS 39. Therefore, a

portfolio of floating rate liabilities have been designated as eligible hedged items in the cash flow hedge portfolio. The amounts

and timing of future cash flows are projected on the basis of their contractual and forecast terms and other relevant factors.

The exposure from this portfolio frequently changes due to new facilities being originated, contractual repayments and new

interest rate swaps added to the portfolio.

To assess hedge effectiveness the change in fair value or cash flows of the hedging instruments is compared with the change

in fair value or cash flows of the hedged item attributable to the hedged risk. A hedge is considered highly effective if the

results are within a ratio of 80%-125%.

The main sources of hedge ineffectiveness can include, but are not limited to, basis mismatch, maturity mismatch, credit

valuation adjustments and cash flow timing mismatch between the hedged item and the hedging instrument.

The maturity profiles for the notional amounts of the group’s cash flow and fair value hedges are set out as follows.

On demand

£ million

Within three

months

£ million

Between

three and six

months

£ million

Between six

months and

one year

£ million

Between one

and five years

£ million

After more

than five

years

£ million

Total

£ million

Cash ﬂow hedges

Interest rate risk

31 July 2023 – 90.8 0.3 27.7 137.7 41.2 297.7

31 July 2022 – 69.5 50.0 210.4 1,205.9 16.2 1,552.0

Fair value hedges

Interest rate risk

31 July 2023 – 51.0 0.6 190.6 690.0 682.5 1,614.7

31 July 2022 – 0.7 0.4 141.3 680.3 652.7 1,475.4

Cash flow hedges have an average fixed rate of 2.0% (31 July 2022: 1.0%). Fair value hedges have an average fixed rate of

1.6% (31 July 2022: 1.9%).

Details of the hedging instruments for the group’s hedge ineffectiveness assessment are set out as follows.

230 Financial Statements

C hanges in fair value

of hedging instrument

used for calculating

hedge ineffectiveness

2023

£ million

Hedge

ineffectiveness

recognised in

income statement

2023

£ million

Changes in fair

value of hedging

instrument used for

calculating hedge

ineffectiveness

2022

£ million

Hedge ineffectiveness

recognised in

income statement

2022

£ million

Cash ﬂow hedges

Interest rate risk (26.2) (0.1) 29.6 0.1

Fair value hedges

Interest rate risk (74.6) – (50.4) (0.1)

The carrying amount of hedging interest rate swaps is held within derivative financial instruments and the hedge

ineffectiveness is held within other income. Details of the hedged exposures covered by the group’s hedging strategies are set

out as follows.

Carrying amount of

hedged item

£ million

Accumulated amount

of fair value

adjustment on the

hedged item

£ million

Changes in fair value

of hedged item used

for calculating hedge

ineffectiveness

£ million

t 31 July 2023

Fair value hedges

ssets

Debt securities 186.1 (27.0) (3.0)

Loans and advances to customers and undrawn commitments 124.3 (13.4) (8.6)

310.4 (40.4) (11.6)

Liabilities

Deposits by customers 280.3 (3.9) (3.9)

Debt securities in issue 613.6 (142.5) (70.2)

Subordinated loan capital 174.9 (25.1) (12.1)

1,068.8 (171.5) (86.2)

Carrying amount

of hedged item

£ million

Accumulated amount

of fair value

adjustment on the

hedged item

£ million

Changes in fair value of

hedged item used

for calculating hedge

ineffectiveness

£ million

t 31 July 2022

Fair value hedges

ssets

Debt securities 211.1 (24.0) (28.5)

Loans and advances to customers and undrawn commitments 107.4 (4.8) (6.7)

318.5 (28.8) (35.2)

Liabilities

Deposits by customers – – (0.1)

Debt securities in issue 823.3 (72.2) (71.6)

Subordinated loan capital 186.5 (13.0) (13.8)

1,009.8 (85.2) (85.5)

Details of the impact of hedging relationships on the income statement and other comprehensive income are set out as follows.

Changes in fair value of

hedged item used for

calculating hedge

ineffectiveness

£ million

Gains/(losses) on

discontinued hedges

recognised in other

comprehensive income

£ million

(Losses)/gains from

changes in value of

hedging instrument

recognised in other

comprehensive income

£ million

Amounts reclassified

from reserves to

income

statement

£ million

Cash ﬂow hedges

Interest rate risk

31 July 2023 26.1 43.3 (26.1) 1.5

31 July 2022 (29.5) (0.4) 29.6 (1.0)

1. Amounts have been reclassified to other income since hedged cash flows will no longer occur.

231Close Brothers Group plc Annual Report 2023

The Notes continued

14. Intangible Assets

Goodwill

£ million

Software

£ million

Intangible

assets on

acquisition

£ million

Group total

£ million

Company

software

£ million

Cost

t 1 August 2021 142.9 272.8 51.0 466.7 0.4

dditions – 56.0 – 56.0 –

Disposals (0.3) (29.3) – (29.6) –

t 31 July 2022 142.6 299.5 51.0 493.1 0.4

dditions – 50.5 – 50.5 –

Disposals (0.1) (16.8) – (16.9) (0.2)

t 31 July 2023 142.5 333.2 51.0 526.7 0.2

mortisation and impairment

t 1 August 2021 47.9 142.4 43.8 234.1 0.4

mortisation charge for the yea

– 34.6 2.0 36.6 –

Disposals – (29.6) – (29.6) –

t 31 July 2022 47.9 147.4 45.8 241.1 0.4

mortisation charge for the yea

– 36.1 1.5 37.6 –

Disposals – (15.7) – (15.7) (0.2)

t 31 July 2023 47.9 167.8 47.3 263.0 0.2

Net book value at 31 July 2023 94.6 165.4 3.7 263.7 –

Net book value at 31 July 2022 94.7 152.1 5.2 252.0 –

Net book value at 1 August 2021 95.0 130.4 7.2 232.6 –

Software includes assets under development of £88.8 million (31 July 2022: £71.1 million).

Intangible assets on acquisition relate to broker and customer relationships and are amortised over a period of eight to

20 years.

In the 2023 financial year, £1.5 million (2022: £2.0 million) of the amortisation charge is included in amortisation of intangible

assets on acquisition and £36.1 million (2022: £34.6 million) of the amortisation charge is included in administrative expenses

shown in the consolidated income statement.

Impairment tests for goodwill

At 31 July 2023, goodwill has been allocated to eight (31 July 2022: eight) individual CGUs. Six (31 July 2022: six) are within the

Banking division, one is the Asset Management division and the remaining one is Winterflood in the Securities division. Goodwill is

allocated to the CGU in which the historical acquisition occurred and hence the goodwill originated. Further information on the

performance of each division can be found in Note 3 ‘Segmental Analysis’. Goodwill impairment reviews are carried out annually

by assessing the recoverable amount of the group’s CGUs, which is the higher of fair value less costs to sell and value in use.

The recoverable amounts for all CGUs were measured based on value in use.

A value in use calculation uses discounted cash flow forecasts based on the most recent three-year plans to determine the

recoverable amount of each CGU. The key assumptions underlying management’s three-year plans, which are based on past

experience and forecast market conditions, are expected loan book growth rates and net return on loan book in the Banking

CGUs, expected total client asset growth rate and revenue margin in the Asset Management CGU and expected market-

making conditions in the Winterflood CGU.

Beyond the group’s three-year planning horizon, estimates of future cash flows in the fourth and fifth years are made by

management with due consideration given to the key assumptions set out above. After the fifth year, a terminal value is

calculated using an annual growth rate of 2%, which is consistent with the UK government’s long-term inflation target. In the

prior year, management applied a more prudent 0% annual growth rate. The cash flows are discounted using a pre-tax

estimated weighted average cost of capital as set out in the following table. The methodology used to derive the discount rate

for Winterflood was refined during the year. The discount rates used differ across the CGUs, reflecting the nature of the CGUs’

business and the current market returns appropriate to the CGU that investors would require for a similar asset.

232 Financial Statements

At 31 July 2023, the results of the review indicate there is no goodwill impairment. The inputs used in the value in use

calculations are sensitive primarily to changes in the assumptions for future cash flows, discount rates and long-term growth

rates. Having performed stress tested value in use calculations, the group believes that any reasonably possible change in the

key assumptions which have been used would not lead to the carrying value of any CGU to exceed its recoverable amount.

Winterflood recorded lower profits in the year driven by difficult market conditions. The business has a long track record of

trading profitably in a range of conditions and is well placed to take advantage when investor confidence recovers.

Nevertheless, future market conditions remain uncertain and as such the value in use calculation for this CGU has been

identified as a key source of estimation uncertainty as set out in Note 2 ‘Critical Accounting Judgements and Estimates’.

The most significant uncertainty within the Winterflood value in use calculation relates to the expected future cash flows.

A reduction in the year 4 and 5 cash flows to the level of year 3, combined with a further 40% reduction in the cash flows in

year 5 and all subsequent years, would result in a recoverable amount that is marginally above the carrying value of the CGU.

This scenario is a demonstration of sensitivity only and is not considered probable by management.

Details of the CGUs in which the goodwill carrying amount is significant in comparison with total goodwill, together with the

pre-tax discount rate used in determining value in use, are disclosed separately in the table below:

31 July 2023

31 July 2022

Cash generating unit

Goodwill

£ million

Pre-tax

discount rate

Goodwill

£ million

Pre-tax

discount rate

Close Brothers Asset Management 39.8 11.6 39.9 10.4

Winterflood 23.3 16.9 23.3 16.7

Banking division CGUs 31.5 17.0-17.3 31.5 15.4-17.1

94.6 94.7

15. Property, Plant and Equipment

Leasehold

property

£ million

Fixtures,

fittings and

equipment

£ million

Assets

held under

operating

leases

£ million

Motor

vehicles

£ million

Right of use

assets

£ million

Total

£ million

Group

Cost

t 1 August 2021 25.2 74.8 360.7 0.2 71.7 532.6

dditions 0.6 4.3 67.8 – 13.6 86.3

Disposals (4.9) (16.5) (30.3) – (6.8) (58.5)

t 31 July 2022 20.9 62.6 398.2 0.2 78.5 560.4

dditions 1.0 7.5 93.1 0.2 24.7 126.5

Disposals (0.4) (4.6) (42.2) – (9.2) (56.4)

t 31 July 2023 21.5 65.5 449.1 0.4 94.0 630.5

Depreciation

t 1 August 2021 15.7 47.5 137.8 0.1 21.6 222.7

Depreciation and impairment charges for the year 2.2 7.6 40.6 0.1 13.2 63.7

Disposals (4.9) (18.2) (20.2) – (5.2) (48.5)

t 31 July 2022 13.0 36.9 158.2 0.2 29.6 237.9

Depreciation and impairment charges for the year 2.4 8.3 45.5 – 14.4 70.6

Disposals (0.4) (4.3) (25.8) – (4.6) (35.1)

t 31 July 2023 15.0 40.9 177.9 0.2 39.4 273.4

Net book value at 31 July 2023 6.5 24.6 271.2 0.2 54.6 357.1

Net book value at 31 July 2022 7.9 25.7 240.0 – 48.9 322.5

Net book value at 1 August 2021 9.5 27.3 222.9 0.1 50.1 309.9

1. Right of use assets primarily relate to the group’s leasehold properties.

233Close Brothers Group plc Annual Report 2023

The Notes continued

15. Property, Plant and Equipment (continued)

There was a gain of £3.3 million from the sale of assets held under operating leases for the year ended 31 July 2023

(2022: £3.2 million).

31 July 2023

£ million

31 July 2022

£ million

Future minimum lease rentals receivable under non-cancellable operating leases

One year or within one year 50.8 49.2

>One to two years 34.1 28.2

>Two to three years 22.5 13.5

>Three to four years 14.9 5.6

>Four to five years 8.1 2.9

More than five years 2.3 0.6

132.7 100.0

Leasehold

property

£ million

Fixtures,

fittings and

equipment

£ million

Total

£ million

Company

Cost

t 1 August 2021 0.3 11.8 12.1

dditions – – –

t 31 July 2022 0.3 11.8 12.1

dditions – – –

t 31 July 2023 0.3 11.8 12.1

Depreciation

t 1 August 2021 – 0.6 0.6

Charge for the year 0.1 1.2 1.3

t 31 July 2022 0.1 1.8 1.9

Charge for the year – 1.3 1.3

t 31 July 2023 0.1 3.1 3.2

Net book value at 31 July 2023 0.2 8.7 8.9

Net book value at 31 July 2022 0.2 10.0 10.2

Net book value at 1 August 2021 0.3 11.2 11.5

The net book value of leasehold property comprises:

Group Company

31 July 2023

£ million

31 July 2022

£ million

31 July 2023

£ million

31 July 2022

£ million

Long leasehold property 1.2 1.3 0.2 0.2

Short leasehold property 5.3 6.6 – –

6.5 7.9 0.2 0.2

234 Financial Statements

16. Other Assets and Other Liabilities

31 July

2023

£ million

31 July

2022

£ million

Prepayments, accrued income and other assets

Prepayments 117.3 115.6

ccrued income 20.0 14.9

Trade and other receivables 46.8 54.7

184.1 185.2

ccruals, deferred income and other liabilities

ccruals 130.3 149.0

Deferred income 7.9 5.7

Trade and other payables 145.6 155.9

Provisions 19.2 23.9

303.0 334.5

Provisions movement in the year:

Claims

£ million

Property

£ million

Other

£ million

Total

£ million

Group

t 1 August 2021 5.8 6.8 9.2 21.8

dditions 5.8 1.1 2.2 9.1

Utilised (1.4) (0.6) (1.9) (3.9)

Released (1.3) (0.6) (1.2) (3.1)

t 31 July 2022 8.9 6.7 8.3 23.9

dditions 1.6 1.5 4.1 7.2

Utilised (6.2) – (2.0) (8.2)

Released (2.0) (0.1) (1.6) (3.7)

t 31 July 2023 2.3 8.1 8.8 19.2

Property

£ million

Other

£ million

Total

£ million

Company

t 1 August 2021 0.4 2.6 3.0

dditions – 1.0 1.0

Utilised – (0.4) (0.4)

Released – (0.2) (0.2)

t 31 July 2022 0.4 3.0 3.4

dditions – 0.4 0.4

Utilised – (0.7) (0.7)

Released – (0.7) (0.7)

t 31 July 2023 0.4 2.0 2.4

Provisions are made for claims and other items which arise in the normal course of business. Claims relate to legal and

regulatory cases, while other items largely relate to property dilapidations and employee benefits. For such matters, a provision

is recognised where it is determined that there is a present obligation arising from a past event, payment is probable, and the

amount can be estimated reliably. The timing and/or outcome of these claims and other items are uncertain.

235Close Brothers Group plc Annual Report 2023

The Notes continued

17. Settlement Balances and Short Positions

31 July

2023

£ million

31 July

2022

£ million

Settlement balances 686.0 780.7

Short positions in:

Debt securities 3.5 7.5

Equity shares 6.4 7.9

9.9 15.4

695.9 796.1

18. Financial Liabilities

On demand

£ million

Within three

months

£ million

Between

three months

and one year

£ million

Between

one and

two years

£ million

Between

two and

five years

£ million

After

more than

five years

£ million

Total

£ million

Deposits by banks 10.3 43.6 88.0 – – – 141.9

Deposits by customers 175.1 1,836.4 3,745.9 1,305.0 662.1 – 7,724.5

Loans and overdrafts from banks 31.8 20.1 228.0 262.0 110.0 – 651.9

Debt securities in issue – 30.4 228.7 197.8 1,261.8 293.9 2,012.6

t 31 July 2023 217.2 1,930.5 4,290.6 1,764.8 2,033.9 293.9 10,530.9

On demand

£ million

Within three

months

£ million

Between

three months

and one year

£ million

Between

one and

two years

£ million

Between two

and five years

£ million

After

more than

five years

£ million

Total

£ million

Deposits by banks 6.1 52.0 102.4 – – – 160.5

Deposits by customers 120.9 1,645.2 3,615.6 1,058.8 329.9 – 6,770.4

Loans and overdrafts from banks 12.1 10.7 – 228.0 371.9 – 622.7

Debt securities in issue – 26.7 855.3 249.4 567.0 362.5 2,060.9

t 31 July 2022 139.1 1,734.6 4,573.3 1,536.2 1,268.8 362.5 9,614.5

At 31 July 2023, the parent company held £250.5 million (31 July 2022: £251.5 million) of non-instalment debt securities in

issue with an interest rate of 7.75% and a final maturity date of 2028.

As outlined in note 26(c) at 31 July 2023 the group accessed £600.0 million (31 July 2022: £600.0 million) and £5.0 million (31

July 2022: £nil) cash under the Bank of England’s Term Funding Scheme with Additional Incentives for SMEs and Indexed

Long-Term Repo respectively. Cash from these schemes is included within loans and overdrafts from banks. Residual

maturities of the schemes are as follows:

On demand

£ million

Within

three

months

£ million

Between

three months

and one year

£ million

Between

one and

two years

£ million

Between

two and

five years

£ million

After

more than

five years

£ million

Total

£ million

t 31 July 2023 – 7.6 228.0 262.0 110.0 – 607.6

t 31 July 2022 – 0.6 – 228.0 372.0 – 600.6

19. Subordinated Loan Capital

Prepayment

date

Initial

interest

rate

31 July

2023

million

31 July

2022

£ million

Final maturity date

2031 2026 2.00% 174.9 186.5

174.9 186.5

At 31 July 2023, the parent company held £200.4 million (31 July 2022: £200.1 million restated) of subordinated loan capital

with an interest rate of 2.00% and a final maturity date of 2031.

236 Financial Statements

20. Called Up Share Capital and Distributable Reserves

31 July 2023

31 July 2022

million £ million

Group and company

Ordinary shares of 25p each (allotted, issued and fully paid) 152.1 38.0 152.1 38.0

At 31 July 2023, the company’s reserves available for distribution under section 830(2) and 831(2) of the Companies Act 2006

were £401.9 million (2022: £436.2 million). The directors have applied the guidance provided by ICAEW TECH 02/17 in

determining this.

Additional disclosures on the group’s capital position and capital risk can be found on pages 99 to 100 in the Risk Report.

21. Guarantees, Commitments and Contingent Liabilities

Guarantees

Group Company

31 July

2023

£ million

31 July

2022

£ million

31 July

2023

£ million

31 July

2022

£ million

Earliest period in which guarantee could be called

Within one year 114.0 109.3 105.0 106.0

More than one year 3.2 3.3 – –

117.2 112.6 105.0 106.0

Where the group undertakes to make a payment on behalf of its subsidiaries for guarantees issued, such as bank facilities or

property leases or as irrevocable letters of credit for which an obligation to make a payment to a third party has not arisen at

the reporting date, they are included in these consolidated financial statements as contingent liabilities.

Commitments

Undrawn facilities, credit lines and other commitments to lend

31 July

2023

£ million

31 July

2022

£ million

Within one year

1,228.5 1,223.4

1. Includes both revocable and irrevocable commitments.

Other commitments

Subsidiaries had contracted capital and other financial commitments of £80.6 million (2022: £119.7 million).

Operating lease commitments

During the year, the company recognised lease payments as an expense of £2.1 million (2022: £2.1 million). At 31 July 2023,

the company had future minimum lease payments under non-cancellable operating leases relating to property of £2.1 million

within one year, £8.3 million between one and five years, and £4.3 million after more than five years, totalling £14.7 million (31

July 2022: £2.1 million, £8.3 million, and £6.4 million respectively, totalling £16.8 million).

Contingent liabilities

Motor Finance commission arrangements

The Group has received a number of complaints, some of which are with the Financial Ombudsman Service, and is subject to

a number of claims through the courts regarding historic commission arrangements with intermediaries on its Motor Finance

products. This follows the FCA’s Motor Market Review in 2019. Depending on the outcome of the court’s rulings and/or

regulatory findings on the matter, these complaints and claims may give rise to a potential future obligation to compensate

customers. It is not currently possible to estimate the financial impact, if any, or scope of these or any future related claims.

237Close Brothers Group plc Annual Report 2023

The Notes continued

22. Related Party Transactions

Transactions with key management

Details of directors’ remuneration and interests in shares are disclosed in the Directors’ Remuneration Report.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the

activities of an entity; the group’s key management are the members of the group’s Executive Committee, which includes all

executive directors, together with its non-executive directors.

The table below details, on an aggregated basis, key management personnel emoluments:

2023

£ million

2022

£ million

Emoluments

Salaries and fees 5.7 5.8

Benefits and allowances 0.6 0.5

Performance related awards in respect of the current year:

Cash 1.7 3.1

Deferred – 0.8

8.0 10.2

Share-based awards (0.9) 2.3

7.1 12.5

Gains upon exercise of options by key management personnel, expensed to the income statement in previous years, totalled

£1.4 million (2022: £1.1 million).

Key management have banking and asset management relationships with group entities which are entered into in the normal

course of business. Amounts included in deposits by customers at 31 July 2023 attributable, in aggregate, to key management

were £0.5 million (31 July 2022: £0.2 million).

23. Pensions

The group operates defined contribution pension schemes for eligible employees as well as a defined benefit pension scheme

which is closed to new members and further accrual. Assets of all schemes are held separately from those of the group.

Defined contribution schemes

During the year the charge to the consolidated income statement for the group’s defined contribution pension schemes was

£16.5 million (2022: £16.9 million), representing contributions payable by the group and is included in administrative expenses.

Defined benefit pension scheme

The group’s only defined benefit pension scheme (“the scheme”) is a final salary scheme which operates under trust law. The

scheme is managed and administered in accordance with the scheme’s Trust Deed and Rules and all relevant legislation by a

trustee board made up of trustees nominated by both the company and the members.

During the year, the scheme entered into a buy-in transaction with an insurance company covering all members of the scheme.

A buy-in is a bulk annuity policy that matches the scheme’s assets and liabilities. It represents a significant de-risking of the

investment portfolio and hence a significant reduction in the group’s long-term exposure to pension funding risk. As a result of

this transaction, the pension surplus on the group’s balance sheet has fallen to £1.3 million (31 July 2022: £7.2 million) relating

to the cash held by the scheme, with the fair value of the insurance policy matched to the fair value of the scheme’s liabilities,

which remains subject to changes in actuarial valuations as presented in this note. The loss of the pension surplus represents

the one-off premium paid for the insurance policy and is recognised within other comprehensive income.

The scheme was closed to new entrants in August 1996 and closed to further accrual during 2012. At 31 July 2023 this

scheme had 24 (31 July 2022: 26) deferred members, 56 (31 July 2022: 54) pensioners and dependants and 8 (31 July 2022: 8)

insured annuitants.

Funding position

The scheme’s most recent triennial actuarial valuation at 31 July 2021 showed that the scheme was fully funded. As such, no

further contributions are scheduled.

238 Financial Statements

IAS 19 valuation

The following disclosures are reported in accordance with IAS 19. Significant actuarial assumptions are as follows:

2023

2022

Inflation rate (Retail Price Index) 3.5 3.5

Inflation rate (Consumer Price Index) 3.1 3.1

Discount rate for scheme liabilities

5.2 3.4

Expected interest/expected long-term return on plan assets 5.2 3.4

Mortality assumptions

Existing pensioners from age 65, life expectancy (years):

Men 23.0 23.5

Women 24.8 25.3

Non-retired members currently aged 50, life expectancy from age 65 (years):

Men 23.7 24.3

Women 26.1 26.6

1. Based on market yields at 31 July 2023 and 2022 on high quality sterling-denominated corporate bonds, adjusted to be consistent with the estimated term

of the post-employment beneﬁt obligation, using the Willis Towers Watson model “Global RATE:Link”.

2. Based on standard tables SAPS S2 Light (2022: SAPS S2 Light) produced by the CMI Bureau of the Institute and Faculty of Actuaries with adjusted

mortality multipliers for pensioners and non-pensioners, together with projected future improvements in line with the CMI 2022 (2022: CMI 2020) core

projection model with a long-term trend of 1.5% per annum.

The scheme has been accounted for in the company and the surplus has been recognised as an asset on the company and

group’s balance sheet within “Trade and other receivables”.

The group has the unconditional right to any surpluses that arise within the scheme once all benefits have been secured in full.

As such no asset ceiling has been applied, and accordingly the scheme surplus is recognised on the consolidated balance

sheet.

2023

£ million

2022

£ million

2021

£ million

2020

£ million

2019

£ million

Fair value of scheme assets

Equities – – 9.4 14.0 13.1

Bonds – 30.3 33.6 32.3 29.9

Cash 1.4 3.5 0.2 0.3 0.2

Insured annuities 22.4 1.0 – – –

Total assets 23.8 34.8 43.2 46.6 43.2

Fair value of liabilities (22.5) (27.6) (35.6) (39.2) (36.5)

Surplus 1.3 7.2 7.6 7.4 6.7

1. There are no amounts included within the fair value of scheme assets relating to the ﬁnancial instruments of Close Brothers Group plc.

Movement in the present value of scheme liabilities during the year:

2023

£ million

2022

£ million

Carrying amount at 1 August (27.6) (35.6)

Interest expense (0.9) (0.6)

Benefits paid 1.1 1.0

ctuarial gain 4.9 8.6

Other – (1.0)

Carrying amount at 31 July (22.5) (27.6 )

239Close Brothers Group plc Annual Report 2023

The Notes continued

23. Pensions (continued)

Movement in the fair value of scheme assets during the year:

2023

£ million

2022

£ million

Carrying amount at 1 August 34.8 43.2

Interest income 1.1 0.7

Benefits paid (1.1) (1.0)

dministrative costs (0.4) (0.4)

Return on assets excluding interest income (10.6) (8.7)

Other – 1.0

Carrying amount at 31 July 23.8 34.8

Historical experience of actuarial gains/(losses) are shown below:

2023

£ million

2022

£ million

2021

£ million

2020

£ million

2019

£ million

Experience (losses)/gains on scheme assets (10.6) (8.7) 1.9 4.1 3.3

Experience (losses)/gains on scheme liabilities (0.9) 0.4 – – 1.3

Impact of changes in assumptions 5.8 8.2 (1.4) (3.2) (2.7)

Total actuarial changes in liabilities 4.9 8.6 (1.4) (3.2) (1.4)

Total actuarial (losses)/gains (5.7) (0.1) 0.5 0.9 1.9

Total actuarial losses have been recognised in other comprehensive income. Income of £0.2 million (2022: £0.1 million) from

the interest on the scheme surplus has been recognised within administrative expenses in the consolidated income statement.

The group’s policy is not to allocate the net defined benefit cost between group entities participating in the scheme.

The valuation of the scheme’s liabilities is sensitive to the key assumptions used in the valuation. The effect of a change in

those assumptions in 2023 and 2022 is set out below. The analysis reflects the variation of the individual assumptions.

The variation in price inflation includes all inflation-linked pension increases in deferment and in payment.

Impact on defined benefit obligation increase/(decrease)

2023

2022

Key assumption Sensitivity % £ million

% £ million

Discount rate 0.25% decrease/(increase) 2.9 0.7 (3.2) (0.9)

Price inflation 0.25% increase 1.1 0.3 1.6 0.4

Mortality Increase in life expectancy at age 65 by one year 2.6 0.6 3.0 0.8

Changes in the assumptions used in the valuation due to external factors would affect the carrying value of the scheme.

The most significant risks are:

• Market factors (movements in equity and bond markets): The scheme’s unquoted assets are invested 6% in cash and

94% in insured annuities (31 July 2022: 87% quoted bonds, 10% cash and 3% insured annuities) and the scheme’s

liabilities are measured with reference to corporate bond yields. The performance of these asset classes can be volatile.

Underperformance of either of these markets would have an adverse impact on the carrying value of the scheme.

• Inflation: Deferred pensions and pensions in payment increase at specified periods in line with inflation, subject to certain

caps and floors in place. Changes in inflation may impact scheme liabilities.

• Life expectancy: Change in the life expectancy of the scheme’s members may impact scheme liabilities.

The weighted average duration of the benefit payments reflected in the scheme liabilities is 12 years (2022: 14 years).

240 Financial Statements

24. Share-based Awards

The Save As You Earn (“SAYE”), Long Term Incentive Plan (“LTIP”) and Deferred Share Awards (“DSA”) share-based awards

have been granted under the group’s share schemes. The general terms and conditions for these share-based awards are

described on pages 186 to 188 in the Directors’ Remuneration Report.

In order to satisfy a number of the awards below the company has purchased company shares into Treasury and the Close

Brothers Group Employee Share Trust has purchased company shares. At 31 July 2023, 1.6 million (31 July 2022: 1.6 million)

and 1.5 million (31 July 2022: 1.4 million) of these shares were held respectively and in total £40.0 million (2022: £40.6 million)

was recognised within the share-based payments reserve. During the year £5.6 million (2022: £4.9 million) of these shares were

released to satisfy share-based awards to employees. The share-based payments reserve as shown in the consolidated

statement of changes in equity also includes the cumulative position in relation to unvested share-based awards charged to

the consolidated income statement of £8.0 million (2022: £11.4 million). The share-based awards charge of £2.0 million

(2022: £4.9 million) is included in administrative expenses shown in the consolidated income statement.

Movements in the number of share-based awards outstanding and their weighted average share prices are as follows:

SAYE LTIP DSA

Number

Weighted

average

exercise

price

Number

Weighted

average

exercise

price

Number

Weighted

average

exercise

price

t 1 August 2021 2,236,005 – 1,253,774 – 547,498 –

Granted 420,863 1,042.6p 326,540 – 196,576 –

Exercised (71,478) 1,180.6p (19,549) – (267,051) –

Forfeited (288,729) 969.8p (13,274) – (10,211) –

Lapsed (26,290) 1,158.8p (189,633) – 8,191 –

t 31 July 2022 2,270,371 – 1,357,858 – 475,003 –

Granted 1,736,479 725.6p 397,568 –

262,402 –

Exercised (103,625) 875.0p (87,172) –

(243,451) –

Forfeited (967,425) 863.9p (137,965) –

– –

Lapsed (131,073) 1,118.9p (177,449) –

(2,006) –

t 31 July 2023 2,804,727 – 1,352,840 – 491,948 –

Exercisable at:

31 July 2023 280,152 893.8p 184,521 – 40,656 –

31 July 2022 48,978 1,184.4p 202,528 – 74,008 –

The table below shows the weighted average market price at the date of exercise:

2023 2022

SAYE 950.9p 1,319.2p

LTI P 1,022.5p 1,460.4p

DSA 994.5p 1,402.9p

241Close Brothers Group plc Annual Report 2023

The Notes continued

24. Share-based Awards (continued)

The range of exercise prices and weighted average remaining contractual life of awards and options outstanding are

as follows:

2023

Options outstanding

2022

Options outstanding

Number

outstanding

Weighted average

remaining

contractual life

Years

Number

outstanding

Weighted average

remaining

contractual life

Years

SAYE

Between £7 and £8 2,269,108 2.8 1,131,601 2.6

Between £8 and £9 328,704 0.7 525,818 1.7

Between £9 and £10 101,476 2.7 282,400 3.7

Between £10 and £11 15,928 1.5 102,790 1.3

Between £11 and £12 8,284 0.8 70,081 0.9

Between £12 and £13 51,346 2.2 94,729 2.9

Between £13 and £14 29,881 1.8 62,952 2.7

LTIP

Nil 1,352,840 3.3 1,357,858 3.4

DSA

Nil 491,948 1.7 475,003 1.6

Tota l 4,649,515 2.7 4,103,232 2.6

For the share-based awards granted during the year, the weighted average fair value of those options at 31 July 2023 was

395.7p (31 July 2022: 928.8p). The main assumptions for the valuation of these share-based awards comprised:

t 31 July 2023

Exercise period

Share price

at issue

Exercise

price

Expected

volatility

Expected

option life

in years

Dividend

yield

Risk free

interest rate

SAYE

1 December 2025 to 31 May 2026 918.8p 735.0p 36.0% 3 7.2% 3.6%

1 December 2027 to 31 May 2028 918.8p 735.0p 31.0% 5 7.2% 4.0%

1 June 2026 to 30 November 2026 896.3p 717.0p 33.0% 3 7.0% 3.7%

1 June 2028 to 30 November 2028 896.3p 717.0p 32.0% 5 7.0% 3.6%

LTIP

11 October 2025 to 10 October 2026 1,110.0p – 36.0% 3 7.2% 3.6%

11 October 2026 to 10 October 2027 923.0p – 33.0% 4 7.2% 3.6%

DSA

10 October 2024 to 9 October 2025 923.1p – – – – –

28 September 2023 to 26 September 2024 965.0p – – – – –

21 September 2023 to 19 September 2024 965.0p – – – – –

28 September 2024 to 27 September 2025 965.0p – – – – –

29 September 2025 to 27 September 2026 965.0p – – – – –

t 31 July 2022

Exercise period

Share price

at issue

Exercise

price

Expected

volatility

Expected

option life

in years

Dividend

yield

Risk free

interest rate

SAYE

1 December 2024 to 31 May 2025 1,551.3p 1,241.0p 32.0% 3 4.1% 0.6%

1 December 2026 to 31 May 2027 1,551.3p 1,241.0p 28.0% 5 4.1% 0.7%

1 June 2025 to 30 November 2025 1,195.0p 956.0p 34.0% 3 5.1% 1.8%

1 June 2027 to 30 November 2027 1,195.0p 956.0p 30.0% 5 5.1% 1.8%

LTIP

11 October 2024 to 10 October 2027 1,545.8p – 32.0% 3 4.1% 0.6%

DSA

5 October 2022 to 5 October 2024 1,545.8p – – – – –

5 October 2024 to 5 October 2025 1,545.8p – – – – –

22 March 2024 to 21 March 2025 1,192.0p – – – – –

1 March 2025 to 28 February 2026 1,297.0p – – – – –

Expected volatility was determined mainly by reviewing share price volatility for the expected life of each option up to the date

of grant.

242 Financial Statements

25. Consolidated Cash Flow Statement Reconciliation

2023

£ million

2022

£ million

(a) Reconciliation of operating proﬁt before tax to net cash inﬂow from operating activities

Operating profit before tax 112.0 232.8

Tax paid (7.4) (63.4)

Depreciation, amortisation and impairment 108.2 100.3

Impairment losses on financial assets 204.1 103.3

(Increase)/decrease in:

Interest receivable and prepaid expenses (6.8) 19.8

Net settlement balances and trading positions (11.4) 17.2

Net loans from money brokers against stock advanced 15.6 2.7

Decrease in interest payable and accrued expenses (16.5) (32.2)

Net cash inﬂow from trading activities 397.8 380.5

Cash (outflow)/inflow arising from changes in:

Loans and advances to banks not repayable on demand (21.1) (5.3)

Loans and advances to customers (584.3) (515.0)

ssets let under operating leases (73.2) (54.5)

Certificates of deposit 185.0 79.7

Sovereign and central bank debt 191.2 (255.3)

Covered bonds (105.4) –

Deposits by banks (22.1) 11.8

Deposits by customers 942.5 142.7

Loans and overdrafts from banks 29.2 110.0

Debt securities in issue (net) 14.4 270.5

Derivative financial instruments (net) 70.4 –

Other assets less other liabilities (3.0) (6.4)

Net cash inﬂow from operating activities 1,021.4 158.7

(b) Analysis of net cash outﬂow in respect of the purchase of subsidiaries and

non-controlling interests

Cash consideration paid (0.5) (0.1)

Cash consideration received – 0.1

(d) Analysis of cash and cash equivalents

Cash and balances at central banks 1,918.4 1,236.0

Loans and advances to banks 290.9 147.0

t 31 July 2,209.3 1,383.0

1. Excludes £58.0 million (2022: £37.1 million) of Bank of England and other cash reserve accounts.

During the year ended 31 July 2023, the non-cash changes on debt financing amounted to £0.9 million (31 July 2022:

£9.6 million) arising largely from interest accretions and fair value hedging movements.

243Close Brothers Group plc Annual Report 2023

The Notes continued

26. Financial Risk Management

The group faces a number of risks in the normal course of its business. To manage these effectively, a consistent approach is

adopted based on a set of overarching principles, namely:

• adhering to our established and proven business model;

• implementing an integrated risk management approach based on the concept of three lines of defence; and

• setting and operating within clearly defined risk appetites, monitored with defined metrics and limits.

The group’s Enterprise Risk Management Framework details the core risk management components and structures, and

defines a consistent and measurable approach to identifying, assessing, controlling and mitigating, reviewing and monitoring,

and reporting risk.

The board retains overall responsibility for overseeing the maintenance of a system of internal control, which ensures that an

effective risk management framework and oversight process operate across the group, while risk management across the

group is overseen by the Risk Committee.

The Risk Report provides more information on the group’s approach to risk management. As a financial services group,

financial instruments are central to the group’s activities. The risk associated with financial instruments represents a significant

component of those faced by the group and is analysed in more detail below.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of

measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset,

financial liability and equity instrument are disclosed in note 1.

(a) Classification

The following tables analyse the group’s assets and liabilities in accordance with the categories of financial instruments in IFRS

Derivatives

designated

as hedging

instruments

£ million

Fair value

through

profit and

loss

£ million

Fair value

through other

comprehensive

income

£ million

Amortised cost

£ million

Total

£ million

t 31 July 2023

ssets

Cash and balances at central banks – – – 1,937.0 1,937.0

Settlement balances – – – 707.0 707.0

Loans and advances to banks – – – 330.3 330.3

Loans and advances to customers – – – 9,255.0 9,255.0

Debt securities – 15.2 292.4 – 307.6

Equity shares – 29.3 – – 29.3

Loans to money brokers against stock advanced – – – 37.6 37.6

Derivative financial instruments 50.7 37.8 – – 88.5

Other financial assets – 2.0 – 93.5 95.5

50.7 84.3 292.4 12,360.4 12,787.8

Liabilities

Settlement balances and short positions – 9.9 – 686.0 695.9

Deposits by banks – – – 141.9 141.9

Deposits by customers – – – 7,724.5 7,724.5

Loans and overdrafts from banks – – – 651.9 651.9

Debt securities in issue – – – 2,012.6 2,012.6

Loans from money brokers against stock advanced – – – 4.8 4.8

Subordinated loan capital – – – 174.9 174.9

Derivative financial instruments 176.2 19.7 – – 195.9

Other financial liabilities – – – 199.2 199.2

176.2 29.6 – 11,595.8 11,801.6

244 Financial Statements

Derivatives

designated as

hedging

instruments

£ million

Fair value

through profit

and loss

£ million

Fair value

through other

comprehensive

income

£ million

Amortised

cost

£ million

Total

£ million

t 31 July 2022

ssets

Cash and balances at central banks – – – 1,254.7 1,254.7

Settlement balances – – – 799.3 799.3

Loans and advances to banks – – – 165.4 165.4

Loans and advances to customers – – – 8,858.9 8,858.9

Debt securities – 12.4 415.4 185.0 612.8

Equity shares – 28.4 – – 28.4

Loans to money brokers against stock advanced – – – 48.4 48.4

Derivative financial instruments 61.5 9.7 – – 71.2

Other financial assets – 1.7 – 82.6 84.3

61.5 52.2 415.4 11,394.3 11,923.4

Liabilities

Settlement balances and short positions – 15.4 – 780.7 796.1

Deposits by banks – – – 160.5 160.5

Deposits by customers – – – 6,770.4 6,770.4

Loans and overdrafts from banks – – – 622.7 622.7

Debt securities in issue – – – 2,060.9 2,060.9

Loans from money brokers against stock advanced – – – – –

Subordinated loan capital – – – 186.5 186.5

Derivative financial instruments 83.9 5.3 – – 89.2

Other financial liabilities – – – 184.2 184.2

83.9 20.7 – 10,765.9 10,870.5

(b) Valuation

The fair values of the group’s subordinated loan capital and debt securities in issue are set out below.

31 July 2023

31 July 2022

Fair

value

£ million

Carrying

value

£ million

Fair

value

£ million

Carrying

value

£ million

Subordinated loan capital 165.8 174.9 180.0 186.5

Debt securities in issue 2,008.0 2,012.6 2,071.4 2,060.9

The fair value of gross loans and advances to customers at 31 July 2023 is estimated to be £9,046.2 million (carrying value:

£9,255.0 million). The fair value of deposits by customers is estimated to be £7,668.7 million (carrying value: £7,724.5 million).

These estimates are based on highly simplified assumptions and inputs and may differ to actual amounts received or paid. The

differences between fair value and carrying value are not considered to be significant, and are consistent with management’s

expectations given the nature of the Banking business and the short average tenor of the instruments. However, the

differences have increased in comparison to the prior year in line with market interest rates.

Valuation hierarchy

The group holds financial instruments that are measured at fair value subsequent to initial recognition. Each instrument has

been categorised within one of three levels using a fair value hierarchy that reflects the significance of the inputs used in

making the measurements. These levels are based on the degree to which the fair value is observable and are defined as

follows:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or

liabilities where prices are readily available and represent actual and regularly occurring market transactions on an arm’s

length basis. An active market is one in which transactions occur with sufficient frequency to provide ongoing pricing

information;

• Level 2 fair value measurements are those derived from quoted prices in less active markets for identical assets or liabilities

or those derived from inputs other than quoted prices that are observable for the asset or liability, either directly as prices or

indirectly derived from prices; and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that

are not based on observable market data (“unobservable inputs”).

Instruments classified as Level 1 predominantly comprise sovereign and central bank debt, covered bonds and liquid listed

debt securities. The fair value of these instruments is derived from quoted prices in active markets.

245Close Brothers Group plc Annual Report 2023

The Notes continued

26. Financial Risk Management (continued)

Instruments classified as Level 2 predominantly comprise less liquid listed equity shares, investment grade corporate bonds

and over-the-counter derivatives. The fair value of equity shares and bonds are derived from quoted prices in less active

markets in comparison to level 1. Over-the-counter derivatives largely relate to interest rate and exchange rate contracts (see

note 13 for further information). The valuation of such derivatives includes the use of discounted future cash flow models, with

the most significant input into these models being interest rate yield curves developed from quoted rates.

Instruments classified as Level 3 predominantly comprise over-the-counter derivatives, which is new this year, and contingent

consideration payable and receivable in relation to the acquisition and disposal of subsidiaries.

The valuation of Level 3 derivatives is similar to Level 2 derivatives and includes the use of discounted future cash flow models,

with the most significant input into these models being interest rate yield curves developed from quoted rates. The fair value of

contingent consideration is determined on a discounted expected cash flow basis. The group believes that there is no

reasonably possible change to the inputs used in the valuation of these positions which would have a material effect on the

group’s consolidated income statement.

During the year, £1.6 million of derivative financial assets and £1.8 million of derivative financial liabilities were transferred from

Level 2 to 3. There were no other significant transfers between Level 1, 2 and 3 in 2023 and 2022.

The tables below show the classification of financial instruments held at fair value into the valuation hierarchy.

Level 1

£ million

Level 2

£ million

Level 3

£ million

Total

£ million

t 31 July 2023

ssets

Debt securities:

Long trading positions in debt securities 13.6 1.6 – 15.2

Sovereign and central bank debt 186.1 – – 186.1

Covered bonds 106.3 – – 106.3

Equity shares 3.9 25.1 0.3 29.3

Derivative financial instruments – 77.4 11.1 88.5

Contingent consideration – – 2.0 2.0

309.9 104.1 13.4 427.4

Liabilities

Short positions:

Debt securities 2.3 1.2 – 3.5

Equity shares 1.7 4.6 0.1 6.4

Derivative financial instruments – 184.7 11.2 195.9

Contingent consideration – – 2.8 2.8

4.0 190.5 14.1 208.6

Level 1

£ million

Level 2

£ million

Level 3

£ million

Total

£ million

t 31 July 2022

ssets

Debt securities:

Long trading positions in debt securities 11.0 1.4 – 12.4

Sovereign and central bank debt 415.4 – – 415.4

Covered bonds – – – –

Equity shares 4.1 24.0 0.3 28.4

Derivative financial instruments – 71.2 – 71.2

Contingent consideration – – 1.7 1.7

430.5 96.6 2.0 529.1

Liabilities

Short positions:

Debt securities 5.8 1.7 – 7.5

Equity shares 2.2 5.6 0.1 7.9

Derivative financial instruments – 89.2 – 89.2

Contingent consideration – – 3.0 3.0

8.0 96.5 3.1 107.6

246 Financial Statements

Movements in financial instruments categorised as Level 3 were:

Derivative

financial

assets

£ million

Derivative

financial

liabilities

£ million

Equity shares

£ million

Contingent

consideration

£ million

Total

£ million

t 1 August 2021 – – 0.3 (2.9) (2.6)

Total losses recognised in the consolidated income statement – – – (0.2) (0.2)

Purchases, issues and transfers in – – – 1.8 1.8

Sales, settlements and transfers out – – (0.1) – (0.1)

t 31 July 2022 – – 0.2 (1.3) (1.1)

Total losses recognised in the consolidated income statement 9.5 (9.4) – (0.1) –

Purchases, issues and transfers in 1.6 (1.8) – 0.6 0.4

Sales, settlements and transfers out – – – – –

t 31 July 2023 11.1 (11.2) 0.2 (0.8) (0.7)

There were no overall gains or losses recognised in the consolidated income statement relating to level 3 instruments held at

the year end (2022: £0.2 million loss).

Credit risk is the risk of a reduction in earnings and/or value, as a result of the failure of a counterparty or associated party, with

whom the group has contracted, to meet its obligations as they fall due. Credit risk across the group mainly arises through the

lending and treasury activities of the Banking division.

Maximum exposure to credit risk

The table below presents the group’s maximum exposure to credit risk, before taking account of any collateral and credit risk

mitigation, arising from its on balance sheet and off balance sheet financial instruments. For off balance sheet instruments,

the maximum exposure to credit risk represents the contractual nominal amounts.

31 July

2023

£ million

31 July

2022

£ million

On balance sheet

Cash and balances at central banks 1,937.0 1,254.7

Settlement balances 707.0 799.3

Loans and advances to banks 330.3 165.4

Loans and advances to customers 9,255.0 8,858.9

Debt securities 307.6 612.8

Loans to money brokers against stock advanced 37.6 48.4

Derivative financial instruments 88.5 71.2

Other financial assets 95.5 84.3

12,758.5 11,895.0

Off balance sheet

Irrevocable undrawn commitments 263.9 277.8

Total maximum exposure to credit risk 13,022.4 12,172.8

Assets pledged and received as collateral

The group pledges assets for repurchase agreements and securities borrowing agreements which are generally conducted

under terms that are customary to standard borrowing contracts.

The group is a participant of the Bank of England’s Term Funding Scheme with Additional Incentives for SMEs (“TFSME”) and

the Indexed Long-Term Repo (“ILTR”).

247Close Brothers Group plc Annual Report 2023

The Notes continued

26. Financial Risk Management (continued)

Under these schemes, asset finance loan receivables of £863.4 million (31 July 2022: £626.1 million), UK gilts with a market

value of £nil (31 July 2022: £72.6 million), UK T-Bills with a market value of £nil (31 July 2022: £144.3 million) and retained

notes relating to Motor Finance loan receivables of £83.4 million (31 July 2022: £24.3 million) were positioned as collateral with

the Bank of England, against which £600.0 million (31 July 2022: £600.0 million) of cash was drawn from the TFSME and

£5.0 million (31 July 2022: £nil) from the ILTR.

The term of the TFSME transactions is four years from the date of each drawdown but the group may choose to repay earlier

at its discretion. The term of the ILTR transaction is six months and cannot be repaid earlier. The risks and rewards of the loan

receivables remain with the group and continue to be recognised in loans and advances to customers on the consolidated

balance sheet.

The group has securitised without recourse and restrictions £1,436.3 million (31 July 2022: £1,626.8 million) of its insurance

premium and motor loan receivables in return for cash and asset-backed securities in issue of £1,187.4 million (31 July 2022:

£1,156.0 million restated). This includes the £83.4 million (31 July 2022: £24.3 million) retained notes positioned as collateral

with the Bank of England. As the group has retained exposure to substantially all the credit risk and rewards of the residual

benefit of the underlying assets it continues to recognise these assets in loans and advances to customers on its consolidated

balance sheet.

The majority of loans and advances to customers are secured against specific assets. Consistent and prudent lending criteria

are applied across the whole loan book with emphasis on the quality of the security provided.

Financial assets: Loans and advances to customers

The group’s approach to managing credit risk relating to loans and advances to customers is set out on pages 104 to 105 in

the Risk Report.

Information on the group’s internal credit risk reporting can be found on pages 114 to 115 in the Risk Report, including an

analysis of gross loans and advances to customers, trade receivables and undrawn facilities by the group’s internal credit

risk grading.

Information on the collateral held in relation to loans and advances to customers can be found on pages 117 to 118 in the

Risk Report, including analyses of gross loans and advances to customers by LTV ratio.

Financial assets: Treasury assets

The credit risk presented by the group’s treasury assets is low. Immaterial impairment provisions are recognised for cash and

balances at central banks, certificates of deposit and sovereign and central bank debt. These financial assets are investment

grade and in Stage 1.

Financial assets: Settlement balances and loans to money brokers against stock advanced

The credit risk presented by settlement balances in the Securities division is limited, as such balances represent delivery

versus payment transactions where delivery of securities occurs simultaneously with payment. The credit risk is therefore

limited to the change in market price of a security between trade date and settlement date and not the absolute value of the

trade. Winterflood is a market maker and trades on a principal-only basis with regulated counterparties including stockbrokers,

wealth managers, institutions and hedge funds who are either authorised and regulated by the PRA and/or FCA or equivalent

regulator in the respective country.

Counterparty exposure and settlement failure monitoring controls are in place as part of an overall risk management framework

and settlement balances past due are actively managed.

Loans to money brokers against stock advanced of £37.6 million (31 July 2022: £48.4 million) is the cash collateral provided to

these institutions, for stock borrowing by Winterflood. The stock borrowing to which the cash deposits relate is short term in

nature and is recorded at the amount payable. The credit risk of this financial asset is therefore limited.

248 Financial Statements

The following table shows the ageing of settlement balances:

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Impairment

provisions

£ million

Total

£ million

t 31 July 2023

Not past due 622.1 – – – 622.1

Less than 30 days past due 83.9 – – – 83.9

More than 30 days but less than 90 days past due – 0.6 – – 0.6

More than 90 days past due – – 0.5 (0.1) 0.4

706.0 0.6 0.5 (0.1) 707.0

Stage 1

£ million

Stage 2

£ million

Stage 3

£ million

Impairment

provisions

£ million

Total

£ million

t 31 July 2022

Not past due 726.0 – – – 726.0

Less than 30 days past due 70.6 – – – 70.6

More than 30 days but less than 90 days past due – 1.4 – – 1.4

More than 90 days past due – – 1.5 (0.2) 1.3

796.6 1.4 1.5 (0.2) 799.3

Company financial assets: Amounts owed by subsidiaries

Amounts owed by subsidiaries on the company balance sheet largely relate to Close Brothers Limited and Close Brothers

Holdings Limited, and the credit risk presented by these financial assets is immaterial.

(d) Market risk

Interest rate risk

Additional disclosures on the group’s interest rate risk can be found on pages 123 to 124 in the Risk Report.

Interest rate benchmark reform

In the prior year, the group completed the transition away from the use of LIBOR to alternative benchmark rates in loan

documentation, treasury transactions and other forms of contract. At 31 July 2021, loans and advances to customers

amounting to £995.5 million and derivatives with a notional value of £84.7 million were yet to transition to an alternative

benchmark rate. The transition was subsequently completed by 31 December 2021 in compliance with the requirements set by

the Prudential Regulation Authority and Financial Conduct Authority. There were no significant changes to the nature of the

risks arising from financial instruments to which the group is exposed as a result of the transition.

Foreign exchange risk

Additional disclosures on the group’s foreign exchange risk can be found on page 124 in the Risk Report.

Market price risk

Trading financial instruments: Equity shares and debt securities

The group’s trading activities relate to Winterflood. Additional disclosures on Winterflood’s market price risk can be found on

pages 129 to 130 of the Risk Report.

Non-trading financial instruments

Net gains and losses on non-trading financial instruments are disclosed in notes 12 and 13.

249Close Brothers Group plc Annual Report 2023

The Notes continued

26. Financial Risk Management (continued)

(e) Liquidity risk

Liquidity risk is the risk that liabilities cannot be met when they fall due or can only be met at an uneconomic price and arises

mainly in the Banking division. The following table analyses the contractual maturities of the group’s on balance sheet financial

liabilities on an undiscounted cash flow basis. Additional disclosures on the group’s liquidity risk can be found on page 120 of

the Risk Report.

demand

£ million

In less

than three

months

£ million

In more than

three months

but not more

than six

months

£ million

In more than

six months

but not more

than one year

£ million

In more than

one year but

not more

than five

years

£ million

In more

than five

years

£ million

Total

£ million

t 31 July 2023

Settlement balances – 686.0 – – – – 686.0

Deposits by banks 10.3 43.7 89.7 – – – 143.7

Deposits by customers 175.1 1,838.3 1,972.9 1,869.6 2,140.6 – 7,996.5

Loans and overdrafts from banks 31.8 25.2 7.6 243.8 383.2 – 691.6

Debt securities in issue – 46.7 132.3 168.1 1,705.1 416.3 2,468.5

Loans from money brokers against stock

advanced 4.8 – – – – – 4.8

Subordinated loan capital – 2.0 – 2.0 16.0 213.0 233.0

Derivative financial instruments 0.2 21.7 23.5 39.0 167.6 73.0 325.0

Lease liabilities 0.2 4.8 4.1 6.9 26.7 19.6 62.3

Other financial liabilities 20.3 111.6 0.9 10.6 28.0 8.7 180.1

Total 242.7 2,780.0 2,231.0 2,340.0 4,467.2 730.6 12,791.5

demand

£ million

In less

than three

months

£ million

In more than

three months

but not more

than six

months

£ million

In more than

six months

but not more

than one year

£ million

In more than

one year but

not more

than five

years

£ million

In more

than five

years

£ million

Total

£ million

t 31 July 2022

Settlement balances – 780.7 – – – – 780.7

Deposits by banks 6.0 51.9 98.9 4.1 – – 160.9

Deposits by customers 120.9 1,645.1 2,046.5 1,600.1 1,427.2 – 6,839.8

Loans and overdrafts from banks 12.0 12.0 1.9 3.7 610.5 – 640.1

Debt securities in issue – 30.3 256.2 619.5 890.7 444.2 2,240.9

Loans from money brokers against stock

advanced – – – – – – –

Subordinated loan capital – 2.0 – 2.0 15.0 218.0 237.0

Derivative financial instruments – 6.4 9.0 16.0 89.0 55.6 176.0

Lease liabilities 0.2 4.2 3.6 7.3 33.9 11.8 61.0

Other financial liabilities 16.1 124.6 5.3 6.8 34.4 7.0 194.2

Total 155.2 2,657.2 2,421.4 2,259.5 3,100.7 736.6 11,330.6

Derivative financial instruments in the table above includes net currency swaps. The following table shows the currency swaps

on a gross basis:

demand

£ million

In less

than three

months

£ million

In more than

three months

but not more

than six

months

£ million

In more than

six months

but not more

than one year

£ million

In more than

one year but

not more than

five years

£ million

In more than

five years

£ million

Total

£ million

t 31 July 2023 41.2 153.9 26.0 39.4 167.5 73.0 501.0

t 31 July 2022 1.7 69.8 9.0 16.0 88.9 55.6 241.0

250 Financial Statements

(f) Offsetting

The following table shows the impact on derivative financial assets and liabilities which have not been offset but for which the

group has enforceable master netting arrangements in place with counterparties. The net amounts show the exposure to

counterparty credit risk after offsetting benefits and collateral, and are not intended to represent the group’s actual exposure to

credit risk.

Master netting arrangements allow outstanding transactions with the same counterparty to be offset and settled net, either

unconditionally or following a default or other predetermined event. Financial collateral on derivative financial instruments

consists of cash settled, typically daily, to mitigate the mark to market exposures.

Gross

amounts

recognised

£ million

Master netting

arrangements

£ million

Financial

collateral

£ million

Net amounts

after offsetting

£ million

t 31 July 2023

Derivative financial assets 88.5 (77.1) – 11.4

Derivative financial liabilities 195.9 (77.1) (144.0) (25.2)

t 31 July 2022

Derivative financial assets 71.2 (69.1) (0.5) 1.5

Derivative financial liabilities 89.2 (69.1) (26.9) (6.8)

27. Interest in Unconsolidated Structured Entities

Structured entities are those entities that have been designed so that voting or similar rights are not the dominant factor in

deciding who has control, such as when any voting rights relate to administrative tasks only, or when the relevant activities are

directed by means of contractual arrangements.

The group has interests in structured entities as a result of contractual arrangements arising from the management of assets

on behalf of its clients as part of its Asset Management division. These structured entities consist of unitised vehicles such as

Authorised Unit Trusts (“AUTs”) and Open Ended Investment Companies (“OEICs”) which entitle investors to a percentage of

the vehicle’s net asset value. The structured entities are financed by the purchase of units or shares by investors. The group

does not hold direct investments in its structured entities.

As fund manager, the group does not guarantee returns on its funds or commit to financially support its funds. The business

activity of all structured entities is the management of assets in order to maximise investment returns for investors from capital

appreciation and/or investment income. The group earns a management fee from its structured entities, based on a

percentage of the entity’s net asset value.

The main risk the group faces from its interest in assets under management on behalf of external investors is the loss of fee

income as a result of the withdrawal of funds by clients. Outflows from funds are dependent on market sentiment, asset

performance and investor considerations. The assets under management of unconsolidated structured entities managed by

the group were £5,111.0 million at 31 July 2023 (31 July 2022: £5,091.0 million). Included in revenue on the consolidated

income statement is management fee income of £33.7 million (2022: £36.7 million) from unconsolidated structured entities

managed by the group.

251Close Brothers Group plc Annual Report 2023

The Notes continued

28. Investments in Subsidiaries

In accordance with section 409 of the Companies Act 2006, the following is a list of the group’s subsidiaries at 31 July 2023,

which are all wholly owned and incorporated in the UK unless otherwise stated.

The investment in subsidiary of £287.0 million (31 July 2022: £287.0 million) in the company balance sheet relates to an

investment in Close Brothers Holdings Limited. There was no impairment of this investment during the current and prior year.

On 20 September 2023, the group announced that it reached an agreement to acquire Bluestone Motor Finance (Ireland) DAC,

a provider of motor finance in Ireland. The transaction is expected to complete in Q4 of the 2023 calendar year.

Group

Close Brothers Holdings Limited

Banking

ir and General Finance Limited

rrow Audit Services Limited

Brook Funding (No.1) Limited

10, 19

Capital Lease Solutions Limited

Close Asset Finance Limited

Close Brewery Rentals Limited

Close Brothers Asset Finance GmbH

(Germany)

Close Brothers DAC

(Ireland)

Close Brothers Factoring GmbH

(Germany)

Close Brothers Finance plc

Close Brothers Limited

Close Brothers Premium DAC

(Ireland)

Close Brothers Technology Services Limited

Close Brothers Vehicle Hire Limited

Close Business Finance Limited

Close Credit Management (Holdings) Limited

Close Finance (CI) Limited

(Jersey)

Close Invoice Finance Limited

Close Leasing Limited

Close PF Funding I Limited

9, 19

Commercial Acceptances Limited

Commercial Finance Credit Limited

Corporate Asset Solutions Limited

Finance for Industry Limited

Finance for Industry Services Limited

Kingston Asset Finance Limited

Kingston Asset Leasing Ltd.

Novitas Loans Limited

Novitas (Salisbury) Limited

Orbita Funding 2017-1 plc

18, 19

Orbita Funding 2020-1 plc

10, 19

Orbita Funding 2022-1 plc

9, 19

Orbita Holdings Limited

10, 19

Orbita Holdings no.2 Limited

9, 19

Surrey Asset Finance Limited

Securities

W.S. (Nominees) Limited

Winterflood Client Nominees Limited

Winterflood Gilts Limited

Winterflood Securities Holdings Limited

Winterflood Securities Limited

Winterflood Securities US Corporation

(Delaware, USA)

sset Management

Cavanagh Financial Management Limited

CBF Wealth Management Limited

CFSL Management Limited

Close Asset Management Holdings Limited

Close Asset Management Limited

Close Asset Management (UK) Limited

Close Brothers Asset Management (Guernsey) Limited

(Guernsey)

Close Investments Limited

Close Portfolio Management Limited

EOS Wealth Management Limited

Lion Nominees Limited

Place Campbell Close Brothers Limited

(joint venture with

50% shareholding)

PMN Financial Management LLP

Registered office addresses:

1. 10 Crown Place, London EC2A 4FT, United Kingdom.

2. Wimbledon Bridge House, Hartﬁeld Road, Wimbledon, London SW19 3RU, United Kingdom.

3. The Atrium Building Cannon Bridge, 25 Dowgate Hill, London EC4R 2GA, United Kingdom.

4. 30 Finsbury Square, London EC2A 1AG, United Kingdom.

5. Unit 1, Kingﬁsher Park, Headlands Business Park, Ringwood, Hampshire BH24 3NX, United Kingdom.

6. 101 Wigmore Street, London W1U 1QU, United Kingdom.

7. 60 Melville Street, Edinburgh EH3 7HF, United Kingdom.

8. Wilmington House, High Street, East Grinstead, West Sussex RH19 3AU, United Kingdom.

9. 10th Floor, 5 Churchill Place, London E14 5HU, United Kingdom.

10. 1 Bartholomew Lane, London EC2N 2AX, United Kingdom.

11. Olympic Court Third Avenue, Trafford Park Village, Manchester M17 1AP, United Kingdom.

12. Lows Lane, Stanton-By-Dale, Ilkeston, Derbyshire DE7 4QU, United Kingdom.

13. Grosse Bleiche 35-39, 55116, Mainz, Germany.

14. Conway House, Conway Street, St Helier JE4 5SR, Jersey.

15. 1209 Orange Street, Wilmington 19801, New Castle, Delaware, USA.

16. Swift Square, Building 1, Santry Demesne, Northwood, Dublin, DO9 AOE4, Ireland.

17. PO Box 186, Royal Chambers, St Julian’s Avenue, St Peter Port GY1 4HP, Guernsey.

18. 40a Station Road, Upminster, Essex RM14 2TR, United Kingdom.

Subsidiaries by virtue of control:

19. The related undertakings are included in the consolidated ﬁnancial statements as they are controlled by the group.

252 Financial Statements

Glossary and Definition ofKeyTerms

Adjusted

Adjusted measures are presented on a basis consistent with prior periods and exclude

amortisation of intangible assets on acquisition, to present the performance of the

group’s acquired businesses consistent with its other businesses; and any exceptional

and other adjusting items which do not reflect underlying trading performance

Assets under administration

Total assets for which Winterflood Business Services provide custody and

administrativeservices

Bad debt ratio

Impairment losses in the year as a percentage of average net loans and advances to

customers and operating lease assets

Bargains per day

Average daily number of Winterflood’s trades with third parties

Bounce Back Loan Scheme

(“BBLS”)

UK government business lending scheme that helped small and medium-sized businesses

to borrow between £2,000 and £50,000 (up to a maximum of 25% of their turnover)

Business as usual (“BAU”)

costs

Operating expenses excluding depreciation and other costs related to investments

Buy As You Earn (“BAYE”)

The HM Revenue & Customs-approved Share Incentive Plan that gives all employees the

opportunity to become shareholders in the group

Capital Requirements

Directive V (“CRD V”)

European Union regulation implementing the Basel III requirements in Europe,

alongsideCRR II

Capital Requirements

Regulation (“CRR”)

Capital Requirements Regulation as implemented in the PRA Rulebook CRR Instrument

and the PRA Rulebook CRR Firms: Leverage Instrument (collectively known as “CRR”)

CDP

Formerly the “Carbon Disclosure Project”, a leading, internationally recognised

independent rating agency and assessor of corporate carbon emissions disclosures and

actions

CET1 capital ratio

Measure of the group’s CET1 capital as a percentage of risk weighted assets, as required

by CRR

Common Equity Tier 1

(“CET1”) capital

Measure of capital as defined by the CRR. CET1 capital consists of the highest quality

capital including ordinary shares, share premium account, retained earnings and other

reserves, less goodwill and certain intangible assets and other regulatory adjustments

Compensation ratio

Total staff costs as a percentage of adjusted operating income

Coronavirus Business

Interruption Loan Scheme

(“CBILS”)

UK government business lending scheme that helped small and medium-sized

businesses access loans and other kinds of finance up to £5 million

Coronavirus Large Business

Interruption Loan Scheme

(“CLBILS”)

UK government business lending scheme that helped medium and large-sized

businesses access loans and other kinds of finance up to £200 million

Cost of funds

Interest expense incurred to support the lending activities divided by the average net

loans and advances to customers and operating lease assets

Credit impaired

Where one or more events that have a detrimental impact on the estimated future cash

flows of a loan have occurred. Credit impaired events are more severe than SICR

triggers. Accounts which are credit impaired will be allocated to Stage 3

Customer satisfaction score

(“CSAT”)

A measure of customer satisfaction expressed as a percentage of positive responses

from the total of those surveyed

Discounting

The process of determining the present value of future payments

Dividend per share (“DPS”)

Comprises the final dividend proposed for the respective year, together with the interim

dividend declared and paid in the year

253Close Brothers Group plc Annual Report 2023

Glossary and Definition ofKeyTerms continued

Earnings per share (“EPS”)

Profit attributable to shareholders divided by number of basic shares

Effective interest rate (“EIR”)

The interest rate at which revenue is recognised on loans and discounted to their carrying

value over the life of the financial asset

Effective tax rate (“ETR”)

Tax on operating profit/(loss) as a percentage of operating profit/(loss) on ordinary

activities before tax

Expected credit loss (“ECL”)

The unbiased probability-weighted average credit loss determined by evaluating a range

of possible outcomes and future economic conditions

Expense/income ratio

Total adjusted operating expenses divided by operating income

Exposure at default (“EAD”)

The capital outstanding at the point of default

Financial Conduct Authority

(“FCA”)

A financial regulatory body in the UK, regulating financial firms and maintaining integrity

of the UK’s financial market

Financial Reporting Council

(“FRC”)

An independent regulatory body responsible for promoting high quality corporate

governance and reporting amongst UK companies

Forbearance

Forbearance occurs when a customer is experiencing financial difficulty in meeting their

financial commitments and a concession is granted, by changing the terms of the

financial arrangement, which would not otherwise be considered

Funding allocated to loan

book

Total available funding, excluding equity and funding held for liquidity purposes

General Data Protection

Regulation (“GDPR”)

Regulation intended to strengthen and unify data protection for all individuals within the

European Union

Gross carrying amount

Loan book before expected credit loss provision

High quality liquid assets

(“HQLAs”)

Assets which qualify for regulatory liquidity purposes, including Bank of England deposits

and sovereign and central bank debt

HM Revenue & Customs

(“HMRC”)

The UK’s tax, payments and customs authority

Independent financial

adviser (“IFA”)

Professional offering independent, whole of market advice to clients including

investments, pensions, protection and mortgages

Internal Capital Adequacy

Assessment Process

(“ICAAP”)

An annual self-assessment of a bank’s material risks and the associated level of capital

needed to be held, and undertaking appropriate stress testing of capital adequacy

Internal Liquidity Adequacy

Assessment Process

(“ILAAP”)

The processes for the identification, measurement, management and monitoring

ofliquidity

Internal ratings based

(“IRB”) approach

A supervisor-approved method using internal models, rather than standardised risk

weightings, to calculate regulatory capital requirements for credit risk

International Accounting

Standards (“IAS”)

Older set of standards issued by the International Accounting Standards Council, setting

up accounting principles and rules for preparation of financial statements. IAS are being

superseded byIFRS

254 Financial Statements

International Financial

Reporting Standards

(“IFRS”)

Globally accepted accounting standards issued by the IFRS Foundation and the

International Accounting Standards Board

Investment costs

Includes depreciation and other costs related to investment in multi-year projects, new

business initiatives and pilots and cyber resilience. Excludes IFRS 16 depreciation

Leverage ratio

Tier 1 capital as a percentage of total balance sheet assets, adjusted for certain capital

deductions, including intangible assets, and off-balance sheet exposures

Lifetime expected credit loss

provision (“Lifetime ECL”)

Losses that result from default events occurring within the lifetime of the loan

Liquidity coverage ratio

(“LCR”)

Measure of the group’s HQLAs as a percentage of expected net cash outflows over the

next 30 days in a stressed scenario

Loan to value (“LTV”) ratio

For a secured or structurally protected loan, the loan balance as a percentage of the total

value of the asset

Loss day

Where aggregate gross trading book revenues are negative at the end of a trading day

Loss given default (“LGD”)

The amount lost on a loan if a customer defaults

Managed assets or assets

under management (“AuM”)

Total market value of assets which are managed by Close Brothers Asset Management in

one of our investment solutions

Modelled expected credit

loss provision

ECL = PD x LGD x EAD

Modification losses

Modification losses arise when the contractual terms of a financial asset are modified. An

adjustment is required to the carrying value of the financial asset to reflect the present

value of modified future cash flows discounted at the original effective interest rate

Net carrying amount

Loan book value after expected credit loss provision

Net flows

Net flows as a percentage of opening managed assets calculated on an annualised basis

Net interest margin (“NIM”)

Operating income generated by lending activities, including interest income net of interest

expense, fees and commissions income net of fees and commissions expense, and

operating lease income net of operating lease expense, less depreciation on operating

lease assets, divided by average net loans and advances to customers and operating

lease assets

Net promoter score (“NPS”)

A measure of customer satisfaction by which unfavourable ratings are deducted from

favourable ratings; hence a score above 0 is good, and above 50 is excellent

Net stable funding ratio

(“NSFR”)

Regulatory measure of the group’s weighted funding as a percentage of weighted assets

Net zero

Target of completely negating the amount of greenhouse gases produced by reducing

emissions or implementing methods for their removal

Operating margin

Adjusted operating profit divided by operating income

Paris Agreement

International treaty on climate change, adopted in 2015, with a goal to limit global

warming to well below 2ºC, and preferably to 1.5ºC, compared to pre-industrial levels

255Close Brothers Group plc Annual Report 2023

Glossary and Definition ofKeyTerms continued

Personal Contract Plan

(“PCP”)

PCP is a form of vehicle finance where the customer defers a significant portion of credit

to the final repayment at the end of the agreement, thereby lowering the monthly

repayments compared to a standard hire-purchase arrangement. At the final repayment

date, the customer has the option to: (a) pay the final payment and take the ownership of

the vehicle; (b) return the vehicle and not pay the final repayment; or (c) part-exchange

the vehicle with any equity being put towards the cost of a new vehicle

Probability of default (“PD”)

Probability that a customer will default on their loan

Prudential Regulation

Authority (“PRA”)

A financial regulatory body, responsible for regulating and supervising banks and other

financial institutions in the UK

Recovery Loan Scheme

Launched in April 2021 as a replacement to CBILS. Under the terms of the scheme,

businesses of any size that have been adversely impacted by the Covid-19 pandemic can

apply to borrow up to £10million, with accredited lenders receiving a government-

backed guarantee of 80% on losses that may arise

Return on assets

Adjusted operating profit attributable to shareholders divided by total closing assets at

the balance sheet date

Return on average tangible

equity

Adjusted operating profit attributable to shareholders divided by average total

shareholders’ equity, excluding intangible assets

Return on net loan book

(“RoNLB”)

Adjusted operating profit from lending activities divided by average net loans and

advances to customers and operating lease assets

Return on opening equity

(“RoE”)

Adjusted operating profit attributable to shareholders divided by opening equity,

excluding non-controlling interests

Revenue margin

Income from advice, investment management and related services divided by average

total client assets. Average total client assets calculated as a two-point average

Risk weighted assets

(“RWAs”)

A measure of the amount of a bank’s assets, adjusted for risk in line with the CRR. It is

used in determining the capital requirement for a financial institution

Scope 1, 2 and 3 emissions

Categorisation of greenhouse gas emissions, as defined by the Greenhouse Gas (GHG)

Protocol, into direct emissions from owned or controlled sources (Scope 1), indirect

emissions from the generation of purchased electricity, heating and cooling consumed by

the reporting company (Scope 2), and all other indirect emissions that occur in a

company’s value chain (Scope 3)

Secured debt

Debt backed or secured by collateral

Senior debt

Represents the type of debt that takes priority over other unsecured or more junior debt

owed by the issuer. Senior debt is first to be repaid ahead of other lenders or creditors

Significant increase in credit

risk (“SICR”)

An assessment of whether credit risk has increased significantly since initial recognition

of a loan using a range of triggers. Accounts which have experienced a significant

increase in credit risk will be allocated to Stage 2

Standardised approach

Generic term for regulator-defined approaches for calculating credit, operational and

market risk capital requirements as set out in the CRR

Subordinated debt

Represents debt that ranks below, and is repaid after claims of, other secured or senior

debt owed by the issuer

Task Force on Climate-

related Financial Disclosures

(“TCFD”)

Regulatory framework to improve and increase reporting of climate-related financial

information, including more effective and consistent disclosure of climate-related risks

and opportunities

256 Financial Statements

Term funding

Funding with a remaining maturity greater than 12 months

Term Funding Scheme

(“TFS”)

The Bank of England’s Term Funding Scheme

Term Funding Scheme for

Small and Medium-sized

Enterprises (“TFSME”)

The Bank of England’s Term Funding Scheme with additional incentives for SMEs

Tier 2 capital

Additional regulatory capital that along with Tier 1 capital makes up a bank’s total

regulatory capital. Includes qualifying subordinated debt

Total client assets (“TCA”)

Total market value of all client assets including both managed assets and assets under

advice and/or administration in the Asset Management division

Total funding as % of

loan book

Total funding divided by net loans and advances to customers and operating lease assets

Total shareholder return

(“TSR”)

Measure of shareholder return including share price appreciation and dividends, which

are assumed to be re-invested in the company’s shares

Watch list

Internal risk management process for heightened monitoring of exposures that are

showing increased credit risk

257Close Brothers Group plc Annual Report 2023

Financial Calendar (Provisional)

Event Date

First quarter trading update November 2023

Annual General Meeting 16 November 2023

Final dividend payment 24 November 2023

Half year end 31 January 2024

Interim results March 2024

Third quarter trading update May 2024

Financial year end 31 July 2024

Preliminary results September 2024

The financial calendar is updated on a regular basis throughout the year. Please refer to our website www.closebrothers.com

for up-to-date details.

Investor Relations

258 Financial Statements

Certain statements included or incorporated by reference within this report may constitute “forward-looking statements” in

respect of the group’s operations, performance, prospects and/or financial condition. All statements other than statements of

historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are sometimes, but not

always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “due”, “could”, “may”, “will”,

“should”, “expects”, “believes”, “intends”, “plans”, “potential”, “targets”, “goal” or “estimates”. By their nature, forward-

looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially

from those expressed or implied by those statements. There are also a number of factors that could cause actual future

operations, performance, financial conditions, results or developments to differ materially from the plans, goals and

expectations expressed or implied by these forward-looking statements and forecasts. These factors include, but are not

limited to, those contained in this report. Accordingly, no assurance can be given that any particular expectation will be met

and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past

trends or activities should not be taken as a representation that such trends or activities will continue in the future.

Except as may be required by law or regulation, no responsibility or obligation is accepted to update or revise any forward-

looking statement resulting from new information, future events or otherwise. Nothing in this document should be construed as

a profit forecast. Past performance cannot be relied upon as a guide to future performance and persons needing advice should

consult an independent financial adviser.

This report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to subscribe for or

purchase any shares or other securities in the company or any of its group members, nor shall it or any part of it or the fact of

its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions

relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the company or any of its

group members. Statements in this report reflect the knowledge and information available at the time of its preparation.

Liability arising from anything in this report shall be governed by English law. Nothing in this report shall exclude any liability

under applicable laws that cannot be excluded in accordance with such laws.

Cautionary Statement

259Close Brothers Group plc Annual Report 2023

Registered Office

Close Brothers Group plc

10 Crown Place

London EC2A 4FT

Telephone: +44 (0)333 321 6100

Email: enquiries@closebrothers.com

Website: www.closebrothers.com

Company No. 00520241

Independent Auditor

PricewaterhouseCoopers LLP

1 Embankment Place

London

WC2N 6RH

Solicitor

Slaughter and May

One Bunhill Row

London

EC1Y 8YY

Corporate Brokers

J.P. Morgan Cazenove

UBS AG London Branch

Company Information

Registrar

Link Group

Central Square

29 Wellington Street

Leeds

LS1 4DL

Customer support centre: 0371 664 0300 (calls are charged

at the standard geographic rate and will vary by provider)

From overseas: +44 (0)371 664 0300 (calls will be charged at

the applicable international rate)

Lines are open from 9.00 am to 5.30 pm Monday to Friday,

excluding public holidays in England and Wales

Email: shareholderenquiries@linkgroup.co.uk

Website: www.linkgroup.eu

Online proxy voting: www.signalshares.com

Shareholder Warning

Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that prove to

be worthless or non-existent, or they can offer to buy shares at an inflated price in return for you paying upfront. They promise

high profits. However, if you buy or sell shares in this way, you will probably lose your money.

How to Avoid Share Fraud

• Remember that FCA-authorised firms are unlikely to contact you unexpectedly offering to buy or sell shares.

• Do not converse with them. Note the name of the person and firm contacting you, then end the call.

• To see if the person and firm contacting you are authorised by the FCA, check the Financial Services Register at

https://register.fca.org.uk/s/Beware of fraudsters claiming to be from an authorised firm; copying its website; or giving you

false contact details.

• If you want to phone the caller back, use the firm’s contact details listed on the Financial Services Register at

https://register.fca.org.uk/s/If the firm does not have contact details on the Register or they tell you the details are out of

date, call the FCA on 0800 111 6768.

• Search the list of unauthorised firms to avoid at: https://www.fca.org.uk/consumers/unauthorised-firms-individuals

• Remember that if you buy or sell shares from an unauthorised firm, you cannot access the Financial Ombudsman Service or

Financial Services Compensation Scheme.

• Get independent financial and professional advice before handing over any money.

• If it sounds too good to be true, it probably is.

Report a Scam

If fraudsters approach you, tell the FCA using the share fraud reporting form at https://www.fca.org.uk/consumers/report-

scam-us. You can also find out more about investment scams at https://www.fca.org.uk/scamsmart/how-avoid-investment-

scams. You can call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters, call

Action Fraud on 0300 123 2040.

260 Financial Statements

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Park works to the EMAS standard and its Environmental Management System is certified to ISO 14001.

This publication has been manufactured using 100% offshore wind electricity sourced from UK wind.

100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and,

on average 99% of any waste associated with this production will be recycled and the remaining 1%

used to generate energy.

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forests and other controlled sources. The pulp used in this product is bleached using an elemental

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com, giving details of the carbon offsetting process including information on the emissions volume and

the carbon offset project being supported.

Board of Directors and Executive Committee photography by Richard Davies.

Close Brothers Group plc

10 Crown Place

London EC2A 4FT

Tel: +44 (0)333 321 6100

www.closebrothers.com

Close Brothers Group plc Annual Report 2023