Further Amendment to the Funding for Lending Scheme Extension - Market Notice

The Funding for Lending Scheme (FLS) was launched on 13 July 2012 and was designed to incentivise banks and building societies to boost their lending to the UK real economy.
Published on 30 November 2015
1. An extension to the FLS was announced on 24 April 2013, and amended on 28 November 2013. A further amendment on 2 December 2014 extended the drawdown window to 29 January 2016 and re-focussed the incentives of the scheme towards lending to Small and Medium-Sized Enterprises (SMEs). This Market Notice sets out details of further changes to the terms of the FLS Extension.

2. Other than as amended by this Market Notice, the terms of the FLS remain unchanged. The Operating Procedures will be updated to reflect this Market Notice in due course. Further information on the FLS, including all the relevant documentation and a Consolidated Market Notice detailing the operation of the FLS Extension, can be found on the Bank’s website.

Participation

3. Current Participants in the FLS Extension will remain part of the Scheme. Eligible institutions not currently signed up to the FLS Extension will continue to be able to join the Scheme.

Drawdowns

4. The Extended Drawdown Period, which opened on 3 February 2014, will remain open for an additional two years to 31 January 2018.

Borrowing Allowance

5. Participants in an FLS Group (with the exception of “New Groups”, as defined below) can continue to draw in aggregate up to their Extended Borrowing Allowance for a further six months, up to 29 July 2016. The definition of the Extended Borrowing Allowance is unchanged, and will be based on lending from 2013 Q2 to 2015 Q4. No new borrowing allowances can be generated by lending after end 2015 Q4.

6. From 1 August 2016, Participants in an FLS Group (with the exception of New Groups) can continue to draw in aggregate up to the “Scaled Borrowing Allowance” for the FLS Group. The Scaled Borrowing Allowance is equal to a percentage of the Extended Borrowing Allowance, as set out below:

  • 75% for the period 1 August 2016 to 31 January 2017;
  • 50% for the period 1 February 2017 to 31 July 2017; and
  • 25% for the period 1 August 2017 to 31 January 2018.

7. If an FLS Group’s Scaled Borrowing Allowance drops below the aggregate drawdowns made by Participants in the FLS Group, no further drawdowns can be made (but participants will not be required to repay any drawdowns, and the fee charged on outstanding drawdowns will remain 25 basis points).

Participation for newly authorised banks

8. Some newer banks and building societies (hereafter “banks”) will have the option to join the Scheme and generate a borrowing allowance from net lending in 2016 and 2017. New applicants to the FLS Extension may apply to have their FLS Group designated a New Group. Banks eligible for this part of the Scheme will be those meeting the existing eligibility of the Scheme, and that have been authorised or had a significant change in control since 1 April 2013, and whose prospective FLS Group had a stock of sterling lending to UK households, Private Non-Financial Corporations (PNFCs) and Non-Bank Credit Providers (NBCPs) of no more than £50mn as at end-2015. This designation will be granted at the Bank’s discretion.

9. Participants in a New Group may draw in aggregate up to the “New Group Borrowing Allowance” for the FLS Group. The New Group Borrowing Allowance is determined by net lending during the period 1 January 2016 to 31 December 2017. The New Group Borrowing Allowance will be equal to the sum of net lending over this period to UK resident households (excluding Unincorporated Businesses), Large Corporates and Non-Bank Credit Providers that are not part of the FLS Group (Including financial leasing corporations and factoring corporations but excluding mortgage and housing credit corporations as defined in the statistical definitions of Form AL) plus five times net lending to UK resident SMEs. If this weighted sum is negative, the New Group Borrowing Allowance is zero. Lending data for this period will be reported on Form FLC, which must be submitted quarterly, based on calendar quarters.

Audit requirements

11. The Bank had previously stated that it would require Participants to provide an independent audit report on the accuracy of the data provided to the Bank for the FLS Extension by 17 March 2016. The Bank will confirm details of audit requirements in due course, but will no longer require an audit report by this date.

Published information

12. The Bank will continue to publish usage data for each FLS Group participating in the FLS Extension on a quarterly basis. The Bank will also publish lending data for New Groups on a quarterly basis.

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