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Minutes of a Meeting of the Network Members Council Held at Cedar Court Hotel, Park Parade, Harrogate, HG1 5AH at 11.00 on Thursday 18th June 2015

Present: Dr Ken Andrew Independent Chairman Sarah Comley American Express Adrian Roberts of Ireland Tim Allen Jonathan Simpson-Dent Cardtronics UK Craig Dye Co-operative Bank Lyndsay James Cumberland Building Society Bill Hoyne G4S Cash Solutions Glyn Warren HSBC Bank Mike Bullough Sue Bentley National Australia Group Anne Dalgleish Nationwide Building Society Kevin McMullan Northern Bank Nigel Constable NoteMachine Tim Watkin-Rees PayPoint Adam Bailey Royal Iain Gibson Sainsbury's Bank Helen Matthews Santander Anne Robertson Tesco Personal Finance Mark Akers TSB Bank Janice Aitken Yorkshire Building Society Jenny Campbell YourCash

In Attendance: John Howells LINK Sue Wallace LINK Alex Leckenby LINK Graham Mott LINK Mary Buffee LINK Mandy Mahon LINK Deborah Thackwray LINK Sarah Chalmers LINK Katie Hinchley LINK Natalie Dix LINK Mike Newhouse LINK

In Attendance for Item 7 only: Alistair Darling Giles Peel DAC Beachcroft LLP

In Attendance for Item 9 only: Simon Walker KPMG Michelle Plevey KPMG

1. APOLOGIES FOR ABSENCE Michael Coffey (AIB Group), Billy McCall (Airdrie Savings Bank), Paul Meehan (Change Group ATMs), Mick Willets (Citibank Savings), Neil Lover (Coventry Building Society), Gordon Rennison (Creation), Jean-Luc Dubois (Credit Mutuel), Tim Wilder (DC Payments UK), Nigel Emery (Metro Bank), Alan Chambers (Moneycorp), Beth Williams (Raphaels), Grant Wells (Travelex), and Dave Walker (Virgin Money).

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The Independent Chairman welcomed to their first meeting of the NMC: Lyndsay James (Cumberland Building Society), Kevin McMullan (Northern Bank), and Mike Newhouse (LINK Scheme).

It was also noted that Members of the LINK Scheme Executive are placing vote instructions received from some Members who have sent apologies. These are from AIB, Coventry Building Society, Moneycorp, Raphaels Bank Virgin Money and Travelex.

2. MINUTES OF THE PREVIOUS MEETING The minutes of the NMC meeting held on 28th May 2015 had already been approved by the NMC by e-mail in line with the revised approach to meet the PSR’s timescales for publication.

3. MATTERS ARISING FROM THE MINUTES Sue Wallace (LINK) confirmed that the question of where the revision would be included in the NMA was in progress and is likely to go into the Rate Card but this is still to be confirmed.

There were no other matters arising

4. MINUTES AND COMMITTEE REPORTS Jonathan Simpson-Dent (Cardtronics) mentioned two queries in the Consumer Committee minutes from 5th March and 4th June but explained that these would be covered under Item 11.

5. CEO’S UPDATE AND REPORT John Howells (LINK) reported that, despite the heavy change agenda underway, operational integrity remains a critical priority and the subject of weekly reviews with the VocaLink Senior Executive responsible for LINK, Ian Gausden. Operational performance continues to be high.

The CEO’s report was noted. A matter relating to membership is redacted on commercial grounds.

The Risk Register was noted, including the fact that the Red items all relate to competitive risks, underlying the need for the Independent Governance Review currently underway.

6. GENERAL PROPOSALS

6.1 ANNUAL REVIEW OF LIABILITY MANAGER FOR APPROVAL This paper is for information only and there were no questions from Members.

6.2 TERMINATION OF AGREEMENT WITH PAYMENTS COUNCIL As there were no questions from Members the Independent Chairman asked the Members to vote using a show of hands. The motion was then put to the vote.

6.2.1 NMC agrees to terminate its agreement with the Payments Council with immediate effect. For: 31. Against: 0. Abstentions: 1 (Cardtronics). This motion was carried.

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6.3 IIN AUTHORISATION This paper is for information only.

7. INDEPENDENT GOVERNANCE REVIEW PROPOSALS The Independent Chairman introduced Alistair Darling and Giles Peel.

Alistair Darling gave a brief explanation of the approach that the Panel has taken and pointed out that the paper is still in draft form. The hope is that, by September, the Panel will have reached a recommendation for the governance of the Scheme that will be supported by the NMC and that is acceptable to the regulators. Feedback from all Members is welcomed to help the Panel finalise its recommendations and he hoped that the NMC could provide focused thoughts.

Giles Peel reported that the draft report is consistent with the views received via the questionnaire and with conversations with other stakeholders, including regulators. This has included interviews with the other interbank Schemes and it is noteworthy that, whilst they are not undertaking a similar review at this time, they do face a similar issue in terms of how a move to a much larger membership can be supported by appropriate governance, and what the role of members versus a company should be.

The suggestion is for the NMC to change but to maintain three levels of influence. Firstly, Members would be shareholders or guarantors depending on the choice of company type. Secondly, Members could put up candidates as directors for consideration by an independent body. Thirdly, there would be standard board committees and advisory committees with Member representation.

Going forward, there are ongoing discussions planned with the and the Treasury to explore governance and how this can mitigate any risks of LINK failure. There are also developing recommendations in other areas including innovation, and consumer representation. As the work progresses, the Panel will also develop recommendations on a transition plan and risk matrix.

In the discussion that followed, a number of suggestions and questions were raised. This included debate on the size, the extent of Member representation on the proposed board, and the balance between Members, executive and independents. There were also points raised regarding how to develop the approach to interchange and its governance, and how interchange is a key issue to get right if the Scheme is to be sustained. A number of Members raised the problem of how anyone from their organisation (no matter how senior) would be able to act in the interest of the Scheme where a vote (for example, on interchange) would be detrimental to their organisation. The Independent Chairman asked the to confirm that in respect of interchange this was totally different to other bank schemes such as BACS and Faster Payments since some Members gained and others lost as a result of the interchange agreed. It was agreed that this was the case. Giles Peel noted that it was a legal requirement for directors on company boards to act in the interests of the company. Alistair Darling commented that the Review was to look at Governance and that was why a separate enquiry to look at the economics of interchange is being proposed as part of the draft report.

There were also comments about innovation and the importance of not forcing Members to have to take part in innovation. Giles Peel thanked the meeting and said that further feedback would be welcomed from Members going forward and that this should be provided as soon as possible.

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The Independent Chairman thanked both Alistair Darling and Giles Peel for their presentation who both then left the meeting.

There was then an NMC discussion on how to respond to the draft report.

The report was welcomed as being in the right direction by NMC and with many sensible suggestions, although quite radical in some areas and with the potential for unintended consequences. It was also noted that the complexities of the market meant that care would be needed to develop the recommendations so as not to inadvertently introduce risks and costs into the Scheme that could lead to its failure through becoming competitively unattractive to Members, and how the Panel would need support in resolving these complexities from experts in the details of the market. This challenge was noted in a number of areas including the development and governance of interchange, the powers of the membership organisation versus the board, and the costs of responding to changes that new governance could bring in areas such as regulation.

It was agreed to form a Governance Member Working Group as soon as possible to develop a more detailed response to each of the recommendations that could then be fed back to Beachcroft and support their thinking. This Group will be formed from the Members who sit on the Incorporation Subcommittee of Link Scheme Ltd and potentially others. The Independent Chairman will write to Lord Hunt outlining this feedback after today’s meeting and organise the first session of the Governance Member Working Group for as soon as possible.. ACTION: INDEPENDENT CHAIRMAN.

8. UPDATE ON COMMERCIAL PROGRESS AND FUNDING APPROVALS John Howells (LINK) introduced the paper. In the following discussion, NMC asked for other NMC Representatives to be offered the chance to participate and it was agreed that an invitation would be sent out. ACTION: SUE WALLACE (LINK).

As there were no questions from Members the Independent Chairman asked the Members to vote using a show of hands. The motion was then put to the vote. The vote is redacted on commercial grounds.

John then outlined the work on migration to separate out the Scheme from VocaLink. This is being progressed without detailed reference to NMC on the basis that, whilst the final funding will need NMC approval, the operational detail should be left the project team, with support from Link Scheme Ltd. There was then a discussion on selection of suppliers that is redacted on commercial grounds.

9. INTERCHANGE PROPOSALS It was agreed by NMC that, due to time constraints in the meeting, KPMG would not present but be available for questions.

Clarification was sought as to why in March KPMG had expected a lesser rise in interchange when they presented their forecast to NMC. Simon Walker (KPMG) explained that this was due to two main factors. Firstly, that ATM transactions at branches fell faster than expected whilst those at remote locations fell more slowly. Whilst the overall reduction was in line with their forecast, the distribution was uneven. Secondly, costs in the remote environment changed in ways that were not expected. In particular, the cost of cash management fell sharply as a number of Members worked hard to bring down the cost of cash management.

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Clarification was then sought regarding whether KPMG felt that the interchange mechanism is fair and sustainable. Simon explained that it is not KPMG’s position to say if it is fair or sustainable as that is a matter for NMC.

As there were no further questions from Members, the Independent Chairman asked the Members to vote using a show of hands. The motion was then put to the vote.

9.1 NMC approves that the 2015 Cost Study has been appropriately conducted according to the methodology previously agreed by the NMC. For: 32 Against: 0. Abstentions: 0. This motion was carried.

As there were no further questions from Members the Independent Chairman asked the Members to vote using a show of hands. The motions were then put to the vote.

9.2 NMC approves the branch and non-branch rates set out in the Cost Study (appropriately adjusted where applicable by the common-ownership discount and financial inclusion premium as agreed at June 2006 and December 2006 meetings of the Network Members Council respectively) shall take effect from 1st January 2016 in accordance with the agreed methodology. For: 32. Against: 0. Abstentions: 0. This motion was carried.

10. UPDATE AND DECISION ON DEPOSITS John Howells (LINK) introduced the paper and as there were no further questions from Members the Independent Chairman asked the Members to vote using a show of hands. The motion was then put to the vote.

10.1 NMC approves the Business Proposition from a customer experience and transaction flow perspective and confirms that the development of the functionality should be included in the LINK 2016 Release. For: 32. Against: 0. Abstentions: 0. This motion was carried.

11. OPERATING RULE 6.4() ENFORCEMENT John Howells (LINK) introduced the paper and explained that the vote today is required to initiate compliance procedures, should the existing rule remain in force, given that the waivers granted at the December NMC have now expired. The remedy agreed by Members in the NMA is Liquidated Damages. Should the vote support the Liquidated Damages approach, then the next step will be to write to all Members asking them to confirm compliance with the rule, or to set out their plans to become compliant, and any waiver requests that they might wish to make.

Jonathan Simpson-Dent (Cardtronics) said that he had a number of questions relating to the Consumer Council’s interpretation of the research and its decision. As he was not invited to the Consumer Council meeting, he would like to go through them here. Jonathan also requested that no redactions were made to the minutes, as Cardtronics may conclude that it has to raise the issue with the PSR and consider leaving LINK as a result of the decision and it is important that the PSR and media

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had access to the record (note: the minutes do not contain redactions for this Item). Jonathan also asked that the Cardtronics statement circulated to NMC is included as part of the minutes (note: it is included as an appendix at the end of these minutes).

Jonathan then set out three ground rules that he believes reflect the requirements of the PSR and asked the Independent Chairman to confirm that these had been met in reaching the decision. These are to ensure rigour in any decision reached, that Independents declare how a decision was reached, and that the interests of all consumers are taken into account.

The Independent Chairman responded that his view was that the Consumer Council had been rigorous in reaching its decision in its role as independent advisors to NMC on consumer interests.

Jonathan Simpson-Dent then sought clarity on the minutes of the Consumer Council from the CEO. John Howells (LINK) stated that the minutes had been signed off by Consumer Council as an accurate reflection of their meeting. Whilst it is not up to the Scheme Executive to interpret the minutes, John confirmed that he was also satisfied that the Consumer Council had reached its decision based on a through and robust consideration of all the issues.

Jenny Campbell (YourCash) noted that the Consumer Council minutes were distributed to Members in advance, giving plenty of time for questions and comments. Jenny added that, as YourCash consider this primarily an issuer matter, they would be abstaining from the vote.

The Independent Chairman asked the banks to comment. Mike Bullough (Lloyds) stated that in the long run, this was a cost consideration only for the operators of remote ATMs as the screenflow’s impact is to shift balance enquiry volumes across the remote estate and does not increase issuer costs.

Jonathan Simpson-Dent (Cardtronics) questioned the CEO how the Consumer Council reached their decision. John re- confirmed that he was satisfied that the Consumer Council had reached its decision based on a through and robust consideration of all the issues. Jonathan stated that applying the HIM! research findings, 50,000 people would find the second prompt a useful service on a busy day on Cardtronics ATMs alone, and in a given month 60,000 would change behaviour and withdraw less cash as a direct result of the second prompt. He stated that he did not believe these numbers to be immaterial and didn’t understand the decision of the Consumer Council and was concerned that the Council had not been presented the numbers in this way.

Nigel Constable (NoteMachine) said that it considered that there was merit in allowing competition based on different approaches to balance enquiries and that the paper should be withdrawn so that this matter could be considered further. 54% of consumers stating that they find the service useful supports this position. NoteMachine added that it considers that the approach supports the PSR’s objectives of competition, innovation and end-user benefit. Finally, NoteMachine noted that Liquidated Damages are not in NoteMachine’s view an appropriate enforcement approach under UK law.

As there were no further questions from Members the Independent Chairman asked the Members to vote using the electronic voting equipment. The motion was then put to the vote.

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11.1 The NMC confirms that the Liquidated Damages have been proposed and considered by the NMC in accordance with the NMA. For: 85.36%. Against: 14.64% (Cardtronics, G4S, NoteMachine). Abstentions: 4 Members (Co-operative, Moneycorp, Travelex and YourCash). This motion was carried.

12. OVERSEAS ARRANGEMENTS John Howells (LINK) introduced the paper and as there were no further questions from Members the Independent Chairman asked the Members to vote using a show of hands. The motion was then put to the vote.

12.1 NMC approves the recommendation that the Scheme Executive executes clause 8.2 of the NMA and serves notice on each of the arrangements at the same time offering the opportunity to renegotiate a new robust agreement under the new framework. For: 28. Against: 1 (Travelex). Abstentions: 0. This motion was carried.

13. ANY OTHER BUSINESS The Independent Chairman noted that it is Sarah Chalmers (LINK) last NMC meeting as she leaves the Scheme to be PA to North Yorkshire Police’s Police and Crime Commissioner. The Independent Chairman thanked Sarah on behalf of the himself, the Scheme and the Members for three and a half years of service to the Scheme and wished her luck and success in her new role.

14. DATE OF NEXT MEETING The next meeting of the NMC is scheduled for Thursday 24th September 2015, Cedar Court Hotel, Park Parade, Harrogate, HG1 5AH.

Please note that full details of votes placed are available in the LINK Scheme Member repository.

Please note that Santander, Barclays and Northern Bank had to leave the meeting before Agenda Item 11and therefore could not cast their votes.

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Statement from Cardtronics re Agenda item 11 – Operating Rule 6 (B) Enforcement (LINK NMC meeting 18 June 2015) Cardtronics is making the following statement to all Members in advance of the June NMC meeting:

Cardtronics is committed to the rules of the LINK Scheme and notes the HIM research. Cardtronics also notes Consumer Council Minutes referencing that the current rule should not be changed.

Cardtronics is very surprised by this decision which will result in the withdrawal of a service currently offered to end users. The HIM research shows that 54% of respondents felt this service was useful versus 43% feeling it was not useful. Furthermore, 21% of respondents felt that the 2nd prompt helps end users manage their money better, i.e., the Scheme is choosing to remove a service that more people find useful than not and that 1 in 5 ATM users think is helpful in managing their money.

The research findings are consistent with a letter from the CEO of the Fair Banking Foundation to the Scheme Executive in December 2014. The letter notes that this service is “an intervention geared to avoiding consumer detriment… proven to impact the financial awareness of individuals and families”. The Fair Banking Foundation also notes that it is not relevant that this service “only appeals to a particular minority” (21% per the HIM research).

Cardtronics is also concerned about Scheme Governance with regard to this decision. We have raised this concern through a complaint in 2014 which we withdrew as a consequence of the Consumer Council intervention. The Scheme, through the Consumer Council, has chosen to give the consumer a voice: the consumer has spoken in a way consistent with the research presented in 2014 and told us this service is useful. The Scheme collectively is removing a service that the majority of consumers have told us is useful and helpful in managing their money better, which provides information to help the prevention of consumer detriment, recognised in the earlier research as most valued by more disadvantaged consumers – we are choosing to ignore what the consumers have told us.

Cardtronics wants the NMC to fully understand that this decision is removing a currently available service that is seen as useful by the majority of consumers per 2 sets of independent consumer research (HIM and Populus) and therefore at odds with the PSR’s objectives, specifically “promoting the interests of all consumers”. The Governance around this decision is questionable and inconsistent with the PSR’s objective of promoting the interests of all consumers and governance processes that “need to give a meaningful opportunity for service-users to influence decision making”. Furthermore, this is an example of a Scheme member providing service innovation in a competitive environment and the member is now being asked to remove this “useful” service

If Cardtronics is asked to remove this “useful” (54%) consumer service that helps 1 in 5 ATM users manage their money better, then we expect consistent treatment from the Scheme Executive in complying with the Scheme’s choice to remove this useful service. Cardtronics reminds the NMC that: 1. Other members were allowed 6 months to comply following the original rule change in September 2. Cardtronics has the largest and probably most complex ATM estate within the Scheme – this will be a factor in the compliance plan, and 3. Cardtronics is actively prioritising innovation to improve its ATMs for visually impaired end users and does not want to do anything to distract resources from this effort 18th June 2015

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