Tungsten Corporation plc Tungsten Bank plc. Pillar 3 Disclosures. 8 July / 20

Transcription

1 Tungsten Corporation plc Tungsten Bank plc Pillar 3 Disclosures 8 July / 20

2 Table of Contents 1 Overview... 4 Introduction... 4 Basis and Frequency of Disclosures... 4 Published Information... 4 Pillar 3 Disclosure Policy... 5 Verification... 5 Consolidation Group Risk Management Objectives and Policies... 6 Risk Management Overview... 6 Risk Management Framework... 7 Tungsten Corporation plc: Structure and Organisation... 7 The Bank: Structure and Organisation Key Risks Credit Risk Concentration Risk Documentation Risk Liquidity Risk Funding Risk Interest Rate Risk Basis Risk FX Risk Operational Risk IT Risk Key Man Risk Conduct Risk Regulatory Risk Money Laundering Risk Market Risk / 20

3 4 The Bank's Credit Exposures Definition of Past and Impaired Value Adjustments to past due and impaired assets Use of External Credit Assessment Institutions Credit risk exposure breakdowns Own Funds and Capital Resources Own Funds and Capital Resources Remuneration Remuneration Policy Remuneration Code Staff Aggregate Information for Remuneration Code Staff / 20

4 1 Overview Introduction The Basel III regulatory framework was finalised in December 2010 by the Basel Committee on Banking Supervision and is being implemented in Europe through the Capital Requirements Directive ('CRD') and the Capital Requirements Regulation ('CRR') IV (together, 'CRD IV'). In December 2013, the PRA published its rules and supervisory statements which complement the CRD IV EU legislative package. The EU text was formally published in the Official Journal of the EU in June CRD IV is effective 1 January 2014 and comprises the CRR, which is directly applicable on firms across the EU, and the CRD, which must be implemented through national law. CRD IV also makes changes to rules on corporate governance, including remuneration, and introduces standardised EU regulatory reporting, referred to as COREP and FINREP. Pillar 3 disclosure requirements existed under the previous regime (known as Basel II), but have been revised under CRD IV. In essence, Pillar 3 disclosure requirements are designed to promote market discipline by providing market participants with key information on a firm s risk exposure and risk management processes. This document aims to set out these qualitative and quantitative disclosure requirements to allow market participants to meaningfully assess Tungsten Bank plc's capital structure, capital adequacy and risk and that of its consolidation group (defined below). In this respect, it complements the associated capital requirements set out under CRD IV, such as those required under Pillar I. Basis and Frequency of Disclosures The disclosures contained herein are based on the position at 10 June 2014 being the date on which Tungsten Corporation plc acquired the share capital of FIBI Bank (UK) plc, following which that company was renamed Tungsten Bank plc (the 'Bank') insofar as information relating to the Bank is concerned. However, capital disclosures relating to the Bank are based on the position at 31 December 2013 that being the date of the latest publically available audited accounts. Disclosures relating to Tungsten Corporation plc are based on the position as at 30 April 2014 adjusted for the Change in Control of the Bank as at 10 June Pillar 3 disclosure will be made at least annually and more frequently if management determines that significant events justify such disclosure. The disclosure will generally be made following the publication of financial information for Tungsten Corporation plc as noted below. Published Information These disclosures should be read in conjunction with published financial information for Tungsten Corporation plc which can be found at Results for the year to 30 April 2014 were released on 8 July FIBI Bank (UK) Plc (as it then was) issued its Annual Report and Financial Statements and these can be found at However the financial position of the Bank, as this entity is now known, has undergone significant change as part of the Change in Control process including: i. the payment of significant dividends to the former parent company; ii. the issued share capital of the Bank being increased to million; and 4 / 20

5 iii. substantially all outstanding customer loans and commitments being redeemed or sold to the former parent company. Furthermore, the Bank's operational procedure which were originally implemented by the previous owners, have been amended or are in the process of being amended to reflect the new owner s business strategy and product focus. At the time when Change in Control was effected, the balance sheet comprised a small legacy retail deposit book and investments in UK Government debt and prime bank deposits. The new operations are outlined below and operate under a new organisational structure, also as outlined below. Pillar 3 Disclosure Policy The Bank acknowledges the importance of the role of Pillar 3 disclosures, to promote market discipline through disclosure, as a complement to supervisory efforts, to encourage banks to assess risk, maintain capital and develop and maintain sound risk management systems and practices. In this respect, the Bank will publish Pillar 3 disclosures in relation to the following areas: 1. Risk management objectives and policies; 2. Key risks, including credit, market and operational risk matters; 3. The Bank's use of ECAI's; 4. Own funds and capital requirements; and 5. Remuneration Policy. Verification The information contained in this Pillar 3 disclosure document has not been audited by external auditors, nor does it constitute any form of financial statement. The document has been prepared so as to comply with certain Pillar 3 disclosures relating to capital requirements and risk. 5 / 20

6 Consolidation Group The consolidated group (illustrated below) is comprised of Tungsten Corporation plc, whose subsidiaries are the Bank and an intermediate holding company, Tungsten Corporation Guernsey Limited (the 'Group'). The latter company acts purely as an investment company holding the shares of Tungsten Network Limited (formerly OB10 Limited), which owns and operates the e-invoicing network, Tungsten Network, and provides analytical services to participants on Tungsten Network under the name Tungsten Network Analytics. Tungsten Network Limited is not part of the consolidated group, for the purposes of CRD IV or these Pillar 3 disclosures. Tungsten Corporation plc Tungsten Bank plc Tungsten Corporation Guernsey Limited Tungsten Network Limited The disclosures are made on behalf of the Bank, which has no subsidiaries and is the sole regulated company within the Tungsten Group. The Bank is a UK incorporated bank authorised by the PRA and regulated by the PRA and the FCA. It is 100% owned by Tungsten Corporation plc, a company Registered in England, Company No The shares of Tungsten Corporation plc are traded on the Alternative Investment Market ( AIM ) of the London Stock Exchange. For regulatory capital purposes, the UK consolidation group comprises Tungsten Corporation plc, the Bank and Tungsten Corporation Guernsey Limited. As noted above, Tungsten Network Limited is not part of the consolidation group. 2 Risk Management Objectives and Policies Risk Management Overview The Bank takes a conservative approach to risk for which it has limited appetite. Subject to the below, the business of the Bank is conducted within the UK primarily in relation to a single product line, being the discounting of invoices flowing across Tungsten Network, the e-invoicing network owned by Tungsten Corporation plc, its parent. e-invoices are issued by suppliers of goods and services to their buyers, all of whom are registered on the Tungsten Network. Invoices are short duration, the majority being for less than 90 days from date of discount to maturity and the buyer will have notified the supplier that each invoice has been approved for payment with the date for payment identified and the notification by the buyer acting as validation of the invoice discounted. This is subject to the outstanding small legacy retail deposit book of FIBI 6 / 20

7 Bank (UK) Plc which remained at the time of Change in Control, and future deposit taking activity will be confined to wholesale deposits. The Bank has a policy of match funding its discount book and to the extent that perfect matching is not achievable, funding through committed bank facilities is for maturities in excess of the maturity of the underlying invoice. Risk Management Framework A primary objective for the Group is the effective management of risk in order to protect its shareholders, clients and to ensure that the appropriate entities within the Group have sufficient financial resources, including capital and liquidity. The Bank's Board will ensure that a risk management framework is in place that covers and takes into account the disclosed 'Key Risks', as set out in this disclosure document. In particular, the risk management framework is established through the following practices and documents: Strategy and risk profile (as outlined above, in the section entitled 'Risk Management Overview'); Organisation and corporate governance arrangements; Policies and procedures; Reporting, including robust and comprehensive risk reporting of exposures; and Systems and Controls, including IT systems. The risk management framework is understood as comprising three broad tiers, through which appropriate systems and controls are embedded: Operational management: risk management is embedded in the business such that systems and controls are appropriately accounted for within the Bank's commercial activities; The compliance function: the Bank has a compliance function headed by the Head of Legal and Compliance that provides independent oversight in relation to the operational and commercial functions of the Bank. It is the responsibility of the compliance function to assist the business in ensuring that relevant regulation and legislation is complied with, and that compliance risk assessments are periodically carried out; The audit function: the Bank receives independent oversight from internal and external audit reviews. Tungsten Corporation plc: Structure and Organisation The shares of Tungsten Corporation plc were admitted to AIM, a sub-market of the London Stock Exchange on 16 October 2013 and it is therefore subject to the rules of that market. Under these rules, the Tungsten Corporation plc Board (the 'Board') is responsible for ensuring an effective risk management framework is put in place, including establishing an effective strategy, risk appetite, clear organisational structure and policies and procedures in relation to its activities. Tungsten Corporation plc provides central management and support services to the Group. Within Tungsten Corporation plc, risk is managed by the Audit Committee that reports to its Board and is concerned primarily with Operational Risk and Regulatory Risk. Tungsten Corporation plc itself does not have a Chief Risk Officer ('CRO'). The CRO is located within the risk management function of the Bank, but is aware and reviews the potential risk arising from the activities of the Bank to its parent Tungsten Corporation plc. 7 / 20

8 The Board comprises both Executive and Non-Executive Directors with a Non-Executive Chairman. The Board will ensure the establishment of strong governance arrangements, including well defined reporting lines, internal controls and procedures to ensure compliance with all legal and regulatory requirements. Audit Committee Remuneration Committee Nomination Committee Tungsten Corporation plc: Committees Structure Executive management has the primary responsibility of monitoring the quality of internal controls to ensure that the financial performance of the Group is properly measured and reported on. The Audit Committee has the responsibility to satisfy itself that these are satisfactory. It receives and reviews reports from the Group s management and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use within the Group. The Audit Committee meets at least three times a year and has unrestricted access to the Group s external auditors. The members of the Audit Committee include Non-Executive Directors and the Chairman of the Board. The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of service. The Remuneration Committee also makes recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any employee share option scheme or equity incentive plans in operation from time to time. The Remuneration Committee meets as and when necessary, but at least twice each year. In exercising this role, the Board of Directors have regard to the recommendations put forward in the QCA Corporate Governance Code and, where appropriate, the QCA Remuneration Committee Guide and associated guidance. The members of the Remuneration Committee include Non-Executive Directors and the Chairman of the Board. The Nomination Committee has responsibility for reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board and giving full consideration to succession planning. It has responsibility for recommending new appointments to the Board. The Nomination Committee meets not less than twice a year and at such other times as required. A majority of the members of the Nomination Committee are Non-Executive Directors. 8 / 20

9 The Bank: Structure and Organisation The Bank has established appropriate corporate governance arrangements that are designed to meet its regulatory and legal obligations. In particular, the Bank has an independent Board of Directors comprising both Executive and Non-Executive members. The Bank's Board has been given full financial and administrative powers subject to matters reserved to the Board of the parent company, Tungsten Corporation plc. The Bank's Board is tasked inter alia with setting the overall risk strategy and ensuring that all key risks are effectively and efficiently controlled and managed. Below the Bank's Board is a structure of Board Committees and Management Committees which, under delegated authority from the Bank's Board, have formal responsibilities for defined aspects of risk, as detailed below. As part of the recent PRA approval to effect the Change in Control by Tungsten Corporation plc to acquire FIBI Bank (UK) Plc, the Bank has recruited a number of key individuals to ensure that the Bank is effectively managed and that all risks are managed, monitored and controlled. The Bank's Committee Structure Audit Committee Remuneration Committee The Audit Committee of the Bank's Board currently comprises Independent Non- Executive Directors and internal Bank personnel with responsibility for audit matters. It supports the Bank's Board in carrying out its responsibilities for financial reporting in maintaining accounting policies, internal control, risk assessment and also reviewing the level of provisioning for bad debts. The Audit Committee is responsible for overseeing the quality of the Bank's operations with particular emphasis on systems and controls. It is a review activity which does not relieve executive management of its responsibility for effective control. The Bank appointed KPMG to provide interim Internal Audit services pending the arrival of the new Group Head of internal Audit who has now taken up duties. This arrangement with KPMG will continue as may be deemed relevant to effect and smooth transition. The Internal Audit function performs reviews of the relevant aspects of the Bank based upon a risk assessment process with priorities for the Internal Audit programme as agreed with the PRA. Proposed Internal Audit work is presented to the Audit Committee for approval. The Remuneration Committee is comprised of at least two Independent Non-Executive Directors, its role and responsibilities are set out in the "Remuneration Committee Terms of Reference". Members of the Remuneration Committee shall be appointed by the Board, in consultation with the Nomination Committee of Tungsten Corporation plc and the Remuneration Committee of Tungsten Corporation plc. The Remuneration Committee supports the Bank's Board in establishing and reviewing the remuneration related practices that are consistent with and promote effective risk management. Such practices will be subject to on-going review to ensure compliance with relevant regulatory obligations. 9 / 20

10 Executive Management monitors any remuneration related risk including the risk of loss of key personnel. Executive Committee The Executive Committee comprises the senior executive management team and is responsible for day to day operational management of the Bank, effective management and control of the business of the Bank and the monitoring of the functioning of the Bank, reviewing risks, systems and controls. The Executive Committee receives and monitors reports from other subsidiary management committees being the Credit Committee, Asset & Liability Committee, Policy & New Products Committee, IT Committee and Operational Risk Management Committee. The role and scope of the Executive Committee is set out in the policy, 'Bank Executive Committee Terms of Reference'. In particular, the Executive Committee is composed of the Executive Directors of the Bank, the Head of Business Development and such other senior executives of the Bank as may be appointed by the Board on the recommendation of the Chief Executive Officer. The roles and responsibilities of the members of the Executive Committee are detailed in individual job descriptions. All management and staff are cognisant of their duties and responsibilities. Additionally, there are appropriate policies and procedures in place which set out matters including, reporting lines and staff training. 3 Key Risks Credit Risk The Bank defines Credit Risk, which constitutes its most critical risk category in its operations and which also includes Counterparty Risk, as the risk of financial loss to the Bank resulting from the failure of a Counterparty to meet the agreed obligations as and when due. The Bank uses the standardised approach to determine its Pillar 1 requirement. At this stage in the development of the new operations of the Bank, there is insufficient data to determine this requirement except by the assumption that all customers will be assessed at 100%, banks at 20% and UK Government risk at 0%. As the discount book under the new operations develops, a more detailed assessment will be used. The Bank s Credit Policy sets out the framework for management of credit risk. This includes the classification process for categorising each counterparty by assessed risk including the potential for the Bank suffering loss. Delegated Authorities from the Board have been granted with all credit limit approvals being the responsibility of the Credit Committee unless reserved to the Board. Concentration Risk The Bank defines Concentration Risk as the risk of loss due to a single event impacting connected exposures. The Bank s Credit Policy and Treasury Policy cover Concentration Risk, the management and setting of appropriate limits, including Industry/Sector Limits (to cover Sector Risk) and Country Limits (to cover Country Risk including political, legal and other risks), and, under the direction of the ALCO, the Bank s hedging strategy. 10 / 20

11 Documentation Risk The Bank defines Documentation Risk as the risk of financial loss to the Bank arising from inadequate or incomplete counterparty documentation. It is the responsibility on a day-to-day basis of the Head of Legal & Compliance as part of the Risk function reporting to the Chief Risk Officer to ensure that all customer and counterparty legal documentation is completed satisfactorily. It is the policy of the Bank to use external lawyers to advise on standard documentation templates. Liquidity Risk The Bank defines Liquidity Risk as the risk that sufficient financial resources are not maintained to meet liabilities as they fall due. The Bank s Treasury Policy sets out the framework for Treasury and Liquidity Management and reporting under the direction of the ALCO. Funding Risk The Bank defines Funding Risk as the risk of loss or loss of business arising from inadequate sources of funding to finance the Bank s invoice discounting activities. The Bank s ALCO is responsible for determining the funding strategy and the Treasury Policy incorporates the Funding Policy. The Bank s Funding Policy is to maintain sufficient committed funding facilities from a balanced range and number of banks or other counterparties to cover all of the foreseeable funding needs with additional headroom. The Bank s ALCO is responsible for determining the funding strategy and the Treasury Policy incorporates the Funding Policy of the Bank. Interest Rate Risk The Bank defines Interest Rate Risk (IRR) as the risk of loss arising from unexpected movements in interest rates. The Bank s Funding Policy which is incorporated in the Treasury Policy is to match fund discount assets at interest rates which are fixed for the period of each invoice discounted and to apply a discount rate for the period to maturity of the invoice discounted at the time of discount. On this basis, any change in interest rates will not affect the spread between the discount asset and the underlying funding for the asset. Interest Rate Risk may arise from mismatches in the funding of the Bank s financing operations and this is managed by daily reports from the Treasurer to the CFO and CRO. To further protect the Bank against sharp movements in interest rates, where appropriate, the ALCO may determine that an interest rate hedging strategy be implemented by the Bank. Basis Risk The Bank defines Basis Risk as the risk that instruments purchased or contracts entered into to hedge the Bank s risk exposures, whether they be balance sheet, or credit risk on counterparties are not equivalent to the underlying risk being hedged. 11 / 20

12 Basis Risk management is covered by the Bank s Treasury Policy which incorporates Liquidity Management, Dealing, Funding and Balance Sheet Management Policies under the direction of the ALCO. FX Risk The Bank defines FX Risk as the risk of financial loss to the Bank arising from fluctuations in FX rates. At this stage of the development of the Bank s new operations, only sterling denominated invoices are discounted. However this is expected to change to include invoices denominated in other currencies within a few months. Discounting of foreign currency invoices will be match funded as to currency and tenor in the same manner as Sterling invoices and the Bank does not therefore consider that it will be exposed to significant FX risk. FX risk management is covered by the Bank s Treasury Policy under the direction of the ALCO. Operational Risk The Bank defines Operational Risk as the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. The Bank s Operational Risk Committee has oversight of Operational Risk Management and for the Operational Risk Management Policy which sets out the basis upon which the Bank manages its Operational Risks. IT Risk The Bank defines IT Risk, which is a subset of Operational Risk, as the risk of financial loss to the Bank resulting from a failure of its IT systems, architecture or infrastructure to operate in the manner intended and designed. Although a subset of Operational Risk, in view of the critical dependence of the Bank upon IT, the Bank has a dedicated IT Committee which has responsibility for monitoring the Bank s IT Governance (and making recommendations for IT change and improvements to the Bank s Board), for the IT Strategy, various IT related policies, processes and procedures. Key Man Risk The Bank defines Key Man Risk as the risk of the loss of key staff from employment by the Bank which will impact the ability of the Bank to operate effectively, profitably or in an adequately managed manner. This risk category is considered to be a key element in Operational Risk but is managed within the Bank inter alia through line management, the HR function, the Executive Committee, the Remuneration Committee of the Bank's Board and the Bank's Board itself. Conduct Risk The Bank defines Conduct Risk as the risk that the behaviour of the Bank and/or its staff will result in poor outcomes for its customers. This risk category is considered to be a key element in Operational Risk but is managed within the Bank inter alia through the Operational Risk Management Committee, line management, the HR function, the Executive Committee, the Remuneration Committee of the Bank's Board and the Bank's Board itself. 12 / 20

13 Regulatory Risk The Bank defines Regulatory Risk as the risk of loss from the Bank failing to follow the rules and regulations issued by its dual UK Regulators. To manage Regulatory Risk, all communication with our regulators is the responsibility of defined individuals and overall management responsibility rests with the Head of Legal & Compliance Money Laundering Risk The Bank defines Money Laundering Risk as the risk of loss due to failure to effectively ensure that funds passing through the Bank are not part of a money laundering operation. The Bank s Financial Crime Prevention Policy sets out the Bank s approach with respect to Anti-Money laundering and the associated procedures detail the operational requirements to comply with the Bank s Policy. The CRO also acts as the Bank s Money Laundering Reporting officer and has the responsibility for managing money laundering risk. Market Risk The Bank undertakes no proprietary financial market trading and is therefore not subject to market risk. All market transactions will either be in fulfilment of customer orders or for balance sheet management objectives. 4 The Bank's Credit Exposures At the date of this disclosure, given the nascent nature of the Bank s new financing operations, the overwhelming majority of the Bank s assets are in the form of short-term bank deposits with rated major financial institutions or UK Government stock. Definition of Past and Impaired The Bank considers, for regulatory purposes, that a financial asset is considered as past due when the contractual payment is due for more than three months. Further, the Bank, for accounting purposes, considers a financial asset as past due and then impaired when there is objective evidence that impairment exists either individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Provisions under regulatory rules are calculated on the same basis as impairment provisions, and so all provisions for impaired loans and advances are referred to as impairment provisions. Value Adjustments to past due and impaired assets The Bank regularly assesses whether there is evidence of impairment to its financial assets. The Bank will identify impairment as a result of objective evidence of impairment as a result of one or more events, which cause loss and occur after the initial recognition of the asset and prior to the balance sheet date. The Bank, where possible, will seek to reliably estimate the loss and value adjustments to the financial asset(s) using a number of models and expert judgment. Specifically, where relevant, impairment loss will be measured as the difference between an asset's carrying amount and the present value of the estimated future cash flows, discounted at the asset's original effective interest rate. 13 / 20

14 Additionally, where impairment evaluation is conducted on a collective basis for a collection of assets, these will be grouped together on the basis of similar risk characteristics. For example, asset type, industry, geographical location, collateral type, past-due status and other relevant factors. Future cash flows in relation to these financial assets will be established, in part, on historical loss experience for assets with similar credit risk profiles. The Bank will also use its experienced judgement to estimate the amount of an impairment loss, and therefore does not rely on an approach that focuses on historical loss metrics. The Bank's assets are largely invested in short-term bank deposits and UK Government stock. As such, the Bank has not recognised any impaired or past due loans as at the date to which these disclosures have been prepared. Use of External Credit Assessment Institutions The Bank will subscribe to Reuters, a PRA recognised ECAI. Ratings assessments provided by Reuters are used by the Bank to establish counterparty credit risk weightings using the standardised approach. Credit risk exposure breakdowns Year end and average exposure by exposure class Standardised Exposures Classes Exposure at 10/06/2014 Average Exposure in 2014 Central government and central banks Regional governments or local authorities Administrative bodies and noncommercial Multilateral development banks International organisations Institutions (banks and investment firms) Other items (nostros) 7,995,000 9,300,000 4,343,000 10,996,000 6,920,000 1,846,000 Total 21,638,000 19,762, / 20

15 Exposures by geographic area and material exposure classes Standardised Exposure Classes UK Channel Islands Rest of World Total Central government central banks and Regional governments or local authorities 7,995,000 7,995,000 Administrative bodies and noncommercial Multilateral development banks International organisations Institutions (banks and investment firms) 9,300,000 9,300,000 Other items (Nostros) 3,731, ,000 4,343,000 Total 21,026, ,000 21,638, / 20

16 Exposures by significant counterparty type and exposure classes Standardised Exposure Classes Wholesale Retail Other Total Central government central banks and Regional governments or local authorities 7,995,000 7,995,000 Administrative bodies and noncommercial Multilateral development banks International organisations Institutions (banks and investment firms) 9,300,000 9,300,000 Other (Nostros) items 4,343,000 4,343,000 Total 21,638,000 21,638, / 20

17 Exposures by residual maturity breakdown <3 months 3 months to 1 year 1 to 5 years >5 years Total Central government and central banks 7,995,000 7,995,000 Regional governments or local authorities Administrative bodies and noncommercial - Multilateral development banks International organisations 9,300,000 9,300,000 Institutions (banks and investment firms) 4,343,000 4,343,000 Other items (Nostros) Total 21,638,000 21,638, / 20

18 Exposures by Credit Quality Step Institutions (including banks, but excluding short-term claims on institutions and corporates) Credit Quality Step Fitch's assessments Moody's assessments S&P's assessments Risk weight Exposure AAA to AA- A+ to A- BBB+ to BBB- AAA to AA- A+ to A- BBB+ to BBB- Aaa to Aa3 A1 to A3 Baa1 to Baa3 20% 50% 100% No long term exposures 4 BB+ to BB- BB+ to BB- Ba1 to Ba3 100% 5 B+ to B- B+ to B- B1 to B3 100% 6 CCC+ and below CCC+ and below Caa1 and below 100% Total Short term claims on institutions and Corporates Credit Quality Step Fitch's assessments Moody's assessments S&P's assessments Risk weight Exposure AAA to AA- A+ to A- BBB+ to BBB- AAA to AA- A+ to A- BBB+ to BBB- Aaa to Aa3 A1 to A3 Baa1 to Baa3 20% 20% 20% 17,166 3, BB+ to BB- BB+ to BB- Ba1 to Ba3 50% 5 B+ to B- B+ to B- B1 to B3 50% 6 CCC+ and below CCC+ and below Caa1 and below 150% Total 21, / 20

19 5 Own Funds and Capital Resources Tungsten UK Regulatory Consolidation Group (RCG) as at 30/04/2014 Common Equity Tier 1 193,640 Less deductions (138,041) Plus add back 2,935 Net UK RCG Capital 58,534 Tungsten Bank plc as at 31/12/2013 Common Equity Tier 1 20,000 Reserves 9,532 Net Bank capital 29,532 For the purpose of the UK RCG calculations, deductions consist of Accumulated Profits, Other Reserves, Tungsten Corporation plc intangibles and Tungsten Network Limited intangibles and the add back is for Deferred Tax Liabilities. 6 Remuneration CRD IV requires the Bank to disclose information regarding its Remuneration Policy and practices for those categories of staff whose professional activities have a material impact on its risk profile. The FSA (as it then was) transposed the relevant CRD IV legislation into SYSC 19A and provided guidance in its Policy Statement 10/21. In this respect, the Bank will adopt a set of policies and procedures regarding remuneration that is comprehensive and proportionate to the nature, scale and complexity of the Bank's activities and take into account all binding regulation and legislation to ensure effective risk management. Remuneration Policy Remuneration decisions are aligned with effective risk management and are comprehensive and proportionate to the nature, scale and complexity of the Bank's activities. The Bank's Remuneration Committee (as detailed above) is responsible for monitoring and noting the level and structure of remuneration for senior management and senior risk management and compliance staff (who fall within the meaning of 'Remuneration Code Staff' for the purposes of SYSC 19A). The Bank's Remuneration Committee will review a Remuneration Policy on an annual basis, to ensure that it is updated and continues to reflect the business strategy, nature of the business and all regulatory requirements. Remuneration Code Staff The Remuneration Policy specifies those individuals that are 'Remuneration Code Staff' under SYSC 19A and set out their remuneration, which will be a combination of fixed and variable remuneration and benefits 19 / 20

20 (including contributions to a defined contribution pension scheme). Specifically, Remuneration Code Staff will be remunerated through the following mechanisms: Fixed remuneration: fixed remuneration is determined according to experience, qualification and individual performance. The Bank will provide salaries that are comparable to similarly performing market participants in its sector. Fixed remuneration will take into account all other benefits received by an individual. Variable remuneration: will be based on a number of factors including the individual's performance (including compliance with applicable regulations) and the financial performance and profitability of the business. Aggregate Information for Remuneration Code Staff As the operations of the Bank are new, no bonus or profit related pay has yet been awarded. The Bank has identified 5 Code staff in the period since acquisition and in aggregate these Code Staff are paid 810,000 in aggregate per annum (as their relevant fixed payments). 20 / 20