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Avon Mutual reaches major development milestones

The last few months have not been easy for anyone, and our thoughts are with those who are suffering in these difficult times. However we at Avon Mutual have found the COVID-19 moment an opportunity to reflect on our mission and purpose.

And what is clear to us is that our sort of bank, supporting a shift to more local community control, and to a more inclusive and sustainable regional economy, is exactly the sort of bank our region and the rest of the country needs.

Indeed, evidence from across the world shows that our values-based bank model delivers far better outcomes for resilience and people and the planet than profit-first banks. There are significant benefits which come from being a community owned and regionally focused bank. Closeness to market and customer and therefore with superior knowledge, screening and monitoring compared to distant profit-first algorithm based banks. This means that our bank will have a comparative advantage in overcoming information asymmetries between bank and borrower due to proximity to client base. That sort of closeness-to-market is exactly what is needed during difficult economic times such as these.

So we hope to play a role in supporting our local community to rebuild resilience as we recover from the pandemic.

It’s therefore exciting to have recently reached two major milestones, and we are delighted that we will shortly be commencing our second round of investment raising.

Having already raised almost £1m in our first round from local citizens, foundations and councils, this second £2m fundraising round will take us through building and then launching the bank.

As I mentioned in our March update, included in our first round £1m fundraising was an investment readiness grant of £200,000 from the Economic Justice Program, part of the Open Society Foundations. This investment readiness grant is made with the intention of OSF considering a further investment in early 2021 of up to £1m in shares from our second round, provided we meet certain conditions which have been agreed between OSF and Avon Mutual .

Our third and final round of £20m capital reserves will then be drawn down the day after we gain our banking licence.

Milestone One - regulatory progress towards licensing

Anyone who’s run a marathon, as I did in London a few years ago, will know the dreaded “wall” – the moment where despite all of your training and hard work, every fibre of your body is screaming at you to stop, and it's only through Herculean perseverance, determination, and grit that you’re able to push through to cross the finish line.

At Avon Mutual we recently pushed through our own “wall”, by completing and submitting our Regulatory Business Plan (RBP) to the PRA and FCA after months of meticulous research, planning, and a painstaking crafting and editing process.

This represents a crucial milestone for us, as submitting our RBP fires the starting gun to begin our bank licensing process in earnest. Whilst we have been interacting with the regulators about our plans for over a year now, it's at this point that things really start to ramp up. So it feels wonderful to have met this milestone - the culmination of work which actually started many years ago - and I’m really proud of our wonderful team.

Our RBP draws on the best practice of other values-led and stakeholder-owned banks across the world. And in launching the bank here in the west of England we are standing on the shoulders of a host of others and on the work of think tanks and campaign groups like the New Economics Foundation, the RSA, Move Your Money and many others. It's because of their work that we know about the benefits of stakeholder banks in the first place, and have such a strong evidentiary base from which to build. Without this work, which I and a number of our staff and board members have been involved with for many years, and the early initiation work of the CSBA, it’s doubtful that we’d ever have got off the starting blocks in the first place.

It’s been a long and sometimes difficult journey, with more hill climbs and painful stitches than we care to remember – and that was before COVID-19 hit society! Yet here we are, with a fully costed, meticulously detailed, and robust business plan, which shows exactly how a customer-owned and regional bank can be viable, sustainable, and profitable in our region.

After so long consulting with our local community, it feels like more than just a milestone to have something so tangible – it feels monumental. For the first time, we have codified and captured all of our ideas, assumptions, costs and incomes; our balances and margins, our ratios and our profit lines. Throughout the process we’ve used high quality sources to furnish our understanding and test our assumptions, and have consistently taken prudent and cautious predictions about our acquisition plans and growth of market share. And (thankfully) the numbers stack up.

There have been many tough decisions along the way, like how to balance our mission for social impact against the financial imperative to make a sustainable profit. Or how to enable greater access to the financial system, but in a way that is empowering rather than paternalistic, whilst maintaining essential checks and guarding against conduct failings that cause customer detriment.

Gaining a bank licence is not for the faint hearted. If you read the PRAs documentThinking about becoming a bank?’ you will see the list of hoops one needs to jump thorough and the work involved. I think it's fair to say that few businesses undergo the depth and breadth of due diligence we are going through currently.

Our RBP and the detailed financial model that sits behind it, cover a breadth of issues including our: mission; business model; market; competition and proposition; products; services; distribution channels and marketing; profit and loss; liquidity; operations; HR; governance and culture; technology; risk and compliance. Not including supporting materials, the RBP alone runs to well over 300 pages.

Our journey to being a bank is not over yet and the PRA and FCA will now be working through our plans with the finest of combs and the most critical of eyes. But it is great to reach this milestone, and the regulator’s initial feedback to our RBP is encouraging.

Milestone Two - Local Authority investment due diligence commences

In what is a second major milestone, in addition to having already received investment from a number of our Local Authorities, we are delighted that Bristol City Council (BCC) is working with Local Authorities across our region on a planned RSM Corporate Finance commission to undertake Financial, Economic & Social Value due diligence for investment decisions and potential major capitalisation investment in Avon Mutual.

In addition to leading on this DD for our region, BCC is showing huge commitment to our wider movement’s plans to revolutionise banking across the UK by also leading on a 4 year framework to the value of £1m for RSM to undertake due diligence for the other 17 banks planned in our wider network including banks already in formation in the SW, Wales, NW and NE.

We look forward to working with our councils and RSM to support their due diligence work over the summer.

Major report out championing Government support for our work

Adding more momentum to our work a major report championing our work has just come out from the RSA The Road to Resilience: How Community Financial Services Can Help Level Up Britain. The report talks about our plans with Avon Mutual and is a whole-hearted rallying call for the Levelling-up and post COVID build-back which our banks can be a key player in. It emphasises how the current highly concentrated, non regional and non mission oriented UK banking sector has failed to help businesses recover from COVID and how our sort of regional and values-led banks in other countries like the US and Germany have been able to provide far better bank support to local businesses for COVID recovery. The report calls for significant support from Central Government and details the many ways our banks will support our national and regional economics.

We are pleased to say that, as well as support from our region’s LA Leaders, we have great support from MPs across the region from all parties and from Central Government. In particular Salisbury MP John Glen, Financial Secretary to the Treasury and City Minister and Devizes MP Danny Kruger who the Prime Minister has just briefed to lead a post COVID recovery enquiry and with whom we are discussing the role of Avon Mutual in such recovery. Furthermore, John Glen has offered to host an event in Parliament to explore Government support for our plans which we are in the process of planning with his officials.

Kit Beazley joins our board

We are delighted to be able to announce that Kit Beazley is joining our board to be Chair of the Avon Mutual Audit Committee. Most recently Kit worked for nearly 11 years at Triodos Bank, heading up their Finance and Risk functions, and latterly leading the project to get a UK banking licence for their new UK subsidiary. Overall Kit brings nearly 30 years of financial services experience, covering not only multinational banks and insurers, but also a building society and the world of values-led banking, and we are very excited to have him joining our team. Kit is also a member of the Board of the much admired Finance Innovation Lab.

In conclusion

It feels great to have reached these important new milestones. We have a good amount of work to do now to work with the regulators on our evolving business plan and look forward to starting building and launching the bank, and I’ll say more about that in my next blog. Thank you for sharing the journey with us.

As ever we would love to hear from you if you have any questions or feedback or if you would be interested in supporting our work.

Jules Peck

Founder Avon Mutual

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