TIDMLSEG
RNS Number : 0704T
London Stock Exchange Group PLC
22 March 2021
London Stock Exchange Group Plc Annual Report and Accounts,
Notice of Annual General Meeting 2021, Corporate Sustainability
Report, UK Gender Pay Gap Report and related documents.
The Annual Report and Accounts of London Stock Exchange Group
plc (the "Group") for the year ended 31 December 2020 (the "Annual
Report"), Notice of Annual General Meeting 2021 (the "AGM Notice")
and related form of proxy for the Group's 2021 Annual General
Meeting (the "AGM") are being mailed to shareholders today and, in
accordance with paragraph 9.6.1 of the FCA Listing Rules, have been
submitted to the National Storage Mechanism where they will shortly
be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
London Stock Exchange Group has also published today its
Corporate Sustainability Report 2020, which is available on
https://www.lseg.com/investor-relations/sustainability and its UK
Gender Pay Gap Report 2020, which is available on
https://www.lseg.com/about-london-stock-exchange-group/corporate-sustainability
.
London Stock Exchange +44 (0) 20 7797
Group plc Paul Froud - Investor Relations 3322
+44 (0) 20 7797
Lucie Holloway - Media 1222
In compliance with DTR 6.3.5, the following information is
extracted from the Annual Report and should be read in conjunction
with the Group's preliminary results announcement of 5 March 2021
(the "Preliminary Results"). The information reproduced below and
the Preliminary Results together constitute the material required
by DTR 6.3.5 to be communicated in full, unedited text through a
regulatory information service. This is not a substitute for
reading the full Annual Report. Page numbers and cross references
in the extracted information below refer to page numbers and
cross-references in the Annual Report. The Annual Report, the
Preliminary Results and the AGM Notice can be viewed and downloaded
at http://www.lseg.com/investor-relations.
The Annual Report contains the following statements regarding
important events that have occurred during the year on pages 2 to
3:
"Chairman's Statement
Overview
LSEG's role as a systemically important business was again
demonstrated in 2020 as financial markets and the wider global
economy faced the significant challenges of the Covid-19 pandemic
and macro-economic uncertainty. Throughout, our businesses have
focused on operational resilience, delivering continuity of service
to our customers, maintaining orderly markets and managing market
risk. The Group has continued to perform well with total income up
6% to GBP2.4billion and adjusted earnings per share up 5%.We
maintain a strong financial position with good cash generation
supporting investment and product development and have proposed a
final dividend of 51.7 pence per share, representing a total
dividend of 75.0 pence per share, up 7%.
Refinitiv
We successfully completed the acquisition of Refinitiv in
January 2021. It is a transformational transaction, strategically
and financially, and positions the Group for long-term sustainable
growth. Refinitiv brings highly complementary capabilities in data,
analytics and capital markets. We share a commitment to an Open
Access philosophy, working in partnership with our customers, and
this will remain a fundamental pillar of our business strategy.
In October, shareholders approved the sale of the Borsa Italiana
Group to Euronext, in order to facilitate regulatory approval of
the Refinitiv transaction. Upon closing, in the first half of 2021,
LSEG is expected to receive proceeds in cash (before deductions of
applicable taxes and other transaction related costs) of EUR4.325
billion plus an additional amount reflecting cash generation to
completion. It is LSEG's intention to use the net proceeds from the
Transaction to repay indebtedness related to the Refinitiv
Transaction and for general corporate purposes. The Borsa Italiana
Group has played an important part in LSEG's development and we are
confident that, under Euronext's ownership, it will continue to
succeed and contribute to the Italian economy and to European
capital markets.
Governance
The Board seeks to operate to high governance and ethical
standards. Further detail is available in the Board's Governance
report starting on page 76. In preparation for the proposed
divestment of the Borsa Italiana Group to Euronext, Raffaele
Jerusalmi and Andrea Sironi stepped down from the Board in
November. Ruth Wandhöfer and Marshall Bailey also stepped down from
the Board in March and September respectively, and David Warren
retired as CFO in November. On behalf of the Board, I would like to
thank them for the individual contributions they have made to the
Group's success.
Following the completion of the Refinitiv transaction, Martin
Brand, Erin Brown and Douglas Steenland have joined the LSEG plc
Board as Non-Executive Directors. They have also been appointed to
LSEG plc's Nomination Committee. In November, Anna Manz joined the
Group as Chief Financial Officer and a member of the Board.
Culture
The Board, along with the Executive Committee, seeks to promote
a culture of Group-wide collaboration and customer focus. LSEG has
made good progress this year on these efforts, which you can read
more about on page 57. The Board continues to engage directly with
employees, with candid feedback provided to Directors through a
series of informal meetings as well as more formal interaction. The
Group has also strengthened its commitment to diversity and
inclusion, initiating six dedicated workstreams, each headed by an
Executive Committee member, focused on making LSEG a more inclusive
and racially diverse organisation.
Sustainability
LSEG is committed to supporting the communities in which we
operate around the world, partnering with global and local
charitable organisations. Responding to the impact of Covid-19,
LSEG and the LSEG Foundation donated GBP3.3 million in 2020 for
emergency relief support and longerterm recovery efforts. In May,
LSEG joined the National Business Response Network as a founding
partner, making a GBP1 million investment. The National Business
Response Network was launched in April by Business in the Community
(BITC) and The Prince's Responsible Business Network. The work of
BITC is closely aligned with the Group's longstanding commitment to
supporting SMEs, which are critical to the UK economy.
In November, the LSEG Foundation celebrated its 10th
anniversary. Since its launch in 2010, the Foundation has donated
over GBP11 million to help empower people and enrich communities in
the locations where we operate. The Group also encourages
colleagues to support charitable initiatives, offering two paid
volunteering days per year. Since the scheme launched in 2017,
employees across our locations have donated over 7,000 hours and,
despite the challenges of remote working, have continued to
fundraise and support charities virtually in 2020.
As a global company, we take our responsibility to supporting
the transition to a more sustainable economy seriously. The debate
among issuers, investors, regulators, policy makers and wider
society is quickly evolving and LSEG remains well positioned to
engage on and lead this discussion. We estimate that the green
economy is currently worth approximately US$4 trillion,
representing 6% of the market capitalisation of all global listed
companies. LSEG offers companies and investors a comprehensive
green and sustainable product offering providing access to capital
and worldclass data and analytics. In September, FTSE Russell
launched its enhanced Green Revenues 2.0 Data Model, a powerful
tool that investors can use to quantify a company's contribution to
the green economy in a single percentage of revenue figure. A high
degree of overlap with the incoming EU Taxonomy will also allow
asset managers to demonstrate the proportion of a fund that
contributes to the green economy.
As a listed company, LSEG is also carefully considering the
climate risks and opportunities facing our own business. LSEG was
one of the first companies in the financial services sector to
commit to a long-term science-based carbon reduction target,
committing to a 40% reduction in our carbon emissions by 2030. In
2020, our Environmental Management Group continued to make good
progress against our sustainability targets to improve
environmental efficiency year on year, resulting in a 9% reduction
in total market-based emissions compared to 2019. Full details can
be found later in this report on page 64.
Summary
Despite the challenges faced by the pandemic and macro-economic
and political uncertainty, LSEG has delivered another good
financial performance. LSEG holds a privileged position at the
heart of financial markets and the successful completion of the
Refinitiv transaction will enable the Group to further capitalise
on the digital transformation of financial markets infrastructure.
On behalf of the Board, I would like to thank our employees for
their dedication and professionalism during what has been a very
demanding and challenging year. I look forward to working with the
Board and the Executive Committee to continue to develop our global
business in partnership with our customers.
Don Robert
Chair
5 March 2021"
The Annual Report contains the following statements regarding
principal risks and uncertainties facing the business, with respect
to principal strategic, financial and operational risks, on pages
24 to 39, and, with respect to financial risk management, on pages
148 to 154:
"The management of risk is fundamental to the successful
execution of our strategy, including integration of the Refinitiv
businesses, and to the resilience of our operations. During 2020,
the Group successfully adapted its systems, processes and controls,
to maintain its operations, supporting a high degree of remote
working, during the Covid-19 pandemic. The Group continued to
support its key markets and deliver stable and resilient services
that meet our customers' needs, whilst making preparations for
integration with Refinitiv and for the divestment of Borsa Italiana
Group, and for orderly transition to a post-Brexit environment.
As LSEG's risk culture, objectives, appetite, governance and
operations are well established, these descriptions naturally do
not significantly change from year to year. We have included a
category of emerging risks which are new to the Group or which are
difficult to quantify due to their remote or evolving nature. In
most cases, the mitigation for such risks is to establish
appropriate contingency plans and monitor the development of the
risk until it can be quantified and removed or included as a
principal risk.
For each principal risk, the Group has Executive leads with the
Chief Risk Officer and Risk function providing a second line of
oversight. Information describing the risk post the Refinitiv
acquisition has been summarised together with mitigating actions.
More detailed information related to the Refinitiv transaction can
be found in the shareholder prospectus dated 9 December 2020. The
risk trend indicator reflects the risk of the new Group.
FURTHER DETAIL
Our strategic risk objectives, current risk focus, a narrative
description of our risk appetite, how LSEG's risk management
framework operates, as well as an overview of the CCPs risk
management and operations, are well established and are not
described here.
Detailed information can be found in our risk management
oversight supplement. Please visit:
www.lseg.com/about-london-stock-exchangegroup/risk-management-oversight
.
LSEG Risk Governance
OVERVIEW OF PRINCIPAL RISKS:
Strategic Risks Financial Risks Operational Risks Emerging Risks
Global economy Credit risk Data governance Geopolitical risk
Regulatory change Market risk Information and Emerging technology
Compliance Liquidity risk cyber security threats Climate-related
Reputation/Brand/IP CCP - settlement Technology risk
Transformation and custodial risk Change management
Divestment of Borsa Capital risk Resilience
Italiana Group Model risk Third-party risk
Employees and talent
STRATEGIC RISKS
Risks related to our strategy (including the implementation of
strategic initiatives and external threats to the achievement of
our strategy). The category also includes risks associated with
reputation or brand values.
Risk Description Mitigation Risk level
Global economy The footprint of the Group continues Increasing
(Executive Lead: Chief Executive to broaden, further improving
Officer, Executive Committee) the geographical diversification
As a diversified markets infrastructure of the Group's income streams
business and data and analytics which mitigates the risks of
service provider, we operate a localised economic downturn.
in a broad range of equity, Furthermore, income streams across
fixed income and derivative the business divisions of the
markets servicing customers Group comprise annuity and fee
who increasingly seek global based recurring revenues to balance
products and innovative solutions. against more cyclical and market
If the global economy underperforms, driven activity. This diversification
or there is lower activity in has been significantly enhanced
our markets, it may lead to (including enjoying an increasing
lower revenue. proportion of recurring revenues)
The Covid-19 pandemic has turned since the completion of the acquisition
into a global pandemic since of Refinitiv that occurred on
emerging as a risk to the global 29 January 2021.
economy in early 2020. Emergency The Group performs regular analyses
interest rate cuts, unprecedented to monitor markets and the potential
fiscal measures, government impacts of market price and volume
schemes and central bank support movements on the business. Activities
frameworks have bolstered global include Key Risk Indicator tracking,
economies and financial markets. stress testing, and hedging.
The scale of the longer-term LSEG continues to actively monitor
impact on the global economy the ongoing developments following
is still uncertain but in the the UK's exit from the EU to
short term global growth remains ensure continuity of market function
subdued (with some economies and customer service in the event
in or emerging from recession). of a divergence of regulation
This is exacerbated by the uncertainty if no trade agreement is achieved.
with respect to the UK's future The Financial Risk Committee
relationship with the EU and closely monitors and analyses
other trading partners post multiple market stress scenarios
transition period. and action plans in order to
Weaker economic data and low minimise any impacts stemming
levels of inflation have dominated from a potential deterioration
central bank official rate actions. of the macro-economic environment.
The Federal Open Market Committee The stress scenarios are regularly
(FOMC) has left the Fed Funds reviewed and updated in response
target rate unchanged during to changes in macro-economic
2020. The Bank of England's conditions.
Monetary Policy Committee (MPC) LSEG monitors the potential impact
has maintained the Bank rate of macro-economic and political
at 0.1% since March 2020 Meanwhile events on our operating environment
the European Central Bank (ECB) and business model and the Group
has left rates unchanged at is an active participant in international
zero and has restarted its quantitative and domestic regulatory debates..
easing programme.
Whilst well diversified, these
global risks could have an adverse
impact on the Group's businesses,
operations, financial condition
and cash flows.
Refinitiv Transaction
Since the acquisition of Refinitiv,
the Group has increased its
geographical footprint which
further reduces its exposure
to downturns in individual markets.
-------------------------------------------- -----------
For more information, see Market trends and our response on pages 16-23,
and Note 2 to the accounts, Financial Risk Management on pages 148-154.
Regulatory change and compliance Changes in the regulatory environment Increasing
(Executive Lead: Chief Executive form a key input into our strategic
Office, Divisional Group Heads planning, including the political
) impact on our growth strategies,
LSEG is a global business operating both organic and inorganic. We
in multiple regulatory environments monitor regulatory developments
that reflect the diversity of continually and engage directly
products and the jurisdictions with regulatory and governmental
in which it operates. The Group authorities at local, regional
is exposed to risks associated and national levels.
with the management of changes The Group also had a structured
to these regulatory requirements, Brexit programme which included
including regulatory specialists engaging
Brexit - Following the UK's at appropriate levels and on
exit from the EU, there is a financial market infrastructure
risk of regulatory bifurcation considerations. Risks are actively
which could lead to liquidity monitored and managed and the
fragmentation in European Capital Group has implemented its contingency
Markets. plans to maintain continuity
MiFID II/MiFIR - Risk of potential of service to customers and orderly
impacts on the Group, particularly functioning of its markets, including
in the areas of trading transparency the launch of new operations
(e.g. double volume cap) and in the EU27 - see the sections
market data (fees transparency on Geopolitical risks and Emerging
and potential introduction of risks on page 39.
consolidated tape) as a result On 21 September 2020, the European
of two reviews of the directive: Commission extended this equivalence
-- The European Commission proposed decision for another 24 months
a targeted review of the directive confirming LCH Ltd's ability
on 24 July 2020, amending information to continue to offer all clearing
requirements, product governance services for all products and
and positions limits to help services to all members and clients.
the recovery from the Covid-19 The Group's European CCPs are
pandemic. allowed under the Bank of England
-- In parallel, ESMA continued Temporary Recognition Regime
its targeted review of the Directive (TRR) to provide clearing services
and Regulation, with the view and activities in the UK until
of contributing to a broader at least the end of 2023.
review by the European Commission LSEG's key objectives are to
in 2021. provide continuity of stable
Benchmark Regulation - Risk financial infrastructure services
arising from the ongoing regulatory as part of our global remit.
focus on the role of benchmarks As the various regulatory initiatives
in the market and regulation progress, there will be greater
of benchmark providers continues certainty with regard to their
to increase in several major likely final form. The Group
jurisdictions around the world. continues to focus on remaining
In July 2020, the EU Commission well positioned to respond to
proposed a focused EU BMR Review regulatory developments and further
which has yet to conclude. opportunities exist for the Group
Regulation Impacting CCPs - to deliver solutions to help
Risk due to regulatory initiatives the market address the changing
with the potential to impact regulatory environment including
cleared derivatives markets those linked with the departure
and CCPs which continue through of the UK from the EU.
international standard setters
and regulators in the EU and
US and other major jurisdictions.
Our primary focus remains on
development of a coherent, cross-border
regulatory framework for market
access to global CCPs.
Financial Transactions Tax (FTT)
- Risk of adverse impacts to
volumes in financial markets
from possible introduction of
a FTT, which is being discussed
by a sub-set of EU members,
under enhanced cooperation.
Information and cyber security
standards - Risk of conflicting
or duplicative regulatory requirements
emerging in the information
and cyber security domain due
to the, increasing legislative
and regulatory focus on cyber
security and data protection
in many of our key regulatory
jurisdictions which could impact
our operations and compliance
models. LSEG supports the regulatory
efforts on these issues, as
they increase the standards
for customers, vendors and other
third parties with whom we interact.
Refinitiv Transaction
Following the acquisition of
Refinitiv, the increased breadth
of our services and footprint
of the Group into new jurisdictions,
increases the risk of exposure
to regulatory change globally.
-------------------------------------------- -----------
For more information on regulatory changes, see Market trends and our
response on pages 16-23.
Compliance The Group continues to maintain Increasing
(Executive Lead: Group General systems and controls to mitigate
Counsel, Group Chief Executive compliance risk. Compliance resources
Officer) with specialised knowledge of
There is a risk that one or each of the regulated services
more of the Group's entities provided by the Group are aligned
may fail to comply with the with the regulated entities operating
laws and regulatory requirements within each business division
to which it is, or becomes, and provide regulatory advice
subject. In this event, the to the business, Corporate Functions
entity in question may be subject and Boards to support them in
to censures, fines and other ensuring that both day-today
regulatory or legal proceedings. operations and business developments
Refinitiv Transaction are undertaken in accordance
Following the acquisition of with the relevant regulatory
Refinitiv, the increased breadth obligations. Compliance policies
of our services, number of regulated are reviewed regularly and employees
entities and the substantially across the Group are reminded
increased number of countries of the requirements to which
in which the Group operate, they are subject under these
including high-risk countries, policies through the deployment
increases the Group's compliance of mandatory annual training,
risk. the completion of which is tracked.
Refinitiv Transaction
Refinitiv, prior to its acquisition
by the Group had its own compliance
framework. In preparation for
the Refinitiv transaction a dedicated
Compliance workstream has been
established to ensure that, in
developing the future state operating
model for Compliance, the current
level of focus on, and support
to, the regulated entities within
the combined group is maintained
and that Compliance policies
and training thereon is updated
as necessary to meet the needs
of the combined group. As owners
of the Group Financial Crime
Policy, Compliance are also engaged
with relevant stakeholders in
the design of the organisation
and procedures that will enhance
and support the application of
effective AML and KYC controls
in a global organisation.
Since the close of the transaction,
the Refinitiv business is now
subject to the Group compliance
standards as described above.
-------------------------------------------- -----------
Reputation/Brand/IP (Executive LSEG has policies and procedures Increasing
Lead: Chief Executive Officer, in place which are designed to
Executive Committee) ensure the appropriate use of
Several of the Group's businesses the Group's brands and to maintain
are iconic and trusted international the integrity of the Group's
brands. The strong reputation reputation.
of the Group's businesses and LSEG actively monitors the use
their brand names are valuable of its brands including monitoring
for the Group and its business for internet brand impersonation
credibility with regulators and social media sentiment, and
and attractiveness to customers other intellectual property in
alike. Some events or actions order to prevent, or identify
could damage the reputation and address, any infringements.
and brand of the Group, such The Group protects its intellectual
as miscommunication on social property by relying upon a combination
media, misrepresentation, interruption of trademark laws, copyright
of services or regulatory censure laws, patent laws, design laws,
which could be consequence adversely trade secret protection, database
impact the Group's business, rights, confidentiality agreements
financial condition and operating and other contractual arrangements
results. with its employees, affiliates,
The Group has a portfolio of customers, suppliers, strategic
intellectual property including partners and others.
brands, products and services Refinitiv Transaction
which are proprietary and protected The Refinitiv business is now
by patent, trademark and copyright. subject to the Group Risk Framework
Some of the Group's products since the completion of the Refinitiv
and processes may not be subject transaction. Group policies have
to intellectual property protection, been updated and approved for
and competitors of the Group the expanded Group, and policy
may also independently develop embedding and compliance is tracked
and patent, or otherwise protect by Group Risk.
products or processes, that
are the same or similar to the
products or processes of the
Group. In either scenario, failure
to protect the Group's intellectual
property rights adequately could
result in reputational damage
and affect the Group's ability
to compete. Additionally, any
financial impact would be compounded
by costs incurred to defend
or enforce the Group's intellectual
property rights.
Refinitiv Transaction
The acquisition of Refinitiv
introduces additional iconic
brands and intellectual property
to the Group's portfolio. This
increases the reputational and
brand risks and enhances the
need for effective mitigation
strategies.
-------------------------------------------- -----------
Transformation The Group's exposure to transformation Increasing
(Executive Lead: Chief Executive risk is mitigated through the
Officer, Chief Operating Officer) application of the Group's Enterprise
The Group is exposed to risk Risk Management Framework to
of loss or failure resulting deploy consistent, appropriate
from transformation or integration Risk Management across the Group,
as it continues to grow rapidly both during and post-acquisition.
both organically and inorganically. The governance of the Group following
Acquisitions may, in some cases, a merger or acquisition is aligned
be complex or necessitate change and strengthened as appropriate.
to operating models, business The Integration Management Office,
models, technology and people. reporting to the Executive Committee,
This is particularly likely has been established to oversee
for the current integration the integration of LSEG and Refinitiv.
of Refinitiv. The combined business' Oversight during transformation
success will have a high dependency is provided by a Steering Group
on its ability to integrate comprising Integration Leaders
the businesses of LSEG and Refinitiv representing Executive Committee
and to address the challenges members with regular reports
associated with the delivery to the Executive Committee, Board
of synergies. The benefits or Risk Committee and the Board.
business performance expected The Group Transformation Forum,
as a result of the transaction reporting to the Executive Committee,
may not be achieved as anticipated has been established and is responsible
or at all, and the costs to for the successful delivery of
achieve the synergies and benefits the Group Strategic Programmes
may be higher than anticipated. and providing oversight across
A failure to align the businesses the Group's change Portfolio.
of the Group successfully may This is a programme execution
lead to an increased cost base forum comprising senior Business
without a commensurate increase Leaders responsible for significant
in revenue; a failure to capture operational and delivery issues,
future product and market opportunities; risks and dependencies impacting
and risks in respect of capital the Group Investment Portfolio.
requirements, regulatory relationships The Group has an effective track
and management time. record of integrating acquisitions
In particular, some of the key and delivering tangible synergies,
integration challenges associated supported by robust governance
with combining LSEG and Refinitiv and programme management structures
include: coordinating and consolidating through the Group's Change Framework
services and operations, particularly to mitigate change-related risks.
across different countries, The new Group will continue to
regulatory regimes (including work hard to address these changing
in relation to different business customer needs in an evolving
lines) and cultures, consolidating regulatory and technological
infrastructure, procedures, landscape.
systems, facilities, accounting
functions and policies, and
managing a significant increase
in the number of employees across
geographically dispersed locations
(from approximately 5,551 to
approximately 25,118, with a
material increase in the number
of employees in certain locations
including India, the Philippines
and Poland), which may have
challenges for compensation
structures and other employee
policies, oversight and management
of employees and corporate culture.
These challenges may be accentuated
as a result of widespread remote
working arrangements due to
measures adopted in response
to the Covid-19 pandemic. Challenges
may also include operating and
integrating a large number of
different technology platforms
and systems, including maintaining
the operational resilience and
security of legacy platforms,
and consolidating services,
or developing new services,
where underlying assets used
to provide those services are
subject to contractual commitments
with third parties.
The newly combined company will
face significant competition
in each of its main business
areas, including Data & Analytics
(indices data, risk and analytics);
Capital Markets (primary and
secondary capital markets trading)
and Post Trade (clearing, settlement,
central securities depository
services and risk management
services). The market segments
for the Group's data, information,
software, services and products
are highly competitive and are
subject to rapid technological
changes and evolving customer
demands and needs.
As a result of the EC conditional
approval of the Refinitiv acquisition
on 13 January 2021, LSEG has
committed to divest the Borsa
Italiana Group to Euronext N.V..
The Borsa Italiana Group will
be held separate from the wider
group until closing of the divestment.
The separation of the Borsa
Italiana Group creates further
complexities and demands on
key resources supporting the
integration of Refinitiv. There
are also existing risks to LSEG
that will be impacted by the
acquisition of Refinitiv Transaction
and new risks to LSEG as a result
of the transaction which are
each described in the shareholder
prospectus related to the transaction
dated 9 December 2020.
The additional effort related
to M&A, especially the post-transaction
alignment activities for the
Refinitiv transaction, could
have an adverse impact on the
Group's day-to-day performance
and/or key strategic initiatives
which could damage the Group's
reputation and financial performance.
The size and complexity of recent
acquisition targets as well
as those acquired in the past
five years, have increased the
Group's transformation risks.
However, the acquisition's aim
is to increase the Group's opportunities
to compete on a global scale
and diversify its revenue footprint
by industry, geography and customer
base.
-------------------------------------------- -----------
Divestment of Borsa Italiana A Separation Management Office New
Group for the Divestment (the SMO)
(Executive Lead: Chief Executive has been established, headed
Officer, Executive Committee, by David Shalders, Chief Integration
Group Board) Officer and Group COO. The SMO
As part of LSEG's commitments is responsible for managing the
to the EC in connection with overall separation delivery process
conditional approval of the and will be responsible for ensuring
Refinitiv acquisition, LSEG that the activities expected
has agreed to divest the Borsa to result from the divestment
Italiana Group to Euronext N.V.. are properly monitored, reported
Alcis Advisers GmbH, the monitoring and delivered.
trustee, will oversee LSEG's The SMO comprises senior leaders
compliance with the commitments from across the business. LSEG
on behalf of the EC. has also engaged a leading global
The divestment remains subject external consulting firm, which
to a number of conditions, including is a specialist in planning and
additional regulatory approvals. delivering largescale and complex
If such conditions are not satisfied business separation projects
(or, where possible, waived), for global institutions, to support
this could delay or prevent the divestment.
completion of the Borsa Italiana Separation activities continue
Group divestment. to be managed with close oversight
The Borsa Italiana Group will from senior executives, with
need to be managed separately individual members of the Executive
from the wider Group until closing Committee accountable for the
of the divestment. delivery of separation activities
There are existing risks to within their own divisions or
LSEG that will be mitigated functions and the SMO responsible
by the divestment and new risks for the coordination of activities
to LSEG as a result of the divestment. particularly where they lie across
The separation of Borsa Italiana multiple areas of accountability.
Group creates complexities and The SMO will report to the Board
demands on key resources supporting on a regular basis.
the integration of Refinitiv. Given the overlap between the
These challenges may be accentuated separation activities of Borsa
as a result of widespread remote Italiana Group and those as part
working arrangements due to of the Integration of LSEG and
measures adopted in response Refinitiv, resources, systems,
to the Covid-19 pandemic. Challenges and activities within the SMO
may also include operating and are also within the Integration
separating a large number of Management Office (IMO) oversight
different technology platforms
and systems, including maintaining
the operational resilience and
security of those platforms
and services. Provisions of
such platforms and services
have been documented and agreed
by both Borsa Italiana Group
and LSEG under a Separation
Framework Agreement.
-------------------------------------------- -----------
FINANCIAL RISKS
The risk of financial failure, loss of earnings and/or capital
as a result of investment activity, lack of liquidity, funding or
capital, and/or the inappropriate recording, reporting and
disclosure of financial results, taxation or regulatory
information.
Risk Description Mitigation Risk level
Credit risk Clearing Static
(Credit risk Executive Lead: As CCP members continue to work
Chief Financial Officer, Group towards strengthening of their
Head of Post Trade) balance sheets, the risk to
Clearing LSEG CCPs of a member default
CCPs in the Group are exposed reduces, although continuing
to credit risk as a result geopolitical uncertainty continues,
of their clearing activities. and the banking sectors of some
A default by a CCP clearing countries remain stressed. The
member that could not be managed financial risks associated with
within the resources of the clearing operations are further
defaulted clearing member, mitigated by:
could adversely affect that -- Strict CCP membership rules
CCP's reputation. LSEG CCPs including supervisory capital,
are required to make a proportion financial strength and operational
of their regulatory capital capability
available to cover default -- The maintenance of prudent
losses after the defaulter's levels of margin and default
resources have been exhausted funds to cover exposures to
and prior to allocation of participants. Members deposit
losses to non-defaulters and margin computed at least daily,
so, in extreme circumstances, to cover the expected costs
a default could lead to a call which the clearing service would
on the Group CCPs' own capital incur in closing out open positions
'skin-in-the-game'. CCPs may in a volatile market in the
also be exposed to credit exposure event of the member's default.
to providers of infrastructure A default fund sized to cover
services such as Central Securities the default of at least the
Depositaries (CSDs) and commercial two members with the largest
banks providing investment exposures in each service using
and operational services. In a suite of extreme but plausible
addition, certain CCPs within stress tests mutualises losses
the Group have interoperability in excess of margin amongst
margin arrangements with other the clearing members
CCPs requiring collateral to -- Regular 'Fire Drills' are
be exchanged in proportion carried out to test the operational
to the value of the underlying soundness of the CCPs' default
transactions. The relevant management processes. The CCPs
clearing provider entities of the Group successfully completed
within the Group are therefore the fire drill requested by
exposed to the risk of a default ESMA to be completed while working
of other CCPs under such arrangements. from home
Non-Clearing -- Infrastructure providers
CCPs and other parts of the are regularly assessed in line
Group are also exposed to credit with policy
risk as a result of placing -- During the Covid-19 crisis,
money with investment counterparties CCPs have constantly monitored
on both a secured and an unsecured their Clearing Members/Counterparties
basis. Losses may occur due credit quality. No significant
to the default of either the creditworthiness deterioration
investment counterparty or or delay in due payments was
of the issuer of bonds bought observed
outright or received as collateral. Non-Clearing
The Group's credit risk also Policies are in place to ensure
relates to its customers and that investment counterparties
counterparties being unable are of good credit quality,
to meet their obligations to and at least 95% of CCP commercial
the Group either in part or bank deposits are secured. CCP
in full. There is an enormous and non-CCP counterparty concentration
focus on the impacts of climate risk is consolidated and monitored
change on credit risks, although daily at the Group level and
methodologies are still being reported to the Executive Committee
developed, we do not believe and to the Board Risk Committee,
this will give rise to significant including limits and status
increased risks in the short rating.
term, and will monitor market Group companies make a judgement
development, in particular on the credit quality of their
the proposed climate stress customers based upon the customer's
tests as part of the UK Prudential financial position, the recurring
Regulation Authority Biennial nature of billing and collection
Exploratory Scenario (BES) arrangements and, historically,
in 2021. a low incidence of default.
Refinitiv Transaction During the Covid-19 crisis,
Refinitiv is exposed to credit the Group's treasury function
risk that might materialise has constantly monitored their
as a result of customer late Counterparties' credit quality.
payment or default on obligations No significant creditworthiness
to Refinitiv. There is further deterioration or delay in due
credit risk in the use of Treasury payments was observed.
investment and derivative counterparties Refinitiv Transaction
on an unsecured basis. In addition, Since the completion of the
Refinitiv has counterparty Refinitiv transaction, an alignment
credit exposure through its of capture and treatment of
trading venues that offer the the Group's credit risks, governed
guaranteed settlement principle. by applicable, appropriate and
consistent policies is being
embedded.
------------------------------------------------------------- -----------
For more information on this risk see Note 2 to the accounts, Financial
Risk Management on pages 148-154.
Market risk Clearing Increasing
(Executive Lead: Chief Financial The margins and default funds
Officer, Group Head of Post referred to previously are sized
Trade) to protect against latent market
Clearing risk. The adequacy of these
The Group's CCPs assume the resources is evaluated daily
counterparty risk for all transactions by subjecting member and customer
that are cleared through their positions to 'extreme but plausible'
markets. In the event of default stress scenarios encapsulating
of their clearing members, not only historical crises,
therefore, credit risk will but theoretical forward-looking
manifest itself as market risk. scenarios and decorrelation
As this market risk is only events. All our CCPs are compliant
present in the event of default with the appropriate regulatory
this is referred to as 'latent requirements regarding margin
market risk'. The latent market calculations, capital and default
risk includes interest rate rules. Latent market risk is
risk, foreign exchange risk, monitored and managed on a day-to-day
equity risk and commodity price basis by the risk teams within
risk as well as country risk, the clearing services. Committees
issuer risk and concentration overseeing market risks meet
risk. This risk is greater on a regular basis. All CCPs
if market conditions are unfavourable within the Group have proven
at the time of the default. their resiliency during periods
Non-Clearing of increased market volatility
The Group is exposed to foreign as observed at the start of
exchange risk as a result of the Covid-19 pandemic.
its broadening geographical Non-Clearing
footprint. There are, however, FX risk is monitored closely
also benefits of global diversification and translation risk is managed
including reduced exposure by matching the currency of
to local events such as the the Group's debt to its earnings
UK Brexit vote and certain to protect key ratios and partially
geopolitical tensions. The hedge currency net assets. FX
Group is exposed to interest derivatives including cross-currency
rate risk through its borrowing swaps are used - under a control
activities (including to support framework governed by LSEG Board
M&A objectives) and treasury approved Treasury Policy.
investments. Further changes The split between floating and
in interest rates may increase fixed debt is managed to support
the Group's exposure to these the Group's target of maintaining
risks. Similar to credit risks, an interest coverage ratio that
regulators are also considering underpins a good investment
the impacts of climate change grade credit rating.
on market (systemic) risks, Authorised derivatives can be
and whilst we do not foresee used to:
any short-term material risks, * transform fixed rate bond debt, to supplement a mix
we will also keep this under of short dated commercial paper and floating rate
review. loan borrowings, to achieve the Group's policy
Refinitiv Transaction objective, and / or
Following the acquisition of
Refinitiv, the Group exposure
to foreign exchange risk has * hedge prospective FX and interest rates ahead of the
increased substantially as completion of a planned M&A transaction to protect
a result of its global footprint. the financial position of the Group.
Additionally, financing activities
and treasury investments increase
the exposure to interest rate Refinitiv Transaction
risks. In addition, Refinitiv The new Group plans central
trading venues that offer the co-ordination and management
guaranteed settlement principle of Treasury operations. This
can expose the Group to further extends to alignment of Treasury
latent market risk. teams' objectives, working under
a revised policy framework consistent
with the Group's existing approach,
and includes the planned refinancing
of Refinitiv's debt on significantly
improved terms.
------------------------------------------------------------- -----------
For more information on this risk, see Note 2 to the accounts, Financial
Risk Management on pages 148-154.
Liquidity risk Clearing Static
(Executive Lead: Chief Financial The Group's CCPs have put in
Officer, Group Head of Post place regulatory compliant liquidity
Trade) plans for day-to-day liquidity
Clearing management, including contingencies
There are two distinct types for stressed conditions. The
of risk to which the Group's Group's CCPs have multiple layers
CCPs are exposed to that are of defence against liquidity
commonly referred to as liquidity shortfalls including intraday
risk - market liquidity risk margin calls, minimum cash balances,
and funding liquidity risk. access to contingent liquidity
The former is the risk that arrangements, and, for certain
it may be difficult or expensive CCPs, access to central bank
to liquidate a large or concentrated liquidity.
position and is addressed under Under the Enterprise Risk Management
market risk. The latter is Framework (ERMF), CCP investments
the risk that the CCP may not must be made in compliance with
have enough cash to pay variation the Group CCP Financial Risk
margin to non-defaulters or Policy (as well as the policies
to physically settle securities of the CCPs themselves). These
delivered by a non-defaulter policies stipulate a number
that cannot be on-sold to a of Risk Management standards
defaulter. including investment limits
The Group's CCPs collect clearing (secured and unsecured) and
members' margin and default liquidity coverage ratios. Committees
funds contributions in cash overseeing CCP investment risk
and/or in highly liquid securities. meet regularly.
To maintain sufficient ongoing Each CCP monitors its liquidity
liquidity and immediate access needs daily under stressed and
to funds, the Group's CCPs unstressed assumptions and reports
deposit the cash received in to the Group Financial Risk
highly liquid and secure investments, Committee each month.
such as sovereign bonds and Non-Clearing
reverse repos, as mandated Requirements for liquidity including
under EMIR; securities deposited headroom requirements are set
by clearing members are therefore out in the Group's Board approved
held in dedicated accounts Treasury Policy. The Group maintains
with Central Securities Depositories appropriately sized liquidity
(CSDs) and/or International facilities for business as usual
Central Securities Depositaries and, from time to time, may
(ICSDs). The Group's CCPs also increase resources to find large
hold a small proportion of scale acquisitions. The Group
their investments in unsecured monitors its requirements on
bank and money market deposits an ongoing basis. Stressed facility
subject to the limitations headroom is assessed regularly
imposed by EMIR. The successful and on a one-off basis for working
operation of these investment capital reviews associated with
activities is contingent on large scale acquisitions using
general market conditions and plausible downside business
there is no guarantee that projections.
such investments may be exempt Group Treasury activities are
from market losses. managed within the constraints
Non-Clearing & Refinitiv of a Board approved policy by
Liquidity risk in a non-clearing the Group Treasury team that
context is the risk that the is overseen by the Treasury
firm may be unable to make Committee (a sub-Committee of
payments as they fall due. the Financial Risk Committee,
Their risks could impact the both chaired by the CFO). An
financial position of the Group. update on Group Treasury risks
and actions is provided monthly
to the Financial Risk Committee
and to each meeting of the Board
Risk Committee.
Refinitiv Transaction
The Group has arranged new,
committed bank facilities to
provide comfortable liquidity
headroom to the new Group following
completion of the acquisition
of Refinitiv by LSEG. Headroom
modelling prudency including
stress testing will be maintained.
------------------------------------------------------------- -----------
For more information on this risk, see Note 2 to the accounts, Financial
Risk Management on pages 148-154.
CCP - settlement and custodial Operational risk related to Static
risks settlement is minimised via
(Executive Lead: Group Head highly automated processes reducing
of Post Trade) administrative activities while
The Group's CCPs are exposed formalising procedures for all
to operational risks associated services.
with clearing transactions The operations of the settlement
and the management of collateral, service are outsourced to the
particularly where there are European Central Bank (TARGET2-Securities).
manual processes and controls. Our Business Continuity Plans
While the Group's CCPs have cover all the critical operational
in place procedures and controls processes and related activities.
to prevent failures of these Refinitiv Transaction
processes, and to mitigate Following the close of the Refinitiv
the impact of any such failures, transaction, an alignment of
any operational error could capture and treatment of the
have a material adverse effect new Group's settlement risks,
on the Group's reputation, governed by applicable policies
business, financial condition is being embedded.
and operating results.
The Group provides routing,
netting and settlement to ensure
that securities are settled
in a timely and secure manner.
There are operational risks
associated with such services,
particularly where processes
are not fully automated.
Refinitiv Transaction
The newly acquired Refinitiv
business does not operate a
CCP but is exposed to settlement
risk through trading venues
that offer the guaranteed settlement
principle.
Settlement failure within the
context of the guaranteed settlement
principles implies counterparty
credit risk exposure. This
is addressed in the 'Credit
Risk' section of this report.
------------------------------------------------------------- -----------
Capital risk The Group's Capital Management Increasing
(Executive Lead: Chief Financial Policy provides a framework
Officer) to ensure the Group maintains
Principal risks to managing suitable capital levels (both
the Group's capital are: at Group and solo entity levels),
-- In respect of regulated and effectively manages the
entities, capital adequacy risks thereof. The Group's Treasury
compliance risk (the risk that Policy recognises the need to
regulated entities do not maintain observe regulatory requirements
and report sufficient qualifying in the management of the Group's
capital to meet regulatory resources.
requirements) and capital reporting The Risk Appetite approved by
compliance risk (the risk that the Board includes components
regulated entities fail to related to the Group's leverage
comply with capital reporting ratios and capital risks; Key
and regulatory obligations). Risk Indicators are monitored
If a regulated entity in the regularly. The Group maintains
Group fails to ensure that an ongoing review of the capital
sufficient capital resources positions of its regulated entities
are maintained to meet regulatory to ensure that they operate
requirements, this could lead within capital limits which
to loss of regulatory approvals are overseen by the Financial
and/or financial sanctions Risk Committee, the Executive
-- In respect of regulated Committee and the Board. The
and unregulated entities, commercial Group can manage its capital
capital adequacy and quality structure by varying returns
risk (the risk that Group and to shareholders, issuing new
solo entities do not maintain shares or increasing or reducing
both sufficient quantity and borrowings. The Board reviews
quality of capital to meet dividend policy and funding
commercial requirements) and capacity on a regular basis
investment return risk (the and the Group maintains comfortable
risk that capital is held in levels of debt facility headroom.
subsidiaries or invested in The Group regularly assesses
projects that generate a return debt and equity markets to maintain
that is below the Group's cost access to new capital at reasonable
of capital) cost. The Group is mindful of
-- Availability of debt or potential impacts on its key
equity capital (whether specific metrics when considering changes
to the Group or driven by general to its capital structure.
financial market conditions) Refinitiv Transaction
Refinitiv Transaction Following the close of the Refinitiv
Refinitiv has both regulated transaction, an alignment of
and non-regulated entities. capture and treatment of the
Capital adequacy compliance new Group's capital risks, governed
risk, commercial capital adequacy by applicable policies is being
and quality risk and the risk embedded.
of non-availability of debt
or equity capital are all applicable
to this newly acquired business.
------------------------------------------------------------- -----------
For more information on this risk, see Note 2 to the accounts, Financial
Risk Management on pages 148-154.
Model risk LSEG businesses have industry Static
(Executive Lead: Group Head standard model risk control
of Post Trade, Group Head of and governance pillars in place,
Data & Analytics, Chief Risk including Model Risk Policy,
Officer) the Model Management System,
The Group defines model risk Developer and Validation Documentation
as the potential loss an institution Templates, as well as Development
may incur, as a consequence and Documentation Standards.
of decisions that could be Robust model validation is in
principally based on the output place to ensure Group models
of models, due to errors in are fit for purpose with respect
the development, implementation to the development and implementation
or use of such models. procedures. The Model Risk Management
The key existing model risks team provides model risk status
are in CCP margining, Yield reports on a quarterly basis
Book mortgage valuation, Environmental, to the Model Risk Committee,
Social and Governance (ESG) which oversees model risk across
scoring and the firms' capital the Group.
models. Model risks can impact Model Management System (model
both the reputation and the inventory) has newly added model
financial condition of the risk reporting functionality
Group. that supports model risk reporting
Refinitiv Transaction on the Group and business unit
The newly acquired Refinitiv level.
business relies on a wide range Refinitiv Transaction
of analytical tools and processes Model Risk Management processes
(e.g. RDP, Indices and Benchmarks) are being extended to cover
and results in the addition the inventory of Refinitiv models.
of numerous models to LSEG's
inventory carrying the same
risk as above.
------------------------------------------------------------- -----------
OPERATIONAL RISKS
The risk of loss, or other adverse consequences to the business,
resulting from inadequate or failed internal processes, people and
systems, or from external events.
Risk Description Mitigation Risk level
Data governance The LSEG Chief Data Office (CDO) Increasing
(Executive Lead: Chief Information defines the Group's data standards
Officer, Chief Data Officer, within its Data Policy. The standards
Chief Operating Officer) identify the various data held
Through its various entities, across the Group, access rights/entitlements,
LSEG collects, owns, licenses, any legal or regulatory restrictions
calculates, transforms, and which may apply and how such data
distributes data in many forms is used, and the intended future
(e.g. structured, unstructured, uses. The Data Governance Framework
electronic and print formats, sets out the principles to ensure
audio-visual data, production, Group data is of the highest quality
testing, archive data, derived and meets the highest standards,
data, etc.). LSEG is accountable while highlighting key characteristics
to its customers, counterparties, of data in relation to oversight,
owners, vendors, regulators, function and measurement. As such
and the public, for the careful the Group has defined a consistent,
and proper protection and use standardised approach to procurement,
of its data. collection, ingestion, transformation,
Failure to govern the Group's quality, storage, retention, calculations
data effectively, could result and disposition of its data.
in those data being unfit for Refinitiv Transaction
purpose with respect to availability, The Group's Data Policy and Data
completeness, accuracy, validity, Governance Framework covering
usage, entitlement, and timeliness. the Refinitiv business have been
This could result in the Group in effect since the close of the
or its customers and stakeholders deal. Work is in progress to embed
placing reliance on inadequate this policy.
data when making strategic
or operational decisions, which
could adversely affect the
Group's reputation, financial
condition and operating results.
Refinitiv Transaction
The acquisition of Refinitiv
has substantially increased
the Group's data and analytics
business and the volume, value
and complexity of data which
underpins it as well as the
breadth of stakeholders consumption
and relying on the data. This
in turn increases the risks
associated with ineffective
data governance.
------------------------------------------------ -----------
Information and cyber security The Group continues to invest Increasing
threats in enhancing our information and
(Executive Lead: Chief Information cyber security controls and operational
Officer, Chief Information processes, including our capability
Security Officer) to recover quickly.
Public and private organisations Operational cyber risk scenario
continue to be targeted by analysis is performed to assess
cyberattacks which are growing business impact and residual risk
in frequency, complexity, and which informs our Board approved
sophistication. Cyber-attacks Cyber Security Strategy.
have the potential to adversely Extensive controls aligned to
impact LSEG customers and businesses. the National Institute of Standards
The loss or modification of and Technology (NIST) cyber security
data and information, or disruption framework are in place to prevent,
to our important systems and detect and respond to cyber security
services through any form of threats and potential incidents.
cyber-attack could result in These controls are subject to
a significant, negative reputational regular testing and assurance.
or financial impact to our Thorough onboarding due diligence,
Group. security training, and ongoing
Threats such as ransomware, monitoring of our employees and
theft of customer or sensitive third-party service providers
data, and distributed denial remain key components of the control
of service attacks remain significant framework.
to the financial industry, The Group routinely monitors threat
and we expect these to continue. intelligence and liaises closely
Further, Covid-19 has introduced with global Government agencies,
additional cyber threats which industry forums and regulators
look to exploit remote working to help improve our ability to
arrangements, such as Covid-19 respond to the evolving threats
themed phishing attempts, and faced by our customers, businesses
attacks on video conferencing and our industry.
facilities. Additionally, new Refinitiv Transaction
emerging technologies for the Information security policies
Group such as cloud computing and standards have been aligned
and artificial intelligence across the new Group and are being
could impact our cyber security embedded. These have been designed
risk profile. to reflect the new Group's information
Refinitiv Transaction security and cyber risk exposure.
The expansion of the Group's The Group's information security
geographic footprint, its networks, and technology risk functions
systems and channels increase are being enhanced to ensure a
our exposure to information robust Group-wide capability.
security and cyber threats. Work is in progress to fully embed
these policies.
------------------------------------------------ -----------
Technology The Group continues to invest Increasing
(Executive Lead: Chief Information in the resilience of the technology
Officer) systems and processes that underpin
LSEG is highly dependent on its important business services.
the development and operation The performance and availability
of its sophisticated technology of the Group's systems are constantly
and advanced information systems reviewed and monitored to prevent
and those of its third-party problems arising and where possible,
service and outsourcing providers. ensure a prompt response to any
Technology failures potentially potential service-impacting incident.
leading to system outages may Regular rigorous business impact
impact our customers and the and operational risk scenario
orderly running of our markets, analysis are performed in conjunction
data services and distribution. with the Group Risk, Group Business
The Group continues to recognise Continuity and Crisis Management
the increased technology risk functions to identify, assess
posed by remote working and and remediate potential system
heightened market volatility and governance vulnerabilities.
experienced globally during In addition, all technology solutions
the Covid-19 pandemic. This are comprehensively tested by
could adversely affect the both LSEG Technology and third-party
reputation, the financial condition quality assurance providers as
and the performance of the appropriate; functional, non-
Group. functional, user-acceptance and
LSEG, by the nature of its other testing is performed across
business activities, is exposed all technology environments to
to potentially disruptive technologies ensure products are ready for
in the markets in which it deployment.
operates, which could impact LSEG Technology systems are designed
its ability to compete in its to be highly resilient and alternative
industry. systems are available in the unlikely
Refinitiv Transaction event of multiple failures from
The new Group following the which the system is unrecoverable.
completion of the Refinitiv The Group has additionally worked
acquisition has a larger technology to enhance its service management
footprint and an increased capability and tooling to enhance
reliance on third-party services, technology service delivery to
increasing the technology risk its businesses. The Group actively
for the Group. manages relationships with key
strategic technology suppliers
to avoid any disruption to service
provision which could adversely
affect the Group's businesses.
Where possible the Group has identified
alternative suppliers that could
be engaged in the event of a third-party
failing to deliver on its contractual
commitments. Service Level Agreements
(SLAs) and ongoing monitoring
is in place for key suppliers.
Refinitiv Transaction
A new Group Technology Risk policy,
revised Technology Risk library,
and updated supporting processes
have been defined and are being
embedded. The Group technology
and risk functions are being enhanced
including the formation of a new
Third-Party Risk Management function.
Work is in progress to fully embed
this policy.
------------------------------------------------ -----------
Change management The risks associated with change Increasing
(Executive Lead: Chief Operating are mitigated by effective implementation
Officer, Chief Information of the Group's Change framework.
Officer and Divisional Group This includes Board oversight
Heads) across the Group's change portfolio
The considerable change agenda and project pipeline, to ensure
exposes the Group to the risk these align to the Group and Divisional
that change is either misaligned strategies and support our financial
with the Group's strategic plans. Appropriate governance,
objectives or not managed effectively risk and executive oversight is
within time, cost and quality exercised over individual programmes
criteria and could impact the and projects based on the scale,
resilience of its operations complexity and impact of the change.
and business services. This The purpose of this oversight
risk could be exacerbated by is to confirm changes do not breach
the remote working arrangements the Group's risk appetite, are
in place for most of its global compliant with the approved project
workforce, key third-party management policy and to manage
service providers and of its budget, resource, escalations,
customers and members. risk, issues and dependencies.
The volume of change is driven For software specific development,
by both internal and external software design methodologies,
factors. Internal factors include testing regimes and test environments
a drive for technology innovation, are continuously being enhanced
consolidation and operational to minimise implementation risk.
resilience and by the expected Refinitiv Transaction
divestment of the Borsa Italiana Rigorous planning and oversight
Group (the integration of the was in place ahead of the Refinitiv
Refinitiv business is covered transaction to ensure that technology
under the Transformation section). change strategies and practices
External factors include the are aligned, and to minimise the
changing regulatory landscape risk of disruption to the Group's
and requirements which necessitate services or operations.
changes to our systems and
processes. Design defects,
errors, failures or delays
associated with new, modified
or upgraded technology, products
or services could negatively
impact the business, the financial
performance and the reputation
of the Group.
Refinitiv Transaction
Post-acquisition, the Group
now has a larger and more complex
change portfolio with more
interdependencies and a potential
for greater resource and change
window contention increasing
the technology change risk
for the Group.
------------------------------------------------ -----------
For more information, see the Chair's statement on pages 2-3, and the
Chief Executive's statement on pages 4-7.
Resilience A Group-wide response has been Increasing
(Executive Lead: Chief Information provided to both the FCA and Bank
Officer, Chief Risk Officer of England consultations that
and Divisional Group Heads) reflects our role at the centre
Resilience addresses the ability of financial markets. The response
for the Group to prevent, adapt, highlighted the need for clear
respond and recover from operational communications and a resilience
disruptions to minimise the framework that is embedded within
impact on our customers and the organisational culture.
on the capital markets financial Our Business Continuity plans
stability. Business Continuity have been updated throughout 2020
is central to resilience and and migrated to a single platform
tolerance for our business to enable ease of access and reporting.
strategy. The response to the Covid-19 pandemic
Whilst the Group has in place was driven from our pandemic plan
processes and controls to ensure and was governed using our Crisis
the continuity of its operations, Management structure. A centralised
unforeseen events such as physical framework for decision making
security and system security across the Group drew upon local
threats, epidemy or pandemic, intelligence which ensured consistent
or a major system breakdown, implementation that could be tailored
could impact the continuity to local conditions. Technology
of the Group's operation, reputation infrastructure was bolstered early
and its financial condition. in the pandemic and there are
The Covid-19 pandemic has presented regular communications with colleagues
many challenges throughout about our approach alongside wellbeing
2020 and required a coordinated support. Refinitiv have followed
response across all businesses a similar model to the rest of
to ensure continuity of operations the Group for their Covid-19 response
whilst maintaining the wellbeing with more local decision-making
of all colleagues. Remote working to ensure speed of response across
has put additional pressure multiple locations.
on technology resources and A Crisis Management plan is in
colleagues as they learn to place and regularly tested to
adapt to new working practices. ensure the business can respond
Refinitiv Transaction appropriately in all situations.
Whilst, the new Group's increased Plans must be the approach to
scale and complexity add to resilience.
the resilience risks outlined, Refinitiv Transaction
there are opportunities to A revised set of Business Continuity
leverage the diversity of technology, policies, standards and controls
increased footprint and resources have been defined and are now
to enhance resilience capabilities being implemented. These have
for the benefit of the Group. been designed to reflect the business'
approach to resilience with supporting
functions enhanced to ensure a
robust Group-wide capability.
Work is in progress to fully embed
these policies.
------------------------------------------------ -----------
Third-party risk The Group has a third-party risk Increasing
(Executive Lead: Group Chief management framework in place
Operating Officer, Chief Technology to ensure there are effective
Officer) controls across all stages of
In pursuit of operational excellence, the third-party lifecycle, covering
the Group and its entities the planning of the service, evaluation
engage third-party service and selection of the third-party;
providers, which may include contracting and onboarding; monitoring
outsourcing functions to other and managing the services; and
Group entities and external termination and off-boarding.
service providers, including The framework helps to ensure
Cloud Service Providers (CSPs). that the Group assesses risk at
Increasingly the Group has key stages in the lifecycle and
engaged CSPs to host critical actively manages relationships
services and data. Whilst there with critical third-parties to
are many similarities in the avoid a breakdown in service provision.
risks associated with CSPs The existing outsourcing policy
and traditional outsourcing and controls have been broadened
arrangements, reliance on a to include critical third-party
CSP exacerbates certain third-party suppliers in non-outsourcing arrangements
risks such as data governance and oversight of third-party risk
risks; inability to exit a management has been formally directed
CSP relationship and bring by the Second Line of Defence,
services back in house without to strengthen and formalise the
service disruption; and the risk oversight.
risk of services being concentrated The Group has focused on the ability
on a small set of CSPs. of critical suppliers, who form
Failure to manage the risks part of its supply chain, to continue
associated with the selection, to supply goods and services in
management and oversight of accordance with requirements and
critical third-party suppliers in compliance with contractual
could impact the Group's ability obligations. Due to uncertainties
to deliver its strategic objectives around supply chains at the start
and result in the supplier of the pandemic, an exercise was
being unable to meet its contractual, conducted to identify alternative
regulatory, confidentiality suppliers and to purchase forward
or other obligations to the where practical to ensure that
Group, which could lead to the supply chain was not disrupted.
incurring material financial This analysis has continued throughout
loss, higher costs, regulatory the pandemic and also in the lead
actions and reputational harm. up to and post the end of the
Refinitiv Transaction Brexit transition period. There
Following completion of the have been no significant impacts
Refinitiv acquisition, the to the supply chain for the Group.
new Group outsources certain Refinitiv Transaction
functions to third-party service Following completion of the Refinitiv
providers, including for telecommunications, acquisition the Third-Party Risk
certain finance and human resources Management Framework, which was
administrative functions, facilities enhanced in collaboration with
management and IT services, Refinitiv to address the increased
in order to leverage leading complexity of the third-party
specialised capabilities and landscape, will be embedded across
achieve cost efficiencies. the new Group to deliver consistency
The new Group also relies on in the management of risk for
access to certain data used critical suppliers and outsourced
in its business through licences services. Work is in progress
with third parties and depend to embed this policy.
on third-party suppliers for
data and content that will
be used in its products and
services. Some of this data
is provided exclusively from
particular suppliers and may
not be obtained from other
suppliers. This increases the
risk exposure of the Group
described above.
------------------------------------------------ -----------
Employees and talent We focus on ensuring we attract Static
(Executive Lead: Chief People and retain the right talent for
Officer) our business and continue to foster
The Group's ability to attract a culture of high performance.
and retain key personnel is We operate a rigorous in-house
critical to achieving its strategic recruitment and selection process,
objectives. This is impacted to ensure we bring the best talent
by a number of key factors into the organisation, in terms
including the Group's culture, of their skills, technical capabilities,
reputation, diversity and inclusion, cultural fit and potential. A
career development and training, periodic review of compensation
as well as external impacting and benefit packages against industry
factors of prevailing market standards globally is completed
conditions and changes in the to ensure that we have the ability
regulatory landscape. A failure to attract high calibre of employees.
to adequately manage these A comprehensive annual review
factors could result in a loss of critical roles is undertaken
of key talent or the inability to ensure succession plans are
to recruit an appropriate workforce. in place to minimise the impact
Cultivating a diverse talent of losing critical personnel.
pool and an inclusive culture Career development remains a key
is a key focus of the Group enabler for success, and we have
to ensure we reflect the societies a carefully managed learning and
we serve through delivering development programme which enables
innovative benefits that diversity us to focus on providing colleagues
of thought helps to promote, with a range of courses, materials
but also in light of increased and tools to support their development.
industry-wide expectations Levels of attrition are continually
for ESG transparency and disclosure. monitored, and actions taken where
While we have continued to this is outside of accepted tolerance.
operate a successful workforce We aim to strengthen colleagues'
largely remotely throughout overall sense of engagement and
2020, the development of the level of satisfaction for working
existing Covid-19 pandemic at LSEG, and this is assessed
and the threat of potential through the annual 'Have Your
future pandemics continues Say' engagement survey and analysis
to pose a threat to the health of the findings. During 2020,
and safety and wellbeing of additional engagement surveys
our employees globally. relating to Ways of Working were
Although we have executed on completed semiannually to ensure
our Brexit preparation plans that employees are appropriately
and strategy, uncertainty of supported while they continue
the longer term impact on the to work remotely.
status of the EU citizens in We continue to recognise the importance
the UK and UK citizens in the of the wellbeing of our colleagues
EU continues. and have strengthened our approach
Refinitiv Transaction to supporting colleague wellbeing
In the context of the Refinitiv across the Group. The Wellbeing
transaction, there is a risk framework has been successfully
that some current and prospective delivered in the year covering
employees experience uncertainty the five pillars of wellbeing:
about their future roles within financial, emotional, physical,
the combined business impacting social purpose, and workplace
the ability to retain or recruit choice. New developments include
key talents. the creation of Mental Health
Champions across the Group globally
for which over 340 colleagues
deliver support to fellow colleagues
through this support network.
A social network has been launched
to link colleagues globally to
promote collaboration with other
teams. Wellbeing resource through
webinars, training and access
to Employee Assistance Programme
is provided and is accessible
to all employees globally. This
framework has enabled us to respond
to the pandemic and support colleagues
while working remotely.
Diversity and inclusion remain
a high priority of the Group to
ensure we create an inclusive
environment for all colleagues
to pursue careers and encourage
industry-wide change to increase
equal opportunity for all, and
across every part of LSEG. Our
Diversity and Inclusion programme
is focussed on key areas including
gender, ethnicity, disability,
sexual orientation and gender
identity and other visible and
invisible characteristics and
beliefs. Following on from the
success of the Women Inspired
Network (WIN), we have launched
a global Inclusion Network which
will embrace networks supporting
all elements of diversity. This
includes the launch of the Black
Employee Inspired Network Group
(being), Parenting and Caregivers
Network, Proud Network and Ability
Networks which have all continued
to develop and strengthen across
the Group globally during the
remote working environment. A
virtual inclusion week was successfully
held during September 2020 to
celebrate and promote diversity
across the Group, providing unique
opportunities to connect with
colleagues from different backgrounds
and perspectives, locally and
globally.
------------------------------------------------ -----------
For more information, see Supporting Sustainable Growth on pages 54-67,
Corporate Governance on pages 76-83 and Remuneration Report on pages
98-119.
EMERGING RISKS Risks which are new to the Group or which are
difficult to quantify due to their remote or evolving nature.
Risk Description Mitigation Risk level
Geopolitical risk LSEG monitors the potential impact Increasing
(Executive Lead: Chief Executive of macro-economic and political
Officer, Executive Committee) events on our operating environment
The UK exit from the EU leaves and business model and the Group
significant uncertainty with is an active participant in international
respect to the UK's future relationship and domestic regulatory debates.
with EU and other trading partners
post transition period. Trade
tensions between the US and
its major trading partners,
and more specifically China,
also continues to unsettle global
markets. These could have adverse
impacts on the Group's businesses,
operations, financial condition
and cash flows.
The new Group has a greater
geographical footprint which
leads to increased geopolitical
risk exposure, including some
high-risk jurisdictions. Significant
regulatory change continues
to be managed across the Group
including Brexit, where aspects
of equivalence are likely to
remain for some time.
-------------------------------------------- -----------
Emerging Technology The Group actively monitors new Increasing
(Executive Lead: Chief Information technological developments and
Officer) opportunities such as blockchain
The increased integrated artificial and Artificial Intelligence (AI)
intelligence (AI) in digital and participates in relevant
transformation strategies brings industry and academic forums
with it associated risks such on emerging technologies
as inherent bias in the historical The Group continues to maintain
data and behaviour patterns systems and controls to mitigate
which feed AI algorithms. This the risk resulting from emerging
may give rise to automated decisions technology. Risk arising from
which are not aligned with current the Group's use of AI is identified,
societal expectations or organisational assessed, managed and reported
values. AI use by cyber hackers through the risk framework. We
can also render cyber security align with industry best practices
defence and detective mechanisms and guidance when considering
ineffective. the trustworthiness and bias
Regulators are considering the in AI systems and AI-supported
application of existing or new decision making. The Group ensures
frameworks to manage the development the use of AI is fair, explainable
of innovative financial services and transparent, secure and safe.
technologies, which are important The continuous development of
for maintaining the resilience AI has the potential to impact
and stability in the market industry behaviour and our business,
and allowing innovation with we will continue to monitor and
emerging technology manage this risk closely.
-------------------------------------------- -----------
Climate-related Risk We support consistent global Increasing
(Executive Lead: Group Sustainability standards and encourage continued
Committee) alignment between the EU and
International organisations, UK on sustainable finance. We
governments and regulators are have been members of the EU High
focused on integrating climate Level Expert Group and the Technical
risks and opportunities into Expert Group, and the FCA/PRA
investment decision making, Climate Financial Risk Forum.
to enable transition to a low To further align with the TCFD
carbon economy. This is an area recommendations, the Group has
of emerging and wide-ranging developed climate-related risks
policy making, impacting financial scenarios over both the medium
market participants and corporates. and longer term, and how these
The increased focus from regulators, may impact credit, operational,
investors and other stakeholders, market and liquidity risks.
has generated a requirement In line with increased disclosure
for enhanced climate-related requirements for corporations
risk oversight. Climate-related and financial markets participants,
risks include Transition risks LSEG has taken proactive steps
(e.g. Regulation and Litigation to develop its methodology to
risks) and Physical Risks. define and model how climate
To further align with the Task change impacts its businesses.
Force on Climate-related Financial The aim is to reinforce the Group's
Disclosures (TCFD) recommendations, resilience to acute physical
the Group has developed some risks today and chronic physical
preliminary quantification models risks in the future, and to address
to facilitate the risk assessment transition risks, to be aligned
of climate related risks stemming with the TCFD recommendations,
from the Climate Scenarios previously be prepared for potential future
selected. The two models currently mandatory reporting requirements
developed cover Physical Risks and to protect the Group's reputation
for Operations and Transition - See the TCFD disclosures section
Risks for one of the Group's under Supporting Sustainable
business units. The Operations Growth for more information.
model developed has focused From the review of published
on three main pathways, namely climate scenarios, IEA WEO SDS
the impact of climate events and IEA WEO SPS were selected
on our operations and resultant for transition risk, and for
foregone revenue, the business physical risk, SSP 2 RCP 4.5
disruption and repair costs and SSP 5 RCP 8.5 were considered
for uninsurable buildings and as most appropriate. These scenarios
equipment and the rising insurance cover a <2 degree and 3-4 degree
costs. The associated preliminary scenario, over both the medium
output of the quantification term (2025-2035 for transition
of the financial risk for our risks) and longer term (2030-2050
Operations ranges between the for physical risks).
probable values of GBP395,000 Looking ahead, we plan to continue
and GBP690,000 of likelihood to integrate climate risk into
weighted annual costs before our existing risk management
mitigation over the next 10 frameworks, use and further improve
to 30 years for the Group prior the new Operations model to inform
to the Transaction. With respect future strategic decisions and
to this, it is acknowledged footprint planification, and
that climate-related risks are develop further quantification
inherently linked to other strategic, models and climate risk assessment
financial and operational risks, tools for the other Business
as well as commercial opportunities. Units and for the new Group following
Please see also Supporting Sustainable the Transaction.
Growth on pages 54-67 for details
regarding sustainability.
-------------------------------------------- -----------
Financial Risk Management
The Group seeks to protect its financial performance and the
value of its business from exposure to capital, credit,
concentration, country, liquidity, settlement, custodial and market
(including foreign exchange, cash flow and fair value interest
rate) risks.
The Group's financial risk management approach is not
speculative and adopts a '3 lines of defence' model. It is
performed both at a Group level, where the treasury function
identifies, evaluates and hedges financial risks from a Group
perspective and, locally, where operating units manage their
regulatory and operational risks. This includes clearing operations
at the Group's CCPs (CC&G and LCH Group) that adhere to local
regulation and operate under approved risk and investment
policies.
The Group Chief Risk Officer's team provides assurance that the
governance and operational controls are effective to manage risks
within the Board approved risk appetite, supporting a robust
Enterprise-Wide Risk Management Framework. The Financial Risk
Committee, a sub-committee of the Group Executive Committee and
chaired by the Chief Financial Officer, meets at least quarterly to
oversee the consolidated financial risks of the Group. In addition,
the Treasury Committee, a sub-committee of the Financial Risk
Committee (which is also chaired by the Chief Financial Officer),
meets regularly to monitor the management of, and controls around,
foreign exchange, interest rate, credit and concentration risks and
the investment of excess liquidity, in addition to its oversight of
the Group's funding arrangements and credit ratings. Both
committees provide the Group's senior management with assurance
that the treasury and risk operations are performed in accordance
with Group Board approved policies and procedures. Regular updates,
on a range of key criteria as well as new developments, are
provided through the Enterprise-Wide Risk Management Framework to
the Group Risk Committee. See 'Risk Management Oversight
Supplement' for further detail on the Group's risk framework on our
website at:
www.lseg.com/about-london-stock-exchange-group/risk-managementoversight.
On 31 January 2020, the UK left the European Union and on 24
December 2020 the UK and EU agreed to the EU/UK Trade and
Cooperation Agreement.
The Group had a structured Brexit programme which includes
regulatory specialists engaging at appropriate levels and on
financial market infrastructure considerations. Risks are actively
monitored and managed and the Group has implemented its contingency
plans to maintain continuity of service to customers and orderly
functioning of its markets, including the launch of new operations
in the EU27. Both the UK and the EU conducted assessments of
regulatory equivalence of their respective regimes throughout 2020.
Some of LSEG's cross-border activities benefit from equivalence.
Not all aspects of the UK regulatory framework have been deemed
equivalent by the EU at this stage. The affected companies have
executed contingency plans as follows:
Post Trade
On 1 January 2021, LCH Ltd became a third-country CCP under the
EU framework (EMIR). On 21 September 2020, the European Commission
published an Implementing Decision determining that the UK
framework is equivalent to the EU framework. This equivalence
decision confirms LCH Ltd's ability to continue to offer all
clearing services for all products and services to all EU members
and clients until 30 June 2022. LCH Ltd continues to engage and
cooperate with the relevant authorities in respect of the permanent
recognition of LCH Ltd under EMIR.
In addition, LCH SA and CC&G SpA are allowed under the Bank
of England Temporary Recognition Regime (TRR) to provide clearing
services and activities in the UK for up to three years post 31
December 2020, which may be extended in increments of 12 months
thereafter.
UnaVista TRADEcho BV, an entity within the EU, has been granted
a licence to operate as a Trade Repository for both EMIR and
Securities Financing Transaction Regulations. This entity provides
access to the full range of UnaVista services for EU clients and
customers.
Capital Markets
There is no EU equivalence currently for the purpose of the
Share Trading Obligation which has affected the ability for some EU
firms to trade certain shares on LSE plc. The absence of EU
equivalence for the purpose of the Derivative Trading Obligation
will limit the ability of some EU firms to trade some classes of
derivatives in the UK. The Group's key objectives are to provide
continuity of stable financial infrastructure services as part of
our global remit. As the various regulatory initiatives progress,
there will be greater certainty with regard to their likely final
form. The Group continues to focus on remaining well positioned to
respond to regulatory developments and further opportunities exist
for the Group to deliver solutions to help the market address the
changing regulatory environment, including those linked with the
departure of the UK from the EU.
Turquoise Global Holdings Europe BV (Turquoise Europe), an
entity within the EU, went live on 30 November 2020 and offers the
full range of Turquoise services to EU members. Turquoise Europe is
regulated by the Autoriteit Financiële Markten (AFM - the Dutch
Financial Services and Markets Authority) and the Dutch National
Bank and has a licence to operate as a multilateral trading
facility within the EU.
Borsa Italiana SpA continues to operate as normal within the
EU.
MTS operates throughout the EU through a number of subsidiary
companies and continues to offer all services as normal.
Information Services
FTSE Russell operates around the world through a number of
subsidiary companies and these continue to offer the full range of
services to EU customers and clients.
Capital risk
Risk description Risk management approach
The Group is profitable and strongly The Group focuses upon its overall
cash generative and its capital base cost of capital as it seeks, within
comprises equity and debt capital. the scope of its risk appetite, to
However, the Group recognises the provide superior returns to its shareholders,
risk that its entities may not maintain fulfil its obligations to the relevant
sufficient capital to meet their regulatory authorities and other stakeholders
obligations and ensure that it is not overly dependent
or they may make investments that upon short and medium term debt that
fail to generate a positive or value might not be available at renewal.
enhancing return. Maintaining access to capital and
The Group comprises regulated and flexibility to invest for growth is
unregulated entities. It considers a key management consideration.
that: The Group can manage its capital structure
-- increases in the capital requirements and react to changes in economic conditions
of its regulated companies, or by varying returns to shareholders,
-- negative yields on its investments issuing new shares or increasing or
of cash, or reducing borrowings. The Board reviews
-- a scarcity of debt or equity (driven dividend policy and funding capacity
by its own performance, its capital on a regular basis and the Group maintains
structure, or financial market comfortable levels of debt facility
conditions) headroom. A highlevel summary of the
either separately or in combination Group's capital structure is presented
are the principal specific risks to below: 2020 2019
managing its capital. Book value GBPm GBPm
of capital
------ ------
Total shareholders'
funds 3,711 3,455
------ ------
Group consolidated
debt 1,951 2,085
------ ------
Whilst the Company is unregulated,
the regulated entities within the
Group monitor compliance with the
capital requirements set by their
respective competent authorities and
the terms of reference of the Financial
Risk Committee includes oversight
of the Group's Capital Management
Policy. The Capital Management Policy
seeks to ensure that capital is allocated
optimally in order to maintain a prudent
balance sheet and meet regulatory
requirements, drive growth and offer
suitable returns to shareholders.
Regulated entities within the Group
have to date predominantly issued
equity and held cash to satisfy their
local regulatory capital requirements.
We believe that capital held by Group
companies is sufficient to comfortably
support current regulatory frameworks.
The total amount of cash and financial
assets set aside for regulatory purposes
increased during the year in response
to Covid-19 market volatility. The
aggregate of the Group's regulatory
and operational capital is shown below: 2020 2019
Regulatory GBPm GBPm
and Operational
Capital
------ ------
Total regulatory
and operational
capital 1,352 1,231
------ ------
Amount included
in cash and
cash equivalents 1,242 1,125
------ ------
To maintain the financial strength
to access new capital at reasonable
cost and sustain an investment grade
credit rating, the Group monitors
its net leverage ratio which is operating
net debt (i.e. net debt after excluding
cash and cash equivalents set aside
for regulatory and operational purposes)
to proforma adjusted EBITDA (Group
consolidated earnings before net finance
charges, taxation, impairment, depreciation
and amortisation, foreign exchange
gains or losses and non-underlying
items, prorated for acquisitions or
disposals undertaken in the period)
against a target range of 1-2 times.
The Group is also mindful of potential
impacts on the key metrics employed
by the credit rating agencies in considering
increases to its borrowings. The Group
seeks to maintain a strong investment
grade credit rating over time and
will therefore employ a credible plan
to return to its target range in the
event leverage rises temporarily due
to a debt funded major investment.
As at 31 December 2020, net leverage
was 1.1 times (2019: 1.4 times) and
remains well within the Group's target
range. The Group is comfortably in
compliance with its bank facility
ratio covenants (net leverage and
interest cover) and these measures
do not inhibit the Group's operations
or its financing plans.
---------------------------------------------------------------------------
Credit and concentration risk
Risk description Risk management approach
The Group's credit Group
risk relates to Credit risk is governed through policies
its customers and developed at a Group level. Limits
counterparties being and thresholds for credit and concentration
unable to meet their risk are kept under review. Group
obligations to companies make a judgement on the
the Group either in credit quality of their customers
part or in full, based upon the customer's financial
including: position, the recurring nature of
-- customer billing and collection arrangements
receivables, and, historically, a low incidence
-- repayment of of default. The Group is exposed to
invested cash and a large number of customers and so
cash equivalents, and concentration risk on its receivables
-- settlement of is deemed low by management. The Group's
derivative financial credit risk is equal to the total
instruments. of its financial assets as shown in
In their roles as CCP note 18. No estimated credit losses
clearers to have been recognised on other financial
financial market instruments and there have been no
participants, the significant increases in credit risk
Group's CCPs for these assets.
guarantee final Non-CCP entities
settlement Credit risk associated with cash and
of transactions cash equivalents is managed by limiting
acting as buyer exposure to counterparties with credit
towards rating levels below policy minimum
each seller and as thresholds, potentially overlaid by
seller towards a default probability assessment.
each buyer. They Except where specific approval is
manage substantial arranged to increase this limit for
credit risks as part certain counterparties, investment
of their operations limits of between GBP25 million and
including unmatched GBP100 million apply for periods ranging
risk positions between a week and 12 months, depending
that might arise from on counterparty credit rating and
the default default probability risk. Derivative
of a party to a transactions and other treasury receivable
cleared transaction. structures are undertaken or agreed
For more information with well-capitalised counterparties
see 'Principal and are authorised by policy to limit
Risks and the credit risk underlying these transactions.
Uncertainties', pages CCPs
24 To address market participant and
to 39. latent market risk, the Group's CCPs
Notwithstanding have established financial safeguards
regulations that against single or multiple defaults.
require Clearing membership selection is based
CCPs to invest upon supervisory capital, technical
predominantly in and organisational criteria. Each
secured member must pay margins, computed
instruments or and collected at least daily, to cover
structures (such as the exposures and theoretical costs
government bonds and which the CCP might incur in order
reverse repos), to close out open positions in the
CC&G and the LCH event of the member's default. Margins
Group CCPs are able are calculated using established and
to maintain up to 5% internationally acknowledged risk
of their total models and are debited from participants'
deposits at accounts through central bank accounts
commercial banks on and via commercial bank payment systems.
an Minimum levels of cash collateral
unsecured basis. are required. Non-cash collateral
Through this is revalued daily but the members
potential retain title of the asset and the
for its CCPs to Group only has a claim on these assets
invest on an in the event of a default by the member.
unsecured Clearing members also contribute to
basis (as well as by default funds managed by the CCPs
certain other to guarantee the integrity of the
regulated and markets in the event of multiple defaults
unregulated in extreme market circumstances. Amounts
operations are determined on the basis of the
observing agreed results of periodic stress testing
investment policy examined by the risk committees of
limits), the Group the respective CCPs. Furthermore,
may continue to each of the Group's CCPs reinforces
face some risk of its capital position to meet the most
direct loss from stringent relevant regulatory requirements
a deterioration or applicable to it, including holding
failure of one a minimum amount of dedicated own
or more of its resources to further underpin the
unsecured investment protective credit risk framework in
counterparties. the event of a significant market
Concentration risk stress event or participant failure.
may arise through An analysis of the aggregate clearing
Group entities having member contributions of margin and
large individual default funds across the CCPs is shown
or connected below: Total collateral 2020 2019
exposures to groups held
of GBPbn GBPbn
counterparties whose --------------- ------ ------
likelihood of Collateral
default is driven by security Cash received 113 93
common underlying --------------- ------ ------
factors. This is a Non--cash
particular focus pledged 140 115
of the investment ---------------------------------- ------ ------
approach at the Guarantees
Group's CCPs. pledged 3 4
---------------------------------- ------ ------
Total collateral
as at 31
December 255 212
------ ------
Maximum
collateral
held during
the year 311 242
------ ------
Investment counterparty risk for CCP
margin and default funds is managed
by investing the cash element in instruments
or structures deemed 'secure' by the
relevant regulatory bodies including
through direct investments in highly
rated, 'regulatory qualifying' sovereign
bonds and supra-national debt, investments
in tri-party and bilateral reverse
repos (receiving high-quality government
securities as collateral) and, in
certain jurisdictions, deposits with
the central bank. The small proportion
of cash that is invested unsecured
is placed for short durations with
highly rated counterparties where
strict limits are applied with respect
to credit quality, concentration and
tenor. 2020 2019
GBPbn GBPbn
------- ------
Total investment portfolio 90 85
------- ------
Maximum portfolio size
during the year 150 122
------- ------
Additional portfolio information:
Amount invested securely 99.98% 100%
------- ------
Weighted average maturity
(days) 61 90
------- ------
Associated liquidity risks are considered
in the investment mix and discussed
further below.
To address concentration risk, the
Group maintains a diversified portfolio
of high-quality, liquid investments
and uses a broad range of custodians,
payment and settlement banks and agents.
The largest concentration of treasury
exposures as at 31 December 2020 was
32% of the total investment portfolio
to the French Government (2019: 17%
to the French Government).
Trade and fees receivable
An impairment analysis is performed
monthly using a provision matrix to
measure expected credit losses on
trade and fees receivable. The calculation
reflects current conditions and forecasts
of future economic conditions. None
of the Group's trade receivables are
material by individual counterparty. At 31 Fees receivable <180 >180 Total
December GBPm days days GBPm
2020 GBPm GBPm
Expected
credit
loss rate <1% <1% 64%
---------------- ------ ------ ------
Total
receivables 123 288 14 425
---------------- ------ ------ ------
Expected
credit
loss - (2) (9) (11)
---------------- ------ ------ ------
123 286 5 414
---------------- ------ ------ ------
At 31 Fees receivable <180 >180 Total
December GBPm days days GBPm
2019 GBPm GBPm
---------------- ------ ------ ------
Expected
credit
loss rate <1% <1% 46%
---------------- ------ ------ ------
Total
receivables 141 310 16 467
---------------- ------ ------ ------
Expected
credit
loss - (2) (7) (9)
---------------- ------ ------ ------
141 308 9 458
---------------- ------ ------ ------
----------------------------------------------------------------------------------------------
Country risk
Risk description Risk management approach
Distress can result from the risk Specific risk frameworks manage country
that certain governments may be unable risk for both fixed income clearing
or find it difficult to service their and margin collateral and all clearing
debts. This could have adverse effects, members' portfolios are monitored
particularly on the Group's CCPs, regularly against a suite of sovereign
potentially impacting cleared products, stress scenarios. Investment limits
margin collateral, investments, the and counterparty and clearing membership
clearing membership and the financial monitoring are sensitive to changes
industry as a whole. in ratings and other financial market
indicators, to ensure the Group's
CCPs are able to measure, monitor
and mitigate exposures to sovereign
risk and respond quickly to anticipated
changes. Risk Committees maintain
an ongoing watch over these risks
and the associated policy frameworks
to protect the Group against potentially
severe volatility in the sovereign
debt markets.
The Group's sovereign exposures of
GBP1 billion or more at the end of
the financial reporting periods were: Group Aggregate 2020 2019
Sovereign Treasury
Exposures
Country GBPbn GBPbn
------ ------
France 29 18
------ ------
USA 10 12
------ ------
Netherlands 10 -
------ ------
UK 10 6
------ ------
Italy 9 11
------ ------
EU 2 10
------ ------
Spain 1 1
------ ------
Germany 1 -
------ ------
---------------------------------------------------------------------------
Liquidity, settlement and custodial risk
Risk description Risk management approach
The Group's operations are exposed Group
to liquidity risk to the extent that The combined Group businesses are
they are unable to meet their daily profitable, generate strong free
payment obligations. cash flow and operations are not
In addition, the Group's CCPs and significantly impacted by seasonal
certain other Group companies must variations. The Group maintains sufficient
maintain a level of liquidity (consistent liquid resources to meet its financial
with regulatory requirements) to obligations as they fall due and
ensure the smooth operation of their to invest in capital expenditure,
respective markets and to maintain make dividend payments, meet its
operations in the event of a single pension commitments, appropriately
or multiple market stress event or support or fund acquisitions or repay
member failure. This includes the borrowings. Subject to regulatory
potential requirement to liquidate constraints impacting certain entities,
the position of a clearing member funds can generally be lent across
under a default scenario including the Group and cash earnings remitted
covering the associated losses and through regular dividend payments
the settlement obligations of the by local companies. This is an important
defaulting member. The Group is exposed component of the Group Treasury cash
to the risk that a payment or settlement management policy and approach.
bank could fail or that its systems Management monitors forecasts of
encounter operational issues, creating the Group's cash flow and overlays
liquidity pressures and the risk sensitivities to these forecasts
of possible defaults on payment or to reflect assumptions about more
receivable obligations. difficult market conditions or stress
The Group uses third-party custodians events. The Group will take the appropriate
to hold securities and is therefore actions to satisfy working capital
exposed to the custodian's insolvency, requirements when committing to large
its negligence, a misuse of assets scale acquisitions, including comfortable
or poor administration. liquidity headroom projected over
a reasonable timeframe.
Non-CCP entities
Treasury policy requires that the
Group maintains adequate credit facilities
provided by a diversified lending
group to cover its expected funding
requirements and ensure a minimum
level of headroom for at least the
next 24 months. The financial strength
of lenders to the Group is monitored
regularly. For full details on the
Group's borrowings and the new facilities
arranged during the year see note
25.
CCPs
The Group's CCPs maintain sufficient
cash and cash equivalents and, in
certain jurisdictions, have access
to central bank refinancing or commercial
bank liquidity support credit lines
to meet the cash requirements of
the clearing and settlement cycle.
Revised regulations require CCPs
to ensure that appropriate levels
of back-up liquidity are in place
to underpin the dynamics of a largely
secured cash investment requirement,
ensuring that the maximum potential
outflow under extreme market conditions
is covered (see credit and concentration
risk section above). The Group's
CCPs monitor their liquidity needs
daily under normal and stressed market
conditions.
Where possible, the Group employs
guaranteed delivery versus payment
settlement techniques and manages
CCP margin and default fund flows
through central bank or long-established,
bespoke commercial bank settlement
mechanisms. Monies due from clearing
members remain the clearing members'
liability if the payment agent is
unable to effect the appropriate
transfer. In addition, certain Group
companies, including the CCPs, maintain
operational facilities with commercial
banks to manage intraday and overnight
liquidity.
Custodians are subject to minimum
eligibility requirements, ongoing
credit assessment, robust contractual
arrangements and are required to
have appropriate back-up contingency
arrangements in place.
Financial liability maturity
The table below analyses the Group's
financial liabilities into relevant
maturity groupings based on the remaining
period from the balance sheet date
to the contractual maturity date.
The amounts disclosed in the table
reflect the contractual undiscounted
cash flows. The borrowings line includes
future interest on debt that is not
accrued for in relation to bonds
that are not yet due.
---------------------------------------------------
As at 31 December Less than Between 1 Between 2 Over 5 Total
2020 1 year & 2 years & 5 years years
--------------------------- ---------- -------------- ---------------- ---------- ----------------
GBPm GBPm GBPm GBPm GBPm
Borrowings 648 20 505 947 2,120
Trade & other payables
(excluding lease
liabilities) 554 - - - 554
Lease liabilities 42 36 82 82 242
Clearing member business
liabilities 841,553 - - - 841,553
Derivative financial
instruments 6 - 9 2 17
Other non-current
liabilities (excluding
lease liabilities) - 5 - - 5
--------------------------- ---------- -------------- ---------------- ---------- ----------------
As at 31 December Less than Between 1 Between 2 Over 5 Total
2019 1 year & 2 years & 5 years years
GBPm GBPm GBPm GBPm GBPm
Borrowings 529 333 483 914 2,259
Trade & other payables
(excluding lease
liabilities) 560 - - - 560
Lease liabilities 39 41 90 36 206
Clearing member business
liabilities 796,102 - - - 796,102
Derivative financial
instruments 1 - 30 9 40
--------------------------- ---------- -------------- ---------------- ---------- ----------------
Other non-current
liabilities (excluding
lease liabilities) - 4 - - 4
--------------------------- ---------- -------------- ---------------- ---------- ----------------
Market Risk - Foreign Exchange
Risk description Risk management approach
The Group operates primarily in the The Group seeks to match the currency
UK, Europe and North America, but of its debt liabilities to the currency
also has growing and strategically of its earnings and cash flows which,
important businesses in Asia, and to an extent, protects its key ratios
other alliances and investments across (net leverage and interest coverage)
the globe. Its principal currencies and balances the currency of its assets
of operation are Sterling, Euro and with its liabilities. In order to
US dollars. mitigate the impact of unfavourable
Group companies generally invoice currency exchange rate movements on
revenues, incur expenses and purchase earnings and net assets, non-Sterling
assets in their respective local cash earnings are centralised and
currencies. applied to matching currency debt
As a result, foreign exchange risk and interest payments, and, where
arises mainly from the translation relevant, interest payments on Sterling
of the Group's foreign currency earnings, debt re-denominated through the use
assets and liabilities into its reporting of cross-currency swaps. A material 31 December 31 December
currency, Sterling, and from occasional, proportion 2020 2019
high value intragroup transactions. of the Group's
Exceptions exist including at debt is held
MillenniumIT in or swapped
(a Sri Lankan Rupee reporting entity) into Euros
which invoices a material proportion and US dollars
of its revenues in US dollars, and as noted
at certain operations of the LCH Group below.
(a Euro reporting subsidiary), which Currency GBPm GBPm
generate material revenues in Sterling of debt
and US dollars and incur material ------------ ------------
costs in Sterling. Euro- denominated
Intragroup dividends and the currency drawn debt 1,530 1,557
debt interest obligations of the Company ------------ ------------
may create short-term transactional Euro- denominated
FX exposures but play their part in cross-currency
controlling the level of translational interest
FX exposures the Group faces. rate swaps (613) (637)
The Group may be exposed from time ------------ ------------
to time to FX risk associated with US Dollar-
strategic investments in, or divestments denominated
from, operations denominated in drawn debt - 107
currencies ------------ ------------
other than Sterling. US Dollar
denominated
cross - currency
interest
rate swaps 613 637
------------ ------------
The cross-currency interest rate swaps
are directly linked to Euro fixed
debt. The Euro and US dollar denominated
debt, including the cross-currency
swaps, provides a hedge against the
Group's net investment in Euro and
US dollar denominated entities. As
at 31 December 2020, the Group's designated
hedges of its net investments were
fully effective.
Whilst transactional foreign exchange
exposure is limited, the Group hedges
material transactions in accordance
with Group Treasury policy (which
requires cash flows of single transactions
or a series of linked transactions
of more than GBP5 million or equivalent
per annum to be hedged) with appropriate
derivative instruments or by settling
currency payables or receivables within
a short timeframe. Where appropriate,
hedge accounting for derivatives is
considered in order to mitigate material
levels of income statement volatility.
In addition to projecting and analysing
its earnings and debt profile by currency,
the Group reviews sensitivities to
movements in exchange rates which
are appropriate to market conditions.
The Group has considered movements
in the Euro and the US dollar over
the year ended 31 December 2020 and
year ended 31 December 2019 and, based
on actual market observations between
its principal currency pairs, has
concluded that a 10% movement in rates
is a reasonable level to illustrate
the risk to the Group. The impact
on post tax profit and equity is set
out in the table below:
--------------------------------------------------------------------------
2020 2019
Post tax profit Equity Post tax profit Equity
GBPm GBPm GBPm GBPm
Euro Sterling weaken - 40 - 5
Sterling strengthen - (36) - (5)
US Dollar Sterling weaken 6 (51) (4) (55)
Sterling strengthen (5) 47 4 50
This reflects foreign exchange gains or losses on
translation of Euro
and US dollar denominated financial assets and
financial liabilities, including Euro and US
dollar denominated cash
and borrowings.
The impact on the Group's operating profit for
the year before amortisation
of purchased intangible assets and non-underlying
items, of a 10 Euro
cent and 10 US dollar cent movement in the
Sterling-Euro and Sterling-US
dollar rates
respectively, can be seen below:
2020 2019
GBPm GBPm
Euro Sterling weaken 42 32
Sterling strengthen (35) (27)
US Dollar Sterling weaken 14 37
Sterling strengthen (12) (31)
Market risk - Cash Flow and Fair Value Interest Rate Risk
Risk Description Risk management approach
The Group's interest rate risk arises Group interest rate management policy
through the impact of changes in market focuses on protecting the Group's
rates on cash flows associated with credit rating and maintaining compliance
cash and cash equivalents, investments with bank covenant requirements. To
in financial assets and borrowings support this objective, a minimum
held at floating rates. The Group coverage of interest expense by EBITDA
may also face future interest rate of 7 times, and a maximum floating
exposure connected to committed M&A rate component of 50% of total debt
transactions where significant debt are targeted. This approach reflects:
financing is involved. The Group's i) a focus on the Group's cost of
CCPs face interest rate exposure through gross debt rather than its net debt
the impact of changes in the reference given the material cash and cash equivalents
rates used to calculate member liabilities set aside for regulatory purposes;
versus the yields achieved through ii) the short duration allowed for
their predominantly secured investment investments of cash and cash equivalents
activities. held for regulatory purposes which,
by their nature, generate low investment
yields;
iii) a view currently maintained that
already low market yields are unlikely
to move materially lower; and
iv) the broad natural hedge of floating
rate borrowings provided by the significant
balances of cash and cash equivalents
held effectively at floating rates
of interest.
As at 31 December 2020, consolidated
net interest expense cover by EBITDA
was measured over the 12-month period
at 18.8 times (2019: 14.4 times) and
the floating rate component of total
debt was 16% (2019: 25%).
Where the Group has committed to M&A
transactions and is exposed to prospective
interest rate risk on borrowings the
Group Treasury function will consider
the exposure and recommend hedging
solutions that conform with policy
and seek to limit future interest
costs. The acquisition of Refinitiv
will meaningfully increase the Group's
debt and the interest rate risk exposure
was evaluated during the financial
period. As at 31 December 2020, no
hedging had been arranged but the
exposure remains under ongoing review.
In the Group's CCPs, interest bearing
assets are generally invested in secured
instruments or structures and for
a longer term than interest bearing
liabilities, whose interest rate is
reset daily. This makes investment
revenue vulnerable to volatility in
overnight rates and shifts in spreads
between overnight and term rates.
Interest rate exposures (and the risk
to CCP capital) are managed within
defined risk appetite parameters against
which sensitivities are monitored
daily.
In its review of the sensitivities
to potential movements in interest
rates, the Group has considered interest
rate volatility over the last year
and prospects for rates over the next
12 months and has concluded that a
1 percentage point upward movement
(with a limited prospect of material
downward movement) reflects a reasonable
level of risk to current rates.
At 31 December 2020, at the Group
level, if interest rates on cash and
cash equivalents and borrowings had
been 1 percentage point higher with
all other variables held constant,
post tax profit for the year would
have been GBP10 million higher (2019:
GBP8 million higher) mainly as a result
of higher interest income on floating
rate cash and cash equivalents partially
offset by higher interest expense
on floating rate borrowings. At 31
December 2020, at the CCP level (in
aggregate), if interest rates on the
common interest bearing member liability
benchmarks of Eonia, Fed Funds and
Sonia, for Euro, US dollar and Sterling
liabilities respectively, had been
1 percentage point higher, with all
other variables held constant, the
impact on post tax profit for the
Group would have been GBP2 million
lower (2019: GBP2 million lower).
This deficit is expected to be recovered
as investment yields increase as the
portfolio matures and is reinvested.
----------------------------------------------
The Annual Report contains the following statements regarding
responsibility for financial statements on page 125: "The Directors
are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with
applicable law and regulations. Company law requires the Directors
to prepare financial statements for each financial year. The
Directors have prepared the Group and Company financial statements
in accordance with International Financial Reporting Standards
(IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union. Under company law, the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of the affairs of
the Group and the Company and of the profit or loss for that year.
In preparing those financial statements, the Directors are required
to:
-- Select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
-- Make judgements and estimates that are reasonable
-- Provide additional disclosures when compliance with the
specific requirements in IFRSs adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union is insufficient to
enable users to understand the impact of particular transactions,
other events and conditions on the Group and the Company's
financial position and financial performance
-- In respect of the Group financial statements, state whether
IFRSs in conformity with the Companies Act 2006 and IFRSs adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union have been followed, subject to any material
departures disclosed and explained in the financial statements
-- In respect of the parent Company financial statements, state
whether IFRSs in conformity with the Companies Act 2006, have been
followed, subject to any material departures disclosed and
explained in the financial statements
-- Prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Group and the
Company will continue in business
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group and to
enable them to ensure that the financial statements and the
Directors' Remuneration Report comply with the Companies Act 2006,
other applicable laws and regulations, including the requirements
of the Listing Rules and the Disclosure Guidance and Transparency
Rules, and, as regards the Group financial statements, Article 4 of
the IAS Regulation. The Directors are also responsible for
safeguarding the assets of the Company and the Group and for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information on the Company's
website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Overview and Strategic Report sections of the
Annual Report on pages 2-71. In particular, the current economic
conditions continue to pose a number of risks and uncertainties for
the Group and these are set out in Principal Risks and
Uncertainties on pages 25-39.
The Financial Risk Management objectives and policies of the
Group and the exposure of the Group to capital risk, credit risk,
market risk and liquidity risk are discussed on pages 149-152. The
Group continues to meet Group and individual entity capital
requirements and day-to-day liquidity needs through the Group's
cash resources and available credit facilities.
The combined total of committed facilities and bonds issued at
31 December 2020 was GBP2,853 million (2019: GBP2,781 million)
excluding the undrawn Bridge Facility arranged to provide financing
capacity relating to the Group's acquisition of Refinitiv, with the
first maturing in November 2021. Following the completion of the
acquisition of Refinitiv, the revised committed facilities and
bonds issued was GBP6,072 million excluding the undrawn Bridge
Facility.
The Directors have reviewed the Group's forecasts and
projections, taking into account reasonably possible changes in
trading performance, which show that the Group has sufficient
financial resources. On the basis of this review, and after making
due enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the
financial statements.
Each of the Directors, whose names and functions are set out on
pages 73-75 of this Annual Report confirms that, to the best of
their knowledge and belief:
-- The Group and the Company financial statements, which have
been prepared in accordance with IFRSs adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the Group taken as a
whole
-- The report of the Directors contained in the Annual Report
includes a fair review of the development and performance of the
business and the position of the Company and the Group taken as a
whole, together with a description of the principal risks and
uncertainties that they face
-- They consider that the Annual Report and Accounts 2020, taken
as a whole, is fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group and the
Company's performance, business model and strategy.
By Order of the Board
Lisa Condron
Group Company Secretary
5 March 2021"
"33. Transactions with Related Parties
Key management personnel
Key management personnel comprises the Executive Directors,
Group Chair and Executive Committee, who have authority for
planning directing and controlling the activities of the Group.
Compensation for key management personnel was as follows:
2020 2019
GBPm GBPm
Salaries and other benefits 16 11
Pensions 1 1
Share based payments 17 12
---------------------------- ---------------------- ----------------------
34 24
------------------------------------------------------ --------------------
Key management compensation relates to the Executive Directors,
Group Chair and Executive Committee, who have authority for
planning, directing and controlling the Group.
Other directors' interests
One director of the Company has a 33.8% (2019: 40.5%) equity
interest in Quantile Group Limited (QGL) which as a group is an
approved compression service provider for the Group's LCH Limited
and London Stock Exchange plc subsidiaries. The Group operated a
commercial arrangement with Quantile Technologies Limited (a
subsidiary of QGL) and all transactions were carried out on an
arm's length basis. During the year the Group recognised income of
GBP0.1 million as part of the agreement (2019: income GBP0.5
million; expenses GBP0.4 million).
Inter-company transactions with subsidiary undertakings
The Company has unsecured loans with subsidiary undertakings.
Details of the loans outstanding as at 31 December 2020 are shown
below:
Amount (owed to)/due Interest (charge)/credit
from
Loan counterparty 2020 2019 Term Interest 2020 2019
rate as
at 31
Dec 2018
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock GBP(209)m GBP(203)m 25 years from May LIBOR GBP(6)m GBP(6)m
Exchange plc 2006 with five plus 2%
equal annual per annum
repayments
commencing in May
2027.
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock GBP45m GBP41m Repayable on demand. Non-interest - -
Exchange Employee bearing
Benefit Trust
----------- ------------ ---------------------- ------------- ------------- ------------
Fifth anniversary
London Stock of the initial
Exchange Group utilisation date EURIBOR
Holdings (Italy) which was April plus 1.5%
Limited EUR(202)m EUR(206)m 2018. per annum EUR(2)m EUR(2)m
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock GBP175m GBP272m Fifth anniversary LIBOR GBP4m GBP9m
Exchange Group of the initial plus 1.5%
Holdings Limited utilisation date per annum
which was October
2019.
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock GBP15m GBP24m Fifth anniversary LIBOR - -
Exchange Reg of the initial plus 1.2%
Holdings Limited utilisation date per annum
which was July
2018.
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock - GBP(40)m Fifth anniversary EURIBOR - -
Exchange (C) of the initial plus 1.5%
Limited utilisation date per annum
which was May 2017.
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock US$(418)m US$(227)m Fifth anniversary EURIBOR US$(6)m US$(2)m
Exchange Group of the initial plus 1.5%
Holdings (Luxembourg) utilisation date per annum
Ltd which was November
2019.
----------- ------------ ---------------------- ------------- ------------- ------------
LSEG Employment 714m GBP34m Fifth anniversary LIBOR GBP1m GBP1m
Services Limited of the plus 1.2%
initial utilisation per annum
date which
was April 2020
----------- ------------ ---------------------- ------------- ------------- ------------
London Stock GBP217m GBP197m Fifth anniversary LIBOR GBP2m GBP3m
Exchange Group of the plus 0.9%
(Services) initial utilisation per annum
Limited date which
was January 2016
----------- ------------ ---------------------- ------------- ------------- ------------
During the year, the Company charged its subsidiaries the
following amounts in respect of employee share scheme expenses:
Subsidiary company or group 2020 2019
GBPm GBPm
LSEG Employment Services Limited 16 10
LCH group 9 6
London Stock Exchange Group Holdings
Italia SpA 5 4
FTSE group 4 4
London Stock Exchange Group Holdings
Inc 7 5
London Stock Exchange plc 6 4
Other 2 2
During the year the Company received the following
dividends:
Subsidiary company 2020 2019
GBPm GBPm
LSEGH (Luxembourg) Ltd 55 60
London Stock Exchange Group Holdings
(Italy) Ltd 123 31
London Stock Exchange Group Holdings
Ltd 45 155
London Stock Exchange plc 193 218
London Stock Exchange (C) Ltd 167 -
The Company recognised GBP11 million other income (2019: GBP7
million) and GBP58 million operating expenses (2019: GBP72 million)
with subsidiary companies in corporate recharges during the
year.
At 31 December 2020, the Company had GBP88 million (2019: GBP25
million) other receivables due from subsidiary companies and other
payables of GBP68 million (2019: GBP78 million) owed to subsidiary
companies.
Transactions with associates
In the year ended 31 December 2020, the Group recognised GBP3
million revenue (2019: GBP1 million) from its associates and as at
31 December 2020, the Group had GBP3 million receivable from its
associates (2019: GBP1 million).
All transactions with subsidiaries and associates were carried
out on an arm's length basis."
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END
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