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Trading 212 Group Limited
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Annual report and financial statements
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for the year ended
31 December 2020
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Registered number: 10014283
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Trading 212 Group Limited
Company Information
Page 1
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Trading 212 Group Limited
Contents
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Independent auditor's report
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Consolidated statement of comprehensive income
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Consolidated statement of financial position
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Company statement of financial position
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Consolidated statement of changes in equity
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Company statement of changes in equity
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Consolidated statement of cash flows
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Notes to the consolidated financial statements
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Page 2
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Trading 212 Group Limited
Directors' report
for the year ended 31 December 2020
The directors present their report together with the Group strategic report and the consolidated financial statements of Trading 212 Group Limited ('the company') and its subsidiaries (together 'the group') for the year ended 31 December 2020.
The profit for the year, before taxation, amounted to £
15,159k
(2019:
£
9,488
k
).
The directors recommended a dividend of £nil (2019: £3,540k).
The directors who served during the year were:
Nicholas Saunders
Nicholas Saunders resigned as a director on 19 March 2021.
Mukid Chowdhury was appointed as a director on 10 February 2022.
Directors' responsibilities statement
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The directors are responsible for preparing the Directors' report, the Group strategic report and the consolidated financial statements, in accordance with applicable law.
Company law requires the directors to prepare consolidated financial statements for each financial year. Under that law they have elected to prepare the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.
Under company law the directors must not approve the consolidated financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing the consolidated financial statements, the directors are required to:
∙
select suitable accounting policies and then apply them consistently;
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make judgements and estimates that are reasonable and prudent;
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state whether they have been prepared in accordance with IFRSs as adopted by the EU, subject to any material departures disclosed and explained in the financial statements; and
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use the going concern basis of accounting unless they either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
Additional matters included in the Group strategic report
The company has chosen, in accordance with s.414C(11) of the Companies Act 2006, to set out in the Group strategic report information required by Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 to be contained in the Directors' report. It has done so in respect of risk exposure, future developments, and engagement with suppliers, customers and others.
Page 3
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Trading 212 Group Limited
Directors' report (continued)
for the year ended 31 December 2020
Disclosure of information to auditor
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Each of the persons who are
directors at the time when this Directors' report is approved has confirmed that:
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so far as the director is aware, there is no relevant audit information of which the company and the group's auditor is unaware, and
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the director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the company and the group's auditor is aware of that information.
This report was approved by the board on
18 February 2022
and signed on its behalf by:
Page 4
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Trading 212 Group Limited
Group strategic report
for the year ended 31 December 2020
Trading 212 Group Limited, incorporated in February 2016, is a financial holding company that operates through its principal subsidiaries. The holding company does not conduct any commercial activities itself.
As of 31 December 2020, the company had four principal subsidiaries (together 'the group' or 'Trading 212' or 'T212'), namely:
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Trading 212 UK Limited (registered in the United Kingdom and regulated by the Financial Conduct Authority)
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Trading 212 Limited (registered in Bulgaria and regulated by the Bulgarian Financial Supervision Commission)
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Trading 212 Markets Limited (registered in Cyprus. Following approval in 2021 the entity is now regulated by the Cyprus Securities and Exchange Commission)
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Trading 212 Europe GmbH (registered in Germany and currently going through the approval process with the Federal Financial Supervisory Authority (BaFin))
Trading 212 Global Ltd (incorporated in the Republic of Vanuatu), an additional subsidiary entity as at 31 December 2019, was closed in October 2020 having never been operational since incorporation in 2019.
Business Review
The group’s activities (performed by the regulated entities) during the year consisted of:
i.
The provision of an internet-based Contract for Difference ('CFD') trading service platform where two parties agree to exchange the market performance of an underlying security, currency or other financial asset) through a derivative contract; and
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The provision of an agency stockbroking platform.
Both products are operated through Trading 212’s trading platform to clients globally, with the exception of the United States and prohibited jurisdictions.
The focus of the group continues to shift towards stockbroking, with the percentage of revenue earned from this activity growing year on year as a percentage of total revenue. This shift has continued into 2021 where it benefited from the growth in client accounts opened in 2020. This growth strategy has seen the client money and asset balances rise from £30m to £2.1bn over the year, increasing further to over £3bn in 2021.
Market volatility has been extreme at times during the year and coupled with increased numbers of clients staying at home during the COVID-19 pandemic, these factors have provided favourable trading conditions.
The key financial indicators during the year were as follows:
Non-financial indicators
Non-financial indicators are measures of customer acquisition and customer activity. As there is no cost for a client to open an account, the number of accounts holding either cash or assets is the more useful gauge of business growth and potential. Both product lines saw a rapid growth of client numbers during the year, driven not only by marketing and promotional activity, but by significant volatility in the market. See the below graph which illustrates this by client type.
Page 5
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Trading 212 Group Limited
Group strategic report (continued)
for the year ended 31 December 2020
Principal risks and uncertainties
The principal risks to the group are as follows:
Technology
The regulated subsidiaries of the group use the Trading 212 trading platform, developed by Trading 212 Limited. This is a key differentiator from other outwardly similar competitors, the majority of which use a generic platform. The company believes that mobile trading will become the platform of choice, particularly with the tech-savvy demographic and has therefore chosen a mobile led platform.
Recent statistics suggest this is the correct choice, with the Trading 212 app being amongst the most downloaded financial apps.
Regulatory environment and Brexit
The end of the Brexit transition period sees the end of Trading 212 UK Limited’s passporting rights. As a result, the EU based clients who Trading 212 UK Limited is no longer able to serve will be offered the opportunity to move to Trading 212 Markets Limited during early 2022.
Market risk
During 2020, the UK entity operated on a matched principal basis for CFDs and on an agency basis for equities. Exposure to market risk for the UK was therefore limited to the FX risk of holding client money (and own funds) in multiple currencies. In terms of client money, as part of the daily client money reconciliation the currency balances are reviewed, and the proportions held in each currency adjusted, as necessary. The UK entity does not hold sufficient own funds in currencies other than GBP to necessitate hedging but keeps the policy under review.
During 2020, the Bulgarian entity managed its own market making activities, meaning that it was exposed to the market risk from CFD positions, and more specifically to currency risk, interest rate risk and certain other price risks, which result from both its operating and investing activities. The Bulgarian entity may choose to hedge some of those positions with third-party counterparties depending on the internal risk policy.
The Bulgarian entity is also subject to the market risk of the portfolio of investments that is maintained on balance sheet for the purposes of maintaining the inventory of cash equities made available for client purchases.
Page 6
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Trading 212 Group Limited
Group strategic report (continued)
for the year ended 31 December 2020
Principal risks and uncertainties (continued)
Liquidity risk
Liquidity risk arises if the group fails to meet its payments to brokers, clients or suppliers as they fall due. Most clients are classified as retail investors and client money is therefore held in accordance with the respective regulators rules on the holding and segregation of client monies held in ring-fenced client money accounts. The group voluntarily applies this protection to its small number of professional investors.
The group keeps all its resources in no-notice cash accounts and closely monitors the rate of cash absorption. Having conducted a liquidity risk analysis and identified sources of emergency funding should it be required, the group remains confident that it is adequately funded.
Credit risk
The group has exposure to its brokers, its bank and its clients. Client default is managed by obtaining sufficient collateral from its clients to cover their contractual obligations. The trading platform automatically closes client positions at a pre-determined margin level. The group recognises there remains a residual credit risk but recognises this risk as inherent in its business model.
The group conducts thorough monitoring of each of its hedging counterparty’s financial position and considers them to be sufficiently well resourced.
In respect of its banking partners, the group regularly reviews credit ratings, reputation and other indicators to ensure both its funds and those of its clients are suitably protected.
Internal Controls
The company is conscious that, dealing with large amounts of money, it is highly exposed to loss through error or fraud. This risk is mitigated through comprehensive and clearly documented internal procedures, particularly those covering client money and payments. In the early months of 2021, the UK company appointed an external firm to provide a “third line of defence” internal audit service.
Impact of Covid 19
Significant volatility spikes resulting from the pandemic have facilitated increased trading volumes for most financial services firms, including the Trading 212 group. In the short term the group has been a beneficiary both in revenue and client growth. In the longer term, volatility linked to the pandemic is expected to recede and trading conditions (barring any additional macro/geo-political factors) should signal a return to more stable market conditions.
Future developments
As evidenced by the financial performance in these financial statements, Trading 212 has seen incredible levels of growth, with revenue growing from £29.7m in 2019 to £124.1m in 2020, while profit after tax has improved from £8.5m to £10.1m over the same period. Net assets also increased during this time from £33.1m to £44.7m.
This growth has been caused, partly by broader market trends and activity but also crucially by the increasing popularity of the platform and our product offering which includes, for example, Trading 212’s zero commission pricing structure, the ability to trade in fractional amounts of shares, and the functionality within the platform to build portfolios. In addition, the ability to trade via T212’s mobile app has proved to be extremely popular with the tech savvy demographic. These features have helped open share trading to a much wider and diverse client base who may not historically have had access to the financial markets, or been considered as potential customers. Trading 212’s products, services and technology has facilitated and enabled a wider audience to participate in managing their own financial affairs and investment decisions that they were previously unable to do.
Page 7
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Trading 212 Group Limited
Group strategic report (continued)
for the year ended 31 December 2020
Future developments (continued)
External factors have also contributed to the significant demand for T212’s services and include both the well-publicised surge of public interest in the stock markets seen in early 2021 as well as the COVID pandemic. This demand has translated into increased account openings, transaction volumes, and significant increases in both new and existing user activity.
This demand for T212’s products and services continued into 2021 with revenues and profitability for the year ended 31 December 2021 having grown significantly.
With much of this exceptional growth coming in the UK trading entity, there became a need for the UK Board to, voluntarily and temporarily, pause onboarding and reflect on the firm’s strategy and operating model, including the current systems, capacity and controls in place, to ensure that they remain appropriate for the size and scale of the growing business. This was also conducted with the mindset of ensuring that the firm continues to meet all of its regulatory obligations both today and in the future as the business continues to grow.
As a result, T212 has invested significantly in the UK entity and its operating model, and has included:
1.
Increasing the share capital of the UK business by an additional £19.8m;
2.
The hiring of a new UK based senior management team with significant experience in this sector, including a new “C-Suite” of executives including a CEO, COO, CFO, CRO and a CTO;
3.
Appointing new directors to the Board, including 2 new independent non-executive directors, taking the total to 6 directors at the date this report is signed;
4.
Increasing headcount in the UK from 6 to around 40 at the time of approval of the financial statements, with further approved recruitment plans to grow that to circa 80 by the end of Q2/Q3 2022; and
5.
Increased oversight over outsourced functions within the wider group.
The result of this investment, which will continue into 2022, means that the business is now well positioned to provide the products, functionality and quality of service offering that our clients expect. The company has, since 14 February 2022, re-commenced the daily onboarding of a limited number of customers as the firm continues with the development of new processes and functionality, with the intention to resume full onboarding thereafter. The company therefore looks forward to supporting the investing public in gaining access to the wider stock markets.
Outside of the UK entity specifically, and following Brexit, T212 will be looking to transfer some of its clients around the group. This will see the UK entity transferring circa 14% of its clients (all being EU clients) to the new Cyprus entity, while the Bulgarian entity will also be transferring its client to either the Cyprus or UK entity.
T212 UK will continue to service all UK, EEA (ex-EU), and rest of world clients, while T212 Cyprus will service all EU clients.
Section 172 statement
Section 172 of the Companies Act 2006 requires the directors of an entity to act in the way he or she considers, in good faith, would be most likely to promote the success of the entity for the benefit of its members as a whole. As part of the entity’s deliberations and decision-making process, the directors also take into account the following:
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likely consequences of any decision in the long term;
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the interests of the entity's employees;
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the need to foster the entity's business relationships with suppliers, customers and others;
iv.
the impact of the entity's operations on the community and the environment;
v.
the desirability of the entity maintaining a reputation for high standards of business conduct; and
vi.
the need to act fairly between members of the group.
Page 8
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Trading 212 Group Limited
Group strategic report (continued)
for the year ended 31 December 2020
Section 172 statement (continued)
The directors consider its stakeholders to be: (a) the employees of the group; (b) our customers; (c) our investors; (d) our regulator; and (e) all those that live in the societies we serve. During 2020, the directors gave careful consideration to the factors set out above in discharging their duties under section 172. The directors recognise that building strong relationships with our stakeholders will help deliver the company’s and group’s strategy in line with its long-term values. The directors are committed to effective engagement with all of its stakeholders.
Depending on the nature of the issue in question, the relevance of each stakeholder group may differ and, as such, as part of the company’s and group’s engagement with stakeholders, the directors seek to understand the relative interests and priorities of each group and to have regard to these, as appropriate, in its decision making. The directors acknowledge however, that not every decision it makes will necessarily result in a positive outcome for all stakeholders. The directors also challenge management to ensure all stakeholder interests are considered in the day to day management and operations of the company and the group.
The directors seek to understand the interests and views of the company’s, and wider group’s, stakeholders by engaging with them directly as appropriate. The directors will sometimes engage directly with certain stakeholders on specific issues, but the size and distribution of our stakeholders and of the company and wider group means that stakeholder engagement often takes place at an operational level. The majority of decisions made by the directors during the year are deemed to be routine in nature and are taken on a cyclical basis. The directors are also focused on delivering both fair and right outcomes for all its stakeholders. The product proposition for both internal and external customer groups has been debated by the directors. As a result of these activities, the directors believes he has demonstrated compliance with their legal duty under s.172 of the Companies Act 2006.
This report was approved by the board on 18 February 2022 and signed on its behalf by:
Page 9
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Independent auditor's report to the members of Trading 212 Group Limited
for the year ended 31 December 2020
We have audited the financial statements of Trading 212 Group Limited ('the parent company') and its subsidiaries ('the group') for the year ended 31 December 2020 which comprise the Consolidated statement of comprehensive income
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the Consolidated statement of financial position, the Company statement of financial position
,
the Consolidated statement of cash flows
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the Consolidated statement of changes in equity, the Company statement of changes in equity
and the related notes, including a summary of significant accounting policies set out on pages 23 - 30. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion:
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the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2020 and of the group's profit for the year then ended;
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the group
financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
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the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent
company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
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In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group's and the parent
company's ability to continue to adopt the going concern basis of accounting included:
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's or the parent
company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
The other information comprises the information included in the Annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the Annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Page 10
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Independent auditor's report to the members of Trading 212 Group Limited (continued)
for the year ended 31 December 2020
Other information (continued)
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
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In our opinion, based on the work undertaken in the course of the audit:
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the information given in the Directors' report and the Group strategic report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
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the Directors' report and the Group strategic report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the audit, we have not identified material misstatements in the Directors' report or the Group strategic report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
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adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
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the parent company
financial statements are not in agreement with the accounting records and returns; or
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certain disclosures of directors' remuneration specified by law are not made; or
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we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's and the parent
company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent
company or to cease operations, or have no realistic alternative but to do so.
Page 11
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Independent auditor's report to the members of Trading 212 Group Limited (continued)
for the year ended 31 December 2020
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
How the audit was considered capable of detecting irregularities including fraud
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud
and non-compliance with laws and regulations, was as follows:
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the Senior Statutory Auditor ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations, including knowledge specific to auditing investment brokerage businesses;
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we made enquiries of management as to where they considered there was susceptibility to fraud, and their knowledge of actual, suspected and alleged fraud;
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we identified the laws and regulations that could reasonably be expected to have a material effect on the financial statements through discussions with directors and other management at the planning stage, and from our knowledge and experience of investment brokerage businesses;
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the audit team held a discussion to identify any particular areas that were considered to be susceptible to misstatement, including with respect to fraud and non-compliance with laws and regulations;
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we considered the impact of COVID-19 on the group and its internal controls;
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we interacted with component auditors throughout the audit. Interactions with component auditors included, if applicable, formal written instructions, meetings and reviewing selected audit papers;
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we focused our planned audit work on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the group including the Companies Act 2006, The Financial Services and Markets Act 2000, The Bulgarian Financial Supervision Commission, employment legislation, and taxation legislation; and
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we considered the impact of Brexit on the group and the laws and regulations above.
We assessed the extent of compliance with the laws and regulations identified above through:
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making enquiries of management;
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making enquiries of component auditors;
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inspecting legal expenditure and correspondence throughout the year for any potential litigation or claims; and
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considering the internal controls in place that are designed to mitigate risks of fraud and non-compliance with laws and regulations.
Page 12
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Independent auditor's report to the members of Trading 212 Group Limited (continued)
for the year ended 31 December 2020
Auditor's responsibilities for the audit of the financial statements (continued)
To address the risk of fraud through management bias and override of controls, we:
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determined the susceptibility of the group to management override of controls by checking the implementation of controls and enquiring of individuals involved in the financial reporting process, taking into account the impact of COVID-19 on controls during the year;
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reviewed journal entries throughout the year to identify unusual transactions, particularly in relation to expenditure;
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performed analytical procedures to identify any large, unusual or unexpected transactions and investigated any large variances from the prior period;
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reviewed accounting estimates and evaluated where judgements or decisions made by management indicated bias on the part of the group's management;
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carried out substantive testing to check the occurrence and cut-off of expenditure;
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tested the completeness and existence of revenue in Trading 212 UK Limited by comparing reports generated by the trading platform to entries in the nominal ledger;
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tested the completeness and existence of dividends received by the company by reviewing board meeting minutes of the subsidiaries as well as bank statements;
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tested the completeness of revenue of components not audited by the group engagement team by, where applicable, ensuring component auditors tested the system which calculates the income and agreed the system reports to the nominal ledger; and.
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reviewed the work of component auditors in the above areas, where applicable.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which
included:
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agreeing financial statement disclosures to underlying supporting documentation;
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enquiring of management as to actual and potential litigation and claims; and
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reviewing correspondence with HMRC, the Financial Conduct Authority, the Bulgarian Financial Supervision Commission and the group's legal advisors.
There are inherent limitations in our audit procedures described above. Irregularities that result from fraud might be inherently more difficult to detect than irregularities that result from error as they may involve deliberate concealment or collusion. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Page 13
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Independent auditor's report to the members of Trading 212 Group Limited (continued)
for the year ended 31 December 2020
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
Peter Chapman
(Senior statutory auditor)
for and on behalf of
Buzzacott LLP
Statutory Auditor
130 Wood Street
London
EC2V 6DL
18 February 2022
Page 14
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Trading 212 Group Limited
Consolidated statement of comprehensive income
for the year ended 31 December 2020
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Exchange gains/(losses) arising on translation on foreign operations
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Total comprehensive income
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All amounts relate to continuing operations.
The notes on pages 23 to 48 form part of these financial statements.
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Trading 212 Group Limited - Registered number: 10014283
Consolidated statement of financial position
as at
31 December 2020
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Property, plant and equipment
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Investments in associates
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Trade and other receivables
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Trade and other receivables
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Cash and cash equivalents
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Page 16
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Trading 212 Group Limited - Registered number: 10014283
Consolidated statement of financial position (continued)
as at
31 December 2020
Issued capital and reserves attributable to owners of the parent
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The financial statements were approved and authorised for issue by the board on
18 February 2022
and signed on its behalf by:
The notes on pages 23 to 48 form part of these financial statements.
Page 17
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Trading 212 Group Limited - Registered number: 10014283
Company statement of financial position
as at
31 December 2020
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Investments in subsidiaries
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Trade and other receivables
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Cash and cash equivalents
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Issued capital and reserves attributable to owners of the parent
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The company's profit for the year was £
4,251
k (2019: £
3,450
k).
The financial statements were approved and authorised for issue by the board on 18 February 2022 and signed on its behalf by:
The notes on pages 23 to 48 form part of these financial statements.
Page 18
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Trading 212 Group Limited
Consolidated statement of changes in equity
for the year ended
31 December 2020
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Other comprehensive income
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Total comprehensive income for the year
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Total contributions by and distributions to owners
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|
|
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Total attributable to equity holders of parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Other comprehensive income
|
|
|
|
|
|
|
Total comprehensive income for the year
|
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|
|
|
|
|
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|
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Total contributions by and distributions to owners
|
|
|
|
|
|
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The notes on pages 23 to 48 form part of these financial statements.
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Page 19
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Trading 212 Group Limited
Company statement of changes in equity
for the year ended
31 December 2020
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Total comprehensive income for the year
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|
|
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Total contributions by and distributions to owners
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total comprehensive income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total contributions by and distributions to owners
|
|
|
|
|
|
|
|
|
|
The notes on pages 23 to 48 form part of these financial statements.
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Page 20
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Trading 212 Group Limited
Consolidated statement of cash flows
for the year ended 31 December 2020
Cash flows from operating activities
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Depreciation of property, plant and equipment
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Amortisation of intangible fixed assets
|
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Interest and other finance income
|
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Interest and other finance expense
|
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Gain on sale of property, plant and equipment
|
|
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Foreign exchange (loss)/gain of revaluation of assets
|
|
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Foreign exchange gain/(loss) on consolidation
|
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Movements in working capital:
|
|
|
Increase in trade and other receivables
|
|
|
Increase in current asset investments
|
|
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Increase/(decrease) in trade and other payables
|
|
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Cash generated from operations
|
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|
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Net cash (used in)/from operating activities
|
|
|
Cash flows from investing activities
|
|
|
Purchases of property, plant and equipment
|
|
|
Purchase of intangible assets
|
|
|
Proceeds from disposal of property, plant and equipment
|
|
|
Net cash (used in)/from investing activities
|
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|
Cash flows from financing activities
|
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Dividends paid to shareholders
|
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Net cash from/(used in) financing activities
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Page 21
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Trading 212 Group Limited
Consolidated statement of cash flows (continued)
for the year ended 31 December 2020
|
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Net cash (decrease)/increase in cash and cash equivalents before exchange gain/(loss)
|
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|
|
|
|
Cash and cash equivalents at the beginning of year
|
|
|
Exchange gains/(loss) on cash and cash equivalents
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
The notes on pages 23 to 48 form part of these financial statements.
Page 22
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
Trading 212 Group Limited is a private company limited by shares and was incorporated in England and Wales with registration number 10014283. Its registered office is 107 Cheapside, London, EC2V 6DN.
Its primary business activity is managing its holdings as a financial services holding group.
2.
Accounting policies
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, IFRIC Interpretations and the parts of the Companies Act 2006 applicable to companies reporting under IFRSs.
|
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Basis of preparation of financial statements
|
The financial statements are prepared on the historical cost basis except for certain financial instruments that are measured at fair value, and the accounting policies set out below have been applied. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies (see note 4).
The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company and its subsidiaries. Control is achieved when the company:
∙
has power over the investee;
∙
is exposed, or has rights, to variable returns from its involvement with the investee; and
∙
has the ability to use its power to affect its returns.
The company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the company obtains control over the subsidiary and ceases when the company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the company gains control until the date when the company ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the group's accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the group are eliminated in full on consolidation.
Page 23
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
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Common control combinations
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Business combinations involving entities under common control fall outside the scope of IFRS 3. The management of Trading 212 Group Limited has used judgement to develop an accounting policy that provides relevant and reliable information to the users of the financial statements. Under the selected accounting policy of Trading 212 Group Limited, common control combinations are treated in accordance with the predecessor value method.
A predecessor value method
The method usually involves:
∙
accounting for the value of assets and liabilities of the acquired subsidiary using existing carrying values rather than fair values; and
∙
no recognition of goodwill.
While the predecessor value method was used to calculate the value of all subsidiaries, the acquisition of the shares in Trading 212 Limited was calculated using an amended methodology with 90% of the value based on the net asset value of that company, and the other 10% split equally between capitalised earnings and discounted future cashflows.
The group will expect to use the net asset value method for all future acquisitions albeit none are planned.
The group manages its capital to ensure that all entities in the group remain a going concern while maximizing return to shareholders. The group had a profit for the period ended 31 December 2020. The directors are of the opinion that the group will remain a going concern for the foreseeable future.
In determining that the group is a going concern, the directors have considered the potential impacts of Brexit and the novel coronavirus disease ('COVID-19') pandemic, including the likelihood of a continued global recession on the group. The directors believe the group will be able to manage its risks successfully, enabling it to continue to enhance its market position and grow the business in the long-term.
Trading revenue represents gains and losses arising on trading activity of the subsidiaries' clients, in CFD contracts, and the transactions undertaken to hedge the risk associated with client trading activity. These CFDs and related hedges involve two parties agreeing to exchange the market performance of an underlying asset through a derivative contract between those parties. This should not be confused with the group themselves holding on-balance-sheet listed investments.
Open client and hedging positions are carried at fair market value and gains and losses arising on this valuation are recognised in revenue as well as gains and losses realised on positions that have closed. The policies and methodologies associated with the determination of fair value are further discussed under note 2.16
Financial Instruments
. Trading revenue also includes overnight interest on open derivative positions of clients and income generated from stock lending activities.
Revenue is recognised when it is probable that economic benefits associated with the transaction will flow to the group and the revenue can be measured reliably.
Page 24
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
The group considers whether a contract is, or contains, a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'.
To apply this definition the group assesses whether the contract meets certain key criteria which are whether:
∙
the contract contains an identified asset, which is either explicitly identified in the contract;
∙
implicitly specified by being identified at the time the asset is made available to the group;
∙
the group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; or
∙
the group has the right to direct the use of the identified asset throughout the period of use.
The group assesses whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the group recognises a right-of-use asset and a lease liability on the Statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The group also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date of mandatory application of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January was 3.5%.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance-fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
The group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Page 25
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the Consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
|
|
Current and non-current classification
|
Assets and liabilities are presented in the Consolidated and Company statements of financial position based on current and non-current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting year; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting year. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting year; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting year. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
|
|
Investments in subsidiaries
|
Investments in subsidiaries are stated at deemed cost less accumulated impairment losses.
Page 26
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
|
|
Property, plant and equipment
|
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the group.
Depreciation on assets under construction does not commence until construction is complete and the assets are available for use. Depreciation is provided on all other items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives on a straight line basis. It is provided over the following periods:
|
(i) Intangible assets acquired externally
|
Intangible assets with finite useful lives that are acquired externally are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired externally are carried at cost less accumulated impairment losses.
The estimated useful lives of the externally- acquired intangible assets range as follows:
Subsequent expenditure on an intangible asset after its purchase or its completion is expensed as incurred unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured reliably and attributed to the asset. If these two conditions are met, the subsequent expenditure is added to the carrying amount of the intangible asset.
Page 27
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
|
|
Intangible assets (continued)
|
|
(ii) Internally-generated intangible assets
|
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:
∙
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
∙
the intention to complete the intangible asset and use or sell it;
∙
the ability to use or sell the intangible asset;
∙
how the intangible asset will generate probable future economic benefits;
∙
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
∙
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
The estimated useful lives of the internally generated intangible assets range as follows:
Software 2 or 3 years
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired externally.
|
|
Cash and cash equivalents
|
Cash and cash equivalents include cash at hand, deposits held on call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Prior to trading CFDs, the clients of Trading 212 UK Limited and Trading 212 Limited deposit funds as margin. These balances are held as collateral against client positions and are unavailable to the group except insofar as when a client realises a trading loss it is taken by the group from these balances.
Trading 212 UK Limited and Trading 212 Limited hold this money on behalf of clients in accordance with the client money rules of the UK's Financial Conduct Authority (FCA) and Bulgaria's Financial Supervision Commission (FSC), respectively. Such monies are classified as 'segregated client funds' in accordance with the relevant regulatory requirements. Segregated client funds comprise individual client funds held in segregated client money accounts. Segregated client money accounts hold statutory trust status restricting the group's ability to control the monies and accordingly such amounts are not included in the Consolidated statement of financial position, except for cash that had been prudently segregated (see "Trade and other receivables" accounting policy below).
There is no interest paid on segregated client accounts.
Page 28
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
|
|
Trade and other receivables
|
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days.
Trade receivables include cash prudently segregated in client money accounts as, in the event of an administration and assuming no specific use of the amount segregated, it is due to the group.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is made when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired.
The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Open CFD positions, and stock held on the balance sheet to facilitate brokerage services, are designated as financial instruments at fair value through profit or loss. This category of instrument is initially recognised at fair value on the date the derivative contract is entered into, or the date the stock is purchased, and is subsequently re-measured at the corresponding asset's fair value. Any resulting gains or losses are recognised in net trading revenue.
Client derivative positions are settled against client cash held in segregated accounts at the end of the day and thus do not appear on the statement of financial position of the group.
The group's financial instruments at fair value through profit or loss comprise:
a.
Open financial derivative positions - These CFDs and related hedges involve two parties agreeing to exchange the market performance of an underlying asset through a derivative contract between those parties; and
b.
Holdings in listed investments - These holdings represents the group's stock of financial investments held to facilitate client orders. The value of these assets will be determined by stock market movements.
Page 29
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
2.
Accounting policies (continued)
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Financial instruments (continued)
|
Settling financial instruments
In accordance with Trading 212 UK Limited's and Trading 212 Limited's client money and custody asset obligations, daily client money and asset reconciliations are performed. This ensures that, for CFD accounts, the balance in the segregated client money accounts is equal to the net client equity (deposits, less withdrawals, plus or minus any daily trading result from derivative positions). Any client gains or losses are simultaneously settled against the client cash in accordance with the terms of the client agreement between the clients and the group. For Invest accounts, the client money reconciliations ensure that any excess cash held in clients’ trading accounts are suitably identified, segregated and protected, while the custody asset reconciliations ensure that the total balances of stocks owned by clients can be split on a client by client basis and that the total matches those held in custody with the third party custodian.
Apart from settlement of client trading result no other use may be made of client money. Clients may at any time request to withdraw their profits or any cash not being used as margin.
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use.
Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. See the fair value hierarchy in note 26.1.
These amounts represent liabilities for services provided to the group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the directors. In the case of final dividends, this is when approved by the shareholders at the annual general meeting.
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Functional and presentation currency
|
Functional and presentational currency
These consolidated financial statements are presented in pound sterling, which is the company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.
Page 30
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
Functional and presentation currency (continued)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.
At each period end foreign currency monetary items are translated using the closing rate. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured using the exchange rate when fair value was determined.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in the FX reserve.
|
Accounting estimates and judgements
|
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements and are accounted for at fair value.
Provision for impairment of receivables
The provision for impairment of receivables assessment requires a degree of estimation·and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor's financial position.
Treatment of client derivative positions
Client derivative positions are settled on a daily basis against client cash held in segregated accounts and thus do not appear on the Consolidated statement of financial position.
Predecessor value method applied to common control combinations
The Management has exercised reasonable judgement to select an appropriate accounting policy for treatment of common control combinations, which provides relevant and reliable information in accordance with IAS 8. Please see note 2.4 in respect of the methodologies used.
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The following is an analysis of the group's revenue for the year from continuing operations:
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Investment brokerage services
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Page 31
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Gain on sale of non-current assets
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IT software and consumables
|
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Printing, postage and stationary
|
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Advertising and marketing
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Compliance and consulting
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Foreign currency variance
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Depreciation and amortisation
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Page 32
|
Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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During the year, the group obtained the following services from the group's auditor and its associates:
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Fees payable to the group's auditor for the audit of the group's financial statements
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Fees payable to the group's auditor and its associates in respect of:
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Audit of the subsidiary undertakings
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Audit-related assurance services
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Taxation compliance services
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All non-audit services not included above
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Amounts in the prior year relate to the company's previous auditor.
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Staff costs and average number of employees
|
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Staff costs during the year, including directors' remuneration, was as follows:
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Contributions to defined contribution pension schemes
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The monthly average number of persons, including the directorss, employed within the group during the year was as follows:
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Page 33
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Contributions to defined contribution pension schemes
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Finance income and expense
|
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Recognised in profit or loss
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Deposit and withdrawal charges
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Net finance (expense)/income recognised in profit or loss
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Page 34
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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12.1 Income tax recognised in profit or loss
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Current tax on profits for the year
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Taxation outside the UK is calculated at the rates prevailing in the relevant jurisdictions. Group tax is based on a blended tax rate of 19% for the year ended 31 December 2020 (10.5% for the year ended 31 December 2019). The tax expense in the Consolidated statement of comprehensive income for the year can be reconciled as set out below:
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Profit before income taxes
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Tax using the group's blended tax rate of 19% (2019: 10.5%)
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Adjustments due to tax-exempt income
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Adjustments due to difference in tax rates
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Adjustments for non-deductible expenses
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Exempt dividend distributions
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Tax losses carried forward in subsidiaries
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Changes in tax rates and factors affecting the future tax charges
UK
On 10 June 2021, the Finance Bill 2021 received Royal Assent. The Bill confirms an increase in the corporation tax rate from 1 April 2023. From this date, the rate will taper from 19% from business with profits of less than £50,000 to 25% for business with profits over £250,000.
Page 35
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
12.
Tax expense (continued)
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12.2 Deferred tax balances
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The following is the analysis of deferred tax assets presented in the Consolidated statement of financial position:
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The deferred tax asset relates to fixed asset timing differences.
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Page 36
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Property, plant and equipment
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Assets under construction
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Assets under construction
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Foreign exchange movement
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Foreign exchange movement
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Page 37
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Foreign exchange movement
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Foreign exchange movement
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Foreign exchange movement
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Page 38
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Investments in subsidiaries
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At 31 December 2020, the following were subsidiary undertakings of the company included in these financial statements:
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107 Cheapside, London, EC2V 6DN, United Kingdom
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Investment brokerage services
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Lachezar Stanchev str. 3, 1756, Sofia, Bulgaria
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Investment brokerage services
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Trading 212 Europe Limited
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Ernst-Schnieder-Platz 1, 40212, Düsseldorf, Germany
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Investment brokerage services
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Trading 212 Markets Limited
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Amathountos, 5, Pirilides Building, Floor 4, 3105, Limassol, Cyprus
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Investment brokerage services
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Landsberger Str. 302, 80687, München, Germany
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While not dormant, Trading 212 Europe Limited, Trading 212 Markets Limited, Avus Supercars GbmH and Proquant OOD were not operationally active in their principal activity during the year.
Avus Supercars GmbH and Proquant OOD were indirect subsidiaries of the company, being 100% owned by Trading 212 Limited.
Proquant OOD was sold on 1 October 2020.
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Investments in subsidiary undertakings
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Trading 212 Limited holds a 9.68% voting and equity interest in EnduroSat AD (2019: 9.68%). The investment is accounted for at cost and its carrying value as at 31 December 2020 is £202,000 (2019: £202,000). The stocks are not publicly traded and thus the fair value is difficult to establish. The investment is regularly tested for impairment; no impairment indications were found as at 31 December 2020.
Page 39
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Trade and other receivables due after 1 year
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The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
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Trade and other receivables
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Amounts owed by group undertakings
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Prepayments and accrued income
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The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
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Cash and cash equivalents
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Cash and cash equivalents
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Page 40
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
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Current asset investments
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These listed investments are measured at fair value using Level 1 inputs (see note 26.1).
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Amounts owed to group undertakings
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Amounts owed to related parties
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Other tax and social security
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Accruals and deferred income
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Lease liabilities (see note 23)
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Lease liabilities (see note 23)
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Total loans and borrowings
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Page 41
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
22.
Loans and borrowings (continued)
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The company had no loans and borrowings (2019: £nil).
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Lease liabilities are due as follows:
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Contractual undiscounted cash flows due
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Between one year and five years
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Authorised, issued and fully paid
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3,131,500 (2019: 3,131,500) Ordinary shares of £1 each
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Capital risk management
The group's objectives when managing capital is to safeguard its ability to continue as a going concern and exceed the minimum capital requirements set out by the FCA and the FSC. The group met these capital requirements throughout the year.
Capital is regarded as total equity, as recognised in the Consolidated and company statements of financial position.
In order to maintain or adjust the capital structure, the group may adjust the dividend payment to the shareholder, return capital to the shareholder, issue new shares or sell assets to reduce debt.
The capital risk management policy remains unchanged at the date of this report.
Page 42
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
Foreign exchange reserve
The foreign exchange reserve includes all current and prior period foreign exchange adjustments required upon consolidation.
Other reserves
Other reserves includes share premium accounted for under merger relief.
Retained earnings
Retained earnings includes all current and prior periods' retained earnings.
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Financial instruments - fair values and risk management
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26.1 Financial risk management objectives
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The group is exposed, through the activities of its subsidiaries, to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. The group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk.
Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the group's operating units. Finance reports to the Board on a monthly basis.
The group uses the following hierarchy of valuation techniques for determining and disclosing the fair value of financial instruments which are measured at fair value;
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: Other techniques for which all outputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;
Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
The only assets or liabilities that are measured at fair value through profit or loss are the current asset investments, see note 20. These are valued using Level 1 inputs. All other assets and liabilities are measured at amortised cost.
Page 43
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
26.
Financial instruments - fair values and risk management (continued)
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26.1 Financial risk management objectives (continued)
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At 31 December 2020, the financial instruments held by the group were:
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26.2 Foreign currency risk management
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The group undertakes transactions denominated in foreign currencies; consequently, exposure to exchange rate fluctuations arises.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the company's functional currency. The risk is measured using maximum exposure limits.
The carrying amounts of the group's significant foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:
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Page 44
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
26.
Financial instruments - fair values and risk management (continued)
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26.2 Foreign currency risk management (continued)
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Foreign currency sensitivity analysis
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At 31 December 2020 and 31 December 2019, respectively, if the GBP had strengthened or weakened by 10% against foreign currencies with all other variables held constant, pre-tax profits and equity would have increased/(decreased) by:
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Sterling strengthened impact
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26.3 Interest rate risk management
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The group is exposed to interest rate risk because the entities in the group borrow funds at both fixed and floating interest rates. The risk is managed by the group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.
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26.4 Price risk management
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Price risk is market risk, arising from extreme adverse market movements in the prices of open derivative positions taken by the group’s subsidiaries, or the assets held on the balance sheet.
During 2020, Trading 212 UK Limited operated under a matched-principal CFD model and hence was not exposed to any market risk. It also did not hold any listed investments.
Trading 212 Limited was exposed to market risk during 2020 as part of its operating model. It was managed as follows:
CFD trading - Daily retail client exposure limits have been put in place and are monitored regularly throughout the day. The group monitors the relevant markets/asset classes for signs of volatility and unusual daily trading volumes using various market data sources available and can amend these limits accordingly, or indeed choose to follow a hedging strategy by placing hedging trades with external counterparties.
Current asset investments are monitored through the setting of daily trading limits to ensure appropriate diversification of the trading book, with a single limit exposure cap of 5% exposure of the total trading book.
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26.5 Credit risk management
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Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the Consolidated statement of financial position and notes to the financial statements.
Page 45
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
26.
Financial instruments - fair values and risk management (continued)
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26.5 Credit risk management (continued)
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Financial institutions credit risk
Financial institutions credit risk is the risk of sustaining losses due to failure of a counterparty (financial institution) to meet its obligations in relation to own assets and segregated client account assets.
The group has a strict code of credit, including obtaining agency credit information, observing credit default swaps, industry stress test results, confirming references and setting appropriate credit limits. An annual credit risk assessment of the group's bankers is performed and measures to diversify away financial institution credit risk are implemented. To mitigate the risk as far as possible, the group conducts intrusive analysis of its counterparty, having access to its regulatory filings, annual accounts, liquidity stress test results and ICAAP document.
Client credit risk
The group operates a real-time mark-to-market trading platform with clients' profits and losses being credited/debited automatically to their accounts. Under the group's trading conditions the client cannot sustain losses exceeding the funds deposited.
As the CFD products offered by the group companies are margin-traded, the group could be exposed to client credit risk in case of sudden unexpected adverse market movements. This situation arises when the client's free equity is insufficient to cover any trading losses incurred on open positions in case of adverse market movements. However, the group's client credit risk exposure is limited by the automatic closing mechanism (margin call), imbedded in the Trading 212 platform.
26.6 Liquidity risk management
Vigilant liquidity risk management requires the group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.
The group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
The following tables detail the group's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the group can be required to pay.
The following table details the group's expected maturity for its non-derivative financial assets. The CFDs and related hedges involve two parties agreeing to exchange the market performance of an underlying asset through a derivative contract between those parties. This should not be confused with the group themselves holding on-balance-sheet listed investments. The table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the group's liquidity risk management as the liquidity is managed on a net asset and liability basis.
Page 46
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
26.6 Liquidity risk management (continued)
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Related party transactions
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Balances and transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below.
On 2 December 2020, a person with joint control over the group advanced funds of €8,000k (£7,238k). This advance is to be repaid 1 year after the funds were received, with interest accruing at 3% per annum. No collateral was provided for this advance. During the year, interest on this loan of £17k accrued.
On 1 October 2020, Proquant OOD was sold to the joint controllers for BGN 100. At 31 December 2020, £7,255k was due to the joint controllers.
During the year, the group made purchases of services from entities under common control totalling £82k (2019: £9k). At 31 December 2020, amounts owed to these entities totalled £86k (2019: £nil). This balance is included within Other payables.
Key management personnel
During the year, key management personnel received remuneration of £186k (2019: £176k) as well as pension contributions of £7k (2019: £10k).
The group operates segregated client money bank accounts and client transaction accounts. As at 31 December 2020 the total balance of these accounts was £317,816 thousand (2019: £36,087 thousand). As at 31 December 2020 the total value of clients' custody assets held was £1,727,192 thousand (2019: £21,715 thousand).
The directors do not consider there to be an ultimate controlling party.
Page 47
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Trading 212 Group Limited
Notes to the consolidated financial statements
for the year ended 31 December 2020
A classification error was identified in the 2019 comparative numbers which required the amount of £890k, previously included as "Trade receivables", to be reclassified as "Cash and cash equivalents". There was no net impact to the Consolidated statement of financial position, but due to the change in categorisation, requires a restatement to be noted in these financial statements.
Another classification error was identified in the 2019 comparative numbers which included foreign exchange variance of £686k (credit) and fees relating to holding of listed investments of £664k (debit) within "Finance costs". These have been reclassified as "Administrative expenses". There was no net impact on the Consolidated statement of comprehensive income or retained earnings.
The 2019 Consolidated statement of cash flows has been restated to include presentational adjustments.
Page 48
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