The Firm’s Total Capital is made up of fully paid up share capital and a subordinated loan.
Pillar 1 - Own Fund Requirement
As a CPMI, the Firm is subject to the requirement as detailed in IPRU(INV) chapter 11, GENPRU and BIPRU, which sets out that the Firm must have own funds in excess of the:
Funds under management requirement of €125,000 plus 0.02% of the AIF AUM exceeding €250,000,000;
The sum of its market and credit risk requirements; and
Fixed Overhead Requirement (which is essentially 25% of the firm’s operating expenses less certain variable costs).
As at 30 November 2018, the Firm's Pillar 1 capital requirement was £748,658.
The Firm has adopted the “Structured” approach to the calculation of its Pillar 2 Minimum Capital Requirement as outlined in the Committee of European Banking Supervisors Paper, 27 March 2006 which takes the higher of Pillar 1 and 2 as the Internal Capital Adequacy Assessment Plan (“ICAAP”) capital requirement. It has assessed Business Risks by modelling the effect on its capital planning forecasts and assessed Operational Risk by considering if Pillar 2 capital is required taking into account the adequacy of its mitigation.
Since the Firm's ICAAP (or Pillar 2) process has not identified capital to be held over and above the Pillar 1 requirement, no additional capital is required to be injected into the firm for Pillar 2 purposes.
The Firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is overseen by the Firm's Governing Body.
As risks are identified within the business, appropriate controls are put in place to mitigate these and compliance with them is monitored on a regular basis. The frequency of monitoring in respect of each risk area is determined by the significance of the risk. The Firm does not intend to take any risks with its own capital and ensures that risk taken within the portfolios that it manages is closely monitored and in line with the set parameters. The results of the compliance monitoring performed is reported to the Governing Body by the Compliance Officer.
The Firm places strong reliance on the operational procedures and controls that it has in place to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.
The Firm has identified a number of key operational risks. These relate to disruption of the office facilities, system failures, trade failures and failure of third-party service providers. Appropriate policies are in place to mitigate against risks, including a business continuity plan and the Firm also has an appropriate insurance policy in place.
The main credit risk to which the Firm is exposed is the failure of its debtors to meet their contractual obligations. The Firm's primary receivable is related to investment management activities. The Firm believes its credit risk exposure is limited since its revenue is ultimately related to management fees received from funds. These management fees are drawn throughout the year.
Other credit exposures include bank deposits and office rental deposits.
The Firm undertakes periodic impairment reviews of its receivables. All amounts due to the Firm are current and none have been overdue during the year. As such, due to the low risk of non-payment from its counterparties, management is of the opinion that no provision is necessary. A financial asset is overdue when the counterparty has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.
The Firm has adopted the standardised approach to credit risk, and therefore follows the provision within BIPRU 3 standardised credit risk of the FCA handbook. The Firm applies a credit risk capital component of 8% of its non-trading book risk weighted exposure. As the Firm does not make use of an external credit rating agency, it is obligated to use a risk weight of 100% to all non-trading book credit exposures, except cash and cash equivalents which are held by investment grade firms and currently attract a risk weighting of 20%.
The table below sets forth the Firm's credit exposures and corresponding capital resource requirements as at the date of its ICAAP assessment: