Pillar 3 Disclosure 2021
The Capital Requirements Directive (“CRD”) is the framework for implementing Basel II in the European Union. Basel II implements a risk sensitive framework for the calculation of regulatory capital. This was implemented in the United Kingdom through changes to the Financial Conduct Authority (“FCA”) Handbook of Rules and Guidance, and specifically through the creation of the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), specifically BIPRU 11.
The framework consists of three pillars:
- Pillar 1 – sets out the minimum capital requirements for the investment manager;
- Pillar 2 – deals with the Internal Capital Adequacy Assessment Process (“ICAAP”) undertaken by a firm to assess the adequacy of capital held in relation to its material risks; and
- Pillar 3 – requires a firm to publicly disclose its policies on risk management, capital resources and capital requirements.
The Pillar 3 disclosure of Caius Capital LLP (“Caius Capital” or the “Firm”) is set out below. The regulatory aim of the disclosure is to improve market discipline.
Caius Capital makes Pillar 3 disclosures annually, either via its audited financial statements filed with Companies House or on its website. For 2021 this document has been published on Caius Capital’s website. The information contained in this disclosure is accurate as at 31 March 2021. It has not been audited by Caius Capital’s external auditors and does not constitute any form of financial statement.
Certain information relating to BIPRU 11.5 may be omitted on the basis that it is deemed to be immaterial or proprietary/ confidential. The Firm regards information as material in the disclosure 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.
Background to the Firm
The Firm is authorised and regulated by the FCA and as such is subject to minimum regulatory capital requirements. The Firm is categorised by the FCA, for prudential purposes, as a collective portfolio management investment (“CPMI”) firm. It is an investment management firm and has no trading book exposures. The Firm is not required to prepare consolidated reporting for prudential purposes.
Capital Resources Requirement
Pillar 1 - Minimum Capital Requirements
As a CPMI firm, Caius Capital has an initial capital requirement of €125k and an ongoing capital resource requirement, which comprises the greater of:
- sum of market risk and credit risk (for non-AIFM business); and
- the funds under management requirement (the sum of the Firm’s base own funds requirements of €125k plus 0.02% of the amount by which the Firm’s funds under management (related to the Funds) exceed €250m); and
- the own funds based on fixed overheads requirement; plus (for the latter two items); plus
Whichever is the applicable of:
- the professional negligence capital requirement (“additional own funds requirement”); or
- the professional indemnity insurance (“PII”) capital requirement.
Caius Capital calculates the credit risk applicable to its non-AIFM activities under the simplified standardised approach.
The Firm has deemed the FOR to be the higher of these values and this is therefore used for the purposes of the Pillar 1 calculation.
As Caius Capital does not deal as a principal and holds no current assets other than cash, in sterling or foreign currency, the Firm’s non-trading book market risk requirement is the Foreign Currency Position Risk Requirement, for which the Firm multiplies the sum of the absolute values of its ‘open currency position’ by 8%.
Pillar 2 – ICAAP
The Firm’s ICAAP includes an assessment of the design and performance of the internal controls in place to mitigate risks, the probability of the risk occurring, the potential financial and reputational impact, and the adequacy of the Firm’s capital base.
The ICAAP is the process through which Caius Capital determines that it is able to identify and manage its key risks on an on-going basis and ensure that it has sufficient capital in respect of such risks. The process is forward looking and is an integral part of the management of the Firm. The Chief Operating Officer (“COO”) (who is also the Compliance Officer) is responsible for the ICAAP within Caius Capital and consulted with other appropriate members of staff to ensure the accuracy of his findings.
The Firm’s senior management formally reviews and approves the ICAAP document on at least an annual basis (or more frequently if there are material changes to the Firm’s business model and risk exposures). The senior management, as part of its review of the ICAAP, sets the Firm’s risk appetite, confirms that the Firm’s key material risks have been considered and assessed, and validates the stress testing scenarios.
The main features of the Firm’s Capital Resources are as follows:
|Tier 1 capital less innovative tier 1 capital||845|
|Tier 2 capital||0|
|Tier 3 capital||0|
|Total capital resources, net of deductions||845|
Risk Management Objectives and Policies
Due to the nature, size and complexity of the Firm, Caius Capital does not have an independent risk management function. Senior management are responsible for the management of risk within the Firm and their individual responsibilities are clearly defined. Senior management report to the Firm’s governing body, the “Executive Committee”, on a frequent basis regarding the risks. Caius Capital has clearly documented policies and procedures, which are designed to minimise risks to the Firm and all staff are required to confirm that they have read and understood them.
Caius Capital undertakes an ICAAP at least annually, which is the process through which the Firm determines that it is able to identify and manage its key risks on an ongoing basis and that it has sufficient capital in respect of such risks. The process is forward looking and is an integral part of the management of the Firm.
Following the completion of the ICAAP, the Firm has concluded that its Tier 1 capital is sufficient to cover its Pillar 1 and Pillar 2 requirements.
Caius Capital must comply with the remuneration rules as set out in Article 14 of the Alternative Investment Fund Managers Directive (“AIFMD”) and SYSC 19B of the FCA Handbook (“the AIFM Remuneration Code”), as well as SYSC 19C (“the BIPRU Remuneration Code”). The purpose of these Remuneration Codes 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. The Firm has reviewed all existing employment contracts to ensure they comply with the Codes.
Following an assessment of the size, internal organisation and the nature, scope and complexity of Caius Capital, the Firm’s Governing Body (the “Executive Committee”) has determined that it is not required to appoint a Remuneration Committee. The Firm’s Executive Committee shall be responsible for determining appropriate levels of remuneration and for ensuring that the Firm’s Remuneration Policy complies with the requirements of the AIFM Remuneration Code.
Senior management are responsible for setting the Remuneration Policy Statement for all staff and the Compliance Officer is a member of the Executive Committee. No external consultants have been engaged on remuneration matters.
The Remuneration Codes can (subject to certain conditions being met) be applied in a proportionate way. As such, senior management has determined that it is not proportionate for the Firm to apply the following detailed rules in setting the Firm’s Remuneration Policy:
- SYSC 19B 1.17 – Retained units, shares and other instruments;
- SYSC 19B.1.18 – Deferral; and
- SYSC 19B.1.19, 19B 1.20 – Performance adjustment
Variable remuneration is not based solely on the financial performance of the individual. Senior management also considered the individuals overall (non-financial) performance to the whole team and the overall results of the Firm. The performance of the individual is assessed over the entire year.
The Firm 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. This includes;
- senior management;
- risk takers;
- staff engaged in control functions; and
- any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers whose professional activities have a material impact on the Firm’s risk profile.
The Firm has classified five (5) individuals as Code Staff.
During the financial year between 1 April 2020 and 31 March 2021, the total remuneration paid to Code Staff was £14,640,342. Within such figure, the proportion of the fixed remuneration was £1,000,000 and the proportion of the variable remuneration was £13,640,342.
|Other Code Staff||4,506,919|