Square Mile Investment Services Limited - Pillar 3 disclosures as at 31 December 2021
The disclosures made below are as per the rules that were applicable on 31 December 2021. Since 1 January 2022 the Firm is now subject to the rules in MIFIDPRU and therefore the disclosures for the period to 31 December 2022 will be based on the new rules in MIFIDPRU.
Overview
The Capital Requirements Directive ('the Directive') of the European Union establishes a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain. In the United Kingdom, the Directive has been implemented by the Financial Conduct Authority ('FCA') in its regulations through the General Prudential Sourcebook ('GENPRU') and the Prudential Sourcebook for Banks, Building Societies and Investment Firms ('BIPRU').
The FCA framework consists of three 'Pillars':
- Pillar 1 sets out the minimum capital amount that meets the firm’s credit, market and operational risk;
- Pillar 2 requires the firm to assess whether its Pillar 1 capital is adequate to meet its risks and is subject to annual review by the FCA;
- Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position.
The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations.
We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be likely to change or influence the decision of a reader relying on that information.
In addition, we may omit required disclosures where we believe that the information is regarded as proprietary or confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our customers, suppliers and counterparties.
We have made no omissions on the grounds that itis immaterial, proprietary or confidential.
Scope and application of the requirements
Square Mile Investment Services Limited (“the Firm”) is authorised and regulated by the Financial Conduct Authority and as such is subject to minimum regulatory capital requirements. The Firm is categorised as a BIPRU investment firm by the FCA for capital purposes. It is an investment management firm and as such has no trading book exposures.
The Firm is solo regulated and so is not required to prepare consolidated reporting for prudential purposes.
Risk Management
The Firm is governed by its directors who determine its business strategy and risk appetite. They are also responsible for establishing and maintaining the Firm’s governance arrangements along with designing and implementing a risk management framework that recognises the risks that the business faces.
The directors also determine how the risks our business faces may be mitigated and assess on an ongoing basis the arrangements to manage those risks. The board of directors meet on a regular basis and discuss current projections for profitability, cash flow, regulatory capital management, and business planning and risk management. They manage the Firm’s risks through a framework of policy and procedures having regard to relevant laws, standards, principles and rules (including FCA principles and rules) with the aim to operate a defined and transparent risk management framework. These policies and procedures are updated as required.
The directors have identified that business, operational, market and credit risks are the main areas of risk to which the Firm is exposed. Annually the directors formally review their risks, controls and other risk mitigation arrangements and assess their effectiveness. Where the directors identify material risks they consider the financial impact of these risks as part of our business planning and capital management and conclude whether the amount of regulatory capital is adequate.
Regulatory Capital
The Firm is a private limited company and its capital arrangements are established in its Memorandum and Articles of Association. Its capital as at 31 December 2021 is summarised as follows:
|
Equity
|
£’000
|
|
Share capital classified as equity
|
500
|
|
Profit and Loss Accounts and Other Reserves
|
1,553
|
The main features of the Firm’s capital resources for regulatory purposes are as follows:
|
Capital item
|
£’000
|
|
Tier 1 capital less innovative tier 1 capital
|
2,053
|
|
Total tier 2, innovative tier 1 and tier 3 capital
|
-
|
|
Deductions from tier 1 and tier 2 capital
|
-
|
|
Total capital resources, net of deductions
|
2,053
|
Our Firm is small with a simple operational infrastructure. There is no market risk as all cash held is in GBP and less than 1% of accounts receivable or payable are in foreign currency. Credit risk arises solely from cash holdings and other assets on the Balance Sheet. The Firm follows the standardised approach to market risk and the simplified standard approach to credit risk. The Firm is subject to the Fixed Overhead Requirement and is not required to calculate an operational risk capital charge though it considers this as part of its process to identify the level of risk based capital required.
As discussed above the firm is a BIPRU firm and as such its capital requirements are the greater of:
- Its base capital requirement of €50,000 and
The higher of:
- The sum of its market and credit risk requirements; and
- Its Fixed Overhead Requirement.
It is the Firm's experience that the capital requirements for Market Risk and Credit Risk exceed the Fixed Overhead Requirement.
The Firm has identified credit risk exposure classes below:
| Credit risk calculation |
|
Rule |
|
Risk weighted exposure amount £’000 |
| Credit risk capital component |
|
BIPRU 3.2 |
|
100 |
| Counterparty risk capital component |
|
BIPRU 13 & 14 |
|
— |
| Concentration risk capital component |
|
BIPRU 10 |
|
— |
| |
|
|
|
100 |
| |
|
|
Exposure £’000 |
|
Risk weighted |
|
Risk weighted exposure amount £’000 |
| |
|
|
|
|
|
|
|
| National Government bodies |
|
|
- |
|
0% |
|
- |
| Institutions |
|
|
3,955 |
|
20% |
|
791 |
| |
|
|
|
|
|
|
|
| Corporates |
|
|
450 |
|
100% |
|
450 |
| Other items - fixed assets |
|
|
5 |
|
100% |
|
5 |
| |
|
|
4,410 |
|
|
|
1,246 |
| |
|
|
|
|
|
|
|
| |
8% of risk weighted exposure |
| |
|
| Credit risk capital component |
|
|
|
|
|
|
100 |
| |
|
It is the Firm’s experience that the fixed overheads requirement amounting to £803k being higher than the sum of credit risk and market risk capital requirement, establishes its capital requirements. In addition to the prescriptive requirements set out in Pillar 1 the Firm has assessed its risks and determined it is prudent to hold an additional £30k capital to cover any potential dealing errors.
BIPRU 11.5.18 Disclosure: Remuneration
The Firm is a Remuneration Code BIPRU Firm and has applied the relevant guidance from FCA on proportionality. The Remuneration Committee is responsible for the Firm's remuneration policy. All variable remuneration is adjusted in line with capital and liquidity requirements.
Aggregate quantitative remuneration by Business Area (BIPRU 11.5.18(6)) for the 12 months to 31/12/2021. Recognising the size and complexity of the Firm and the majority of the Remuneration Code Staff are directors/senior management functions, all remuneration costs have been aggregated under Management.
| Business Area |
|
Total Remuneration |
| Management |
|
£939,123 |
Aggregate Quantitative Remuneration by Senior Management andother Remuneration Code Staff (BIPRU11.5.18(7)) for the 12 months to 31/12/2021.
| Type of Remuneration Code Staff |
|
Total Remuneration |
| Senior Management |
|
£939,123 |
| Fixed/Variable % Split (Average) |
|
Fixed 71%/Variable 29% |
| Number of Beneficiaries |
|
6 |