PILLAR 3 DISCLOSURE 31ST December 2013

Transcription

1 PILLAR 3 DISCLOSURE 31 ST December

2 BIPRU 11 Pillar 3 disclosure Background The Capital Requirements Directive ( CRD ), which represents the European Union s implementation of the Basel II Accord, established a regulatory framework consisting of three Pillars. The focus of each of the Pillars are listed below: Pillar 1 Pillar 2 Pillar 3 The basis of the minimum capital required to meet the firm s credit, market and operational risks. Requires a firm to undertake an Internal Capital Adequacy Assessment Process ( ICAAP ) to establish whether it s Pillar I capital is adequate to cover all the risk it faces, and, if not, to calculate an additional amount of capital required. The ICAAP is subject to review by the FCA through a Supervisory Review and Evaluation Process. Requires a firm to disclose specific information concerning its risk management policies, procedures and its regulatory capital position The CRD has been implemented through the rules of the Financial Conduct Authority ( FCA ), specifically the FCA s Prudential Sourcebook ( GENPRU ) and Prudential Sourcebook for Banks, Building Societies and Investment Groups ( BIPRU ). BIPRU 11 (11.2.1R) sets out the provisions governing Pillar 3 disclosures. 2

3 Introduction GF Financial Markets (UK) Limited ( GFFM ) is authorised and regulated by the Financial Conduct Authority ( FCA ) and is classified as an exempt BIPRU commodities firm which is currently exempt from the capital requirements of the CRD. This exemption expires on 31 st December As the company is exempt from these capital requirements, GFFM continues to calculate its regulatory financial resources in accordance with the Chapter 3 of the FCA's IPRU (INV) rulebook. In addition to these financial rules, GFFM is also required to comply with Chapter 11 of the FCA's Prudential Sourcebook for Banks, Building Societies and Investment Firms ('BIPRU 11') and to make certain disclosures to market participants, known as Pillar 3 disclosures. GFFM, formerly Natixis Commodity Markets Limited, had a change in control on 23 rd July 2013 when it was acquired by GF Futures (Hong Kong) Co., Limited, part of the GF Securities Group, a listed Chinese Securities firm regulated by the Chinese regulator, the CSRC. Prior to this change, the business conducted by the Company had ceased, a process that started in mid GFFM did not trade as at 31 st December Disclosure Policy The Board of GFFM has adopted a formal procedure, in accordance with BIPRU , to review and approve the company s Pillar 3 disclosures on an annual basis. These disclosures are made available on the Company s website. In accordance with BIPRU , GFFM may omit information listed under BIPRU 11.5 if such information is deemed to be immaterial. Further, if the required information under BIPRU 11.5 is deemed to be proprietary or confidential then the Company is permitted to exclude it from the disclosure. The Board of GFFM review any such omissions as part of the approval process. 3

4 Basis of Disclosure GFFM is a subsidiary of GF Futures (Hong Kong) Co., Limited, a Hong Kong registered company. There is no UK consolidation group as defined under BIPRU. This disclosure is therefore made on an individual basis. PILLAR 3 Disclosures Risk Management In accordance with BIPRU the risk management objectives and policies of a firm must be disclosed for each individual category of risk including those specified in BIPRU to GFFM s risk management focuses on the key areas of liquidity risk, market risk, credit risk, and operational risk. As at 31 st December 2013 GFFM has not commenced business following it change of ownership in July At 31 st December 2013 the firm has no market or credit risks to report. As specified in the GFFM Corporate Governance Policy, authority is delegated by the Board of GFFM to the committees: - Risk & Compliance Committee - Audit & Finance Committee - Remuneration Committee - Credit Committee Financial resources As at the 31 st December 2013 the capital resources of the company, being the paid up share capital plus P&L reserves, less any intangible assets, amounted to $31,326,000. As at 31 st December 2013 there were no eligible capital substitutes. 4

5 Financial Resources Requirement The financial resources requirement is made up of the following: 1. Primary Risk Requirement, including Liquidity Risk Liquidity Risk Liquidity Risk is defined as the risk that a firm does not have available sufficient financial resources to meet its obligations as they fall due. The granting of credit lines, as well as trading activities, exposes the Company to such liquidity risk. However, the Company manages this risk to ensure it has sufficient resources available to deal with such risk as it arises. The Company conducts periodic stress tests based on extreme conditions to ensure that adequate resources are available. Interest rate risk represents the sensitivity of the Company s profitability to changes in interest rates, for which the Company employs various procedures to manage this risk. i) Base requirement (Rule 3.71) This is the higher of the following: Absolute minimum requirement ( 100,000 for a Broadscope firm) The Annual Expenditure Requirement ( AER ), being 3 months of relevant costs The Volume of Business Requirement ( VBR ) ii) Liquidity Adjustment (IPRU-INV Rule 3.75) The liquidity adjustment disallows certain items including intangible assets, fixed assets and prepayments (greater than 90 days). As at 31 st December 2013, the primary requirement is $4,827,000. 5

6 2. Market Risk Market risk is the risk arising from adverse movement in commodity prices, interest rates and foreign exchange rates. The Company is exposed to commodity price risk when it takes proprietary positions and from facilitating customer business. The Company has Board approved limits set to manage this commodity price risk which are monitored on a daily basis and are reviewed as required. Positions are marked to market on a daily basis. In accordance with the FCA Chapter 3 rules, the Company calculates the following: i) Position Risk Requirement ( PRR ) The Company calculates its PRR on all its commodity positions, with the exception of gold which is treated as a currency under FCA rules and within the FER calculation, using the Extended Maturity Ladder approach (IPRU-INV 3.169). As at 31 st December 2013, due to the Company not transacting any business, the commodity Position Risk Requirement was $Nil. ii) Foreign Exchange Requirement ( FER ) The FER is a calculation of the risk arising from assets and liabilities denominated in currencies (and gold) different from the Company s functional currency (US Dollars). As at 31 st December 2013 the Company s FER was $107, Credit Risk Credit risk is the risk that a customer will default on its contractual obligations with GFFM such that GFFM will suffer a financial loss. In order to mitigate this risk the Company may require the customer to deposit a cash margin or other forms of acceptable collateral, including making daily and intraday margin calls. Credit lines issued to customers are approved internally in accordance with the Company s ACMP (Approved Credit Management Policy). The Company s Credit Committee is chaired by the CEO. 6

7 Customer positions are marked to market on a daily basis (and intra-day when required) to ensure that customer positions remain within their credit lines or collateral deposited with the Company. Customer balances, including the customer s open forward positions on a marked to market basis, are reported in the Company s balance sheet under Trade debtors and Trade Creditors. In accordance with accounting standards, customer marked to market forward balances are reported to reflect how the cash flows are settled, by separately by prompt date and currency, subject to the required netting provisions. No geographical or sector type analysis of these exposures has been disclosed as the directors consider this information to be confidential. Counterparty Risk Requirement ( CRR ) In accordance with FCA rules the Company calculates its CRR on customer exposures on a daily basis, including any additional capital charge arising from any concentration risk to one individual counterparty. As at 31 st December 2013, due to the Company not trading, the Company s CRR was $Nil. 4. Operational Risk Operational risk is the risk of financial or reputational loss resulting from inadequate or failures in internal controls, operational processes or any of the systems or people that support them. This includes errors, omissions and deliberate acts including fraud. The Company, as a regulated entity, seeks to ensure that proper processes and procedures are in place and that staff are trained to minimise this risk. The Company is currently not required to calculate an operational risk capital requirement as it is exempt from the capital requirements under CRD. 7

8 REMUNERATION DISCLOSURES The FCA has amended BIPRU 11 to include the requirement for disclosure of the Company s approach to linking remuneration to risk. The level of disclosure is dependent on the size, internal organisation, scope and complexity of its business. FCA guidance specifies four tiers, with GFFM classified under the FCA s Remuneration Code (the Code ) as a Tier 3 firm. The Company s remuneration policy is established and monitored by the Remuneration Committee. This policy is designed to ensure that risk taking is not encouraged other than within the parameters approved by the Board and together with the Company s internal control procedures to ensure effective management of risk. The Code requires the Company to consider the processes and procedures for senior staff who are covered by the Code and whose professional activities have a material impact on the Company s risk profile ( Code Staff ). Code Staff includes senior management, risk takers, staff involved in control functions and any member of staff receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers and whose professional activities have a material impact on the Company s risk profile. Fixed remuneration GFFM has an annual review process for staff. Each individual employee s performance for the previous year is appraised by their line manager. Fixed remuneration is benchmarked to market rates taking into account the level of responsibility, seniority and experience and is reviewed annually, taking into account conduct, market trends and performance, as well as the need to retain key personnel. 8

9 Variable Remuneration Variable remuneration is in the form of a discretionary bonus and is dependent on various factors, including the Company s profitability, business development and other nonmonetary targets set by senior management of its parent Group. Financial and nonfinancial factors are considered in the assessment which includes performance, conduct, facilitating the Company s development and growth, teamwork and the need to retain key members of staff. As part of the re-establishment of the business, following the change of control, certain Code Staff were provided a guaranteed bonus for the period to 31 st December 2013, totalling USD $171,000. Aggregate quantitative information on remuneration, broken down by business area GFFM is a small Tier 3 firm that has only one business area. The Company s aggregate remuneration (including pension) for the period post change of control (from 23 rd July 2013) was $1,508,000 (excluding employers national insurance). Aggregate quantitative information on remuneration, broken down by senior management and members of staff who have a material impact on the risk profile of the firm GFFM is a small Tier 3 firm and as such considers that public disclosure of this information will result in individual information being easily identifiable with no public benefit. All necessary information will be made available to the FCA on request. 9