Pillar 3 Disclosure
1.1. 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 Investment Firms (“IFPRU”).
1.2. The FCA framework consists of three ‘Pillars’:
- Pillar 1: this sets out the minimum capital amount that meets the firm’s credit, market and operational risk;
- Pillar 2: this 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.
1.3. The rules in IFPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations.
1.4. An IFPRU firm is permitted to omit required disclosures if it believes that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information.
1.5. In addition, an IFPRU firm may omit required disclosures where it believes that the information is regarded as proprietary or confidential. In the view of Resolution Partners Limited (“Resolution Partners”) proprietary information is that which, if it were shared, would undermine Resolution Partners’ competitive position. Information is considered to be confidential where there are obligations binding Resolution Partners to confidentiality with its clients, service providers and counterparties.
1.6.Resolution Partners has omitted no disclosures in reliance on a belief that any information is proprietary or confidential.
2. Scope and application of the requirements
2.1. Resolution Partners is authorised and regulated by the FCA and as such is subject to minimum regulatory capital requirements. It is currently subject to the capital rules for an IRPRU limited licence firm and is a IFPRU €50k firm.
3. Risk management
3.1. The day to day responsibility for oversight of Resolution Partners’ compliance and reporting to the governing body in respect of risk has been allocated to the Compliance Officer, Mr Hamish Ridgwell.
3.2. Resolution Partners is governed by its directors who determine its business strategy and risk appetite. They are also responsible for establishing and maintaining Resolution Partners’ governance arrangements along with designing and implementing a risk management framework that recognises the risks that the company faces.
3.3. The directors also determine how the risks Resolution Partners faces may be mitigated and assess on an ongoing basis the arrangements to manage those risks. The directors discuss current projections for profitability, cash flow, regulatory capital management, business planning and risk management on an ongoing, as-needed basis. The directors manage Resolution Partners’ 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.
3.4. The directors have identified that business risk and operational risk are the material risks to which Resolution Partners is exposed. Annually the directors formally review Resolution Partners’ 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 Resolution Partners’ business planning and capital management and conclude whether the amount of regulatory capital is adequate.
4. Assessment of the Adequacy of Capital
4.1. Capital resources: Resolution Partners is a Limited Company and its capital arrangements are established in its Articles. Its capital is summarised as follows:
|31 December 2019||£000s|
|Called up share capital||50|
|Audited profit and loss reserves||136|
4.2. Capital requirement: As at 31 December 2019 Resolution Partners’ Pillar 1 capital requirements was assessed at £50k. This has been determined by reference to the higher of the: (i) company’s base capital requirements of €50k – equivalent to £41k using the £ : € exchange rate as at 31.12.19 of 1:1.224 and £50k using a more conservative rate of 1:1; (ii) sum of the Credit and Market Risk requirement of £9k as at 31.12.19; and (iii) company’s Fixed Overhead Requirement (“FOR”) of £43k as at 31.12.19.
4.3. Satisfaction of capital requirements: Resolution Partners’ approach to assessing the adequacy of its internal capital to support its current and future activities is documented in its Internal Capital Adequacy Assessment Process (“ICAAP”), which includes as assessment of the risks faced by the company and the internal controls in place to mitigate those risks. This is then stress-tested against various scenarios.
4.4. Since the firm’s ICAAP (Pillar 2) process has not identified capital to be held over and above the Pillar 1 requirement, the capital resources detailed above (which represent a surplus of £136k over its capital requirement of £50k, equal to a solvency ratio of 272%) are considered adequate to continue to finance the firm over the next year.
5.1. In accordance with the Capital Requirements Regulation remuneration disclosure requirements, as further elaborated in the FCA’s General Guidance on Proportionality: The Remuneration Code (SYSC 19A) & Pillar 3 Disclosures on Remuneration (Article 450 of the Capital Requirements Regulation (CRR), as an IFPRU limited licence firm Resolution Partners falls within proportionality level 3 and is required to provide the following disclosures regarding its remuneration policy and practices for those categories of staff whose professional activities have a material impact on its risk profile.
5.2. Resolution Partners has established a remuneration policy in accordance with the FCA’s Remuneration Code. In line with the guidance statement for proportionality level three firms the following elements of the Remuneration Code have been dis-applied: retained shares or other instruments (SYSC19A.3.47R); deferral (SYSC 19A.3.49.R); performance adjustment (SYSC 19.A3.51R – SYSC 19A.3.51A); and the ratios between fixed and variable components of total remuneration (SYSC 19.A.3.44R).
5.3. Resolution Partners classifies those staff whose professional activities have a material impact on its risk profile as Code Staff in line with the FCA’s Remuneration Code. The firm classified 3 individuals as Code Staff in 2019. The aggregate remuneration paid to the Firm’s Code Staff during the financial year ending on 31 December 2019 was £503k. Remuneration comprised base salary, bonuses and benefits in kind.