Keplero Holdings Limited

Transcription

1 DISCLOSURES IN ACCORDANCE WITH THE DIRECTIVE FOR THE CAPITAL REQUIREMENTS OF INVESTMENT FIRMS FOR THE YEAR ENDED 31 DECEMBER 2013 MAY 2014

2 CONTENTS GENERAL INFORMATION AND SCOPE OF APPLICATION... 3 RISK MANAGEMENT FRAMEWORK AND STRUCTURE... 5 OWN FUNDS... 8 CAPITAL REQUIREMENTS Credit Risk Operational Risk Market Risk Liquidity risk REMUNERATION OPERATING ENVIRONMENT... 15

3 GENERAL INFORMATION AND SCOPE OF APPLICATION Requirements of the Directive The information below is disclosed in accordance with Directive DI of 2012 of the Cyprus Securities and Exchange Commission ( CySEC ) for the Capital Requirements of Investment Firms. The information that ( the Company ) discloses herein relates to the year ended 31 st December Company Incorporation and Principal Activities was incorporated in Cyprus on 23 January 2012 as a limited liability company under the Companies Law, Cap The Company through its licensed brand BDSwiss, is an innovative consumer trading company providing to its clients binary option trading in relation to stocks, currencies, indices and commodities. Since 31 May 2013 the Company is authorized and regulated as a Cyprus Investment Firm ( CIF ) by the Cyprus Securities and Exchange Commission, under the Investment Services and Activities and Regulated Markets Law of 2007 (Law 144(I)/2007), and subject to CySEC Rules, with License Number 199/13. The Company is authorized to provide the following investment and ancillary services, in the financial instruments specified below: Investment Services Reception and transmission of orders on behalf of third parties Execution of orders on behalf of third parties Ancillary Services Safekeeping and administration of financial instruments, including custodianship and related services Financial Instruments 1. Transferable securities 2. Money-market instruments 3. Units in Collective Investment Undertakings (CIUs) 4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash 5. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event) 6. Options, futures, swaps and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market or/and an MTF 7. Options, futures, swaps and any other derivative contracts relating to commodities that can be physically settled not otherwise 3

4 Investment Services Ancillary Services Financial Instruments mentioned in paragraph 6 of Part III and not being for commercial purposes which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognized clearing houses or are subject to regular margin calls 8. Derivative instruments, the transfer of credit risk 9. Financial contracts for differences 10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contract relating to assets, rights, obligations, indices and measures, not otherwise mentioned in this Part, which have the characteristics of other financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognized clearing houses are subject to regular margin calls In addition to the above, the Company offers the following ancillary service: Foreign exchange services where these are connected to the provision of investment services Disclosure Policy The Company discloses information in relation to its risk management structure and minimum capital requirements on an annual basis. The current Disclosures are based on the position of the Company as at 31 st December 2013 and are prepared under Directive of Scope of Disclosures Since the Company does not have any subsidiaries, the present Disclosures relate solely to information regarding Keplero Holdings Ltd. According to its policy, Keplero Holdings Ltd uploads these disclosures on its website within the first five months of each year. 4

5 RISK MANAGEMENT FRAMEWORK AND STRUCTURE For Keplero Holdings Ltd, the purpose of managing risk is the prompt identification of potential problems that may occur, so that risk-handling activities can be planned and invoked to mitigate adverse effects and allow the Company to achieve its goals and objectives. The Risk Management Framework is set to establish, implement and maintain policies and procedures designed to manage any type of risk faced by the Company. In this way, it provides the means for Keplero Holdings Ltd to identify, assess and report potential events that may affect its business and operations in general. The Board of Directors has overall responsibility for the establishment and oversight of the Company s Risk Management Framework. The Risk Management policies are established to identify and analyze the risks faced by Keplero Holdings Ltd, set appropriate risk limits and controls, and monitor risks and adherence to limits. Risk Management policies and systems are reviewed regularly to reflect changes in market conditions, as well as the Company s activities. The Company s Risk Management mechanism is overseen by the following bodies, departments and persons: Board of Directors Chief Executive Officer (CEO) Senior Manager Risk Manager Money Launder & Compliance Officer Compliance Officer (outsourced) Internal Audit (outsourced) Head of Brokerage Department Back Office Manager Board of Directors The Board of Directors is responsible for overlooking the operations of the Company. The main responsibilities of the Board of Directors are: Formulating the Company s future strategy in terms of the development of existing and new services and the Company s presence in the local and international financial markets Governing the Company by broad policies and objectives, formulated and agreed upon by the directors and employees Ensuring that sufficient resources are available to the Company to carry out its operations The Board is responsible for establishing and amending the internal control procedures, where necessary. It also ensures that the Company has sufficient human and technical resources required for the performance of its duties. In addition to the Board, the CEO and Senior Manager play an active role in monitoring the Company s overall compliance with Capital Adequacy regulations and approving the Pillar 1 calculations and other risk management disclosures. 5

6 Risk Manager The Risk Manager ensures efficient management of the Company s risks in the provision of the investment and ancillary services to clients, as well as the risks underlying the operations of the Company in general. Furthermore, the Risk Manager bears the responsibility for monitoring the following: The adequacy and effectiveness of the risk management policies and procedures that are in place The level of compliance by the Company, its management and its personnel with the adopted policies and procedures, in addition to the Company s obligations stemming from the relevant laws The adequacy and effectiveness of the measures taken to address any deficiencies with respect to those policies and procedures that are in place, including failures by the Company s relevant persons to comply with those policies and procedures Also, the Risk Manager s work is focused on the following areas: Reporting risk management issues to the Company s Senior Management and the Board Monitoring the risks faced by the Company Ensuring compliance with any new legislation from a risk management point of view Examining the capital adequacy and the financial results of the Company Providing appropriate advice, training and support to Company personnel, and Identifying any problematic areas Money Laundering & Compliance Officer The Compliance Officer role is outsourced to an external audit firm. The Company intends to uphold the strictest rules in order to ensure high ethical and professional standards, both in terms of managers and staff. The Duties of the Compliance Officer include the following: Implementing the Company s procedures and processes for the prevention of Money Laundering and Terrorist financing Adhering to the Client Acceptance Policy and Due Diligence procedures when assessing prospective client applications to open a trading account with the Company Identifying potential areas of compliance vulnerability and risk, developing and implementing corrective action plans in consultancy with the Compliance Officers (outsourced) for the resolution of problematic issues, and providing general guidance on how to avoid or deal with similar situations in the future Internal Audit The Internal Audit function is outsourced to an external firm. The internal auditors are independent and report directly to the Board of Directors. The duties of internal audit include: Audits within the departments covering the business cycle of the Company Audits to ensure compliance with the Laws and Regulations governing the business of the Company Audits to ensure compliance with the Code of Conduct and the Policies and Procedures Manuals of the Company 6

7 Recommend possible measures and actions to be taken to prevent mistakes, errors and incidents of non-compliance Verify the existence and proper implementation of the procedures aimed at the prevention and identification of activities or practices relating to the legalization of funds from illegal activities Head of Brokerage Department The Company s Head of Brokerage Department is responsible for over-viewing the risks that may arise during the reception, transmission and execution of client orders by the Company s brokers. Back Office Manager The Back Office Manager is responsible for preparing the Company s accounts and ensuring that all client deposits and withdrawals are allocated correctly. The Back Office Manager also carries the responsibility for performing identity checks on clients who deposit money in their trading accounts, by filling out standardized forms and collecting identity documentation from the clients in question. In case of suspicious movements of amounts or problematic reconciliations, the Back Office Manager reports to the CEO and Senior Manager, who in turn determine the measures to be taken in order to deal with the problems that arise and eliminate the sources of risk. 7

8 OWN FUNDS The Own Funds of the Company as at 31 st December 2013 consisted solely of Tier 1 Capital are analyzed in Table 1 below: Table 1: Composition of the capital base of Keplero Holdings Ltd COREP ref. 1.1 CAPITAL FOR REGULATORY PURPOSES As at 31 st Dec 2013 Description Eligible Tier 1 Capital before solvency filters (Original Own Funds) Amounts in EUR 000 Tier 1 positive items: Share capital Reserves Profit from current year (audited) 39 Total Own Funds before Deductions: 288 Deductions: Intangible assets (1) Excess from Large Exposures in the Banking Book (197) Capital for regulatory purposes 90 Deductions from own funds and Capital Adequacy Ratio As at 31 st December 2013 the Company had a large exposure in the banking book resulting from its receivables from Condora Marketing Corporation, a company registered in Panama (total exposure ). The Company deducted the excess over the large exposure limits from its own funds, as per the requirements of CySEC. This resulted to a reduction of its own funds from to , and a subsequent decrease of the capital adequacy ratio from 12,34% to 3,87%. The Company took immediate remedial action which included the reduction of its exposure to Condora Marketing Corporation within the large exposure limits within the first quarter of

9 CAPITAL REQUIREMENTS Minimum regulatory capital requirements The total capital requirements of the Company as at 31 st December 2013 amounted to 186 thousand and are analyzed in Table 2 below: Table 2: Minimum Capital Requirements Type of Risk Minimum Capital RWA Requirements Credit Risk Foreign Exchange Risk 5 0 Operational Risk Total Credit Risk General Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Company has credit exposure to the banks with which it deposits funds and the market counterparties with which it has some receivables. Capital Requirements The Company applies the Standardised Approach for the calculation of its minimum capital requirement for credit risk. As at 31 st December 2013, the Company did not have any collaterals or guarantees, and therefore did not make use of Credit Risk Mitigation techniques. Table 3 below presents the credit risk exposure, risk weighted assets and capital requirement broken down by exposure class: Table 3: Exposure Amount, Risk Weighted Assets (RWA) and Minimum Capital Requirement per Exposure Class Exposure Class Exposure Amount RWA Minimum Capital Requirement Institutions Corporates Other Items Total

10 The following table presents the exposures of the Company per risk weight: Table 4: Exposure Amount per exposure class and risk weight Exposure Class Risk Weight Exposure Amount Institutions 20% 122 Corporates 100% 220 Other Items 100% 18 Total 360 Risk Weighted Assets and Credit Quality Steps Institutions For the credit ratings of Institutions, the Company uses the sovereign ratings of Standard & Poor s to rate its exposures, matching the external rating of the government of the country where each institution is incorporated with the corresponding Credit Quality Step ( CQS ), according to the provisions of the Central Government Risk Weight based method of the Capital Requirements Directive. An analysis of the exposure by CQS is provided in the table below: Table 5: Exposure to Institutions by CQS Exposure Class CQS3 CQS 5 Total Institutions Corporates All Corporate counterparties of the Company were unrated and as a result, a 100% risk weight was used. Other Items The Other Items category includes plant, property and equipment and petty cash. A risk weight of 100% was applied to Other Items, with the exception of petty cash ( 144), which were assigned a 0% risk weight. Residual Maturity of exposures Table 6 below displays the residual maturity of the Company s exposures, broken down by exposure class, as at 31 December 2013: 10

11 Table 6: Residual Maturity per Exposure Class Exposure Class Residual Maturity 3 months Residual Maturity > 3 months Total Institutions Corporates Other Items Total The following table presents the countries to which each exposure class is concentrated: Table 7: Geographic distribution of exposures Exposure Class Cyprus Panama Germany Other Total Institutions Corporates Other Items Total Table 8 below analyses the distribution of the Company s counterparties by industry: Table 8: Distribution of exposures by industry type Exposure Class Financial Other Total Institutions Corporates Other Items Total

12 Table 9 shows the Company s average credit risk exposure during 2013, analyzed by exposure class: Table 9: Average Exposure Amount per Exposure Class Exposure Class Average Exposure Amount (EUR 000) Institutions 165 Corporates 667 Other Items 402 Total Operational Risk General Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks. The directors are responsible for managing operational risk. The Company manages operational risk through a control-based environment in which systems are continuously evaluated, maintained and upgraded, processes are documented and transactions are reconciled and monitored. This is supported by continuous monitoring of operational risk incidents to ensure that past failures are not repeated. Capital Requirements The Company applies the Basic Indicator Approach for calculating the amount of capital required under the minimum regulatory capital requirements for operational risk. The minimum capital requirement under this approach, based on the gross-income average of the last two years and projected figures for the next year, amounts to 165 thousand (see Table 10 below for further details). Table 10: Capital Requirement for Operational Risk under BIA Operational Risk (Basic Indicator Approach) Total activities subject to Basic Indicator Approach (BIA) Gross Income (EUR 000) Capital Requirement (EUR 000)

13 1.3 Market Risk General Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company s income or the value of its holdings of financial instruments. Market risk changes in line with fluctuations in market prices, such as foreign exchange rates, interest rates, equities and commodities prices. These market prices affect the Company's income or the value of its holdings of financial instruments. Capital Requirements Currency risk Currency risk results from adverse movements in the rate of exchange on transactions in foreign currencies. The Company is exposed to currency risk on transactions that are denominated in a currency other than its reporting currency. Currency risk is effectively managed by setting and controlling foreign exchange risk limits, such as through the establishment of maximum value of exposure to a particular currency pair, as well as through the utilization of sensitivity analysis. Table 11 below provides further details on the Company s foreign exchange risk exposure: Table 11: RWA and Capital Requirement for Foreign Exchange Risk Market FX risk RWA Capital Requirement All assets & liabilities 5 0 Interest rate risk Interest rate risk is the risk that movements in market interest rates will adversely impact the financial results of the Company. The Company considers interest rate risk to be significantly low. As at 31 December 2013, the Company had no significant exposure to adverse movements in interest rates as its bank deposits consisted solely of current accounts set at fixed interest rates. In addition, the Company does not have a Trading Book. 1.4 Liquidity risk Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Company has procedures with the object of minimizing such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities. 13

14 REMUNERATION The remuneration granted by Keplero Holdings Ltd to Senior Management and staff is set by the Board of Directors. Performance is assessed using a set of criteria that differ according to the position, qualifications and responsibilities of the employee concerned. In 2013 the Company paid both fixed and variable remuneration. Variable remuneration was granted only to certain employees on the basis of the performance of their duties and their overall commitment to the Company. The aggregate remuneration of the Company s personnel for the year ended 31 st December 2013, broken down by business area, is as follows: Table 12: Aggregate Remuneration by Business Area Business Area Aggregate Remuneration Control functions 18 Back office & brokerage 44 Total 62 Control functions include the persons employed in the AML & Compliance and Finance Control functions. Table 13 below provides information on the remuneration of Senior Management and other staff whose activities have a material impact on the risk profile of the Company, broken down by fixed and variable cash remuneration. During 2013 the Company did not provide any non-cash benefits. Table 13: Aggregate Remuneration by Senior Management and Other Staff No. of Beneficiaries Fixed (cash) Remuneration Variable (cash) Remuneration Total Senior Management Other Staff Total Senior Management includes the heads of the business areas presented in Table 12 above, while Other Staff includes the remaining persons employed in these business areas. 14

15 OPERATING ENVIRONMENT The Cyprus economy has been adversely affected over the last few years by the international credit crisis and the instability in the financial markets and therefore the Cyprus government entered into negotiations with the European Commission, the European Central Bank and the International Monetary Fund, in order to obtain financial support. Cyprus government and the Eurogroup (together with the International Monetary Fund) reached an agreement on 25 March 2013 on the key elements necessary for a future macroeconomic adjustment programme which includes the provision of financial assistance to the Republic of Cyprus of up to 10 billion. The Eurogroup decision on Cyprus included plans for the restructuring of the financial sector and safeguards deposits below in accordance with EU legislation. The Eurogroup requested the Cyprio authorities and the European Commission, in liaison with the European Central Bank and the International Monetary Fund, to finalize the Memorandum of Understanding within April 2013, which will then be followed by the formal approval of the Board of Directors of the European Stability Mechanism as well as by the ratification by Eurozone member countries through national parliamentary (or equivalent) approvals. The above developments do not significantly affect the operations, assets and liabilities of the Company since the clients funds of the Company which were initially blocked were later released and available to the Company. 15