The directors present the strategic report for the year ended 31 December 2023.
Ripple provides global financial settlement based on blockchain technology to enable the world to exchange value like it already exchanges information – giving rise to an Internet of Value (“IoV”). Ripple offers a set of enterprise blockchain and cryptocurrency solutions for global payments, and an open-source platform for developers, called RippleX, to provide tools, services, and programs that accelerate the IoV. Both of Ripple’s offerings utilize XRP, the digital asset native to the distributed open-source public XRP Ledger, for on-demand liquidity in global payments.
The Company is a wholly owned subsidiary of Ripple Labs Inc. (the “Parent”), a company incorporated in the State of Delaware in the United States.
The principal activity of the Ripple Markets UK Limited (the “Company”) is to provide sales and marketing support, technical support, research and development and general and administrative support to the Parent and other sister companies (“Affiliates") under common control of the Parent. There have been no significant changes in the nature of these activities during the financial year. The accompanying financial statements may not necessarily be indicative of conditions that would have existed or the results of the operations if the Company had been operating as an unaffiliated entity.
The Company’s profitability is subject to substantial risks. Our operating expenses primarily related to our business of software and provision of financial settlement solutions to customers. The Company’s profitability may depend on profitability of the Parent and Affiliates.
The Company engages in business related to digital currency, an area in which there are substantial uncertainties, and there can be no assurance that applications of existing or potential future rules and regulation to the Company’s business will not adversely impact the Company. As the market develops, additional regulations governing digital assets to be issued by various domestic and foreign regulatory bodies could subject the Company to additional regulatory burdens or curtail certain aspects of our operations.
The principal activity of the Ripple Markets UK Limited (the “Company”) is to provide sales and marketing support, technical support, research and development and general and administrative support to the Parent and other sister companies (“Affiliates") under common control of the Parent. There have been no significant changes in the nature of these activities during the financial year. The accompanying financial statements may not necessarily be indicative of conditions that would have existed or the results of the operations if the Company had been operating as an unaffiliated entity.
The key KPIs that the business monitors are turnover and profit. These are monitored at minimum on a monthly basis. The KPIs are presented below:
2023 2022 Turnover £53,540,492 £23,611,007 Profit before tax £2,834,663 £1,255,488 Profit for the year £2,825,494 £659,635
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On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The company provides a treasury function to assist in managing the liquidity risks associated with Ripple's activities.
The company has various financial assets and liabilities such as trade debtors and trade creditors arising directly from its operations.
The company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.
The company’s principal foreign currency exposures arise from trading with overseas companies. Company policy permits but does not demand that these exposures may be hedged in order to fix the cost in sterling. This hedging activity involves the use of foreign exchange forward contracts.
Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board.
All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
This is continually evaluated by the Board in light of the overall parent company position.
Saffery LLP have expressed their willingness to continue in office.
We have followed the 2019 HM Government Environmental Reporting Guidelines. We have also used the GHG Reporting Protocol – Corporate Standard and have used the 2020 UK Government’s Conversion Factors for Company Reporting. No comparatives have been provided as the company was not required to report SECR information in the prior year.
The chosen intensity measurement ratio is total gross emissions in metric tonnes CO2e per employee, the recommended ratio for the sector.
We have installed smart meters across all sites and increased video conferencing technology for staff meetings, to reduce the need for travel between sites.
The directors are confident that the accounts should be prepared on the going concern basis. The company operates with the support of its parent company and there is a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Management has considered the consequences of the economic environment and other events and conditions, and it has determined that they do not create a material uncertainty that casts significant doubt upon the entity’s ability to continue as a going concern.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
Basis for opinion
Conclusions relating to going concern
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.
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 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.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
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 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 company or to cease operations, or have no realistic alternative but to do so.
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 specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the company by discussions with directors and by updating our understanding of the sector in which the company operates.
Laws and regulations of direct significance in the context of the company include The Companies Act 2006 and UK Tax legislation.
Audit response to risks identified
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of financial statement disclosures. We reviewed the company's records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities to identify potential material misstatements arising. We discussed the company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
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.
The income statement has been prepared on the basis that all operations are continuing operations.
Ripple Markets UK Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1 Angel Court, London, EC2R 7HJ.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;
Section 7 ‘Statement of Cash Flows’ – Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Ripple Labs Inc. These consolidated financial statements are available from its registered office 600 Battery Street, San Francisco, CA 94111.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the company's statement of financial position when the company becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors and loans from fellow group companies are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The equity-settled share based-payments are granted at the "grant date". The units subsequently vest with 25% being awarded after 12 months of service following the vesting commencement date then an additional 6.25% vest after each subsequent quarter. The annual merit grants vest quarterly from vesting commencement. Under FRS102 we have elected to use an alternative equivalent framework which is US GAAP applying straight line amortisation.
In FY23 we have enhanced our accounting estimation technique approach to Share Based Compensation (SBC) and have incorporated an attrition rate of 10% to account for leavers of the UK entity which applies only to the unvested tranches of awards for employees. Employees with vested awards are not applicable for the purposes of applying the attrition rate. We will review the attrition percentage to be applied on an annual basis to ensure that it is appropriate. The fair value of restricted stock units ("RSU") is based on the estimated fair value of the Parent's common stock on the modification date.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised immediately. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
In relation to tender offers i.e. settlement, the difference between the expense recognised to date and the expected total expense to be recognised for outstanding units is recognised in the same period as the tender offer resulting in all remaining share-based payment expense being recognised.
Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 16.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
For the share options granted the fair value is determined at the grant date and spread across the vesting period in the profit and loss account. In addition to the above, cancellations or settlements are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately. This is a key judgemental area due to the fair value being measured by a Black-Scholes model.
An analysis of the company's turnover is as follows:
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 5 (2022 - 1).
The number of directors who are entitled to receive shares under long term incentive schemes during the year was 5 (2022 - 1).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset set out above is expected to reverse within 12 months and relates to the share based payment deductions expected in the future. The deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
The Parent provides restricted stock units (RSUs) to employees employed by the Company. All unvested RSUs contain both a vesting condition, which is service-based, and a non-vesting condition to receive the underlying common stock of the Parent. The service-based vesting period is four years. The non-vesting condition will be satisfied on either: (1) a change in control event, such as a sale of the parent company assets or a merger involving the sale of a majority of the outstanding shares of the parent company voting capital stock, or (2) the effective date of the registration statement in connection with a qualifying initial public offering.
In September 2023, the Parent announced the intent to waive the liquidity event condition of all unvested RSUs, and RSUs that had met the service-based condition on the date in which the Parent announced the intent to waive the liquidity event condition (the “modification date”) became probable of vesting; the effective date of the waiver was January 1, 2024. As a result, the Company recognized £12,715,971 in incremental stock-based compensation during the year ended December 31, 2023 in connection with the modification. Stock-based compensation is recognized as RSUs vest over the remaining service term on a straight line basis. The fair value of restricted stock units (“RSU”) is based on the estimated fair value of the Parent’s common stock on the modification date.
The number of shares expected to vest is estimated based on the non-market vesting conditions. The estimates are revised at the end of each reporting period, and adjustments are recognised in profit or loss and the share-based payment reserve. Where shares are forfeited due to a failure by the employee to satisfy the service conditions, any expenses previously recognised in relation to such shares are reversed with effect from the date of the forfeiture.
The parent company has a share based option scheme for certain employees employed by Ripple Markets UK Limited.
Options are exercisable at a price equal to the estimated fair value of the company's shares on the date of the grant. The vesting period is four years and the options can be exercised any time before its expiration of ten years. Options are forfeited if the employee leaves the company before the options vest.
Details of the share options outstanding at the period end are as follows:
During the year, the company recognised total share-based payment expenses of £12,715,971 (2022: £2,244,648), related to equity settled share based payment transactions.
The company granted 1,399,571 RSUs (2022: 650,557) and 121,033 RSUs were forfeited (2022: 56,351). All RSUs contain time based conditions only post lifting of the liquidity trigger to vest in the underlying common stock of the parent company.
The company has one class of ordinary share which carry no right to fixed income. Shareholders are not entitled to vote at AGMs unless Director permission is given.
Options have been granted by the Ripple Labs Inc under the stock plan to subscribe for ordinary shares. In addition, RSUs have been issued by Ripple Labs Inc. Other reserves comprises of the fair value of both shares at the year end.
SEC legal case
On December 22, 2020, the SEC filed a civil enforcement action against Ripple Labs Inc., Chris Larsen, and Brad Garlinghouse in the U.S. District Court for the Southern District of New York. The SEC alleged that Defendants violated federal securities laws by selling or otherwise distributing XRP without registering those sales with the SEC in accordance with applicable registration requirements. Ripple disputed the SEC’s allegations. On July 13, 2023, the court granted Defendants’ motion for summary judgment finding that Defendants did not violate securities laws with respect to sales on exchanges by any defendant and other distributions of XRP (including distributions to developers, to charities, and to employees); and the court granted the SEC’s motion for summary judgment as to certain historical “Institutional Sales” (i.e., certain sales to institutional investors) of XRP. Critically, the court ruled that XRP is not a security as a matter of law. The court found a triable issue of fact as to the SEC’s aiding and abetting claim against the individual defendants, which the SEC voluntarily dismissed with prejudice on October 19, 2023, thereby obviating the need for trial which had been scheduled for April 23, 2024.
The SEC applied to the Court for remedies from Ripple Labs in connection with the historical Institutional Sales. The remedies sought by the SEC included disgorgement, penalties, and an injunction. On August 7, 2024, the court ruled on the SEC’s remedies request and issued judgment in the case, thereby ending the litigation at the district court. Specifically, while the SEC requested approximately $2 billion in combined disgorgement and penalties, the Court awarded the SEC substantially less – zero disgorgement and approximately $125 million in penalties. Ripple is in a position to fulfill this fine from its current balance sheet. In addition, the Court issued an injunction against Ripple restraining Ripple from violating the registration requirements of the U.S. Securities Act going forward. Ripple respects the Court’s judgment and does not anticipate that this order will impact its operations going forward. The parties have until October 7, 2024 to decide whether to appeal the judgment.
Contingent liability
Following the removal of the “liquidity trigger” and modification, Ripple Inc issued a tender offer (FY24 event, no FY23 impact) to buy back the vested RSUs with the obligation to settle in cash with Ripple Inc. The January 2024 tender offer was deemed to be a contingent liability in the FY23 financial statements as the offering itself closed (and any offer was accepted by Ripple) in January 2024 and prior to that time, any offer could have been modified or canceled. On this basis it was not possible to estimate the amount to include in the FY23 financial statements.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
The following related party transactions have been disclosed as the transactions are between entities which are under common control.
At the year end, the intercompany debtor balance was £25,772,253 due from Ripple Labs Inc (2022: £nil due to Ripple Labs Inc).
At the year end, the intercompany creditor balance was £1,396,321 due to Ripple Labs Inc (2022: £3,768,270 due to Ripple Labs Inc).
At the year end the intercompany debtor balance at year end was £14,429,674 was due from Ripple Services Inc (2022: £9,218,170).
At the year end the intercompany creditor balance at year end was £219,331 was due from Ripple Services Inc (2022: £nil).
Directors have been deemed to be Key Management Personnel and so the disclosure exemption under FRS 102 33.7A has been applied.