DISCLOSURE AND MARKET DISCIPLINE. Banc de Binary Ltd MAY 2014

Transcription

1 DISCLOSURE AND MARKET DISCIPLINE Banc de Binary Ltd MAY 2014 ACCORDING TO CHAPTER 7 (PAR.34-38) OF PART C AND ANNEX XII OF THE CYPRUS SECURITIES AND EXCHANGE COMMISSION S DIRECTIVE DI of 2012 FOR THE CAPITAL REQUIREMENTS OF INVESTMENT FIRMS

2 CONTENTS 1 GENERAL INFORMATION AND SCOPE OF APPLICATION RISK MANAGEMENT AND GOVERNANCE OF THE COMPANY OWN FUNDS CAPITAL REQUIREMENTS Credit Risk Operational Risk Market and Liquidity Risk REMUNERATION Quantitative data

3 1 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 Banc de Binary Ltd ( the Company ) discloses herein relates to the year ended 31 December Company Incorporation and Principal Activities The Company performs financial transactions on behalf of clients using an internet platform which specializes in trading binary options for European Union customers. On the 7 th of January 2013 the Company received authorization from the Cyprus Securities and Exchange Commission( CySEC ) to operate as Cyprus investment firm under CIF license number 188/13, while at the same time it is registered with global regulatory authorities including the FSA, FSB and other EEA financial licensing bodies. The Company is authorized to provide the following investment and ancillary services, in the financial instruments listed below: Core Services Ancillary Services Financial Instruments Reception and transmission of orders in relation to one or more financial instruments Execution of orders on behalf of clients Safekeeping and administration of financial instruments, including custodianship and related services 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) 3

4 Portfolio management Investment advice Granting credits or loans to one or more financial instruments, where the firm granting the credit or loan is involved in the transaction 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 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 is authorized to provide ancillary 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 policies and procedures on an annual basis. The disclosures are published on the website of the Company five months after the financial year end, according to its policy. 4

5 Scope of the Disclosures As at 31 December 2013, the Company did not have any subsidiaries or branches. As a result, the disclosures in this document relate solely to information of the Company. 2 RISK MANAGEMENT AND GOVERNANCE OF THE COMPANY The Board of Directors is responsible for overlooking the operations of the Company. With respect to the management of risk, it has overall responsibility for the establishment and oversight of the Company s risk management framework. The major duties of the Board of Directors of Banc de Binary Ltd are: To carry the overall responsibility for proper implementation of the relevant Laws/regulations To formulate the Company s business strategy in terms of the development of existing and new services and the Company s presence in the local and international financial markets To govern the Company by broad policies and objectives, formulated and agreed upon by the chief executive and employees To ensure that sufficient resources are available to the Company to carry out its operations To be responsible for the overall duties and responsibilities of the Anti-Money Laundering / Compliance Officer (MLCO) To define, record and approve the general policy principles of the Company in relation to the prevention of money laundering and terrorist financing To notify the Company s policy for the prevention of money laundering and terrorist financing to the MLCO To approve the Company s risk management and procedures To establish a clear and quick reporting chain for transmission of information to the MLCO To assess the Money Laundering function To assess and approve the annual report of the MLCO To assess the Internal Audit Department s members and the efficiency of the mechanisms of internal control To assess the Compliance Function To evaluate and adopt strategies to improve the operation of the internal audit mechanism To review written reports regarding Compliance, Risk Management and Internal Audit To approve the Company s financial statements To review the suitability report prepared by the Company s external auditors To take decisions on important matters of the Company during Board meetings 5

6 Also responsible for the Company s internal control system and the management of its risks are the following: Risk Management Department Anti-Money Laundering / Compliance Officer Internal Audit Function (outsourced) Risk Management Department The Risk Management Department implements the Risk Management Policy of the Company, as set by the Board of Directors, and ensures that it is properly followed under the supervision and control of the Risk Manager. The Board of Directors is responsible for the appointment of the Risk Manager to head the Risk Management Department, which operates independently. The Risk Manager s responsibilities include, amongst others, the following: Identifying and evaluating the fundamental risks faced by the Company Adopting and implementing effective arrangements and procedures to manage all types of risks that arise due to the Company s operations in respect of the level of risk tolerance Monitoring the adequacy and effectiveness of the Company s risk management policies and procedures Monitoring the adequacy and effectiveness of measures taken to address any deficiencies relating to policies, procedures, arrangements, processes and mechanisms Producing all required reports related to the Company s risk exposure as well as the documents required by the Law to be submitted to CySEC and filing records of them Providing advice to the Senior Management of the Company in relation to any potential deficiencies and suggestion of remedial measures so as the Company to be in full compliance with the Law Performing quarterly review of the effectiveness of internal control systems and provision of relevant report to the Senior Management. Anti-Money Laundering/Compliance Officer The Anti-Money Laundering / Compliance Officer reports directly to the Board of Directors and is responsible, amongst others, for: Designing the internal practice, measures, procedures and controls relevant to the prevention of money laundering and terrorist financing, and describing and explicitly allocating the appropriateness and the limits of responsibility of each department that is involved in the abovementioned Developing and establishing the customer acceptance policy and submitting it to the board of directors for consideration and approval Preparing a risk management procedures manual regarding money laundering and terrorist financing 6

7 Monitoring and assessing the correct and effective implementation of the policy, the practices, measures, procedures and controls and in general the implementation of the risk management procedures manual mentioned above Receiving information from the Company s employees which is considered to be knowledge or suspicion of money laundering or terrorist financing activities or might be related with such activities Evaluating and examining the information received from the Company s employees by reference to other relevant information and discussing the circumstances of the case with the informer and where appropriate with the informer s superiors. The evaluation of this information is done on the Internal Evaluation Report Notifying MOKAS in the case where the evaluation of the information available requires so Internal Audit The Internal Audit function is outsourced to an external firm. The Internal Audit function is responsible for: Examining the business cycle of the Company via audits within the departments Ensuring compliance with the laws and regulations governing the business of the Company Ensuring compliance with the Code of Conduct and the policies and procedures manuals of the Company Recommending possible measures and actions to be taken to prevent mistakes, errors and incidents of non-compliance Verifying 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 money laundering activities It is an independent unit reporting directly to the Board of Directors through a written internal audit report prepared on an annual basis. 3 OWN FUNDS The Own Funds of the Company as at 31 December 2013 consisted solely of Tier 1 capital are analyzed in Table 3.1 below: Table 3.1: Capital Base 31 December 2013 ( 000) Original Own Funds (Tier 1) Share Capital 2 7

8 Share Premium 198 Retained Earnings (249) Audited income for the year 258 Total Eligible Own Funds before deductions 209 Deductions from Own Funds Intangible Assets (12) Excess over Large Exposure Limits in the Banking Book (248) Total Eligible Own Funds after deductions (51) Authorised Share Capital Under its Memorandum the Company fixed its share capital at ordinary shares of nominal value 1 each. Issued Share Capital and Share Premium As at 31 December 2013, the Company had issued ordinary shares of nominal value 1 each, and share premium amounting to Large Exposures in the Banking Book and Capital Adequacy Ratio At year end, the Company s total exposure to Piraeus Bank amounted to , which exceeded the large exposure limit (100% of own funds) by At the same time, the Company s total exposure to the Investor Compensation Fund exceeded the large exposure limit (25% of own funds) by As a result, the total excess over the large exposure limits in the Banking Book was deducted from own funds, as per the requirements of CySEC. This caused own funds to decrease to minus , and the capital adequacy ratio to drop to minus 1,32%. The Company has taken immediate measures to remedy the situation and has already increased its ordinary share capital to In addition, the Company has opened accounts with other banks and is in the process of transferring cash balances out of Piraeus and into these accounts, with the purpose of eliminating its large exposure to Piraeus Bank. As a final measure, the Company intends to perform an interim audit of the profit made during 2014, in order to further increase its capital base. These actions are scheduled to be finalized by the end of June

9 4 CAPITAL REQUIREMENTS Minimum regulatory capital requirements The total capital requirements of the Company as at 31 st December 2013 were 310 thousand and are analyzed in Table 4.1 below: Table 4.1: Minimum Capital Requirements Risk Category 31 December 2013 ( 000) Credit Risk 38 Foreign Exchange Risk 1 Operational Risk 271 Total Credit Risk General Credit risk arises when a failure by counterparties 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 to other counterparties from which it records some receivables. Capital Requirements The Company follows the Standardised Approach for the calculation of the minimum capital requirements for credit risk. Table 4.2 below presents the allocation of credit risk by exposure class: Table 4.2: Exposure Classes and Minimum Capital Requirements Exposures at 31 December 2013 Average Exposure Total Exposure Value Minimum Capital Requirements 9

10 Value Exposure Class ( 000) ( 000) ( 000) Institutions Corporates Other Items Total Table 4.3 presents the exposures of the Company per risk weight. We note that the Company does not keep any collateral in relation to its credit risk exposures. Table 4.3: Exposure amount per risk weight Risk Weight Exposure Amount ( 000) 0% 1 20% % 433 Total 631 Risk Weighted Assets and Credit Quality Steps ( CQS ) Institutions For the credit ratings of institutions the Company has used the ratings of Standard & Poor s. Exposures to Cyprus institutions were allocated into CQS 5 while exposures to UK institutions corresponded to CQS 1, based on the Central Government Risk Weight based method and the credit rating mapping rules of the Directive. Corporates Exposures to corporates were unrated. As a result, a 100% risk weight was used. Other Items A risk weight of 100% has been applied to all other items, except for petty cash which received 0% risk weight. 10

11 Table 4.4 below analyses the Company s credit risk exposures by residual maturity: Table 4.4: Exposure Classes and Residual Maturity Exposures at 31 December 2013 Maturity 3 months Maturity > 3 months Total Exposure Class ( 000) ( 000) ( 000) Institutions Corporates Other Items Total Table 4.5 presents the geographic distribution of the Company s exposures, by exposure class: Table 4.5: Exposure classes by Country Exposures at 31 December 2013 Cyprus Other Total Exposure Class ( 000) ( 000) ( 000) Institutions Corporates Other Items Total Table 4.6 below presents the breakdown of the Company s exposures into industry sectors, analyzed by exposure class: Table 4.6: Breakdown of Exposures into Industry Sectors Financial Other Total Exposure Class ( 000) ( 000) ( 000) Institutions

12 Corporates Other Items Total Impairment of assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. As at 31 December 2013 the Company had not recognized any impairment losses nor had it made any provisions. 4.2 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 outlined above. The directors are responsible for managing operational risk. Capital Requirements The Company applies the Basic Indicator Approach for calculating the minimum amount of capital required for Operational Risk. As at 31 December 2013, the minimum capital requirements under this approach, and based on the gross-income average of the last three years, amounted to 271 thousand. 12

13 4.3 Market and Liquidity Risk General 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 Market Risk Foreign Exchange Risk Foreign Exchange Risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Foreign Exchange risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company's measurement currency. The Company's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. 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 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 holds in separate accounts all the funds of its clients. Therefore, the Company considers liquidity risk to be significantly low. Capital Requirements The Company does not trade on own account. As a result, it does not have a trading book. The Company calculates its capital requirements on currency risk only. As at 31 December 2013, the Company s capital requirement against currency risk amounted to Operating Environment of the Company 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 13

14 entered into negotiations with the European Commission, the European Central Bank and the International Monetary Fund, in order to obtain financial support. Cyprus 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 Cypriot 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 states through national parliamentary (or equivalent) approvals. On 22 March 2013 the House of Representatives voted legislation relating to capital controls affecting transactions executed through banking institutions operating in Cyprus. The extent and duration of the capital controls is decided by the Minister of Finance and the Governor of the Central Bank of Cyprus and were enforced on 28 March The Company s management is monitoring the developments in relation to these capital controls and is assessing the implications on the Company s operations. On 25 March 2013, 10 days after the Eurogroup decision for the bailout of Cyprus was first announced (and subsequently rejected by the Cypriot parliament), a revised bailout plan was agreed. The total bailout package amounted to approximately 23 billion, out of which 10 billion was provided by the Troika. In addition, a radical restructuring of the country's two largest banks - Bank of Cyprus and Cyprus Popular (or Laiki) Bank, was deemed necessary due to their systemic importance for the local banking sector, and was funded exclusively with own means through the application of a haircut on uninsured depositors (i.e. those with deposits over the limit covered by the EU deposit guarantee scheme) amounting to 47,5% and 100% of the uninsured amount for Bank of Cyprus and Laiki Bank respectively, the absorption of the latter by the former and the reduction of the banks work force through voluntary retirement plans, among other measures. On 31 of July, the restructured Bank of Cyprus was taken out of resolution upon the finalization of its assets valuation. The authorities have embarked on a strategy to restructure cooperative credit institutions in order to address a 1,5 billion capital shortfall. The aim of the restructuring plan for the cooperative sector is to merge individual cooperative credit institutions into a maximum of 18 entities by March Hellenic Bank, now the second largest bank in Cyprus following the transfer of Laiki Bank's Cyprus business to the Bank of Cyprus, has launched a 300 million capital-raising plan in order to avoid recourse to state aid, which has been accomplished successfully. A failure of the current capital-raising plan could have resulted in a mandatory bail-in to close the bank's capital shortfall. Troika plans to realistically reflect the anticipated deleveraging in the banking sector and reduce dependency on borrowing from the Central Bank, while avoiding asset fire sales and a credit crunch. 14

15 The above developments do not significantly affect the operations, asset and liabilities of the Company. 5 REMUNERATION The remuneration levels of Banc de Binary Ltd are set by the Senior Management and the Board of Directors. Performance is assessed using a set of criteria that differ according to the position and responsibilities of the employee concerned. The Remuneration of employees in 2013 consisted of fixed monthly salaries as well as a variable component, which was determined based on the employee s performance and execution of his/her duties. 5.1 Quantitative data Table 5.1 shows the aggregate remuneration of the Company s personnel for the year ended 31 December 2013, broken down by business area: Table 5.1: Aggregate Remuneration by Business Area 31 December 2013 ( 000) Business Area Aggregate Remuneration Control Function 97 Brokerage Department 565 IT Department 22 Portfolio Management & Investment Research Department 29 Total 713 Control functions include the Compliance Department, the Accounting Department and the CEO. Table 5.2 shows the aggregate remuneration, broken down by Senior Management & Executive Directors and members of staff whose actions have a material impact on the risk profile of the Company: Table 5.2: Aggregate Remuneration by Senior Management & Executive Directors and Other Staff 31 December 2013 ( 000) Personnel No. of people during 2013 Fixed (Cash) Variable (Cash) Aggregate Remuneration Senior Management & Executive Directors Other Staff Total

16 The Company did not pay any non-cash remuneration during Senior Management consists of the heads of the departments presented in Table 11 above, while Other Staff includes the personnel employed in the aforementioned departments. 16