Regulatory Filings • Oct 29, 2021
Regulatory Filings
Open in ViewerOpens in native device viewer
(Incorporated in England under the Building Societies Act 1986, as amended)
On 17 April 1991 Nationwide Building Society entered into a U.S.\$750,000,000 Note Programme (as subsequently amended, the Programme). This Base Prospectus supersedes all previous prospectuses and offering circulars relating to the Programme and supplements thereto. Any Notes issued under the Programme on or after the date hereof are issued subject to the provisions set out herein. This does not aff ect any Notes issued prior to the date hereof.
Pursuant to the Programme, Nationwide Building Society (the Issuer or the Society) may from time to time issue one or more Tranches (as defined herein) of Notes (the Notes, which expression shall include Senior Preferred Notes, Senior Non-Preferred Notes, Subordinated Notes and Deposit Notes (each as defined in the Trust Deed (as defined herein))).
The maximum aggregate nominal amount of all Notes from time to time outstanding under the Programme (excluding Deposit Notes) will not exceed U.S.\$25,000,000,000 (or its equivalent in other currencies calculated as described herein and subject to increase as provided herein).
The Notes may be issued from time to time to one or more of the Dealers (each person so specified under " Overview of the Programme" being a Dealer and together the Dealers, which expression shall include any additional Dealer appointed under the Programme from time to time and which appointment may be for the issue of a specific Tranche of Notes or on an ongoing basis).
An investment in Notes issued under the Programme involves certain risks. For a discussion of these risks see "Risk Factors".
This Base Prospectus has been approved as a base prospectus by the Financial Conduct Authority (the FCA), as competent authority under Regulation (EU) 2017/1129 (the Prospectus Regulation). The FCA only approves this Base Prospectus as meeting the standards of completeness, comprehensibility and consistency imposed by the Prospectus Regulation. Such approval should not be considered as an endorsement of the Issuer or the quality of the Notes that are the subject of this Base Prospectus and investors should make their own assessment as to the suitability of investing in the Notes.
Application has been made to the FCA for Senior Preferred Notes, Senior Non-Preferred Notes and Subordinated Notes issued under the Programme during the period of 12 months from the date of this Base Prospectus to be admitted to the official list of the FCA (the Official List) and to the London Stock Exchange plc (the London Stock Exchange) for such Notes to be admitted to trading on the London Stock Exchange's Regulated Market. References in this Base Prospectus to Notes being listed (and all related references) shall mean that such Notes have been admitted to trading on the London Stock Exchange's Regulated Market and have been admitted to the Official List. The London Stock Exchange's Regulated Market is a regulated market for the purposes of Directive 2014/65/EU, as amended (MiFID II).
This Base Prospectus is valid for 12 months from its date in relation to Senior Preferred Notes, Senior Non-Preferred Notes and Subordinated Notes which are to be admitted to trading on a regulated market (as defined in MiFID II) in the European Economic Area (the EEA). For these purposes, references to the EEA include the United Kingdom (the UK). The obligation to supplement this Base Prospectus in the event of a significant new factor, material mistake or material inaccuracy does not apply when this Base Prospectus is no longer valid.
Notice of the aggregate nominal amount of, interest (if any) payable in respect of, the issue price of, the issue date and maturity date of, and certain other information which is applicable to, each Tranche of Notes will be set forth in a final terms document (the Final Terms) applicable to such Tranche which, with respect to Notes to be listed on the London Stock Exchange, will be delivered to the FCA and the London Stock Exchange prior to the date of issue of such Tranche. Copies of Final Terms in relation to Notes to be listed on the London Stock Exchange will also be published on the website of the London Stock Exchange through a regulatory information service.
The Issuer has long-term senior preferred/long-term senior non-preferred/short-term/subordinated debt ratings of A1/Baa2/P-1/Baa2 by Moody's Investors Service Limited (Moody's), A/BBB+/A-1/BBB by S&P Global Ratings Europe Limited (S&P) and A+/A/F1/BBB+ by Fitch Ratings Ltd. (Fitch). Moody's, S&P and Fitch are each established in the European Union (EU) or the UK and registered under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation). Each of Moody's, S&P and Fitch is included in the list of credit rating agencies published by the European Securities and Markets Authority (ESMA) on its website in accordance with the CRA Regulation. Tranches of Notes issued pursuant to the Programme may be rated or unrated. Where a Tranche of Notes is rated, such rating will be disclosed in the Final Terms and will not necessarily be the same as the ratings assigned to the Programme. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
Barclays BNP PARIBAS BofA Securities Citigroup Commerzbank Credit Suisse Daiwa Capital Markets Europe Deutsche Bank Goldman Sachs International HSBC J.P. Morgan Morgan Stanley NatWest Markets Nomura RBC Capital Markets Société Générale Corporate & Investment Banking UBS Investment Bank
This Base Prospectus comprises a base prospectus for the purposes of Article 8 of the Prospectus Regulation. When used in this Base Prospectus, Prospectus Regulation means Regulation (EU) 2017/1129.
The Issuer accepts responsibility for the information contained in this Base Prospectus and the Final Terms for each Tranche of Notes issued under the Programme. To the best of the knowledge of the Issuer the information contained in this Base Prospectus is in accordance with the facts and the Base Prospectus makes no omission likely to affect its import.
This Base Prospectus is to be read in conjunction with any supplements hereto, all documents which are deemed to be incorporated herein by reference (see "Documents Incorporated by Reference") and any Final Terms. This Base Prospectus shall be read and construed on the basis that such documents are incorporated in and form part of this Base Prospectus.
Other than in relation to the documents which are deemed to be incorporated by reference (see "Documents Incorporated by Reference"), the information on the websites to which this Base Prospectus refers does not form part of this Base Prospectus and has not been scrutinised or approved by the FCA.
No representation, warranty or undertaking, express or implied, is made by any Dealer or the Trustee, and to the fullest extent permitted by law, the Dealers and the Trustee dis claim all responsibility or liability which they might otherwise have, as to the accuracy or completeness of the information contained in this Base Prospectus or any other financial statement or any further information supplied in connection with the Programme or the Notes or their distribution. The statements made in this paragraph are made without prejudice to the responsibility of the Issuer under the Programme.
Neither the Dealers nor the Trustee (as defined below) accept any liability whether arising in tort or contract or otherwise in relation to the information contained in this Base Prospectus or any other information provided by the Issuer in connection with the Programme.
No person has been authorised to give any information or to make any repres entation not contained herein and any information or representation not contained herein must not be relied upon as having been authorised by the Issuer, the Dealers or the Trustee.
None of this Base Prospectus, any financial statements and/or any further information supplied in connection with the Programme or the Notes is intended to provide the basis of any credit or other evaluation or should be considered as a recommendation or constituting an offer or invitation by or on behalf of the Issuer, any of the Dealers or the Trustee that any recipient of this Base Prospectus or any financial statements or any further information supplied in connection with the Notes should subscribe for or purchase any of the Notes. Each investor contemplating purchasing Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer.
Neither the delivery of this Base Prospectus nor any subscription, sale or purchase of any Notes shall at any time imply that there has been no change in the affairs of the Issuer since the date hereof or that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other financial statements or any further information supplied in connection with the Notes is correct as of any time subsequent to the date indicated in the document containing the same. The Dealers and the Trustee expressly do not undertake to review the financial condition or affairs of the Issuer and its subsidiaries during the life of the Programme. Investors should review, inter alia, the most recently published Annual Report and Accounts of the Issuer when deciding whether or not to purchase any of the Notes.
Neither the Arranger nor any of the Dealers makes any representation as to the suitability of any Sustainable Notes (as defined herein), including the listing or admission to trading thereof on any dedicated 'green', 'environmental', 'sustainable', 'social' or other equivalently-labelled segment of any stock exchange or securities market, to fulfil any green, social, environmental or sustainability criteria required by any prospective investors. The Arranger and the Dealers have not undertaken, nor are they responsible for, any assessment of the eligibility criteria for Eligible Sustainable Projects (as defined herein), any verification of whether the Eligible Sustainable Projects meet such criteria or the monitoring of the use of proceeds of any Sustainable Notes (or amounts equal thereto). Investors should refer to any sustainability framework which the Issuer may publish from time to time, any second party opinion delivered in respect thereof, and any public reporting by or on behalf of the Issuer in respect of the application of the proceeds of any issue of Sustainable Notes for further information. Any such sustainability framework and/or second party opinion and/or public reporting will not be incorporated by reference in this Base Prospectus and neither the Arranger nor any of the Dealers makes any representation as to the suitability or contents thereof.
MiFID II product governance / target market – The Final Terms in respect of any Notes will include a legend entitled "MiFID II Product Governance" which will outline the target market assessment in respect of the Notes and which channels for distribution of the Notes are appropriate. Any person subsequently offering, selling or recommending the Notes (a distributor) should take into consideration the target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the target market assessment) and determining appropriate distribution channels.
A determination will be made in relation to each issue of Notes about whether, for the purpose of the MiFID Product Governance rules under EU Delegated Directive 2017/593 (the MiFID Product Governance Rules), any Dealer subscribing for any Notes is a manufacturer in respect of such Notes, but otherwise neither the Arranger nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the MiFID Product Governance Rules.
PRIIPs Regulation / EEA and UK retail investors – If the Final Terms in respect of any Notes includes a legend entitled "Prohibition of Sales to EEA and UK Retail Investors", the Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA or in the UK. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive (EU) 2016/97 (the Insurance Distribution Directive), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the PRIIPs Regulation) for offering or selling the Notes or otherwise making them available to retail investors in the EEA or in the UK has been or will be prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA or in the UK may be unlawful under the PRIIPs Regulation.
This Base Prospectus has been prepared on the basis that if any Notes are issued with a minimum denomination of less than €100,000 (or equivalent in another currency), such Notes will (i) not be offered to the public in any EEA Member State except pursuant to an exemption under Article 1(4) of the Prospectus Regulation and (ii) only be admitted to trading on an EEA regulated market (as defined in MiFID II) if such EEA regulated market or, if applicable, the specific segment thereof on which the Notes are admitted to trading, can be accessed only by qualified investors (as defined in the Prospectus Regulation) (in which case such Notes shall not be offered or sold to non-qualified investors).
None of this Base Prospectus, any financial statements and/or any further information supplied in connection with the Programme or the Notes constitutes an offer of, or an invitation by or on behalf of the Issuer, the Dealers or the Trustee to subscribe for or purchase, any of the Notes.
The distribution of this Base Prospectus and the offer, distribution or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Dealers and the Trustee do not represent that this document may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume a ny responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Dealers or the Trustee which is intended to permit a public offering of the Notes outside the EEA or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Base Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations and the Dealers have represented that all offers and sales by them will be made on such terms. Persons into whose possession this Base Prospectus or any Notes come must inform themselves about, and observe, any such restrictions. In particular, there are restrictions on the distribution of this Base Prospectus and the offer or sale of Notes in the United States, the EEA (including the United Kingdom), Australia, Canada, Hong Kong, Japan, Singapore and Switzerland (see "Subscription and Sale").
The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered, directly or indirectly, within the United States or to, or for the account or benefit of, U.S. persons as defined in Regulation S under the Securities Act (see "Subscription and Sale").
The Notes may not be a suitable investment for all investors. Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor may wish to consider, either on its own or with the help of its financial and other professional advisers, whether it:
Legal investment considerations may restrict certain investments. The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) Notes are legal investments for it, (ii) Notes can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advis ers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or simila r rules.
Amounts payable on Floating Rate Notes issued under the Programme may be calculated by reference to LIBOR, EURIBOR, SONIA, SOFR or €STR as specified in the applicable Final Terms, and amounts payable on Reset Notes issued under the Programme may in certain circumstances be determined in part by reference to certain of those benchmarks. The applicable Final Terms will indicate whether or not the benchmark is provided by an administrator included in the register of administrators and benchmarks established and maintained by the European Securities and Markets Authority (ESMA) pursuant to Article 36 of Regulation (EU) No. 2016/1011 (the Benchmarks Regulation). Transitional provisions in the Benchmarks Regulation may have the result that the administrator of a particular benchmark is not required to appear in the register of administrators and benchmarks at the date of the Final Terms. The registration status of any administrator under the Benchmarks Regulation is a matter of public record and, save where required by applicable law, the Issuer does not intend to update the Final Terms to reflect any change in the registration status of the administrator.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this Base Prospectus or any applicable supplement (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal adviser.
In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore, as amended or modified from time to time (the SFA) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the CMP Regulations 2018), the Issuer has, unless otherwise specified before an offer of Notes, determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), the classification of all Notes to be issued under the Programme as "prescribed capital markets products" (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
In connection with the issue of any Tranche of Notes, one or more relevant Dealers acting as the Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes of the Series (as defined below) of which such Tranche forms part at a level higher than that which might otherwise prevail. However, stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules.
Some statements in this Base Prospectus may be deemed to be forward looking statements. Forward looking statements include statements concerning the Issuer's plans, objectives, goals, strategies, future operations and performance and the assumptions underlying these forward looking statements. When used in this Base Prospectus, words such as "anticipates", "estimates", "expects", "believes", "intends", "plans", "aims", "seeks", "may", "will", "should" and any similar expressions generally identify forward looking statements. Forward looking statements are based on the current view of the Issuer's management with respect to future events and financial performance. Although the Issuer believes that the expectations, estimates and projections reflected in its forward looking statements are reasonable as at the date of this Base Prospectus, the Issuer's actual results of operations may vary materially from those expected, estimated or predicted.
Any forward looking statements contained in this Base Prospectus speak only as at the date of this Base Prospectus. Without prejudice to any requirements under applicable laws and regulations, the Issuer expressly disclaims any obligation or undertaking to disseminate after the date of this Base Prospectus any updates or revisions to any forward looking statements contained in it to reflect any change in exp ectations or any change in events, conditions or circumstances on which any such forward looking statement is based.
In this Base Prospectus, unless otherwise specified or the context otherwise requires, references to the Act are to the Building Societies Act 1986, which expression shall include, where applicable, any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under any statutory modification or re-enactment.
Terms used in this Base Prospectus, shall unless otherwise defined or the context otherwise requires, have the same meanings as are given to them in the Act or, as the case may be, the Rules of the Society (the Rules) or the Memorandum of the Society (the Memorandum).
In this Base Prospectus, references to £, pounds and Sterling are to pounds sterling, references to U.S.\$ and U.S. Dollars are to United States dollars, references to Yen and ¥ are to Japanese Yen and references to € or euro are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty on the Functioning of the European Union, as amended.
On 31 January 2020, the United Kingdom ceased to be a member of the EU and the EEA. By virtue of Part 4 of the Withdrawal Agreement between the EU and the United Kingdom under Article 50(2) of the Treaty of the European Union (the Withdrawal Agreement) and the European Union (Withdrawal) Act 2018 as amended by the European Union (Withdrawal Agreement) Act 2020 (as so amended, the EUWA), EU law and EU-derived domestic legislation will continue to apply to and in the UK during a transition period lasting until 31 December 2020. During the transition period, the UK will continue to be treated as a member state under EU law unless otherwise specified. References in this Base Prospectus to the EU and the EEA and to law and regulation applicable in the EU or the EEA shall be construed accordingly.
| Overview of the Programme 8 |
|
|---|---|
| Risk Factors16 | |
| Documents Incorporated by Reference63 | |
| Form of the Notes65 | |
| Form of Final Terms 67 |
|
| Terms and Conditions of the Notes79 | |
| Use of Proceeds148 | |
| Description of the Society149 | |
| Taxation177 | |
| Subscription and Sale180 | |
| General Information 186 |
The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Base Prospectus and, in relation to the terms and conditions of any particular Tranche of Notes, the applicable Final Terms. The Issuer and any relevant Dealer may agree that Notes shall be issued in a form other than that contemplated in the Terms and Conditions, in which event, a new Base Prospectus or a drawdown prospectus will be published.
This Overview constitutes a general description of the Programme for the purposes of Article 25(1) of Commission Delegated Regulation (EU) No 2019/980 (the Delegated Regulation).
Words and expressions defined in "Form of the Notes"and "Terms and Conditions of the Notes"shall have the same meanings in this Overview. References in this Base Prospectus to the "Group" are references to Nationwide Building Society and its subsidiaries, all of which are consolidated, unless the context otherwise requires.
| Issuer: | Nationwide Building Society (the Issuer). The Issuer is the largest building society in the United Kingdom, based on total assets of £248 billion as at 4 April 2020. |
|---|---|
| Issuer Legal Entity Identifier (LEI): |
549300XFX12G42QIKN82 |
| Website of the Issuer: | https://www.nationwide.co.uk/ |
| The information on https://www.nationwide.co.uk/ does not form part of this Base Prospectus, except where that information has otherwise expressly been incorporated by reference into this Base Prospectus. |
|
| Risk Factors: | Certain factors may affect the Issuer's ability to fulfil its obligations under Notes issued under the Programme. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme. These are set out under, and prospective investors should carefully read, "Risk Factors" below. |
| Dealers: | Barclays Bank PLC BNP PARIBAS Citigroup Global Markets Limited Commerzbank Aktiengesellschaft Credit Suisse Securities (Europe) Limited Daiwa Capital Markets Europe Limited Deutsche Bank AG, London Branch Goldman Sachs International HSBC Bank plc J.P. Morgan Securities plc Merrill Lynch International Morgan Stanley & Co. International plc NatWest Markets Plc Nomura International plc RBC Europe Limited Société Générale UBS AG London Branch |
| Issuing and Principal Paying Agent: |
Citibank, N.A., London Branch | ||
|---|---|---|---|
| Amount: | Up to U.S.\$25,000,000,000 nominal amount outstanding at any time (or its equivalent in other currencies as described herein) excluding Deposit Notes. The Issuer may increase the amount of the Programme in accordance with the terms of the Programme Agreement. |
||
| Distribution: | Notes may be distributed by way of private or public placement and in each case on a syndicated or non-syndicated basis. |
||
| Currencies: | Subject to any applicable legal or regulatory restrictions, Notes may be denominated in Sterling, euro, U.S. dollars, Yen or any other currency, as may be agreed from time to time by the Issuer, the relevant Dealer(s), the Agent and the Trustee. |
||
| Each issue of Notes denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements from time to time. |
|||
| Denominations: | The Notes will be issued in such denominations as may be agreed between the Issuer and the relevant Dealer(s), save that: |
||
| (i) the minimum denomination of each Note will be such amount as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency; and |
|||
| (ii) the minimum denomination of each Note will be not less than €100,000 (or, if the Notes are denominated in a currency other than euro, the equivalent amount in such currency), provided that Notes with a minimum denomination of less than €100,000 may be issued if such Notes will (A) not be offered to the public in any EEA Member State except pursuant to an exemption under Article 1(4) of the Prospectus Regulation and (B) only be admitted to trading on an EEA regulated market (as defined in MiFID II) if such EEA regulated market or, if applicable, the specific segment thereof on which the Notes are admitted to trading, can be accessed only by qualified investors (as defined in the Prospectus Regulation) (in which case such Notes shall not be offered or sold to non-qualified investors and shall have a minimum denomination not less than €1,000 (or, if the Notes are denominated in a currency other than euro, the equivalent amount in such currency)). |
|||
| Maturities: | Notes may have any maturity as indicated in the applicable Final Terms, save that (a) in the case of Subordinated Notes, the minimum maturity will be five years, (b) in the case of Senior Non-Preferred Notes, the minimum maturity will be one year and one day, (c) in the case of Deposit Notes, the maximum maturity will be five years less one day, and (d) notwithstanding (a), (b) and (c) above, in any case such other maturity as may be required |
| from time to time by the relevant monetary authority or any laws or regulations applicable to the relevant currency. |
|
|---|---|
| Issue Price: | Notes may be issued at par or at a premium or discount to par and will be issued on a fully-paid basis. |
| Form: | The Notes will be issued in bearer form. |
| Terms of the Notes: | The final terms of the Notes will be specified in the applicable Final Terms, which must be read together with the Terms and Conditions of the Notes set out in this Base Prospectus (as amended, if applicable). |
| Interest: | The following types of Note may be issued: (i) Notes which bear interest at a fixed or floating rate; (ii) Notes which bear interest at the initial rate specified in the applicable Final Terms, which may be reset thereafter; (iii) Notes which bear interest on the basis of a combination of fixed and floating rates; and (iv) Notes which do not bear interest. Interest periods, rates of interest and the terms of and/or amounts payable on redemption may differ depending on the Notes being issued and such terms will be specified in the applicable Final Terms. |
| Benchmark discontinuation: | If so specified in the applicable Final Terms for a Series of Notes, then in the event that a Benchmark Event or Benchmark Transition Event (as applicable) occurs, such that any rate of interest (or any component part thereof) cannot be determined by reference to the original benchmark or screen rate (as applicable) specified in the applicable Final Terms, then the Issuer may (subject to certain conditions) be permitted to substitute such benchmark and/or screen rate (as applicable) with a successor, replacement or alternative benchmark and/or screen rate (with consequent amendment to the terms of such Series of Notes and the application of an adjustment spread (which could be positive, negative or zero)). See Condition 4.4 for further information. |
| Redemption: | The Final Terms relating to each Tranche of Notes will indicate either that the Notes cannot be redeemed prior to their stated maturity (other than for taxation reasons or following an Event of Default or, if applicable, in the case of Subordinated Notes, following the occurrence of a Regulatory Event or, if applicable, in the case of Senior Non-Preferred Notes, following the occurrence of a Loss Absorption Disqualification Event) or that such Notes will be redeemable at the option of the Issuer and/or the Noteholders upon giving notice to the Noteholders or the Issuer, as the case may be, on a date or dates specified prior to such stated maturity and at a price or prices and on such terms as are indicated in the applicable Final Terms. Subject to certain exceptions, Subordinated Notes may not be redeemed prior to five years from the issue date thereof. |
| Substitution and Variation in respect of Senior Non Preferred Notes: |
If so specified in the applicable Final Terms for a Series of Senior Non Preferred Notes, upon the occurrence of a Loss Absorption Disqualification Event, the Issuer may, subject to certain conditions and without the consent of the Noteholders, either substitute all (but not some only) of the relevant Series of Senior Non-Preferred Notes for, or vary the |
| terms of such Series of Senior Non-Preferred Notes so that they remain or become, Loss Absorption Compliant Notes. |
|
|---|---|
| Denomination of Notes: | So long as any Notes are represented by a temporary global Note or a permanent global Note and the relevant clearing system(s) so permit, the Notes shall be tradeable only in principal amounts of at least the Specified Denomination (or, if more than one Specified Denomination, the lowest Specified Denomination) provided in the applicable Final Terms and integral multiples of the Calculation Amount specified in the applicable Final Terms in excess thereof. |
| Taxation: | All payments in respect of the Notes will be made without deduction for or on account of United Kingdom withholding taxes, unless the withholding is required by law. In that event, the Issuer will (subject to certain exceptions as set out in Condition 9) pay such additional amounts: |
| (i) in the case of all Senior Preferred Notes and Deposit Notes, in respect of interest or principal; or |
|
| (ii) in the case of all Subordinated Notes and Senior Non-Preferred Notes, in respect of interest only, |
|
| as will result in Noteholders receiving such amounts as they would have received in respect of the Notes had no such withholding been required. |
|
| For the avoidance of doubt, in the case of Subordinated Notes and Senior Non-Preferred Notes, the Issuer will not pay any additional amounts in respect of principal (including premium and other payments akin to principal, as more fully described in the Terms and Conditions of the Notes). |
|
| Status of the Senior Preferred Notes and Deposit Notes: |
The Senior Preferred Notes, the Deposit Notes and any relative Coupons will constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured obligations of the Issuer and will rank (subject to the provisions of Condition 3) pari passu and without any preference among themselves, junior to obligations required to be preferred by law (which includes certain member share accounts which are given preferential status by law) and at least equally with all other Ordinary Non-Preferential Debts of the Issuer. |
| Accordingly, subject to the Insolvency Act (and any other Ranking Legislation), the Senior Preferred Notes, the Deposit Notes and any relative Coupons will (for so long as they are not secured pursuant to the provisions of Condition 3) form part of the class of Ordinary Non Preferential Debts of the Issuer under the Insolvency Act (and any other Ranking Legislation). |
|
| As used herein: |
Hierarchy Order means The Banks and Building Societies (Priorities on Insolvency) Order 2018, as amended or superseded from time to time;
Insolvency Act means the Insolvency Act 1986, as amended or superseded from time to time (including by the Hierarchy Order); Ordinary Non-Preferential Debts means 'ordinary non-preferential debts' as defined in Section 387A(3)(a) of the Insolvency Act (or, as the case may be, in the relevant section of any other Ranking Legislation); and Ranking Legislation means the Insolvency Act, the Hierarchy Order and, if and to the extent applicable to the Issuer, any other law or regulation which is amended by the Hierarchy Order. Status of the Senior Non-Preferred Notes: The Senior Non-Preferred Notes may only be issued upon terms such that they (A) have an original contractual maturity of at least one year, and (B) are not derivatives and contain no embedded derivatives for the purposes of Section 387A(3)(b)(ii) of the Insolvency Act (and the relevant section of any other Ranking Legislation). The Senior Non-Preferred Notes and any relative Coupons will constitute direct and unsecured obligations of the Issuer and, subject to the Insolvency Act (and any other Ranking Legislation), will constitute Secondary Non-Preferential Debts under the Insolvency Act (and any other Ranking Legislation) ranking pari passu and without any preference among themselves. Accordingly, subject to the Insolvency Act (and any other Ranking Legislation), claims in respect of principal, interest and any other amount (including, without limitation, any damages awarded for breach of the Issuer's obligations) in respect of the Senior Non-Preferred Notes and any relative Coupons will, in the event of the winding up or dissolution of the Issuer (subject as otherwise provided in an Excluded Dissolution), rank as provided for Secondary Non-Preferential Debts in the Insolvency Act (and any other Ranking Legislation), as further described in Condition 2.2(a). As used herein, Secondary Non-Preferential Debts means 'secondary non-preferential debts' as defined in Section 387A(3)(b) of the Insolvency Act (or, as the case may be, in the relevant section of any other Ranking Legislation). Status of the Subordinated Notes: The Subordinated Notes and any relative Coupons will constitute direct, subordinated and unsecured obligations of the Issuer and will rank pari passu and without any preference among themselves. Accordingly, subject to the Insolvency Act (and any other Ranking
Legislation), the Subordinated Notes and any relative Coupons will form part of the class of Tertiary Non-Preferential Debts under the Insolvency Act (and any other Ranking Legislation), and claims in respect of principal, interest and any other amount (including, without limitation, any damages awarded for breach of the Issuer's obligations) in respect of Subordinated Notes and any relative Coupons will, in the event of the winding up or dissolution of the Issuer (subject as otherwise provided in an Excluded Dissolution), be subordinated in the manner provided in the Trust Deed and as further described in Condition 2.3(a).
| As used herein, Tertiary Non-Preferential Debts means 'tertiary non preferential debts' as defined in Section 387A(3)(c) of the Insolvency Act (or, as the case may be, in the relevant section of any other Ranking Legislation). |
||||
|---|---|---|---|---|
| Waiver of Set-off: | Subject to applicable law, no holder of any Senior Non-Preferred Note or Subordinated Note or any Coupon relating thereto (if any) nor the Trustee may exercise or claim any right of set-off in respect of any amount owed to it by the Issuer arising under or in connection with the Senior Non Preferred Notes, the Subordinated Notes or the Coupons relating thereto, and each Noteholder or Couponholder shall, by virtue of its being the holder of (or the holder of any interest in) any Senior Non-Preferred Note, Subordinated Note or relative Coupon, be deemed to have waived all such rights of set-off. |
|||
| Cross Acceleration: | The Senior Preferred Notes and the Deposit Notes will contain a cross acceleration clause in respect of indebtedness for moneys borrowed or raised by the Issuer. The Senior Non-Preferred Notes and the Subordinated Notes will not contain a cross acceleration clause. |
|||
| Negative Pledge: | The Senior Preferred Notes and the Deposit Notes will contain a negative pledge prohibiting (subject to the exception set out therein) the Issuer or any Subsidiary from creating security to secure any Loan Stock of the Issuer or any Subsidiary. The Senior Non-Preferred Notes and the Subordinated Notes will not contain a negative pledge. |
|||
| Rating: | Series of Notes issued under the Programme may be rated or unrated. Where a Series of Notes is rated, such rating will be disclosed in the applicable Final Terms and will not necessarily be the same as the ratings assigned to the Programme. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. |
|||
| Events of Default for Senior Preferred Notes and Deposit Notes: |
The terms of the Senior Preferred Notes and Deposit Notes will contain, amongst others, the following events of default (as more fully set out at Condition 10): |
|||
| (a) default in payments of any principal or interest due in respect of the Notes, continuing for a specified period of time; |
||||
| (b) non-performance or non-observance by the Issuer of any of its other obligations under the Terms and Conditions of the Notes or the Trust Deed continuing for a specified period of time; |
||||
| (c) default by the Issuer or any of its Principal Subsidiaries relating to present or future indebtedness in an amount of £40,000,000 or more; |
||||
| (d) any distress, execution or similar legal process of a claim of £20,000,000 or more is levied or enforced or sued out upon or against any part of the property, assets or revenues of the Issuer or any Principal Subsidiary and is not discharged or stayed within 30 days of having been so levied, enforced or sued out; and |
(e) events relating to the administration, liquidation, insolvency or winding up of the Issuer or any of its Principal Subsidiaries.
| Events of Default for Subordinated Notes and Senior Non-Preferred Notes: |
The Events of Default and enforcement rights in respect of Subordinated Notes and Senior Non-Preferred Notes are restricted (as more fully set out at Condition 11). |
|---|---|
| If default is made for a period of seven days or more in the payment of any principal due on any Subordinated Notes or Senior Non-Preferred Notes or for a period of 14 days or more in the payment of any interest due on any Subordinated Notes or Senior Non-Preferred Notes, the Trustee may institute proceedings for the winding up of the Issuer in England (but not elsewhere) and prove in such winding up but may take no other action in respect of such default. |
|
| In the event of a winding up or dissolution of the Issuer (other than an Excluded Dissolution), the Trustee may give notice to the Issuer accelerating the Subordinated Notes or Senior Non-Preferred Notes and may prove in such winding up or dissolution in respect of such Notes (such claim ranking, in the case of Subordinated Notes, as provided in Condition 2.3 or, in the case of Senior Non-Preferred Notes, Condition 2.2). |
|
| Listing: | Application has been made for Senior Preferred Notes, Senior Non Preferred Notes and the Subordinated Notes issued under the Programme to be listed on the London Stock Exchange. |
| Use of Proceeds: | The net proceeds from each issue of Notes will be applied by the Issuer for the general purposes of the Issuer, including without limitation, making mortgage advances on private residential property located in the United Kingdom and making a profit, or as otherwise specified in the applicable Final Terms in respect of any Notes. |
| Notes may be issued as Sustainable Notes and the applicable Final Terms will indicate if the Notes are intended to constitute Sustainable Notes. The Issuer intends to allocate an amount equal to the net proceeds from any issue of Sustainable Notes to advance loans to the Issuer's customers on a targeted basis for the purposes of the financing and/or refinancing by such customers of Eligible Sustainable Projects, in line with any sustainability framework the Issuer may publish from time to time. |
|
| Governing Law: | The Notes and any non-contractual obligations arising out of or in connection with the Notes will be governed by, and shall be construed in accordance with, English law. |
| Recognition of UK Bail-in: | Notwithstanding, and to the exclusion of, any other term of any Series of Notes or any other agreements, arrangements or understandings between the Issuer and any Noteholder (or the Trustee on behalf of any Noteholder), by its acquisition of any Note (or any interest therein), each Noteholder acknowledges and accepts that the amounts due arising under the Notes may be subject to the exercise of the UK Bail-in Power, and acknowledges, accepts, consents, and agrees to be bound by the effect of the exercise of |
| the UK Bail-in Power by the Resolution Authority, all in accordance with, and as more fully described in, Condition 21. |
||
|---|---|---|
| Selling Restrictions: | There are selling restrictions in relation to the offering and sale of a particular Tranche of Notes. See "Subscription and Sale". |
|
| United States Selling Restrictions: |
Regulation S, Category 2. TEFRA C, TEFRA D or TEFRA not applicable, as specified in the applicable Final Terms. |
|
| MiFID II product governance: |
The Final Terms in respect of any Notes will include a legend entitled "MiFID II product governance" which will outline the target market assessment in respect of the Notes and which channels for distribution of the Notes are appropriate. |
|
| PRIIPs Regulation: | If the Final Terms in respect of any Notes includes a legend entitled "Prohibition of Sales to EEA and UK Retail Investors", the Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA or in the UK, and no key information document under the PRIIPs Regulation will be prepared. |
The Issuer believes that the following factors may affect its ability to fulfil its obligations under Notes issued under the Programme.
In addition, factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme and which may or may not occur are also described below.
The Issuer believes that the factors described below represent the principal risks inherent in investing in Notes issued under the Programme, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with any Notes may occur for other reasons which may not be considered significant risks by the Issuer based on information currently available to it or which it may not currently be able to anticipate. There is a wide range of factors which individually or together could result in the Issuer becoming unable to make all payments due in respect of the Notes. It is not possible to identify all such factors or to determine which factors are most likely to occur, as the Issuer may not be aware of all relevant factors and certain factors which it currently deems not to be material may become material as a result of the occurrence of events outside the Issuer's control.Prospective investors should also read the detailed information set out elsewhere in this Base Prospectus and reach their own views prior to making any investment decision.
1.1.1 The UK Banking Act 2009 confers substantial powers on a number of UK authorities designed to enable them to take a range of actions in relation to UK deposit-taking institutions which are considered to be at risk of failing. The exercise of any of these actions in relation to the Issuer or any Notes could materially adversely affect the value of any Notes and/or the rights of Noteholders
Under the UK Banking Act 2009 as amended (the Banking Act), substantial powers are granted to HM Treasury, the Bank of England (the BoE) acting as the Prudential Regulation Authority through its Prudential Regulation Committee (the PRA), the FCA and the BoE (together, the Authorities) as part of the Special Resolution Regime (the SRR). These powers enable the Authorities to deal with, amongst other entities, a UK bank or building society (each a relevant entity) in circumstances in which the Authorities consider that the resolution conditions are satisfied, through a series of stabilisation options. For further information in relation to the Issuer's regulatory environment and capital requirements see "Risks Related To Regulations/The Regulatory Environment – The Issuer is subject to wide-ranging regulatory action in the event that it is considered likely to fail and its failure poses a threat to the public interest" and "Risks Related To Regulations/The Regulatory Environment – The Issuer is subject to regulatory capital and liquidity requirements which may change".
If the Issuer were made subject to the SRR, HM Treasury or the BoE may exercise extensive share transfer powers (applying to a wide range of securities) and property transfer powers (including powers for partial transfers of property, rights and liabilities) in respect of the Issuer and/or its securities (subject to certain protections).
Exercise of these powers could involve taking various actions in relation to any securities issued by the Issuer (including any Notes issued under the Programme) without the consent of the Noteholders, including (among other things):
The relevant Authorities may exercise the bail-in tool under the Banking Act to recapitalise a relevant entity in resolution by allocating losses to (amongst others) its capital providers and unsecured creditors (which would include Noteholders) in a manner that (i) ought to respect the hierarchy of claims in an ordinary insolvency and (ii) is consistent with shareholders and creditors not receiving a less favourable treatment than they would have received in ordinary insolvency proceedings of the relevant entity (known as the "no creditor worse off" safeguard, although this may not apply in relation to an application of the write-down and conversion power in circumstances where a stabilisation power is not also used; holders of debt instruments which are subject to the power may, however, have ordinary shares transferred to or issued to them by way of compensation). Accordingly, the ranking of Notes in insolvency can be expected to have a direct impact on the relative losses imposed on Noteholders in a resolution. For further information with respect to the ranking of Notes, see "The Notes rank juniorto most of the Issuer's liabilities".
The bail-in tool includes the power to cancel a liability or modify the terms of contracts for the purposes of reducing or deferring the liabilities of the relevant entity under resolution and the power to convert a liability from one form or class to another. There is also the power to convert a building society into a company in connection with a bail-in. The exercise of such powers may result in the cancellation of all, or a portion, of the principal amount of, interest on, or any other amounts payable on, the Notes and/or the conversion of all or a portion of the principal amount of, interest on, or any other amounts payable on, the Notes into equity securities (which, in the case of the Issuer, could be core capital deferred shares) or other securities or other obligations of the Issuer or another person, including by means of a variation to the terms of the Notes.
The taking of any such actions could materially adversely affect the rights of Noteholders, the price or value of their investment in the Notes, the liquidity and/or volatility of any market in the Notes and/or the ability of the Issuer to satisfy its obligations under the Notes. In such circumstances, Noteholders may have a claim for compensation under one of the compensation schemes existing under, or contemplated by, the Banking Act. However, such compensation will be limited to the return the Noteholder might otherwise have received on an insolvency of the Issuer (less the value already received through resolution), and there can be no assurance that Noteholders will have such a claim or, if they do, that they would thereby recover compensation promptly or equal to any loss actually incurred.
In addition, if the market perceives or anticipates that any action may be taken under the Banking Act in respect of the Issuer or any of its securities (including any Notes issued under the Programme), this may have a significant adverse effect on the market price of the Notes and/or the liquidity and/or volatility of any market in the Notes, whether or not such powers are ultimately exercised. In such case, investors may experience difficulty in selling their Notes, or may only be able to sell their Notes at a loss.
As noted above, in addition to the stabilisation options which may be used in a resolution of an institution, the Banking Act contains a write-down and conversion tool which enables (and, if the institution enters into resolution, requires) the relevant Authorities permanently to write-down, or convert into common equity tier 1 instruments (which, in the case of the Issuer, could be core capital deferred shares), any Tier 1 capital instruments and Tier 2 capital instruments (including Subordinated Notes issued under the Programme) at the point of non-viability of the relevant entity independently of (or in conjunction with) the exercise of any stabilisation power.
For the purposes of the application of such mandatory write-down and conversion power, the point of non-viability is the point at which (i) the relevant Authority determines that the relevant entity meets the conditions for resolution (but no resolution action has yet been taken), (ii) the relevant Authority determines that the relevant entity or its group will no longer be viable unless the relevant capital instruments are written-down or converted or (iii) extraordinary public financial support is required by the relevant entity other than, where the entity is an institution, for the purposes of remedying a serious disturbance in the economy of an EEA member state and to preserve financial stability .
Subordinated Notes issued under the Programme may therefore be subject to write-down or conversion into equity on application of such powers (without requiring the consent of the holders thereof) independently of whether the Issuer is in, or subsequently enters into, resolution. This may result in the holders losing some or all of their investment even if the Issuer is not put into resolution. The "no creditor worse off" safeguard would not apply in relation to an application of such powers in circumstances where resolution powers are not also exercised.
As part of the Banking Reform Package, amendments are being made to the BRRD, the majority of which are due to be transposed into member states' law and applied by 28 December 2020 with certain amendments phased-in until 2024. Such changes include an extension of the write-down and conversion tool to liabilities which do not qualify as regulatory capital but which are eligible liabilities for the purpose of meeting internal MREL requirements within a resolution group. As used in this Base Prospectus, MREL refers to a minimum requirement for own funds and eligible liabilities. HM Treasury has indicated its intention to implement in the UK those aspects of the amendments to BRRD which are due to be transposed by 28 December 2020.
The exercise of such mandatory write-down and conversion power under the Banking Act could, therefore, materially adversely affect the rights of holders of Subordinated Notes, and such exercise (or the perception that such exercise may occur) could materially adversely affect the price or value of their investment in Subordinated Notes and/or the ability of the Issuer to satisfy its obligations under the Notes, and/or may adversely affect liquidity and/or volatility in any market for such Subordinated Notes.
There is considerable uncertainty regarding the specific factors beyond the goals of addressing banking crises pre-emptively and minimising taxpayers' exposure to losses (for example, by writing down relevant capital instruments before the injection of public funds into a financial institution) which the relevant Authorities would consider in deciding whether to exercise the Banking Act resolution powers with respect to the relevant financial institution and/or securities, such as the Notes, issued by that institution. While the Banking Act provides some guidance as to how and when the resolution powers may be utilised by the relevant Authorities, the Banking Act and Directive 2014/59/EU (the Bank Recovery and Resolution Directive or the BRRD) (which has been transposed into English Law by amendments to the Banking Act) allow for discretion and there is no certainty as to how the relevant
Authorities will exercise any resolution powers with respect to a financial institution and/or securities issued by that institution. As there may be many factors, including factors outside of the Issuer's control or not directly related to it, which could result in such a determination, holders of the Notes may not be able to refer to publicly available criteria in order to anticipate a potential exercise of any such resolution powers.
Accordingly, the threat of resolution powers being used may affect trading behaviour, including prices and volatility, and, as a result, the Notes are not necessarily expected to follow the trading behaviour associated with other types ofsecurities.
A substantial portion of claims against the Society in the event of its winding up or dissolution will rank ahead of claims in respect of the Senior Preferred Notes and Deposit Notes. Holders of Senior Preferred Notes, Deposit Notes and other unsubordinated creditors of the Issuer will, in an insolvency of the Issuer, rank junior to member share accounts, which are given preferential status under law.
The English insolvency regime applicable to the Society at the date of this Base Prospectus provides for:
In a winding-up or dissolution of the Society, a substantial portion of the claims against it would be claims of its retail members, whose claims will rank ahead of claims in respect of the Senior Preferred Notes and Deposit Notes (which in turn will rank ahead of claims in respect of Senior Non -Preferred Notes and Subordinated Notes).
On a winding-up or dissolution of the Society, claims in respect of Senior Preferred Notes and Deposit Notes issued under the Programme will rank ahead of claims in respect of Senior Non-Preferred Notes (notwithstanding that Senior Preferred Notes and Senior Non-Preferred Notes both share the 'senior' designation under the Programme, investors should note that the latter ranks behind the former), which in turn will rank ahead of claims in respect of Subordinated Notes.
Therefore, in a winding-up or dissolution of the Society, the assets of the Society available for distribution would be expected to be distributed:
firstly, in satisfaction of all claims which are preferred by law to claims in respect of Senior Preferred Notes and Deposit Notes;
Accordingly, the Issuer may not have enough assets remaining after paying higher-priority creditors to pay amounts due under the relevant Notes, and in such circumstances Noteholders could lose some or all of their investment in the Notes.
The ranking of Notes in a winding up or dissolution of the Issuer can also be expected to have a direct impact on the relative losses imposed on Noteholders in a resolution of the Issuer or upon use of the write-down and conversion powers under the Banking Act, as such resolution and write-down and conversion powers ought to be used in a manner that respects the hierarchy of claims in an ordinary insolvency - see "The UK Banking Act 2009 confers substantial powers on a number of UK authorities designed to enable them to take a range of actions in relation to UK deposit-taking institutions which are considered to be at risk of failing. The exercise of any of these actions in relation to the Issuer or any Notes could materially adversely affect the value of any Notes and/or the rights of Noteholders" above.
In addition, the Senior Non-Preferred Notes and Subordinated Notes are intended to contribute towards the Society's MREL, meaning that they are specifically intended to be available to resolution authorities for write-down, write-off or conversion to equity under the Banking Act in order to absorb losses and recapitalise the Society if it is failing, and before more senior-ranking creditors suffer losses. Accordingly, investors in Senior Non-Preferred Notes and Subordinated Notes may lose all or substantially all of their investment whilst investors in Senior Preferred Notes and Deposit Notes suffer lower (or no) losses (although there can be no assurance that investors in Senior Preferred Notes and Deposit Notes will not also suffer substantial losses). The market value of the Subordinated Notes and Senior Non-Preferred Notes may therefore be more severely adversely affected and/or more volatile if the Issuer's financial condition deteriorates than the market value of the Senior Preferred Notes and Deposit Notes. Accordingly, holders of Senior Non-Preferred Notes may bear significantly more risk than holders of Senior Preferred Notes (notwithstanding that both share the 'senior' designation under the Programme) and Deposit Notes, and holders of Subordinated Notes may bear significantly greater risk than holders of Senior Non-Preferred Notes.
In the event of an insolvency, winding up or resolution of the Issuer, there is a real risk that investors in Senior Preferred Notes, Deposit Notes, Senior Non-Preferred Notes and/or Subordinated Notes would lose some or the entire amount of their investment. Furthermore, the market price of Senior Preferred Notes, Deposit Notes, Senior Non-Preferred Notes and Subordinated Notes can be expected to be materially adversely affected if the Issuer's financial condition deteriorates such that the market anticipates the insolvency, winding-up or resolution of the Issuer.
In recognition of the resolution powers granted by law to the Resolution Authority, by acquiring the Notes of any Series or any Coupon, each Noteholder and Couponholder will acknowledge and accept that the Amounts Due (as defined in the Terms and Conditions of the Notes) arising under the Notes and Coupons may be subject to the exercise of the UK Bail-in Power (as defined in the Terms and Conditions of the Notes) and will acknowledge, accept, consent and agree to be bound by the effect of the exercise of any UK Bail-in Power by the Resolution Authority, that may result in (i) the reduction of all, or a portion, of the Amounts Due; (ii) the conversion of all, or a portion, of the Amounts Due on the Notes into shares, deferred shares (including core capital deferred shares) or other securities or other obligations of the Issuer or another person (and the issue to or conferral on the Noteholder or Couponholder of such shares, deferred shares or other securities or obligations), including by means of an amendment, modification or variation of the terms of the Notes or Coupons; (iii) the cancellation of the Notes or Coupons; (iv) the amendment or alteration of the maturity of the Notes or amendment of the amount of interest payable on the Notes, or the dates on which interest becomes payable, including by suspending payment for a temporary period. Each Noteholder and Couponholder will further acknowledge, accept, consent and agree to be bound by the variation of the terms of the Notes, Trust Deed and Coupons, if necessary, to give effect to the exercise of the UK Bail-in Power by the Resolution Authority.
Accordingly, the UK Bail-in Power may be exercised in such a manner as to result in Noteholders and the Couponholders losing all or a part of the value of their investment in the Notes and Coupons, having payment on the Notes and Coupons suspended for a period of time or receiving a different security from the Notes or Coupons, which may be worth significantly less than the Notes and Coupons and which may have significantly fewer protections than those typically afforded to debt securities. Moreover, the Resolution Authority may exercise the UK Bail-in Power without providing any advance notice to, or requiring the consent of, the Noteholders or Couponholders. In addition, under the Terms and Conditions of the Notes, the exercise of the UK Bail-in Power by the Resolution Authority with respect to the Notes and the Coupons is not an Event of Default under the Notes or Coupons or a breach or default thereunder, or an event of default or default for any other purpose.
Interest rates and indices which are deemed to be "benchmarks" (including the London interbank offered rate (LIBOR) and the euro interbank offered rate (EURIBOR)) are the subject of recent and ongoing reform. These reforms may cause such benchmarks to perform differently than in the past, to disappear entirely, or have other consequences which cannot be predicted. Any such consequence could have a material adverse effect on any Notes referencing such a benchmark.
The Benchmarks Regulation applies, subject to certain transitional provisions, to the provision of benchmarks, the contribution of input data to a benchmark and the use of a benchmark within the EU. Among other things, it (i) requires benchmark administrators to be authorised or registered (or, if non - EU-based, to be subject to an equivalent regime or otherwise recognised or endorsed) and (ii) prevents certain uses by EU supervised entities (such as the Issuer) of benchmarks of administrators that are not authorised or registered (or, if non-EU based, not deemed equivalent or recognised or endorsed).
The Benchmarks Regulation could have a material impact on any Notes linked to or referencing a benchmark, in particular, if the methodology or other terms of the relevant benchmark are changed in order to comply with the requirements of the Benchmarks Regulation. Such changes could, among other things, have the effect of reducing, increasing or otherwis e affecting the volatility of the published rate or level of the relevant benchmark.
The FCA has publicly announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021, and accordingly the continuation of LIBOR on the current basis will not be guaranteed after 2021. As a result, there is significant regulatory scrutiny of continued use of LIBOR and other inter-bank offered rates (IBORs) and increasing pressure and momentum for banks and other financial institutions to transition relevant products to replacement rates.
Different currency LIBORs are expected to transition to different rates which, in contrast to LIBOR rates (which include an interbank lending risk margin) may be (or may be derived from) risk-free rates, which may perform very differently from the relevant LIBOR rate.
For example, in the case of floating rate eurobonds:
The UK's prospective departure from the EU may also impact the use of benchmarks – see "In connection with the withdrawal of the United Kingdom from the European Union, the Issuerfaces risks to its business and legal uncertainties" below. There is a risk that LIBOR may lose its status as an authorised benchmark in the EU if: (i) the UK leaves the EU without transitional arrangements under a withdrawal agreement; and (ii) the EU does not recognise, endorse or grant equivalence to the use of UK benchmarks following the expiry of the transitional period for third country benchmarks described above.
It is not possible to predict with certainty whether, and to what extent, LIBOR and/or EURIBOR will continue to be supported going forwards. This may cause LIBOR and/or EURIBOR to perform differently than they have done in the past, and may have other consequences which cannot be predicted. The potential transition from GBP LIBOR to SONIA, USD LIBOR to SOFR and/or EURIBOR to €STR, or any other currency LIBOR to a new rate, or the elimination of LIBOR, EURIBOR or any other benchmark, or changes in the manner of administration of any benchmark, could require an adjustment to the Terms and Conditions of the Notes, or result in other consequences, in respect of any Notes referencing such benchmark. Such factors may have (without limitation) the following effects on certain benchmarks: (i) discouraging market participants from continuing to administer or contribute to a benchmark; (ii) triggering changes in the rules or methodologies used in the benchmark and/or (iii) leading to the disappearance of the benchmark. Any of the above changes or any other consequential changes as a result of international or national reforms or other initiatives or investigations, could have a material adverse effect on the value of and return on any Notes linked to, referencing, or otherwise dependent (in whole or in part) upon, a benchmark.
Benchmark discontinuation under the Conditions
The Terms and Conditions of the Notes provide for certain fallback arrangements in the event that a Benchmark Event or a Benchmark Transition Event (as applicable) occurs in respect of the Original Reference Rate for the relevant series of Notes, including (without limitation) if an inter-bank offered rate (such as LIBOR or EURIBOR) or other relevant reference rate (which could include, without limitation, any mid-swap rate), and/or any page on which such benchmark may be published (or any other successor service) becomes unavailable or a Benchmark Event or a Benchmark Transition Event (each as defined in the Terms and Conditions), as applicable, otherwise occurs.
Such fallback arrangements include the possibility that the rate of interest could be set by reference to a successor, alternative or replacement rate together with the application of an adjustment spread (which could be positive, negative or zero), and may include amendments to the Terms and Conditions of the Notes to ensure the proper operation of the new benchmark, all as determined by the Issuer (acting in good faith and in consultation with an Independent Adviser) and as more fully described at Condition 4.4. However, the Issuer will not be required to implement a successor, alternative or replacement rate or any adjustment spread or make any amendments to the Conditions of any Notes if and to the extent that, in its determination, the same could reasonably be expected to impact adversely the treatment of the Notes under the prudential or loss-absorption regulations in certain respects, and in such case the Issuer may, subject to certain conditions, be able to apply the provisions of Condition 4.4 on an adjusted basis to avoid that outcome, all as more fully described under Condition 4.4(f). It is possible that the adoption of a successor, alternative or replacement rate, including any adjustment spread,may result in a rate of interest less favourable to holders than the Original Reference Rate.
There is also a risk that the relevant fallback provisions may not operate as expected or as intended at the relevant time.
Furthermore, in certain circumstances, the ultimate fallback for the purposes of calculation of the Rate of Interest for a particular Interest AccrualPeriod may result in the Rate of Interest for the last preceding Interest Period being used. This may result in the effective application of a fixed rate for Floating Rate Notes based on the rate which was last observed on the Relevant Screen Page or, in the case of Reset Notes, the application of the previous reset Rate of Interest for a preceding Reset Period, or for the First Reset Rate of Interest, the application of the Initial Rate of Interest applicable to such Notes on the Interest Commencement Date or a rate based on the Mid-Swap Fallback Rate.
Investors should consult their own independent advisers and make their own assessment about the potential risks imposed by the Benchmarks Regulation reforms and the possible application of the benchmark replacement provisions of the Notes in making any investment decision with respect to any Notes referencing a benchmark.
Where the applicable Final Terms for a Series of Floating Rate Notes identifies that the Rate of Interest for such Notes will be determined by reference to SONIA, SOFR or €STR, the Rate of Interest will be determined on the basis of Compounded Daily SONIA, Compounded Daily SOFR, Weighted Average SOFR, Compounded Daily €STR or, in the case of SONIA and SOFR, by reference to a specified index (all as further described in the Terms and Conditions of the Notes). All such rates are based on 'overnight rates'. Overnight rates differ from interbank offered rates, such as LIBOR, in a number of material respects, including (without limitation) that such rates are backwards-looking, risk-free overnight rates, whereas LIBOR is expressed on the basis of a forward-looking term and includes a risk-element based on inter-bank lending. As such, investors should be aware that overnight rates may behave materially differently as interest reference rates for Notes issued under the Programme compared to interbank offered rates. The use of overnight rates as reference rates for Eurobonds is nascent, and is subject to change and development, both in terms of the substance of the calculation and in the development and adoption of market infrastructure for the issuance and trading of bonds referencing such overnight rates.
Accordingly, prospective investors in any Notes referencing any overnight rates should be aware that the market continues to develop in relation to such rates in the capital markets and their adoption as an alternative to interbank offered rates such as LIBOR. Market participants,industry groups and/or central bank-led working groups continue to explore compounded and weighted average rates and observation methodologies for such rates (including so-called 'shift', 'lag', and 'lock-out' methodologies) and such groups may also explore forward-looking 'term' reference rates derived from these overnight rates. The adoption of overnight rates may also see component inputs into swap rates or other composite rates transferring from LIBOR or another reference rate to an overnight rate.
The market or a significant part thereof may adopt overnight rates in a way that differs significantly from those set out in the Terms and Conditions of the Notes issued under the Programme. In addition, the methodology for determining any overnight rate index by reference to which the Rate of Interest in respect of certain Notes may be calculated could change during the life of any Notes. Furthermore, the Issuer may in the future issue Notes referencing SONIA, SOFR or €STR that differ materially in terms of interest determination when compared with any previous SONIA-, SOFR- or €STR-referenced Notes issued by it under the Programme. The nascent development of overnight rates as interest reference rates for the Eurobond markets and the market infrastructure for adopting such rates, could result in reduced liquidity or increased volatility or could otherwise adversely affect the market price of any such Notes issued under the Programme from time to time.
Furthermore, the Rate of Interest on Notes which reference overnight rates is only capable of being determined immediately prior to the relevant Interest Payment Date. It may be difficult for investors in Notes which reference overnight rates to estimate reliably the amount of interest which will be payable on such Notes, and some investors may be unable or unwilling to trade such Notes without changes to their IT systems, both of which factors could adversely impact the liquidity of such Notes. Fu rther, in contrast to LIBOR-based Notes, if Notes referencing an overnight rate become due and payable as a result of an Event of Default under Condition 10 or Condition 11 (as applicable), or are otherwise redeemed early on a date which is not an Interest Payment Date, the final Rate of Interest payable in respect of such Notes shall only be determined immediately prior to the date on which the Notes become due and payable.
In addition, the manner of adoption or application of overnight rates in the Eurobond markets may differ materially when compared with the application and adoption of the same overnight rates for the same currencies in other markets, such as the derivatives and loan markets. Investors should carefully consider how any mismatch between the adoption of overnight rates across these markets may impact any hedging or other financial arrangements which they may put in place in connection with any acquisition, holding or disposal of Notes referencing overnight rates.
Investors should carefully consider these matters when making their investment decision with respect to any such Notes.
The Issuer has not registered, and will not register, the Notes under the Securities Act or any other applicable securities laws. Accordingly, the Notes are subject to certain restrictions on resale and other transfer thereof as set forth in the section entitled "Subscription and Sale". As a result of these restrictions, the Issuer cannot be certain of the existence of a secondary market for the Notes or the liquidity of such a market if one develops. Consequently, a holder of Notes and an owner of beneficial
interests in those Notes must be able to bear the economic risk of their investment in the Notes for the term of the Notes.
In relation to any issue of Notes which have denominations consisting of a minimum Specified Denomination plus one or more higher integral multiples of another smaller amount, it is possible that such Notes may be traded in amounts in excess of the minimum Specified Denomination that are not integral multiples of such minimum Specified Denomination. In such a case a holder who, as a result of trading such amounts, holds an amount which is less than the minimum Specified Denomination in its account with the relevant clearing system would not be able to sell the remainder of such holding without first purchasing a principal amount of Notes at or in excess of the minimum Specified Denomination such that its holding amounts to a Specified Denomination. Further, a holder who, as a result of trading such amounts, holds an amount which is less than the minimum Specified Denomination in its account with the relevant clearing system at the relevant time may not receive a definitive Note in respect of such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes at or in excess of the minimum Specified Denomination such that its holding amounts to a Specified Denomination.
If definitive Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade.
The Terms and Conditions of the Notes are based on English law in effect as at the date of this Base Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of this Base Prospectus and any such change could materially adversely impact the value of any Notes affected by it.
The Terms and Conditions of the Notes contain provisions for calling meetings (which may be a physical meeting or may instead be held by way of audio or video conference call) of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
The Trust Deed also provides that a resolution in writing signed by or on behalf of the holders of not less than three-fourths in nominal amount of the relevant Notes for the time being outstanding, or consent given by way of electronic consents through the relevant clearing systems by or on behalf of the holders of not less than three-fourths in nominal amount of the relevant Notes for the time being outstanding, shall also be effective as an extraordinary resolution binding on all Noteholders, whether or not such Noteholders voted voting in favour of the relevant resolution.
The Terms and Conditions of the Notes also provide that the Trustee may, without the consen t of Noteholders and without regard to the interests of particular Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the
Notes or (ii) the substitution of another company as principal debtor under any Notes in place of the Issuer, in the circumstances described in Condition 14. In addition, the Trustee shall be obliged to concur with the Issuer in effecting any Benchmark Amendments or Benchmark Replacement Conforming Changes in the circumstances and as otherwise set out in Condition 4.4 without the consent of the Noteholders.
The Final Terms relating to any specific Tranche of Notes may provide that such Notes are intended to be 'Sustainable Notes', which may include, inter alia, sustainable, green, environmental and/or social Notes (together,Sustainable Notes). The Issuer intends to allocate an amount equal to the net proceeds from any issue of Sustainable Notes to advance loans to the Issuer's customers on a targeted basis for the purposes of the financing and/or refinancing by such customers of assets, projects and expenditures with a positive sustainability impact, which may include sustainable, environmental, green and/or social projects (together, Eligible Sustainable Projects), in line with any sustainability framework(s) that the Issuer may publish from time to time, and/or which the Issuer expects will substantially adhere to the Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines (as applicable) as published by the International Capital Markets Association (ICMA) from time to time (together, the Principles).
If the use of such proceeds is a factor in a prospective investor's decision to invest in Sustainable Notes, prospective investors should consult with their legal and other advisers before making an investment in any such Sustainable Notes and must determine for themselves the relevance of such information for the purpose of any investment in such Sustainable Notes, together with any other investigation such investor deems necessary. In particular, no assurance is given by the Issuer, the Arranger or the Dealers that the use of such amounts advanced by the Issuer to customers for the purposes of financing or refinancing any projects which the Issuer has identified as Eligible Sustainable Projects will satisfy, whether in whole or in part, any present or future investor expectations or requirements as regards any investment criteria or guidelines with which such investor or its investments are required to comply, whether by any present or future applicable law or regulations or by its own by-laws or other governing rules or investment portfolio mandates, in particular with regard to any direct or indirect environmental, green, sustainability or social impact of any projects or uses, the subject of or related to, any Eligible Sustainable Projects.
There is currently no clearly defined legal, regulatory or other definition of a "sustainable no te" or market consensus as to what attributes are required for a particular asset or project to be classified as 'green', 'environmental', 'sustainable', 'social' or any similar label, nor can any assurance be given that such a clear definition or consensus will develop over time. A basis for the determination of such a definition has been established in the EU with the publication in the Official Journal of the EU on 22 June 2020 of Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 (the Sustainable Finance Taxonomy Regulation) on the establishment of a framework to facilitate sustainable investment (the EU Sustainable Finance Taxonomy). The EU Sustainable Finance Taxonomy is subject to further development by way of the implementation by the European Commission through delegated regulations of technical screening criteria for the environmental objectives set out in the Sustainable Finance Taxonomy Regulation. Accordingly, no assurance is or can be given by the Issuer, the Arranger or the Dealers that that the eligibility criteria for Eligible Sustainable Projects will satisfy any requisite criteria determined under the Sustainable Finance Taxonomy Regulation or within the EU Sustainable Finance Taxonomy at any time, or that any regime
implemented in the United Kingdom (if any) for issuing 'green', 'environmental', 'sustainable' or other equivalently-labelled securities will align with the European (or any other) framework for such securities.
Furthermore, there can be no assurance that any Eligible Sustainable Projects will be completed within any specified period or at all or with the results or outcome (whether or not related to the environment) as originally expected or anticipated by the Issuer when making its assessment whether or not to apply any proceeds of Sustainable Notes (or amounts equal thereto) to such Eligible Sustainable Project.
Accordingly, no assurance is or can be given by the Issuer, the Arranger or the Dealers to investors in Sustainable Notes that any projects or uses the subject of, or related to, any Eligible Sustainable Projects will meet any or all investor expectations regarding such 'green', 'environmental', 'sustainable', 'social' or other equivalently-labelled performance objectives or that any adverse environmental, green, social and/or other impacts will not occur during the implementation of any projects o r uses the subject of, or related to, any Eligible Sustainable Projects.
Furthermore, neither the Arranger nor any Dealer is responsible for (i) any assessment of any eligibility criteria relating to Sustainable Notes, (ii) any verification of whether the relevant advance of loans by the Issuer or the Eligible Sustainable Projects will satisfy the relevant eligibility criteria , (iii) the monitoring of the use of proceeds (or amounts equal thereto) in connection with the issue of any Sustainable Notes or (iv) the allocation of the proceeds by the Issuer to particular Eligible Sustainable Projects.
In addition, no assurance or representation is given by the Issuer, the Arranger or the Dealers as to the suitability or reliability for any purpose whatsoever of any opinion, certification or report of any third party, (whether or not solicited by the Issuer) which may be made available in connection with the issue of any Sustainable Notes and/or any sustainability framework established by the Issuer, and in particular with any Eligible Sustainable Projects to fulfil any environmental, green, sustainability, social and/or other criteria. For the avoidance of doubt, any such opinion or certification will not be, and shall not be deemed to be, incorporated in and/or form part of this Base Prospectus. Any such opinion or certification is not, and should not be deemed to be, a recommendation by the Issuer or any other person to buy, sell or hold any Sustainable Notes. Any such opinion or certification will only be current as of the date on which that opinion is initially issued. Prospective investors must determine for themselves the relevance of any such opinion or certification and/or the information contained therein and/or the provider of such opinion or certification for the purpose of any investment in any Sustainable Notes. As at the date of this Base Prospectus, the providers of such opinions and certifications are not subject to any specific regulatory or other regime or oversight.
If any Sustainable Notes are listed or admitted to trading or otherwise displayed on any dedicated 'green', 'environmental', 'sustainable', 'social' or other equivalently-labelled segment of any stock exchange or securities market (whether or not regulated), no representation or assurance is given by the Issuer,the Arranger or the Dealers that such listing or admission or display satisfies, whether in whole or in part, any present or future investor expectations or requirements as regards any investment criteria
or guidelines with which such investor or its investments are required to comply, whether by any present or future applicable law or regulations or by its own by-laws or other governing rules or investment portfolio mandates, in particular with regard to any direct or indirect environmental, green, sustainability or social impact of any projects or uses, the subject of or related to, any Eligible Sustainable Projects or the funding thereof by the Issuer. Furthermore, it should be noted that the criteria for any such listing or admission to trading or display may vary from one stock exchange or securities market to another. No representation or assurance is given or made by the Issuer, the Arranger or the Dealers that any such listing or admission to trading or display will be obtained in respect of any Sustainable Notes or, if obtained, that any such listing or admission to trading or display will be maintained during the life of any Sustainable Notes. The criteria for acceptance onto any such market may change from time to time. In the event of any actual or anticipated removal of the Notes from any such market, or if access t o any such market is sought and refused, that could have a material adverse effect on the market price of any Sustainable Notes.
While it is the intention of the Issuer to apply an amount equal to the net proceeds of any Sustainable Notes for advancing loans to customers on a targeted basis for the purposes of financing and/or refinancing Eligible Sustainable Projects, there can be no assurance that the relevant loans advanced by the Issuer, or the project(s) or use(s) the subject of, or related to, any Eligible Sustainable Projects will be capable of being implemented in or substantially in such manner and/or in accordance with any timing schedule and that accordingly such amounts will be totally or partially disbursed for such Eligible Sustainable Projects. Nor can there be any assurance that such Eligible Sustainable Projects will be completed within any specified period or at all or with the results or outcome (whether o r not related to the environment) as originally expected or anticipated by the Issuerwhen making its assessment whether or not to advance the relevant loan.
Any such event or failure by the Issuer to apply an amount equal to the net proceeds of any issue of Sustainable Notes to advance loans to customers to finance and/or refinance any Eligible Sustainable Projects, and/or any failure by any such customer to apply those funds to Eligible Sustainable Projects as aforesaid, and/or withdrawal of any such opinion or certification or any such opinion or certification attesting that the Issuer or any of its customers is not complying in whole or in part with any matters for which such opinion or certification is opining or certifying on and/or any Sustainable No tes no longer being listed or admitted to trading or displayed on any stock exchange or securities market as aforesaid, will not (i) give rise to any claim of a Noteholder against the Issuer (or the Arranger or any Dealer), (ii) constitute an Event of Default under any Sustainable Notes or a breach or violation of any term thereof, or constitute a default by the Issuer for any other purpose, (iii) lead to a right or obligation of the Issuer to redeem any Sustainable Notes or give any Noteholder the right to require redemption of its Notes or (iv) affect the qualification of Sustainable Notes which are also Subordinated Notes or Senior Non-Preferred Notes (as the case may be) as Tier 2 Capital or as eligible liabilities or loss absorbing capacity instruments (as applicable).
If any of the risks outlined in this risk factor materialise, this may have a material adverse effect on the value of such Sustainable Notes and also potentially the value of any other Notes which are intended to finance the Issuer's lending for Eligible Sustainable Projects and/or result in adverse consequences for certain investors with portfolio mandates to invest in securities to be used for a particular purpose (including, without limitation, if such investors are required to dispose of their Sustainable Notes as a result of such Notes not meeting any investment criteria or objectives set by or for such investor, which could lead to increased volatility and/or material decreases in the market price of Sustainable Notes).
Where the Issuer encounters, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern, it may propose a Restructuring Plan (a Plan) with its creditors under Part 26A of the Companies Act 2006 (introduced by the Corporate Insolvency and Governance Act 2020) to eliminate, reduce, prevent or mitigate the effect of any of those financial difficulties. Should this happen, creditors whose rights are affected are organised into creditor classes and can vote on any such Plan (subject to being excluded from the vote by the English courts for having no genuine economic interest in the Issuer). Providing that one class of creditors (who would receive a payment, or have a genuine economic interest in the Issuer) has approved the Plan, and in the view of the English courts any dissenting class(es) who did not approve the Plan are no worse off under the Plan than they would be in the event of the "relevant alternative" (such as, broadly, liquidation or administration), then the English court can sanction the Plan where it would be a proper exercise of its discretion. A sanctioned Plan is binding on all creditors and members, regardless of whether they approved it. Any such sanctioned Plan in relation to the Issuer may, therefore, adversely affect the rights of Noteholders and the price or value of their investment in the Notes, as it may have the effect of modifying or disapplying certain terms of the Notes (by, for example, writing down the princ ipal amount of the Notes, modifying the interest payable on the Notes, the maturity date or dates on which any payments are due or substituting the Issuer).
An optional redemption feature is likely to limit the market value of Notes. During any period when the Issuer may elect, or is perceived to be able to elect, to redeem Notes, the market value of those Notes generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period.
It may be commercially rational for the Issuer to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.
In addition to any optional redemption right of the Issuer pursuant to Condition 5.5, Notes may also be redeemable at the option of the Issuer (subject, in the case of Senior Non-Preferred Notes and Subordinated Notes, to compliance with applicable prudential rules) (i) upon certain changes in the tax treatment of the Notes, (ii) in the case of Subordinated Notes, following the occurrence of a Regulatory Event and (iii) in the case of Senior Non-Preferred Notes, following the occurrence of a Loss Absorption Disqualification Event (all as further described in the Conditions). The circumstances in which any of these events giving rise to a redemption right may occur may be difficult to predict, and are based on factors outside the Issuer's control.
Any proposed changes in law or regulation which may affect the Issuer's ability to redeem any Notes may impact the market price of such Notes, whether or not those proposed changes materialise, or if the relevant proposals are ultimately implemented in a form other than that originally proposed. If any events or circumstances occur such that the Issuer may elect to redeem the Notes, or if the market anticipates that any such events or circumstances may occur, the market value of the relevant Notes
generally will not rise substantially above the price at which they can be redeemed, and this also may be true prior to any redemption period.
If so specified in the applicable Final Terms, the Issuer may, following a Loss Absorption Disqualification Event in respect of any Series of Senior Non-Preferred Notes, without the need for any consent of the Noteholders, substitute all (but not some only) of such Series of Senior Non-Preferred Notes for, or vary the terms of such Series so that they remain or become, Loss Absorption Compliant Notes. The Loss Absorption Compliant Notes are required to have terms such that they rank as part of the class of Secondary Non-Preferential Debts; this is the case whether or not the Senior Non-Preferred Notes had become a part of the class of Ordinary Non-Preferential Debts as a result of the relevant Loss Absorption Disqualification Event.
While Loss Absorption Compliant Notes are, subject to such ranking requirement, otherwise required to have terms which are not materially less favourable to Noteholders than the terms of the relevant Senior Non-Preferred Notes (as reasonably determined by the Issuer in consultation with an independent adviser of recognised standing), no assurance can be given that any such substitution or variation will not adversely affect any particular holder. In addition, the tax and stamp duty consequences of holding such Loss Absorption Compliant Notes could be different for some categories of Noteholders from the tax and stamp duty consequences for them of holding the Senior Non-Preferred Notes prior to such substitution or variation.
The Issuer's obligation to pay additional amounts in respect of any withholding or deduction in respect of taxes under the terms of each Series of Subordinated Notes and Senior Non-Preferred Notes applies only to payments of interest due and paid under such Notes and not to payments of principal (which term, for these purposes, includes any premium, Final Redemption Amount, Early Redemption Amount and Optional Redemption Amount and any other amount (other than interest) payable in respect of such Notes).
Accordingly, if any such withholding or deduction were to apply to any payments of principal under any Series of Subordinated Notes or any Series of Senior Non-Preferred Notes, holders of such Notes would, upon repayment or redemption of such Notes, be entitled to receive only the net amount of such redemption or repayment proceeds after deduction of the amount required to be withheld. Therefore, holders may receive less than the full amount due under such Notes, and the market value of such Notes may be adversely affected as a result.
Investment in Fixed Rate Notes involves the risk that if market interest rates subsequently increase above the rate paid on the Fixed Rate Notes, this will adversely affect the value of the Fixed Rate Notes.
Fixed/Floating Rate Notes are Notes which may bear interest at a rate that may convert from a fixed rate to a floating rate, or from a floating rate to a fixed rate. Such a feature to effect a conversion, and any conversion of the interest basis, may affect the secondary market and the market value of the Notes as the change of interest basis may result in a lower interest return for Noteholders. Where the Notes convert from a fixed rate to a floating rate, the spread on the Fixed/Floating Rate Notes may be less favourable than then prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the new floating rate at any time may be lower than the rates on other Notes. Where the Notes convert from a floating rate to a fixed rate in such circumstances, the fixed rate may be lower than then prevailing market rates and could affect the market value of an investment in such Notes. Furthermore, if any Notes are issued upon terms providing for automatic conversion of the interest rate on any Notes from a fixed rate to a floating rate or vice versa, this may also affect the secondary market and the market value of the Notes concerned if the rate or basis to which the interest rate is required to switch is lower than the interest rate prevailing up to such time.
In the case of any Series of Reset Notes, the rate of interest on such Reset Notes will be reset by reference to the Reset Reference Rate, as adjusted for any applicable margin, on the reset dates specified in the relevant Final Terms. This is more particularly described in Condition 4.3. The reset of the rate of interest in accordance with such provisions may affect the secondary market for and the market value of such Reset Notes. Following any such reset of the rate of interest applicable to the Notes, the First Reset Rate of Interest or the Subsequent Reset Rate of Interest on the relevant Reset Notes may be lower than the Initial Rate of Interest, the First Reset Rate of Interest and/or any previous Subsequent Reset Rate of Interest.
The market values of securities issued at a substantial discount (such as Zero Coupon Notes) or premium to their principal amount tend to fluctuate more in relation to general changes in interest rates than do prices for more conventional interest-bearing securities. Generally, the longer the remaining term of such securities, the greater the price volatility as compared to more conventional interest-bearing securities with comparable maturities.
The Notes are new securities which may not be widely distributed and for which there is currently no active trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although the Issuer has applied to admit the Notes issued from time to time to listing on the Official List and to admit them to trading on the London Stock Exchange's Regulated Market, the Issuer cannot guarantee that the Notes will be accepted for listing or admitted to trading or that an active trading market will develop. Accordingly, the Issuer cannot guarantee the development or liquidity of any trading market for the Notes. If a market for the Notes does develop, it may not be very liquid and may be sensitive to changes in financial markets. Therefore, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. This may in particular be the case should the Issuer be in financial distress, which may result in any sale of the Notes having to be at a substantial discount to their principal amount.
The Issuer will pay principal and interest on the Notes in the Specified Currency (as defined below). This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the Investor's Currency) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impos e or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the Specified Currency would decrease (1) the Investor's Currency-equivalent yield on the Notes, (2) the Investor's Currency equivalent value of the principal payable on the Notes and (3) the Investor's Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate or the ability of the Issuerto make payments in respect of the Notes. As a result, investors may receive less interest or principal than expected, or no interest or principal.
The credit ratings of the Programme may not reflect the potential impact of all risks relating to the value of the Notes. In addition, real or anticipated changes in the credit ratings of the Issuer or the Notes will generally affect the market value of the Notes. These credit ratings could change due to a wide range of factors. Further, one or more credit rating agencies may from time to time release unsolicited credit ratings reports in relation to the Notes without the consent or knowledge of the Issuer. The Issuer does not have any control over such reports or analyses and any adverse credit rating of any Notes could adversely affect the value of Notes.
A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU or the UK and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances whilst the registration application is pending. Such general restriction will also apply in the case of credit ratings issued by non-EU and non-UK credit rating agencies, unless the relevant credit ratings are endorsed by an EU-registered or UK-registered credit rating agency or the relevant non-EU and non-UK rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended, subject to transitional provisions that apply in certain circumstances).If the status of the rating agency that is rating the Notes changes, European regulated investors may no longer be able to use the rating for regulatory purposes and the Notes may have a different regulatory treatment. This may result in European regulated inve stors selling the Notes which may impact the value of the Notes and any secondary market. The list of registered and certified rating agencies published by the ESMA on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency included in such list, as there may be delays between certain supervisory measures being taken against a relevant rating agency and the publication of the updated ESMA list. Certain information with respect to the credit rating agencies and ratings is set out on the cover of this Base Prospectus.
The Issuer's business activities are concentrated in the UK and the Issuer offers a range of banking and financial products and services to UK retail customers. As a consequence, the Issuer's operating results, financial condition and prospects are significantly affected by the general economic conditions in the UK economy and the economic confidence of consumers and businesses.
In recent years, the Issuer has benefitted from generally positive economic conditions which helped it grow its core lending and savings operations and also beneficially impacted its underlying impairment charges. The outlook for the UK economy is, however, uncertain, particularly in the short and medium term in light of the outbreak of the Covid-19 pandemic, and also the UK's decision to leave the EU. The UK is experiencing a significant contraction in economic activity during 2020 as a result of the Covid - 19 pandemic and associated intervention by the UK government (the Government) to reduce the spread of the virus. In the second quarter of 2020, gross domestic product fell by 20.4 per cent. in the UK. In response to this crisis, the BoE has provided significant economic stimulus, including a reduction in its base rate of interest to 0.1 per cent., and regulators have issued guidance to lenders asking them to act in the best interests of their customers to ease the financial impact on them, as well as releasing countercyclical buffer requirements in order to free up resources for lending. While it is difficult to predict the level and duration of the economic impact of Covid-19 on the UK and global economy at this stage, both the direct health impact of the virus and measures adopted with a view to containing its spread (including lock-downs, travel restrictions and temporary business shut-downs or reduction of capacity and output) have had and are expected to continue to have a material adverse effect on economic conditions and financial markets in the UK and globally at least until the pandemic is under control. See further "Risks relating to the impact of Covid-19" below.
Adverse changes and uncertainty in UK economic conditions could lead to a decline in the credit quality of the Issuer's borrowers and counterparties and have an adverse effect on the quality of its loan portfolio, which could result in a rise in delinquency and default rates, reduce the recoverability and value of the Issuer's assets and require an increase in the Issuer's level of provisions for bad and doubtful debts.In light of the Covid-19 pandemic, for the purposes of preparing the Issuer's financial statements for the year ended 4 April 2020, revised economic forecasts have been used to model losses in the residential mortgage, consumer banking and commercial portfolios, which resulted in an additional Covid-19 related provision of £101 million. See further "Risks relating to the impact of Covid-19" below. Likewise, a significant reduction in the demand for the Issuer's products and services could negatively impact the Issuer's business and financial condition. There remains a risk that despite the existence of certain Government support schemes, such as the Job Support Scheme and the Self Employed Income Support Scheme, unemployment may rise substantially. The Job Support Scheme is intended to replace the broader Coronavirus Job Retention Scheme, which, along with the Se lf Employed Income Support Scheme, had provided support to over 25 per cent. of the workforce in mid 2020. Pursuant to the Job Support Scheme and latest grants under the Self Employed Income Support Scheme, the Government will pay a lower percentage of salaries and income than under its previous measures to support employment. These new measures are due to expire in April 2021. Accordingly, there is a risk that unemployment will increase substantially in the coming months and/or once the schemes are phased out, which could lead to lower consumer spending, loss of income and weak wage growth. These pressures on households may lead to an increase in arrears in the Issuer's residential mortgage and unsecured lending portfolios, and an associated increase in retail impairment. There can be no assurance that the Issuerwill not have to increase its provisions for loan losses in the future as a
result of increases in non-performing loans and/or for other reasons beyond its control. Material increases in the Issuer's provisions for loan losses and write-offs/charge-offs could have an adverse effect on the Issuer's operating results, financial condition and prospects.
The durability of the UK economic recovery, along with its concomitant impacts on the Issuer's profitability, remains a risk. The economic outlook is particularly uncertain following the outbreak of the Covid-19 pandemic and the UK decision to leave the EU. This uncertainty extends to the interest rate outlook, where there are plausible scenarios with rates being increased, remaining unchanged or being lowered in the period ahead, depending on economic developments. Any lowering of interest rates could result in the Bank of England's base rate of interest being zero or negative. On 12 October 2020, the PRA published a 'Dear CEO' letter, designed to commence structured engagement with certain firms to determine the operational readiness of firms, including with respect to technology capabilities, in the event that a zero or negative bank base rate were to be implemented, although the PRA emphasised that the engagement was not indicative that the Monetary Policy Committee will employ a zero or negative policy rate, and the PRA was not asking firms to begin taking steps to ensure they are operationally ready to implement a negative bank rate of interest.The Issuer's central expectation is that, whether or not the base rate of interest is lowered in the shorterterm, any interest rate rises would be gradual and limited in the years ahead.
There is also uncertainty about the UK's future trading relationships. There is potential for activity and asset prices to decline should the labour market deteriorate markedly or if strains in the financial system re-emerge and impair the flow of credit to the wider economy. Credit quality could be adversely affected by a renewed increase in unemployment, including as a result of Covid-19. In addition, there may be a weakening in tenant performance in the private rental sector which could adversely impact the buy -tolet (BTL) market. Any related significant reduction in the demand for the Issuer's products and services could have a material adverse effect on the Issuer's operating results, financial condition and prospects.
Worsening economic conditions in the UK could also create uncertainty in relation to the cash flows of the Issuer's borrowers in the commercial real estate (CRE) market and in relation to the value of their collateral, leading to further loan loss provisions against the Issuer's CRE lending. Any weakening in tenant performance and investor appetite could result in increased commercial loan losses which would adversely impact the Issuer's financial and operational performance. Any further loan loss provisions recorded against the Issuer's CRE lending could adversely affect the Issuer's profitability in the future.
Further downward pressure on profitability and growth could occur as a result of a number of external influences, such as the consequences of a more austere economic environment and the impac t of global economic forces on the UK economy. Adverse changes in global growth may pose the risk of a further slowdown in the UK's principal export markets, which would have an adverse effect on the broader UK economy. For further information on the risks arising from general economic conditions abroad, see "— The Issuer is vulnerable to disruptions and volatility in the global financial markets and is subject to additional risks arising from general economic conditions in the Eurozone and elsewhere " below.
Conversely, a strengthened UK economic performance, or a rise in inflation pressures, may increase the possibility of a higher interest rate environment. In such a scenario, other market participants might offer more competitive product pricing resulting in increased customer attrition. Under such conditions, the Issuermay also experience an increase in its cost of funding, as described under "—Changes to interest rates or monetary policy, whether by the UK, U.S. or other central banking authorities, could affect the financial condition of the Issuer's customers, clients and counterparties, which could in turn adversely affect the Issuer" below.
Additionally, housing affordability has become more stretched in recent years in some parts of the country. There is a risk that a decline in house sales, including due to house price growth outstripping earnings, could reduce demand for new mortgages in the future. Conversely, significant falls in house
prices, as a result of the direct or indirect effects of Covid-19 or otherwise, may reduce the overall amount of equity in the Issuer's mortgage portfolio. See further "—The Issuer is exposed to future changes in UK house prices" below.
The Issuer is exposed to any downturn in the UK's economic conditions and to the UK housing market in particular. The Covid-19 pandemic has severely impacted both the UK and global economies and the economic environment in which the Issuer operates. The pandemic is having a far-reaching impact on the Issuer's financial performance, credit profile, the way it interacts with customers and its business operations. The Issuer considers that the financial performance framework which has guided its decisions in the past is no longer appropriate in the current environment and it is focusing instead on maintaining strong capital and liquidity positions through the economic cycle.
The pandemic is likely to cause interest rates to remain at historically low levels (and there is increasing speculation about the possibility for the UK base rate of interest to move to a negative rate), and will result in longer term economic effects, potentially putting pressure on the Issuer's financial performance. The Issuer's operating environment is expected to remain highly competitive, and further increases in competition would increase the level of business risk for the Issuer.
As well as increased credit risk, including through unemployment and corporate insolvencies which could adversely impact the Issuer's members and customers and their ability to meet their obligations to the Issuer, there are likely to be heightened operational risks as the Issuer responds to the pandemic, including in the areas of cyber, fraud, people, technology and operational resilience. The emergence of the Covid-19 pandemic and its impact on the economic and market environment has elevated the profile of model risk across the Issuer. While the Issuer has initiated an ongoing programme of model surveillance and extended the monitoring of key models to understand the short term effects, apply appropriate mitigating actions and develop long term plans to improve model resilience, there can be no assurance that it will be able accurately to model or adequately to address the impacts of Covid-19.
In addition, there is an increased risk of the material misstatement of expected credit losses under IFRS 9 due to the degree of judgement and inherent uncertainty in the assumptions underlying the Covid -19 related additions to the modelled provision. For the purposes of preparing its financial statements for the year ended 4 April 2020, revised economic forecasts have been used to model losses in the residential mortgage, consumer banking and commercial portfolios. This has resulted in an additional Covid-19 related provision of £101 million for the year ended 4 April 2020 (comprising provisions of £51 million, £43 million and £7 million, respectively, in residential mortgage, consumer banking and commercial portfolios). The residential mortgage provision includes estimated credit losses associated with payment holidays granted to borrowers as a result of Covid-19, recognising that in some cases borrowers will experience longer term financial difficulty as a result of the pandemic. Payment holidays or other similar concessions have been offered on all retail products. Unlike other concessions granted to borrowers in financial difficulty, these payment holidays have not been subject to detailed affordability assessments, and therefore the level of financial difficulty of the members and customers who apply for them requires estimation in a number of areas. The increase in reported provisions for the year ended 4 April 2020 to reflect the risk associated with borrowers who requested payment holidays as a result of Covid-19 was £39 million. Due to the limited observable data available at the reporting date for the Issuer's financial statements for the year ended 4 April 2020, the Covid-19 related provisions are subject to significant levels of estimation. Given the significant uncertainties regarding the level and duration of the impact of Covid-19 and the responses thereto by the Government and regulators in the UK and globally, there can be no assurance that the estimates and modelling by the Issuer will prove accurate or be sufficient to cover actual losses or impairments as a result of Covid-19.
The UK has experienced a significant contraction in economic activity during 2020 as a result of the pandemic and associated Government intervention to reduce the spread of the virus. In response to this crisis, the BoE has provided significant economic stimulus, including a reduction in its base rate of interest to 0.1 per cent., and regulators have issued guidance to lenders asking them to act in the best interests of their customers to ease the financial impact on them, as well as releasing counter-cyclical buffer requirements in order to free up resources for lending and providing other regulatory guidance and temporary reliefs. The Issuer is working with the Government and the wider industry in response to the threat posed by Covid-19. This includes offering payment holidays to impacted borrowers. While the Issuer initially offered its mortgage members up to three months' mortgage payment holidays, in acknowledgement of the fact that the impact of Covid-19 could be felt long after that, the Issuer has announced its Home Support Package to support its members, including (amongst other support): for members with a Nationwide mortgage, a choice of either flexibility in mortgage payments (such as making reduced payments for a period of time) or the option to take a new mortgage payment break of up to a (further) three months; and, for members who have fallen into arrears because of the financial impact of Covid-19 and who continue to work with the Issuer to help get their mortgage back on track, a commitment not to take any action to repossess their home before 31 May 2021.
The FCA has updated its original home finance guidance published on 20 March 2020 providing support to mortgage customers in temporary payment difficulty as a result of Covid -19. The updated FCA guidance is in force until 31 October 2020 and requires the Issuer to continue to offer payment holidays or appropriate forbearance to impacted borrowers during that period. In August 2020, the FCA published additional guidance for firms in respect of mortgages in the context of Covid -19. This guidance supplements the FCA's June guidance, which is aimed at requiring firms to adopt tailored support for clients, depending on their circumstances; the June guidance will continue to provide support for those newly impacted by Covid-19 until at least 31 October 2020 – with consumers able to receive an initial or further three month payment deferral from that date that would last until 31 January 2021. Further, on 1 May 2020 the FCA published a letter to mortgage lenders and administrators asking them, if they have customers who took out mortgages with higher risk characteristics before the financial crisis, to review the interest rates charged to such customers and consider if they are consistent with the obligation to treat customers fairly in light of Covid-19. The Issuer must also comply with FCA guidance introduced to support consumers with other products including personal loans, credit cards and overdrafts, which includes (amongst other things) the potential for offering three -month payment holidays, providing temporary interest relief periods or other forbearance measures.
The FCA continues to review its Covid-19 related guidance and may decide to update or amend it as the pandemic and its impact on the UK develops. The financial impact on the Issuer of these and any further measures taken to support its members could have a material adverse effect on the Issuer's profitability, its financial condition and its results of operations.
Any and all such events and measures described above could have a material adverse effect on the Issuer's business, financial condition, results of operations, prospects, liquidity, capital position and credit ratings (including potential changes of outlooks or ratings), as well as on its customers, borrowers, counterparties, employees and suppliers.
The Issueris directly and indirectly subject to inherent risks arising from general economic conditions in the UK and other economies, particularly the Eurozone. The outbreak of the Covid-19 pandemic has caused, and may continue to cause, widespread disruption to global financial markets not seen since the global financial crisis of 2007-2008, with the impact on interest rates, credit spreads, foreign exchange rates and commodity, equity and bond prices resulting in significant market falls, reduced liquidity and
rises in volatility. Any future disruptions could again pose systemic risks that negatively affect, among other things:
which in turn could have a material adverse effect on the Issuer's business, operating results, financial conditions and prospects.
In the Eurozone, inflation has been persistently low which, together with high levels of private and public debt, outstanding weaknesses in the financial sector and reform fatigue, is a concern. The possibility of a renewed downturn in the Eurozone could inhibit the UK's own economic recovery, given the extensive economic and financial linkages between the UK and the Eurozone. The UK's trade and current account balances with the Eurozone would be likely to deteriorate further, negatively affecting UK growth. The possibility of a sovereign default and the managed or unanticipated exit of one or mo re member states from the European Monetary Union could also pose a threat to the stability of financial markets and could cause other risks. For further information, see "—In connection with the withdrawal of the United Kingdom from the European Union, the Issuer faces risks to its business and legal uncertainties" below.
Although, globally and in the UK, economic and financial market conditions had generally stabilised in the years following the global financial crisis, there have been periods of significant volatility in financial markets around the world, which has generally led to more difficult business conditions for the financial sector. The Covid-19 pandemic has recently had a significant adverse effect on the UK, global economies and financial markets, and could result in further downward pressures and/or increased volatility.
Continued or worsening disruption and volatility in the global financial markets could have a material adverse effect on the Issuer, including its ability to access capital and liquidity on financial terms acceptable to it, if at all. If capital markets financing ceases to become available, or becomes significantly more expensive, the Issuer may be forced to raise the rates it pays on deposits to attract more customers and it may become unable to maintain certain liability maturities. Any such reduction in availability of funding or increase in capital markets funding costs or deposit rates could have a material adverse effect on the Issuer's interest margins, liquidity and profitability.
Retail depositors are a significant source of funding for the Issuer and, under current legislation, a minimum of 50 per cent. of its aggregate shares and borrowings (calculated in accordance with the Act) is required to be in the form of deposits accepted from members of the public and which are classified as "shares" on the balance sheet as they confer member status on the depositors. The Issuer's retail deposits classified as shares totalled £160 billion as at 4 April 2020, £154 billion as at 4 April 2019 and £148 billion as at 4 April 2018, equal to 70.8 per cent., 70.8 per cent. and 71.0 per cent., respectively, of its total shares and borrowings (for the purposes of the Act) as at each such date.
The ongoing availability of retail deposit funding is dependent on a variety of factors outside of the Issuer's control, such as:
These or other factors could lead to a reduction in the Issuer's ability to access retail deposit funding on appropriate terms in the future.
The maintenance and growth of the Issuer's lending activities depends in large part on the availability of retail deposit funding on appropriate terms. Increases in the cost of such funding in the wake of the financial crisis together with the low base rate environment have had a negative impac t on the Issuer's margins and profit. Such pressures could continue or be exacerbated, including if the UK base rate of interest moves to a negative rate, and, in extreme circumstances, a loss of consumer confidence could result in high levels of withdrawals from the Issuer's retail deposit base, upon which it relies for lending and which could have a material adverse effect on its business, financial position and results of operations.
Like all major financial institutions, the Issueris also dependent on the short- and long-term wholesale funding markets for liquidity. Though the Issuer's dependence on wholesale funding is less than other financial institutions, due to the requirements of current building society legislation, the Issuer's business is subject to risks concerning liquidity, which are inherent in financial institutions' operations. If access to liquidity is constrained for a prolonged period of time, this could affect the Issuer's profitability.
Under exceptional circumstances, the Issuer's ability to fund its financial obligations could be negatively impacted if it is unable to access funding on commercially practicable terms, or at all. While the Issuer expects to have sufficient liquidity to meet its funding requirements, even in a market-wide stress scenario, under extreme and unforeseen circumstances a prolonged and severe restriction on its access to liquidity (including as a result of the withdrawal of Government and central bank funding and liquidity support, or a change in the structure, term, cost, availability or accessibility of any such funding or liquidity support) could increase the Issuer's cost of funding, resulting in a material adverse effect on its profitability or results of operations, and/or could affect the Issuer's ability to:
In such extreme circumstances the Issuer may not be in a position to continue to operate without additional funding support. Inability to access such support could have a material impact on the Issuer's solvency. These risks can be exacerbated by many enterprise-specific factors, including an over-reliance on a particular source of funding, changes in credit ratings, or market-wide phenomena such as market dislocation and major disasters. There is also a risk that the funding structure employed by the Issuer may prove to be inefficient, giving rise to a level of funding cost that is not sustainable in the long -term for the Issuer to grow its business or even maintain it at current levels. The Issuer's ability to access retail and wholesale funding sources on satisfactory economic terms is subject to a variety of factors, including a number of factors outside of the Issuer's control, such as liquidity constraints, general market conditions, regulatory requirements and loss of confidence in the UK banking system.
The Government has in recent years provided significant support to UK financial institutions, including the BoE's Term Funding Scheme (TFS) which opened on 19 September 2016 and closed on 28 February 2018. In addition, in response to the Covid-19 pandemic, the Government and the BoE have introduced various measures designed to encourage and support the banking sector to continue lending to customers. These measures include, amongst other things, the introduction of: (i) a new Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) (with the express intention, over a 12 month period, to offer four-year funding of at least 10 per cent. of participants' stock of real economy lending at interest rates at, or very close to, the base rate of interest, with additional funding available for banks that increase lending, especially to small and medium-sized enterprises); and (ii) other corporate funding facilities, including the UK Covid Corporate Financing Facility (CCFF), the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the UK Coronavirus Large Business Interruption Loan Scheme (CLBILS).
The continuation and extension of Government schemes designed to support lending may increase or perpetuate competition in the retail lending market, resulting in sustained or intensifying downward pricing pressures and consequent reductions in net interest margins. The Issuer also expects to face continued competition in the retail lending market driven by certain ring-fenced banks as they deploy surplus liquidity in lending markets.
The Issuer expects to face continuing significant competition (including from National Savings and Investments, the Government-owned funding agency (NSI), and a range of smaller lenders with largely non-mortgage loan books whose high asset yields enable them to offer attractive deposit rates) for funding, particularly retail funding on which the Issueris reliant in the future. These potential pressures could be exacerbated over time once the sector, as a whole, seeks to replace the funding it obtains from BoE funding schemes. This competition could further increase, impacting the Issuer's funding costs and so adversely impact the Issuer's results of operations and financial position.
The prevailing level of interest rates and the provision or withdrawal of other accommodative monetary and fiscal policies, which are impacted by factors outside of the Issuer's control, including the fiscal and monetary policies of governments and central banks, as well as UK and international political and economic conditions, affect the Issuer's results of operations, financial condition and return on capital.
Stimulus measures in the UK and elsewhere have been highly accommodative in recent years, including the Funding for Lending Scheme (FLS) (which closed in January 2018), the TFS (which closed in February 2018) and the Help to Buy scheme, a Government scheme introduced in 2013 designed to enable buyers to put down a 5 per cent. deposit on a home with the Government lending up to 20 per cent. of the mortgage (up to 40 per cent. in London) funded by a commercial lender (which closed on 30 November 2019, but for which a new scheme is expected to come into place from 1 April 2021 until 2023). More recently, in response to the Covid-19 pandemic, the Government and the BoE have introduced additional stimulus measures, including a reduction in the BoE base rate of interest to 0.1 per cent. and the introduction of the TFSME. Further, the Government helped companies secure access to credit with schemes such as CBILS, CLBILS, CCFF and, for small and micro companies, bounce back loans. The relatively long period of stimulus in the UK and elsewhere has increased uncertainty over the impact of its reduction, which could lead to generally weaker than expected growth, or even contracting gross domestic product, reduced business confidence, higher levels of unemployment or underemployment, adverse changes to levels of inflation, potentially higher interest rates and falling property prices in the markets in which the Issuer operates, and consequently to an increase in delinquency rates and default rates among the Issuer's customers. Moreover, higher prevailing interest rates would affect the Issuer's cost of funding with depositors and creditors, which could adversely affect the Issuer's profitability, to the extent the Issuer's margins decline.
The personal financial services sector in the UK remains heavily indebted and vulnerable to increases in unemployment, rising interest rates and/or falling house prices. As a result of, among other factors, increases and decreases in the BoE base rate of interest, interest rates payable on a significant portion of the Issuer's outstanding mortgage loan products fluctuate over time. Rising interest rates would put pressure on borrowers whose loans are linked to the BoE base rate of interest because such borrowers may experience financial stress in repaying at increased rates in the future. A significant portion of the Issuer's outstanding mortgage loan products are potentially subject to changes in interest rates, resulting in borrowers with a mortgage loan subject to a variable rate of interest or with a mortgage loan for which the related interest rate adjusts following an initial fixed rate or low introductory rate, as applicable, being exposed to increased monthly payments as and when the related mortgage interest rate adjusts upward (or, in the case of a mortgage loan with an initial fixed rate or low introductory rate, at the end of the relevant fixed or introductory period). Since 2009, both variable and fixed interest rates have been at relatively low levels, which has benefitted borrowers taking out new loans and those repaying existing variable rate loans, regardless of special or introductory rates. While the Covid-19 pandemic is likely to cause interest rates to remain at historically low levels in the near term (and there is increasing speculation about the possibility for the UK base rate of interest to move to a negative rate), over time general interest rates may return to historically more normal levels. Future increases in borrowers' required monthly payments, which (in the case of a mortgage loan with an initial fixed rate or low introductory rate) may be compounded by any further increase in the related mortgage interest rate during the relevant fixed or introductory period, ultimately may result in higher delinquency rates and losses in the future.
Further, in an increasing interest rate environment, borrowers seeking to avoid these increased monthly payments by refinancing their mortgage loans may no longer be able to find available replacement loans at comparably low interest rates. Increased unemployment could lead to borrowers who are made redundant being unable to service the loan payments in a timely fashion which would result in higher levels of arrears, both in the Issuer's secured residential mortgage loan and unsecured consumer loan portfolios which, in turn, would lead to an increase in the Issuer's impairment charges in respect of these portfolios. Declines in housing prices may also leave borrowers with insufficient equity in their homes to permit them to refinance. These events, alone or in combination, may contribute to higher delinquency rates and losses.
Conversely, there are risks associated with a continuation of the sustained low interest rate environment or further reductions in interest rates in the UK or other major developed economies, including if the BoE were to lower its target rate to a negative rate (as other major central banks, including the European Central Bank and the Bank of Japan, have done). A prolonged period of low interest rates could further reduce incentives for the Issuer's customers to save, reducing its funding from deposits. Additionally, the low interest rate environment has and may continue to put pressure on net interest income and margins throughout the UK financial industry. The Issuer's business, financial performance, net interest income and margin may continue to be adversely affected by the low interest rate environment.
The value of the Issuer's mortgage portfolio is influenced by UK house prices, and a significant portion of the Issuer's revenue is derived from interest and fees paid on its mortgage portfolio. As at 4 April 2020, £151.1 billion, or 75.2 per cent., of the Issuer's total loans and advances to customers were UK prime residential mortgages. A decline in house prices in the UK could lead to a reduction in the recovery value of real estate assets held as collateral in the event of a customer default, and could lead to higher impairment provisions, which could reduce the Issuer's capital and its ability to engage in lending and other income-generating activities. A significant increase in house prices over a short period of time could also have a negative impact on the Issuer by reducing the affordability of homes for buyers, which could lead to a reduction in demand for new mortgages. Sustained volatility in house prices could also discourage potential homebuyers from committing to a purchase, thereby limiting the Issuer's ability to grow its residential mortgage portfolio. The Covid-19 pandemic and the UK's exit from the EU are both sources of considerable uncertainty about the near-term prospects for UK house prices, and significant downwards pressure cannot be discounted.
In addition, the Issuer also has a significant portfolio of specialist mortgages, which amounted to £38 billion, or 18.7 per cent., of the Issuer's total loans and advances to customers as at 4 April 2020. BTL mortgages constitute the vast majority of the Issuer's specialist mortgages portfolio. The BTL market in the UK is predominantly dependent upon yields from rental income to support mortgage interest payments and capital gains from capital appreciation. Falling or flat rental rates and decreasing capital values, whether coupled with higher mortgage interest rates or not, could reduce the potential returns from BTL properties. In addition, the Government has passed legislation restricting the amount of income tax relief that individual landlords can claim for residential property finance costs (such as mortgage interest) to the basic rate of tax, which may result in lower gross yields, and even negative cashflow, on BTL property investments. This restriction has been introduced gradually, and has been fully in place since 6 April 2020. So far, the measures have had no noticeable impact on BTL market arrears. The BoE has also stated that it is considering increasing the regulatory capital requirements of banks holding BTL mortgages on their balance sheets, although no specific proposals have been made. From 1 April 2016, a higher rate of stamp duty land tax (SDLT) has been applied to the purchase of additional properties (such as BTL properties). The current additional rate is 3 per cent. above the current SDLT rates. These factors could make the purchase of BTL properties and/or second homes a less viable investment proposition and reduce the demand for related mortgages, which may also affect the resale value of relevant or similar properties.
The Government's intervention into the housing market through buyer assistance schemes,stamp duty holidays (such as the holiday announced in June 2020 to increase the threshold to £500,000), enforced or recommended payment holidays or other concessions or allowances on mortgage payments, or indirectly through measures that provide liquidity to the banking sector (as was the case with FLS, TFS and TFSME), may also contribute to volatility in house prices. This could occur: for example, as a result of the sudden end to buyer assistance schemes, which could lead to a decrease in house prices, or due to their continuation, which would maintain excess funding liquidity in the mortgage market which has supported a low mortgage interest rate environment, and which could lead to inflation in house prices.
Given the relatively point-in-time approach used by the Issuerfor modelling residential mortgage risk weighted assets (RWAs) by comparison with other large UK banking institutions, a reduction in UK house prices, or other deterioration in economic conditions, may have a material impact on the Issuer's CET1 Ratio. The degree to which the Issuer's CET1 Ratio is impacted by such events is likely to change following introduction of more through-the-cycle modelling approaches, which the PRA requires to be in place by the end of January 2022. The results of the concurrent stress testing undertaken by the BoE, available on the BoE's website, illustrate the impact that certain economic scenarios are projected to have on the Issuer's capital position.
On 23 June 2016, the UK held a referendum on its membership of the EU, in which a majority voted for the UK to leave the EU (Brexit). Immediately following the result, the UK and global stock and foreign exchange markets commenced a period of significant volatility, including a steep devaluation of the pound sterling.
On 31 January 2020, the United Kingdom ceased to be a member of the EU and the EEA. By virtue of the EUWA and the Withdrawal Agreement, EU law and EU-derived domestic legislation will continue to apply to and in the UK during a transition period lasting until 31 December 2020. During the transition period the UK will continue to be treated as a member state under EU law unless otherwise specified. The Government has stated its ambition to negotiate a comprehensive trade agreement with the EU during the transitional period, and, on 12 June 2020, took formal steps to reject any extension to the transitional period. The timetable set by the Government for agreeing a comprehensive trade agreement with the EU is generally considered to be particularly challenging.
As such, notwithstanding that the UK has now exited the EU, there remains significant uncertainty relating to the UK's future relationship with the EU and the basis of the UK's future trading relationship with the rest of the world. This uncertainty continues to have an adverse effect on the UK economy. Consumer and business confidence indicators have fallen considerably as a result of the progress of Brexit and this has had a significant impact on consumer spending and investment, both of which are vital components of economic growth.
Although confidence has improved following the UK general election on 12 December 2019, uncertainty remains as to whether a free trade agreement will be reached by the end of the transitional period. The general consensus view is that any failure to reach a free trade agreement prior to the expiration of the transitional period would have a negative impact on the UK economy, affecting its growth prospects, based on scenarios put forward by institutions such as the BoE, HM Treasury and other economic forecasters. Accordingly, while the longer term effects of the UK's departure from the EU are difficult to predict, there remains short term political and economic uncertainty. The Governor of the BoE warned that the UK exiting the EU without a deal could lead to considerable financial instability, a very significant fall in property prices, rising unemployment, depressed economic growth, higher inflation and interest rates. If the Government and the EU fail to reach a free trade agreement by the end of the transition period, it would be likely that the UK's economic growth would slow significantly, and there would be potential for severely adverse economic effects.
Due to the ongoing political uncertainty as regards the structure of the future relationship with the EU and the ongoing free trade agreement negotiations, the precise impact on the Issuer's business is difficult to determine. Among other consequences, the UK's withdrawal from the EU and the ongoing free trade agreement negotiations could materially change the legal framework applicable to the Issuer's operations, including in relation to its regulatory capital requirements and could result in restrictions on the movement of capital and the mobility of personnel. Any of these factors could result in higher operating costs and no assurance can be given that the UK's withdrawal from the EU and the ongoing free trade agreement negotiations will not adversely affect the Issuer's business, financial condition and results of operations and/or the market value and/or the liquidity of the Notes in the secondary market.
If sentiment towards banks, building societies and/or other financial institutions operating in the United Kingdom, including the Issuer, were to deteriorate, or if the Issuer's ratings and/or the ratings of the sector were to be adversely affected, this may have a materially adverse impact on the Issuer. In addition, any such change in sentiment or further reduction in ratings could result in an increase in the costs of, and a reduction in the availability of, wholesale market funding across the financial sector which could have a material adverse effect on the liquidity and funding of all UK financial services institutions, including the Issuer.
As at the date of this Base Prospectus, the Issuer has long-term senior preferred/long-term senior nonpreferred/short-term/subordinated debt ratings of A1/Baa2/P-1/Baa2 by Moody's, A/BBB+/A-1/BBB by S&P and A+/A/F1/BBB+ by Fitch.
Any declines in those aspects of the Issuer's business identified by the rating agencies as significant could adversely affect the rating agencies' perception of its credit and cause them to take negative ratings actions. Any downgrade in the Issuer's credit ratings could:
The Issuer's credit ratings are subject to change and could be downgraded as a result of many factors, including the failure to successfully implement its strategies. A downgrade could also lead to a loss of customers and counterparties which could have a material adverse effect on the Issuer's business, results of operations and financial condition.
If the ratings analysis of any agency that rates the Issuer's credit is updated to reflect lower forwardlooking assumptions of systemic support in the current environment or higher assumptions of the risks in the financial sector, it could result in a downgrade to the outlook or to the credit ratings of UK financial institutions, including the Issuer, which could have a material adverse effect on the borrowing costs, liquidity and funding of all UK financial services institutions, including the Issuer. Any downgrade in the Issuer's ratings could also create new obligations or requirements for the Issuer under existing contracts with its counterparties that may have a material adverse effect on the Issuer's business, financial condition, liquidity or results of operations. For example, as at 4 April 2020, the Issuerwould have needed to provide additional collateral amounting to £0.2 billion in the event of a one notch downgrade by external credit rating agencies or £3.8 billion in the event of a two notch downgrade (subject to management actions that could be taken to reduce the impact of the downgrades).
The Issuer's financial performance has been and will continue to be affected by general political and economic conditions in the UK, the Eurozone and elsewhere, and other adverse developments in the UK or global financial markets would cause its earnings and profitability to decline.
As at the date of this Base Prospectus, the UK's long-term ratings are "AA (stable)" from S&P, "Aa3 (stable)" from Moody's and "AA-(Negative)" from Fitch. Any downgrade of the UK sovereign credit rating or the perception that such a downgrade may occur could destabilise the markets, impact the Issuer's rating, its borrowing costs and its ability to fund itself and have a material adverse effect on the Issuer's operating results and financial condition. In addition, a UK sovereign downgrade, or the perception that such a downgrade may occur, would be likely to depress consumer confidence, restrict the availability, and increase the cost, of funding for individuals and companies, depress economic activity, increase unemployment and/or reduce asset prices. These risks are exacerbated by concerns over general market turmoil, slowing global growth, and trade tensions. Instability within global financial markets might lead to instability in the UK, which could have a materially adverse impact on the Issuer's performance.
The Issueris currently the fourth largest household savings provider and the second largest provider of residential mortgages in the United Kingdom, with estimated market shares of approximately 10.1 per cent. (as calculated by the Issuer based on BoE data) and 12.9 per cent. (according to BoE data), respectively, as at 4 April 2020.
The Issuer operates in an increasingly competitive UK personal financial services market. It competes mainly with other providers of personal finance services, including banks, building societies and insurance companies. In addition, recent technological advances have allowed new competitors to emerge both from within the traditional financial services arena and from outside it, and continued advances in technology may lead to further new entrants from the prolific fintech sector.
Each of the main personal financial services markets in which the Issuer operates is mature and relatively slow growing, which intensifies pressure for firms to take market share from their competitors if they are to expand.
The main competitive threat continues to come from the established "Big 5" banks (HSBC, Barclays, RBS Lloyds and Santander). This affects mortgages, deposits and the personal current account markets.
Mortgage competition is being driven by certain ring-fenced banks as they deploy surplus liquidity in lending markets. In this they have a further advantage from the lower cost of their deposits which, in turn, stems from their significant market shares in low/zero cost transactions balances associated with personal current accounts.
With a strong position in lower cost transactions deposits and surplus liquidity, the Big 5 banks have been able to stand back from the recent firming of deposit rates. Deposit market competition, particularly for more rate-sensitive savings balances is instead being driven by smaller, newer, faster growing lenders with higher-risk / higher yielding loan books (in specialist mortgages, unsecured or SME lending) who also benefit from FSCS backing. In addition, deposit market competition is being heightened by many lenders' imminent need to replace drawings made under official funding schemes with alternative sources of funding.
In personal current accounts (and their associated non-rate-sensitive deposit balances), the scale of the existing account bases and strategic investment programmes of the Big 5 banks, makes them prime competitors. Fintech neo-banks are a significant potential threat. In this group Monzo and Starling appear to be the front runners in terms of their progress with recruitment and the quality of their propositions. However, recent information suggests that their ability to build primacy and establish an income base is unproven though, equally, they could still make a breakthrough to challenge the Big 5 bank incumbents.
Across all financial product markets, a full-scale entry by one or more of the very large technology companies (such as Alphabet or Amazon) remains a potential threat.
Parallel with these developments, the price comparison / "marketplace" websites, fintech mortgage brokerage, peer-to-peer lenders and the many personal financial management tools that are emerging from the fintech sector are becoming more popular and widely used, allowing customers to compare products more easily and make buying decisions based on price. As a consequence, there is a risk that this will create downward pressure on prices, negatively impacting the Issuer's ability to deliver its strategic income targets and its financial performance. Competition may also int ensify in response to consumer demand, further technological changes and the impact of consolidation amongst the Issuer's competitors.
All of this places elevated focus on price and service as the key differentiators, each of which carries a cost to the provider. As a member-owned business, the Issueris able to provide a financial benefit to its members through the offer of competitive savings and mortgage products. The Issuer's financial member benefit is delivered in the form of differentiated pricing and incentives, which it quantifies as the sum of its interest rate differential, member reduced fees and incentives. In the years ended 4 April 2020, 2019 and 2018, the Issuer estimated that benefit at £715 million, £705 million and £560 million, respectively. If the Issueris unable to match the efficiency of its competitors in relation to both prices and service, it risks losing competitive advantages and being unable to attain its strategic growth aspirations.
Regulatory action might also increase competitive pressures. For example, the Competition and Markets Authority (the CMA) and the FCA have undertaken a market investigation and consultations into competition and conduct in the markets in which the Issuer operates – see "Description of the Society – CMA and FCA regulation to increase competition".There can be no assurance that the Issuer's customer base, levels of deposits, revenue or market share will not be adversely affected by the remedial measures and other regulatory actions arising out of such investigation and consultations.
These measures, together with other changes arising from the implementation of the second payment services directive (PSD2) in January 2018, are commonly referred to as "open banking" (Open Banking). Whilst Open Banking presents opportunities for the Issuer, there are also significant risks, including if technology is adopted more quickly than anticipated or new propositions offered by competitors attract business away from it or alter customer expectations. Further, the implementation of Open Banking could result in the emergence of new disruptors and competitors, potentially with substantially different business models, that could materially alter the banking environment. Such changes could affect the Issuer's ability to attract and retain customers, which in turn could potentially adversely affect liquidity and increase its funding costs over time. Whilst the Issuer is investing in developing Open Banking solutions to support members' needs and to mitigate this risk, there can be no assurance that its efforts will be successful or that it will be able to compete effectively with existing competitors and/or new entrants to attract and retain customers. In December 2019, the FCA launched
a consultation to explore the opportunities and risks associated with open banking ; the call for input closed on 1 October 2020. In July 2020, HM Treasury launched a call for evidence as part of the payments landscape review, which closed on 20 October 2020; the call for evidence sets out the Government's aims for the payments networks in the UK.
Furthermore, increased use of technology may increase the Issuer's exposure to significant risks associated with cybersecurity, fraud, IT resilience and data protection, as well as increased compliance costs. See "—If the Issuer does not control its operational risks, including, in particular, maintaining cyber security and managing the pace of change around digital products and services, it may be unable to manage its business successfully".
Additionally, the implementation of the Independent Commission on Banking's recommendation to separate retail banking activities from wholesale and investment banking activities was carried out by large banking groups operating in the UK in 2019; this could reduce the distinctiveness of the building society model, which the Issuer considers to be a competitive advantage. The Issuer is not currently subject to the ring-fencing requirements but this framework is likely to alter the business models of ringfenced banks and may therefore alter adversely the competitive position of the Issuer and other mutual institutions.
The rise of digital banking is changing customer expectations of the availability of banking services. As digital changes make transactions easier and more convenient, the Issuer expects customers to transact more, and in many different ways. The Issuer may not be able to manage service provision ahead of rising customer expectations or may have competitors who are more successful in meeting demand for digital banking services.
In addition, if the Issuer's customer service levels were perceived by the market to be materially below those of competitor UK financial institutions, it could lose existing and potential new business. If the Issueris not successful in retaining and strengthening customer relationships, it may lose market share, incur losses on some or all of its activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on its business, financial condition and results of operations.
Reference rates and indices, including interest rate benchmarks, such as the London Interbank Offered Rate (LIBOR), which are used to determine the amounts payable under financial instruments or the value of such financial instruments (Benchmarks), have, in recent years, been the subject of political and regulatory scrutiny as to how they are created and operated. This has resulted in regulatory reform and changes to existing Benchmarks, with further changes anticipated. These reforms and changes may cause a Benchmark to perform differently than it has done in the past or to be discontinued.
The Issuer is exposed to a range of LIBOR-linked assets, liabilities and derivatives which will be impacted by the phasing out of LIBOR in 2021. A delay or failure by the Issuer to manage the transition across its balance sheet in a consistent and timely manner could have a material adverse effect on the Issuer's business, financial performance and results of operations, and may result in regulatory fines or other action. In addition, where the transition affects the Issuer's products with its customers, in particular its retail members, a failure to manage the transition in a fair and transparent manner could result in additional compliance and conduct risks, which could result in regulatory action and/or adversely affect the Issuer's reputation.
The Issuer has established a LIBOR Transition Working Group, which reports to the Issuer's Assets and Liabilities Committee, to manage the full range of transition-related issues, including the conversion of existing contracts to alternative reference rates and the impact on valuations and systems. While the Issuer has used basis swaps, which convert one benchmark rate to another, to reduce the economic
exposure to affected benchmark rates within the portfolio of existing contracts and, for new transactions which mature after an expected dis continuation date, the Issuer is avoiding the use of affected benchmark rates, there can be no assurance that these measures will fully mitigate the economic impact or risks to the Issuer of the LIBOR transition.
At this time, it is not possible to predict the overall effect (including the financial impacts) of any such reforms and changes, any establishment of alternative reference rates or any other reforms to these reference rates that may be enacted, including the potential or actual discontinuance of LIBOR publication, any transition away from LIBOR or ongoing reliance on LIBOR for some legacy products.
Uncertainty as to the nature of such potential changes, alternative reference rates (including risk-free rates) or other reforms may adversely affect a broad array of financial products, including any LIBORbased securities, loans and derivatives that are included in the Issuer's financial assets and liabilities, that use these reference rates and may impact the availability and cost of hedging instrumen ts and borrowings. If any of these reference rates are no longer available, the Issuer may incur additional expenses in effecting the transition from such reference rates, and may be subject to disputes, which could have an adverse effect on the Issuer's results of operations. In addition, it can have important operational impacts through the Issuer's systems and infrastructure as its systems will need to be adapted for the changes in the reference rates. Any of these factors may have a material adverse effect on the Issuer's results of operations, financial condition or prospects.
The physical and transition risks of climate change are becoming ever more apparent and have the potential to pose a significant threat to the Issuer without a co-ordinated and timely response.
Climate change, and businesses' response to the emerging threats, are under increasing scrutiny by governments, regulators and the public alike. These include physical risks resulting from changing climate and weather patterns and extreme weather-related events, as well as transition risks resulting from the process of adjustment towards a lower carbon economy. Governments and regulators may introduce increasingly stringent rules and policies designed to achieve targeted outcomes, which could increase compliance costs for the Issuer, drive asset impairments and result in regulatory fines or other action if the Issuer is unable to implement adequate reforms sufficiently quickly. How the Issuer assesses and responds to these developments and challenges could increase its costs of business, and a failure to identify and adapt its business to meet new rules or evolving expectations, or any perception that it is under-performing relative to its peers, could result in reputational damage and/or the risk of legal claims .
The management of financial and operational risks requires, among other things, robust guidelines and policies for the accurate identification and control of a large number of transactions and events. Such guidelines and policies may not always prove to be adequate in practice. The Issuerfaces a wide range of risks in its business activities, including, in particular:
credit risk, which is the risk that a borrower or a counterparty fails to pay interest or to repay the principal on a loan or other financial instrument;
market risks, in particular interest rate risk as well as foreign exchange and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the Issuer's interest rate margin realised between lending and borrowing costs. Changes in currency rates, particularly in the sterling-dollar and sterling-euro exchange rates, affect the value of assets and liabilities denominated in foreign currencies and may affect income from assets and liabilities denominated in foreign currency. The performance of financial markets may also cause changes in the value of the Issuer's investment and liquidity portfolios. See also, "—Changes to interest rates or monetary policy, whether by the UK, U.S. or other central banking authorities, could affect the financial condition of the Issuer's customers, clients and counterparties, which could in turn adversely affect the Issuer" above and "—Market risks may adversely impact the Issuer's business" below; and
The Issuer has a range of tools designed to measure and manage the various risks which it faces. Some of these methods, such as value-at-risk analyses, are based on historic market behaviour. The methods may therefore prove to be inadequate for predicting future ris k exposure, which may prove to be significantly greater than what is suggested by historic experience. Historical data may also not adequately allow prediction of circumstances arising due to Government interventions and stimulus packages, which increase the difficulty of evaluating risks. Other methods for risk management are based on evaluation of information regarding markets, customers or other information that is publicly known or otherwise available to the Issuer. Such information may not always be correct, updated or correctly evaluated. In addition, even though the Issuer constantly measures and monitors its exposures, there can be no assurance that its risk management methods will be effective, particularly in unusual or extreme market conditions. It is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the Issuer's financial performance and business operations.
The Issuer's success as a financial institution depends on its ability to process a very large number of transactions efficiently and accurately. Operational risk and losses can result from a range of internal and external factors. Internal factors include internal fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules and equipment failures, particularly in relation to electronic banking applications. External factors include natural disasters, war, pandemics, terrorist action or the failure of external systems, for example, those of its suppliers or counterparties. These could, for example, prevent the Issuer's customers from withdrawing cash from the Issuer's ATMs or from having their salary credited to their accounts with the Issuer and, if customers associate their problem with the Issuerrather than with the institution causing the problem, this would have an operational and financial impact on the Issuer's performance. A feature of operational risk is that financial institutions rely on systems and controls such as standard form documentation and electronic banking applications to process high volumes of transactions. As a result, any error in the Issuer's standard documentation or any defect in its electronic banking applications can be replicated across a large number of transactions before the error or defect is discovered and corrected and this could significantly increase the cost to the Issuer of remediating the error or defect, could expose it to the risk of regulatory sanction, unenforceability of contracts and, in extreme cases, could result in significant damage to its reputation.
Increased digital interconnectivity across the Group, its customers and suppliers, and the need for resilient information technology (IT) systems, including hardware, software, cloud computing services and cyber-security, remains an evolving risk to financial institutions including the Issuer. The Issuer considers that, within the operation and conduct risks profile, IT resilience and cyber security present the main risks, and it focuses on striving to protect service availability and customer data. The Issuer's implementation of new systems, infrastructures and processes, alongside the maintenance of legacy systems, introduces a level of operational complexity. In an increasingly digital world, customer expectations are rising, with a significantly lower tolerance of service disruption. Ensuring a highly reliable and widely available service requires resilient IT, business systems and processes. Furthermore, the sharing of customer data, and the enabling of direct payments by third party providers from a customer's account as a result of Open Banking, may give rise to significant risks associated with cyber security, fraud, IT resilience and data protection, as well as increased compliance costs and risks associated with the Issuer becoming liable for, or otherwise being required to protect customers against, the costs and/or liabilities of other third party providers and/or losses caused by the actions of such other third party providers. Any loss in the integrity and resilience of key systems and processes, data thefts, cyber-attacks, denial of service attacks or breaches of data protection requirements could significantly disrupt its operations and cause significant financial loss and reputational damage to the Issuer. This could in turn result in a loss of confidence in the Issuer, potentially resulting in existing customers withdrawing deposits and/or deterring prospective new customers.
Meanwhile the significant rise in data used in digital services increases the complexity and cost of managing data securely and effectively. Further, the maturity and sophistication of organised cybercrime continues to increase and has been highlighted by a number of recent attacks in the financial and non-financial sectors, including payment services. Such attacks have also increased the public awareness of cyber-threats. As a result of the continued increasing threat from cyber-crime, security controls have needed to keep pace to prevent, detect and respond to any threats or attacks. The constant threat posed by a cyber-attack directly impacts the existing risks associated with external fraud, data loss, data integrity and availability. Although the Issuermaintains measures designed to ensure the integrity and resilience of key systems and processes, it may be the victim of cyber-attacks, including denial of service attacks which could significantly disrupt the Issuer's operations and the services it provides to its customers, or attacks designed to obtain an illegal financial advantage. Any such attack or any other failure in the Issuer's IT systems could, amongst other things, cause significant financial loss and reputational damage to the Issuer, and could result in a loss of confidence in the Issuer, potentially resulting in existing customers withdrawing deposits and/or deterring prospective new customers.
Over recent years there has been a dramatic increase in the demand for digital products and services due to the convenience that they can bring. This has seen an influx of innovative new offerings in the market place and the number of challenger banks and 'Fintech' disruptors has increased. Collectively, the changes may pose a challenge to the Issuer's core markets and product pricing, particularly if it is unable to introduce competitive products and services sufficient to match its traditional and challe nger competitors.
Further, the Covid-19 pandemic is likely to result in heightened operational risk as the Issuer responds to the pandemic, including in the areas of cyber, fraud, people, technology and operational resilience. Although the Issuer has implemented risk controls and loss mitigation actions, and substantial resources are devoted to technology, developing efficient procedures and staff training, it is not possible to implement procedures which are fully effective in controlling each of the operational risks noted above.
The Issuerseeks to maintain a secure and dependable business for its members through, amongst other things, generating a level of profit sufficient to meet regulatory capital and future business investment requirements and focusing on how Nationwide spends members' money through driving a culture of efficiency.
As a member-owned mutual organisation, the Issuer aims to make the right level of profit to maintain its financial strength and invest for the future, and it balances these longer-term priorities with delivering value to its members through better rates, incentives and propositions. In recent years, the Issuer's financial performance framework has focused on parameters that have allowed it to calibrate future performance with a view to achieving the right balance between distributing value to members, investing in the business and maintaining financial strength, including a target profitability range that would enable sustainable capital strength. Upon publication on 29 May 2020 of its preliminary results for the financial year ended 4 April 2020, the Issuer announced that it considers that the financial performance framework which has guided its decisions in the past is no longer appropriate in the current environment, and that it is instead focusing on maintaining strong capital and liquidity positions through the economic cycle.
In addition, achieving sustainable cost savings and embedding efficiencies remains a priority for the Issuer. The Issuer's continued focus on efficiency has now delivered over £400 million of sustainable run rate cost saves since the introduction of its efficiency program in 2017, with £90 million of sustainable cost saves delivered in the financial year ended 4 April 2020. This has been achieved through a range of initiatives that are focused on the development of digital capabilities, organisational design, third party savings, process improvements, simplification and elimination. However, there can be no assurance that such targeted cost savings will be achieved. Any failure by the Issuer to make sufficient profits to maintain its financial strength and invest for the future and/or to achieve its targeted efficiencies could adversely impact its capital ratios and the results of operations of the Issuer.
Market risk is the risk that the net value of, or net income arising from, the Issuer's assets and liabilities is impacted as a result of market price or rate changes, specifically interest rates, foreign exchange rates or equity prices. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised between lending and borrowing costs. Changes in currency rates, particularly in the sterling-dollar and sterling-euro exchange rates, affect the value of assets and liabilities denominated in foreign currencies and may affect income from assets and liabilities denominated in foreign currency.
The performance of financial markets may cause changes in the value of the Issuer's investment and liquidity portfolios. Although the Issuer has implemented risk management methods designed to mitigate and control these and other market risks to which the Issuer is exposed and its exposures are constantly measured and monitored, there can be no assurance that these risk management methods will be effective, particularly in unusual or extreme market conditions. It is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the Issuer's financial performance and business operations.
The business activities of the Issuer are concentrated in the UK and its banking and financial products and services are offered to UK retail customers. The Issuer's business is also concentrated on retail deposit and the residential mortgage markets. Under current building society legislation, the Issuer's ability to diversify its business is limited. Accordingly, a decline in the UK economy or the predominantly retail markets in which it operates could have a material adverse impact on the Issuer's financial performance and business operations, which could be disproportionately greater than the impact on other banking groups with more diversified businesses.
The Issuer's reputation is one of its most important assets and its ability to attract and retain customers and conduct business with its counterparties could be adversely affected to the extent that the Issuer's reputation or the reputation of the Issuer's brand is damaged. Failure to address, or appearing to fail to address, various issues that could give rise to reputational risk could cause harm to the Issuer and its business prospects. Reputational issues include, but are not limited to:
In addition, as with other businesses, how the Issuer is perceived to have supported its members, customers, employees and suppliers through the challenges presented by the Covid -19 pandemic could have a material effect on the Issuer's brand and reputation.
Any failure to address these or any other relevant issues appropriately could make customers, depositors and investors unwilling to do business with the Issuer, which could adversely affect the Issuer's business, financial condition and results of operations and could damage its relationships with its regulators. The Issuer cannot ensure that it will be successful in avoiding damage to its business from reputational risk.
There is currently significant regulatory scrutiny of the sales practices and reward structures that financial institutions have used when selling financial products. No assurance can be given that the Issuer will not incur liability for past, current or future actions, including failure to comply with applicable regulatory requirements, which are determined to have been inappropriate and any such liability incurred could be significant and materially adversely affect the Issuer's results of operations and financial position. In particular:
In addition, the Issuerfaces both financial and reputational risk where legal or regulatory proceedings, or complaints before the FOS, or other complaints are brought against it or members of the Issuer's industry generally in the UK High Court or elsewhere. For example, in August 2010, the Financial Services Authority (the FSA) published a Policy Statement (PS10/12) on "The Assessment and Redress of Payment Protection Insurance Complaints" (the Statement). The Statement applies to all types of Payment Protection Insurance (PPI) policies and followed the Consultation Paper (CP10/06). Following publication of the Statement, the British Bankers Association (BBA) and others requested a judicial review of the FSA's proposed approach to the assessment and redress of complaints in respect of sales of PPI. On 20 April 2011, the High Court ruled in favour of the FSA. The BBA chose not to appeal this ruling and the obligation for firms to comply with PS10/12 resulted in very significant provisions for customer redress made by several UK financial services providers.
The Issuer holds provisions for customer redress to cover the costs of remediation and redress in relation to past sales of financial products and ongoing administration, including non-compliance with consumer credit legislation and other regulatory requirements. In line with experience across the industry, the Issuer received a higher than anticipated volume of PPI complaints and enquiries in the period immediately before the PPI deadline of 29 August 2019. The Issuer's customer redress charge increased to £56 million for the year ended 4 April 2020 (2019: £15 million) primarily as a res ult of an additional £39 million charge relating to PPI, which includes the cost of processing a large number of enquiries received where no PPI had been held. The remainder of the charge relates to remediation costs for other redress issues, including issues relating to the administration of customer accounts and directions issued by the CMA relating to failures in providing text alerts relating to customers' usage of overdraft facilities.
No assurance can be given that the Issuerwill not incur liability in connection with any past, current or future non-compliance with legislation or regulation, and any such non-compliance could be significant and materially adversely affect the Issuer's results of operations and financial position or its reputation.
Given the high level of interdependence between financial institutions, the Issuer is and will continue to be subject to the risk of deterioration of the commercial and financial soundness, or perceived soundness, of other financial services institutions. Within the financial services industry, the default of any one institution could lead to defaults by other institutions. Concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, as was the case after the bankruptcy of Lehman Brothers in 2008, because the commercial and financial soundness of many financial institutions may be closely related as a result of their credit, trading,
clearing or other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by the Issuer or by other institutions. This risk is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with whom the Issuer interacts on a daily basis. Systemic risk could have a material adverse effect on the Issuer's ability to raise new funding and on its business, financial condition, results of operations, liquidity and/or prospects.
The Issuerroutinely executes a high volume of transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, insurance companies and other institutional clients, resulting in large daily settlement amounts and significant credit exposure. As a result, the Issuer faces concentration risk with respect to specific counterparties and customers. A default by, or even concerns about the creditworthiness of, one or more financial services institutions could therefore lead to further significant systemic liquidity problems, or losses or defaults by other financial institutions.
From time to time, the International Accounting Standards Board (the IASB) proposes to change the international financial reporting standards (IFRS), as adopted by the European Commission for use in the EU. These standards govern the preparation of the Issuer's financial statements. These changes could materially impact how the Issuerrecords and reports its financial condition and results of operations. In some cases, the Issuer could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements.
For example, IFRS 9: "Financial Instruments" is the new standard that replaced IAS 39: "Financial Instruments: Recognition and Measurement". It changed the classification and measurement of some financial assets, the recognition and the financial impact of impairment and hedge accounting. IFRS 9 was required to be implemented in the Issuer's financial statements for the year ending 4 April 2019. On 5 April 2018, the Issuer implemented IFRS 9: "Financial Instruments". The total impact on members' interests and equity, net of deferred tax, was a reduction of £162 million. There has been no restatement of comparatives following adoption of IFRS 9.
Amongst other changes, IFRS 9 replaced the incurred loss approach to impairment under IAS 39 with a forward-looking model based on expected credit losses (ECL), which resulted in earlier recognition of credit losses. This introduced a number of new concepts and changes to the approach to provisioning compared with the methodology under IAS 39.
The European authorities have recognised the risk that application of IFRS 9 may lead to a sudden significant increase in ECL provisions and consequently a sudden decrease in the capital ratios of institutions. Accordingly, Regulation (EU) 2017/2395 (the IFRS 9 Regulation) has been passed in order to introduce transitional periods for mitigating the impact of the introduction of IFRS 9 on own funds applying from 1 January 2018 by way of amendments to the recast Capital Requirements Regulation.
In addition, in response to the Covid-19 pandemic, on 28 April 2020 the European Commission announced a proposed banking package of reforms which includes (amongst other things) a two-year extension of these current transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital. These measures allow banks and building societies to add back to their regulatory capital any increase in new ECL provisions incurred as of 1 January 2020 and recognised in 2020 and 2021 for financial assets which have not defaulted. The proposals were approved in the European Parliament plenary session on 9 June 2020.
In light of the Covid-19 pandemic, there is increased risk of material misstatement of ECL provisions due to the degree of judgement and inherent uncertainty in the assumptions underlying the Covid-19 related addition to the modelled provision. The European Commission and the PRA have also provided guidance as to the interpretation and flexibility of certain prudential and accounting requirements with respect to non-performing loans and other assets in the context of Covid-19 generally and also specifically in the context of payment holidays and other allowances and concessions afforded to borrowers, including guidance on how banks and building societies might approach key judg ements as to whether and when borrowers should be treated as having suffered a significant increase in credit risk (SICR) or having become credit impaired for accounting purposes under the ECL assessments under IFRS 9.
The IASB may make other changes to financial accounting and reporting standards that govern the preparation of the Issuer's financial statements, which the Issuermay adopt prior to the date on which such changes become mandatory if determined to be appropriate by the Issuer, or which the Issuermay be required to adopt. Any such change in the Issuer's accounting policies or accounting standards could materially affect its reported financial condition and results of operations.
Accounting policies and methods are fundamental to how the Issuer records and reports its financial condition and results of operations. The Issuermust exercise judgement in selecting and applying many of these accounting policies and methods so that they comply with IFRS.
The Issuer has identified certain accounting policies in the notes to its audited consolidated financial statements for the year ended 4 April 2020 (the 2020 Financial Statements) incorporated by reference in this Base Prospectusin respect of which significant judgement is required in determining appropriate assumptions and estimates when valuing assets, liabilities, commitments and contingencies. These judgements relate to the assumptions used in the determination of impairment provisions on customer loans and advances (see note 10 to the 2020 Financial Statements), the estimates underlying its determination of provisions for customer redress (see note 27 to the 2020 Financial Statements) and the assumptions underlying its calculations of retirement benefit obligations (see note 30 to the 2020 Financial Statements).
A variety of factors could affect the ultimate value that is obtained either when earning income, recognising an expense, recovering an asset or reducing a liability. The Issuer has established detailed policies and control procedures that are intended to ensure that these judgements (and the associated assumptions and estimates) are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding the Issuer's judgements and the estimates pertaining to these matters, the Issuer cannot guarantee that it will not be required to make changes in accounting estimates or restate prior period financial statements in the future and any such changes or restatements could be material in nature.
Furthermore, in light of the Covid-19 pandemic, there is increased risk of material misstatement of ECL under IFRS 9 due to the degree of judgement and inherent uncertainty in the assumptions underlying the Covid-19 related addition to the modelled provision, as further described under "Risks relating to the impact of Covid-19" above. See also "Changes in the Issuer's accounting policies or in accounting standards could materially affect how it reports its financial condition and results of operations" above.
The Issuer has funding obligations to several defined benefit pension schemes. Pension risk is defined as the risk that the value of the pension schemes' assets will be insufficient to meet the estimated liabilities, creating a pension deficit. Pension risk can negatively impact the Issuer's capital position and may result in increased cash funding obligations to the pension schemes.
During the financial year ended 4 April 2020, £61 million of employer deficit contributions were paid. The 31 March 2019 Triennial Valuation of the Fund was recently completed and a revised Schedule of Contributions and Deficit Recovery Plan have been agreed. As a result, a maximum of £122 million will be payable over the years 2020 to 2021, and employer cash contributions in respect of employee benefit accrual will be paid in line with the revised Schedule of Contributions. However, the Issuer may cease paying deficit contributions in certain circumstances, such as the Nationwide Pension Fund (the Fund) reaching a funding surplus, or in the event that alternative arrangements are agreed between the Issuer and the Fund which remove the need for such cash contributions.
On 17 February 2020, the Issuer announced that it would be closing the Fund to future accrual from 31 March 2021, following a formal consultation in late 2019. This will result in current active members' benefits being linked to the Consumer Prices Index (CPI) before retirement rather than the Retail Prices Index (RPI) and salary increases, with a one-off reduction in the liabilities. The retirement benefit position on the Issuer's balance sheet as at 4 April 2020 was a £294 million surplus within assets (compared with a £105 million deficit as at 4 April 2019 within liabilities).
The movement in the retirement benefit obligation is primarily as a result of an increase in credit spreads (due to a perceived increase in risk associated with the Covid-19 outbreak) which reduces the liabilities relative to the assets, as well as the impact of the decision to close the Fund to future accrual on 31 March 2021. This has been partially offset by a fall in the value of equities and illiquid assets held by the Fund, due to market volatility driven by Covid-19.
A pension credit of £74 million was recognised in the income statement for the financial year ended 4 April 2020 (year ended 4 April 2019: £98 million pension charge), mainly driven by the one-off reduction in the liabilities as a result of the decision to close the Fund to future accrual on 31 March 2021.
Any increases in the contributions which the Issuer is required to pay in respect of its defined benefit pension schemes, including as a result of the Triennial Valuation, could have a negative impact on its results of operations. In addition, any accounting deficit in the Issuer's defined benefit pension scheme would be reflected in its CET1 capital. Accordingly, a reduction in any surplus or increase in any deficit over time can result in a reduction in the Issuer's capital ratios.
The activities of the Issuer are principally conducted in the UK and the Issueris therefore subject to a range of UK taxes at various rates. Future actions by the Government to increase tax rates or to impose additional taxes would reduce its profitability. Revisions to tax legislation or to its interpretation might also affect the Issuer's financial condition in the future.
The Senior Managers and Certification Regime (the SM&CR) came into force for UK banks, building societies, credit unions, PRA-designated investment firms and branches of foreign banks operating in the UK on 7 March 2016, and is intended to govern the individual accountability and conduct of senior persons within such entities. Among other things, the SM&CR introduced: (i) requirements on financial institutions to allocate and map senior management responsibilities and reporting lines across all areas of the organisation's activities; (ii) a new senior managers regime governing the conduct of bank staff approved by the PRA or the FCA to perform senior management functions (including certain nonexecutive directors); (iii) new rules requiring financial institutions to certify the ongoing suitability of a wide range of staff performing certain functions; (iv) the extension (from March 2017) by the FCA of conduct rules (generally enforceable by PRA and/or FCA disciplinary action, including financial penalties and public censure) previously only applicable to Senior Managers and certified staff to all inscope staff other than those undertaking purely ancillary functions; and (v) the introduction of criminal offences relating to decisions by senior bank staff causing a financial institution to fail. Rules regarding regulatory references for persons who are to be appointed as Senior Managers or to perform a certification function within the SM&CR also came into force from 7 March 2017.
The PRA and FCA continue to publish guidance and consult on future changes to the SM&CR. On 19 November 2019, the FCA published its supervisory expectations in relation to SM&CR for firms which are transitioning away from LIBOR and other Benchmarks; on 21 November 2019, the FCA updated its expectations regarding conduct risk during LIBOR transition. Complying with new regulations imposes costs on the Issuer's business, including legal costs to implement new policies and procedures, as well as the time and attention of senior management. In addition, any violation of the SM&CR could result in disciplinary action against the Issuer or its employees, financial penalties as well as reputational damage, any of which could have a material adverse effect on the Issuer's business, financial position or results of operations. As a result of Covid-19, changes may need to be implemented to the Issuer's business, for example to take account of modifications which may be required to the responsibilities of senior managers – on 3 April 2020 the regulators published "Joint FCA and PRA statement Senior Managers and Certification Regime (SM&CR) and coronavirus (Covid-19): our expectations of dualregulated firms". This statement was updated on 6 April 2020 and sets out the PRA and FCA's expectations in relation to compliance with certain obligations under SM&CR. All of these developments could result in additional costs on the Issuer's business and require additional time and the attention of senior management.
The Issuer conducts its business subject to ongoing regulation by the PRA and the FCA, which oversee the Issuer's prudential arrangements and the sale of its products, including, for example, residential mortgages, commercial lending, savings, investment, consumer credit and general insurance products. The regulatory regime requires the Issuerto be in compliance across many aspects of activity, including the training, authorisation and supervision of personnel, systems, processes and documentation. The financial sector has seen an unprecedented volume and pace of regulatory change in the years following the global financial crisis, and significant resource has been required to assess and implement necessary changes. If the Issuerfails to comply with any relevant regulations, there is a risk of an adverse impact on its business due to sanctions, fines or other action imposed by the regulatory authorities.
This is particularly the case in the current market environment, which continues to witness significant levels of Government intervention in the banking, personal finance and real estate sectors. Future changes in regulation, fiscal or other policies are unpredictable and beyond the Issuer's control and could materially adversely affect its business or operations.
A range of legislative and regulatory changes have been made by regulators and other bodies in the UK and the EU which could impose operational restrictions on the Issuer, causing it to raise further capital, increase its expenses and/or otherwise adversely affect its business results, financial condition or prospects. These include, among others, the changes referred to in "Description of the Society – Regulatory environment".
As at the date of this Base Prospectus, it is difficult to predict the full effect that these changes will have on the Issuer's operations, business and prospects or how any of the proposals discussed above will be implemented in light of the changes to the regulatory environment proposed by the Government and/or the European Commission. Depending on the specific nature of the requirements and how they are enforced, the changes could have a significant impact on the Issuer's operations, structure, costs and/or capital requirements. Accordingly, the Issuer cannot assure investors that the implementation of any of the foregoing matters will not have a material adverse effect on its operations, business, results, financial condition or prospects.
Furthermore, the Issuer cannot assure investors that any other regulatory or legislative changes or any other Governmental interventions that may have been proposed or which may materialise in the future will not have a material adverse effect on its operations, business, results, financial condition or prospects. Whilst the scope and nature of any such changes are unpredictable, any interventions or regulations designed to increase the protections for UK retail and other customers of banks and building societies, for example through stricter regulation on repossessions and forbearance by mortgage lenders, could materially adversely affect the Issuer's business or operations.
The Issuer is also subject to a number of EU and UK proposals and measures targeted at preventing financial crime (including anti-money laundering and terrorist financing). Whilst the Issuer is committed to operating a business that prevents, deters and detects money laundering and terrorist financing in accordance with such requirements, if there are breaches of these measures or existing law and regulation relating to financial crime, the Issuer could face significant administrative, regulatory and criminal sanctions as well as reputational damage which may have a material adverse effect on its operations, financial condition and prospects.
The Issuer is also investing significantly to ensure that it will be able to comply with developing regulatory requirements and emerging consumer trends and preferences for digital services. If the Issuer is unsuccessful in efficiently adopting the requisite new compliance practices, including as these relate to cryptocurrencies, this will adversely impact its ability to operate in the financial services markets and to deliver an appropriate level of operational and financial performance.
In the EEA, the BRRD introduced a package of minimum early intervention and resolution-related tools and powers for relevant authorities and provided for special rules for cross-border groups. The UK implemented the majority of the measures under the BRRD into English law, by way of amendment to the Banking Act with effect from 1 January 2015.
Under the Banking Act, substantial powers have been granted to HM Treasury, the BoE (including the PRA) and the FCA (the Authorities) as part of the SRR. These powers enable the Authorities, among other things, to resolve a bank or building society by means of several resolution tools (the Stabilisation Options) in circumstances in which the Authorities consider its failure has become likely and resolution is considered to be in the public interest. In respect of UK building societies, the relevant tools include:
In each case, the Banking Act grants additional powers to modify contractual arrangements in certain circumstances and powers for HM Treasury to disapply or modify laws (with possible retrospective effect) to enable the powers under the Banking Act to be used effectively.
The BRRD also provides that a member state as a last resort, after having assessed and used the resolution tools set out above to the maximum extent practicable whilst maintaining financial stability, and where certain other mandatory conditions of the BRRD have been satisfied, may provide extraordinary public financial support through additional financial stabilisation tools. These consist of the public equity support and temporary public ownership tools. Any such extraordinary financial support must be provided in accordance with the EU state aid framework, and there can be no assurance that investors in any Notes will benefit from such support even if it were provided.
Secondary legislation which defines the scope of application of the stabilisation options under the SRR to certain "banking group companies" came into force on 1 August 2014. The definition of "banking group company" encompasses certain of the Issuer's subsidiaries and affiliates. The amendments to the Banking Act allow the stabilisation options under the SRR and the bail-in stabilisation power to be applied to any of the Issuer's related group companies that meet the definition of a "banking group company".
In addition, the Banking Act contains a separate power, often referred to as the write-down and conversion tool, enabling the Authorities – indendently of, or in conjunction with, the use of resolution powers - to cancel or transfer CET1 instruments away from the original owners, or write down (including to nil) an institution's Additional Tier 1 capital instruments and Tier 2 capital instruments (such as the Subordinated Notes), or to convert them into CET1 instruments, if the Authorities consider that the institution or the group is at the "point of non-viability" and certain other conditions are met. The write-down and conversion tool must be applied before any of the Stabilis ation Options provided for in the SRR may be used in practice and may be used whether or not the institution subsequently enters into resolution. Additionally, in respect of building societies, the resolution authority may writedown or convert instruments issued by the building society itself or a successor entity formed through exercise of Stabilisation Options. Subordinated Notes issued under the Programme may be Tier 2 capital instruments, and any such Subordinated Notes would be the subject to the writ e-down and conversion tool.
The SRR may be triggered prior to the Issuer's insolvency. The purpose of the Stabilisation Options is to address the situation where all or part of a business of a relevant entity has encountered, or is likely to encounter, financial difficulties, giving rise to wider public interest concerns. Accordingly, the Stabilisation Options may be exercised if:
It is therefore possible that one or more of the Stabilisation Options could be applied prior to the p oint at which any insolvency proceedings with respect to the relevant entity could be initiated.
The European Banking Authority (the EBA) has published guidelines on the circumstances in which an institution shall be deemed as "failing or likely to fail" by supervisors and resolution authorities. The guidelines set out the objective criteria which should apply when supervisors and Authorities make such a determination.
Although the Banking Act provides for conditions to the exercise of any resolution powers and the EBA guidelines set out the objective elements for determining whether an institution is failing or likely to fail, it is uncertain how the Authorities would assess such conditions in any particular situation. The relevant Authorities are also not required to provide any advance notice to holders of the Notes of their decision to exercise any resolution power. Therefore, holders of the Notes may not be able to anticipate a potential exercise of any such powers nor the potential effect of any exercise of such powers on the Issuer or the Notes.
As part of the Banking Reform Package, amendments are being made to the BRRD, the majority of which are due to be transposed into member states' law and applied by 28 December 2020 with certain amendments phased-in until 2024. Such changes include the introduction of a new pre-resolution moratorium power for competent authorities and resolution authorities and an extension of the writedown and conversion tool to liabilities which do not qualify as regulatory capital but which are eligible liabilities for the purpose of meeting internal MREL requirements within a resolution group . HM Treasury has indicated its intention to implement in the UK those aspects of the amendments to BRRD which are due to be transposed by 28 December 2020.
The Issuer is subject to extensive and evolving capital and liquidity requirements, as further described in "Description of the Society – Capital adequacy and prudential supervision".
Changes to the regulatory capital and liquidity requirements, and/or the prudential framework, under which the Issuer operates could hinder growth by prescribing more stringent requirements than those with which it currently complies. The Issuer's capital ratios may be adversely affected not only by a reduction in the Issuer's capital (including if the Issuer suffers financial losses) but also by changes in the manner in which the Issuer is required to calculate its capital and/or the risk-weightings applied to its assets. For example, the Issuer is currently authorised to apply an 'internal ratings based' (IRB) approach to calculating its risk-weighted assets. An IRB approach enables an institution to tailor more closely risk-weights to its particular assets than standardised risk-weights, and accordingly in many cases can be expected to be lower than risk-weights which would apply under a standardised approach.
Changes to how the Issuer applies its IRB model, or which may require the Issuer to calculate its riskadjusted assets on the basis of standardised or loan-to-value-based standardised risk-weights, could have a material adverse impact on the Issuer's capital ratios, even if the Issuer remains profitable. In particular, as further described in "Description of the Society – Capital adequacy and prudential supervision"), RWA output floors are due to be implemented through a transitional period from 2023 to 2028, and other reforms for the calculation of risk-weights are also due to be implemented, including a number of PRA reforms for IRB calibration expected to take effect from 1 January 2022. The introduction of these RWA floors and IRB calibration changes will lead to a significant increase in the Issuer's RWA over time and it currently expects the consequential impact on its reported CET1 ratio ultimately to be a reduction of approximately 45-50 per cent. relative to its current methodology (although organic earnings through the transition are expected to mitigate the impact such that the Issuer's reported CET1 ratio will in practice remain well in excess of the pro forma levels imposed by these changes).
In addition, a failure adequately to manage capital, liquidity and MREL requirements could have a material adverse effect on the Issuer. Whilst the Issuer monitors current and expected future capital, liquidity and MREL requirements, including having regard to both leverage and RWA -based requirements, and seeks to manage and plan the prudential position acco rdingly and on the basis of current assumptions regarding future capital and liquidity requirements, there can be no assurance that the assumptions will be accurate in all respects or that it will not be required to take additional measures to strengthen its capital or liquidity position.
Effective management of the Issuer's capital and regulatory authorisations is critical to its ability to operate and grow its business and to pursue its strategy. Any change that limits the Issuer's ability to manage its balance sheet and capital resources effectively (including, for example, reductions in profits and retained earnings as a result of credit losses, write-downs or otherwise, increases in RWAs (which may be pro-cyclical under the current capital framework, resulting in risk-weighting increasing in economic downturns), delays in the disposal of certain assets or the inability to raise capital or funding through wholesale markets as a result of market conditions or otherwise) could have a material adverse impact on its business, financial condition, results of operations, liquidity and/or prospects.
Furthermore, if the Issuer fails, or is perceived to be likely to fail, to meet its minimum regulatory capital, leverage, liquidity or MREL requirements, including in connection with any stress tests performed by the Bank of England or any other relevant authority, this may result in administrative actions or regulatory sanctions. In addition, any actual or perceived weakness relative to the Issuer's competitors could result in a loss of confidence, which could result in high levels of withdrawals from its retail deposit base, upon which it relies for lending and which could have a material adverse effect on the Issuer's business, financial position and results of operations.
The future impact of Covid-19 on the Issuer's capital ratios is not yet clear, although it is likely to lead to some RWA inflation and therefore a lower CET1 ratio in the short to medium term. While, based on its current estimates and projections, the Issuer currently expects to maintain, over the short-to mediumterm horizon, a surplus above the CRD IV combined buffer requirements and the threshold at which a maximum distributable amount (MDA) would be imposed, there is significant uncertainty as to the duration and degree of impact of Covid-19. If this is significantly worse than the Issuer's base-case estimates, further erosion in the CET1 ratio cannot be discounted.
Further specific measures may also be taken by the Issuer's regulators to address potential capital and liquidity stress, which could limit the Issuer's flexibility to manage its business and its capital position, including in the event of restrictions on distributions and capital allocation. For example, on 31 March 2020 the PRA wrote to the CEOs of the large UK high street lenders (including the Issuer) to outline its
expectations with respect to payments of dividends on equity and cash bonuses to senior staff, including all material risk takers. Whilst the PRA in its letter to the Issuer confirmed that (in contrast to its expectations with respect to the declaration or payment of dividends by banks in the near-term) it was not requesting that the Issuer halts payments on its core capital deferred shares (CCDS) at that time, there can be no assurance that further measures or expectations may be implemented or outlined by the Issuer's regulators over time, which could affect its capital position, its ability to raise further capital or the costs of new capital, and/or its business operations.
The FSMA established the FSCS, which pays compensation to eligible customers of authorised financial services firms which are unable, or are likely to be unable, to pay claims against them. Based on its share of protected deposits, the Issuer paid levies to the FSCS to enable the scheme to meet claims against it.
In common with other financial institutions which are subject to the FSCS, the Issuer also has a potential exposure to future levies resulting from the failure of other financial institutions and consequential claims which arise against the FSCS as a result of such failure.
There can be no assurance that there will be no further actions taken under the Banking Act that may lead to further claims against the FSCS, and concomitant increased FSCS levies payable by the Issuer. Any such increases in the Issuer's costs and liabilities related to the levy may have a material adverse effect on its results of operations. Further costs and risks may also arise from discussions at governmental levels around the future design of financial services compensation schemes, such as increasing the scope and level of protection and moving to pre-funding of compensation schemes.
In April 2014, the new EU directive on deposit guarantee schemes (the DGSD) was adopted and EU Member States were required to implement it into national law on or before 3 July 2015. The DGSD requires EU Member States to ensure that by 3 July 2024 the available financial means of the deposit guarantee schemes regulated by it reach a minimum target level of 0.8 per cent. of the covered deposits of credit institutions. The schemes are to be funded through regular contributions before the event (exante) to the deposit guarantee schemes. In case of insufficient ex-ante funds, the deposit guarantee scheme will collect immediate after the event (ex-post) contributions from the banking sector and, as a last resort, it will have access to alternative funding arrangements such as loans from public or private third parties. HM Treasury and the PRA have brought into force final requirements on the UK implementation of the DGSD. These requirements provide, among other things, that the ex-ante contributions are met by funds already collected under the UK bank levy (with the ability, in the case of insufficient funds, to collect immediate ex-post contributions) and changes to the FSCS including the introduction of temporary high balance deposit protection, up to £1 million, for up to 12 months (protection temporarily extended from six to 12 months in response to the impact of Covid-19) from when the amount was deposited for certain limited types of deposits and changes to the types of depositors that are eligible for compensation. It is possible, as a result of the DGSD and the UK requirements implementing DGSD, that future FSCS levies on the Issuer may differ from those it has incurred historically, and that such reforms could result in the Issuer incurring additional costs and liabilities, which may adversely affect its business, financial conditions and/or results of operations.
The FCA published its Mortgages Market Study Final Report (MS16/2) in March 2019. Whilst it found that the mortgage market is working well in many respects, the report illustrated a number of areas for improvement relating to customer choice and the ability of customers to switch mortgage providers. On 26 March 2019, the FCA published Consultation Paper CP19/14 entitled "Mortgage customers: proposed changes to responsible lending rules and guidance" setting out detailed proposals to remove regulatory barriers to changing mortgages for "mortgage prisoners". The term "mortgage prisoners" has been defined by the FCA to mean mortgage customers who would benefit from changing their mortgage product (either with their existing lender or with a new lender) but are unable to do so despite being up to date with their current mortgage payments. The changes to the FCA's Mortgages and Home Finance: Conduct of Business sourcebook (the MCOB) proposed by CP19/14 and implemented through the FCA Policy Statement entitled "Changes to mortgage responsible lending rules and guidance – feedback on CP19/14 and final rules" (PS19/27) are intended to make it easier for a customer who is a mortgage prisoner to switch to a new lender. This could lead to an increase in redemptions of mortgages sooner than anticipated, thereby reducing the interest payable on those loans. The rules, based on pre-Covid-19 conditions, require firms to write to customers who may be eligible letting them know they may be able switch their mortgage. However, the FCA decided that given lenders' inability to offer new switching options to mortgage prisoners in view of Covid-19 it would be wrong to require letters to be sent to consumers at this time. The FCA therefore extended the window during which it expects firms to contact consumers about switching options by three months to 1 December 2020.
On 31 January 2020, the FCA published Policy Statement "Mortgage advice and selling standards: feedback to CP 19/17 and final rules"(PS20/1). The final rules on mortgage advice and selling standards are aimed at giving consumer more choice in how they buy a mortgage. The changes include expanding the perimeter on what is mortgage advice and requiring advis ers to explain why they have not recommended the cheapest of the suitable mortgages available. The changes came into force on 31 January 2020.
It is possible that further changes may be made to the MCOB as a result of current and future reviews, studies and regulatory reforms which could have a material adverse effect on the Issuer's business, finances and operations. Any failure to comply with these rules may entitle a borrower to claim damages for loss suffered or set-off the amount of the claim against monies owing under a regulated mortgage contract and the new rules may also negatively affect mortgage supply and demand.
The following documents, which have previously been published or are published simultaneously with this Base Prospectus,shall be incorporated in, and form part of, this Base Prospectus:
in each case prepared by the Issuer in connection with the Programme and available at https://www.nationwide.co.uk/about/investor-relations/funding-programmes/emtn.
The tables below set out the relevant page references in (i) the Issuer's Annual Report and Accounts for the year ended 4 April 2019 for the Issuer's audited consolidated annual financial statements for the year ended 4 April 2019 and auditors'report thereon; and (ii) the Issuer's Annual Report and Accounts for the year ended 4 April 2020 for the Issuer's audited consolidated annual financial statements for the year ended 4 April 2020 and auditors' report thereon:
| Independent Auditors' Report | Page 166-174 |
|---|---|
| Income statements | Page 175 |
| Statements of comprehensive income | Page 176 |
| Balance sheets | Page 177 |
| Group statement of movements in members' interests and equity | Page 178 |
|---|---|
| Society statement of movement in members' interests and equity | Page 179 |
| Cash flow statements | Page 180 |
| Notes to the financial statements | Page 181-247 |
| Independent Auditors' Report | Page 220-232 |
|---|---|
| Income statements | Page 233 |
| Statements of comprehensive income | Page 234 |
| Balance sheets | Page 235 |
| Group statement of movements in members' interests and equity | Page 236 |
| Society statement of movement in members' interests and equity | Page 237 |
| Cash flow statements | Page 238 |
| Notes to the financial statements | Page 239-319 |
Following the publication of this Base Prospectus a supplement may be prepared by the Issuer and approved by the FCA in accordance with Article 23 of the Prospectus Regulation. Statements contained in any such supplement (or contained in any document incorporated by reference therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to supersede statements contained in this Base Prospectus or in a document which is incorporated by reference in this Base Prospectus.
Certain information contained in the documents listed above has not been incorporated by reference in this Base Prospectus. Such information is either (i) not considered by the Issuer to be relevant for prospective investors in the Notes to be issued under the Programme or (ii) is covered elsewhere in this Base Prospectus.
The Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to information included in this Base Prospectus which is capable of affecting the assessment of any Notes, prepare a supplement to this Base Prospectus or publish a new Base Prospectus for use in connection with any subsequent issue of Notes. The Issuer has undertaken to the Dealers in the Programme Agreement (as defined in "Subscription and Sale") that it will comply with Article 23 of the Prospectus Regulation.
Each Tranche of Notes will initially be represented by a temporary global Note or, if so specified in the applicable Final Terms, a permanent global note without interest coupons or talons, which, in either case ,will:
Where the Global Notes issued in respect of any Tranche are in NGN form, the applicable Final Terms will also indicate whether or not such Global Notes are intended to be held in a manner which would allow Eurosystem eligibility. Any indication that the Global Notes are to be so held does not necessarily mean that the Notes of the relevant Tranche will be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any times during their life as such recognition depends upon satisfaction of the Eurosystem eligibility criteria. The Common Safekeeper for NGNs will either be Euroclear or Clearstream, Luxembourg or another entity approved by Euroclear and Clearstream, Luxembourg.
Any reference in this section "Form of the Notes" to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system approved by the Issuer, the Trustee and the Agent. Whilst any Note is represented by a temporary global Note, payments of principal and interest (if any) due prior to the Exchange Date (as defined below) will be made (against presentation of the temporary global Note if the temporary global Note is not issued in NGN form) only to the extent that certification as to non U.S. beneficial ownership as required by U.S. Treasury regulations (in the form set out in the temporary global Note) has been received by Euroclear and/or Clearstream, Luxembourg and Euroclear and/or Clearstream, Luxembourg, as applicable, has given a like certificate (based on the certifications it has received) to the Agent.
On and after the date (the Exchange Date) which is 40 days after the date on which the temporary global Note is issued, interests in the temporary global Note will be exchangeable, upon request being made by Euroclear and/or Clearstream, Luxembourg acting on the instructions of the holders of interests in the temporary global Note, either for interests in a permanent global Note without interest coupons or talons or for definitive Notes (as indicated in the applicable Final Terms and subject, in the case of definitive Notes, to such notice period as is specified in the applicable Final Terms) in each case against certification as to non-U.S. beneficial ownership as described in the second sentence of the preceding paragraph unless such certification has already been given. The holder of a temporary global Note will not be entitled to receive any payment of interest or principal due on or after the Exchange Date. Pursuant to the Agency Agreement (as defined under "Terms and Conditions of the Notes" below), the Agent shall arrange that, where a further Tranche of Notes is issued which is intended to form a single Series with an existing Tranche of Notes, the Notes of such Tranche shall be assigned a common code and an ISIN by Euroclear and Clearstream, Luxembourg which are different from the common code and ISIN assigned to Notes of any other Tranche of the same Series until at least 40 days (as notified by the Agent to the relevant Dealer(s)/Manager(s)) after the completion of the distribution of the Notes of such first mentioned Tranche (the date of completion of the distribution of such Notes having been previously notified to the Agent by such Dealer(s)/Manager(s)).
Payments of principal and interest (if any) on a permanent global Note will be made through Euroclear and/or Clearstream, Luxembourg (against presentation or surrender (as the case may be) of the permanent global Note if the permanent global Note is not issued in NGN form) without any requirement for certification. A perman ent global Note will be exchangeable, in whole but not in part, for security printed definitive Notes with, where applicable, interest coupons and talons attached upon not less than 45 days' written notice (expiring at least 30 days after the Exchange Date) to the Agent from Euroclear or Clearstream, Luxembourg (as the case may be) acting on instructions of the holders of interests in the permanent global Note. Unless otherwise provided in the applicable Final Terms a notice requiring exchange as aforesaid may only be given if an Exchange Event has occurred. Notes for which the applicable Final Terms permit trading in the clearing systems in Calculation Amounts which are not a Specified Denomination will only be exchangeable for d efinitive Notes upon an Exchange Event. Exchange Event means that the Issuer has been notified that either Euroclear or Clearstream, Luxembourg has been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) after the relevant Issue Date or has announced an intention permanently to cease business or has in fact done so and no alternative clearing system satisfactory to the Trustee is available. The Issuer will promptly give notice to the Noteholders in accordance with the Conditions if an Exchange Event occurs. Temporary and permanent global Notes and definitive Notes will be authenticated (if applicable) and delivered by the Agent on behalf of the Issuer. In the case of Notes issued in NGN form which are intended to be held in a manner which would allow Eurosystem eligibility, the temporary and/or permanent global Note(s) will also be effectuated by the Common Safekeeper.
The exchange of a permanent global Note for definitive Notes upon notice from Euroclear and/or Clearstream (acting on the instructions of any holder) or at any time at the request of the Issuer should not be expressed to be applicable in the applicable Final Terms if the Notes are issued with a minimum Specified Denomination such as €100,000 (or its equivalent in another currency) plus one or more higher integral multiples of another smaller amount such as €1,000 (or its equivalent in another currency). Furthermore, such Specified Denomination construction is not permitted in relation to any issue of Notes which is to be represented on issue by a temporary global Note exchangeable for definitive Notes.
The following legend will appear on all global Notes, definitive Notes and interest coupons: "Any United States person (as defined in the Internal Revenue Code of the United States) who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue Code." The sections referred to provide that United States holders, with certain exceptions, will not be entitled to deduct any loss on Notes or interest coupons and will not be entitled to capital gains treatment of any gain on any sale, disposition, redemption or payment of principal in respect of such Notes or interest coupons.
Notes which are represented by a Global Note will only be transferable in accordance with the rules and procedures for the time being of Euroclear or Clearstream, Luxembourg, as the case may be.
No Noteholder or Couponholder shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure shall be continuing.
The Issuer may agree with any Dealer and the Trustee that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes, in which event a drawdown prospectus or a new Base Prospectus will be made available which will describe the effect of the agreement reached in relation to such Notes.
Set out below is the form of Final Terms which will be completed for each Tranche of Notes issued under the Programme.
[MiFID II product governance/Professional investors and ECPs only target market – Solely for the purposes of [the/each] manufacturer's product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, MiFID II); and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a distributor) should take into consideration the manufacturer['s/s'] target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer['s/s'] target market assessment) and determining appropriate distribution channels.]
[Prohibition of sales to EEA and UK retail investors – The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (EEA) or in the United Kingdom (the UK). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of [Directive 2014/65/EU (MiFID II)][MiFID II]; or (ii) a customer within the meaning of Directive (EU) 2016/97 (the Insurance Distribution Directive), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the PRIIPs Regulation) for offering or selling the Notes or otherwise making them available to retail investors in the EEA or in the UK has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA or in the UK may be unlawful under the PRIIPs Regulation.]
[Singapore Securities and Futures Act Product Classification - In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore (the SFA) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the CMP Regulations 2018), the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA, the classification of the Notes as [prescribed capital markets products (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products)]/[ ].]
[Date]
[The Notes will only be admitted to trading on an EEA regulated market (and, for these purposes, references to the EEA includes the United Kingdom) (as defined in MiFID II), or a specific segment of an EEA regulated market, to which only qualified investors (as defined in the Prospectus Regulation) can have access and shall not be offered or sold to non-qualified investors.]
[Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated 30 October 2020 [and the supplemental Prospectus dated [date]] which [together] constitute[s] a base prospectus (the Base Prospectus) for the purposes of Regulation (EU) (2017/1129) (the Prospectus Regulation). This document constitutes the Final Terms of the Notes described herein for the purposes of the Prospectus Regulation and must be read in conjunction with the Base Prospectus in order to obtain all the relevant information. The Base Prospectus has been published on the website of the London Stock Exchange through a regulatory information service (http://www.londonstockexchange.com/exchange/news/market-news/marketnews-home.html).]
[Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions) set forth in the Base Prospectus dated [original date] [and the supplement to it dated [date]] and incorporated by reference into the Base Prospectus dated 30 October 2020. This document constitutes the Final Terms of the Notes described herein for the purposes of Regulation (EU) (2017/1129) (the Prospectus Regulation) and must be read in conjunction with the Base Prospectus dated 30 October 2020 [and the supplemental Prospectus dated [date]] which [together] constitute[s] a base prospectus (the Base Prospectus) for the purposes of the Prospectus Regulation, including the Conditions incorporated by reference in the Base Prospectus, in order to obtain all the relevant information. The Base Prospectus has been published on the website of the London Stock Exchange through a regulatory information service (http://www.londonstockexchange.com/exchang e/news/marketnews/market-news-home.html).]
1
| 1. | Status of the Notes: | [Senior Preferred / Deposit / Senior Non-Preferred / Subordinated] |
|
|---|---|---|---|
| 2. | Interest Basis: | [Fixed Rate / Reset / Floating Rate / Zero Coupon / Combination (see paragraph[s] [12]/[13]/[14]/[15] below)] |
|
| DESCRIPTION OF THE NOTES | |||
| 3. | New Global Note: | [Yes/No] | |
| 4. | Form of Notes: | [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes [on not less than 45 days' notice/only upon an Exchange Event]] |
|
| [Temporary Global Note exchangeable for Definitive Notes] |
|||
| [Permanent Global Note exchangeable for Definitive Notes [on not less than 45 days' notice/only upon an Exchange Event]] |
|||
| [Notes shall not be physically delivered in Belgium, except to a clearing system, a depository or other institution for the purpose of their immobilisation in accordance with article 4 of the Belgian Law of 14 1 December 2005.] |
|||
| 5. | (a) | Series Number: | [ ] |
Include for Notes that are to be offered in Belgium.
| (b) | Tranche Number: | [ | ] | ||
|---|---|---|---|---|---|
| (c) | Date on which the Notes will be consolidated and form a single Series: |
[ | ][Not Applicable] | ||
| 6. | (a) | Nominal Amount of Notes to be issued: |
[ | ] | |
| (b) | Aggregate nominal amount of Series (if more than one issue for the Series): |
[ | ] | ||
| (c) | Specified Currency: | [ | ] | ||
| (d) | Specified Denomination(s): | [ | ] | ||
| (e) | Calculation Amount: | [ | ] | ||
| 7. | Issue Price: | [ | ] | ||
| 8. | Issue Date: | [ | ] | ||
| 9. | Interest Commencement Date: | [[ | ]/Issue Date/Not Applicable] |
||
| 10. | Automatic/optional conversion from one Interest Basis to another: |
[ | ] [Not Applicable] | ||
| 11. | Additional Financial Centre(s): | [Not Applicable/[ ]] |
|||
| PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE |
|||||
| 12. | Fixed Rate Note Provisions | [Applicable/Not Applicable] | |||
| (a) | Fixed Rate(s) of Interest: |
[ | ] per cent. per annum payable in arrear on each Fixed Interest Date |
||
| (b) | Fixed Interest Date(s): | [ Date |
] in each year up to and including the Maturity | ||
| (c) | Initial Broken Amount per denomination: |
[ | ] | ||
| (d) | Fixed Coupon Amount(s): | [ | ] per Calculation Amount | ||
| (e) | Broken Amount(s): | [[ | ] per Calculation Amount, payable on the Fixed Interest Date falling [in/on] [ ]] [Not Applicable] |
||
| (f) | Final Broken Amount per denomination: |
[ | ] | ||
| (g) | Day Count Fraction: | [[Actual/Actual (ICMA)] |
| [30/360] [Actual/Actual (ISDA)] [Actual/Actual] Actual/365 (Fixed) Actual/365 (Sterling) Actual/360 [360/360] [Bond Basis] [30E/360] [Eurobond Basis] 30E/360 (ISDA)] |
|||
|---|---|---|---|
| (h) | Business Day Convention: | [Following Business Day/Modified Following Business Day/Preceding Business Day/Modified Preceding Business Day] |
|
| Adjusted: |
[Applicable/Not Applicable] | ||
| Non-Adjusted: |
[Applicable/Not Applicable] | ||
| (i) | Additional Business Centre(s): | [ ] |
|
| (j) | Determination Date(s): | [[ ] in each year] [Not Applicable] |
|
| 13. | Zero Coupon Note Provisions | [Applicable/Not Applicable] | |
| (a) | Accrual Yield: | [ ] |
|
| (b) | Reference Price: | [ ] |
|
| (c) | Calculation Agent (if any): | [Agent]/[ ] |
|
| 14. | Floating Rate Note Provisions | [Applicable/Not Applicable] | |
| (a) | Calculation Agent: | [Agent]/[ ] |
|
| (b) | Interest Period(s) or specified Interest Payment Date(s): |
[ ] |
|
| (c) | Business Day Convention: | [Floating Rate/Following Business Day/Modified Following Business Day/Preceding Business Day/ Modified Preceding Business Day] |
|
| (d) | Additional Business Centre(s): | [ ] |
|
| (e) | First Interest Payment Date: | [ ] |
|
| (f) | Manner in which Rate of Interest is to be determined: |
[Screen Rate Determination/ISDA Determination] | |
| (g) | Screen Rate Determination: | [Applicable/Not Applicable] | |
| Reference Rate |
[Compounded Daily SONIA] [Compounded Daily SOFR] [Weighted Average SOFR] |
[Compounded Daily €STR] [ ]-month [LIBOR/EURIBOR/[ ]] Term Rate [Applicable/Not Applicable]
o Specified Time [[11.00 a.m./[ ]] in the Relevant Financial Centre] / [Not Applicable] o Relevant Financial Centre: [London/New York/Brussels/[ ]] / [Not Applicable] Overnight Rate [Applicable/Not Applicable] o Index Determination: [Applicable/Not Applicable] - Relevant Number: [[5 / [ ]] [[London Banking Days]/[U.S. Government Securities Business Days]/[Not Applicable] (If 'Index Determination' is 'Not Applicable', delete 'Relevant Number' and complete the remaining bullets below) (If 'Index Determination' is 'Applicable', insert number of days (expected to be five or greater) as the Relevant Number, and the remaining bullets below will each be 'Not Applicable') o D: [360/365/[ ]] / [Not Applicable] o Observation Method: [Lag/Lock-out/Observation Shift/Not Applicable] - Lag Period: [5 / [ ] [London Banking Days] [U.S. Government Securities Business Days] [TARGET Business Days] [[City] Banking Days] [Not Applicable] - Observation Shift Period: [5 / [ ] [London Banking Days] [U.S. Government Securities Business Days][TARGET Business Days] [[City] Banking Days] [Not Applicable] (NB: A minimum of 5 relevant business/banking days should be specified for the Lag Period or Observation
Interest Determination Date(s): [ ] [TARGET/[ ]] Business Days [in [ ]] prior to the [ ] day in each Interest Period/each Interest Payment Date][The [first/[ ]] [London Banking Day]/[TARGET Business Day] / [U.S. Government Securities Business Day] falling after the last day of the relevant Observation Period][The [first/[ ]] Banking Day falling after the last day of the relevant Observation Period (where [City] Banking Day means any day on which commercial
Calculation Agent)
Shift Period, unless otherwise agreed with the
banks are open for general business (including dealing in foreign exchange and foreign currency deposits) in [City])][ ]
Relevant Screen Page: [ ] [Not Applicable]
(h) ISDA Determination: [Applicable/Not Applicable]
(i) Linear Interpolation: [Not Applicable/Applicable – the Rate of Interest for the [long/short] [first/last] Interest Period shall be calculated using Linear Interpolation (specify for each short or long interest period)]
excluding) the First Reset Date:
| (f) | Broken Amount(s): | [[ ] per Calculation Amount, payable on the Interest Payment Date falling [in/on] [ ]][Not Applicable] |
|---|---|---|
| (g) | Reset Reference Rate: | [CMT Rate/Mid-Swaps/Reference Bond] |
| (h) | First Reset Date: | [ ] |
| (i) | Second Reset Date: | [ ]/[Not Applicable] |
| (j) | Subsequent Reset Date(s): | [ ] [and [ ]] [Not Applicable] |
| (k) | Relevant Screen Page: | [ ] |
| (l) | Mid-Swap Rate: | [Single Mid-Swap Rate/Mean Mid-Swap Rate] [Not Applicable] |
| (m) | Fixed Leg Swap Duration: | [12 months / 6 months / [ ]] [Not Applicable] |
| (n) | Floating Leg Swap Duration: | [12 months / 6 months / 3 months / [ ]] [Not Applicable] |
| (o) | Mid-Swap Fallback Rate in respect of the first Reset Determination Date: |
[[ ] per cent.] [Not Applicable] |
| (p) | Reference Bond Reset Rate Time: | [ ] [Not Applicable] |
| (q) | Reference Bond Fallback Price in respect of the first Reset Determination Date: |
[ ] [Not Applicable] |
| (r) | Designated CMT Reuters Page: | [Reuters T7051 Page/Reuters T7052 Page/specify] [Not Applicable] |
| (s) | Designated CMT Maturity Index: | [ ]/[Not Applicable] |
| (t) | Day Count Fraction: | [30/360] [Actual/Actual (ICMA)] |
| (u) | Determination Date(s): | [[ ] in each year][Not Applicable] |
| (v) | Business Centre(s): | [ ] |
| (w) | Business Day Convention: | [Following Business Day/Modified Following Business Day/Preceding Business Day/Modified Preceding Business Day] |
| Adjusted: |
[Applicable/Not Applicable] | |
| Non-Adjusted: |
[Applicable/Not Applicable] | |
| (x) | Calculation Agent: | [Agent]/[ ] |
| 16. | Benchmark Discontinuation: | [Applicable/Not Applicable] | ||
|---|---|---|---|---|
| (a) | Benchmark Replacement: | [Applicable – Condition 4.4(a) applies] / [Not Applicable] |
||
| (b) | Benchmark Transition: | [Applicable – Condition 4.4(b) applies] / [Not Applicable] |
||
| (Unless otherwise agreed, select 'Benchmark Transition' if the Notes are Floating Rate Notes and the Original Reference Rate is USD LIBOR or SOFR; |
otherwise, select 'Benchmark Replacement')
| 17. | Maturity Date: | [ ]/[Interest Payment Date falling [in/on] or nearest to [ ] |
||
|---|---|---|---|---|
| 18. | Redemption at Issuer's option: | [Applicable/Not Applicable] | ||
| (a) | Optional Redemption Date(s): | [ ]/[Any day falling in the period commencing on (and including) [ ] and ending on ([and including/but excluding]) [the [first] Reset Date]/[the Maturity Date]/[ ]] |
||
| (b) | Optional Redemption Amount: | [[ ] per Calculation Amount] |
||
| (c) | If redeemable in part: | |||
| (i) Minimum Redemption Amount: |
[ ] |
|||
| (ii) Maximum Redemption Amount: |
[ ] |
|||
| (iii) Minimum Period: |
[ ] days |
|||
| (d) | Notice periods: | Minimum period: [ ] days Maximum period: [ ] days |
||
| 19. | Regulatory only): |
Event (Subordinated Notes |
[Full Exclusion / Full or Partial Exclusion / Not Applicable] |
|
| 20. | (a) | Senior Non-Preferred Notes: Loss Absorption Disqualification Event Redemption: |
[Applicable / specify if Not Applicable] | |
| (b) | Loss Absorption Disqualification Event: |
[Full Exclusion / Full or Partial Exclusion / Not Applicable] |
||
| (c) | Senior Non-Preferred Notes: Substitution and Variation: |
[Applicable / specify if Not Applicable] |
[[ ] has been extracted from [ ]. The Issuer confirms that such information has been accurately reproduced and that, so far as it is aware and is able to ascertain from information published by [ ], no facts have been omitted which would render the reproduced information inaccurate or misleading.]
By: ........................................................................... By: .................................................................. Duly Authorised Duly Authorised
[Save for any fees payable to the Manager(s)/Dealer(s), so far as the Issuer is aware, no person involved in the issue of the Notes has an interest material to the offer. The Manager(s)/Dealer(s) and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform other services for, the Issuer and its affiliates in the ordinary course of business]
Indication of yield: [ ]
[The yield is calculated on the basis of the Rate of Interest [applicable up to (but excluding) the First
| (a) ISIN: [ ] |
|---|
[ ]
[Not Applicable/[ ]]
[Yes. Note that the designation "yes" simply means that the Notes are intended upon issue to be deposited with one of the International Central Securities Depositories (ICSDs) as common safekeeper and does not necessarily mean that the Notes will be recognised as eligible collateral for Eurosystem monetary policy and intra day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon the European Central Bank (ECB) being satisfied that Eurosystem eligibility criteria have been met.] / [No. Whilst the designation is specified as "no" at the date of these Final Terms, should the Eurosystem eligibility criteria be amended in the future such that the Notes are capable of meeting them the Notes may then be deposited with one of the ICSDs as common safekeeper. Note that this does not necessarily mean that the Notes will then be recognised as eligible collateral for Eurosystem monetary policy and intra day credit operations by the Eurosystem at any time during their life. Such recognition will depend upon the ECB being satisfied that Eurosystem eligibility criteria have been met.]
Benchmarks Regulation]/[Not Applicable]
(f) Relevant Benchmark[s]: [[specify benchmark ] is provided by [administrator legal name]]. As at the date hereof, [[administrator legal name][appears]/[does not appear]] in the register of administrators and benchmarks established and maintained by ESMA pursuant to Article 36 (Register of administrators and benchmarks) of the Benchmarks Regulation]/[As far as the Issuer is aware, as at the date hereof, [specify benchmark] does not fall within the scope of the
Prohibition of Sales to EEA and UK Retail Investors: [Applicable/Not Applicable]
| (a) | Reasons for the offer: | [See ["Use of Proceeds"] in the Base Prospectus/[The Notes are intended to be issued as Sustainable Notes, [further particulars to be provided].]/Give details] |
|---|---|---|
| (b) | Estimated net proceeds: | [ ] |
The following (save for paragraphs in italics, which are descriptive only and do not form part of the Terms and Conditions) are the Terms and Conditions of the Notes which will be incorporated by reference into each Global Note and each definitive Note, in the latter case only if permitted by the relevant stock exchange, relevant authority or quotation system (if any) and agreed by the Issuer and the relevant Dealer(s) at the time of issue. If not so permitted (where applicable) and agreed, each definitive Note will have endorsed upon or attached thereto such Terms and Conditions. The applicable Final Terms in relation to any Tranche of Notes may specify other terms and conditions which shall, to the extent specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Notes. The applicable Final Terms (or the relevant provisions thereof) will be endorsed upon, or attached to, each Global Note and definitive Note. Reference should be made to "Form of Final Terms" above for a description of the content of Final Terms which will specify which of such terms are to apply in relation to the relevant Notes.
This Note is one of a Series of notes (the notes of such Series being hereinafter called the Notes, which expression shall mean (a) in relation to Notes represented by a global note (a Global Note), units equal to each Specified Denomination in the Specified Currency, (b) definitive Notes issued in exchange for a Global Note, and (c) any Global Note) constituted by a Trust Deed dated 17 April 1991 (such Trust Deed as modified and/or supplemented and/or restated from time to time, the Trust Deed) made between Nationwide Building Society (the Issuer) and The Law Debenture Trust Corporation p.l.c. (the Trustee, which expression shall include any successor as trustee).
The Notes are issued with the benefit of an Amended and Restated Agency Agreement dated 30 October 2020 (such Agency Agreement as amended and/or supplemented and/or restated from time to time, the Agency Agreement) made between the Issuer, Citibank, N.A., London Branch, as issuing agent, principal paying agent and agent bank (the Agent, which expression shall include any successor as agent), the other paying agents named therein (together with the Agent, the Paying Agents, which expression shall include any additional or successor paying agents) and the Trustee.
Interest bearing definitive Notes have interest coupons (Coupons) and, in the case of Notes which, when issued in definitive form, have more than 27 interest payments remaining, talons for further Coupons (Talons) attached on issue. Any reference in these Terms and Conditions to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons.
The final terms for this Note (or the relevant provisions thereof) are set out in Part A of the Final Terms endorsed upon or attached to this Note which supplements these Terms and Conditions and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these Terms and Conditions, replace or modify these Terms and Conditions for the purposes of this Note.
References herein to applicable Final Terms are, unless otherwise stated, to Part A of the Final Terms (or the relevant provisions thereof) attached to or endorsed on this Note.
The Trustee acts for the benefit of the holders of the Notes (the Noteholders, which expression shall, in relation to any Notes represented by a Global Note, be construed as provided below) and the holders of the Coupons (the Couponholders, which expression shall, unless the context otherwise requires, include the holders of the Talons), all in accordance with the provisions of the Trust Deed.
As used herein, Tranche means Notes which are identical in all respects (including as to listing, trading and/or quotation by any listing authority, stock exchange and/or quotation system) and Series means a Tranche of Notes together with any further Tranche or Tranches of Notes which are (a) expressed to be consolidated and form a single series, and (b) identical in all respects (including as to listing and admission to trading) except for their respective Issue Dates, Interest Commencement Dates and/or Issue Prices.
Copies of the Trust Deed and the Agency Agreement are available for inspection during normal business hours at the registered office for the time being of the Trustee, being at 30 October 2020 at Fifth Floor, 100 Wood Street, London EC2V 7EX and at the specified office of each of the Agent and the other Paying Agents. If the Notes are to be admitted to trading on the regulated market of the London Stock Exchange the applicable Final Terms will be published on the website of the London Stock Exchange through a regulatory information service. If this Note is neither admitted to trading on a regulated market in the European Economic Area or the United Kingdom nor offered in the European Economic Area or the United Kingdom in circumstances where a prospectus is required to be published under the Prospectus Regulation, the applicable Final Terms will only be obtainable from the principal office of the Issuer and of the Agent by a Noteholder holding one or more Notes and such Noteholder must produce evidence satisfactory to the Issuer and the relevant Paying Agent as to its holding of such Notes and identity.
The Noteholders and the Couponholders are deemed to have notice of, and are entitled to the benefit of, all the provisions of the Trust Deed, the Agency Agreement and the applicable Final Terms which are binding on them. Words and expressions defined in the Trust Deed or the Agency Agreement or used in the applicable Final Terms shall have the same meanings where used in these Terms and Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between the Agency Agreement and the Trust Deed, the Trust Deed will prevail and, in the event of inconsistency between the Agency Agreement or the Trust Deed and the applicable Final Terms, the applicable Final Terms will prevail.
The Notes are in bearer form and, in the case of definitive Notes, serially numbered, in the currency (the Specified Currency, which term will, unless the context otherwise requires, include any successor to such currency under applicable law) and the denominations (the Specified Denomination(s)) specified in the applicable Final Terms. Notes of one Specified Denomination may not be exchanged for Notes of another Specified Denomination.
This Note is a Fixed Rate Note, a Reset Note, a Floating Rate Note or a Zero Coupon Note or any appropriate combination thereof, depending upon the Interest Basis shown in the applicable Final Terms.
This Note is also aSenior Preferred Note, a Deposit Note, a Senior Non-Preferred Note or a Subordinated Note, as indicated in the applicable Final Terms.
If this Note is a definitive Note, it is issued with Coupons and, if applicable, Talons attached, unless it is a Zero Coupon Note in which case references to interest and Coupons in these Terms and Conditions are not applicable.
Subject to the provisions relating to Global Notes set out below, title to the Notes and the Coupons will pass by delivery. Except as ordered by a court of competent jurisdiction or as required by law, the Issuer, the Trustee, the Agent and any other Paying Agent shall (subject as set out below) be entitled to deem and treat the bearer of any Note or Coupon as the absolute owner thereof (whether or not such Note or Coupon shall be overdue and notwithstanding any notice to the contrary or any notation of ownership or writing thereon or notice of any previous loss or theft thereof) for the purpose of making payment thereon and for all other purposes. For so long as any of the Notes is represented by a Global Note held on behalf of Euroclear Bank SA/NV (Euroclear) and/or Clearstream Banking S.A. (Clearstream, Luxembourg), each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular nominal amount of such Notes (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg (including any form of statement or printout of electronic records provided by the relevant clearing system (including Euroclear's EUCLID or Clearstream, Luxembourg's Creation Online system) in accordance with its usual procedures and in which the holder of a particular nominal amount of Notes is clearly identified together with the amount of such holding) as evidence
as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer, the Trustee, the Agent and any other Paying Agent as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal and interest on such Notes, the right to which shall be vested, as against the Issuer, solely in the bearer of the Global Note in accordance with and subject to its terms (or the Trustee in accordance with the Trust Deed) (and the expressions Noteholder, holder of Notes and related expressions shall be construed accordingly). Notes which are represented by a Global Note will be transferable only in ac cordance with the rules and procedures for the time being of Euroclear and/or Clearstream, Luxembourg, as the case may be.
Any references herein to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in Part B of the applicable Final Terms.
The Senior Preferred Notes and the Deposit Notes and any relative Coupons are direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured obligations of the Issuer and rank (subject to the provisions of Condition 3) pari passu and without any preference among themselves, junior to obligations required to be preferred by law (which includes certain member share accounts which are given preferential status by law) and at least equally with all other Ordinary Non-Preferential Debts of the Issuer.
Accordingly, subject to the Insolvency Act (and any other Ranking Legislation), for so long as they are not secured pursuant to the provisions of Condition 3, the Senior Preferred Notes, the Deposit Notes and any relative Coupons form part of the class of Ordinary Non-Preferential Debts of the Issuer under the Insolvency Act (and any other Ranking Legislation).
(a) Status and Ranking
The Senior Non-Preferred Notes may only be issued on terms such that they (A) have an original contractual maturity of at least one year and (B) are not derivatives and contain no embedded derivatives for the purposes of Section 387A(3)(b)(ii) of the Insolvency Act (and the relevant section of any other Ranking Legislation).
The Senior Non-Preferred Notes and any relative Coupons are direct and unsecured obligations of the Issuer and, subject to the Insolvency Act (and any other Ranking Legislation), constitute Secondary Non-Preferential Debts under the Insolvency Act (and any other Ranking Legislation), ranking pari passu and without any preference among themselves.
Accordingly, subject to the Insolvency Act (and any other Ranking Legislation), claims in respect of principal, interest and any other amount (including, without limitation, any damages awarded for breach of the Issuer's obligations) in respect of the Senior Non-Preferred Notes and any relative Coupons will, in the event of the winding up or dissolution of the Issuer (subject as otherwise provided in an Excluded Dissolution), rank as provided for Secondary Non-Preferential Debts in the Insolvency Act (and any other Ranking Legislation), and therefore:
(iii) in priority to all Subordinated Claims.
Subject to applicable law, no holder of a Senior Non-Preferred Note or any relative Coupon may exercise, claim or plead any right of set-off, compensation or retention in respect of any amount owed to it by the Issuer arising under or in connection with the Senior Non-Preferred Notes or any relative Coupons, and each Noteholder and Couponholder shall, by virtue of being the holder of (or the holder of any interest in) any such Senior Non-Preferred Note or relative Coupon (as the case may be), be deemed to have waived all such rights of set-off, compensation or retention. Notwithstanding the provision of the foregoing sentence, if any of the said rights and claims of any Noteholder or Couponholder of a Senior Non-Preferred Note or relative Coupon against the Issuer is discharged by set-off, such Noteholder or Couponholder will immediately pay an amount equal to the amount of such discharge to the Issuer or, in the event of winding up or dissolution of the Issuer, the liquidator or other insolvency official of the Issuer, and accordingly such discharge will be deemed not to have taken place.
The Subordinated Notes and any relative Coupons are direct and unsecured obligations of the Issuer, subordinated as described below, and rank pari passu and without any preference among themselves.
Accordingly, subject to the Insolvency Act (and any other Ranking Legislation), the Subordinated Notes form part of the class of Tertiary Non-Preferential Debts under the Insolvency Act (and any other Ranking Legislation), and claims in respect of principal, interest and any other amount (including, without limitation, any damages awarded for breach of the Issuer's obligations) in respect of the Subordinated Notes and any relative Coupons will, in the event of the winding up or dissolution of the Issuer (subject as otherwise provided in an Excluded Dissolution):
Subject to applicable law, no holder of a Subordinated Note or any relative Coupon may exercise, claim or plead any right of set-off, compensation or retention in respect of any amount owed to it by the Issuer arising under or in connection with the Subordinated Notes or any relative Coupons, and each Noteholder and Couponholder shall, by virtue of being the holder of (or the holder of any interest in) any such Subordinated Note or Coupon (as the case may be), be deemed to have waived all such rights of set-off, compensation or retention. Notwithstanding the provision of the foregoing sentence, if any of the said rights and claims of any Noteholder or Couponholder of a Subordinated Note or relative Coupon against the Issuer is discharged by setoff, such Noteholder or Couponholder will immediately pay an amount equal to the amount of such discharge to the Issuer or, in the event of winding up or dissolution of the Issuer, the liquidator or other insolvency official of the Issuer and accordingly such discharge will be deemed not to have taken place.
As used in these Terms and Conditions:
deferred share investments has the meaning ascribed thereto in the rules of the Issuer (and includes the Issuer's permanent interest bearing shares and core capital deferred shares);
Excluded Dissolution means each of (i) a winding up or dissolution of the Issuer for the purpose of a reconstruction, union, transfer, merger or amalgamation or the substitution in place of the Issuer of a successor in business the terms of which have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Noteholders, and (ii) a dissolution of the Issuer following, or in connection with, a Permitted Reorganisation whereby the Successor Entity is substituted in place of the Issuer as principal debtor under the Trust Deed, the Notes and any relative Coupons;
Hierarchy Order means The Banks and Building Societies (Priorities on Insolvency) Order 2018, as amended or superseded from time to time;
Insolvency Act means the Insolvency Act 1986, as amended or superseded from time to time (including by the Hierarchy Order);
investing members hasthe meaning ascribed thereto in the rules of the Issuer;
Ordinary Non-Preferential Debts means 'ordinary non-preferential debts' as defined in Section 387A(3)(a) of the Insolvency Act (or, as the case may be, in the relevant section of any other Ranking Legislation);
Ranking Legislation means the Insolvency Act, the Hierarchy Order and, if and to the extent applicable to the Issuer, any other law or regulation which is amended by the Hierarchy Order;
Regulatory Capital Requirements means, at any time, any requirement contained in the law, regulations, requirements, guidelines and policies then in effect relating to capital adequacy and prudential supervision and applicable to the Issuer, including (without limitation to the generality of the foregoing), those applicable laws, regulations, requirements, guidelines and policies relating to capital adequacy and prudential supervision then in effect of the United Kingdom or the relevant Supervisory Authority and/or any applicable regulation, directive or other binding rules, standards or decisions adopted by the institutions of the European Union;
Secondary Non-Preferential Debts means 'secondary non-preferential debts' as defined in Section 387A(3)(b) of the Insolvency Act (or, as the case may be, in the relevant section of any other Ranking Legislation);
Senior Claimsmeansthe aggregate amount of all claims admitted in the winding up or dissolution of the Issuer which are:
Senior Non-Preferred Claims means the aggregate amount of all claims admitted in the winding up or dissolution of the Issuer which are claims of creditors in respect of Secondary Non-Preferential Debts of the Issuer;
Subordinated Claims means the aggregate amount of all claims admitted in the winding up or dissolution of the Issuer which are claims in respect of Tertiary Non-Preferential Debts of the Issuer, including (without limitation) claims of creditors in respect of obligations of the Issuer which constitute, or would but for any applicable limitation on the amount of such capital constitute, Tier 2 Capital, Additional Tier 1 Capital or CET1 Capital (including the Issuer's core capital deferred shares) and claims in respect of the Issuer's permanent interest bearing shares;
Supervisory Authority means, from time to time, the Bank of England acting as the Prudential Regulation Authority through its Prudential Regulation Committee or such other authority having for the time being primary supervisory authority and/or responsibility with respect to prudential or resolution matters concerning the Issuer and/or its group, as may be relevant in the context;
Tertiary Non-Preferential Debts means 'tertiary non-preferential debts' as defined in Section 387A(3)(c) of the Insolvency Act (or, as the case may be, in the relevant section of any other Ranking Legislation); and
Tier 1 Capital, CET1 Capital, Additional Tier 1 Capital and Tier 2 Capital have the respective meanings given thereto (or to a successor or equivalent term) in the Regulatory Capital Requirements.
This Condition 3 does not apply to Senior Non-Preferred Notes or Subordinated Notes.
So long as any of the Senior Preferred Notes or, as the case may be, Deposit Notes remains outstanding the Issuer will not, and will not suffer or permit any Subsidiary of the Issuer to, create or have outstanding any mortgage, lien (not being a lien arising by operation of law), pledge or other security interest upon the whole or any part of its undertaking or assets, present or future, (Security) to secure any Loan Stock of the Issuer or such Subsidiary, respectively, or any obligation of the Issuer or of any Subsidiary of the Issuer under any guarantee of or indemnity in respect of Loan Stock of any other person, without at the same time or prior thereto securing the Notes and the Coupons (other than Senior Non-Preferred Notes, Subordinated Notes and any relative Coupons) (the Protected Notes and Coupons) equally and rateably therewith to the satisfaction of the Trustee or providing such other security for the Protected Notes and Coupons which the Trustee in its absolute discretion shall deem to be not materially less beneficial to the Noteholders or which shall be approved by an Extraordinary Resolution of the Noteholders, provided that the Issuer or any Subsidiary of the Issuer may create or have outstanding Security with respect to Loan Stock (without the obligation to secure the Protected Notes and Coupons as aforesaid) if at the date of the creation thereof the Issuer and its Subsidiaries have and thereafter maintain free and clear of Security assets the fair market value of which (calculated on a consolidated basis) is at least equal to the aggregate principal amount of all Loan Stock which is not secured by any such Security. Loan Stock is defined in the Trust Deed to mean indebtedness for the time being outstanding which is in the form of or represented or evidenced by bonds, notes, debentures, loan stock or other similar securities.
Each Fixed Rate Note bears interest from (and including) the Interest Commencement Date at the rate(s) per annum equal to the Fixed Rate(s) of Interest payable in arrear on the Fixed Interest Date(s) in each year and on the Maturity Date if that does not fall on a Fixed Interest Date. The first payment of interest will be made on the Fixed Interest Date next following the Interest Commencement Date and, if the first anniversary of the Interest Commencement Date is not a Fixed Interest Date, will amount to the Initial Broken Amount. If the Maturity Date is not a Fixed Interest Date, interest from (and including) the preceding Fixed Interest Date (or the Interest Commencement Date, as the case may be) to (but excluding) the Maturity Date will amount to the Final Broken Amount.
If "Business Day Convention—Adjusted" is specified in the applicable Final Terms, (a) any Fixed Interest Date otherwise falling on a day which is not a Business Day (as defined in Condition 4.2 below) will be postponed or brought forward (as applicable) in accordance with the Business Day Convention (as described in Condition 4.2(a)) set out in the applicable Final Terms which, for the avoidance of doubt, shall not be the Floating Rate Convention and (b) the amount of interest payable on a Fixed Interest Date will be the amount accrued during the Fixed Interest Period ending immediately prior to such Fixed Interest Date, and the provisions of Condition 4.2(d) (excluding the determination of the Rate of Interest) and Condition 4.2(f) (excluding the notification of the Rate of Interest) shall apply, mutatis mutandis, as though references therein (and, if applicable, in the description of the relevant Business Day Convention (as set out in Condition 4.2(a)) to (A) "Floating Rate Notes" were to "Fixed Rate Notes"; (B) "Interest Amounts" were to amounts of interest payable in respect of Fixed Rate Notes; (C) "Interest Payment Date" were to "Fixed Interest Date"; and (D) "Interest Period" were to "Fixed Interest Period".
If "Business Day Convention—Non-Adjusted" is specified in the applicable Final Terms, any Fixed Interest Date otherwise falling on a day which is not a Business Day will be postponed or brought forward (as applicable) in accordance with the Business Day Convention set out in the applicable Final Terms (as described below) which, for the avoidance of doubt, shall not be the Floating Rate Convention but there will be no corresponding adjustment of the amount of interest payable on such Fixed Interest Date.
Except in the case of Notes in definitive form where an applicable Fixed Coupon Amount or Broken Amount is specified in the applicable Final Terms, interest shall be calculated in respect of any period by applying the Rate of Interest to:
and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Fixed Rate Note in definitive form is a multiple of the Calculation Amount, the amount of interest payable in respect of such Fixed Rate Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding.
In this Condition, Fixed Interest Period means the period from (and including) a Fixed Interest Date (or the Interest Commencement Date) to (but excluding) the next (or first) Fixed Interest Date.
Each Floating Rate Note bears interest from (and including) the Interest Commencement Date at the rate equal to the Rate of Interest payable in arrear on either:
(i) the Interest Payment Date(s) in each year (the period from (and including) the Interest Commencement Date to (but excluding) the first Interest Payment Date and each successive period from (and including) an Interest Payment Date to (but excluding) the next Interest Payment Date, each an Interest Period); or
(ii) if no express Interest Payment Date(s) is/are specified in the applicable Final Terms, each date (each an Interest Payment Date) which falls the number of months or other period specified as the Interest Period in the applicable Final Terms after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date.
If any Interest Payment Date which is specified in the applicable Final Terms to be subject to adjustment in accordance with a business day convention would otherwise fall on a day which is not a Business Day, then, if the business day convention specified is:
In this Condition, Business Day means:
In these Terms and Conditions:
euro means the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty on the Functioning of the European Union, as amended; and
TARGET2 System means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET2) System.
The Rate of Interest payable from time to time in respect of Floating Rate Notes will be determined in the manner specified in the applicable Final Terms.
Where ISDA Determination is specified in the applicable Final Terms as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will be the relevant ISDA Rate plus or minus (as indicated in the applicable Final Terms) the Margin (if any).
For the purposes of this Condition 4.2(b)(i), ISDA Rate for an Interest Period means a rate equal to the Floating Rate that would be determined by the Calculation Agent under an interest rate swap transaction if the Calculation Agent were acting as ISDA Calculation Agent for that swap transaction under the terms of an agreement incorporating the 2006 ISDA Definitions (as amended and updated as at the Issue Date of the first Tranche of the Notes and as published by the International Swaps and Derivatives Association, Inc. (the ISDA Definitions)) and under which:
provided that, if no Rate of Interest can be determined in accordance with the foregoing provisions of this paragraph, the Rate of Interest shall be (1) if the Calculation Agent so elects, determined by the Calculation Agent in good faith in its sole and absolute discretion and in consultation with the Issuer (though applying the Margin, Maximum Rate of Interest and/or Minimum Rate of Interest, if any, applicable to the relevant Interest Accrual Period), failing which (2) the Rate of Interest determined as at the last preceding Interest Determination Date on which the Rate of Interest was so determined (though substituting, where a different Margin, Maximum Rate of Interest and/or Minimum Rate of Interest is/are to be applied to the relevant Interest Accrual Period from that which applied to the last preceding Interest Accrual Period, the Margin, Maximum Rate of Interest and/or Minimum Rate of Interest (as applicable) relating to the relevant Interest Accrual Period, in place of the Margin, Maximum Rate of Interest and/or Minimum Rate of Interest (as applicable) relating to that last preceding Interest Accrual Period) or, if there is no such preceding Interest Determination Date, the initial Rate of Interest applicable to such Notes on the Interest Commencement Date (though substituting, where a different Margin, Maximum Rate of Interest and/or Minimum Rate of Interest is/are to be applied to the relevant Interest Accrual Period from that which applied to the last preceding Interest Accrual Period, the Margin, Maximum Rate of Interest and/or Minimum Rate of Interest (as applicable) relating to the relevant Interest Accrual Period, in place of the Margin, Maximum Rate of Interest and/or Minimum Rate of Interest (as applicable) relating to that last preceding Interest Accrual Period).
For the purpose of this Condition 4.2(b)(i), (I) Floating Rate, Floating Rate Option, Designated Maturity and Reset Date have the meanings given to those terms in the ISDA Definitions; (II) ISDA Calculation Agent has the meaning given to the term 'Calculation Agent' in the ISDA Definitions; and (III) the definition of Banking Day in the ISDA Definitions shall be amended to insert after the words "are open for" in the second line the word "general".
This Condition 4.2(b)(ii) applies where the applicable Final Terms specifies both "Screen Rate Determination" and "Term Rate" to be 'Applicable'.
(expressed as a percentage rate per annum) for the Reference Rate which appears or appear, as the case may be, on the Relevant Screen Page (or such replacement page on that service which displays the information) at the Specified Time in the Relevant Financial Centre on the Interest Determination Date in question plus or minus the Margin (if any), all as determined by the Calculation Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Calculation Agent for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations.
(C) If on any Interest Determination Date only one or none of the Reference Banks provides the Calculation Agent with such an offered quotation as provided in the preceding paragraph, the Rate of Interest for the relevant Interest Period shall be the rate per annum which the Calculation Agent determines as being either:
(i) the arithmetic mean (rounded as provided above) of the rates, as communicated to (and at the request of) the Calculation Agent by the Reference Banks or any two or more of them, which such banks were offered, at approximately 11.00 a.m. (London time, if the Reference Rate is LIBOR, or Brussels time, if the Reference Rate is EURIBOR) or (if otherwise specified) the Specified Time in the Relevant Financial Centre (each as indicated in the applicable Final Terms) on the relevant Interest Determination Date (or if such date is not a Business Day, on the immediately preceding Business Day), deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate by leading banks in the London inter-bank market (if the Reference Rate is LIBOR) or the Euro-zone inter-bank market (if the Reference Rate is EURIBOR) or otherwise the inter-bank market of the Relevant Financial Centre for the relevant Reference Rate, in each case plus or minus (as indicated in the applicable Final Terms) the Margin (if any); or
provided that, if the Rate of Interest cannot be determined in accordance with the foregoing provisions, the Rate of Interest shall be:
Reference Banks means, in the context of Condition 4.2(b)(ii)(A) (I), those banks whose offered rates were used to determine the offered quotation referred to in such Condition when such offered quotation last appeared on the Relevant Screen Page and, in the context of Condition 4.2(b)(ii)(A) (II), those banks whose offered quotations last appeared on the Relevant Screen Page when no fewer than three such offered quotations appeared.
This Condition 4.2(b)(iii) applies where the applicable Final Terms specifies: (1) "Screen Rate Determination" and "Overnight Rate" to be 'Applicable'; (2) "Compounded Daily SONIA" as the Reference Rate; and (3) "Index Determination" to be 'Not Applicable'.
(A) The Rate of Interest for an Interest Accrual Period will, subject to Condition 4.4 and as provided below, be Compounded Daily SONIA with respect to such Interest Accrual Period plus or minus (as indicated in the applicable Final Terms) the applicable Margin (if any), all as determined by the Calculation Agent.
Compounded Daily SONIA means, with respect to an Interest Accrual Period, the rate of return of a daily compound interest investment (with the daily Sterling overnight reference rate as reference rate for the calculation of interest) as calculated by the Calculation Agent as at the relevant Interest Determination Date in accordance with the following formula (and the resulting percentage will be rounded if necessary to the nearest fifth decimal place, with 0.000005 being rounded upwards):
$$
\left[\prod_{i=1}^{d_o} \left(1 + \frac{SONIA_i \times n_i}{D}\right) - 1\right] \times \frac{D}{d}
$$
where:
d is the number of calendar days in:
(ii) where "Observation Shift" is specified as the Observation Method in the applicable Final Terms, the number of London Banking Days in the relevant Observation Period;
i is a series of whole numbers from one to "do", each representing the relevant London Banking Day in chronological order from, and including, the first London Banking Day in:
(i) where "Lag" is specified as the Observation Method in the applicable Final Terms, the London Banking Day falling "p" London Banking Days prior to the relevant London Banking Day "i"; or
and, in each case, references to "SONIA reference rate" in Condition 4.2(b)(iii)(A) above shall be construed accordingly.
in each case as determined by the Calculation Agent.
This Condition 4.2(b)(iv) applies where the applicable Final Terms specifies: (1) "Screen Rate Determination" and "Overnight Rate" to be 'Applicable'; (2) "Compounded Daily SONIA" as the Reference Rate; and (3) "Index Determination" to be 'Applicable'.
(A) The Rate of Interest for an Interest Accrual Period will, subject to Condition 4.4 and as provided below, be the Compounded Daily SONIA Rate with respect to such Interest Accrual Period plus or minus (as indicated in the applicable Final Terms) the applicable Margin (if any), all as determined by the Calculation Agent.
Compounded Daily SONIA Rate means, with respect to an Interest Accrual Period, the rate of return of a daily compound interest investment (with the daily Sterling overnight reference rate as reference rate for the calculation of interest) (expressed as a percentage and rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) determined by the Calculation Agent by reference to the screen rate or index for compounded daily SONIA rates administered by the administrator of the SONIA reference rate that is published or displayed by such administrator or other information service from time to time on the relevant Interest Determination Date, as further specified in the applicable Final Terms (the SONIA Compounded Index) and in accordance with the following formula:
Compounded Daily SONIA Rate = d x SONIACompounded Index SONIACompounded Index Start End 365 1
where:
of the administrator of the SONIA reference rate or of such other information service, as the case may be) on the relevant Interest Determination Date, the Compounded Daily SONIA Rate for the applicable Interest Accrual Period for which the SONIA Compounded Index is not available shall be "Compounded Daily SONIA" determined in accordance with Condition 4.2(b)(iii) above as if "Index Determination" were specified in the applicable Final Terms as being 'Not Applicable', and for these purposes: (i) the "Observation Method" shall be deemed to be "Observation Shift" and (ii) the "Observation Shift Period" shall be deemed to be equal to the Relevant Number of London Banking Days, as if those alternative elections had been made in the applicable Final Terms.
This Condition 4.2(b)(v) applies where the applicable Final Terms specifies: (1) "Screen Rate Determination" and "Overnight Rate" to be 'Applicable'; (2) either "Compounded Daily SOFR" or "Weighted Average SOFR" as the Reference Rate; and (3) "Index Determination" to be 'Not Applicable'.
Where the applicable Final Terms specifies the Reference Rate to be "Compounded Daily SOFR", the provisions of paragraph (A) below of this Condition 4.2(b)(v) apply.
Where the applicable Final Terms specifies the Reference Rate to be "Weighted Average SOFR", the provisions of paragraph (B) below of this Condition 4.2(b)(v) apply.
Where this paragraph (A) applies, the Rate of Interest for an Interest Accrual Period will, subject to Condition 4.4 and as provided below, be Compounded Daily SOFR with respect to such Interest Accrual Period plus or minus (as indicated in the applicable Final Terms) the applicable Margin (if any), all as determined by the Calculation Agent.
Compounded Daily SOFR means, with respect to an Interest Accrual Period, the rate of return of a daily compound interest investment (with the daily U.S. dollars secured overnight financing rate as reference rate for the calculation of interest) as calculated by the Calculation Agent as at the relevant Interest Determination Date in accordance with the following formula (and the resulting percentage will be rounded if necessary to the nearest fifth decimal place, with 0.000005 being rounded upwards):
$$
\left[\prod_{i=1}^{d_o} \left(1 + \frac{SOFR_i \times n_i}{D}\right) - 1\right] \times \frac{D}{d}
$$
where:
D is the number specified as such in the applicable Final Terms (or, if no such number is specified, 360);
do means:
(iii) where "Observation Shift" is specified as the Observation Method in the applicable Final Terms, the number of U.S. Government Securities Business Days specified as the "Observation Shift Period" in the applicable Final Terms (or, if no such number is specified, five U.S. Government Securities Business Days);
Reference Day means each U.S. Government Securities Business Day in the relevant Interest Accrual Period, other than any U.S. Government Securities Business Day in the Lock-out Period;
Where this paragraph (B) applies, the Rate of Interest for an Interest Accrual Period will, subject to Condition 4.4 and as provided below, be the Weighted Average SOFR with respect to such Interest Accrual Period plus or minus (as indicated in the applicable Final Terms) the applicable Margin (if any), all as calculated by the Calculation Agent as of the Interest Determination Date (and rounded, if necessary, to the fifth decimal place, with 0.000005 being rounded upwards), where:
Defined terms used in this paragraph (B) and not otherwise defined herein have the meanings given to them in paragraph (A) above of this Condition 4.2(b)(v).
(C) SOFR Unavailable
Subject to Condition 4.4, if, where any Rate of Interest is to be calculated pursuant to this Condition 4.2(b)(v), in respect of any U.S. Government Securities Business Day in respect of which an applicable SOFR is required to be determined, such SOFR is not available, such SOFR shall be the SOFR for the first preceding U.S. Government Securities Business Day in respect of which the SOFR was published on the New York Fed's Website.
In the event that the Rate of Interest cannot be determined in accordance with the foregoing provisions of this Condition 4.2(b)(v) but without prejudice to Condition 4.4, the Rate of Interest shall be calculated in accordance, mutatis mutandis, with the provisions of Condition 4.2(b)(iii)(C).
This Condition 4.2(b)(vi) applies where the applicable Final Terms specifies: (1) "Screen Rate Determination" and "Overnight Rate" to be 'Applicable'; (2) "Compounded Daily SOFR" as the Reference Rate; and (2) "Index Determination" to be 'Applicable'.
(A) The Rate of Interest for an Interest Accrual Period will, subject to Condition 4.4 and as provided below, be the Compounded SOFR with respect to such Interest Accrual Period plus or minus (as indicated in the applicable Final Terms) the applicable Margin (if any), all as determined by the Calculation Agent.
Compounded SOFR means, with respect to an Interest Accrual Period, the rate (expressed as a percentage and rounded if necessary to the fifth decimal place, with 0.000005 being
rounded upwards) determined by the Calculation Agent in accordance with the following formula:
$$
\left(\frac{SOFR\,Index_{rad}}{SOFR\,Index_{tan}}-1\right)x\frac{360}{d_c}
$$
where:
Business Days, as if such alternative elections had been made in the applicable Final Terms.
This Condition 4.2(b)(vii) applies where the applicable Final Terms specifies: (1) "Screen Rate Determination" and "Overnight Rate" to be 'Applicable'; (2) "Compounded Daily €STR" as the Reference Rate; and (3) "Index Determination" to be 'Not Applicable'.
(A) The Rate of Interest for an Interest Accrual Period will, subject to Condition 4.4 and as provided below, be Compounded Daily €STR with respect to such Interest Accrual Period plus or minus (as indicated in the applicable Final Terms) the applicable Margin (if any), all as determined by the Calculation Agent.
Compounded Daily €STR means, with respect to an Interest Accrual Period, the rate of return of a daily compound interest investment (with the daily euro short-term rate as reference rate for the calculation of interest) as calculated by the Calculation Agent as at the relevant Interest Determination Date in accordance with the following formula (and the resulting percentage will be rounded if necessary to the nearest fifth decimal place, with 0.000005 being rounded upwards):
$$
\left[\prod_{i=1}^{d_o} \left(1 + \frac{\text{ESTR}_i \times n_i}{D}\right) - 1\right] \times \frac{D}{d}
$$
where:
the €STR reference rate, in respect of any TARGET Business Day (TBDx), is a reference rate equal to the daily euro short-term rate (€STR) for such TBDx as provided by the European Central Bank as the administrator of €STR (or any successor administrator of such rate) on the website of the European Central Bank (or, if no longer published on its website, as otherwise published by it or provided by it to authorised distributors and as then published on the Relevant Screen Page or, if the Relevant Screen Page is unavailable, as otherwise published by such authorised distributors) on the TARGET Business Day immediately following TBDx (in each case, at the time specified by, or determined in accordance with, the applicable methodology, policies or guidelines, of the European Central Bank or the successor administrator of such rate);
€STRi means the €STR reference rate for:
d is the number of calendar days in:
(i) where "Lag" is specified as the Observation Method in the applicable Final Terms, the relevant Interest Accrual Period; or
As used herein, an Interest Accrual Period means (i) each Interest Period and (ii) any other period (if any) in respect of which interest is to be calculated, being the period from (and including) the first day of such period to (but excluding) the day on which the relevant payment of interest falls due (which, if the relevant Series of Notes becomes due and payable in accordance with Condition 10 or Condition 11 (as applicable), shall be the date on which such Notes become due and payable).
If the relevant Series of Notes becomes due and payable in accordance with Condition 10 or Condition 11 (as applicable), the final Rate of Interest shall be calculated for the Interest Accrual Period to (but excluding) the date on which the Notes become so due and payable, and such Rate of Interest shall continue to apply to the Notes for so long as interest continues to accrue thereon as provided in Condition 4.5 and the Trust Deed.
If the applicable Final Terms specifies a Minimum Rate of Interest for any Interest Period and if, but for this Condition 4.2(c), the Rate of Interest determined for such Interest Period (or any Interest Accrual Period falling within such Interest Period) would be less than such Minimum Rate of Interest, the Rate of Interest for such Interest Period (or such Interest Accrual Period falling within such Interest Period) shall be equal to such Minimum Rate of Interest.
If the applicable Final Terms specifies a Maximum Rate of Interest for any Interest Period and if, but for this Condition 4.2(c), the Rate of Interest for such Interest Period (or any Interest Accrual Period falling within such Interest Period) would be greater than such Maximum Rate of Interest, the Rate of Interest for such Interest Period (or such Interest Accrual Period falling within such Interest Period) shall be equal to such Maximum Rate of Interest.
The Calculation Agent will, at or as soon as practicable after each time at which the Rate of Interest is to be determined, determine the Rate of Interest for the relevant Interest Period (or other Interest Accrual Period).
The Calculation Agent will calculate the amount of interest (each an Interest Amount) for the relevant Interest Period (or other Interest Accrual Period). Each Interest Amount shall be calculated by applying the Rate of Interest to:
and, in each case, multiplying such sum by the Day Count Fraction specified in the applicable Final Terms. The resultant figure will be rounded as follows (or otherwise in accordance with applicable market convention):
Where the Specified Denomination of a Floating Rate Note in definitive form is a multiple of the Calculation Amount, the amount of interest payable in respect of such Floating Rate Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding.
In this Condition 4.2, Calculation Agent means the Agent or such other party identified as the Calculation Agent in the applicable Final Terms.
Where Linear Interpolation is specified as "Applicable" in respect of an Interest Period in the applicable Final Terms, the Rate of Interest for such Interest Period shall be calculated by the Calculation Agent by straight line linear interpolation by reference to two rates based on the relevant Reference Rate (where Screen Rate Determination is specified as "Applicable" in the applicable Final Terms) or the relevant Floating Rate Option (where ISDA Determination is specified as "Applicable" in the applicable Final Terms), one of which shall be determined as if the Designated Maturity were the period of time for which rates are available next shorter than the length of the relevant Interest Period and the other of which rates are available next longer than the length of the relevant Interest Period; provided howeverthat if there is no rate available for the period of time next shorter or, as the case may be, next longer, then the Issuer shall use its reasonable endeavours to appoint an Independent Adviser as soon as reasonably practicable, with a view to such Independent Adviser determining such rate at such time and by reference to such sources as it determines appropriate for the purposes of the calculation of the Rate of Interest. The Independent Adviser shall instruct the Calculation Agent as to such rate. The Independent Adviser will consult with the Issuer with respect to such determination.
If, notwithstanding the use of reasonable endeavours, the Issuer is unable to appoint an Independent Adviser, or if an Independent Adviser is appointed by the Issuer but fails to make any relevant determination specified to be made by it under this Condition 4.2(e) prior to the relevant Interest Determination Date, the Issuer itself (acting in good faith and in a commercially reasonable manner) shall be entitled to determine the Rate of Interest.
An Independent Adviser appointed pursuant to this Condition 4.2(e)shall act in good faith and (in the absence of bad faith or fraud) neither the Issuer nor any Independent Adviser shall have any liability whatsoever to the
Trustee, the Agents or the holders of any Notes or Coupons for any determination made by it pursuant to this Condition 4.2(e).
Designated Maturity means, in relation to Screen Rate Determination, the period of time designated in the Reference Rate.
This Condition 4.2(b)(ii) applies where the applicable Final Terms specifies both "Screen Rate Determination" and "Term Rate" to be 'Applicable'.
All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 4.2, whether by the Calculation Agent or the Trustee, shall (in the absence of wilful default, bad faith or manifest error) be binding on the Issuer, the Agent, the Calculation Agent, the Trustee, the other Paying Agents and all Noteholders and Couponholders and (in the absence as aforesaid) no liability to the Issuer, the Noteholders or the Couponholders shall attach to the Calculation Agent or the Trustee in connection with the exercise or non-exercise by them of their powers, duties and discretions pursuant to such provisions.
Each Reset Note bears interest:
(in each case rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) payable, in each case, in arrear on the Interest Payment Date(s) in each year and on the Maturity Date so specified if that does not fall on an Interest Payment Date.
The Rate of Interest and the amount of interest (the Interest Amount) payable shall be determined by the Calculation Agent, (A) in the case of the Rate of Interest, at or as soon as practicable after each time at which the Rate of Interest is to be determined, and (B) in the case of the Interest Amount in accordance with the provisions for calculating amounts of interest in Condition 4.1 and, for such purposes, references in Condition 4.1 to "Fixed Rate Notes" and "Fixed Interest Date" shall be deemed to be to "Reset Notes" and "Interest Payment Date", respectively, and Condition 4.1 shall be construed accordingly.
In this Condition 4.3:
Calculation Agent meansthe Agent or such other party identified as the Calculation Agent in the applicable Final Terms;
CMT Rate means (subject to Condition 4.4, if applicable), in relation to a Reset Period and the Reset Determination Date in relation to such Reset Period, the rate determined by the Calculation Agent, and expressed as a percentage, equal to:
(b) if the rate referred to in paragraph (a) does not so appear on the T7051 Page by 4:00 p.m. (New York City time) on the relevant Reset Determination Date, the percentage equal to the yield for United States Treasury securities at "constant maturity" having the particular Designated CMT Maturity Index and for such Reset Determination Date as published in H.15 under the caption "Treasury Constant Maturities"; or
(c) if the rate referred to in paragraph (b) does not so appear in H.15 by 4:30 p.m. (New York City time) on the relevant Reset Determination Date, the rate on such Reset Determination Date for the period of the particular Designated CMT Maturity Index as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the Calculation Agent determines to be comparable to the rate which would otherwise have been published in H.15; or
(or any successor service) on page FEDCMT (or any other page as may replace the specified page on that service or any successor service) (T7052 Page), for the week preceding the week in which such Reset Determination Date falls; or
and, in each case, if two United States Treasury securities with an original maturity greater than the Designated CMT Maturity Index specified in the applicable Final Terms have remaining terms to maturity equally close to the particular Designated CMT Maturity Index, the quotes for the United States Treasury security with the shorter original remaining term to maturity will be used;
Designated CMT Maturity Index means the original period to maturity of the U.S. Treasury securities (being 1, 2, 3, 5, 7, 10, 20 or 30 years or such other period) specified in the applicable Final Terms with respect to which the CMT Rate will be calculated;
First Margin means the margin specified as such in the applicable Final Terms;
First Reset Date means the date specified as such in the applicable Final Terms;
First Reset Periodmeans the period from (and including) the First Reset Date until (but excluding) the Second Reset Date or, if no such Second Reset Date is specified in the applicable Final Terms, the Maturity Date;
First Reset Rate of Interest means, in respect of the First Reset Period and subject (if applicable) to Conditions 4.3(b) and 4.4, the rate of interest determined by the Calculation Agent on the relevant Reset Determination Date as the sum, converted (if the Reference Rate is either Mid-Swaps or the Reference Bond Yield), if not already on the same basis, from a basis equivalent to the Fixed Leg Swap Duration specified in the applicable Final Terms or the Reference Bond Yield, as the case may be, to a basis equivalent to the frequency with which scheduled interest payments are payable on the Notes during the relevant Reset Period (such calculation to be determined by the Issuer in conjunction with a leading financial institution selected by it), of (A) the relevant Reset Reference Rate and (B) the First Margin;
Fixed Leg Swap Duration has the meaning specified in the applicable Final Terms;
Floating Leg Swap Duration has the meaning specified in the applicable Final Terms;
H.15 means the daily statistical release designated as H.15, or any successor publication, published by the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov/releases/H15 or any successor site or publication;
Initial Rate of Interest has the meaning specified in the applicable Final Terms;
Mid-Market Swap Rate means, subject to Conditions 4.3(b) and (if applicable) 4.4, for any Reset Period the mean of the bid and offered rates for the fixed leg payable with a frequency equivalent to the Fixed Leg Swap Duration (calculated on the basis of the Day Count Fraction as specified in the applicable Final Terms as determined by the Calculation Agent) of a fixed-for-floating interest rate swap transaction in the Specified Currency which transaction (i) has a term equal to the relevant Reset Period and commencing on the relevant Reset Date, (ii) is in an amount that is representative for a single transaction in the relevant market at the relevant time with an acknowledged dealer of good credit in the swap market and (iii) has a floating leg based on the Mid-Swap Floating Leg Benchmark Rate for the Floating Leg Swap Duration (calculated on the basis of the Day Count Fraction as specified in the applicable Final Terms as determined by the Calculation Agent);
Mid-Market Swap Rate Quotation means a quotation (expressed as a percentage rate per annum) for the relevant Mid-Market Swap Rate;
Mid-Swap Floating Leg Benchmark Rate means (subject to Condition 4.4, if applicable) EURIBOR if the Specified Currency is euro or LIBOR for the Specified Currency if the Specified Currency is not euro;
Mid-Swap Rate means, in relation to a Reset Determination Date and subject to Conditions 4.3(b) and (if applicable) 4.4, either:
(i) if "Single Mid-Swap Rate" is specified in the applicable Final Terms, the rate for swaps in the Specified Currency:
which appears on the Relevant Screen Page or such replacement page on that service which displays the information; or
which appear on the Relevant Screen Page or such replacement page on that service which displays the information,
in either case, as at approximately 11.00 a.m. in the principal financial centre of the Specified Currency on such Reset Determination Date, all as determined by the Calculation Agent provided, however, that if there is no such rate appearing on the Relevant Screen Page for a term equal to the relevant Reset Period, then the Mid-Swap Rate shall be determined through the use of straight-line interpolation by reference to two rates, one of which shall be determined in accordance with the above provisions, but as if the relevant Reset Period were the period of time for which rates are available next shorter than the length of the actual Reset Period and the other of which shall be determined in accordance with the above provisions, but as if the relevant Reset Period were the period of time for which rates are available next longer than the length of the actual Reset Period;
Mid-Swap Reference Banks means the principal office in the principal financial centre of the Specified Currency of four major banks in the swap, money, securities or other market most closely connected with the relevant Mid-Swap Rate as selected by the Issuer on the advice of an investment bank of international repute or an Independent Adviser;
Rate of Interest means the Initial Rate of Interest, the First Reset Rate of Interest or the relevant Subsequent Reset Rate of Interest, as applicable;
Reference Bond means for any Reset Period a government security or securities issued by the state responsible for issuing the Specified Currency (which, if the Spec ified Currency is euro, shall be Germany) selected by the Issuer on the advice of an investment bank of international repute or an Independent Adviser as having an actual or interpolated maturity comparable with the relevant Reset Period that would be utilised, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities denominated in the same currency as the Notes and of a comparable maturity to the relevant Reset Period;
Reference Bond Price means, with respect to any Reset Determination Date, (A) if the Calculation Agent obtains four or five Reference Bond Dealer Quotations, the arithmetic average of the Reference Bond Dealer Quotations for such Reset Determination Date, after excluding the highest (or, in the event of equality, one of the highest) and lowest (or, in the event of equality, one of the lowest) such Reference Bond Dealer Quotations, or (B) if the Calculation Agent obtains fewer than four but more than one such Reference Bond Dealer Quotations, the arithmetic average of all such quotations, or (C) if the Calculation Agent obtains one such Reference Bond Dealer Quotations, the amount of such quotation, or (D) if the Calculation Agent obtains no such Reference Bond Dealer Quotations, the Reference Bond Price determined on the immediately preceding Reset Determination Date or, in the case of the first Reset Determination Date, the Reference Bond Fallback Price specified in the applicable Final Terms;
Reference Bond Reset Rate Time means the time specified in the applicable Final Terms;
Reference Bond Yieldmeans the yield to maturity or interpolated yield to maturity (on the relevant day count basis) of the relevant Reference Bond;
Reference Bond Dealer means each of five banks (selected by the Issuer on the advice of an investment bank of international repute), or their affiliates, which are (A) primary government securities dealers, and their respective successors, or (B) market makers in pricing corporate bond issues;
Reference Bond Dealer Quotations means, with respect to each Reference Bond Dealer and the relevant Reset Determination Date, the arithmetic average, as determined by the Calculation Agent, of the bid and offered prices for the relevant Reference Bond (expressed in each case as a percentage of its nominal amount) at or around the Reference Bond Reset Rate Time on the relevant Reset Determination Date quoted in writing to the Calculation Agent by such Reference Bond Dealer;
Relevant Screen Page means the screen page specified in the applicable Final Terms (or any successor or replacement screen displaying the relevant information);
Reset Business Day means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in any Business Centre specified in the applicable Final Terms;
Reset Date means the First Reset Date, the Second Reset Date and each Subsequent Reset Date (as applicable);
Reset Determination Date means, in respect of any Reset Period, the second Reset Business Day prior to the first day of such Reset Period;
Reset Period means the First Reset Period or a Subsequent Reset Period, as the case may be;
Reset Reference Rate means:
Second Reset Date means the date specified as such in the applicable Final Terms;
Subsequent Margin means the margin specified as such in the applicable Final Terms;
Subsequent Reset Date means the date or dates specified as such in, or determined in accordance with, the applicable Final Terms;
Subsequent Reset Period means (i) the period from (and including) the Second Reset Date to (but excluding) the next Reset Date, and (ii) each successive period from (and including) a Reset Date to (but excluding) the next succeeding Reset Date (or, in the case of the final Subsequent Reset Period, the Maturity Date); and
Subsequent Reset Rate of Interest means, in respect of any Subsequent Reset Period and subject (if applicable) to Conditions 4.3(b) and 4.4, the rate of interest determined by the Calculation Agent on the relevant Reset Determination Date as the sum, converted (if the Reference Rate is either Mid-Swaps or the Reference Bond Yield), if not already on the same basis, from a basis equivalent to the Fixed Leg Swap Duration specified in the applicable Final Terms or the Reference Bond Yield, as the case may be, to a basis equivalent to the frequency with which scheduled interest payments are payable on the Notes during the relevant Reset Period (such calculation to be determined by the Issuer in conjunction with a leading financial institution selected by it), of (A) the relevant Reset Reference Rate and (B) the relevant Subsequent Margin.
If on any Reset Determination Date the Relevant Screen Page is not available or the Mid-Swap Rate does not appear on the Relevant Screen Page, the Calculation Agent shall request each of the Mid-Swap Reference Banks to provide the Calculation Agent with its Mid-Market Swap Rate Quotation as at approximately 11.00 a.m. in the principal financial centre of the Specified Currency on the Reset Determination Date in question.
If two or more of the Mid-Swap Reference Banks provide the Calculation Agent with Mid-Market Swap Rate Quotations, the First Reset Rate of Interest or the Subsequent Reset Rate of Interest (as applicable) for the relevant Reset Period shall be the sum (converted as set out in the definition of such term above) of the arithmetic mean (rounded, if necessary, to the nearest 0.001 per cent. (0.0005 per cent. being rounded upwards)) of the relevant Mid-Market Swap Rate Quotations and the First Margin or Subsequent Margin (as applicable), all as determined by the Calculation Agent.
If on any Reset Determination Date only one of the Mid-Swap Reference Banks provides the Calculation Agent with a Mid-Market Swap Rate Quotation as provided in the foregoing provisions of this paragraph, the First Reset Rate of Interest or the Subsequent Reset Rate of Interest (as applicable) shall be the sum (converted as set out in the definition of such term above) of (rounded, if necessary, to the nearest 0.001 per cent. (0.0005 per cent. being rounded upwards)) of the relevant Mid-Market Swap Rate Quotation and the First Margin or Subsequent Margin (as applicable), all as determined by the Calculation Agent.
If on any Reset Determination Date none of the Mid-Swap Reference Banks provides the Calculation Agent with a Mid-Market Swap Rate Quotation as provided in the foregoing provisions of this Condition 4.3(b), the First Reset Rate of Interest or the relevant Subsequent Reset Rate of Interest (as applicable) shall be determined by the Calculation Agent as if, and on the assumption that, the relevant Reset Reference Rate were equal to:
The Calculation Agent will cause the First Reset Rate of Interest, any Subsequent Reset Rate of Interest and, in respect of a Reset Period, the Interest Amount payable on each Interest Payment Date falling in such Reset Period to be notified to the Issuer, the Agent, the Trustee and any competent authority or stock exchange by or on which the relevant Reset Notes are for the time being listed and notice thereof to be published in accordance with Condition 18 as soon as possible after their determination but in no event later than the fourth London Business Day (as defined in Condition 4.2(d)) thereafter.
If for any reason the Calculation Agent defaults in its obligation to determine the Rate of Interest or calculate any Interest Amount in accordance with Condition 4.3(a), the Trustee may (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) appoint an agent to do so and such determination shall be deemed to have been made by the Calculation Agent. In doing so, such agent shall apply the foregoing provisions of this Condition 4.3 with any necessary consequential amendments, to the extent that, in its opinion, it can do so, and in all other respects it shall do so in such manner as it shall deem fair and reasonable in all the circumstances. Without prejudice to the provisions of Condition 4.3(e) below, the Trustee shall have no liability to any person in connection with any determination or calculation made by any agent so appointed pursuant to this Condition.
All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 4.3 by the Calculation Agent or any agent appointed by the Trustee shall (in the absence of wilful default, bad faith or manifest error) be binding on the Issuer, the Trustee, the Calculation Agent, the other Paying Agents and all Noteholders and Couponholders and (in the absence as aforesaid) no liability to the Issuer, the Noteholders or the Couponholders shall attach to the Calculation Agent or the Trustee or any agent appointed by the Trustee in connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant to such provisions.
This Condition 4.4 applies in respect of each issue of Floating Rate Notes and Reset Notes unless "Benchmark Discontinuation" is specified in the applicable Final Terms to be 'Not Applicable'.
If the applicable Final Terms specifies "Benchmark Replacement" to be 'Applicable', the provisions of Condition 4.4(a) apply, together with the other provisions of this Condition 4.4 (other than Condition 4.4(b)).
If the applicable Final Terms specifies "Benchmark Transition" to be 'Applicable', the provisions of Condition 4.4(b) apply, together with the other provisions of this Condition 4.4 (other than Condition 4.4(a)).
If the Issuer determines that a Benchmark Event occurs in relation to an Original Reference Rate at any time when any Rate of Interest (or any component part thereof) remains to be determined by reference to such Original Reference Rate, then the following provisions shall apply.
The Issuer shall use reasonable endeavours to appoint and consult with an Independent Adviser, as soon as reasonably practicable, with a view to the Issuer determining a Successor Rate, failing which an Alternative Rate (in accordance with Condition 4.4(a)(ii)) and, in either case, the applicable Adjustment Spread (in accordance with Condition 4.4(a)(iii)) and any Benchmark Amendments (in accordance with Condition 4.4(a)(iv)).
If, notwithstanding the Issuer's reasonable endeavours, the Issuer is unable to appoint and consult with an Independent Adviser in accordance with the foregoing paragraph, the Issuer shall nevertheless be entitled, acting in good faith and in a commercially reasonable manner, to make any and all determinations expressed to be made by the Issuer pursuant to this Condition 4.4(a), notwithstanding that such determinations are not made following consultation with an Independent Adviser. If, however, the Issuer is unable to determine a Successor Rate or an Alternative Rate and
(in either case) the applicable Adjustment Spread and any Benchmark Amendments in accordance with this Condition 4.4(a), the provisions of Condition 4.4(g) below shall apply.
If the Issuer, following consultation with such Independent Adviser (if appointed), determines in good faith that:
If a Successor Rate or Alternative Rate is determined in accordance with the foregoing provisions, the Issuer, following consultation with the Independent Adviser (if appointed), will determine in good faith the Adjustment Spread to be applied to such Successor Rate or Alternative Rate (as the case may be) for each subsequent determination of a relevant Rate of Interest (or a relevant component part thereof) by reference to such Successor Rate or Alternative Rate (as applicable).
If any Successor Rate or Alternative Rate and (in either case) the applicable Adjustment Spread is determined in accordance with this Condition 4.4 and the Issuer, following consultation with the Independent Adviser (if appointed), determines in good faith (A) that amendments to the Terms and Conditions of the Notes and/or the Trust Deed (including, without limitation, amendments to the definitions of Day Count Fraction, Business Days, Reset Determination Date, or Relevant Screen Page) are necessary to ensure the proper operation (having regard to prevailing market practice, if any) of such Successor Rate, Alternative Rate and (in either case) the applicable Adjustment Spread (such amendments, the Benchmark Amendments) and (B) the terms of the Benchmark Amendments, then (subject to Condition 4.4(f) below) the Issuer shall, subject to giving notice thereof in accordance with Condition 4.4(c), without any requirement for the consent or approval of Noteholders or Couponholders, vary the Terms and Conditions of the Notes and/or the Trust Deed to give effect to such Benchmark Amendments with effect from the date specified in such notice.
At the request of the Issuer, but subject to receipt by the Trustee of a certificate signed by two authorised signatories of the Issuer pursuant to Condition 4.4(c), the Trustee shall (at the Issuer's expense), without any requirement for the consent or approval of the Noteholders or Couponholders, be obliged to concur with the Issuer in effecting any Benchmark Amendments (including, inter alia, by the execution of a deed or agreement supplemental to or amending the Trust Deed and/or the Agency Agreement (as applicable)) and the Trustee shall not be liable to any party for any consequences thereof, provided that the Trustee shall not be obliged so to concur if in the sole opinion of the Trustee doing so would impose more onerous obligations upon it or expose
it to any additional duties, responsibilities or liabilities or reduce or amend rights and/or the protective provisions afforded to the Trustee in the Terms and Conditions of the Notes or the Trust Deed (including, for the avoidance of doubt, any supplemental trust deed) in any way.
In connection with any such variation in accordance with this Condition 4.4, the Issuershall comply with the rules of any stock exchange on which the Notes are for the time being listed or admitted to trading.
As used in this Condition 4.4(a):
Adjustment Spread means either a spread (which may be positive, negative or zero), or the formula or methodology for calculating a spread, in either case, which is to be applied to the Successor Rate or the Alternative Rate (as the case may be), being the spread, formula or methodology which:
Alternative Rate means an alternative benchmark or screen rate which the Issuer, following consultation with the Independent Adviser (if appointed), determines in accordance with this Condition 4.4 has replaced the Original Reference Rate in customary market usage, or is an industry-accepted rate, in the international debt capital markets for the purposes of determining rates of interest (or the relevant component part thereof) for a commensurate interest period and in the same Specified Currency as the Notes;
Benchmark Event means, with respect to an Original Reference Rate, any one or more of the following:
indefinitely (in circumstances where no successor administrator has been appointed that will continue publication of the Original Reference Rate);
provided that in the case of paragraphs (B) to (D) above, the Benchmark Event shall occur on:
and not (in any such case) the date of the relevant public statement (unless the date of the relevant public statement coincides with the relevant date in (i), (ii) or (iii) above, as applicable);
Independent Adviser means an independent financial institution of international repute or an independent adviser of recognised standing with appropriate expertise appointed by the Issuer at its own expense and approved in writing by the Trustee;
Original Reference Rate means the benchmark or screen rate (as applicable) originally specified for the purpose of determining the relevant Rate of Interest (or any relevant component part(s) thereof) on the Notes (provided that if, following one or more Benchmark Events, such originally specified Reference Rate (or any Successor Rate or Alternative Rate which has replaced it) has been replaced by a (or a further) Successor Rate or Alternative Rate and a Benchmark Event subsequently occurs in respect of such Successor Rate or Alternative Rate, the term "Original Reference Rate" shall be deemed to include any such Successor Rate or Alternative Rate);
Relevant Nominating Body means, in respect of a benchmark or screen rate (as applicable):
(as applicable) relates, (ii) any central bank or other supervisory authority which is responsible for supervising the administrator of the benchmark or screen rate (as applicable), (iii) a group of the aforementioned central banks or other supervisory authorities or (iv) the Financial Stability Board or any part thereof; and
Successor Rate means a successor to or replacement of the Original Reference Rate which is formally recommended by any Relevant Nominating Body.
If the Issuer determines that a Benchmark Transition Event and its related Benchmark Replacement Date have occurred in relation to an Original Reference Rate at any time when any Rate of Interest (or any component part thereof) remains to be determined by reference to such Original Reference Rate, then the following provisions shall apply.
The Issuer shall use reasonable endeavours to appoint and consult with an Independent Adviser, as soon as reasonably practicable, with a view to the Issuer determining the Benchmark Replacement which will replace such Original Reference Rate for all purposes relating to the Notes in respect of all determinations on such date and for all determinations on all subsequent dates (subject to any subsequent application of this Condition 4.4(b) with respect to such Benchmark Replacement) and any Benchmark Replacement Conforming Changes.
Any Benchmark Replacement so determined by the Issuer shall have effect for any subsequent determinination of any relevant Rate of Interest (subject to any further application of this Condition 4.4(b) with respect to such Benchmark Replacement), subject, if any associated Benchmark Replacement Conforming Changes are required in connection therewith, to such Benchmark Replacement Conforming Changes becoming effective in accordance with the following provisions.
If, notwithstanding the Issuer's reasonable endeavours, the Issuer is unable to appoint and consult with an Independent Adviser in accordance with the foregoing paragraph, the Issuer shall nevertheless be entitled, acting in good faith and in a commercially reasonable manner, to make any and all determinations expressed to be made by the Issuer pursuant to this Condition 4.4(b), notwithstanding that such determinations are not made following consultation with an Independent Adviser. If, however, the Issuer is unable to determine a Benchmark Replacement in accordance with this Condition 4.4(b), the provisions of Condition 4.4(g) below shall apply.
If the Issuer, following consultation with the Independent Adviser (if appointed), considers it is necessary to make Benchmark Replacement Conforming Changes, the Issuer shall, in consultation with the Independent Adviser (if appointed), determine the terms of such Benchmark Replacement Conforming Changes, and (subject to Condition 4.4(f) below) shall, subject to giving notice in accordance with Condition 4.4(c) below (but without any requirement for the consent or approval of Noteholders), vary these Conditions and/or the Trust Deed to give effect to such Benchmark Replacement Conforming Changes with effect from the date specified in such notice.
At the request of the Issuer, but subject to receipt by the Trustee of a certificate signed by two authorised signatories of the Issuer pursuant to Condition 4.4(c), the Trustee shall (at the expense of the Issuer), without any requirement for the consent or approval of the Noteholders, be obliged to concur with the Issuerin effecting any Benchmark Replacement Conforming Changes (including, inter alia, by the execution of a deed or an agreement supplemental to or amending the Trust Deed and/or the Agency Agreement (as applicable)) and the Trustee shall not be liable to any party for any consequences thereof, provided that the Trustee shall not be obliged so to concur if in the sole opinion of the Trustee doing so would impose more onerous obligations upon it or expose it to any additional duties, responsibilities or liabilities or reduce or amend rights and/or the protective provisions afforded to the Trustee in these Conditions or the Trust Deed (including, for the avoidance of doubt, any supplemental trust deed) in any way.
In connection with any such variation in accordance with this Condition 4.4(b), the Issuershall comply with the rules of any stock exchange on which the Notes are for the time being listed or admitted to trading.
As used in this Condition 4.4(b):
Benchmark Replacement means the first alternative set forth in the order below that can be determined by the Issuer as of the Benchmark Replacement Date:
Benchmark Replacement Adjustment means the first alternative set forth in the order below that can be determined by the Issuer as of the Benchmark Replacement Date:
the then-current benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated floating rate notes at such time;
Benchmark Replacement Conforming Changes means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to any Interest Period, Interest Accrual Period, the timing and frequency of determining rates and making payments of interest, rounding of amounts or tenors, and other administrative matters) that the Issuer (in consultation with the Independent Adviser, if appointed) decides may be appropriate to reflect the adoption of such Benchmark Replacement in a manner substantially consistent with market practice (or, if the Issuer decides that adoption of any portion of such market practice is not administratively feasible or if the Issuer determines that no market practice for use of the Benchmark Replacement exists, in such other manner as the Issuer (in consultation with the Independent Adviser, if appointed) determines is reasonably necessary);
Benchmark Replacement Date means the earliest to occur of the following events with respect to the Original Reference Rate (including the daily published component used in the calculation thereof):
For the avoidance of doubt, if the event that gives rise to the Benchmark Replacement Date occurs on the same day as, but earlier than (where the Rate of Interest is to be determined pursuant to Condition 4.2(b)(ii)) the Specified Time or (in any other case) the customary or scheduled time for publication of the relevant reference rate in accordance with the then-prevailing operational procedures of the administrator of such reference rate or, as the case may be, of the other relevant information service publishing such reference rate, on, the relevant Interest Determination Date, the Benchmark Replacement Date will be deemed to have occurred prior to such time for such determination;
Benchmark Transition Event means the occurrence of one or more of the following events with respect to the Original Reference Rate (including the daily published component used in the calculation thereof):
at the time of such statement or publication, there is no successor administrator that will continue to provide the Original Reference Rate (or such component); or
(iii) a public statement or publication of information by the regulatory supervisor for the administrator of the Original Reference Rate announcing that the Original Reference Rate is no longer representative;
Compounded SOFR means the compounded average of daily SOFR rates for the applicable Corresponding Tenor, with the rate, or methodology for this rate, and conventions for this rate being established by the Issuerin accordance with: (A) the rate, or methodology for this rate, and conventions for this rate selected or recommended by the Relevant Governmental Body for determining Compounded SOFR; provided that: (B) if, and to the extent that, the Issuer determines that Compounded SOFR cannot be determined in accordance with sub-paragraph (A) above, then the rate, or methodology for this rate, and conventions for this rate that have been selected by the Issuer giving due consideration to any industry-accepted market practice for U.S. dollar-denominated floating rate notes at such time;
Corresponding Tenor means, with respect to a Benchmark Replacement, a tenor (including overnight) having approximately the same length (disregarding business day adjustment) as the applicable tenor for the Original Reference Rate;
Independent Adviser means an independent financial institution of international repute or an independent adviser of recognised standing with appropriate expertise appointed by the Issuer at its own expense and approved in writing by the Trustee;
ISDA Fallback Adjustment means the spread adjustment (which may be a positive or negative value or zero) that would apply for derivatives transactions referencing the ISDA Definitions to be determined upon the occurrence of an index cessation event with respect to the Original Reference Rate;
ISDA Fallback Rate means the rate that would apply for derivatives transactions referencing the ISDA Definitions to be effective upon the occurrence of an index cessation date with respect to the Original Reference Rate for the applicable tenor excluding the applicable ISDA Fallback Adjustment;
Original Reference Rate means the benchmark or screen rate (as applicable) originally specified for the purpose of determining the relevant Rate of Interest (or any relevant component part(s) thereof) on the Notes (provided that if, following one or more Benchmark Transition Events, such originally specified benchmark or screen rate (or any benchmark used in any Benchmark Replacement which has replaced it (the Replacement Benchmark)) has been replaced by a (or a further) Replacement Benchmark and a Benchmark Transition Event subsequently occurs in respect of such Replacement Benchmark, the term "Original Reference Rate" shall be deemed to include any such Replacement Benchmark);
Relevant Governmental Body means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto;
Term SOFR means the forward-looking term rate for the applicable Corresponding Tenor based on SOFR that has been selected or recommended by the Relevant Governmental Body; and
Unadjusted Benchmark Replacement means the Benchmark Replacement excluding the Benchmark Replacement Adjustment.
The Issuer shall notify the Trustee, the Agent, the Calculation Agent (if different from the Agent), the Paying Agents and, in accordance with Condition 18, the Noteholders, promptly of any Successor Rate, Alternative Rate, Adjustment Spread and/or Benchmark Replacement, and the specific terms of any Benchmark Amendments or Benchmark Replacement Conforming Changes (as applicable), determined under this Condition 4.4. Such notice shall be irrevocable and shall specify the effective date of the Benchmark Amendments or Benchmark Replacement Conforming Changes (as applicable), if any.
No later than notifying the Trustee of the same, the Issuer shall deliver to the Trustee a certificate signed by two authorised signatories:
The Trustee shall be entitled to rely on such certificate (without inquiry and without liability to any person) as sufficient evidence thereof. The Successor Rate, Alternative Rate, Benchmark Replacement, Adjustment Spread, Benchmark Amendments and/or Benchmark Replacement Conforming Changes (if any), as applicable, specified in such certificate will (in the absence of manifest error in the determination thereof and without prejudice to the Trustee's ability to rely on such certificate as aforesaid) be binding on the Issuer, the Trustee, the Agent, the Calculation Agent, the Paying Agents and the Noteholders and Couponholders.
(d) Survival of Original Reference Rate
Without prejudice to the Issuer's obligations under the provisions of this Condition 4.4, the Original Reference Rate and the fallback provisions provided for in Conditions 4.2 and 4.3, as applicable, will continue to apply unless and until the Calculation Agent has been notified, in accordance with Condition 4.4(c), of (as the case may be):
An Independent Adviser appointed pursuant to this Condition 4.4 shall act in good faith.
In the absence of bad faith or fraud, neither the Issuer nor any Independent Adviser shall have any liability whatsoever to the Trustee, the Paying Agents, the Agent, the Calculation Agent or the Noteholders or Couponholders for any determination made by the Issuer or the Independent Adviser or (in the case of the Independent Adviser) for any advice given to the Issuer in connection with any determination made by the Issuer pursuant to this Condition 4.4.
Notwithstanding any other provision of this Condition 4.4, the Issuer shall not be required to adopt any Successor Rate, Alternative Rate, Adjustment Spread or Benchmark Replacement, nor to effect any Benchmark Amendments or Benchmark Replacement Conforming Changes, if and to the extent that, in the determination of the Issuer, the same could reasonably be expected either:
In such event, the Issuer shall be entitled to apply the provisions of this Condition 4.4 with such further adjustments as it considers necessary to avoid the consequences described under (i) and/or (ii) above, provided that the Issuer, acting in good faith and in a commercial reasonable manner, has determined that so doing shall not be materially less favourable to Noteholders than failing to apply the provisions of this Condition 4.4 at all.
If, following the occurrence of:
in respect of the Original Reference Rate, on the immediately following Interest Determination Date or Reset Determination Date (as applicable):
then the original benchmark or screen rate (as applicable) will continue to apply for the purposes of determining such Rate of Interest on such Interest Determination Date or Reset Determination Date (as the case may be), with the effect that the fallback provisions provided in Condition 4.2(b) and Condition 4.3(b), as applicable, will continue to apply to such determination.
In such circumstances, the Issuer will be entitled (but not obliged), at any time thereafter, to elect to re-apply the provisions of this Condition 4.4, mutatis mutandis, on one or more occasions until:
have been determined and notified in accordance with this Condition 4.4 (and, until such determination and notification (if any), the fallback provisions provided in Condition 4.2(b) and Condition 4.3(b), as applicable, will continue to apply).
The Issuer's intention is that, in circumstances where the Issuer has been unable to determine (as applicable) (i) a Successor Rate or Alternative Rate (as applicable) and (in either case) the Adjustment Spread or (ii) the Benchmark Replacement pursuant this Condition 4.4, it will elect to re-apply such provisions if and when, in its sole determination, there have been such subsequent developments (whether in applicable law, market practice or otherwise) as would enable the Issuer successfully to apply such provisions and determine (as applicable) (a) a Successor Rate or Alternative Rate (as applicable) and (in either case) the applicable Adjustment Spread and the applicable Benchmark Amendments (if any) or (b) the Benchmark Replacement and the applicable Benchmark Replacement Conforming Changes (if any).
If the Issuer anticipates that a Benchmark Event or a Benchmark Transition Event, as applicable, will or may occur, nothing in these Conditions shall prevent the Issuer (in its sole discretion) from taking, prior to the occurrence of such Benchmark Event or a Benchmark Transition Event, such actions as it considers expedient in order to prepare for applying the provisions of this Condition 4.4 (including, without limitation, appointing and consulting with an Independent Adviser, and seeking to identify any Successor Rate, Alternative Rate, Adjustment Spread, Benchmark Amendments, Benchmark Replacement and/or Benchmark Replacement Conforming Changes, as applicable), provided that no Successor Rate, Alternative Rate, Adjustment Spread, Benchmark Amendments, Benchmark Replacement and/or Benchmark Replacement Conforming Changes will take effect until the relevant Benchmark Event, or the relevant Benchmark Transition Event and its related Benchmark Replacement Date, as applicable, has occurred.
Interest (if any) will cease to accrue on each Note on, but excluding, the due date for redemption thereof unless payment of principal is improperly withheld or refused in which event interest will continue to accrue as provided in the Trust Deed.
In this Condition 4:
Day Count Fraction means, in respect of the calculation of an amount for any period of time in accordance with the applicable Final Terms for any Fixed Rate Note, Reset Note, or Floating Rate Note, as applicable:
(A) if Actual/Actual (ICMA) is specified in the applicable Final Terms:
Day Count Fraction = 360 [360 x (Y2 - Y1)] [30x (M2 - M1)] (D2 - D1)
where:
"Y1" is the year, expressed as a number, in which the first day of the Interest Period falls;
"Y2" is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
"M1" is the calendar month, expressed as a number, in which the first day of the Interest Period falls;
"M2" is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
"D1" is the first calendar day, expressed as a number, of the Interest Period, unless such number is 31, in which case D1 will be 30; and
"D2" is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31 and D1 is greater than 29, in which case D2 will be 30;
(G) if 30E/360 or Eurobond Basis is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
$$
\frac{[360 \times (Y_2 - Y_1)] + [30 \times (M_2 - M_1)] + (D_2 - D_1)}{360}
$$
where:
"Y1" is the year, expressed as a number, in which the first day of the Interest Period falls;
"Y2" is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
"M1" is the calendar month, expressed as a number, in which the first day of the Interest Period falls;
"M2" is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
"D1" is the first calendar day, expressed as a number, of the Interest Period, unless such number would be 31, in which case D1 will be 30; and
"D2" is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31, in which case D2 will be 30; and
(H) if 30E/360 (ISDA) is specified in the applicable Final Terms, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction = 360 [360 x (Y2 - Y1)] [30x (M2 - M1)] (D2 - D1)
where:
"Y1" is the year, expressed as a number, in which the first day of the Interest Period falls;
"Y2" is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
"M1" is the calendar month, expressed as a number, in which the first day of the Interest Period falls;
"M2" is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls;
"D1" is the first calendar day, expressed as a number, of the Interest Period, unless (i) that day is the last day of February or (ii) such number would be 31, in which case D1 will be 30; and
"D2" is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31, in which case D2 will be 30.
and if no Day Count Fraction for Fixed Rate Notes or Reset Notes is specified in the applicable Final Terms then the Day Count Fraction for such Notes shall be Actual/Actual (ICMA) for Notes other than those denominated or payable in U.S. Dollars and 30/360 for Notes denominated or payable in U.S. Dollars;
Determination Period means the period from (and including) a Determination Date to (but excluding) the next Determination Date; and
sub-unit means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, means one cent.
Unless previously redeemed or purchased and cancelled as provided below, each Note will be redeemed at its Final Redemption Amount specified in the applicable Final Terms in the relevant Specified Currency on the Maturity Date specified in the applicable Final Terms.
If the Issuer at any time satisfies the Trustee immediately prior to the giving of the notice referred to below that:
and, in any such case, the Issuer cannot avoid the foregoing by taking reasonable measures available to it, then the Issuer may in its sole discretion (subject, if this Note is a Subordinated Note, to compliance with Condition 5.11 or, if this Note is a Senior Non-Preferred Note, to compliance with Condition 5.12), having given not less than 15 nor more than 30 days' notice to the Trustee, the Agent and, in accordance with Condition 18, the Noteholders (which notice shall be irrevocable), redeem at any time (if this Note is not a Floating Rate Note) or on any Interest Payment Date (if this Note is a Floating Rate Note) all, but not some only, of the Notes at their Early Redemption Amount referred to in Condition 5.8 below, together, if applicable, with interest accrued to (but excluding) the date fixed for redemption. Upon the expiry of such notice, the Issuer shall be bound to redeem the Notes accordingly.
Prior to the publication of any notice of early redemption pursuant to this Condition 5.2, the Issuer shall deliver to the Trustee a certificate signed by any two authorised signatories of the Issuer stating that the relevant requirement or circumstance giving rise to the right to redeem has been satisfied. The Trustee shall be entitled, without liability to any person, to accept and rely on such certificate without any further inquiry as sufficient evidence of the satisfaction of the relevant requirement or circumstance, in which event it shall be conclusive and binding on the Trustee and the Noteholders and Couponholders.
A Tax Event will be deemed to have occurred if, as a result of a Tax Law Change:
As used herein, Tax Law Change means any change in, or amendment to, the laws or regulations of the United Kingdom (including any treaty to which it is a party) or any political subdivision or any authority thereof or therein having power to tax, or any change in the official interpretation thereof by the relevant tax authority or in the application of such laws or regulations by a decision of any court or tribunal that provides for a position with respect to such laws or regulations that differs from the previously generally accepted position in relation to similar transactions or any pronouncement of a tax authority in the United Kingdom, which change or amendment becomes effective or, in the case of a change in law, if such change is enacted by a UK Act of Parliament or by Statutory Instrument, on or after the Issue Date.
This Condition 5.3 applies in respect of Subordinated Notes only.
If a Regulatory Event has occurred, then the Issuer may in its sole discretion, subject to compliance with Condition 5.11, and having given not less than 15 nor more than 30 days' notice to the Trustee, the Agent and, in accordance with Condition 18, the Noteholders (which notice shall be irrevocable), redeem at any time (if this Note is not a Floating Rate Note) or on any Interest Payment Date (if this Note is a Floating Rate Note) all, but not some only, of the Notes at their Early Redemption Amount referred to in Condition 5.8 below, together, if applicable, with interest accrued to (but excluding) the date fixed for redemption. Upon the expiry of such notice, the Issuer shall be bound to redeem the Notes accordingly.
Prior to the publication of any notice of early redemption pursuant to this Condition 5.3, the Issuer shall deliver to the Trustee a certificate signed by any two authorised signatories of the Issuer confirming that a Regulatory Event has occurred. The Trustee shall be entitled, without liability to any person, to accept and rely on such certificate without any further inquiry as sufficient evidence of the satisfaction of such occurrence, in which event it shall be conclusive and binding on the Trustee and the Noteholders and Couponholders.
A Regulatory Event is deemed to have occurred in respect of a Series of Subordinated Notes if there is a change (which has occurred or which the relevant Supervisory Authority considers to be sufficiently certain) in the regulatory classification of such Series of Subordinated Notes which becomes effective after the Issue Date of such Series of Subordinated Notes and that results, or would be likely to result, in:
(i) if "Regulatory Event (Subordinated Notes only): Full Exclusion" is specified in the applicable Final Terms, the entire principal amount of such Series of Subordinated Notes being excluded from the Tier 2 Capital of the Issuer (whether on an individual or consolidated basis); or
(ii) if "Regulatory Event(Subordinated Notes only): Full or Partial Exclusion" is specified in the applicable Final Terms, the entire principal amount of such Series of Subordinated Notes or any part thereof being excluded from the Tier 2 Capital of the Issuer (whether on an individual or consolidated basis).
This Condition 5.4 applies in respect of all Series of Senior Non-Preferred Notes except for any Series where "Senior Non-Preferred Notes: Loss Absorption Disqualification Event Redemption" is expressly specified to be "Not Applicable" in the applicable Final Terms.
If a Loss Absorption Disqualification Event has occurred, then the Issuer may in its sole discretion, subject to compliance with Condition 5.12, and having given not less than 15 nor more than 30 days' notice to the Trustee, the Agent and, in accordance with Condition 18, the Noteholders (which notice shall be irrevocable), redeem at any time (if this Note is not a Floating Rate Note) or on any Interest Payment Date (if this Note is a Floating Rate Note) all, but not some only, of the Notes at their Early Redemption Amount referred to in Condition 5.8 below, together, if applicable, with interest accrued to (but excluding) the date fixed for redemption. Upon the expiry of such notice, the Issuer shall be bound to redeem the Notes accordingly.
Prior to the publication of any notice of early redemption pursuant to this Condition 5.4, the Issuer shall deliver to the Trustee a certificate signed by any two authorised signatories of the Issuer confirming that a Loss Absorption Disqualification Event has occurred. The Trustee shall be entitled, without liability to any person, to accept and rely on such certificate without any further inquiry as sufficient evidence of the satisfaction of such occurrence, in which event it shall be conclusive and binding on the Trustee and the Noteholders and Couponholders.
A Loss Absorption Disqualification Event shall be deemed to have occurred in respect of a Series of Senior Non-Preferred Notes if, as a result of any amendment to, or change in, any Loss Absorption Regulations, or any change in the application or official interpretation of any Loss Absorption Regulations, in any such case becoming effective after the Issue Date of such Series of Senior Non-Preferred Notes, either:
is or (in the opinion of the Issuer or the relevant Supervisory Authority) is likely to be excluded from the Issuer's minimum requirements (whether on an individual or consolidated basis) for (A) own funds and eligible liabilities and/or (B) loss absorbing capacity instruments, in each case as such minimum requirements are applicable to the Issuer (whether on an individual or consolidated basis) and determined in accordance with, and pursuant to, the relevant Loss Absorption Regulations; provided that a Loss Absorption Disqualification Event shall not occur where the exclusion of the Senior Non-Preferred Notes from the relevant minimum requirement(s) is due to the remaining maturity of such Senior Non-Preferred Notes being less than any period prescribed by any applicable eligibility criteria for such minimum requirements under the relevant Loss Absorption Regulations effective with respect to the Issuer on the Issue Date of such Series of Senior Non-Preferred Notes.
As used herein, Loss Absorption Regulations means, at any time, the laws, regulations, requirements, guidelines, rules, standards and policies relating to minimum requirements for own funds and eligible liabilities and/or loss absorbing capacity instruments of the United Kingdom (including, without limitation, any provision of the Insolvency Act or any other Ranking Legislation which relates to the requisite features of Secondary Non-Preferential Debts), any relevant Supervisory Authority and/or of the European Parliament or of the
Council of the European Union then in effect in the United Kingdom and applicable to the Issuer (whether on an individual or consolidated basis) including, without limitation to the generality of the foregoing, any applicable delegated or implementing acts (such as regulatory technical standards) adopted by the European Commission and any regulations, requirements, guidelines, rules, standards and policies relating to minimum requirements for own funds and eligible liabilities and/or loss absorbing capacity instruments adopted by any relevant Supervisory Authority from time to time (whether such regulations, requirements, guidelines, rules, standards or policies are applied generally or specifically to the Issuer).
If so specified in the applicable Final Terms, the Issuer may in its sole discretion (subject, if this Note is a Subordinated Note, to compliance with Condition 5.11 or, if this Note is a Senior Non-Preferred Note, to compliance with Condition 5.12) having given not less than the minimum period nor more than the maximum period of notice specified in the applicable Final Terms to the Noteholders in accordance with Condition 18 (which notice shall be irrevocable), redeem all or some only (as specified in the applicable Final Terms) of the Notes then outstanding on the Optional Redemption Date(s) and at the Optional Redemption Amount(s) as specified in the applicable Final Terms, together, if applicable, with interest accrued to (but excluding) the relevant Optional Redemption Date. Upon expiry of such notice the Issuer shall be bound to redeem the Notes accordingly.
In the event of a redemption of some only of the Notes, such redemption must be for an amount being the Minimum Redemption Amount or a Higher Redemption Amount. In the case of a partial redemption of Notes, the Notes to be redeemed (Redeemed Notes) will be selected individually by lot, in the case of Redeemed Notes represented by definitive Notes, and in accordance with the rules of Euroclear and/or Clearstream, Luxembourg (to be reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor or a reduction in nominal amount, at their discretion), in the case of Redeemed Notes represented by a Global Note, not more than 35 days prior to the date fixed for redemption (such date of selection being hereinafter called the Selection Date). In the case of Redeemed Notes represented by definitive Notes, a list of such Redeemed Notes will be published in accordance with Condition 18 not less than the minimum period specified in the applicable Final Terms prior to the date fixed for redemption. No exchange of the relevant Global Note will be permitted during the period from (and including) the Selection Date to (and including) the date fixed for redemption pursuant to this Condition 5.5 and notice to that effect shall be given by the Issuer to the Noteholders in accordance with Condition 18 at least 15 days prior to the Selection Date.
This Condition 5.6 does not apply to Subordinated Notes.
If and to the extent specified in the applicable Final Terms, upon the holder of this Note giving to the Issuer, in accordance with Condition 18, not less than the minimum period nor more than the maximum period of notice specified in the applicable Final Terms (which notice shall be irrevocable), the Issuer will, upon the expiry of such notice, redeem in whole (but not in part) such Note on the relevant Optional Redemption Date and at the relevant Optional Redemption Amount as specified in the applicable Final Terms, together, if applicable, with interest accrued to (but excluding) the relevant Optional Redemption Date.
If this Note is in definitive form, to exercise the right to require redemption of this Note the holder of this Note must deliver such Note, on any Business Day (as defined in Condition 4.2(a)) falling within the notice period at the specified office of any Paying Agent, accompanied by a duly signed and completed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent (a Put Notice) and in which the holder must specify a bank account (or, if payment is by cheque, an address) to which payment is to be made under this Condition.
If the amount payable in respect of any Zero Coupon Note upon redemption of such Zero Coupon Note pursuant to Condition 5.1, 5.2, 5.3, 5.4, 5.5 or 5.6 above or upon its becoming due and repayable as provided in Condition 10 or Condition 11 (as applicable) is improperly withheld or refused, the amount due and repayable in respect of such Zero Coupon Note shall be the amount calculated as provided in Condition 5.8 below as though the references therein to the date fixed for redemption or the date upon which such Zero Coupon Note becomes due and repayable were replaced by references to the date which is the earlier of:
For the purposes of Conditions 5.2, 5.3 and 5.4 above and Condition 10 (if this Note is a Senior Preferred Note or a Deposit Note) or Condition 11 (if this Note is a Senior Non-Preferred Note or a Subordinated Note), each Note will be redeemed at an amount (the Early Redemption Amount) calculated as follows:
Where such calculation is to be made for a period which is not a whole number of years, it shall be made (i) in the case of a Zero Coupon Note other than a Zero Coupon Note payable in euro, on the basis of a 360 day year consisting of 12 months of 30 days each or (ii) in the case of a Zero Coupon Note payable in euro, on the basis of the actual number of days elapsed divided by 365 (or, if any of
the days elapsed falls in a leap year, the sum of (A) the number of those days falling in a leap year divided by 366 and (B) the number of those days falling in a non-leap year divided by 365).
The Issuer or any of its Subsidiaries (as defined in the Trust Deed) may (subject, if this Note is a Subordinated Note, to compliance with Condition 5.11 and prevailing Regulatory Capital Requirements or, if this Note is a Senior Non-Preferred Note, to compliance with Condition 5.12 and prevailing Loss Absorption Regulations) at any time purchase or otherwise acquire Notes (provided that, in the case of definitive Notes, all unmatured Coupons appertaining thereto are attached thereto or surrendered therewith) in any manner and at any price. Notes purchased by the Issuer or any of its Subsidiaries may, at the option of the Issuer or such Subsidiary, be held, reissued, resold or surrendered for cancellation.
All Notes which are (a) redeemed in full or (b) purchased by or on behalf of the Issuer or any Subsidiary of the Issuer and surrendered for cancellation, will forthwith be cancelled (together with, in the case of definitive Notes, all unmatured Coupons attached thereto or surrendered therewith) and such Notes may not be reissued or resold.
This Condition 5.11 applies to Subordinated Notes only.
Any redemption or purchase of the Subordinated Notes in accordance with Conditions 5.2, 5.3, 5.5 or 5.9 is subject to:
of the determination that it would be beneficial from a prudential point of view and justified by exceptional circumstances; or
(D) the Subordinated Notes being purchased for market-making purposes in accordance with the prevailing Regulatory Capital Requirements.
Notwithstanding the foregoing, if, at the time of any redemption or purchase, the prevailing Regulatory Capital Requirements permit a repayment or purchase only after compliance with one or more additional or alternative preconditions to those set out above in this Condition 5.11, the Issuer shall comply (in addition or in the alternative, as the case may be) with such additional and/or alternative precondition(s).
In these Terms and Conditions, Relevant Supervisory Consent means, in relation to any action, such permission or waiver of the relevant Supervisory Authority as is then required for such action under prevailing Regulatory Capital Requirements and/or Loss Absorption Regulations, as the case may be.
This Condition 5.12 applies to Senior Non-Preferred Notes only.
Any redemption, purchase, substitution or variation of Senior Non-Preferred Notes in accordance with Conditions 5.2, 5.4, 5.5, 5.6, 5.9 or 5.13 is subject to:
This Condition 5.13 applies to each Series of Senior Non-Preferred Notes unless "Senior Non-Preferred Notes: Substitution and Variation" is expressly specified to be "Not Applicable" in the applicable Final Terms.
Upon the occurrence of a Loss Absorption Disqualification Event in respect of a Series of Senior Non-Preferred Notes, the Issuer (in its sole discretion but subject to Condition 5.12), having given notice of not more than 30 days nor less than 15 days prior to the date of substitution or variation (as the case may be) to the Trustee and, in accordance with Condition 18, the Noteholders (which notice shall be irrevocable and shall specify the date fixed for substitution or variation, as applicable) may, without any requirement for the consent or approval of the Noteholders or Couponholders, either substitute all (but not some only) of the Senior Non-Preferred Notes of such Series for, or vary the terms of the Senior Non-Preferred Notes of such Series so that they remain or, as appropriate, become, Loss Absorption Compliant Notes. Upon the expiry of the notice referred to above, the Issuer shall either substitute or, as the case may be, vary the terms of the relevant Senior Non-Preferred Notes and, subject as set out below, the Trustee shall agree to such substitution or variation.
In connection with any substitution or variation in accordance with this Condition 5.13, the Issuer shall comply with the rules of any stock exchange on which the relevant Senior Non-Preferred Notes are for the time being listed or admitted to trading.
Any substitution or variation in accordance with this provision is subject to the following conditions:
The Trustee shall, subject to the Issuer's compliance with the foregoing conditions and the provision of the certificate signed by two authorised signatories of the Issuer as referred to in the definition of Loss Absorption Compliant Notes, and at the expense and cost of the Issuer, use reasonable endeavours to assist the Issuer in any substitution or variation of the relevant Senior Non-Preferred Notes in accordance with this provision, except that the Trustee shall not be obliged to assist in any such substitution or variation if either such substitution or variation itself or the terms of the proposed Loss Absorption Compliant Notes would, in the Trustee's opinion, impose more onerous obligations upon it or expose the Trustee to any additional duties, responsibilities or liabilities in any material respect or reduce or amend the protective provisions afforded to the Trustee in these Conditions or the Trust Deed (including, for the avoidance of doubt, any supplemental trust deed) in any material respect.
In connection with any such substitution or variation, the Trustee may rely without liability to any Noteholders or Couponholders on a report, confirmation, certificate or any advice of any accountants, financial advisers, financial institutions or any other experts, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation, certificate or advice and such report, confirmation, certificate or advice shall be binding on the Issuer, the Trustee and the Noteholders and Couponholders.
In these Terms and Conditions:
EEA regulated market means a market as defined by Article 4.1(21) of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments, as amended;
Loss Absorption Compliant Notes means securities that comply with the following (which compliance has been certified to the Trustee in a certificate signed by two authorised signatories of the Issuer and delivered to the Trustee prior to the relevant substitution or variation):
Rating Agency means any of S&P Global Ratings Europe Limited, Moody's Investors Service Limited and Fitch Ratings Ltd. and each of their respective affiliates or successors.
Subject as provided below:
Payments will be subject in all cases to (i) any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 9, and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the Code) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or any law implementing an intergovernmental approach thereto.
Subject as provided below, payments of principal and interest (if any) in respect of definitive Notes (if issued) will be made against presentation and surrender of definitive Notes or Coupons, as the case may be, at any specified office of any Paying Agent.
Payments of principal and interest (if any) in respect of Notes represented by any Global Note will (subject as provided below) be made in the manner specified above in relation to definitive Notes or otherwise in the manner specified in the relevant Global Note, where applicable against presentation or surrender, as the case may be, of such Global Note, at the specified office of any Paying Agent. A record of each payment made, distinguishing between any payment of principal and any payment of interest, will be made either on such Global Note by the Paying Agent to which it was presented or in the records of Euroclear and Clearstream, Luxembourg, as applicable.
The holder of the relevant Global Note (or, as provided in the Trust Deed, the Trustee) shall be the only person entitled to receive payments in respect of Notes represented by such Global Note and the Issuer will be discharged by payment to, or to the order of, the holder of such Global Note (or the Trustee, as the case may be) in respect of each amount so paid. Each of the persons shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular nominal amount of Notes represented by such Global Note must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for his share of each payment so made by the Issuer to, or to the order of, the holder of the relevant Global Note (or the Trustee, as the case may be). No person other than the holder of the relevant Global Note (or, as provided in the Trust Deed, the Trustee) shall have any claim against the Issuer in respect of any payments due on that Global Note.
Notwithstanding the foregoing:
Fixed Rate Notes in definitive form should be presented for payment together with all unmatured Coupons appertaining thereto (which expression shall include Coupons falling to be issued on exchange of matured Talons).
If a Fixed Rate Note (other than a Subordinated Note or a Senior Non-Preferred Note) is presented without all unmatured Coupons relating thereto, then:
Each amount of principal so deducted will be paid in the manner mentioned above against surrender of the relevant missing Coupon at any time before the expiry of ten years after the Relevant Date (as defined in Condition 9) in respect of such principal (whether or not such Coupon would otherwise have become void under Condition 12) or, if later, five years from the date on which such Coupon would otherwise have become due.
Upon any Fixed Rate Note becoming due and repayable prior to its Maturity Date, all unmatured Talons (if any) appertaining thereto will become void and no further Coupons will be issued in respect thereof.
Upon the due date for redemption of any Floating Rate Note, Reset Note or Subordinated Note or Senior Non-Preferred Note which is also a Fixed Rate Note in definitive form, all unmatured Coupons and Talons (if any) relating to such Note (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons shall be made in respect thereof.
If any date for payment of any amount in respect of any Note or Coupon is not a Payment Day (as defined below), then the holder thereof shall not be entitled to payment of the relevant amount due until the next following Payment Day and shall not be entitled to any interest or other sum in respect of any such delay.
In this Condition, Payment Day means:
(c) either (A) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (which if the Specified Currency is Australian dollars or New Zealand dollars shall be Sydney or Auckland, respectively) or (B) in relation to any sum payable in euro, a day on which the TARGET2 System is open.
If the due date for redemption of any interest bearing Note in definitive form is not a due date for the payment of interest relating thereto, interest accrued in respect of such interest bearing Note from (and including) the last preceding due date for the payment of interest (or from (and including) the Interest Commencement Date, as the case may be) will be paid only against surrender of such interest bearing Note.
Any reference in these Terms and Conditions to "principal" in respect of the Notes shall be deemed to include, as applicable:
Any reference in these Terms and Conditions to "interest" in respect of the Notes shall be deemed to include, as applicable, any additional amounts which may be payable with respect to interest under Condition 9 or pursuant to any undertakings given in addition thereto or in substitution therefor pursuant to the Trust Deed.
On and after the Interest Payment Date or the Fixed Interest Date (as appropriate) on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of the Agent or any other Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to (and including) the final date for the payment of interest due in respect of the Note to which it appertains) a further Talon, subject to the provisions of Condition 12.
The name of the initial Agent and its initial specified office are set out below. If any additional Paying Agents are appointed in connection with any Series, the names of such Paying Agents will be specified in Part B of the applicable Final Terms. In the event of the appointed office of any such bank being unable or unwilling to continue to act as the Agent, or failing duly to determine the Rate of Interest, if applicable, or to calculate the Interest Amounts for any Interest Accrual Period, the Issuer shall appoint the London office of such other bank as may be approved by the Trustee to act as such in its place. The Agent may not resign its duties or be removed from office without a successor having been appointed as aforesaid.
The Issuer may, with the prior approval of the Trustee, vary or terminate the appointment of any Paying Agent and/or appoint additional or other Paying Agents and/or approve any change in the specified office through which any Paying Agent acts provided that the Issuer will, so long as any of the Notes is outstanding, maintain:
In addition, the Issuer shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in subparagraph (b) of the fourth paragraph of Condition 6.2.
Notice of any such variation, termination, appointment or change will be given by the Issuer to the Noteholders in accordance with Condition 18.
All payments of principal and interest (if any) in respect of the Notes and Coupons by or on behalf of the Issuer shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatsoever nature imposed, or levied by or on behalf of the United Kingdom or any political subdivision thereof or by or on behalf of any authority thereof or therein having power to tax, unless the withholding or deduction for, or on account of, such taxes, duties, assessments or governmental charges is required by law. In that event, the Issuer will:
pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders or, as the case may be, Couponholders after such withholding or deduction shall equal the respective amounts of (in the case of Notes falling within (i) above only) principal and (in the case of any Notes) interest (if any) which would have been receivable in respect of the Notes or, as the case may be, Coupons in the absence of such withholding or deduction; except that no such additional amount shall be payable in respect of any Note or Coupon:
Notwithstanding any other provision of these Terms and Conditions, in no event will additional amounts be payable by (or on behalf of) the Issuer under this Condition 9 or otherwise in respect of any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the Code or otherwise imposed pursuant to Sections 1471 through 1474 of the Code (or any regulations or agreements thereunder or any official interpretations thereof) or an intergovernmental agreement between the United States and another jurisdiction facilitating the implementation thereof or any law implementing such an intergovernmental agreement.
As used herein, the Relevant Date means the date on which the relevant payment in respect of the Note or Coupon first becomes due and payable but, if the full amount of the moneys payable on such date has not been received by the Agent or the Trustee on or prior to such due date, the Relevant Date means the date on which such moneys shall have been so received and notice to that effect shall have been given to the Noteholders in accordance with Condition 18.
For the avoidance of doubt, if this Note is a Subordinated Note or a Senior Non-Preferred Note, the Issuer will not pay any additional amounts under this Condition 9 in respect of principal of this Note.
This Condition 10 applies only if this Note is a Senior Preferred Note or a Deposit Note, and references in this Condition 10 to "Notes" shall be construed accordingly.
course of its business) for any indebtedness in respect of moneys borrowed or raised; or
Principal Subsidiary means a Subsidiary of the Issuer whose total assets (attributable to the Issuer) represent 10 per cent. or more of the consolidated total assets of the Issuer and its Subsidiaries (all as more particularly described in the Trust Deed). A certificate signed by two Authorised Signatories (as defined in the Trust Deed) that in their opinion a Subsidiary of the Issuer is or is not or was or was not at any particular time or throughout any specified period a Principal Subsidiary may be relied upon by the Trustee without further inquiry or evidence and, if so relied upon, shall, in the absence of manifest or proven error, be conclusive and binding on all parties.
This Condition 11 applies only if this Note is a Senior Non-Preferred Note or a Subordinated Note, and references in this Condition 11 to "Notes" shall be construed accordingly.
same would otherwise have been payable by it pursuant to these Terms and Conditions and the Trust Deed, nor will the Trustee accept the same, otherwise than during or after a winding up or dissolution of the Issuer.
Claims for payment of principal in respect of the Notes shall become void upon the expiry of ten years, and claims for payment of interest (if any) in respect of the Notes shall become void upon the expiry of five years, in each case from the Relevant Date therefor, subject to the provisions of Condition 6.
The Trust Deed contains provisions for convening meetings of Noteholders (or, as the case may be, the holders of Notes of more than one Series) to consider any matter affecting their interests, including the modification by Extraordinary Resolution of these Terms and Conditions or the provisions of the Trust Deed. Any such meeting may be held as physical meeting or may instead be held by way of audio or video conference call.
The quorum at any such meeting to consider an Extraordinary Resolution will be one or more persons holding or representing a clear majority of the nominal amount of the Notes for the time being outstanding, or at any adjourned meeting one or more persons being or representing Noteholders whatever the nominal amount of the Notes for the time being outstanding so held or represented, except that at any meeting, the business of which includes the modification of certain of these Terms and Conditions or provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one or more persons holding or representing not less than two-thirds, or at any adjourned such meeting not less than one-third, of the nominal amount of the Notes for the time being outstanding.
The Trust Deed provides that (i) a resolution passed at a meeting duly convened and held in accordance with the Trust Deed by a majority consisting of not less than three-fourthsof the votes cast on such resolution, (ii) a resolution in writing signed by or on behalf of the holders of not less than three-fourths in nominal amount of the Notes for the time being outstanding or (iii) consent given by way of electronic consents through the relevant clearing system(s) (in a form satisfactory to the Trustee) by or on behalf of the holders of not less than threefourths in nominal amount of the Notes for the time being outstanding, shall, in each case, be effective as an Extraordinary Resolution of the Noteholders. An Extraordinary Resolution passed at any meeting of Noteholders will be binding on all Noteholders, whether or not they are present at the meeting, and on all Couponholders.
The Trust Deed provides that the Trustee may agree, without the consent of the Noteholders or Couponholders, to any modification (subject to certain exceptions) of, or to the waiver or authorisation of any breach or proposed breach of, any of these Terms and Conditions or any of the provisions of the Trust Deed which is not, in the opinion of the Trustee, materially prejudicial to the interests of the Noteholders or to any modification which is of a formal, minor or technical nature or which is made to correct a manifest error. In addition, the Trustee shall be obliged to concur with the Issuer in effecting any Benchmark Amendments or Benchmark Replacement Conforming Changes in the circumstances and as otherwise set out in Condition 4.4 without the consent of the Noteholders or Couponholders. Any such modification, waiver or authorisation shall be binding on the Noteholders and Couponholders and, unless otherwise agreed by the Trustee, any such modification shall be notified to the Noteholders as soon as practicable thereafter in accordance with Condition 18.
In connection with the exercise by it of any of its trusts, powers or discretions (including, without limitation, any modification, waiver, authorisation or substitution), the Trustee shall have regard to the interests of the Noteholders as a class and, in particular but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers or discretions for individual Noteholders or Couponholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer, or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders except to the extent already provided for in Condition 9 and/or any undertaking given in addition to, or in substitution for, Condition 9 pursuant to the Trust Deed.
inquiry as sufficient evidence thereof, in which event it shall be conclusive and binding on the Trustee and all Noteholders and Couponholders); and
made by HM Treasury under section 3 of the 2007 Act (or any successor provisions thereto)), the relevant transferee; or
(iii) (in respect of an alteration in the status of the Issuer by virtue of any statute or statutory provision which alters, or permits the alteration of, the status of building societies generally or building societies which meet specified criteria to another type of body authorised under the FSMA or to a body which is regulated on a similar basis to an authorised person under the FSMA), the resulting authorised person under the FSMA or, as the case may be, the resulting body which is regulated on a similar basis to an authorised person under the FSMA.
In circumstances other than a Permitted Reorganisation, and subject as provided in the Trust Deed, the Trustee, if it is satisfied that so to do would not be materially prejudicial to the interests of the Noteholders, may agree, without the consent of the Noteholders or Couponholders, to the substitution of any successor in business of the Issuer or of a Subsidiary of the Issuer or any such successor in business in place of the Issuer as principal debtor under the Notes and the Trust Deed in respect of the Notes, provided (in case of the substitution of any company which is a Subsidiary of the Issuer or such successor in business) that the obligations of such Subsidiary in respect of the Notes and the Trust Deed in respect thereof shall be guaranteed by the Issuer or such successor in business in such form as the Trustee may require.
This Condition 14.3 applies only if this Note is a Subordinated Note or a Senior Non-Preferred Note, and references in this Condition 14.3 to Notes shall be construed accordingly.
The Issuer has covenanted with the Trustee in the Trust Deed that if it transfers its business to a company (the Transferee Company) within the meaning of the Companies Act 2006 as amended (or any successor thereto or re-enactment thereof) or to a body corporate which is incorporated in an European Economic Area (EEA) state (other than the United Kingdom) pursuant to Section 97 of the Act or pursuant to an order made under section 3 of the 2007 Act then, upon such transfer becoming effective:
rights of the holders of Senior Non-Preferred Notes may rank pari passu with any Secondary Non-Preferential Debts in respect of the Transferee Company or any other claims which rank, or are expressed to rank, pari passu therewith);
and containing such other provisions as the Trustee (having regard in particular to the foregoing) may reasonably require; provided that no variation or supplement to the terms of the Trust Deed or of these Terms and Conditions shall be made in any such supplemental deed which would or might cause:
Any substitution pursuant to this Condition 14 shall be binding on the Issuer, the Trustee, the Noteholders and the Couponholders and, unless the Trustee agrees otherwise, shall be notified to the Noteholders as soon as practicable thereafter in accordance with Condition 18.
The Issuer is at liberty from time to time without the consent of the Trustee, the Noteholders or Couponholders to create and issue further notes ranking equally in all respects (or in all respects save for the date for and the amount of the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding Notes of a particular Series.
If a Note (including any Global Note), Coupon or Talon is mutilated, defaced, destroyed, stolen or lost it may be replaced at the specified office of the Agent in London, or any other place approved by the Trustee of which notice shall have been published in accordance with Condition 18, on payment of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes, Coupons or Talons must be surrendered before replacements will be issued.
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility in certain circumstances including provisions relieving it from instituting proceedings to enforce repayment unless indemnified and/or secured and/or prefunded to its satisfaction. The Trustee is entitled to enter into business transactions with the Issuer or any Subsidiary of the Issuer without accounting for any profit resulting therefrom.
Subject to the following paragraph, all notices regarding the Notes will be valid if published in the Financial Times or any other daily newspaper in London approved by the Trustee. The Issuer shall also ensure that all notices are duly published in a manner which complies with the rules and regulations of any listing authority, stock exchange and/or quotation system on which the Notes have then been admitted to listing, trading, and/or quotation (including publication on the website of the relevant stock exchange or relevant authority if required by those rules and regulations). Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the date of the first publication in all the required newspapers. If publication as aforesaid is not practicable, notices will be valid if given in such other manner and shall be deemed to have been given on such date as the Issuer and the Trustee may determine. Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this Condition 18.
Until such time as any definitive Notes are issued, there may, so long as any Global Note is held in its entirety on behalf of Euroclear and/or Clearstream, Luxembourg and/or any other clearing system approved by the Trustee, be substituted for such publication as aforesaid the delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg and/or such other clearing system (as the case may be) for communication by them to the Noteholders. Any such notice shall be deemed to have been given to the Noteholders on the day on which the said notice was given to Euroclear and/or Clearstream, Luxembourg and/or such other clearing system, as appropriate.
Notices to be given by any Noteholder shall be in writing and given by lodging the same, together with the relative Note or Notes, with the Agent. Whilst any of the Notes are represented by a Global Note, such notice may be given by any Noteholder to the Agent via Euroclear and/or Clearstream, Luxembourg and/or any other clearing system approved by the Trustee in which the relevant Notes are cleared, as the case may be, in such manner as the Agent and Euroclear and/or Clearstream, Luxembourg and/or such other clearing system, as the case may be, may approve for this purpose.
The Trust Deed, the Notes, the Coupons and the Talons and any non-contractual obligations arising out of or in connection with them are governed by, and will be construed in accordance with, English law.
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.
(i) the effect of the exercise of the UK Bail-in Power by the Resolution Authority, that may include and result in (without limitation) any of the following, or some combination thereof:
(A) the reduction of all, or a portion, of the Amounts Due;
applicable in the United Kingdom to the Issuer or other members of its group, including but not limited to any such laws, regulations, rules or requirements that are implemented, adopted or enacted within the context of a resolution regime in the United Kingdom under the Banking Act 2009 and/or the Loss Absorption Regulations, in each case as amended from time to time; and
(iv) references in this Condition 21 to any Note or Noteholder shall be deemed to include reference to any Coupon or Couponholder, respectively, where the context admits.
The net proceeds from each issue of Notes will be applied for general purposes of the Issuer including without limitation, making mortgage advances on private residential property located in the United Kingdom and making a profit, or as otherwise specified in the applicable Final Terms in respect of any Notes.
Notes may be issued as Sustainable Notes and the applicable Final Terms will indicate if the Notes are intended to constitute Sustainable Notes.
The Issuer intends to allocate an amount equal to the net proceeds from any issue of Sustainable Notes to advance loans to the Issuer's customers on a targeted basis for the purposes of the financing and/or refinancing by such customers of Eligible Sustainable Projects, in line with any sustainability framework the Issuer may publish from time to time. See the risk factor entitled "In respect of any Notes issued as Sustainable Notes, there can be no assurance that such use of proceeds will be suitable for the investment criteria of an investor" above.
The Society is a building society, incorporated in England and Wales under the United Kingdom Building Societies Act 1986, as amended, and authorised by the PRA and regulated by the FCA in relation to conduct of business matters and by the PRA in relation to prudential requirements. The Society's FCA Mutuals Public Register Number is 355B. The principal office of the Society is Nationwide Building Society, Nationwide House, Pipers Way, Swindon, SN38 1NW (phone number +44 (0) 1793 656 363). The Society is the largest buildin g society in the United Kingdom in terms of total assets, with £248 billion of assets as at 4 April 2020. The Society has approximately 663 branches and over 16 million customers as at the date of this Base Prospectus.
The Society's core business is providing personal financial services, including:
In addition, the Society maintains a portfolio of debt securities for its own account for liquidity management purposes.
The Society is currently the fourth largest household savings provider and the second largest provider of residential mortgages in the United Kingdom, with estimated market shares of approximately 9.9 per cent. (as calculated by the Society based on BoE data) and 12.9 per cent. (according to BoE data), respectively as at 4 April 2020.
As a mutual organisation, the Society is managed for the benefit of its members, who are primarily its current account, retail savings and residential mortgage customers. The main focus of the Society is serving its members' interests while retaining sufficient profit to increase and further develop its business and meet regulatory requirements. The Society returns value to its members by offering typically higher interest rate s on savings and lower interest rates on loans than those offered by its main competitors. As a result of returning value to its members, the Society earns lower pre-tax profits than its main competitors, which are typically banks or other non-mutual organisations.
The information contained in this section headed "Description of the Society" has been provided by the Society and other sources identified in this section. Any information provided by a third party has been accurately reproduced and as far as the Society is aware and is able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading .
The Society benchmarks its products and performance against a group of leading retail banks operating in the UK (Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander UK and TSB) and seeks to offer more consistent long-term good value on savings and prime mortgages than is offered by this peer group. In addition to returning value to members through its competitive products, the Society believes that it provides better service to its customers than that offered by most of its competitors and this is a key component of the Society's strategy.
As a mutual, owned by its members, the Society is driven by a strong sense of social purpose, based on its history and founding principles. As the Society exists primarily for the benefit of its members, the Society organises itself around their needs, as the Society sets out in its Society "Plan" at the start of the financial year. 'Building society, nationwide' describes its purpose, which is to grow the Society in a sustainable way that benefits its members, customers, colleagues, and society more generally.
The Society's strategy is founded upon a rigorous evaluation of its strengths and an assessment of the way in which the financial services industry has evolved in recent years. The Society has engaged its members through live 'talkbacks', suggestion schemes and through its 5,000 strong online 'member connect' community.
The Society's focus on mortgages and savings remains as relevant today as it was when it was founded in the 19th century. Additionally, it believes that increasing the size of its current account base remains a logical extension of its purpose by fulfilling its members' day to day financial needs and strengthening their mutual relationship. The Society intends to continue to offer a broad range of financial services that complement its core products of mortgage, savings and current accounts.
The Society's core purpose is 'building society, nationwide' and it has defined the following five interconnected cornerstones which support its purpose and strategy. Its strategic targets and key performance indicators have also been reviewed and amended in line with the strategy and are re-assessed at least annually to ensure they remain relevant to the Society in achieving the required outcomes.
The Society believes that its members want it to keep their money safe by being secure and dependable and that they want the Society to be built to last by:
As a member-owned mutual organisation, the Society aims to make the right level of profit to maintain its financial strength and invest for the future, and the Society balances these longer-term priorities with delivering value to its members through better rates, incentives and propositions. In recent years, the Society's financial performance framework has focused on parameters that have allowed it to calibrate future performance with a view to achieving the right balance between distributing value to its members, investing in its business and maintaining its financial strength, including a target profitability range that would enable sustainable capital strength. From March 2020 onwards, there have been material impacts to the Society's financial performance in relation to Covid-19, following the bank base rate reductions and as the UK enters a more uncertain economic environment. The outbreak of Covid-19, and the global response to it, has materially impacted the economic environment in which the Society operates. Upon publication on 29 May 2020 of its preliminary results for the financial year ended 4 April 2020, the Society announced that it considers that the financial performance framework which has guided its decisions in the past is no longer appropriate in the current environment, and that it is instead focusing on maintaining strong capital and liquidity positions through the economic cycle. Similarly, the prospect of historically low interest rates remaining for the foreseeable future, means that the Society is unlikely to return the levels of member financial benefit it has seen in recent years.
The Society's financial performance is supported by its continued focus on efficiency. The Society intends to continue to put its members and their money first by making careful choices on how best to allocate its resources. Whilst cost income ratio has previously been the Society's main measure of efficiency, the Society introduced sustainable cost savings targets in 2017. The Society's continued focus on efficiency has now delivered over £400 million of sustainable run rate cost savings since the introduction of its efficiency programme, with £90 million of sustainable cost saves delivered in the financial year ended 4 April 2020.
PRIDE is the internal symbol of the Society's culture and values. It guides the Society to serve its members to the best of its ability and support its people in doing the right thing. PRIDE means:
And in delivering on these values, the Society equips its people by:
The Society is, and intends to remain, one of the UK's best places to work, which is in keeping with its mutual ethos of care, which is the backbone behind the service its members receive. The Society acknowledges the importance of reflecting the diversity of the wider communities it serves. Creating an awareness of its philosophy and approach to wellbeing, inclusion and diversity will be a focus for 2020/21 as the Society looks to embed its diversity measures to address its workforce diversity challenges and empower its people to take care of their wellbeing. Having engaged and enabled employees is a key source of competitive advantage as the Society strives to have industry leading levels of customer satisfaction and grow its business. The Society measures engagement and enablement through ViewPoint, conducted by Karin & Box.
In light of the Covid-19 pandemic, the Society is conscious there is the potential for a great deal of anxiety for its employees about health and livelihoods. To reduce anxiety, and in line with its values, the Society has introduced a number of promises to its employees including, notably, a commitment not to make any compulsory redundancies during 2020.
The Society's ambition is for members to experience its service as heartfelt, easy, lifelong and personal. It aims to have industry leading service levels by:
• delivering on members' expectations by getting it right first time.
The Society believes that delivering leading levels of member satisfaction is a key point of differentiation to its peers and an important driver in helping to grow its membership. The Society measures its service satisfaction performance using an independent survey conducted by market research experts, Ipsos Mori. Its performance is currently benchmarked against a peer group of high street competitors with a main current account market share greater than 3.5 per cent. To ensure that the Society continues to focus on its members' satisfaction and to further support the Society in its core purpose: 'building society, nationwide', the Society set a strategic target for the year ending 4 April 2021 to be first for customer satisfaction with a lead of at least 4 per cent. over the next best competitor within its peer group. With the significant consumer shift towards the use of digital channels, the Society aims to have 60 per cent. of its members using its mobile app in the future.
The Society also compares itself to the top companies for customer service across all sectors using the UK Customer Service Index (UK CSI); the Society has a strategic target to be in the top five in all sectors and in the latest survey (July 2020), it ranked second.
Supporting its members through the Covid-19 pandemic is a priority for the Society. It has a long-established specialist support team to help members through times of hardship and has introduced a range of measures in response to the present outbreak to help members experiencing financial difficulty, including payment holidays on mortgages, credit cards and loans, overdraft interest holidays, and penalty-free access to fixed term savings accounts. The Society will continually review the support it can offer its members through the challenges presented by the pandemic.
The Society can help its members to achieve their goals, whether home ownership or saving for the future and the Society will deliver real value to its membership by:
Growing its base of committed members allows the Society to bring the benefits of mutuality to a wider population. A committed member is one who holds at least two engaged membership products with the Society (current account, £1,000 in savings or a mortgage with a balance greater than £5,000) or one engaged membership product plus either a personal loan, credit card, home insurance, or an investment and protection product. The Society aims to have 4 million committed members by 2022. As at 4 April 2020 the Society had 3.6 million committed members, up from 3.4 million as at 4 April 2019 and 3.2 million as at 4 April 2018.
The Society is offering members facing financial difficulty from the Covid-19 pandemic payment holidays on mortgages, loans and credit cards, and interest-free periods on overdrafts. For members who have fallen into arrears because of the financial impact of Covid-19 and who continue to work with the Society to help get their mortgage back on track, the Society has also committed not to take any action to repossess their homes before 31 May 2021.
The Society's ambition is to be considered a 'national treasure' in British society, in particular for its members and for the public to trust it and to believe that the Society makes a difference to people's lives. The Society intends to strengthen its position as one of the most respected organisations in the UK by:
The Society's brand is the sum of how its members and others perceive them. A strong brand, effective both in digital and traditional media, is essential to attract new members. Amongst non-customers, in the year ended 28 August 2020, the Society was top for prompted brand consideration (with a lead of 7.0 percentage points) and first for trust (4.3 per cent. ahead of its nearest peer)2 . For the year ending 4 April 2021, the Society's strategic targets are to continue to lead in both measures.
As a business originating from a social purpose and run with mutuality at its heart, the Society considers responsible governance and a focus on social and environmental betterment to be embedded in its core purpose. To enhance governance and the Society's approach to responsible business, the Society has established a Responsible Business Committee, and made a commitment to the UN Sustainable Development Goals (SDGs). The Society has also taken steps to better manage the risks posed by climate change, reduce its own climate impact and make available a £1 billion loan fund for preferential rate mortgages and additional borrowing for new energy efficient properties and green home improvements.
Building societies have existed in the United Kingdom for over 200 years. From the outset, they were community-based, cooperative organisations created to help people purchase homes. The main characteristic of building societies is their mutual status, meaning that they are owned by their members, who are primarily retail savings and residential mortgage customers. The Society's origins date back to the Southern Co-operative Permanent Building Society (1884). Over time, this entity merged with similar organisations to create Nationwide Building Society.
Over the past 30 years, many building societies have merged with other building societies or demutualised and transferred their businesses to existing or specially formed banks. As a result, the number of building societies in the United Kingdom has fallen dramatically over the same period. One consequence of this decrease is that the majority of the Society's competitors are banks. The Society believes that its mutual status allows it to compete successfully with banks, and it is the strategy of the Society to remain a building society.
2 Source: Nationwide Brand Guidance Study – compiled by Independent Research Agency, based on responses of non-customers of each brand (12 months ending 28th August 2020). Financial brands included Nationwide, Barclays, Co-operative Bank, First Direct, Halifax, HSBC, Lloyds, NatWest, TSB and Santander. For 'prompted brand consideration' data includes consumer responses of 'first choice' or 'seriously considered' brand.
In 1997, when many of the competitors of the Society that were building societies demutualised, the Society experienced a sharp increase in the number of new United Kingdom member retail savings accounts. It believes that many of these accounts were opened because customers expected the Society to demutualise and wanted to receive any associated windfall distributions. At its annual general meeting in 1998, its members voted against a proposal to demutualise and no subsequent motion to demutualise has since been proposed at a general meeting of the Society. In order to prevent the disruption caused by speculative account opening, the Society has generally required all new members opening accounts after November 1997 to assign to charity any windfall benefits which they might otherwise have received as a result of a future demutualisation. As such, a majority of members would not benefit personally from either a demutualisation or takeover of Nationwide, significantly lessening the incentive to vote for demutualisation or any proposed takeover of the Society by a competitor which is incorporated as a limited liability company.
The Society has been involved in a number of mergers and acquisitions in recent years. It merged with Portman Building Society in August 2007 and with Cheshire Building Society and Derbyshire Building Society in December 2008. In March and June 2009, it also acquired selected assets and liabilities of Dunfermline Building Society. It believes these developments have added value to the Society, improved its distribution footprint, helped to grow the membership and are a testament to the strength of the Society and its ability to provide support to other building societies.
During the year ended 4 April 2017 and in line with its core purpose of 'building society, nationwide', the Society decided to exit its offshore deposit taking business in the Isle of Man and also announced the closure of its Republic of Ireland branch operations. In addition, the Society ceased to advance new commercial loans as it has determined that the commercial lending business is no longer a good fit with its core purpose.
The Society is the principal holding entity of the Group and the main business of the Group is conducted by the Society. The Society's interests in its principal subsidiary undertakings, all of which are consolidated, as at 4 April 2020 are set out below:
| 100% held subsidiary undertakings | Nature of business |
|---|---|
| Nationwide Syndications Limited | Syndicated lending |
| The Mortgage Works (UK) plc | Centralised mortgage lender |
| Derbyshire Home Loans Limited | Centralised mortgage lender |
| E-Mex Home Funding Limited | Centralised mortgage lender |
| UCB Home Loans Corporation Limited | Centralised mortgage lender |
All the above subsidiary undertakings are limited liability companies which are registered in England and Wales and operate in the UK and, with the exception of Nationwide Syndications Limited, they are all regulated entities.
Nationwide Syndications Limited is a wholly owned mortgage lender specialising in syndicated comme rcial loans to registered social landlords (RSL). Nationwide Syndications Limited has ceased to offer new lending.
The Mortgage Works (UK) plc (TMW) is a wholly owned centralised mortgage lending subsidiary, specialising mainly in residential BTL lending to individuals. As at 4 April 2020, it had mortgage assets of £34.0 billion, with net lending for the year ended 4 April 2020 at £5.3 billion.
Each of Derbyshire Home Loans Limited, E-Mex Home Funding Limited (E-Mex) and UCB Home Loans Corporation Limited (UCB) is a wholly owned subsidiary that has ceased to offer new lending.
The Society also has interests in structured entities. A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are consolidated when the substance of the relationship indicates control.
| Group undertaking | Nature of business | Country of registration | Country of operation |
|---|---|---|---|
| Nationwide Covered Bonds LLP |
Mortgage acquisition and guarantor of covered bonds |
England and Wales | UK |
| Silverstone Master Issuer plc |
Funding vehicle | England and Wales | UK |
| Silverstone Funding No. 1 Limited |
Funding vehicle | England and Wales | UK |
The table below provides details of these entities as at 4 April 2020.
The Society's retail business aims to offer its customers a full range of personal financial services products comprising residential mortgage lending, a range of savings products as well as investments and general insurance solutions, both directly and through intermediary sales channels.
The vast majority of the lending portfolio of the Society consists of United Kingdom residential mortgage loans to individuals. These loans are secured on the residential property of the borrower on terms which allow for repossession and sale of the property if the borrower breaks the terms and conditions of the loan. This lending can take the form of either prime residential lending (where the borrower is the owner and occupier of the mortgaged property and meets the Society's credit requirements for prime lending) or specialist residential lending (which are loans advanced to borrowers who intends to let the mortgage property). The Society's policy is for all residential mortgage loans to individuals to be fully secured first priority loans on the mortgaged property, to ensure that the Society's claim to the property, in the event of default, is senior to those of other potential creditors. As a result, its residential mortgage lending to individuals carries lower risk than many other types of lending.
As at 4 April 2020, the Group was the second largest mortgage lender in the United Kingdom (as measured by total loans outstanding and calculated by the Society based on BoE data and publicly available financial information). Its residential mortgages are generally for terms of 20 to 30 years. While many customers remain with the Society for much or all of this term, some customers redeem their mortgage earlier than this in order to remortgage to another lender or for other reasons. The minimum life of a mortgage is usually between two and five years, depending on the terms of the customer's initial product, although the Society generally retains approximately 70 to 80 per cent. of customers when they reach the end of a product.
The table below shows a breakdown of the Society's prime and specialist residential mortgage lending outstanding balances as at 4 April 2020.
| As at 4 April 2020 (£ billion) |
|
|---|---|
| Prime |
151.1 |
| Specialist | 37.7 |
| of which: | |
| BTL | 35.5 |
| Other(1) |
2.2 |
| ______ |
(1) Other includes self-certified, near prime and subprime lending discontinued in 2009. Source: Nationwide Building Society – audited financial statements for the year ended 4 April 2020
The Society offers specialist UK residential mortgage lending to individuals, comprising lending to private landlords (BTL) and other non-conforming lending. As at 4 April 2020, the Society's outstanding specialist UK residential mortgage lending to individuals was £37.7 billion. The specialist residential mortgage balance is made up of advances made through its specialist lending brands, including TMW. Its outstanding specialist lending loans were advanced primarily in the BTL and self-certification markets. New specialist lending is restricted to BTL through TMW with the Society having withdrawn from the self-certified lending market in 2009.
The Society's specialist mortgages continue to perform well with cases three months or more in arrears representing only 0.74 per cent. of the total mortgage book as at 4 April 2020, which is comparable to the UK Finance (UKF) industry average, which is inclusive of prime lending, of 0.74 per cent. as at 4 April 2020.
The Society has a national franchise within the United Kingdom, with a regional distribution of United Kingdom residential mortgage lending to individuals generally matching the regional gross domestic product distribution in the United Kingdom.
The table below shows the geographical distribution of the Society's United Kingdom residential mortgage loans as at 4 April 2020:
| UK residential mortgage | |
|---|---|
| lending to individuals as at | |
| 4 April 2020 | |
| % | |
| Region | |
| Greater London | 34 |
| Central England |
18 |
| Northern England |
15 |
| South East England (excluding London) |
13 |
| South West England | 10 |
| Scotland |
6 |
| Wales | 3 |
| Northern Ireland | 1 |
| Total | 100 |
Source: Nationwide Building Society – audited financial statements for the year ended 4 April 2020
___
The Society offers fixed rate and tracker rate mortgages. These products establish a set rate or set methodology for determining a variable rate for a set term, after which the rate reverts to one of its two general variable rates. Its fixed-rate products currently offer a term of two, three, four, five or ten years, but it has from time to time offered longer fixed terms, including 25 years. The Society's tracker rate products bear interest during the set term (currently two or three years) at a variable rate that is a fixed percentage above the BoE base rate of interest. After the end of the set fixed rate or tracker period, the interest rate reverts to either its base mortgage rate (BMR) (if the mortgage was originated on or before 29 April 2009) or its standard mortgage rate (SMR) (if the mortgage was originated on or after 30 April 2009). Both the BMR and the SMR are variable rat es set at its discretion, except that the BMR is guaranteed not to be more than 2 per cent. above the BoE base rate of interest.
To reduce the costs associated with early repayment of mortgages and to recover a portion of the costs of mortgage incentives, the Society imposes early repayment charges on some products. The early repayment charges generally apply for repayment made prior to the expiration of the fixed or tracker rate for the particular product.
Total gross mortgage lending during the year ended 4 April 2020 was £30.9 billion (year ended 4 April 2019: £36.4 billion), representing a market share of 11.4 per cent. (year ended 4 April 2019: 13.4 per cent.). Despite the sustained competition in the UK mortgage market, the Society has maintained broadly stable prime mortgage balances at £151.1 billion as at 4 April 2020 (year ended 4 April 2019: £151.5 billion). The Society's specialist mortgage lending (being predominantly buy to let) performed strongly in the year ended 4 April 2020, with its second highest ever net lending of £3.3 billion (year ended 4 April 2019: £1.3 billion). The Society's specialist mortgage balances grew to £37.7 billion as at 4 April 2020 (year ended 4 April 2019: £34.5 billion) as a result of strong performance in its core product range, supported by enhancements to its proposition, including lending to limited companies and portfolio landlords.
The loan-to-value (LTV) profile of new lending, weighted by value, increased to 72 per cent. as at 4 April 2020 from 71 per cent. at 4 April 2019. The indexed LTV for the whole residential portfolio was 58 per cent. as at 4 April 2020 in line with 58 per cent. as at 4 April 2019 on a value basis.
The Group believes that asset quality has remained strong as a result of its continued prudent approach to lending. The proportion of mortgage accounts three months or more in arrears has reduced to 0.41 per cent. as at 4 April 2020, which compares favourably with the UK Finance average of 0.74 per cent. as at the same date.
The table below shows the Group's residential mortgage loans which are three months or more in arrears as a percentage of its total residential mortgage loans as at each of 4 April 2020, 4 April 2019 and 4 April 2018 and the UK Finance average.
| As at 4 April | |||
|---|---|---|---|
| 2020 | 2019 | 2018 | |
| % | |||
| Prime | 0.33 | 0.35 | 0.34 |
| Specialist |
0.74 | 0.82 | 0.83 |
| Group | 0.41 | 0.43 | 0.43 |
| UK Finance (UKF) industry average | 0.74 | 0.78 | 0.81 |
________
In line with regulatory guidance, the arrears figures above do not take into account payment holidays that the Society afforded to its borrowing members in the context of the Covid-19 pandemic. This approach has suppressed the impact of the pandemic on arrears data, and will continue to do so in the short term. The Society continues to monitor developments and updated regulatory guidance on the assessment of payment holidays and other forbearance measures in this context.
The Society utilises an automated credit scoring system to assist in minimising credit risk on residential mortgage lending. The Society's credit procedures for residential mortgage lending take into account the applicant's credit history, loan-to-value criteria, income multiples and an affordability calculation, or shock test, that tests the applicant's ability to service the loan at higher interest rates.
The Society focuses its residential mortgage sales efforts on first-time buyers, subsequent purchasers moving home and the remortgage market. The Society is particularly keen to support its existing members and it has introduced products to support first-time buyers. First-time buyers offer a significant potential for additional sources of income through the distribution of insurance and personal investment products. The proportion of new lending to first time buyers decreased to 33 per cent. during the year ended 4 April 2020 (compared to 35 per cent. of residential mortgage advances to first-time buyers during the year ended 4 April 2019) with the Society's share representing approximately one in six first time buyers.
In addition to residential mortgage loans, the Society offers further secured advances on existing mortgaged property to customers consistent with its lending criteria for new residential mortgage loans.
The Society engages in consumer lending, which accounted for 2 per cent. of its total loan assets as at 4 April 2020. Almost all of its consumer loans are made on an unsecured basis.
Unsecured consumer lending consists of loans that the Society makes to individuals that are not secured on real or personal property. It offers three different forms of unsecured consumer lending: personal unsecured loans; credit card lending; and current accounts with overdraft facilities.
There is a greater risk of loss on unsecured consumer lending than there is on residential mortgage lending because the Society has no security if the borrower defaults on the loan. Accordingly, unsecured consumer lending products bear higher interest rates than the residential mortgage products of the Society. To manage this risk, it uses an automated credit scoring system that is designed to evaluate a borrower's ability to repay the loan. In addition, the Society assesses all unsecured consumer loans to ensure they remain affordable alongside any mortgage.
The great majority of the Society's retail savings are in the form of UK retail member deposits. In addition, the Society has historically accepted offshore deposits and deposits which do not convey member status. As at 4 April 2020, the Society had UK retail member deposits of £159.7 billion. UK retail member deposits represented 64.4 per cent. of the Society's liabilities and reserves as at 4 April 2020.
The Society provides a wide range of retail savings products that may be repayable on demand or on notice and which may pay a variable or fixed rate of interest. On most retail savings products, it determines variable interest rates at its discretion according to market conditions. Generally, the more restrictions on withdrawal of retail savings, the higher the rate of interest. Balances on all of the Society's notice deposit accounts are, by their terms, withdrawable on demand but, in some cases, subject to loss of interest.
The Society believes that the primary determinant for attracting retail savings is the interest rate offered to savers. As a mutual organisation, it typically sets higher interest rates on its retail savings products than those set by its main competitors. The Society gathers UK retail member deposits from a number of sources, chiefly from its branch network but also by mail and internet-based deposit accounts.
The UK retail member savings market is highly competitive among building societies and banks, including those banks owned by insurance companies and retailers. This competition has increased the relative cost of retail funds, especially new retail funds.
Its retail business also manages a range of business savings accounts that are offered to UK-domiciled smalland medium-sized enterprises, including companies, housing associations, charities and educational organisations. The Society provides a wide range of savings products that may be repayable on demand or on notice and which may pay a variable or fixed rate of interest. On all business savings products, the Society determines variable interest rates at its discretion according to market conditions. Generally, the more restrictions on withdrawal of business savings, the higher the rate of interest. As at 4 April 2020, its business savings balances were £3.8 billion.
The Society has a growing base of current account customers, which it estimates accounts for an 8 per cent. share of main standard and packaged current accounts in the United Kingdom. The Society opened 759,000 new current accounts in the year ended 4 April 2020 (year ended 4 April 2019: 794,000) maintaining market share of openings. In the year ended 4 April 2020, the Society was the number one net gainer of current accounts using the Current Account Switching Service.
The Society began issuing Nationwide-branded Visa credit cards to its customers in 1997. The Society markets and processes credit card applications itself (using its credit scoring system), and an outside contractor is responsible for billing and customer service functions. Credit card holders receive differing credit limits, depending on their credit score. The Society does not charge customers an annu al fee for using the credit card.
Credit card lending had overall balances of £1.6 billion at 4 April 2020.
The Society's other retail services principally comprise insurance business and investment business.
In conjunction with its core business of providing residential mortgage loans and retail savings, the Society develops and markets insurance products branded with its name that are underwritten by third -party insurers and distributes insurance products of other companies.
The insurance products marketed by the Society are:
The Society typically uses leading insurers as third-party underwriters for these insurance products. It receives a commission and, in some cases, participates in the profits, but not the losses, from third-party underwritten insurance products that it markets. This provides the Society with a significant source of non -interest income and, in the years ended 4 April 2020, 4 April 2019 and 4 April 2018, it earned £50 million, £65 million and £76 million, respectively, from insurance fees. It generally markets its insurance products to new and existing customers, and it is the Society's policy to offer insurance products at competitive prices and with more comprehensive coverage than those products generally offered by the main competitors of the Society .
The Society's income from the distribution of protection and investments was £ 59 million for the year ended 4 April 2020 (year ended 4 April 2019: £63 million).
The Society's integrated and diversified distribution network allows its customers to choose how and when to undertake their transactions with the Society and has enabled it to expand the Society's business while controlling costs. The distribution network helps the Society to achieve volume growth principally in residential mortgage lending and supports its retail funding activities. Developments in the network have focused on cost efficiency and meeting the needs of customers who are increasingly prepared to transact business by the internet, telephone and mail.
The Society distributes its products primarily through:
The Society also maintains a network of ATMs.
The branch network of the Society continues to be a major source of its mortgage lending and retail funding. As at 4 April 2020, it had approximately 663 branches of Nationwide Building Society in the United Kingdom.
The Society's goal is to utilise its branch network efficiently. All of its branches market its residential mortgage, retail savings, personal lending, personal investment and insurance products. The Society continues to make significant investment in transforming its products and delivery channels through the implementation of new systems and organisational structures and to meet consumer expectations of digital banking.
The telephone call centres of the Society are open 24 hours a day to service customers and receive calls from potential customers that are interested in its products. In addition, it uses telemarketing to supplement its mortgage, insurance and personal loan marketing.
The Society offers mail-based savings accounts that provide members with higher interest rates on their deposits in return for limiting them to transactions by mail, online banking and ATMs. The Society also uses direct mail to market some of its products.
The Society first launched an internet banking service in 1997 and has continued to update the service in line with technological advances and increasing customer expectations. Its website allows customers to transact on their accounts and apply for a broad range of its products online. The Society also allows customers to access and carry out transactions on their accounts using its mobile and tablet applications.
A substantial amount of the mortgage sales of the Society are introduced to it by third -party intermediaries. Intermediaries range from large United Kingdom insurance companies to small independent mortgage advisers. The Society remunerates intermediaries for introducing mortgage business.
The Society's customers have access to its own network of ATMs (1,356 as at 4 April 2020), as well as access to ATMs in the United Kingdom through the LINK network and world-wide through the Visa network.
The Society's commercial portfolio comprises loans which have been provided to meet the funding requirements of RSL, CRE investors and private finance initiatives (PFI). As at 4 April 2020, this portfolio accounted for 4 per cent. of total loans and advances to customers. Following a strategic review of the commercial lending business, the Society concluded that the CRE and PFI lending is no longer a good fit with its core purpose. The strategy for CRE and PFI lending is now to hold and actively manage the portfolios to maturity in line with contractual terms.
The table below shows the amount and types of loans in the commercial lending portfolio as at 4 April 2020.
| As at 4 April 2020 | ||
|---|---|---|
| (£ billions) | (% of total commercial loans) |
|
| Registered social landlords | 5.4 | 76 |
| Commercial real estate |
1.0 | 14 |
| Private finance initiative | 0.7 | 10 |
| Total | 7.1 | 100 |
RSL loans are made to UK registered social landlords, are secured on residential property and differ significantly from other loans secured on real property. UK registered social landlords provide affordable housing supported by Government grants. This portfolio historically has carried a lower risk than the Society's other commercial lending activities, and there are currently no arrears of three months or more in the RSL portfolio. To date, the Society has not needed to raise any loss provisions against this portfolio.
CRE portfolio is well diversified by industry type and by borrower, with no significant exposure to development finance.
PFI loans are secured on cash flows from Government-backed contracts such as schools, hospitals and roads under the UK private finance initiative legislation. The Society has not suffered any losses on this lending and there are currently no arrears of three months or more.
The Society's head office functions comprise the executive management and the treasury function together with a range of support functions such as legal and secretariat services, human resources, strategic planning and external relations, finance, risk management, property services and internal audit.
The treasury division centrally manages liquid asset portfolios as well as most of the financial risk exposures and is responsible for wholesale funding activities.
The Society is exposed to any downturn in the UK's economic conditions and to the UK housing market in particular. The Covid-19 pandemic has severely impacted both the UK and global economies and the economic environment in which the Society operates. The pandemic is having far-reaching impact on the economy, impacting the Society's financial performance, credit profile, the way it interacts with customers and its business operations.
From March 2020 onwards, there has been a material impact to the Society's financial prospects in relation to Covid-19, following the bank base rate reductions and as the UK enters a more uncertain economic environment. The outbreak of Covid-19, and the global response to it, has materially impacted the economic environment in which the Society operates. The Society considers that the financial performance framework which has guided its decisions in the past is no longer appropriate in the current environment, and is focused on maintaining its strong capital and liquidity positions through the economic cycle.
The Society is seeking to support its members with a range of measures in light of Covid -19, including offering mortgage payment holidays (which, in accordance with regulatory guidance, have not been included within the forbearance population and do not automatically have an impact on the reported staging balances). In addition to an initial offer of three-month mortgage payment holidays in the early stages of the outbreak, the Society has announced its Home Support Package, which includes:
Furthermore and in light of the Covid-19 pandemic, the Society is conscious there is the potential for a great deal of anxiety for its employees about health and livelihoods. To reduce anxiety, and in line with its values, the Society has introduced a number of promises to its employees including, notably, a commitment not to make any compulsory redundancies during 2020.
Whilst stress testing results demonstrate that Nationwide is resilient against significant short-term economic shocks, the longer-term financial impact of Covid-19 is not yet clear and remains difficult to quantify. The pandemic is likely to cause interest rates to remain at historically low levels (and there is increasing speculation about the possibility for the UK base rate of interest to move to a negative rate), and will result in longer term economic effects, potentially putting pressure on the Society's financial performance. The Society's operating environment is expected to remain highly competitive and further increases in competition would increase the level of business risk for Nationwide.
The Society's principal regulators are the PRA and the FCA.
The PRA has two statutory objectives: to promote the safety and soundness of the firms which it supervises and, with respect to insurers, to contribute to the securing of an appropriate degree of protection for policyholders. The PRA's regulatory and supervisory approach incorporates three key characteristics: to take a judgementbased approach, a forward-looking approach and a focused-approach.
The FCA has a strategic objective to ensure that the relevant markets function well. In support of this, the FCA has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system and to promote effective competition in the interests of consumers.
The Society operates in a heavily regulated environment, which continues to evolve. Recent and near-term changes in the regulatory environment include the following:
to implement SCA for e-commerce, i.e., until 14 September 2021. Amended fraud reporting requirements also applied from 1 January 2019. PS 18/24 introduces new rules on reporting complaints about authorised push payment fraud, which came into force on 1 July 2019. The Payment Services (Amendment) Instruments 2018 contain corresponding changes to the FCA Handbook.
On 5 December 2019, the BoE, PRA and FCA published coordinated consultation papers in line with the concepts introduced in the July 2018 discussion paper. The latest proposals expect firms and FMIs to identify their important business services that, if disrupted, could cause harm to consumers or market integrity, threaten the viability of firms or cause instability in the financial system. Impact tolerances should be set for each important business service and firms and FMIs should take actions to be able to remain within their impact tolerances through a range of severe but plausible disruption scenarios. Firms and FMIs will also be expected to identify and document the people, processes, technology, facilities and information that support their important business services. The proposed policies will comprise new rules (for the FCA and PRA), principles, expectations and guidance, and will be implemented through the authorities' respective supervisory areas. The consultation period closed on 1 October 2020 (extended as a result of Covid-19). It is planned that firms and FMIs will not need to meet requirements resulting from the consultations before the end of 2021.
The Financial Policy Committee (FPC) has also undertaken work in this area, with a particular focus on cyber risk. The FPC will ask firms to conduct cyber stress testing. At an institutional level, the Basel Committee on Banking Supervision (the Basel Committee) has established the Operational Resilience Working Group, which published a report on cyber resilience in December 2018. This report identifies areas in which further policy work is likely to be undertaken. In view of Covid-19, the Basel Committee also published on 16 April 2020 a brief entitled "Covid-19 and operational resilience: addressing financial institutions' operational challenges in a pandemic", which states that financial institutions' cyber resilience processes should remain vigilant in order to identify and protect vulnerable systems. These processes should also be able to detect, respond to cyber attacks and help the institution recover from them.
Resolvability Assessment Framework: On 30 July 2019, the BoE and PRA published final rules and policy in relation to the "Resolvability Assessment Framework" (RAF), under which the BoE and PRA will assess the readiness of UK banks and building societies for resolution. The framework is set out in a BoE Statement of Policy (SoP) and a new Resolution Assessment part of the PRA Rulebook (together with a PRA Supervisory Statement SS4/19). The BoE SoP only applies to UK firms with a bail-in or partial transfer resolution strategy. The BoE and PRA have delayed the application of this regime due to Covid-19, meaning that firms will now be required to first submit a report of their assessment of their preparations for resolution to the PRA by October 2021 and to publish a summary of this report by June 2022. The SoP specifies three "resolvability outcomes" which relevant firms must meet – (i) having adequate financial resources in the context of resolution, (ii) being able to continue to do business through resolution and restructuring, and (iii) being able to communicate and coordinate effectively within the firm and with authorities and markets so that resolution and subsequent restructuring are orderly. The new Resolution Assessment part of the PRA Rulebook applies to UK banks and building societies with £50 billion or more in retail deposits (so-called Major Firms), and requires them to assess their preparations for resolution, submit reports of their assessment to the PRA every two years. In addition, the BoE will make public statements regarding each Major Firm's resolvability; these may highlight perceived shortcomings where the BoE considers that the firm in question has more work to do to be resolvable.
Following a market investigation into competition in the personal current accounts and the small and mediumsized enterprises (SME) retail banking markets, the CMA published its final report on 9 August 2016 which identified features of the markets for the supply of personal current accounts, business current accounts and SME lending that are having an adverse effect on competition. The CMA decided on a comprehensive package of remedial measures which included, among other things, the introduction of requirements to prompt customers to review the services that they receive from their bank at certain trigger points and to promote public awareness of account switching. The remedial measures were to be implemented by orders, undertakings to be given by banks and further work by the FCA and HM Treasury, including further work on overdraft charges by the FCA, which remains under political scrutiny. On 2 February 2017, the CMA made the Retail Banking Market Investigation Order 2017 to implement the remedial measures.
On 18 December 2018, the FCA published Consultation Paper CP18/42 entitled "High-Cost Credit Review: Overdrafts consultation paper and policy statement" aimed at encouraging competition as well as proposing
interventionist measures in relation to the high level and complex pricing structures as well as repeated overdraft use. The FCA published PS19/16 entitled "High-Cost Credit Review: Overdrafts policy statement" on 7 June 2019 setting out the FCA's final rules. The rules require (among other things) firms to align the prices of unarranged overdrafts so that they are no more expensive than arranged overdrafts and simplify their overdraft pricing structures to charge a single annual rate of interest for both arranged and unarranged overdrafts, resulting in a ban on all other overdraft fees (other than fees for refused payments). The overdraft pricing rules came into force on 6 April 2020. On 7 June 2019, the FCA published Consultation Paper CP19/18 entitled "Overdraft pricing and competition remedies", which sets out proposals requiring firms to publish overdraft prices and fees to improve transparency and promote more effective competition for overdrafts. The FCA published amendments to its rules in PS19/25 on 2 October 2019. The amendments require firms to publish overdraft pricing information alongside information on current accounts. The FCA noted that it will carry out a postimplementation evaluation of its overall package of overdraft remedies around 12 months after the full package of remedies is implemented; the FCA evaluation is expected to start after April 2021.
The FCA launched its Strategic Review of Retail Banking Business Models in May 2017 to evaluate matters relating to competition and conduct. This review was intended to ensure that the FCA's regulatory approach remains fit for purpose as well as to protect customers and promote effective competition. The FCA's final report was published on 18 December 2018 and proposed some further work in this area, including ongoing monitoring of retail banking business models by the FCA.
On 23 April 2019 the FCA published Feedback Statement FS19/2 entitled "A duty of care and potential alternative approaches: summary of responses and next steps", following on from Discussion Paper DP18/5 published in July 2018. The FCA is considering introducing new duty of care requirements that could place a general obligation on firms to act in the best interests of consumers. A Financial Services (Duty of Care) Bill was introduced in the House of Lords in October 2019. The Bill would have required the FCA to make rules in relation to the duty of care financial services firms owe to consumers. The Bill was re-introduced on 9 January 2020. It is possible that changes may be made to the FCA's rules and guidance, in particular its Principles for Businesses, as a result. The FCA was due to publish a policy paper on the possibility of introducing a new duty of care for financial services firms in early 2020, which will seek detailed views on specific options for change. However, as a result of Covid-19 this work has been delayed to the fourth quarter 2020.
On 9 January 2020 the FCA also published a Consultation Paper CP 20/1 "Introducing a Single Easy Access Rate for cash savings". The consultation is open until 15 December 2020 (extended, given the continuing impact of Covid-19). The FCA's proposals are designed to improve competition in the savings market and to make it simpler and easier for consumers to understand the market and get a good deal as well as protecting those consumers that currently receive the lowest interest rates. The proposals are for firms to introduce Single Easy Access Rates (SEARs) and to publish data on their SEARs to make them easier to compare. Firms would still have the flexibility to offer multiple introductory rates for the first 12 months but would then n eed to choose one SEAR for their easy access cash savings accounts, and one SEAR for their easy access cash individual savings accounts.
The aim of Open Banking is to create more transparency and fairness in the UK banking and financial services market through greater competition and innovation. It has the potential to disrupt traditional personal financial services models significantly and to reshape the banking landscape in the UK radically. Open Banking requires financial institutions such as the Issuer to provide registered third party organisations with transactional information where the consent of the customer or member is provided, and also to make public and openly share their product information, as well as customer satisfaction scores and other s ervice level indicators. This makes it possible for consumers to share their financial transactional data more easily with third parties online, allows third parties to initiate payments directly from a person's account as a bank transfer as an alternative to credit or debit card payments, and enables customers or such third party providers to more easily compare products offered by different institutions. This offers the prospect of an enhanced banking experience for the customer – for example, providers could offer comparison and switching services to help customers identify the best
financial products for them and, over time, potentially enable customers to automate management of their finances to some degree, such as authorising service providers to transfer their finances to more competitive products on a regular and ongoing basis. On 17 December 2019, the FCA published Call for Input to explore the opportunities and risks arising from open finance. The Call for Input was open until 1 October 2020. Open finance would extend open banking principles to give consumers and businesses more control over a wider range of their financial data, such as savings, insurance, mortgages, investments, pensions and consumer credit. It has the potential to increase competition among financial service providers and is aimed at delivering benefits for consumers and open finance participants alike.
In view of the COVID-19 pandemic, the CMA published a statement on 30 April 2020, setting out its general views about how the law operates in relation to cancelation and refunds, noting that ultimately the position will be determined by the courts. This is mainly relevant to unregulated consumer credit or hire agreements. The guidance clarifies consumers' rights and could result in greater number of cancelled agreements. On 22 July 2019, the European Commission issued guidance notice on the interpretation of the Unfair Contract Terms Directive 93/13/EEC (UCTD) (implemented in the UK through the Consumer Rights Act 2015). This guidance aims to present, in a structured way, the case law of the Court of Justice of the European Union, in order to facilitate effective application of the UCTD in the EU and EEA member states. This guidance may be taken into account by the UK courts when determining if a term is unfair.
This area of law is rapidly developing and new regulatory guidance and case law as a result of this new legislation can be expected. During a House of Commons debate on 11 February 2020, the Parliamentary Under-Secretary of State of the Department for Business, Energy & Industrial Strategy (BEIS), announced that that BEIS will publish a consumer and competition Command Paper in spring 2020 (not yet published) and carry out a five year review of the Consumer Rights Act 2015 later in the year.
Following the global financial crisis which commenced in 2007/8, the Basel Committee issued guidance on a number of fundamental reforms to the regulatory capital framework (such reforms are collectively referred to as Basel III), including additional capital requirements, higher capital ratios, more stringent eligibility requirements for capital instruments, leverage ratio requirements and liquidity requirements. The original components of the Basel III reform package were implemented in the EEA through Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) and Directive 2013/36/EU (the Capital Requirements Directive or the CRD IV), which were published in the Official Journal of the European Union on 27 June 2013. The CRR established a single set of harmonised prudential rules which apply directly to all credit institutions in the EEA, with CRD IV containing other provisions required to be transposed into national law. CRR gives express recognition for Common Equity Tier 1 capital instruments for mutual and co-operative entities (such as CCDS) and permits the use of a cap or restriction to safeguard the interests of members and reserves. Full implementation began from 1 January 2014, with particular elements being phased in over a period of time, to be fully effective by 2027.
On 23 November 2016, the European Commission published a package of legislative proposals providing for reform of the prudential and resolution frameworks for EU banks and credit institutions. These proposals covered amendments to CRR, CRD IV, the BRRD and Regulation (EU) No. 806/2014 (the Single Resolution Mechanism Regulation or SRMR). The final legislation implementing these proposals was published in the EU Official Journal on 7 June 2019. The legislation consists of Regulation (EU) No. 2019/876, Directive (EU) No. 2019/878, Directive (EU) No. 2019/879 and Regulation (EU) No. 2019/877 and came into force on 27 June 2019 (the Banking Reform Package), with certain provisions applying from 27 June 2019 and other provisions gradually being phased in and/or being subject to national implementation.
The EU Banking Reform Package amended many existing provisions set out in CRD IV, the BRRD and the SRMR. It includes:
The EU Banking Reform Package allows for a phased implementation period with significant elements entering into force in 2021 (and others subject to a delay due to Covid-19). Certain elements of the package introduced under Directive 2019/878 (which amends CRD IV) will also need to be implemented into national law. It is not yet clear what impact the changes introduced by the EU Banking Reform Package will have on the Society's business.
The EU Banking Reform Package also includes a number of significant revisions to the BRRD (known as BRRD2). The BRRD2 proposals were finalised in June 2019 and are due to be implemented in member states by 28 December 2020 with certain requirements relating to the implementation of the total loss absorbing capacity (TLAC) standard applying from January 2022 and additional MREL (as defined below) requirements from January 2024.
The BRRD2 package includes, among other things:
The effects of BRRD2 will be wide-ranging and, in particular, it will impact how institutions, such as the Society, absorb losses in certain stressed scenarios. BRRD2 also seeks to harmonise the bank insolvency creditor
hierarchy relating to the priority ranking of holders of certain classes of subordinated debt (which are eligible to be used to contribute to an institution's MREL requirement).
Risk-based capital requirements: Under the current prudential framework as at the date of this Base Prospectus, the Society is required to hold a minimum amount of regulatory capital equal to 8 per cent. of its risk-weighted assets (the Pillar 1 requirement), plus certain additional CET1 capital buffers (the buffer requirement). The Society's total buffer requirement, as at the date of this Base Prospectus, is equal to 3.5 per cent. of risk-weighted assets(comprised of a capital conservation buffer of 2.5 per cent. of RWAs, a counter-cyclical buffer of 0 per cent. of RWAs and a Systemic Risk Buffer (SRB) of 1.0 per cent. of RWAs). The CRR also provides that an additional buffer requirement may be extended to EU credit institutions designated as 'other systemically important institutions' (O-SIIs). The Society is not presently designated as a G-SII but has been designated as an O-SII. As at the date of this Base Prospectus, the PRA has not implemented any O-SII buffer requirement.
In line with changes to the SRB and O-SII buffers being introduced pursuant to the Banking Reform Package, the PRA has confirmed, in Consultation Paper 17/20 "Capital Requirements Directive V (CRD V): Further implementation" (CP17/20),that it intends to recalibrate these two buffers, with the O-SII buffer replacing the function currently performed by the SRB. Accordingly, the O-SII buffer will be used to reflect an institution's domestic and global systemic importance, and the SRB will be used to prevent and mitigate macroprudential or systemic risks not otherwise covered by Pillar 1 requirements or the O-SII buffer. O-SII buffer rates set by the PRA would be cumulative with any SRB rate set by the PRA, but the PRA confirmed in CP17/20 that it did not intend to set an SRB immediately under this new approach. Accordingly, the Society anticipates that, upon implementation of these changes, its O-SII buffer rate will become 1.0 per cent. of RWAs and its SRB will become 0 per cent., such that its overall buffer requirement does not change as a result of this recalibration.
In addition, the PRA may impose additional individual capital requirements on the Society, which may comprise an add-on to the Pillar 1 requirement (the Pillar 2A requirement) to address risks to the Society which the PRA considers are not adequately covered by Pillar 1 requirements, and/or an addon to the buffer requirement (the Pillar 2B requirement, also knowns as the PRA buffer) to provide for additional capital buffers as a mitigation against future possible stress periods. The PRA presently requires that the level of the PRA buffer is not publicly disclosed. The Society's Pillar 2A requirements must be met with at least 56 per cent. CET1 capital (expected to increase to 56.25 per cent., in line with the PRA's statements in CP17/20), at least 75 per cent. Tier 1 capital and not more than 25 per cent. Tier 2 capital. Its Pillar 2B requirements must be met solely with CET1 capital. The Society may also decide to hold additional amounts of capital, as part of its risk and growth strategies.
As at 4 April 2020, the Society's common equity tier 1 ratio was 31.9 per cent. and its total capital ratio was 43.6 per cent.
Leverage-based requirements: The PRA has implemented the FPC's direction to introduce a UK leverage ratio framework. The UK leverage ratio framework is intended to mirror aspects of the riskweighted capital requirement. The calculation determines a ratio based on the relationship between Tier 1 capital and total exposures (i.e. non-risk-weighted assets), including off-balance sheet items. The leverage ratio does not distinguish between unsecured and secured loans, nor recognise the ratio of loan to value of secured lending. The UK leverage ratio was originally set at 3 per cent. of risk-weighted assets and in 2017 was increased to 3.25 per cent. of exposures (excluding central bank reserve exposures), to reflect the removal of central bank deposits from the leverage exposure measure. At least three-quarters of the leverage ratio must be met with CET1 capital and up to one-quarter may be met with Additional Tier 1 capital. In addition, the UK leverage ratio framework includes two additional buffers that are to be met using CET1 capital only: an Additional Leverage Ratio Buffer (ALRB), applying to the largest UK banks and building societies and set at 35 per cent. of the corresponding riskweighted systemic buffer rate, and a macro-prudential Countercyclical Leverage Buffer (CCLB), which is set at 35 per cent. of the corresponding risk-weighted countercyclical buffer (and rounded to the nearest 0.1 per cent., with 0.05 per cent. being rounded up).
The Society's UK leverage ratio was 4.7 per cent. at 4 April 2020. Given the nature of the Society's balance sheet, which is underpinned by residential mortgage assets with a low risk profile (as demonstrated by a low level of arrears compared to the industry average), the Society's current binding capital constraint is based on leverage-based (rather than risk-based) capital requirements. Based on the Society's current understanding of the proposed changes to risk-weights, and subject to final implementation, the Society currently expects that the leverage ratio will continue to be its binding capital constraint in the near-term. Future changes to the leverage ratio calibration – including (without limitation) changes to the counter-cyclical buffer applicable to the Society, which in turn impacts the Society's CCLB as described above - could, therefore, have a significant impact on the financial condition and prospects of the Society.
The Banking Reform Package has introduced a binding leverage ratio requirement of 3 per cent., which will be applicable to relevant credit institutions from implementation in June 2021. An additional leverage ratio buffer will apply to G-SIIs, to be phased in from January 2023. The FPC has commited to reviewing the UK leverage ratio framework in the context of international developments. As these requirements apply afterthe end of the EUWA transition period, the PRA has proposed not to implement them within the UK leverage ratio regime.
The Basel Committee published their final reforms to the Basel III framework in December 2017. The amendments include changes to the standardised approaches for credit and operational risks and the introduction of a new RWA output floor. The rules are subject to a transitional period from 2023 to 2028. On 2 August 2019, the EBA published its draft policy advice on (amongst other things) the Basel III output floor. The EBA recommended that:
On 5 March 2020, the EBA published an additional analysis regarding the output floor. The analysis is based on a sample of 221 institutions belonging to 51 banking groups. Overall, the EBA concluded that the impact of applying the output floor at the individual level does not seem to be particularly high (with the exception of cooperative banks, for which the output floor is the main driver, but for which the overall impact of the reform is the lowest).
On 11 October 2019, the European Commission published a public consultation document regarding implementation of the December 2017 Basel III reforms in the EU, with a view to informing its preparation, if considered appropriate, of a formal proposal in due course. The consultation period expired in January 2020 but there has been a further exchange of letters between the EBA and the European Commission, with the EBA publishing its final advice in March 2020. Accordingly, the EU is expected to adopt the remaining Basel III recommendations by amending its legislation.
Following the UK's departure from the EU, the application of the output floor in the United Kingdom will be a matter for the UK legislature and Society's prudential regulators.
In addition, in June 2017, the PRA published a policy statement relating to residential mortgage risk-weights, including proposals to align firms' IRB modelling approaches for residential mortgage risk-weighted assets. This sets out a number of modifications to the IRB modelling methodologies for residential mortgages, and sets the expectation for firms to update IRB models by the end of December 2020.
On 30 September 2020, the PRA published Consultation Paper CP14/20 on "Internal Ratings Based UK mortgage risk weights: Managing deficiencies in model risk capture" (CP14/20), in which it proposed the introduction, with effect from 1 January 2022, of two additional expectations on the level of IRB risk-weights for UK mortgages: (i) a minimum risk weight of at least 7 per cent. for each individual UK mortgage exposure; and (ii) an exposure-weighted average risk weight of at least 10 per cent. for all UK residential mortgage exposures to which a firm applies the IRB approach (with both proposals applying at all levels of consolidation, and covering all UK residential mortgage exposures). These measures are intended to be introduced in addition to other IRB reforms (including the PRA's recent reforms for definition of default, probability of default (PD) and loss given default (LGD) estimation), the leverage ratio and the RWA output floor. The PRA noted that the average IRB UK mortgage risk weight at the end of 2019 was just under 10 per cent., compared with the lowest possible risk-weight of 35 per cent. under the standardised approach (which will reduce to 20 per cent. under the finalised Basel III post-crisis reforms for low LTV mortgages). The CP14/20 proposals are designed to address the prudential risks stemming from IRB UK mortgage risk weights which are perceived by the PRA to be inappropriately low, to narrow the variation between the risk-weights afforded to UK mortgages by different institutions' IRB models, and to address the potential for competitive imbalance between institutions based on their IRB modelling. The PRA requested responses by 30 January 2021, and encouraged firms to provide certain data in order to help inform the final calibration of these proposals.
These reforms represent a re-calibration of regulatory requirements with no underlying change in the capital resources the Society holds or the risk profile of its assets. The final impacts are subject to uncertainty for future balance sheet size and mix, and the final detail of some elements of the regulatory changes remain at the PRA's discretion. However, the introduction of these RWA floors and IRB calibration changes is likely to lead to a significant increase in the Society's risk weights over time and it currently expects the consequential impact on its reported CET1 ratio ultimately to be a reduction of approximately 45-50 per cent. relative to its current methodology. However, organic earnings through the transitional period are expected to mitigate the impact such that the Society's reported CET1 ratio will in practice remain well in excess of the pro forma levels imposed by these changes, and the Society expects that leverage requirements will remain the Society's binding capital constraint based on its latest projections. Whilst the Society currently expects that the leverage ratio will continue to be its binding capital constraint in the near-term, it is possible that these changes will, over time, result in riskweighted capital requirements becoming the binding constraint.
MREL requirements are being introduced as part of a regime designed to make it easier to manage the failure of banks and building societies in an orderly way, without reliance on taxpayer bail-outs. These rules require all institutions to meet an individual MREL requirement by issuing own funds (capital instruments) and other 'eligible liabilities' which are available to be bailed-in (i.e. written down or converted to equity on the occurrence of certain trigger points), calculated as a percentage of total liabilities and own funds and set by the relevant resolution authorities.
The Bank of England has set the Society an indicative MREL requirement of 6.5 per cent. of its UK leverage exposure. MREL requirements are split into two elements: firstly, a loss absorption amount, to cover losses up to and in resolution, based on a firm's minimum going concern capital requirement; and secondly, a recapitalisation amount, intended to enable the firm to continue as a going concern post-resolution and to access funds in the capital markets (and accordingly the recapitalisation amount is likely to be at least equal to the minimum going concern capital requirement). On 7 May 2020, the BoE announced that 2021 MRELs will reflect the PRA's policy changes to Pillar 2A capital setting announced on the same date. The BoE indicated that it would also continue to keep MRELs under review and monitor market developments carefully in the third quarter of 2020 to inform its approach in the fourth quarter of 2020 to setting January 2021 MRELs and indicative January 2022 MRELs. In addition, the BoE clarified that, in line with its current policy, it intends to exercise its discretion with respect to the transition time firms are given to meet higher MRELs.
In addition to its MREL requirement, the Society must also hold applicable leverage ratio buffers of 0.35 per cent. of its UK leverage exposure as at 4 April 2020. Together the MREL requirement and applicable buffers represent the Society's "loss-absorbing capacity" requirement. As at 4 April 2020, the Society's MREL resources were equal to 8.4 per cent. per cent. of the UK leverage ratio exposure. The FPC has committed to reviewing the UK leverage ratio framework on which the Society's MREL requirement is based.
The preferred resolution strategy for the Society has been set by the BoE as "bail-in", reflecting the size of the Society and consequential risks of an insolvency process. 'Bail-in' would involve the write down or conversion to equity instruments (such as CCDS) of liabilities of the Society, and would be expected to result in the write down or conversion of all or a large part of the Society's own funds and other eligible liabilities (and could in addition result in the write down or conversion of other, more senior-ranking liabilities of the Society). Notwithstanding this, the actual approach taken, should the Society require resolution, will depend on the circumstances at the time of a failure, and all available options would be considered by the BoE.
Since 2014, the BoE has conducted annual stress tests of the UK banking system. The annual cyclical scenario includes all major UK banks and building societies with total retail deposits equal to, or greater than, £50 billion on an individual or consolidated basis, at a firm's financial year-end date. This group includes the Society. The findings from the 2019 stress test (in which the FPC modelled deep simultaneous recessions in the UK and global economies that were more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct cost) showed that the Society would remain profitable, with capital levels well above regulatory requirements (common equity tier 1 capital falling to 13.1 per cent. at its lowest point - 5.20 per cent. above the hurdle rate – and UK leverage ratio falling to 4.8 per cent. at its lowest point), with full distributions continuing to be made on all Tier 1 capital instruments.
On 20 March 2020, the BoE announced that it was cancelling the 2020 bank stress tests, in light of the Covid-19 pandemic.
Regulators, legislatures and central banks in the UK, EU and globally have also taken a number of steps with respect to prudential and resolution requirements in order to facilitate lending against the backdrop of the Covid-19 related disruption, including:
the Bank of England Monetary Policy Committee's decision to reduce the UK counter-cyclical buffer rate to zero per cent. with immediate effect in March 2020, and guiding that it expects to maintain the
rate at zero per cent. for at least 12 months (so that any subsequent increase would not take effect until March 2022 at the earliest);
HM Treasury has confirmed that, following the end of the Brexit transition period under EUWA (currently scheduled for 31 December 2020), the UK does not intend to implement certain parts of the Banking Reform
Package which are not required to be implemented until after that time, including Article 1(17) of BRRD2, which revises the framework for MREL requirements EU.
In addition, HM Treasury has indicated that certain provisions of the Banking Reform Package which must be implemented by 28 December 2020 will be brought into effect on terms that they automatically cease to apply following expiration of the Brexit transition period. These provisions include:
Furthermore, in CP17/20, the PRA indicated that it anticipated making certain further changes to the prudential regime, including changes to the application of MDA restrictions in order to improve firms' ability to use their combined buffers as intended when subject to a severe but plausible stress. The proposed changes include (i) removing the restriction which precludes firms from making distributions that would cause their CET1 levels to fall into the combined buffer, and (ii) amending the definition of the MDA to include certain profits already recognised as CET1 over the preceding four calendar quarters, net of distributions.
The business is under the control of the Society's Board of Directors. Each director is elected annually by the members. The executive directors are the Chief Executive and the Chief Financial Officer. All other directors are non-executive directors. The business address of all of the directors and officers is Nationwide House, Pipers Way, Swindon SN38 1NW, England.
Under the Society's rules, the Board of Directors must consist of not less than eight directors of whom not less than five must be present at a Board meeting to form a quorum.
No potential conflicts of interest exist between any duties to the Society of the persons on the Board of Directors and their private interests or other duties.
Chris Rhodes succeeded Mark Rennison as Chief Financial Officer of the Society on 16 September 2019 and Mark Rennison retired from the Board.
Lynne Peacock retired from her position as the Senior Independent Director and Non -Executive Director of the Society on 31 December 2019. On 20 January 2020, the Society announced that Kevin Parry, Non-Executive Director, had succeeded Lynne as Senior Independent Director.
On 10 March 2020, the Society announced that Tony Prestedge had resigned from his position as Deputy Chief Executive and Executive Director following his acceptance of a senior role with Santander UK plc. As a result of his resignation, Tony stepped down from the Board with immediate effect. The position of Deputy Chief
Executive will not be replaced, and Tony's responsibilities have been taken up by other members of the Society's senior leadership team.
Baroness Usha Prashar retired at the Society's Annual General Meeting held on 16 July 2020 and will continue to advise the Society on its diversity and community programmes.
Tamara Rajah was appointed a Non-Executive Director of the Society on 1 September 2020.
The following table presents information with respect to current directors:
| Name | Age (at 4 April 2020) | Position | Other Directorships |
|---|---|---|---|
| David Roberts | 57 | Chairman | Beazley plc Beazley Furlonge Limited Campion Willcocks Limited NHS England NHS Improvement |
| Joe Garner | 50 | Chief Executive | British Triathlon Foundation Trust UK Finance |
| Chris Rhodes | 57 | Chief Financial Officer |
Arkose Funding Limited at.home nationwide Limited Derbyshire Home Loans Limited E-Mex Home Funding Limited Jubilee Mortgages Limited NBS Ventures Management Limited First Nationwide LBS Mortgages Limited Nationwide Housing Trust Limited Nationwide Investment No.1 Limited NMC1Limited Nationwide Syndications Limited Staffordshire Leasing Limited Silverstone Securitisation Holdings Limited The Mortgage Works (UK) plc UCB Home Loans Corporation Limited |
| Rita Clifton | 62 | Non-Executive Director |
Ascential plc Rita Clifton Limited The Green Alliance Trust |
| Mai Fyfield | 50 | Non-Executive Director |
ASOS plc BBC Commercial Holdings Limited Roku Inc |
| Tim Tookey | 57 | Non-Executive Director |
Royal London Mutual Insurance Society Limited Westmoreland Court Management (Beckenham) Limited |
| Kevin Parry | 58 | Non-Executive Director |
Daily Mail and General Trust plc KAH Parry Limited The Royal London Mutual Insurance Society Limited |
| Name | Age (at 4 April 2020) | Position | Other Directorships |
|---|---|---|---|
| Gunn Waersted | 65 | Non-Executive Director |
Petoro AS Telenor ASA Lukris Invest AS Fidelity International (Bermuda) Saferoad ASA |
| Albert Hitchcock |
55 | Non-Executive Director |
|
| Philip Rivett | 64 | Non-Executive Director |
Standard Chartered plc |
| Tamara Rajah | 38 | Non-Executive Director |
Live Better With Limited Unforgettable Trading Limited Dot London Domains Limited London & Partners Limited London & Partners Ventures Limited |
The comments below, which are of a general nature, are a summary of the Issuer's understanding of current United Kingdom tax law as applied in England and Wales and published HM Revenue and Customs practice (which may not be binding on HM Revenue and Customs) relating to certain aspects of the United Kingdom withholding tax treatment at the date hereof in relation to payments of interest (as that term is understood for United Kingdom tax purposes) in respect of the Notes. They do not deal with any other United Kingdom taxation aspects of acquiring, holding or disposing of Notes. The comments relate only to the position of persons who are the absolute beneficial owners of their Notes and Coupons and do not apply to certain classes of person (such as dealers and persons connected with the Issuer).
Prospective holders of Notes should be aware that the particular terms of issue of any series of Notes as specified in the relevant Final Terms may affect the tax treatment of that and other series of Notes. The United Kingdom tax treatment of prospective Noteholders depends on their individual circumstances and may be subject to change in the future. Prospective holders of Notes who may be liable to tax in a jurisdiction other than the United Kingdom are strongly advised to consult their own professional advisers as to whether they are so liable (and if so under the laws of which jurisdictions). The comments assume that no security will be created for the benefit of the Notes, that there will be no substitution of the Issuer and do not address the consequences of such substitution (notwithstanding that such substitution is permitted by the terms and conditions of the Notes), that the Issuer will not issue any Notes from or through any branch situated outside the United Kingdom and that the Issuer will remain a Building Society within the meaning of the Income Tax Act 2007. Noteholders who are in any doubt as to their tax position should consult their professional advisers.
(i) they recognise an obligation to pay the holder a stated principal amount;
(ii) the amount payable by the Issuer thereunder, exclusive of interest, is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit was made); and
Deposit Notes will be "qualifying uncertificated eligible debt security units " if:
In other cases, if the Notes are capable of being listed on a "recognised stock exchange" at the time the interest on the Notes becomes payable an amount must generally be withheld from such payments on account of United Kingdom income tax at the basic rate (currently 20 per cent.) subject to any other available exemptions and reliefs. However, where an applicable double tax treaty provides for a lower rate of withholding tax (or for no tax to be withheld) in relation to a Noteholder, HMRC can issue a notice to the Issuer to pay interest to the Noteholder without deduction of tax (or for interest to be paid with tax deducted at the rate provided for in the relevant double tax treaty).
Notes may be issued at an issue price of less than 100 per cent. of their principal amount. Under HMRC published practice any discount element on any such Notes will not generally be subject to any United Kingdom withholding tax.
Where Notes are to be, or may fall to be, redeemed at a premium, as opposed to being issued at a discount, then any such element of premium may constitute a payment of interest (notwithstanding Condition 6.4). Payments of interest are subject to United Kingdom withholding tax.
The references to "interest", "discount" or "premium" in this section headed "United Kingdom Taxation" mean respectively interest, discount or premium as understood in United Kingdom tax law. The statements in this section headed "United Kingdom Taxation" do not take any account of any different definitions of interest or principal which may prevail under any other law or which may be created by the terms and conditions of the Notes or any related documentation (e.g. see Condition 6.4 of the Notes).
Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a foreign financial institution (as defined by FATCA) may be required to withhold on certain payments it makes (foreign passthru payments) to persons that fail to meet certain certification, reporting or related requirements. The Issuer is a foreign financial institution for these purposes. A number of jurisdictions (including the United Kingdom) have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA (IGAs), which modify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently in effect, a foreign financial institution in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as Notes, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as Notes, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as Notes, such withholding would not apply prior to the date that is two years after the date on which final regulations defining foreign passthru payments are published in the U.S. Federal Register, and Notes characterised as debt (or which are not otherwise characterised as equity and have a fixed term) for U.S. federal tax purposes that are issued on or prior to the date that is six months after the date on which final regulations defining foreign passthru payments are published generally would be grandfathered for purposes of FATCA withholding unless materially modified after such date. Holders should consult their own tax advisers regarding how these rules may apply to their investment in Notes.
The Dealers have in an amended and restated Programme Agreement dated 30 October 2020 (as amended and/or supplemented and/or restated from time to time, the Programme Agreement) agreed with the Issuer a basis upon which they or any of them may from time to time agree to purchase Notes. Any such agreement for any particular purchase by a Dealer will extend to those matters stated under "Terms and Conditions of the Notes" and "Form of the Notes" above. The Issuer may pay the Dealers commissions from time to time in connection with the sale of any Notes. In the Programme Agreement the Issuer has agreed to reimburse and indemnify the Dealers for certain of their expenses and liabilities in connection with the Programme and the issue of the Notes. The Dealers are entitled to be released and discharged from their obligations in relation to any agreement to issue and purchase Notes under the Programme Agreement in certain circumstances prior to payment to the Issuer.
In addition, in the ordinary course of their business activities, the Dealers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or Issuer's affiliates. Certain of the Dealers or their affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically, such Dealers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in securities, including potentially the Notes issued under the Programme. Any such positions could adversely affect future trading prices of Notes issued under the Programme. The Dealers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
The Notes have not been and will not be registered under the Securities Act or the securities laws of any state or other jurisdiction of the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from, or not subject to,the registration requirements of the Securities Act.
Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that, except as permitted by the Programme Agreement, it will not offer, sell or deliver Notes (a) as part of their distribution at any time and (b) otherwise until 40 days after the completion of the distribution of all Notes of the Tranche of which such Notes are a part within the United States or to, or for the account or benefit of, U.S. persons and it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S of the Securities Act. Terms used in the preceding paragraph and this paragraph have the meanings given to them by Regulation S under the Securities Act.
In addition, until 40 days after the commencement of the offering of all the Notes of the Tranche of which such Notes are a part, an offer or sale of Notes within the United States by any dealer that is not participating in the offering may violate the registration requirements of the Securities Act.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended (the Code) and Treasury regulations promulgated thereunder. The applicable Final Terms will identify whether U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(C) (or any successor rules in substantially the same form that are applicable for purposes of Section 4701 of the Code) (TEFRA C) or U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D) (or any successor rules in substantially the same form that are applicable for purposes of Section 4701 of the Code) (TEFRA D) applies or whether the United States Tax Equity and fiscal Responsibility Act of 1982 (TEFRA) is not applicable.
Unless the Final Terms in respect of any Notes specifies "Prohibition of Sales to EEA and UK Retail Investors" as "Not Applicable", each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes which are the subject of the offering contemplated by the Base Prospectus as completed by the Final Terms in relation thereto to any retail investor in the European Economic Area or in the United Kingdom. For the purposes of this provision:
Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that:
This Base Prospectus and offers of Notes are only made available in Australia to persons to whom a disclosure document such as a prospectus or product disclosure statement is not required to be given und er either Chapter 6D or Part 7.9 of the Australian Corporations Act 2001 (Cth) (the Australian Corporations Act). This document is not a prospectus, product disclosure or any other form of formal "disclosure document" for the purposes of Australian law, and is not required to, and does not, contain all the information which would be required in a product disclosure statement or prospectus under Australian law. No prospectus or other disclosure document (as defined in the Australian Corporations Act) in relation to the Programme or any Notes has been, or will be, lodged with the Australian Securities and Investments Commission (ASIC), or the ASX Limited or any other regulatory body or agency in Australia. The persons referred to in this document may not hold Australian financial services licenses and may not be licensed to provide financial product advice in relation to the securities. No cooling off regime applies to an acquisition of the Notes. In no circumstances is this document
to be used by a "retail client" (for the purposes of the Australian Corporations Act) for the purposes of making a decision about a financial product.
This Base Prospectus contains general advice only and does not take into account the investment objectives, financial situations or needs of any particular person.
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree that, unless the relevant Final Terms (or a relevant supplement to this Base Prospectus) otherwise provides, it:
unless:
There may be restrictions on the offer for re-sale of any Notes in Australia for a period of 12 months after their issue. Because of these restrictions, investors are advised to consult legal counsel prior to making any offer for re-sale of any Notes in Australia.
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Notes may be sold only to purchasers in Canada purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the Notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that:
(i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes except for Notes which are a "structured product" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the SFO) other than (a) to "professional investors" as defined in the SFO and any rules made under the SFO; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the C(WUMP)O) or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and
(ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the SFO and any rules made under the SFO.
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the FIEA). Accordingly, each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not and will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949, as amended), or to others for reoffering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.
Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that this Base Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Base Prospectus or any oth er document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 274 of the SFA (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an o ffer made under Section 275 of the SFA except:
Any reference to the SFA is a reference to the Securities and Futures Act, Chapter 289 of Singapore and a reference to any term as defined in the SFA or any provision in the SFA is a reference to that term as modified or amended from time to time including by such of its subsidiary legislation as may be applicable at the relevant time.
In connection with Section 309B of the SFA and the CMP Regulations 2018, the Issuer has, unless otherwise specified before an offer of Notes, determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), the classification of all Notes to be issued under the Programme as "prescribed capital markets products" (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that, except where explicitly permitted by the relevant Final Terms:
The Notes may not be publicly offered, directly or indirectly, in Switzerland, except (i) to Professional Investors or (ii) in the case of Notes, the Final Terms of which explicitly permit a public offer in Switzerland. Offering or marketing material relating to Notes, the Final Terms of which do not explicitly permit a public offer in Switzerland, may not be distributed or otherwise made available in Switzerland, except to Professional Investors.
The Notes shall not be admitted to trading on a trading venue (exchange or multilateral trading facility) in Switzerland except in the case of Notes, the Final Terms of which explicitly provide for such an admission to trading in Switzerland.
The Notes do not constitute participations in a collective investment scheme within the meaning of the Swiss Collective Investment Schemes Act ("CISA"). Therefore, the Notes are not subject to the approval of, or supervision by, the Swiss Financial Market Supervisory Authority ("FINMA"), and investors in the Notes will not benefit from protection under the CISA or supervision by FINMA. General
Each Dealer has agreed and each further Dealer appointed under the Programme will be required to agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes this Base Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Issuer nor any other Dealer shall have responsibility therefor.
Neither the Issuer nor any of the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.
The listing of Notes on the Official List will be expressed as a percentage of their nominal amount (excluding accrued interest). It is expected that each Tranche of Notes which is to be admitted to listing on the Official List of the FCA and to trading on the London Stock Exchange plc's Regulated Market will be admitted separately as and when issued, subject only to the issue of a global Note initially representing the Notes of such Tranche.
Application has been made to the FCA for Notes issued under the Programme to be admitted to the Official List and to the London Stock Exchange for such Notes to be admitted to trading on the London Stock Exchange 's Regulated Market. The admission to listing of the Programme in respect of Notes is expected to be granted on or about 5 November 2020.
The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg (which are the entities in charge of keeping the records). The appropriate common code and ISIN allocated by Euroclear and Clearstream, Luxembourg in respect of each Tranche of Notes will be contained in the relevant Final Terms. If the Notes are to clear through an additional or alternative clearing system the appropriate information will be specified in the relevant Final Terms.
The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg.
The price and amount of Notes to be issued under the Programme will be determined by the Issuer and the relevant Dealer at the time of issue in accordance with prevailing market conditions.
There has been no significant change in the financial performance or financial position of the Issuer or the Group since 4 April 2020.
Save as disclosed in "Risk Factors - Risks relating to the impact of Covid-19" and "Description of the Society – Recent Developments", there has been no material adverse change in the prospects of the Issuer since 4 April 2020.
The accounts of the Group for the year ended 4 April 2019 have been audited by PricewaterhouseCoopers LLP (PwC), Chartered Accountants and Registered Auditors, without qualification and in accordance with International Financial Reporting Standards (IFRS) and auditing standards issued by the Auditing Practices Board. PwC has no material interest in the Group.
At the Society's annual general meeting held on 18 July 2019, the members of the Society approved the appointment of Ernst & Young LLP (EY), Chartered Accountants and Registered Auditors, as the Society's auditors for the financial year ending 4 April 2020. The accounts of the Group for the year ended 4 April 2020 have been audited by EY, without qualification, and in accordance with IFRS and auditing standards issued by the Auditing Practices Board. EY has no material interest in the Group.
Issues of Notes under the Programme have been authorised by a resolution of the Board of Directors of the Issuer passed on 16 March 2005 and a minute of delegation of the Group Finance Director of the Issuer dated 1 December 2016.
There are no, and have not been, any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) of which the Issuer is aware in the 12 months preceding the date of this document which may have or have in such period had a significant effect on the financial position or profitability of the Group.
The Issuer does not intend to provide any post-issuance information in relation to any issues of Notes.
For a period of 12 months following the date of this Base Prospectus, copies of the followin g documents will, when published, be available for inspection at the website specified below:
The information on https://www.nationwide.co.uk/ does not form part of this Base Prospectus, except where that information has otherwise expressly been incorporated by reference into this Base Prospectus.
For the purpose of calculating the U.S. Dollar equivalent of the nominal amount of Notes outstanding under the Programme from time to time, the U.S. Dollar equivalent of Notes denominated in another Specified Currency (as specified in the relevant Final Terms) shall be determined, at the discretion of the Issuer, either as of the date of agreement to issue such Notes (the Agreement Date) or on the preceding day on which commercial banks and foreign exchange markets are open for business in London, in each case on the basis of the spot rate for the sale of U.S. Dollars against the purchase of such Specified Currency in the London foreign exchange market quoted by any leading bank selected by the Issuer on the relevant date of calculation.
The U.S. Dollar equivalent of any Zero Coupon Note and any other Note issued at a discount shall be calculated in the manner specified above by reference to the net proceeds received by the Issuer for the relevant issue.
Nationwide Building Society Nationwide House Pipers Way Swindon SN38 1NW United Kingdom
London E14 4BB France United Kingdom
London E14 5LB United Kingdom
Winchester House Plumtree Court 1 Great Winchester Street 25 Shoe Lane London EC2N 2DB London EC4A 4AU United Kingdom United Kingdom
2 King Edward Street 25 Cabot Square London EC1A 1HQ Canary Wharf United Kingdom London E14 4QA
250 Bishopsgate 1 Angel Lane London EC2M 4AA London EC4R 3AB United Kingdom United Kingdom
London EC2N 4AA 75009 Paris United Kingdom France
5 The North Colonnade 16, boulevard des Italiens Canary Wharf 75009 Paris
Citigroup Centre Kaiserstraße 16 (Kaiserplatz) Canada Square 60311 Frankfurt am Main Canary Wharf Federal Republic of Germany
One Cabot Square 5 King William Street London E14 4QJ London EC4N 7AX United Kingdom United Kingdom
United Kingdom
100 Bishopsgate 29, boulevard Haussmann
5 Broadgate London EC2M 2QS United Kingdom
Citigroup Centre Canada Square Canary Wharf London E14 5LB United Kingdom
to the Issuer to the Dealers and the Trustee Allen & Overy LLP Linklaters LLP One Bishops Square One Silk Street London E1 6AD London EC2Y 8HQ United Kingdom United Kingdom
for the financial year ended 4 April 2019 for the financial year ended 4 April 2020 PricewaterhouseCoopers LLP Ernst & Young LLP London WC2N 6RH London SE1 2AF
1 Embankment Place 1 More London Place United Kingdom United Kingdom
Merrill Lynch International 2 King Edward Street London EC1A 1HQ United Kingdom
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.