FCA Pillar 3 Disclosure

Transcription

1 FCA Pillar 3 Disclosure Introduction Regulatory Context Evoia Capital LLP ( Evoia or the Firm ) is incorporated in the UK and authorised and regulated by the Financial Conduct Authority ( FCA ). As such, the Firm has to comply with (i) the General Prudential Sourcebook ( GENPRU ) and (ii) the Prudential Sourcebook for Banks, Building Societies and Investment Firms ( BIPRU ). This follows the introduction of the Capital Requirements Directive ( CRD ) which represents the European Union s application of the Basel Capital Accord. BIPRU R requires Authorised Firms to publish certain details of their risks, capital and risk management in order to improve transparency and market discipline. Frequency The Firm will be making Pillar 3 disclosures annually on The Accounting Reference Date of Evoia is 31 March. Verification The information contained in this document has not been audited by the firm's external auditors and does not constitute any form of financial statement and must not be relied upon in making any judgement on Evoia or any of its affiliates or subsidiaries. Capital Requirement and Pillars 1, 2 and 3 The FCA classifies Evoia as a BIPRU Limited Licence 50k Firm. The 50k refers to a base capital requirement of 50k. In order to meet the Basel II Pillar 1 minimum capital requirement, Evoia must maintain capital resources equal to or in excess of its Variable Capital Requirement. This is the higher of (i) the Fixed Overhead Requirement or (ii) the sum of the Credit Risk Capital and the Market Risk Capital Requirements. The capital used to meet the 50k base capital requirement can be used to meet any other elements of the capital resources requirement. As a BIPRU limited licence 50k firm there is no need to calculate an Operational Risk Capital Requirement for Pillar 1 purposes. Basel Pillar 2 requires Evoia to ascertain whether it should hold additional capital against risks not covered in Pillar 1 such that Evoia can meet its liabilities as they fall due. As required by the FCA, Evoia has conducted a systematic Internal Capital Adequacy Assessment Process ( ICAAP ) to March In the event that this exercise were to produce a higher capital requirement than Pillar I requirement, Evoia would need to maintain this higher Pillar 2 requirement.

2 Basel Pillar 3 requires Evoia to disclose objectives and policies for each category of risk including strategies and processes to manage risks, risk management functional structure and arrangements, the scope and nature of risk reporting and measurement systems and policies for hedging and mitigating risks on a continuous basis. Evoia chooses to publish its Pillar 3 disclosure requirements on The Firm is subject to the disclosures under the Banking Consolidation Directive; however, it is not a member of a UK Consolidation Group and consequently, does not report on a consolidated basis for accounting and prudential purposes. Governance Framework The Senior Management Committee of Evoia is the Governing Body of the Firm and has oversight responsibility. Typically it meets monthly, but at least quarterly, and is composed of: Mr Adrian Brindle (Managing Member) Mr Mark Arnell Ms Suki Yamamoto The Committee is responsible for the entire process of risk management, as well as forming its own opinion on the effectiveness of the process. In addition, the Committee determines the Firm's risk appetite or tolerance for risk and ensures that the Firm has implemented an effective, ongoing process to identify risks, to measure its potential impact and then to ensure that such risks are actively managed. The Managing Member together with senior management are accountable to the Committee for designing, implementing and monitoring the process of risk management and implementing it into the day-to-day business activities of the Firm. The ICAAP assessment is formally reviewed by the Committee on an annual basis, and amended where necessary, or when a material change to the business occurs. The Designated Members/Finance Director presents the ICAAP document to the Committee which reviews and endorses the risk management, at the same time as reviewing and signing off the ICAAP document. Statement of Risk Appetite and Material Risk Definition The Firm's risk appetite is determined and reviewed by the Committee. Our appetite is driven by a mix of the following factors: - A desire to see the business grow, tempered by the need to continually have a strong and robust infrastructure; and - The industry in which the business operates is a small closely connected industry in which reputation risk is paramount as such caution is exercised in the fields of tax planning, business risk, recruitment procedures etc. Our risk appetite is influenced by the business environment. Our current risk appetite is to take risks in methodical manner with careful thought to the potential downside

3 Its operational objectives include maintaining a regulatory capital cushion significantly above the required minimum. The Firm has consistently met these objectives since FCA Authorisation and commencement of business activities in The Firm's definition of a Material Risk is an unlikely but not impossible event that might result in a loss of capital greater than 5% of Tier 1 Capital. Risk Management Objective The Firm's general risk management objective is to develop systems and controls to mitigate risk to a level that does not require the allocation of Pillar 2 capital. The Risk Framework and Identification Process The Managing Member in consultation with other managers has identified the principal risk factors and categories of risks as applicable to Evoia. These risks are reviewed by the Committee. The Committee of Evoia recognises that it has ultimate responsibility for overseeing risk management. The ICAAP Report and Pillar 3 disclosure are presented to the Committee for approval on an annual basis unless events warrant an interim exercise. Risk Assessment Evoia has identified the significant risk types which have then been assigned High, Medium or Low weights according to perceived impact on the Firm, overall likelihood of occurrence and reference to the Firm's Risk Appetite and definition of Material Risks (see above). Risk Mitigation factors such as detective and preventative controls are then taken into consideration and a resulting risk score derived. As of 31 December 2012 our capital resources were as follows: Capital Resources Capital 31/3/13 '000 Members Capital 1,096 Total Capital Resources net of deductions 1,096 Fixed Overhead Capital Requirement 309 Credit Risk Capital Requirement 250 Market Risk Capital Requirement 0 Total Variable Capital Requirement 559 Capital Surplus 537

4 Significant and Material Risk Evoia has liquid resources in excess of its capital. Credit, Market, Operational and Business risks were systematically identified and risk scores derived. Data is backed up daily and kept offsite. With regard to business risk, the key risk is poor performance of the fund it manages. The most significant Credit Risk is the counterparty risk in the Mercury Securities business line. Credit Risk (BIPRU 3 and also BIPRU R) For its Pillar 1 regulatory capital calculation of Credit Risk, under the credit risk capital component, the Firm has adopted the Standardised approach (BIPRU 3.4) and the Simplified method of calculating risk weights (BIPRU 3.5). The Firm is primarily exposed to Credit Risk from the settlement risk of Mercury Securities counterparties. These are large banks, hedge funds and other professional institutions. The firm has decided to allocate 250k in capital against this risk. This number represents a collateral requirement of its Model B clearing partner. Operational Risk The Firm's Fixed Overhead Requirement ("FOR") is disclosed as a proxy for the Pillar 1 Operational Risk Capital calculation. The Firm's Pillar 1 Capital Resources Requirement is the FOR which is the higher of FOR/the sum of Market Risk and Credit Risk Requirement. Fixed Overhead Requirement GENPRU k The Firm has opted to manage its Operational Risks via two distinct approaches within its overall Pillar 2 risk framework: (a) Key operational risks are specified within the Firm's Pillar 2 Risk framework, with details of any applicable mitigating actions and controls noted in each risk area or context. In the event that any specific residual (post-mitigation) risk is Material, the Firm will assign a corresponding level of capital to mitigate the risk factor. The Firm does not currently consider it necessary to allocate Pillar 2 Capital against its operational risks as identified. (b) The Firm has undertaken an assessment of the minimum capital it would require to hold in the event that it might be required to wind up the business in an orderly fashion such that all liabilities could be met. In our opinion this would be no more than the Pillar I requirement. Market Risk (BIPRU 7)

5 The trading strategies pursued by Evoia involve holding positions for a relatively short period of time which should facilitate a prompt and orderly shut-down. Interest Rate Risk (BIPRU ) The Firm currently has no significant exposure to Interest Rate fluctuations. Concentration Risk (BIPRU 10) The Firm recognises the financial risk involved in holding trading positions which are not proportionate to the gross trading book value. For this reason a number of risk mitigation strategies are adopted, namely: management information showing the largest trading assets and liabilities by value, daily VAR analysis showing the potential loss exposure to the firm, active management participation in reviewing trading exposures and increasing coverage to further diversify the firms trading book. The firm continually reviews both trading book and nontrading book assets, and has in place appropriate mitigation strategies to ensure it is not exposed unduly to single assets, principally being unsettled trades and corporate finance receivables. As per the provisions of BIPRU 10, the firm has no large exposures to be reported to the FCA. Remuneration Evoia has determined that we are a Remuneration Code: Proportionality Level 3 firm and has applied proportionality and, where relevant, has neutralized various provisions of the FCA Remuneration Code. Remuneration Policy Evoia Capital LLP operates as a single business unit and therefore remuneration will reflect at least in part the overall profitability or otherwise of the firm. Partners receive their remuneration in the form of non-guaranteed profit share. Part of this is discretionary, dependent on the availability of profit, and determined by the senior management committee. Employees are paid a fixed salary and a discretionary bonus, the level of which is also determined by the committee. The discretionary element of profit share for partners and bonuses for employees is limited by available profits. Evoia s Senior Management Committee has been in existence since the formation of the firm in Pay and performance All partners and employees are part of an annual appraisal process which includes the setting of objectives each year and subsequent assessment against those objectives. In addition to the results of the annual appraisal process, the profitability of the area of business in which the partner or employee is involved may be taken into account by the remuneration committee, along

6 with other relevant factors, primarily the overall profitability of Evoia Capital LLP during the year in question. Code Staff The Senior Management Committee carries out an annual assessment of those partners and employees who control the firm and / or could affect its risk profile. For the year ended 31 st March 2013 the committee identified two individual senior partners of Evoia Capital LLP as Code Staff. Aggregate remuneration The aggregate remuneration of the partners of Evoia Capital LLP for the year ended 31st March 2013 is fully disclosed in the financial statements which are publicly available at Companies House. Remuneration for partners and employees is paid wholly in cash. Securitisation This disclosure is not required as the Firm does not securitise its assets. The UK Stewardship Code Under Rule 2.2.3R of the FCA s Conduct of Business Sourcebook, Evoia is required to make a public disclosure about the nature of its commitment to the UK Financial Reporting Council's UK Stewardship Code (the "Code") or, where it does not commit to the Code, its alternative investment strategy. The Code is a voluntary code and sets out a number of principles relating to engagement by investors with UK equity issuers. Investors that commit to the Code can either comply with it in full or choose not to comply with aspects of the Code, in which case they are required to explain their non-compliance. As a fiduciary and alternative investment fund manager, Evoia has a duty to act in the best interests of all investors and our aim is to protect and enhance returns in line with a fund s investment guidelines and objectives and any specific risk tolerances specified within a fund s Offering Memorandum. Accordingly, while Evoia supports the objectives that underlie the Code, it has chosen not to commit to the Code. As a FCA authorised firm, we have adopted a Conflicts of Interest Policy which is available on request.