UBP Securities (UK) LTD. Capital requirements directive - Pillar 3 disclosure

Transcription

1 UBP Securities (UK) LTD Capital requirements directive - Pillar 3 disclosure December 2016

2 CONTENTS 1. INTRODUCTION 3 2. BUSINESS STRUCTURE 3 3. ACTIVITY Group Activity UBP Securities (UK) Ltd Activity 4 4. RISK MANAGEMENT Control Oversight 4 5. RISKS ANALYSIS Credit, Counterparty and Settlement Risks Balance Sheet Exposures (non-trading book) Counterparty Risk Settlement risk Pillar II Assessment on Credit Risk Credit Residual Risk Market risk Foreign currency risk Operational risk Liquidity risk Insurance risk Concentration risk Securitisation risk Business risk Interest rate risk Pension obligation risk Regulatory Change Risk Sanction Risk Contractual Risk and Supplier Performance Risk Management Information Risk Management Reporting Risk Conduct Risk Management CAPITAL RESOURCES OTHER DISCLOSURES Credit Risk Mitigation Techniques Material Holdings 12 Union Bancaire Privée, UBP SA Pillar 3 disclosure December

3 1. INTRODUCTION UBP Securities (UK) Ltd (hereafter referred as UBPS) is authorised and regulated by the Financial Conduct Authority (FCA). The FCA is responsible, in the United Kingdom, for the implementation of the 2006 Capital Requirements Directive of the European Union, which sets up a new regulatory capital framework for the financial services industry. This new framework consists of three pillars: Pillar 1 specifies the minimum capital levels that the business is required to carry to cover the risks to its business; Pillar 2 shows the supervisory review process to be used by both the business and the FCA to determine whether additional capital should be maintained against any risks not adequately covered under Pillar 1; Pillar 3 specifies the disclosure requirements which a business is required to make with regard to its capital, risk exposures and risk assessment process. The FCA regulations for the disclosures required under Pillar 3 are contained in the IFPRU Prudential sourcebook for Investment Firms. These rules allow the business to exclude disclosures where the information is regarded as immaterial or confidential. Disclosures in this document are made in compliance with EU Capital Resources Directive (CRD IV). 2. BUSINESS STRUCTURE The disclosures contained in this document relate to the business of UBP Securities (UK) Ltd. UBPS is a 100% subsidiary of Union Bancaire Privée, UBP SA. Union Bancaire Privée, UBP SA was created in 1969 under the name of Compagnie de Banque et d investissements CBI. Following a number of acquisitions, including TDB-American Express in 1990 it took the name of CBI-TDB Union Bancaire Privée, UBP SA. CBI-UBP International Ltd was retained from this time as the name of the subsidiary in London. Over the years as UBP expanded and opened a London Branch, CBI- UBP International Ltd trading activities migrated, changed its name to UBP Securities (UK) Ltd and became what it is today, a matched principal broker in bonds. It undertakes this activity for the majority of clients of the UBP Group. 3. ACTIVITY 3.1. Group Activity Union Bancaire Privée, UBP SA (hereafter referred as UBP Group), based in Geneva, is one of the major Swiss asset management banks for both private and institutional clients. Union Bancaire Privée, UBP SA is one of Switzerland's leading and most strongly capitalised banks. Built on a strong foundation of entrepreneurial vision and innovative drive, it draws on the top financial talents to achieve capital protection combined with returns. UBP Group offers advanced know-how in building and assembling absolute-return portfolios. This approach, combined with a highly personalised service, has made UBP Group one of the world's top-ranking privatelyowned asset management banks, based on client assets. Strengthened by selective acquisitions and constant, robust growth. UBP Group has established an international presence through a network of subsidiaries, branches, and representative offices in over 20 locations. UBP Group has a branch in London, hereafter referred as UBP London. There is a Service Level Agreement in place between UBPS and UBP Group which covers the functions that have been outsourced to UBP Group. Separately there is a Service Level Agreement between UBPS and UBP London which covers the functions that have been outsourced from UBPS to UBP London. Union Bancaire Privée, UBP SA s international presence is illustrated on the world map as following: Union Bancaire Privée, UBP SA Pillar 3 disclosure December

4 3.2. UBP Securities (UK) Ltd Activity UBPS is a BIPRU 730K limited activity firm. UBPS trading book is zero at the end of each day, UBP Securities (UK) LTD does not take foreign exchange position and does not lend out. The Vast majority of trades are executed with settlement conditions up to T+3 (within three working days) and after receiving the proceeds on the nostro account. UBPS has one client, which is its parent. 4. RISK MANAGEMENT UBPS is risk averse. It does not take positions on its trading book. All trades are executed on delivery against payment basis. All UBPS clients are part of the UBP Group global structure. No lending positions are taken Control Oversight As part of UBP Group, the risk management process is performed by UBP London and the Group as follows: Table 2 Control Oversight Function UBP London UBP Group (Geneva) Comment Compliance Control and FCA Oversight Oversight UK Regulation has priority unless Group position more stringent Risk Management Control Oversight Covered by London within Group Risk Framework Management accounting and FCA reporting from London Finance Control Oversight The London Finance teams has its own procedures and policies as regards financial controls and checks in respect of the financial position of UBPS Legal Control Oversight Covered by London within Legal department Back Office and Settlement Oversight Control BO is outsourced to UBP Group, BO KPI are monitored on a monthly basis by the LRC and an annual due diligence monitoring is conducted Internal Audit N/A Control Totally independent audit function provided by UBP Group Liquidity Management Control Oversight Controlled by ALCO London. Credit N/A N/A UBPS does not lend Stress testing is outsourced to UBP Group, reviewed on a monthly basis by the LRC Union Bancaire Privée, UBP SA Pillar 3 disclosure December

5 Stress testing has been undertaken by the Financial Department of UBP London. Capital Adequacy has been assessed by the UBPS Board, and is reviewed and verified by UBP Group Risk Management. 5. RISKS ANALYSIS The main risks covered by Capital Adequacy Requirement Pillar II, are listed below and their relevance to UBPS activity during the past period and the stress testing for 5 year period are discussed in detail. The risk assessment is undertaken monthly at the London Risk Committee (LRC) meeting where the main Key Risk Indicators are reviewed monthly. In addition a detailed operational and regulatory risk register is maintained and reviewed on an at least annual basis Credit, Counterparty and Settlement Risks The credit risk exposure of UBPS consists of Balance sheet exposures in non-trading book and Counterparty risk, including Settlement risk. UBPS does not have positions on its trading book at the end of each day and in that respect it does not have credit risk exposure to the issuers of the bonds. UBPS does not lend money and therefore it does not have credit risk exposure to any borrowers at any moment of time. UBPS is not allowed to take loans, which means it does not have credit risk exposure to any lenders at any moment of time Balance Sheet Exposures (non-trading book) Following the restrictions on its activity, the counterparty risk for UBPS consists only of the exposure to UBP Group (the parent) in the form of capital held on a current account and the fixed and other assets. The standardised approach (Article 121 from CRR) requires exposures with original effective maturity less than three months, to unrated institutions in AAA rated countries such as Switzerland to be allocated a risk weight of 20%. The standardised approach (Article 134 from CRR) requires the tangible assets within the meaning of Article 4 (10) of Directive 86/635/EEC, to be assigned a risk weigh of 100%. In addition prepayments and accruals, for which an institution is unable to determine the counterparty in accordance with Directive 86/635/EEC, to be assigned a risk weight of 100% Counterparty Risk Counterparty risk is part of the credit risk framework. Counterparty risk is the risk that counterparty to a transaction could default before the final settlement of the transaction's cash flows. An economic loss would occur if the transaction (or portfolio of transactions) with that counterparty has a positive economic value at the time of default. UBPS does not have positions on its trading book and all trades are settled through the appropriate clearing venues. UBPS has limited settlement risk which is reviewed below Settlement risk Settlement risk is part of the counterparty risk capital component. Settlement risk is the risk that one party will fail to deliver the terms of a contract with another party at the time of settlement. Settlement risk can be the risk associated with default at settlement and any timing differences in settlement between the two parties. UBPS does not hold positions in the trading book overnight and all counterparty exposures are incurred in the ordinary course of settlement over five working days. Most trades settle within three business days. All trades are settled through Euroclear or domestic custodians. In that respect UBPS faces limited settlement risk. Settlement risk is monitored on a daily basis by the Back Office of UBP, daily chasers are sent if the counterparty is short, and all late settlement trades are reported to Group Risk Management on a weekly basis. In addition the unsettled trades post settlement date (delayed settlement) trades are reported to the LRC on a monthly basis. The possible loss and the settlement risk are calculated monthly by Finance London and are part of the red flag cockpit. There were no failed trades in The loss suffered due to incorrect settlement during the past five years has been immaterial. The calculations of Pillar I settlement risk are shown in 4.4 Capital Requirement (Pillar I). Union Bancaire Privée, UBP SA Pillar 3 disclosure December

6 Pillar II Assessment on Credit Risk The analysis of credit risk shows that for UBPS, it consists mainly of settlement risk. In that respect the capital resources are estimated as 100% of the settlement risk. Credit risk capital requirements Pillar II Dec 2016 Unsettled trades (settlement risk) 29 Credit risk capital requirements (100%of above) 29 (in 000 GBP) Pillar I calculation of the total risk amount are shown in point 4.5 as k ( 29*12.5). The stress testing is performed on Pillar I, as the capital requirements for Pillar I are higher than the capital requirement for Pillar II. The capital resources as at 31 st Dec 2016 for the projected five years are consistently well above the credit risk requirements for Pillar I and Pillar II. Furthermore, stress testing reveals that at a zero level of activity, UBPS will be able to pay all its obligations when they fall due for a period of five years Credit Residual Risk There is no credit residual risk as no positions are held at the end of each business day, robust procedure is in place to ensure this. There were no instances of open positions at any business day during the whole of Market risk Market risk is the risk of losses arising from movements in the market prices of debt (interest rate related) and equity instruments in the trading book, as well as foreign exchange and commodity instruments in the trading and banking book. UBPS is not exposed to market risk, because UBPS does not have outstanding positions in the trading book overnight. UBPS is not allowed to take positions at the end of each day. Daily control and monitoring is performed by the Finance team in London to ensure that all positions are closed at the end of the previous business day and all trades are processed with a positive financial result. Any queries are raised immediately with the Group s Back Office in Geneva and the Bond Team in London. There were no instances of open positions at any business day in Foreign currency risk Foreign exchange risk, or also called currency risk, is a form of risk that arises from the change in price of one currency against another. The most popular currency risk mitigation technique is the hedging of the currency position. UBPS does not take foreign exchange positions. As all trading positions are closed at the end of each business day there is no FX risk on the trading book. However, there are marginal currency positions during each month caused by trades in foreign currency, generating income in foreign currency. At the end of every month the foreign currency income is transferred to GBP and all residual positions are cleared. This marginal non trading book exposure amounts to less than 1% of the total assets and net income respectively Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. UBPS s operational risk is limited by the robust systems and controls. UBPS uses Fixed Income Order Management System (FINTOMS) which aims to minimise human error in trading function. Specific controls include: It prevents traders from executing a trade from a wrong side e.g. selling instead of buying. It prevents traders from entering an incorrect nominal amount. It links directly to the Bloomberg trading system - where traders have the facility to activate a control that compels the dealer to deal at the best price. The link to the Bloomberg system acts as an enquiry to three counterparts in the market and after trading. The three quotes are displayed on the ticket that is produced by the system. Union Bancaire Privée, UBP SA Pillar 3 disclosure December

7 The system matches the market trade with the order from the client. If a dealer has traded before receiving a client order and a misunderstanding occurs, a panel appears to warn that there is a discrepancy in details. This means that any errors are quickly discovered and are much easier to reverse without loss. When the market trade and the client order are matched, the completed ticket is immediately processed to the Group s Back office in Geneva for entering on the client account. The system therefore also minimises operational error in the back office. According to internal rules UBPS should execute any trade after receipt of the proceeds from its client on their account. UBPS is not allowed to take positions at the end of each day. Trades are processed by UBP Group Back Office and are reconciled by UBP Group Back Office and UBP Group Reconciliation Department. As a second control the executed trades are reconciled by UBP London branch on a daily basis. Any discrepancies resulting from incorrect entry into the system or incorrect price are addressed immediately on the next working day. The operational risk, together with all other significant risks is monitored by the LRC on a monthly basis. The operational risk register is reviewed at least annually together with Group Risk and reported to the group Executive Committee as part of the Group register. The counterparty brokers ratings monitoring and due diligence is done by the Head Office at a group level. UBPS cannot use unapproved brokers unless permission is obtained by the Group Risk Historically the trade error losses were below 1% of the Income on bonds, as illustrated in the table below. The estimated maximum loss triggered by trading errors is two times the historical data and is set up to 2%. Trade Error Losses History 000 GBP Income on bonds 6, ,388 5,272 5,224 Trade error losses Percentage % 0% 0.35% 0.03% 0.27% 0.03% 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% Losses as % of Net Income % of net income Pillar II assessment of Operational Risk is based on 5% of the trading income on bonds. N Operational Risk Capital Requirement Pillar II Income on bonds 6,963 2 Operational Risk capital requirement (5% of (1)) 348 (in 000 GBP) Pillar I calculation of Capital Resources for the operational risk under Fixed Overhead Requirements (FOR) is shown in Fixed Overheads Requirement. As at end of Dec 2016 the FOR was GBP 380k based on the audited 2014 financials. The capital allocation is 366k multiplied by 12.5 equals to 4,579k The stress testing is performed on Pillar I, as the capital requirements for Pillar I are higher than the capital requirement for Pillar II for the projected period. LRC review and allocate KRI on a monthly basis to other operational risks such as: personnel absences, system outages, fraud attempts, number of reversed transactions, losses, business continuity and so on. The latest red-flag cockpit is attached in Appendix I. Union Bancaire Privée, UBP SA Pillar 3 disclosure December

8 5.5. Liquidity risk A conventional analysis of liquidity risk distinguishes between funding liquidity risk and market liquidity risk. Funding liquidity risk is the risk that the counterparties who provide the investment firm with short-term funding will withdraw or not roll over that funding. The maturity mismatch management is a core element of funding liquidity risk. Market liquidity risk is the risk of a generalized disruption in asset markets that make normally-liquid assets illiquid. It affects tradable assets in the trading book. UBPS does not face that risk as all trades are executed on a back to back basis. The adverse outcomes of liquidity risk are: the inability to pay liabilities as they fall due; realizing a market loss as a result of the premature or force sale of assets to raise liquidity; loss of business opportunity due to lack of liquidity. UBPS faces funding risk to the extent that it pays suppliers (utility bills) and personnel costs. During the past four-year period under review, , UBPS was able to pay all obligations on time. UBPS realized profits on an annual basis and retained sufficient own capital on deposit to meet all obligations when they fell due. UBPS may face potential marginal liquidity risk linked to settlement risk in the event of default of one party to deliver the terms of a contract with another party at the time of settlement. This hasn t happened in the past 5 years. The main reason for that is because the settlement risk that may occur from trades executed on delivery against payment basis is extremely low. Furthermore, all trades are executed on delivery against payment basis. Liquidity stress testing is performed by Group Risk Management on a monthly basis and reviewed monthly by the London Risk Committee which comprises at least one UBPS Board Director. There were no liquidity requirements highlighted by the stress testing (liquidity difficulties) in Dec 2015 due to the high capital buffer maintained by UBPS Insurance risk UBPS has banker s blanket bond insurance which covers but is not limited to: Internal Fraud External Fraud Professional Civil Liability Professional Negligence Liability UBPS is exposed to limited insurance risk in that respect Concentration risk A concentration risk arises from any single exposure or group of exposures to counterparties, group of connected counterparties, and counterparties in the same economic sector, geographic region or from the same activity or commodity with the potential to produce losses large enough (relative to own capital, total assets, or overall risk level) to threaten a company s health or ability to maintain its core operations. Recognising the reliance on UBP Group to remain a going concern UBPS ensures it maintains standalone capital held in London to facilitate an orderly wind down in the unlikely event that the Group experience a resolution event Securitisation risk Securitisation risk arises from creation of asset backed securities (debt instruments secured against specific assets) or against specific cash flows. These are debt securities that are backed by a stream of cash flows. The borrower issues debt securities that are repaid using only these cash flows. Buyers of these securities have no further recourse against the borrower if the cash flows prove insufficient. UBPS does not face securitisation risk as it does not have any securitisation arrangements Business risk Business risk means any risk to a firm arising from changes in its business, including the risk that the firm may not be able to carry out its business plan and/or its desired strategy. UBPS executes bond trades only for UBP Group and in that respect it is subject to the risk that the client may decide to cease or cut down on bond trades. UBPS maintains sufficient capital planning buffer which is considered sufficient to protect the firm in unfavourable market conditions. Furthermore the zero activity stress scenario indicates that UBPS can meet all its obligations for at least five Union Bancaire Privée, UBP SA Pillar 3 disclosure December

9 years, without any income being generated, allowing enough time for a winding up in an orderly manner in an unlikely extremely adverse market conditions. UBPS is covered by the UBP London and UBP Group business continuity plan in case of disaster and system failure Interest rate risk Interest rate risk is the risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. As UBPS does not have positions on its trading book overnight, the interest rate risk on a zero trading book is zero. The main income stream is income on bonds consisting of 99.17% of net income. The income from bonds has increased by 34.9% in 2016 in comparison to 2015, as UBPS saw an increased in dealing frequency. The next income stream is the interest income earned on the capital kept on deposit with UBP London branch. The net interest income has decreased in 2016 due to lower interest rate. There is no projected interest income in 2016, as the amount is marginal. In broader sense the interest rate movements often defined the demand for fixed income investments hence the trading volume of UBPS. In this respect the interest rate risk overlaps with the business risk for UBPS Pension obligation risk UBPS has a defined contribution scheme and uses external pension fund schemes for its employees - Aviva. In this respect the pension obligation risk has been transferred from UBPS to Aviva Regulatory Change Risk The regulatory track report produced by Compliance London is part of the monthly red flag cockpit and is reviewed on a monthly basis by LRC. The latest available document is attached in Appendix I Sanction Risk UBPS has only one client; however the good market practice requires careful consideration to be given to AML risk. Compliance training is required by all UBPS and UBP London employees throughout the year Contractual Risk and Supplier Performance Risk Contractual risk is the risk of third party supplier contracts being unenforceable when such suppliers do not comply with their contractual obligations. The suppliers contracts are reviewed on an annual basis and are monitored by London Procurement Officer together with the Group Procurement department. Notification to the owner of the contract (the respective purchase officer) is sent regularly (at least annually) before the contract expiration/negotiation date. Detailed explanation of future actions is required by the purchase officers (continuation of the contract, supplier change, cancellation of the service etc.). The main, most expensive, Financial Data contracts, such as Bloomberg and Reuters are managed on a group level. Every supplier s contract should be signed by at least two authorised signatories, after the approval of London Legal and London Procurement. It is recommended that the standardised Group Suppliers contract template is to be used where appropriate. All signed contracts are forwarded to Group Procurement where they are stored in a specialised system, Navision, and constantly monitored. This ensures full back-up in the unlikely event of data loss and also allows for economy of scales when more than one group entity uses the same suppliers and potential renegotiation of better conditions is possible. The outsourcing arrangements are reviewed at least annually together with due diligence at the LRC. The back office, middle office and client performance reporting key performance indicators are reviewed monthly by LRC Management Information Risk Management information risk is the risk of meaningful information about an institution s operations not being sufficient to enable informed decision-making. Monthly Finance meeting is held with two of UBPS directors, where detailed comparison with the previous month financials and the budget is analysed. The same financial information is than presented to London Management Committee Meeting. Group Finance has independent access to the same information and any deviations/unusual operations are explained on a monthly basis. The Group Chart of Accounts and Financial policies are followed. Union Bancaire Privée, UBP SA Pillar 3 disclosure December

10 5.16. Management Reporting Risk Management reporting risk is associated with the use of inaccurate or incomplete financial reports and analysis or the absence of appropriate information for on-going operational decision making and finance governance and the implementation of changes. Management reporting information is supplied to the Board of directors by the Head Office in Geneva on a daily basis and by Finance London on a monthly basis. All regulatory reports are produced and submitted by Finance London via Gabriel. All daily transactions are reported through Unavista and London Stock Exchange to the FCA. The reporting is automated through a link between Atlas and Unavista. Finance London perform a daily check whether the report from the previous day is submitted and accepted by the FCA. Any problems flagged by Unavista such as late reporting, MiFID noncompliance are immediately raised with Compliance UBP London, Group Operations and the Board of Directors. All other risks that are reviewed and assessed on at least annual basis can be found in the Appendix F, where the annual assessment for 2016 is given. This includes: fraud, theft, cybercrime Conduct Risk Management Conduct risk is the risk of creating detriment to a client, counterparty, the Group or market arising from inappropriate conduct of business in the execution of business activities. The conduct risk arrangements ensure that conduct risk: is defined and an appetite is communicated throughout the business, forms part of the firms over-arching risk management framework and is adequately governed through senior management being accountable for its monitoring and mitigation. In particular, UBPS recognises that conduct risk interacts with multiple other risks types and in particular, shares many of the same characteristics as operational risk. However, in managing conduct risk UBPS seeks to place an additional focus on the mitigation of customer detriment and undertake ongoing process enhancement (e.g. new product approval, client lifecycle) to aid delivery of positive outcomes. The management of conduct risk is based upon the three lines of defence model which is informed by the risk appetite and strategy set by the Board: The first line of defence sits within the business units focusing on risk management activities. It has responsibility for the identification of gross and net risk, risk groupings and the business impact of risks discovered. The second line of defence sits with a separated risk and control function and undertakes deployment of policies and procedures, targeted monitoring and offers compliance advisory service to high risk areas. Audit acts as the third line of defence and provide assurance on the management, risk framework and control environment for conduct risk. Throughout the key interactions during the customers journey, UBPS operates robust controls and assurance. The development of products is governed by the new product approval process. Assurance for all other aspects of the client experience is provided by the second line of defence who also seek to identify and continually improve UBPS s client facing processes. UBPS maintains a code of business conduct and ethics as part of its Staff Handbook and various Policies and Procedures which set out the principles and practices that are binding for all of UBPS s employees and Board members. The Staff Handbook and the Internal Policies and Procedures apply in all circumstances and at all levels in the organization, UBPS does not tolerate violations of the Staff Handbook or other internal and external policies and rules, and takes appropriate action to address violations. The key elements of the Staff Handbook and Internal Policies and Procedures cover: a) Compliance with laws UBPS adheres to the standards and restrictions imposed by applicable laws, rules and regulations both in countries where our clients are located and in countries from which we operate. UBPS complies with all applicable laws, rules and regulations regarding tax records and tax reporting and does not provide assistance to clients in acts aimed at breaching their fiscal obligations. b) Responsible conduct UBPS is committed to responsible corporate conduct and will obtain competitive advantage through superior performance and not by using any unfair business practice. UBPS will take its responsibility to preserve the integrity of the financial system, and its own operations, seriously. UBPS is committed to assisting in the fight against money laundering, corruption and terrorist financing. UBPS is committed to acting in an environmentally responsible manner in all its business dealings and to promoting sustainable development. UBPS promotes and respects human rights standards within its sphere of influence. Union Bancaire Privée, UBP SA Pillar 3 disclosure December

11 c) Reputation safeguard UBPS is committed to maintain the good reputation of the firm. d) Client service and information security UBPS is committed to building and sustaining relationships with clients built on trust, and to providing solutions and services of the highest quality. UBPS adheres to the highest standards of information security. UBPS is committed to upholding client confidentiality and protecting client information. UBPS is committed to the proper handling of confidential/sensitive information. e) Remuneration Policy UBPS remuneration policy is in line with European and local regulations on compensation and governance as defined by CRD IV and the FCA. UBPS remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk tolerated by the UBP Group. The variable pay of UBPS employees depends on the assessment of individual performance, the performance of UBPS and the group performance. UBPS uses qualitative and quantitative criteria to determine the employees individual performance. f) CPD Training UBPS s employees performing significant functions, registered with the FCA, are obliged to maintain their professional knowledge at a high standard and follow the latest regulatory and best practices development by completing certain amount of hours of continuous professional training (CPD). The CPD training regulatory requirement is monitored on monthly bases by the LRC as part of the Red Flag Cockpit. g) Best Execution UBPS aims to provide services at the highest professional standard applying MiFID requirement for best execution. Specific checks and controls are applied using Bloomberg BLOT system which provides an appropriate tool for checking bond trading activity by downloading large range of data, including three quotations and compounded prices. The Group Compliance prepares a Best Execution Review Report on quarterly bases. The latest report can be found in Appendix H. 6. CAPITAL RESOURCES UBPS Capital Resources as at 31 st December 16 consist of tier one core capital resources presented by: permanent share capital 3,000k audited reserves and retained profit 10,483k and unaudited profit for the current year 2,595k The movements in the own funds are presented in the table Capital resources. A stable increase is noticed in the Capital resources value throughout the years due to the policy of non-dividend distribution and conservative risk adverse investment of funds in deposits. Capital Resources 000 GBP Capital 3,000 3,000 3,000 3,000 3,000 Reserves and retained earnings 10,483 8,847 6,077 3,814 1,482 Profit/Loss Current Year 2,595 1,635 2,722 2,263 2,332 Total Capital resources 16,077 13,482 11,799 9,077 6,814 (in 000 GBP) The table Capital resources / Capital Resource Requirement shows stable excess of Capital resources above the capital resource requirements EUR 730k. Based on scenario analysis no additional risks have been identified that would require an increase to Capital Resources. Reflecting the risk adverse management policy, capital is forecast to increase year on year in line with current profits. Capital resources / Capital Resource Requirement? Dec 2016 Capital Resources (CR) ( 000 GBP) Base Capital Requirements (BCR 730k) 16,077 CR / BCR 636 Union Bancaire Privée, UBP SA Pillar 3 disclosure December

12 In the Pillar I calculation, the capital resources are 16,077k, based on the Unaudited as the profits from December YTD Since these are expected to be higher than the 2015 audited figures, this will result in a more conservation approach in any case. The Capital resources are assessed and reviewed monthly at the London ALCO. As UBPS has only Tier 1 Capital, the Minimum Common Equity Capital ratio (CET1) is equal to the Minimum Tier 1 Capital ratio (T1) and is equal to the Minimum Total Capital ratio. Item Amount CET1 Capital ratio 160% Surplus(+)/Deficit(-) of CET1 capital 13,106 T1 Capital ratio 160.2% Surplus(+)/Deficit(-) of T1 capital 12,979 Total capital ratio 160.2% Surplus(+)/Deficit(-) of total capital 12,811 The CET1 Capital ratio and the T1 Capital ratios are both 160% as of end of December 2016, well above the minimum requirement of 4.5% and 6% respectively. The total capital ratio for UBPS is equal to T1 and CET1 ratio. 7. OTHER DISCLOSURES The approach of the business to assessing the adequacy of its internal capital to support current and future activities is contained in the Internal Capital Adequacy Assessment Process, known as ICAAP Credit Risk Mitigation Techniques UBPS did not use credit risk mitigation techniques Material Holdings UBPS as of did not have material holdings. Union Bancaire Privée, UBP SA Pillar 3 disclosure December