Pillar 3

Plurimi Wealth LLP (“PWL” or the “Firm”)

Pillar 3 Disclosures as at 30th September 2016

The following information is provided pursuant to the Pillar 3 disclosure rules as laid out by the Financial Conduct Authority (“FCA”) in section 11 of its Prudential sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”).  


Background

The FCA has implemented a prudential framework for investment firms through changes to the FSA Handbook of Rules and Guidance (specifically in BIPRU).  The framework consists of three “Pillars”:

Pillar 1 sets out the minimum capital requirements;

  • Pillar 2 is an assessment of whether additional capital is needed over and above that determined under Pillar 1; and
  • Pillar 3 requires the Firm to publish its objectives and policies in relation to risk management, and information on its risk exposures and capital resources as well as disclosures with respect to the FCA’s “Remuneration Code”.

The rules provide that disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions. The Firm is a “BIPRU €50,000 Limited Licence Firm” which does have permission to deal with retail clients and is not authorised to hold client money. The Firm has the permission to provide advisory, arranging and investment management services. As a consequence the main risks facing the Firm relate to its operations and its business environment. Whilst the Firm does have some exposure to credit and market risk, this is not considered to be material.

The disclosures below are the required Pillar 3 disclosures and apply solely to the Firm. 

Although the Senior Management of the Firm believes that the risk management framework outlined herein is appropriate for the size and complexity of the Firm and that the Firm’s capital is adequate to meet the risks assessed, it cannot guarantee that this will actually be the case in the event any particular risk arises. There will always be some unlikely risks with unusually high impact which may require additional capital should they arise.


Risk management

The Firm operates a risk management framework that sets out the responsibilities and escalation procedures for the identification, monitoring, and management of operational and business risks. Capital planning takes these identified risks into account.

Specific personnel are assigned responsibility for the risks across the Firm.  The Firm’s Chief Executive Officer takes overall responsibility, with the assistance of all the other Members, for identifying material risks to the Firm and putting appropriate mitigating controls in place.

Risks and mitigating controls are periodically reassessed, taking into account the Firm’s risk appetite. Where risks are identified which fall outside of the Firm’s risk tolerance levels, or where the need for remedial action is identified in respect of identified weaknesses in the Firm’s mitigating controls, then actions are taken to improve the control framework.

The senior management meets periodically to review the quality of the control framework and to satisfy themselves that appropriate controls are in place and that mitigating actions are moving forward.

The specific types of risks faced by the Firm are;

  1. Operational risk,
  2. Business risk,
  3. Credit risk, and
  4. Market risk.

1. Operational risk

This is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events including legal risk. The Firm seeks to minimise operational risk through a controls framework, particularly when engaging in new business ventures or trading new products. The Firm considers risks which may impact upon the Firm directly or indirectly. As an advisor/arranger and investment manager the Firm, and the systems and controls it is reliant upon, are considered adequate and the Firm considers its operational risks to be minimal.

2. Business risk

Business risk arises from external sources such as changes to the economic environment or one-off economic shocks, and also from internal sources such as poor decisions or sub-optimal allocation of capital resulting in poor performance and damage to the Firm’s reputation. 

An extreme scenario has been modelled in order to assess the impact of adverse economic conditions on the Firms’ financial position.  This enables the Firm to monitor its business risk and to assist in its capital planning.

3. Credit risk

The Firm is not exposed to credit risk other than in respect of fees/commission receivable and cash held on deposit at large international credit and regulated institutions. Fees are drawn down monthly and quarterly on activity in the month, received by the Firm in arrears. Consequently the Firm has a limited number of credit exposures in respect of which it uses the simplified standardised approach when calculating risk weighted exposures, in accordance with the provisions of BIPRU 3.5. Credit risk is not considered to be material for the purposes of this disclosure.

4.    Market risk

The Firm is not exposed to market risk other than foreign exchange risk in respect of its accounts receivable and cash balances held in currencies other than GBP. The Firm calculates its foreign exchange risk by reference to the provisions of BIPRU 7.5. Business receipts in foreign currency are translated into GBP on a regular basis. Foreign exchange risk is not considered to be material for the purposes of this disclosure.

Capital adequacy

As at 30 September 2016, the Firm’s regulatory capital resources of £980K is made up as follows:

Tier 1                                                                                                            £(000)

Members capital accounts                                                                     870

Audited reserves                                                                                      433

Interim net losses                                                                                   (264)

Excess of drawings                                                                                  (59)

                                                                                                  -------------

Total regulatory capital                                                                             980                                                                                                                                                                                    -------------

The Firm’s Pillar 1 capital requirement is calculated in accordance with the General Prudential Sourcebook (“GENPRU”) as the higher of the Fixed Overheads Requirement (“FOR”), the sum of market and credit risk requirements, or the base capital requirement of €50,000. The Firm’s credit risk is calculated as per the “Standardised Approach (BIPRU 3.4)” and market risk in line with BIPRU 7.5. As at 30 September 2016 the Firm’s Pillar 1 requirement was £468,619.

The Firm takes a prudent approach to the management of its capital base and monitors its expenditure on a monthly basis in order to take account of any material fluctuations which may cause its Fixed Overheads Requirement to be reassessed.  The Firm ensures that at all times it has sufficient capital to meet its Fixed Overheads Requirement and formally verifies this on a quarterly basis.

Under Pillar 2 of the FCA’s capital requirements, the Firm has undertaken an assessment of the adequacy of capital based upon all the risks to which the business is exposed (“ICAAP”). As at 31 May 2016, this analysis concluded that the Firm did not require additional capital against the identified key risks as it was already sufficiently covered. So under the Pillar 1 requirements this meant the Firm had to have an internal regulatory capital of £468,619. It has therefore been concluded that the Firm’s resources are sufficient to support its operations over the next year, and no additional capital injections are necessary.


Remuneration Code

Remuneration is determined and reviewed annually by the Members. The Firm is not of a size or complexity to require a “Remuneration Committee”.

The only other firm in the group subject to these regulations is Plurimi Investment Managers LLP which maintains it’s own compliance reporting system.

For the purposes of the “Remuneration Code” the Firm is classified by the FCA as a Proportionality Tier 3 firm. As a Tier 3 firm it can disregard certain of the rules in Principle 12.  This exemption has been given in the FCA’s General Guidance on Proportionality published in December 2010, which can be downloaded from the FCA website.  The relevant paragraphs are numbered 34 and 35. 

The Firm need not apply:

  1. The remuneration principles proportionality rule on ratios between fixed and variable components of total remuneration (SYSC 19A.3.44R)
  2. The obligation to pay at least 50% of variable remuneration in shares or equivalent ownership instruments (SYSC 19A.3.47R)
  3. The obligation to defer at least 40% of variable remuneration for a period of at least three to five years (SYSC 19A.3.49R)
  4. The obligation to ensure that any variable remuneration is paid only if it is sustainable according to the financial situation of the QIPL as a whole (SYSC 19A3.51R)

The firm operates the following types of variable remuneration:

  • Commission related profit shares
  • Performance related discretionary bonus payments

The calculation of variable remuneration is aligned with the risks of the business and not simply based on the up-front profit generated by the transactions.

These arrangements are very much linked to performance and not to guaranteed profit allocations.

For the year ended 31 March 2016, 17 members of staff were classified as code staff as at the year end, based on the following criteria:

  • All persons performing a significant influence function (CF1-12A, CF28- 29);
  • All staff, whose total remuneration takes them into the same bracket as senior management; and
  • Those whose professional activities could have a material impact on the Firm’s risk exposure.

The Members further confirm that any variable remuneration, if payable will always be linked to the interests of the firm and unlikely to encourage any risk taking.

Disclosure on the quantitative information with respect to fixed and variable remuneration paid to the code staff is made in the Firm’s annual audited financial statements.