Brewin Dolphin Holdings PLC Pillar 3 Disclosures 2017
TABLE OF CONTENTS 1. Executive Summary... 3 2. Company Overview... 3 3. Regulatory Framework... 4 4. Scope of Application... 5 5. Frequency of Disclosure... 5 6. Means of Disclosure... 5 7. Risk Management Objectives and Policies... 6 8. Own Funds... 8 9. Regulatory Capital Requirements... 9 10. Credit Risk... 10 11. Market Risk... 12 12. Operational Risk... 13 13. Liquidity Risk... 14 14. Remuneration Policy... 14 2
1. EXECUTIVE SUMMARY The purpose of Pillar 3 disclosures is to provide information on the risks, capital and risk management arrangements of Brewin Dolphin ( the Group ). As at 30 September 2017, the Group s: Total capital resources ( 165m) exceeded Pillar 1 capital requirements ( 43m) Total capital ratio (30.6%) sufficiently exceeded the own funds requirement (8%) 2. COMPANY OVERVIEW The Group is a leading independently-owned Wealth Manager, with a network of branches in the United Kingdom, Channel Islands and the Republic of Ireland. As at 30 September 2017, the Group managed a total of 40.1 billion of funds, of which 33.8 billion is on a discretionary basis. 1.1 GROUP STRUCTURE The Group is controlled by Brewin Dolphin Holdings PLC ( BDH ), a FTSE 250 listed company incorporated in the United Kingdom. BDH consists principally of two wholly owned regulated trading subsidiaries: Brewin Dolphin Limited ( BDL ), regulated by the Financial Conduct Authority ( FCA ); and Tilman Brewin Dolphin Limited ( TBD ), regulated by the Central Bank of Ireland. The Group s lead regulator is the FCA. The Group has one unregulated trading subsidiary (Brewin Dolphin MP), which holds the Group s seed capital investment in regards to model portfolios. All other Group companies are dormant 1. Refer to figure 1 below for details of the Group s legal structure. Figure 1 - Group Legal Structure 2 1 During the year, the group acquired BDDL Limited (formerly Duncan Lawrie Asset Management Limited) and transferred its business into BDL, before making the entity dormant 2 Excluding dormant and nominee companies 3
1.2 NATURE OF BUSINESS The Group provides personalised wealth and investment management services, primarily centred on helping clients to manage their investments and plan their finances to achieve their goals. The Group s services are accessed either directly or indirectly, as follows: Direct access: private individuals, charities and corporates (including pension funds); and Indirect access: intermediaries where the Group provides investment management services for the intermediaries; the underlying clients are typically private individuals. To ensure that financial solutions are precisely tailored to clients needs and aspirations, the Group offers a range of services focused on investment management and financial planning. Refer to the Our Services section of the Annual Report and Accounts 2017 3 for a complete list of services offered to clients. 1.3 BUSINESS STRATEGY The Group s vision is to become the UK s leading provider of personalised wealth and investment management services, delivering a compelling client proposition, rewarding careers and sustainable shareholder returns. It aims to achieve this vision by taking an integrated, advice-led approach to protecting and growing clients wealth, combining its experience and expertise in financial planning and investment management. Doing so helps to build a highly personalised and high-quality service to ensure that the trust of clients can be earned and long-term client relationships established - a competitive advantage that adds value to the business through the generation of new leads via referrals and brand enhancement. Refer to the Our Strategy section of the Annual Report and Accounts 2017 for further details of the Group s strategy. 3. REGULATORY FRAMEWORK The Capital Requirements Directive IV ( CRD IV ) of the European Union established a revised regulatory capital framework across Europe, which governs the amount and nature of capital that credit institutions and investment firms must maintain, and the manner in which capital resources and requirements are disclosed. This framework primarily consists of three pillars : Pillar 1: outlines the minimum capital requirements firms are required to meet for credit, market and operational risk; Pillar 2: requires firms to assess the amount of internal capital they consider adequate to cover all of the risks to which they are, or are likely to be, exposed. In the UK this is implemented through the Internal Capital Adequacy Assessment Process (ICAAP) undertaken by the Group; and 3 The Annual Report is available via: http://www.brewinmedia.co.uk/investor-relations 4
Pillar 3: requires firms to publicly disclose certain details of their risks, capital and risk management arrangements. A detailed assessment of the requirements under Pillars 1 and 2 has been completed through the Group s ICAAP, which is reviewed periodically by the FCA. The disclosures outlined in this document meet the obligation with respect to Pillar 3 and the requirements outlined in Articles 431-455 of the Capital Requirements Regulation ( CRR ). 4. SCOPE OF APPLICATION The capital reporting requirements outlined in section 3 apply to the Group. The Group has two regulated entities, BDL and TBD, which are IFPRU 125k Limited Licence Firms. For accounting and prudential purposes, BDL and TBD are fully consolidated into the Group. All disclosures in this document are for the year ended 30 September 2017. 5. FREQUENCY OF DISCLOSURE The Group publishes Pillar 3 disclosures on at a least an annual basis in conjunction with the date of publication of the financial statements. Given the scale and range of its operations and complexity, the Group currently assesses that there is no need to publish some or all of its disclosures more frequently than annually. 6. MEANS OF DISCLOSURE Disclosures have been compiled to satisfy those required under Pillar 3 and have not been audited. Where the equivalent disclosures have been made in the Annual Report and Accounts 2017, this document indicates where they can be found. The Group publishes its Pillar 3 disclosures on its website. TBD Pillar 3 disclosures are published separately on its own website, as it is regulated by the Central Bank of Ireland. 5
7. RISK MANAGEMENT OBJECTIVES AND POLICIES Effective risk management is key to the success of delivering our strategic objectives. The primary objectives of risk management at Brewin Dolphin are to ensure that there is: A strong risk culture so that employees are able to identify, assess, manage and report against the risks the business is faced with; An appropriate balance between risk and the cost of control; A defined risk appetite within which risks are managed; and A swift and effective response to incidents in order to minimise impact. An effective Risk Management Framework is a fundamental requirement for good governance and requires every employee within the organisation to adhere to and advocate the risk culture we set. Within the Risk Management Framework, a Policy Framework ensures principles, rules and guidelines are set to appropriately and adequately manage risks. Figure 2 Overall Risk Management Framework 6
8.1 GOVERNANCE STRUCTURE The Board has ultimate responsibility for the effectiveness of risk management within the Group. Therefore, it has put in place a robust Risk Management Framework, applying the industry standard three lines of defence model. The first line is the business that owns and manages the risk, the second line is the control functions and the third line is independent assurance provided by Group internal audit. The implementation of this model and the corresponding review of management information on the component elements, enable the Board to achieve an appropriate balance between ensuring robust corporate governance to protect clients and other stakeholders and achieving value for shareholders. The Group s governance model uses a hierarchy of Board level and Executive level committees within a three lines of defence model as part of a robust governance framework (see figure 2 above). 8.2 RISK APPETITE STATEMENT Risk appetite is an assessment of a firm s willingness to take risk to achieve its strategic objectives. The Group has set Risk Appetite Statements against each Key Risk with Key Risk Indicators in place to monitor exposure against appetite. This is a fundamental element of the Risk Management Framework. The risk appetite statements are owned, updated, reviewed and re-approved at least annually by the Board of Directors (the Board) of BDH. The Board has delegated oversight of the statements to the Board Risk Committee. 7
8. OWN FUNDS A reconciliation of the Group s 2017 audited financial statements to regulatory own funds is shown in figure 3 below. Figure 3 Reconciliation of Own Funds The Group s Own Funds are identical to its Regulatory Capital Resources. Refer to note 28 Financial instruments and risk management of the Annual Report and Accounts 2017 for further details of the Group s regulatory capital requirements. 9.1 TIER 1 CAPITAL In 2017, the Group s entire capital base comprised of Tier 1 Capital, being 165m (2016: 164m). This included: Share capital, share premium, merger reserves and retained earnings; less Own shares, intangible assets and defined benefit pension scheme assets (both net of deferred tax liabilities), revaluation reserve and free deliveries. In 2017 the Group did not hold any Tier 2 Capital (2016 nil). 8
9. REGULATORY CAPITAL REQUIREMENTS The Group s overall regulatory capital requirements are determined after performing Pillar 1 capital calculations (refer to section 10.1), assessing Pillar 2 capital requirements (refer to section 10.2) and taking into account any Individual Capital Guidance ( ICG ) or fixed addons issued by the FCA. The calculation of Pillar 1 and Pillar 2 capital requirements allows the Group to determine, and subsequently monitor, the appropriate amount of capital to be held based on its risk profile. The Group s capital requirement is determined by taking the sum of: i) the higher of Pillar 1 and Pillar 2 capital requirements and ii) if applicable, any additional ICG or fixed addon proposed by the FCA. During the financial year ended 30 September 2017, the Group maintained surplus capital resources at all times to satisfy minimum capital requirements. 10.1 PILLAR 1 REGULATORY CAPITAL REQUIREMENT As per CRD IV, the Group is required to meet Pillar 1 capital requirements set out in the CRR, being 43.3m (2016: 43.0m). This is calculated as the higher of the: i) fixed overheads requirement and ii) sum of the market and credit risk capital requirements. Refer to figure 4 below for further details. Figure 4 Pillar 1 Capital Requirement 10.2 PILLAR 2 REGULATORY CAPITAL REQUIREMENT Pillar 2 requires firms to assess the amount of internal capital they consider adequate to cover all of the risks to which they are, or are likely to be, exposed to. It also requires firms to consider the costs associated with winding down the Group (Orderly Wind Down) and various stressed scenarios (market-wide, idiosyncratic and combined stress tests). Pillar 2 capital requirements are outside the scope of this disclosure document. 9
10.3 COMMON EQUITY RATIOS As per CRR Article 92, the Group must at all times satisfy the following own fund requirements: Common Equity Tier 1 capital ratio of 4.5%; Tier 1 capital ratio of 6%; and Total capital ratio of 8%. It requires these ratios to be calculated with regards to the total risk exposure amount, being 12.5 multiplied by the Pillar 1 requirement, being 540.6m for the Group (2016: 537.7m). As at 30 September 2017, the Group s total capital ratio of 30.6% (2016: 30.5%) was over the minimum requirement. Refer to figure 5 below for details of the Group s total capital ratio. Figure 5 Total Capital Ratio 10. CREDIT RISK Credit risk refers to the risk that a client and/or other counterparty, will default on its contractual obligations, thus resulting in financial loss to the Group. Exposures to credit risk arise principally from UK exposures surrounding: Firm cash deposited with banking counterparties ( banking counterparty risk ). Refer to section 11.1 for further details; and Clients and/or market counterparties ability to fulfil contractual obligations ( other credit risks ). These risks are primarily associated with trade and other receivables, deferred tax assets, trading investments, available-for-sale assets and property, plant and equipment. Refer to section 11.2 for further details. Credit risk is calculated under the Standardised Approach as per Article 107, whereby the credit risk exposure of an asset is equal to its accounting value less credit risk adjustments. Credit risk adjustments include the exclusion of bank overdraft facilities, pending trade settlements and intangible assets. The Group uses credit assessments from the External Credit Assessment Institutions ( ECAIs ), Moody s, Standard and Poor s and Fitch, to assign each exposure to a credit quality step, from which a risk weight can be assigned. To achieve this, the Group follows the approach set out in Part 3, Title II, Chapter 2 of the CRR. Refer to figure 6 and 7 below for details of the Group s credit risk requirement by balance sheet item and exposure class. 10
Figure 6 Analysis of the Group s Credit Risk Capital Requirement by Balance Sheet Item Figure 7 Analysis of the Group s Credit Risk Capital Requirement by Exposure Class 11.1 BANKING COUNTERPARTY RISK Banking counterparty risk refers to the risk associated with the default of a banking counterparty. Banking counterparty risk is the most significant individual credit risk that the Group is exposed to. The Group manages its credit risk to banking counterparties using a range of strategies, which are outlined in the Group s Banking Counterparty Credit Risk Policy. The policy sets out a range of robust controls and procedures to help ensure that the Group deposits cash with credit worthy institutions. This includes, but is not limited to, the requirement for Firm Cash to be deposited across a range of banking counterparties with a short term credit rating produced by an ECAI of P-2 (Moody s), A-2 (S&P) and/or F-2 (Fitch). This is further supplemented through regular reviews of banking counterparties credit risk profiles using a range of metrics. As per the Standardised Approach outlined in Part 3, Title II, Chapter 2 of the CRR, the Group s Pillar 1 credit risk in regards to banking counterparties was 4.38m as at 30 September 2017. Refer to figure 8 below for further details. Figure 8 Analysis of the Group s Banking Counterparty Capital Requirement 11
11.2 OTHER CREDIT RISKS Other credit risks primarily relate to trade and other receivables, deferred tax assets, trading investments, available for sale investments and prepayments. It also includes risks surrounding property, plant and equipment. Trade receivables in regards to fees owed by clients are considered to be past due when they remain unpaid after 30 days after the relevant billing date. Trade debtors that are older than 90 days are provided for unless collateral is held. Refer to note 17 Trade and other receivables of the Annual Report and Accounts 2017 for further details of the maturity, and, if applicable, subsequent impairments of trade and other receivables balances. As per the Standardised Approach outlined in Part 3, Title II, Chapter 2 of the CRR, the Group s Pillar 1 capital requirement in regards to other credit risks was 7.93m as at 30 September 2017. Refer to figure 6 above for further details. 11. MARKET RISK Market risk refers to risks that the Group will incur a loss as a result of a change in foreign exchange rates, interest rates and equity and/or commodity prices. 12.1 FOREIGN EXCHANGE RISK The Group is primarily exposed to foreign exchange risk, as a result of foreign currency trades executed on the behalf of clients. Any material foreign exchange exposures are monitored, whereby any material positions are closed out at the end of each day. Foreign exchange risks surrounding costs, earnings and balance sheet items denominated in currencies other than the Group s functional currency, being GBP, are deemed immaterial as Group revenues are primarily generated from UK domiciled entities. The Group calculates the Pillar 1 foreign exchange risk requirement under the rules found in Articles 351 and 352 of the CRR. As at 30 September 2017 the foreign exchange risk requirement was 0.38m. 12.2 INTEREST RATE RISK (ON POSITIONS NOT INCLUDED IN THE TRADING BOOK) The Group is exposed to the risk that it will incur a loss due to adverse movements in interest rates. This primarily arises as a result of firm cash held with banking counterparties in the ordinary course of business. As a source of interest income is based on the value of client cash under administration, interest rate risk also occurs as a result of an indirect exposure to Client Money balances. These exposures are nonetheless mitigated as both Firm Cash and Client Money are held on short term tenors. The Group also has a legal entitlement to revise rates paid to clients to reflect the rates received from banks. As per IFPRU 2.2.30, the Group performs an interest rate sensitivity analysis as part of the ICAAP to assess the impact of a change in interest rates on positions not included in the trading book. No material risks were identified following this analysis. 12
The Group does not have any bank borrowings and does not enter into any interest rate derivatives that require a marked to market valuation. The Group is therefore not exposed to any related interest rate risks. 12.3 SETTLEMENT RISK Settlement risk is the risk that on settlement date a counterparty defaults on its contractual obligation to make payment for a securities transaction after the corresponding value has been paid away by the Group. The Group does not have a large exposure to this risk as settlements are executed on a Delivery versus Payment basis wherever possible, across a number of pre-approved counterparties. Settlements are also monitored daily and instances of failed trades are minimal. Collateral against trades is held in the Group nominee accounts in the form of cash, as well as equity and bonds, which are quoted on recognised exchanges. The Group calculates the Pillar 1 settlement risk requirement under the rules found in Article 378 of the CRR. As at 30 September 2017, the Group s settlement risk requirement was 1.52m. 12.4 EQUITY AND COMMODITY RISK (ON POSITIONS NOT INCLUDED IN THE TRADING BOOK) Equity and commodity risk refers to the risk that the Group will incur a loss due to an adverse movement in equity and/or commodity prices. This risk arises as a result of the Group s trading and available for sale investments, which are held for strategic purposes in contrast to trading purposes. As per Article 94 of the CRR, these risks are calculated with accordance to the risk weighted exposure amounts for credit risk. Refer to section 11 and note 28 Financial instruments and risk management of the Annual Report and Accounts 2017. 12. OPERATIONAL RISK The Group defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk represents the most significant risk generally to the Group as a consequence of the nature of the business and the high number of processes required relative to the low levels of financial risk to which the Group is exposed. The Operational Risk Framework sets how operational risks are identified, assessed, mitigated, managed, monitored and reported, and how assurance is provided. The Operational Risk Management Framework is supplementary to the Group Risk Management Framework which sets the approach to the management of risk. The Group is not required to hold Pillar 1 capital in regards to the FCA s standardised approach to Operational Risk. The Group assess Pillar 2 requirements by developing a range of scenarios that describe the most material operational risk exposures of the Group. 13
13. LIQUIDITY RISK Liquidity risk refers to the risk that the Group will be unable to meet its financial obligations as they fall due or access to liquid funds is not available on commercially viable terms. The Group maintains its capital in cash or near cash instruments and at a sufficient level to ensure the smooth operation of the business. At 30 September 2017, the Group had access to an unsecured overdraft facility of 10m. To ensure that the Group is able to appropriately manage liquidity risks, the Group has implemented the below: Liquidity Risk Policy: provides a high level framework and objectives for the management of liquidity and associated risks within the parameters set by the Group s Risk Appetite; Liquidity Risk Procedures: provides an outline of how the requirements set out by the Liquidity Risk Policy are managed; and Contingency Funding Plan: outlines the liquidity recovery plan and sets out adequate strategies to address any liquidity shortfalls. Liquidity stress tests are also performed as part of the ICAAP and subsequently reviewed on a regular basis to ensure that the Group is able to maintain adequate liquidity buffers to withstand a range of stressed scenarios. 14. REMUNERATION POLICY 15.1 REMUNERATION GOVERNANCE STRUCTURE The Group has the following policies and practices for those staff whose professional activities have a material impact on the Group s risk profile, Material Risk Takers ( MRTs ), none of whom are employed by TBD. TBD Pillar 3 disclosures are published separately as it is regulated by the Central Bank of Ireland. BDL is categorised as a Level 3 firm under the FCA Proportionality guidelines. The Remuneration Committee is a committee of the BDH Board and has formal terms of reference which are published on the Group s website. The Committee is chaired by an Independent Non-Executive Director, and comprises two other Independent Non-Executive Directors and the Board Chairman, who was determined by the Board to be independent upon his appointment. None of the Committee members have any personal financial interests in the Group (other than as shareholders), conflicts of interest arising from cross directorships or day-to-day involvement in running the business. The Committee reports on its activities annually in the Directors Remuneration Report, as part of the Annual Report and Accounts. One of the Committee s responsibilities is to review the Remuneration Policy and ensure that it, and its implementation, is consistent and continues to comply with the FCA Remuneration Code (SYSC 19a). 14
Advice was sought from external consultants New Bridge Street ( consultants ). consultants selected are independent and have no other connection with the Group. The 15.2 EMPLOYEES DESIGNATION AS MRT FOR THE PURPOSES OF THE FCA REMUNERATION CODE As at 30 September 2017, MRTs are defined as all directors of BDH/BDL, members of the Executive Committee, employees designated as holding Significant Influence Functions and all employees earning over 750,000 (total of fixed and variable remuneration). As at 30 September 2017 the number of MRTs was 24, of which two are Executive Directors (Executive MRTs). 15.3 POLICY ON REMUNERATION OF EXECUTIVE MRTS The policy on variable remuneration differs for Executive Directors i.e. the Chief Executive and Finance Director ( the Executive Directors ) and other MRTs. The annual bonus structure for the Executive Directors is designed to incentivise the directors to achieve objectives aligned with the Group s corporate strategy, in a way which is in the long term interests of the Group s employees, clients and shareholders. For the 2016/17 performance year, bonus awards were made based on performance against a balanced scorecard comprising four Key Performance Areas: adjusted profit before tax (20% weighting); adjusted operating margin (20% weighting), discretionary net fund inflow (20% weighting) and personal performance/non-financial targets (40%). For the performance year 2017, the non-financial targets included the successful delivery of strategic projects, the quality and consistency of client outcome and experience, the quality of engagement and relationship with the Regulator, prudent risk management, employee engagement metrics, and talent and having effective succession planning processes. The maximum amount of annual bonus that can be awarded is 150% of base salary for the performance year 2017. The Committee sets the performance criteria for Executive Directors and assesses performance at the end of the year against the pre-agreed criteria to determine the bonus payments to be made. There is also a general underpin that the Committee will assess the overall health of the business and whether prudent risk management has been applied, and may scale-back the vesting level including to zero if it considers this to be appropriate having taken account of this general underpin. The Committee seeks input from the Chief Risk Officer on any conduct events during the year that should be taken into account when determining bonus awards. Deferral rates of annual bonus are set out in the table below. The deferred bonus is satisfied by the award of nil cost options (over BDH shares) under the Deferred Profit Share Plan ( DPSP ) which vest three years after grant and are subject to forfeiture on a bad leaver basis. The awards are also subject to recoupment provisions (see below for more details). 15
Figure 9 Recoupment Provision Proportion of Variable Pay ( ) Up to 50,000 Between 50,000 and 1 x fixed remuneration Above 1 x fixed remuneration Fraction Deferred None One third Two- thirds 15.4 POLICY ON REMUNERATION OF ALL OTHER MRTS The Discretionary Annual Profit Share Plan for other employees (including MRTs) is designed to reward employees for their performance over the year and to incentivise certain behaviours and outcomes in line with the Group s strategy. The intended participants of the Plan are all employees excluding the Executive Directors and Non-Executive Directors of BDH. This was 1,573 participants, including MRT s. Non-Executive Directors of BDH are not eligible for any performance linked awards. Awards under this scheme are discretionary, linked to performance and take into account consideration of conduct risk. For client facing staff, they also make reference to the investment team s profitability during the year. For other staff, awards are primarily linked to the line management s assessment of performance over the year. Each Head of Office/Central Function is given a budget for discretionary profit share and asked to submit their initial recommendations on an individual basis. These recommendations are then reviewed by the Executive Committee and may be adjusted for non-financial performance criteria. Final profit share awards for MRTs are reviewed and approved by the Remuneration Committee, taking into account any conduct events during the year. Any individual awards are subject to additional calibration and adjustment, by senior management as appropriate. Mandatory deferral of profit share is applied as set out in the table below. This deferred profit share is satisfied by the award of nil cost options (over BDH shares) under the Deferred Profit Share Plan ( DPSP ) which vest three years after grant and are subject to forfeiture on a bad leaver basis, as defined in the Plan Rules. These awards are subject to recoupment provisions (see below for more details). Figure 10 Mandatory Deferral of Profit Share Portion of variable pay Up to 50,000 Above 50,000 Fraction deferred None One third 15.5 POLICY ON NON-EXECUTIVE DIRECTORS MRTS REMUNERATION All Non Executive Directors, including the Chairman, serve under formal letters of appointment and either party can terminate on one month s written notice or in accordance with the Articles of Association. Their remuneration is determined by the Board within the limits set by the Articles of Association and is based on benchmarking information and the skills and expected time commitment of the individual concerned. No Director is involved in the decision regarding his own remuneration. The Non-Executive Directors do not have any 16
right to compensation on the early termination of their appointment. In addition to basic fees, fees for additional committee chairmanship duties, (with the exception of the Chairman who is paid an all-inclusive fee) and to the Senior Independent Director, are paid, to reflect the extra responsibilities attached to these roles. The Non Executive Directors do not participate in any of the Group s incentive scheme or share schemes and do not receive any other benefits. The fees are reviewed annually. Non-Executive Directors are encouraged to build an interest in the shares of the Company. 15.6 TYPES OF VARIABLE REMUNERATION Annual profit share is paid in cash, subject to the deferral limits shown above. Deferred profit share is paid through the Deferred Profit Share Plan. Additionally, the Group operates two share based incentive schemes as shown in figure 11 below. Figure 11 Share Based Incentive Schemes Description Equity Award Plan ( EAP ) Long Term Incentive Plan ( LTIP ) Deferred Profit Share Plan Scheme purpose Provides an additional means of discretionary award for senior employees that is payable on a deferred basis and subject to recoupment provisions. Provides a compensation component which is linked to the longer term delivery of the Company s strategic financial objectives. To allow the mandatory deferral of annual profit share into shares, over certain limits. Intended participants Senior management, excluding Executive Directors. Executive Directors, Regional Directors and Senior Support Staff All employees with profit share awards over the mandatory deferral limit (currently 50,000) Number of MRTs with outstanding awards Structure of awards 1 16 20 Conditional Share Awards Conditional Share Awards Nil cost options Length of performance period Shares vest 3 years after award. Subject to service conditions but no further performance conditions. 3 years. Performance period begins again with each grant. Options mature after 3 years. Subject to service conditions but no further performance conditions. Performance measure n/a 50% subject to average annual discretionary net fund growth and 50% to growth in compound annual growth rate EPS targets. n/a 17
Description Approved by shareholders Equity Award Plan ( EAP ) No not required as Directors are excluded as participants and the plan is non-dilutive. Long Term Incentive Plan ( LTIP ) Deferred Profit Share Plan Yes February 2014 Yes February 2010 Due for review The scheme will expire in 2024 The scheme will expire in 2024 The scheme will expire in 2020 Recoupment provisions Subject to malus and clawback. See below for detail. Subject to malus and clawback. See below for detail Subject to malus from the 2014 grant onwards. 15.7 RECOUPMENT PROVISIONS The Group s share-based incentive plans contain recoupment provisions, as set out below. Equity Award Plan & Long Term Incentive Plan The Committee may decide at any time prior to the Vesting of an Award (and/or at any time prior to the third anniversary of the date on which an Award Vests (or is due to Vest) in the case of Awards subject to performance based Additional Conditions) that the individual to whom the Award was granted (the "relevant individual") shall be subject to Recoupment if: the Committee forms the view that the performance on which any variable pay awards, including but not limited to Awards granted under the Plan, have been made or have vested, was materially misstated or should have been assessed materially differently, for whatever reason and that this has resulted either directly or indirectly in higher remuneration than would have otherwise have been the case; the Committee forms the view that in assessing any Additional Conditions and/or any other condition imposed on the Award such assessment was based on an error, or on inaccurate or misleading information or assumptions and that such error, information or assumptions resulted either directly or indirectly in that Award Vesting to a greater degree than would have been the case had that error not been made; the Committee forms the view that there has been (i) a material failure of risk management and/or (ii) regulatory non-compliance and/or (iii) negligence, resulting in damage to the business or reputation of the Group; the Committee forms the view that the relevant individual has committed serious misconduct. Deferred Profit Share Plan In the case of Awards granted on or after 1 October 2014 the Remuneration Committee (the Committee) may decide at any time within the 3 year period following the grant of an Award, 18
that the individual to whom the Award was made (the "Relevant Individual") shall be subject to the withholding or recovery of the award ( Recoupment ) if: the Committee forms the view that the performance on which any variable pay awards, including but not limited to Awards granted under this Plan, have been made or have vested, was materially misstated or should have been assessed materially differently, for whatever reason and that this has resulted either directly or indirectly in higher remuneration than would otherwise have been the case; and/or the Committee forms the view that there has been (i) a material failure of risk management and/or (ii) regulatory non-compliance and/or (iii) negligence, resulting in damage to the business or reputation of the Group; and/or the Relevant Individual commits serious misconduct. 15.8 REVIEW OF REMUNERATION POLICY DURING THE YEAR The Committee reviewed the Remuneration Policy during the year and received reports from the Group Human Resources Director on progress against plans to strengthen the alignment of reward and performance throughout the Group. This includes enhancements to the performance management process and year-end remuneration processes for the 2016/17 performance year. 15.9 INDEPENDENCE OF RISK AND COMPLIANCE EMPLOYEES Control functions within Risk & Compliance report directly to the Chief Risk Officer, who is a member of the Group s Executive Committee. This gives them the appropriate authority to conduct their role. The department is independent from the business that it oversees. Variable remuneration for non-client facing employees, including those within the Risk & Compliance department, is primarily linked to affordability. The allocation of awards is subject to line management s assessment of performance and demonstrated behaviours during the relevant performance year. Any individual awards are subject to additional calibration and adjustment by senior management as appropriate. Where an employee is both a member of the Risk and Compliance department and deemed an MRT, their remuneration is also reviewed and approved by the Remuneration Committee. Employees holding the CF10, CF10a and CF11 function designations attend the Executive Committee directly to present their reports and so have access to all Executive Directors. These individuals also attend Board meetings from time to time to present reports and have direct access to the Independent Non-Executive Directors. The remuneration of those employees is reviewed by the Committee who has the authority to adjust individual profit share payments. 15.10 QUANTITATIVE DISCLOSURES The Committee met 5 times during the year to 30 September 2017. The members of the Remuneration Committee were paid as part of their standard Non-Executive Fees, in accordance with the below table as at 30 September 2017: 19
Figure 12 Non-Executive Fees Annual Fee ( ) Board Chairman 180,000 Base fee for Non-Executive Directors 60,000 Committee Chairman 10,000-15,000 Senior Independent Director fee 10,000 There were 27 MRTs who received a variable remuneration award during the financial year. There was one guaranteed cash payment awarded to an MRT during the year totalling 22,333. There was one severance payment made during the year to an MRT totalling 110,000. Deferred remuneration outstanding at the end of the financial year consisted of share options issued to MRTs under the Deferred Profit Share Plan and conditional share awards issued under the LTIP and EAP Plans. The total number of DPSP options outstanding held by MRTs was 1,172,852, with a gross value of 4,093,253 based on the share price at 30 September 2017 ( 3.49), and 2,519,208 conditional share awards with a gross value of 8,792,036 using the same value. The remuneration awarded to MRTs in the 2017 financial year is outlined in figure 13 below. Figure 13 Remuneration Awards Remuneration Variable remuneration paid in cash Variable remuneration deferred Total Variable remuneration Fixed remuneration Amount ( m) 3.2m 6.1m 9.3m 4.6m The variable remuneration paid in 2017 financial year to be deferred in share options under the DPSP will become exercisable in December 2020, and the awards to be made under the LTIP will vest in December 2020 subject to satisfaction of performance criteria. The EAP award granted in August 2017 will vest in tranches from March 2018 to March 2020. 20