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The Bank of London has prepared plans this summer to dissolve in case it cannot raise enough money in time to boost its capital reserves, according to two people familiar with the matter.
The company, which provides payment and settlement services to other institutions, drew up a contingency plan in July to close the bank in an orderly manner, the sources said. That type of regulatory-approved process includes returning money to creditors and depositors.
However, the bank successfully completed a £42m capital raise in August, led by existing investor Mangrove Capital Partners, meaning It does not need to deploy its contingency plan.. Mangrove CEO Mark Tluszcz is also a board member of parent company Bank of London.
“The Bank of London has never been insolvent in its history and the management has no intention of winding up the bank,” the Bank of London said.
Bank — parent company of The board of directors includes private equity executives. Harvey Schwartz and Labour Party boss Lord Peter Mandelson — have been in the spotlight this past week after being hit by a dissolution petition from UK tax authorities on outstanding debts, now recovered.
The bank confirmed over the weekend that it was “fully up to date” with tax payments, noting the issue was due to “delays in administrative processing”.
Liquidation means that a bank’s customers can withdraw their deposits without having to resort to the Financial Services Compensation Scheme, which pays out up to £85,000 in deposits per customer per institution. A bank in liquidation will not need taxpayer support.
All UK banks must have recovery and resolution plans in place, including liquidity cuts, although the Bank of London’s preparations are at a more advanced stage than typical contingency planning, according to two people involved in the process.
Bank of England Prudential Regulation Authority states in its rule book that it expects banks “to cooperate with their supervisory team from an early stage” if they are considering issuing a plan of insolvency.
The aim of the PRA is to ensure that as new banks grow, they “can, if necessary, exit in an orderly manner”.
The London bank markets itself as an alternative to major banks such as NatWest and HSBC for clearing, payment and settlement services.
The London bank said it surpassed £500m in deposits in August. By 2023, It is said to be worth $1.1 billion..
According to the company’s website, the startup holds customer deposits at the central bank rather than lending them out, and therefore sees itself as a “safer by design” option that is not vulnerable to bank runs.
Earlier this month, the Bank of London said founder Anthony Watson would step down as chief executive and move into a new role as senior adviser.
“Since its launch in 2021, the bank has maintained adequate capital to operate in a safe and sound manner, and its financial resources have recently been further strengthened with the recently announced £42 million capital raising,” the London bank added in its statement.
The Bank of England declined to comment.
