UNITED KINGDOM

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Though the UK economy has been seen to be lagging in the last quarter of 2024, the IMF modestly raised its forecast for British growth for 2025 by 0.1 to 1.6%, thanks to rising household incomes, Bank of England rate cuts, and greater public investment outweighing headwinds created by higher taxes. 

Business investment is predicted to accelerate in 2025, with rising business confidence and spending, alongside improved economic conditions, setting the stage for a return to growth. 

The UK’s period of economic stagnation drew to a close by the end of 2024. Falling inflation and interest rates, alongside tax cuts, should help unlock growth in consumer spending, house prices and real incomes should have provided stepping stones to a brighter 2025. The bank rate cuts are expected to create a more positive environment for business investment and reduce existing business debt costs.  

Summary

BNP Paribas has been present in the UK for more than 140 years, and employs approximately 7,000 people, with business centres in London and Manchester. Customers are supported through their corporate business centre in London. The bank provides domestic banking services to support its UK corporate clients as well as foreign multinational clients of the BNP Paribas group. In Corporate and Investment Banking, BNP Paribas ranks as a leader across capital markets, advisory and financing businesses.

Currency

  • Pound sterling (GBP).

Bank accounts

  • A company is generally considered resident in the UK if its place of effective management is located in the UK.

Bank Supervision

  • The Financial Conduct Authority (FCA – www.fca.org.uk) is responsible for policing the City of London and the financial sector.
  • The Prudential Regulation Authority (PRA), part of the Bank of England, is responsible for the supervision of the banking sector. (PRA – www.bankofengland.co.uk/pra/Pages/default.aspx).
  • All other responsibilities, which were previously the responsibility of the now obsolete Financial Services Authority, have been assumed by the Bank of England’s Financial Policy Committee.
  • UK Government Investments (UKFI – www.ukgi.co.uk) is responsible for managing the UK government’s shareholdings in banks which have received government funding.

Factoring

■The law is based upon precedent which is why factoring contracts are long, taking into account the need to clarify conditions following previous legal cases.
■The agreement is a Sales & Purchase agreement meaning that the ownership of receivables is trans- ferred by the client to the factor by way of legal Assignment.
■Assignment can be silent and does not need to be disclosed to be valid under English law.
 
■STANDARD INVOICE FINANCING (DISCOUNTING)  AND ASSET-BASED LENDING FACILITIES

Such facilities are usually fully secured against the borrower’s assets, including registered security filed with the UK company registry.

In addition to a standard Invoice Finance Agreement,  lenders have the ability to register an All-Assets Debenture against a company’s assets. A Debenture contains a ‘Fixed’  and ‘Floating’ charge.

A ‘Fixed’ charge can be issued over assets such as Receivables, Property and Plant and Machinery – generally assets that are ‘fixed’ and do not materially change during their life. The borrower cannot sell or materially alter these assets without the consent of the lender.

A ‘Floating’ charge can be issued over all other assets and whilst the lender has a security interest over these assets, the borrower can continue to trade them. This applies to assets such as inventory.

The ability to register such security interests permits lenders in the UK market to deploy ‘Asset-Based Lending’ solutions, which can include Receivables, Inventory, Property and Plant & Machinery.

■NON-RECOURSE RECEIVABLE PURCHASE FACILITIES (OFF-BALANCE SHEET STRUCTURES)

Such facilities are usually secured only by a contract between the lender and the receivable ‘seller(s)’.

In certain circumstances, a Performance Guarantee may be requested to support a structure.

Such contracts are issued in line with the principles of derecognition under IFRS 9 and local GAAP.

Typical UK market characteristics to achieve dereconigition:

-Risks and Rewards of receivable is transferred to the Bank.
-100% purchase price. The seller remains liable for receivable performance risks such as dilutions and disputes.
-Up-front interest and administration fees only deducted from the purchase price – no arrears charging.
-Limited recourse (performance issues only).
-Credit insurance required to mitigate debtor default risk. Can be via BNPP ‘house’ policies or client’s credit insurance subject to approval.
-Confidential or disclosed permissible.
-Normally issued on an ‘Offer and Acceptance’, uncommitted basis. Committed facilities are possible, although subject to higher costs.
-Trust account or commingling structures (subject to TGA allocation) are both possible.
-Generally targeted at well-rated clients.
 
■ADDITIONAL SECURITY

Deed of Waiver and Priority /  Intercreditor Agreement

A document established between all secured lenders to agree priority over the assets they are financing and secured against. May be required where multiple secured parties exist in a transaction.

Guarantees

Two main types of guarantee are available: i) a finan- cial shortfall guarantee and ii) a performance guarantee. In standard Asset-Based Lending or receivable financing contracts, if a guarantee is available or required it would be on a financial guarantee basis. For off balance sheet financing, a performance guarantee is accepted and permitted under IFRS 9.

■PUBLIC DEBTORS

Can be financed in most circumstances, but assessed on a case by case basis.

BNP Paribas Cash Management Capabilities

Cash collections
Cheque collections
Direct debit collections
Domestic incoming transfers
Virtual IBAN
Virtual accounts
International incoming transfers
Card acquiring

Payments & collections

In 2020, cash transactions accounted for 17% of all payments. Electronic credit transfers are the most common payment method used by companies for supplier and payroll payments while direct debits are used to collect regular payments, from both other businesses and consumers. Fifty-nine percent of payments by consumers were made by card in 2020 (56% in 2019), with debit cards are the most popular payment method. Contactless payments accounted for 41% of all credit card and 60% of debit card transactions in the UK in December 2020, and a quarter of all UK payments in 2020. Eight-eight percent of debit cards have contactless functionality.

Electronic banking services are available from all banks. There is no national electronic banking system in the UK, so companies use banks' proprietary services. Transaction and balance reporting, automated end-of-day sweeping, and some transaction initiation services are available on a domestic and cross-border basis.

Online and mobile banking has been widely adopted by both consumers and businesses in the UK. Figures suggest that over 70% of UK residents used online banking in 2020. The high number of challenger banks (42 as of December 2020) is driving the adoption of digital banking services.

Short term investments

Interest payable on credit balances

  • Interest-bearing current accounts are permitted for residents and non-residents, although interest rates tend to be low.

Demand deposits

  • Demand deposits are available for residents and non-residents.

Time deposits

  • Time deposits are available in GBP or major foreign currencies with terms typically ranging from one night to one year. Terms up to five years are possible.

Certificates of deposit

  • Domestic banks issue GBP-, USD- and EUR-denominated certificates of deposit (CDs) for terms ranging from one week to five years. Terms of three to six months are the most common.
  • The minimum investment for GBP-denominated CDs is GBP 50,000 and USD 1 million for USD-denominated CDs.
  • The UK has an active secondary market in CDs.

Treasury (government) bills

  • The UK Government Debt Management Office issues Treasury bills (T-bills) through weekly tenders.
  • T-bills are issued with terms of one, three, six and 12 months.
  • The minimum investment is GBP 500,000.
  • The UK has an active secondary market in T-bills.

Commercial paper

  • Domestic commercial paper (CP) is issued by companies and public authorities denominated in GBP or EUR. Most paper is issued for three to six months, although terms ranging from one week to 12 months are permitted.
  • The minimum investment required is GBP 500,000.
  • Euro commercial paper (ECP) is issued by larger companies with a published credit rating. ECP can be issued in a range of currencies.

Money market funds

  • Money market funds are available denominated in GBP, EUR and USD.

Repurchase agreements

  • Repurchase agreements are available in the UK although they are more popular with financial institutions than with corporations.

Banker's acceptances

  • Banker's acceptances are not commonly used in the UK.

BNP Paribas Trade Finance Capabilities

Documentary credits
Documentary collections

International trade

  • On January 1, 2021, the UK left the EU single market and customs union, as well as all EU policies and international agreements.
  • The UK and the EU signed a Trade and Cooperation Agreement (TCA) on December 24, 2020. The agreement entered into force on January 1, 2021, establishing zero tariffs or quotas on trade of goods between the UK and the EU, subject to relevant rules of origin.
  • Under the Northern Ireland Protocol, Northern Ireland will remain in the EU’s single market for goods and apply EU customs rules at its ports. Any future UK trade agreement will also apply to Northern Ireland.
  • There is a free zone operating at Ronaldsway Airport, Isle of Man. The UK government has opened a bidding process for the creation of up to 10 new freeports in the UK. The first freeports are expected to open by the end of 2021.