Pillar 3 Disclosure

 Square Mile Investment Services Limited - Pillar 3 disclosures as at 31 December 2016

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; and 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 it is 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 limited licence 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 not a member of a group 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 though 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 2016 is summarised as follows:

Equity

£’000

Share capital classified as equity

92

 

92

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

92

Total tier 2, innovative tier 1 and tier 3 capital

-

Deductions from tier 1 and tier 2 capital

-

Total capital resources, net of deductions

92

Our Firm is small with a simple operational infrastructure.  There is no market risk as all cash held is in GBP and neither accounts receivable or payable are in foreign currency. Credit risk arises solely from cash holdings. 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 limited licence firm and as such its capital requirements are the greater of:

Its base capital requirement of €50,000; or The sum of its market and credit risk requirements; or 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

 

8

Counterparty risk capital component

 

BIPRU 13 & 14

Concentration risk capital component

 

BIPRU 10

 

 

 

 

 

8


Exposure £’000 Risk weighted Risk weighted exposure amount £’000
National Government bodies

-

0%

-

Institutions

473

20%

94

Institutions

-

100%

-

Corporates

-

100%

-

Other items - fixed assets

-

100%

-

473

94

8% of risk weighted exposure                                     3  
Credit risk capital component 3

The Firm has identified market risk exposure as below:

Market risk calculation – Foreign Currency Position Risk Requirement (Rule: BIPRU 7.5)

 

£’000

 

$’000

 

 

€’000

 

 

 

 

 

 

 

Long positions

 

473

 

-

 

-

Short positions

 

113

 

-

 

-

Net of long or short positions

 

360

 

-

 

-

 

 

 

 

 

 

 

8% of foreign currency exposure stated in GBP

 

-

 

-

 

-

 

 

 

 

 

 

 

Market risk capital component

 

 

 

-

 

                  -

It is the Firm’s experience that the fixed overheads requirement amounting to £24,523 being higher than the sum of credit risk and market risk capital requirement, establishes its capital requirements.

BIPRU 11.5.18 Disclosure: Remuneration

The Firm is a Remuneration Code Proportionality Level 3 Firm and has applied the rules appropriate to its Proportionality Level. The Remuneration Committee is responsible for the Firm's remuneration policy. All variable remuneration is adjusted in line with capital and liquidity requirements.

Remuneration Code Staff Remuneration by Business Area (BIPRU 11.5.18(6)) (for the 12 months to 31/03/2017)

Business Area

Total Remuneration

 

Management

 

£193,171

 

 

Client Relationships

 

£193,171

 

Research

 

£454,886

 

 

Investments

 

£96,586

 

 

Administration

   £56,105    



Aggregate Quantitative Remuneration by Senior Management and other Remuneration Code Staff (BIPRU 11.5.18(7)) (for the 12 months to 31/03/2017)

Type of Remuneration Code Staff

Total Remuneration

 

Senior Management

 

£386,342

 

 

Other Remuneration Code Staff

 

£607,576

 

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