Business continuity plan

[1] Cost consists of marketing, database validation, identification, SMS message sending and recovery costs.

[2] Operating costs consist of wage, IT development, rental and utilities, bookkeeping, auditing, mobile communication and Internet costs, and other costs.

Annex No. 2 to
the Business Continuity Plan of peer-to-peer lending platform NEO Finance, AB

Customer funds movement

Investing

The movement of funds during the investment is shown schematically in Annex No. 3.

An investor registered with the Neo Finance, AB Loan Club platform (hereinafter referred to as NEO), needs to replenish its personal IBAN account opened in investor's name in an electronic money institution, in order to start investing. It can be done in two ways:

1.    using the payment initiation service provided by NEO Finance, AB, which holds the license issued by the Bank of Lithuania to the electronic money institution No. 7, which was supplemented by the decision of the Bank of Lithuania on 30/10/2018 to provide payment initiation services.

2.    by making a money transfer from an account of any payment institution operating in the SEPA area to an electronic money account opened in the name of the NEO investor.

At the moment when the money is transferred to the investor's NEO IBAN account, electronic money is issued and the nominal money paid for it is stored in the Bank of Lithuania and Swedbank, AB. The amount of customer funds stored in Swedbank, AB bank does not exceed EUR 100,000. NEO Finance, AB, as a licensed electronic money institution, it keeps funds received from electronic money holders (investors) for the electronic money received by separating them from the funds of its institution and keeps the funds of its customers in a separate account opened at the Bank of Lithuania and a deposit account opened at Swedbank, AB (hereinafter referred to as Special Purpose Accounts). The funds of electronic money holders (investors) transferred to NEO are the property of the investors and could not be directed to the recovery of NEO's debts and creditors' claims if any. In other words, the electronic money of the investors does not fall into the non-Special Purpose NEO Accounts, which hold NEO's personal funds, so neither NEO nor its creditors can and would not have any claim against this money.

An investor with electronic money can start investing them or opt for an automated way of investing, where the criteria chosen by it would make the investment automatic or by choosing by itself to which consumer credits it wants to invest.

Every investment starts with an electronic money reservation. Electronic money is still in the investor's account, but note that they are reserved for the respective consumer credit and are waiting until the selected credit is fully funded. When the selected credit is funded, then, depending on the situation, there is an appropriate procedure:

1.    if a new credit has been funded and the consumer credit recipient already has a NEO electronic money account opened, then the reserved amount is cancelled in the investor's electronic money account and a debit investment transaction is created (an entry appears in which it is already reflected) and its account balance is reduced accordingly, at the same moment a credit transaction is created in the consumer credit electronic money account and the balance of its account is increased accordingly.

2.    if a refinancing loan is financed and the consumer credit recipient has opened a NEO electronic money account, the reserved amount is cancelled in the investor's electronic money account and a debit investment transaction is created and its account balance reduced accordingly. In such a case, electronic money is debited from investor electronic money accounts, but are not immediately paid to the recipient of consumer credit, but are considered to be in transit until the recipient of customer credit specifies the refinanced amounts (but not more than 72 hours). When refinanced amounts are adjusted, a credit transaction is created in the consumer credit electronic money account and its account balance is increased accordingly.

3.    if a new credit or refinancing loan is financed and the consumer credit recipient does not have a PK electronic money account opened, the reserved amount is cancelled in the investor's electronic money account and a debit investment transaction is created and its account balance reduced accordingly. In such a case, electronic money is debited from investor’s electronic money account, but are kept in transit until the consumer credit recipient opens an electronic money account at NEO. When an electronic money account is opened, a credit transaction is created in the consumer credit electronic money account and its account balance is increased accordingly.

It is noted that even in the case of electronic money is in transit, the status of this money is "money on the road" – the money moves from point A to point B, but they are by no means legally owned by NEO, and NEO has no claims on these funds, and the funds in transit belong to the investor, only the status of such electronic money is different, that is, this is paid for electronic money, but they are reserved until they reach the recipient and the recipient accepts them.

If there is more than one investor, then the final aggregated (electronic money amounts collected from many investors) electronic money is credited to the consumer credit recipient’s NEO IBAN account.

After the amount of the credit is financed in the consumer credit account, in the case of refinancing an order is placed to the creditors, and in the case of ordinary credit, the consumer credit recipient can make a transfer of funds to the desired credit or payment institution. At the time of this order, the respective amount of money is reserved for the consumer credit recipient's electronic money account pending confirmation from the financial institution that the money is credited to the account of the consumer credit recipient’s financial institution. When a confirmation is received, the reserved amount is cancelled in the consumer credit electronic money account, a debit transaction is created for the amount of the order and the account balance is reduced accordingly.

Consumer credit repayment

The movement of funds is shown schematically in Annex No. 4.

In the case of consumer credit repayment, depending on the situation, there is an appropriate consumer credit deposit cover procedure:

1.    When the amount payable is less than or equal to zero, the coverage of the consumer credit charge is not applied i.e. if there is no maturity payment, then even if there are funds in the consumer credit recipient’s account, they are not written off.

2.    When the amount payable is greater than zero (i.e. when the payment deadline expires), a debit transaction is created in the consumer credit electronic money account (an entry is reflected in the account overview), the balance of its account is reduced accordingly and the credit payment is covered in the consumer credit recipient’s payment schedule. At the same moment, the software developed by NEO divides the paid contribution to the investor and transfers the respective part to the specific investor, i.e. a credit transaction is created in the investor's electronic money account (an entry is reflected in the account overview) and its account balance is increased accordingly.

3.    When the termination of the agreement comes into effect and a higher amount than the current debt is paid, then a debit transaction is created in the consumer credit recipient’s electronic money account (an entry is made in the account overview, which already reflects it), its balance on the account is reduced and the credit is covered accordingly. In such a case, the electronic money will be debited from the consumer credit electronic money account, but for 72 hours are considered to be in transit through which the consumer credit recipient may request a recalculation of interest.

a.    If the consumer credit recipient does not request a recalculation of the interest, then in the system created by the NEO, a team that distributes the paid instalment to the investor and transfers its respective share to the specific investor starts to work, i.e. a credit transaction is created in the investor's electronic money account (an entry is reflected in the account overview) and its account balance is increased accordingly.

b.    If the consumer credit recipient asks to recalculate the interest, then the payment of the outstanding interest on the monthly instalments that was paid for by this consumer credit instalment is cancelled. A credit note is created on the consumer credit recipient’s account for the amount for which the payments were withdrawn and a debit note is created with the recalculated amount of interest covered from the recalculated amounts. At the same moment, the software developed by NEO divides the recalculated paid instalments to investors and transfers the respective part to a specific investor, i.e. a credit transaction is created in the investor's electronic money account (an entry is reflected in the account overview) and its account balance is increased accordingly.

It is noted that in the case of consumer credit repayment (as described in the case of the investment), the electronic money does not at any time fall into the non-Special Purpose NEO Accounts where NEO's personal funds are held. Even while electronic money is in transit, the status of this money is "money on the road" – the money moves from point A to point B, but they are by no means legally owned by NEO and NEO has no claims on these funds. Only the investor can claim the money in transit. These are paid for electronic money, but they are reserved until they reach the recipient and the recipient accepts them.

Summary

NEO ensures the flow of investor funds in such a way that in no case can funds from investors or other consumers go through non-Special Purpose NEO Accounts, so investors can feel safe about their funds. If NEO were faced with solvency problems, no creditor, or another third party would be able to encroach on funds held by investors and other consumers, both in terms of the balance of the account and in terms of returned payments, periodically obtained from consumer credit recipients.

NEO stores the funds of its customers (investors and consumer credit recipients, other business entities) in a separate account of the Bank of Lithuania and in the Swedbank deposit account as required by Article 25 (1) (1) of the Law on Electronic Money and Electronic Money Institutions. This ensures to investors (and other customers) that their funds will never be touched by third parties or NEO itself.

NEO ensures the inviolability of investor funds through the realization of an IT system that is programmed so that no employee can in any way make a transfer directly from the customer's IBAN account. Also, the employees of NEO are not able to connect to the accounts of the NEO customers funds held within Swedbank or the Bank of Lithuania. Payments are initiated by the user only through active actions, such as making a payment order or taking action by prior user instructions (e.g. automatic investment ads).

Only the bankruptcy of one bank – Swedbank, AB – would affect the temporary disruption of NEO activities.

Importantly, the deposit account opened on behalf of NEO holds a very small portion of investor funds, and that portion never reaches EUR 100,000. For this purpose, the company has implemented control that is performed by the IT system itself, in addition, the balance of this account is also reviewed by the management staff (financial manager, company manager).

Secondly, in the event of bankruptcy of Swedbank AB, the creditors would not be able to encroach on these customer funds, and they must be immediately returned to NEO users by law. The management of NEO would immediately request Swedbank, AB to transfer these funds to another credit institution or to an existing account within the Bank of Lithuania. The bank has to do this, according to the agreement with NEO, because it is precisely this procedure of depositing funds in the agreement with Swedbank, AB. In such a case, Swedbank, AB plays only the role of custody of funds and cannot use these funds in its activities. If the transfer of funds from Swedbank, AB would take more than two business days, NEO would fully cover the amount of customer funds stored in the account of Swedbank, AB from the funds of its own company funds, and then, upon receiving a transfer from Swedbank, AB would recover the funds. Therefore, it can be argued that the bankruptcy of Swedbank, AB would not cause negative consequences for the company or would be of minimal significance.

Annex No. 3 to
the Business Continuity Plan of peer-to-peer lending platform NEO Finance, AB