Thompson Crosby Capital Markets Limited (“TCCM” or the “Firm”)
Pillar 3 Disclosure and Policy, 28th February 2018
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”).
The FCA has implemented a prudential framework for investment firms through changes to the FCA 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 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. Thompson Crosby Capital Markets Limited (“TTCM” or the “Firm”) is a “BIPRU €50,000 Limited Licence Firm”, does not have permission to deal with retail clients and is not authorised to hold client money. The Firm has the permission to “deal in investments as agent”, “deal in investments as principal on a matched principal basis” in addition to advising and arranging. Therefore, 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 Firm believes 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.
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’s offices and business units. The Firm’s Chief Executive takes overall responsibility, with the assistance of a specialised compliance consultancy firm 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 Board meets periodically to review the quality of the control framework and to satisfy itself that appropriate controls are in place and that mitigating actions are moving forward.
The specific types of risks faced by the Firm are;
- Operational risk,
- Business risk,
- Credit risk, and
- Market 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 minimize operational risk through a systems and controls framework, particularly when engaging in new business ventures or trading new products. The Firm considers risks which may impact the Firm directly or indirectly. The most significant operational risks facing the Firm would most likely be a catastrophic systems failure and unexpected losses due to malfunctioning market and liquidity controls.
Business risk arises from external sources such as changes to the economic environment or one-off economic shocks, and from internal sources such as poor decisions or sub optimal allocation of capital resulting in poor performance and damage to the Firm’s reputation.
Various scenarios are modelled in order to assess the impact of adverse economic conditions on our financial position. This enables the Firm to monitor its business risk and to assist in its capital planning.
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 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.
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. Foreign exchange risk is not considered to be material for the purposes of this disclosure.
As at 28th February 2018, the Firm’s regulatory capital resources of £105K are made up as follows:
Tier 1: £, 000
Share capital – 55
Share premium- 75
Total regulatory capital: 105
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 BIRU 7.5. As at 28th February 2018 the Firm’s Pillar 1 requirement was £39K
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 always ensures that it has enough 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 28th February 2018, this analysis concluded that the Firm did not require allocation of capital for Pillar 2 identified key risks. TTCM is in a start-up phase and the management will be seeking to acquire further injection of capital in order to fund the expansion of business. Pillar 2 requirements will be reviewed and reassessed at the Firm’s year end at 28 February 2019.
Remuneration is determined and reviewed annually by the Board of Directors. For the purposes of the “Remuneration Code” the Firm is classified by the FCA as a Proportionality Level 3 firm. No other firm in the group is subject to these regulations.
In addition to their base salary, employees may be eligible to receive discretionary variable compensation that reflects performance in excess of that required to fulfil their job description and terms of employment.
These arrangements are very much linked to performance. The firm does not make any guaranteed bonus commitments.
Staff outside senior management are classified as code staff if their variable remuneration becomes greater than their fixed remuneration.
In the year ended 28the February 2018, no employees were classified as code staff. One of the directors is approved as the Compliance/MLRO as well as in the Customer Function, CF30. Their aggregate remuneration in the financial year amounted to £16,800
The Board is confident that variable remuneration is linked to the interests of the firm and does not encourage any risk taking.