Financial statements
Abbey National Treasury Services plc 2018 Annual Report 73
ANTS engages in a variety of counterparty credit mitigation strategies in addition to netting and collateral arrangements. Therefore, the net amounts presented in
the tables below do not purport to represent ANTS’s actual credit exposure.
Amounts subject to enforceable netting arrangements
Effects of offsetting on-balance sheet Related amounts not offset
Assets not subject
to enforceable
netting
arrangements
(2)
£m
2018
Gross
amounts
£m
Amounts
offset
£m
Net amounts
on the
balance sheet
£m
Financial
instruments
£m
Financial
collateral
(1)
£m
Net
amount
£m
Balance
sheet
total
(3)
£m
Assets
Derivative financial instruments 36 -36(34) - 2 - 36
Loans and advances to customers and banks
(4)
- - - - - - 1,171 1,171
Total assets 36 - 36 (34) - 2 1,171 1,207
Liabilities
Derivative financial instruments 216 - 216 (34) (176) 6 6 222
Deposits by customers and banks
(4)
-- - --- 5,4315,431
Total liabilities 216 - 216 (34) (176) 6 5,437 5,653
2017
Assets
Derivative financial instruments 28,756 (9,160) 19,596 (16,575) (1,140) 1,881 257 19,853
Reverse repurchase, securities borrowing & similar agreements:
Trading assets 15,224 (6,354) 8,870 (205) (8,665) - - 8,870
Non trading assets
8,782 - 8,782 - (8,782) - - 8,782
Loans and advances to customers and banks
(4)
37,849 (31,714) 6,135 - - 6,135 8,242 14,377
Total assets 90,611 (47,228) 43,383 (16,780) (18,587) 8,016 8,499 51,882
Liabilities
Derivative financial instruments 29,893 (9,160) 20,733 (16,575) (1,941) 2,217 239 20,972
Repurchase, securities lending & similar agreements:
Trading liabilities
31,858 (6,354) 25,504 (205) (25,299) - - 25,504
Non trading liabilities 223 - 223 - (223) - - 223
Deposits by customers and banks
(4)
46,653 (31,714) 14,939 - - 14,939 1,593 16,532
Total liabilities 108,627 (47,228) 61,399 (16,780) (27,463) 17,156 1,832 63,231
(1) Financial collateral is reflected at its fair value, but has been limited to the net balance sheet exposure so as not to include any over-collateralisation.
(2) This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
(3) The balance sheet total is the sum of ‘Net amounts reported on the balance sheet’ that are subject to enforceable netting arrangements and ‘Amounts not subject to enforceable netting arrangements’.
(4) The amounts offset within loans and advances to customers/banks or deposits by customers/banks relate to intercompany balances that are subject to netting.
37. RING-FENCING
Regulation
The Financial Services (Banking Reform) Act 2013 inserted provisions into the Financial Services and Markets Act 2000 (FSMA) and related legislation (the
Banking Reform Legislation) requiring the Santander UK group amongst a number of other UK banking groups, to operationally and legally separate certain retail
banking activities from certain wholesale or investment banking activities by 1 January 2019. This is known as ‘ring-fencing’. The Banking Reform Legislation
specifies:
– Certain banking services or activities (principally deposit taking from individuals and SMEs) which must be undertaken by a ring-fenced bank.
– Certain banking services and activities, along with certain types of credit risk exposure or off-balance sheet items, which a ring-fenced bank will be prohibited from
carrying on or incurring (prohibited business).
As a result, under the ring-fencing regime, a ring-fenced bank is only permitted to carry on banking services or activities that are not prohibited (permitted business).
Santander UK group model (including ANTS)
The Santander UK group’s ring-fence structure was completed ahead of the 1 January 2019 regulatory deadline. Its implementation involved an RFTS between
Santander UK plc, ANTS and Banco Santander SA, as well as asset sales and the rundown of certain short term positions. Under our chosen model:
– Santander UK plc is the primary ring-fenced bank within a ring-fenced bank sub-group and serves all of our personal customers in the UK, and the majority of our
business banking customers. Santander UK plc also broadly, to the extent allowed by the legislation, continues to hold and serve Santander’s corporate banking
business in the UK. Any products Santander UK can’t offer, or customers it can’t serve, from within the ring-fenced bank (which includes some Corporate & Investment
Banking business and some Corporate & Commercial Banking customers) are, in most cases, provided or served by the wider Banco Santander group, notably through
its Banco Santander London Branch. Santander UK plc continues to be a subsidiary of Santander UK Group Holdings plc, and is the holding company of the Santander
UK ring-fenced bank sub-group. Cater Allen Limited is also a ring-fenced bank and part of the Santander UK ring-fenced bank sub-group. Neither Santander UK plc nor
Cater Allen Limited conduct prohibited business.
– ANTS was emptied of most assets and liabilities, except for a small pool of residual assets and liabilities, and became a wholly-owned direct subsidiary of
Santander UK Group Holdings plc, outside the ring-fenced bank. The prohibited business of ANTS, which principally included the Santander UK group’s derivatives
business with financial institutions, certain corporates and the Santander UK group’s short term markets business, was either transferred to Banco Santander London
branch or, in the case of the majority of our short-term markets business, was run down. The majority of the permitted business of ANTS transferred to Santander UK
plc, with a small amount of the permitted business of ANTS transferring to Banco Santander London Branch.
– The business of the Crown Dependency branches (Jersey and Isle of Man) of Santander UK plc was sold to ANTS pursuant to transfer schemes effected under relevant
ersey and Isle of Man law, and therefore transferred out of the ring-fenced bank.
Any associated business transfers to Banco Santander London Branch were made for a cash consideration equivalent to the book value of the associated assets and liabilities,
which represents a fair value for ANTS. Costs to sell were immaterial. The Santander UK group’s ring-fence structure is now in place with all required transfers completed.
Compliance with ring-fencing legislation has involved significant effort over a number of years. As set out in more detail in Note 9, the RFTS transfers, asset sales and
the run-down of certain short-term positions met the requirements for presentation as discontinued operations.