Pillar 3 Disclosure

Disclosure policy

The Pillar 3 disclosure of Frere Hall Capital Management LTD (“FHCM” or “the Firm”) is set out below as required by the Financial Conduct Authority’s (“FCA”) ’s “Prudential Sourcebook for Banks, Building Societies and Investment Firms” (“BIPRU”) specifically BIPRU 11. The regulatory aim of the disclosures is to improve market discipline.

FHCM makes Pillar 3 disclosures annually. The information contained in this disclosure is accurate as at the Firm’s accounting reference date. The information contained in this document has not been audited by FHCM’s external auditors and does not constitute any form of financial statement.

Information that is deemed immaterial or confidential may be omitted. The Firm regards information as material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions.

The Firm regards information as proprietary/confidential if sharing that information with the public would undermine its competitive position. Proprietary/confidential information may include information on products or systems which, if shared with competitors, would render the Firm’s investments therein less valuable. Further, the Firm must regard information as confidential if there are obligations to customers or other counterparty relationships binding the Firm to confidentiality. No such confidential information has been omitted.

Introduction

Frere Hall Capital Management Limited (“FHCM” or “Firm”) is required by the Financial Conduct Authority (“FCA”) to disclose information relating to the capital it holds and each material category of risk it faces to assist users of its accounts and to encourage market discipline.

The Capital Requirements Directive created a revised regulatory capital framework across Europe covering how much capital financial services firms must retain. In the United Kingdom, rules and guidance are provided in the General Prudential Sourcebook (“GENPRU”) for Banks, Building Societies and Investments Firms (“BIPRU”).

The FCA framework consists of three "Pillars":

Rule 11 of BIPRU sets out the provisions for Pillar 3 disclosure. The rules provide that companies may omit one or more of the required disclosures if such omission is regarded as immaterial. Information is considered material if its omission or misstatement could change or influence the decision of a user relying on the information. In addition, companies may also omit one or more of the required disclosures where such information is regarded as proprietary or confidential. The Firm believes that the disclosure of this document meets its obligation with respect to Pillar 3.

Firm Overview

FHCM is incorporated in the UK and is authorised and regulated by the FCA as a MiFID Investment Manager. For prudential regulatory purposes, the Firm is categorised by the FCA as a BIPRU firm.

The Governing Body of FHCM has the daily management and oversight responsibility. It generally meets quarterly and is composed of:

The Governing Body is responsible for the entire process of risk management, as well as forming its own opinion on the effectiveness of the process. In addition, the Governing Body decides FHCM’s risk appetite or tolerance for risk and ensures that the Firm has implemented an effective, ongoing process to identify risks, to measure its potential impact and then to ensure that such risks are actively managed. The Governing Body is responsible for designing, implementing and monitoring the process of risk management and implementing it into the day-to-day business activities of FHCM.

Capital Resources and Requirements

Capital Resources
Pillar 1

FHCM was authorised by the FCA on 30 November 2016 and holds regulatory capital resources (i.e. “own funds”) of £10,223,000 and this comprises of core Tier 1 capital after deductions and Tier 2 and Tier 3 capital.

The Firm is required to maintain own funds which equal or exceed the higher of:

As at 31 March 2019, the Firm's Pillar 1 capital requirement was £2,368,000.

Satisfaction of Capital Requirements
Pillar 2

The Firm has adopted the “Structured” approach to the calculation of its Pillar 2 Minimum Capital Requirement as outlined in the Committee of European Banking Supervisors Paper (27 March 2006) which takes the higher of Pillar 1 and 2 as the Internal Capital Adequacy Assessment Plan (“ICAAP”) capital requirement. It has assessed Business Risks by modeling the effect on its capital planning forecasts and assessed Operational Risk by considering if Pillar 2 capital is required taking into account the adequacy of its mitigation.

Capital item                                                                               £
Tier 1 capital less innovative Tier 1 capital                                 £14,070,000
Tier 2 capital                                                                               £0
Tier 3 capital                                                                               £0
Total capital resources – net of deductions                                £14,070,000

Since the Firm's ICAAP (or Pillar 2) process has not identified capital to be held over and above the Pillar 1 requirement, the capital resources detailed above are considered adequate to continue to finance the Firm over the next year. No additional capital injections are considered necessary and the Firm expects to continue to be profitable.

Risk Management
The Firm has established a risk management process to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is overseen by FHCM Risk Manager Dominick Rooney, who reports to the Firm’s Chief Operating Officer (“COO”). Risks, and their mitigating controls, are periodically assessed by the COO and Chief Executive Officer taking into account the Firm’s risk appetite. FHCM’s Senior Management, and ultimately the COO, are responsible for the management of risk within the Firm, and their individual responsibilities are clearly defined.

As risks are identified within the business, appropriate controls are put in place to mitigate these and compliance with them is monitored on a regular basis. The frequency of monitoring in respect of each risk area is determined by the significance of the risk. The Firm does not intend to take any risks with its own capital and ensures that risk taken within the portfolios that it manages is closely monitored and in line with the set parameters. The results of the compliance monitoring performed is reported to the partners by the Compliance Officer. FHCM also carries out regular assessments of the types and distribution of financial resources, capital resources and internal capital, which are documented in the ICAAP.

The Firm has concluded that its Tier 1 capital is sufficient to cover its Pillar 1 and Pillar 2 requirements.

Operational Risk
The Firm places strong reliance on the operational procedures and controls that it has in place in order to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect. FHCM has identified a number of key operational risks. These relate to disruption of the office facilities, system failures, trade failures and failure of third party service providers. Appropriate policies are in place to mitigate against risks, including appropriate insurance policies and business continuity plans.

Credit Risk
The main credit risk to which the FHCM is exposed is in respect to the failure of its debtors to meet their contractual obligations. The majority of the Firm's receivable is related to investment management activities. The Firm believes its credit risk exposure is limited since the Firm’s revenue is ultimately related to management fees received from funds. These management fees are drawn throughout the year from the funds managed. Other credit exposures include bank deposits and office rental deposits.

The Firm undertakes periodic impairment reviews of its receivables. All amounts due to the Firm are current and none have been overdue during the year. As such, due to the low risk of non-payment from its counterparties, management is of the opinion that no provision is necessary. A financial asset is overdue when the counterparty has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.

FHCM has adopted the standardised approach to credit risk, and therefore follows the provision within BIPRU 3 standardised credit risk of the FCA handbook. The Firm applies a credit risk capital component of 8% to its non-trading book risk weighted exposure. As the Firm does not make use of an external credit rating agency, it is obligated to use a risk weight of 100% to all non-trading book credit exposures, except cash and cash equivalents which are held by investment grade firms and currently attract a risk weighting of 20%.

The table below sets forth the Firm's credit exposures and corresponding capital resource requirements as at the date of its ICAAP assessment:


Solo Basis                                                  Credit Exposure                Risk weighted Exposure
National Governments                                 £0                                        £0
Tangible fixed assets                                   £14,542,659                        £14,542,659
Exposure to corporates                               £0                                        £0
Cash at bank                                               £1,015,903                          £203,181
Prepayments                                               £501,420                             £501,420
Other                                                           £540,891                             £281,032
                                                                    ---------------                          ------------
Total                                                            £16,600,873                         £15,528,292
                                                                    =========                         =======
Credit Risk Capital Component (8% of risk weighted exposure)            £1,242,263  

Market Risk
Since the Firm holds no trading book positions on its own account, and all bank accounts are in GBP and all fee income is in GBP, the Firm’s exposure to foreign currency risk is not significant. Since the settlement of debtor balances take place without undue delay, the timing of the amount becoming payable and subsequently being paid is such that it is not considered to present a material risk to the Firm. The Firm has excluded Market Risk on the basis that it is not a material risk to the Firm.

Remuneration Code (“Code”)
In accordance with the FCA’s categorisation of firms, FHCM is categorised as a Flexible Portfolio, P3 firm and therefore deemed low risk for conduct and prudential purposes. The Firm is required to disclose aggregate information on remuneration in respect of its Code Staff, broken down by business area and by Senior Management and other Code Staff. Senior Management and members of staff whose actions have a material impact on the risk profile of the Firm are classified as Code Staff.

The Firm has adopted a remuneration policy and procedures that comply with the requirements of chapter 19C –(BIPRU Remuneration Code) of the FCA's Senior Management Arrangements, Systems and Controls Sourcebook (“SYSC”), and in accordance with ESMA’s Guidelines on sound remuneration policies. The purpose of the Code is to ensure that firms have risk focused remuneration policies, which are consistent with and promote effective risk management and do not expose themselves to excessive risk. FHCM has reviewed all existing employment contracts to ensure they comply with the Code. The COO is responsible for setting the Remuneration Policy Statement for all staff and is a member of the Firm’s Senior Management team.

The Firm has considered all the proportionality elements in line with the FCA Guidance and has deemed it appropriate to disapply the Pay Out Rules. Furthermore, the Firm has concluded, on the basis of its size and the nature, scale and complexity of its legal structure and business that it does not need to appoint a remuneration committee. Instead, the Governing Body sets, and oversees compliance with, the Firm's remuneration policy including reviewing the terms of the policy at least annually.

As at 31 March 2019, the Firm currently sets the variable remuneration of its staff in a manner which takes into account both the individual and firm performance. As permitted for firms falling within proportionality level 3, the Firm takes into account the specific nature of its own activities (including the fee based nature of its revenues) in conducting any ex-ante risk adjustments to awards of variable remuneration and, given the nature of its business, has disapplied the requirement under the Remuneration Code to make ex-post risk adjustments.

Variable remuneration is not based solely on the financial performance of the individual, but on the individual’s overall (non-financial) contribution to the performance to the whole team and the overall results of the fund/Firm. The performance of the individual is assessed over the entire year.

Aggregate remuneration of Senior Management, who are the FHCM’s Code Staff, for the year ending 31 March 2019 was £920,000.



<< Back to Home