PILLAR 3 DISCLOSURES 31 MARCH 2023
1. Capital Resources
Introduction
The Capital Requirements Directive (CRD) of the European Union establishes the regulatory capital framework with which FCA regulated investment firms must comply, and sets out the amount and nature of capital they must maintain.
The FCA framework consists of three “pillars”:
- Pillar 1 sets out the minimum capital firms must maintain to cover its credit, market and operational risks;
- Pillar 2 requires firms to assess any firm-specific risks not covered by Pillar 1 and, if necessary, set additional capital aside to mitigate them.
- Pillar 3 requires the public disclosure of key information relating to the firm’s risk management controls and capital resources, for use by the market.
This document is designed to fulfil RCBIM’s Pillar 3 requirement and is published annually on our website www.rcbim.co.uk.
Scope & Application of the Requirements
RCBIM is a discretionary investment management firm with permission to hold and control client money, and is authorised and regulated by the FCA. It is categorised as a IFPRU Limited Licence €125k firm for capital purposes.
Risk Appetite and Management
Risk appetite is the level of risk RCBIM is prepared to accept without applying further resources (financial or otherwise) to mitigate it.
The Board of RCBIM determines the firm’s business strategy and risk appetite and meets monthly to consider financial and operational issues, thus enabling the directors and senior management to play an integral part in the early identification and successful management of risk.
The Board prepares, at least annually, an internal Capital Adequacy Assessment Process (ICAAP) which identifies and analyses the material risks faced by the firm and the controls in place to mitigate them.
RCBIM has identified the following risks to its business:
- Credit risk
- Market risk and loss of income
- Legal and Operational risk
- Regulatory Risk
- Loss of key personnel
- Business Interruption
- Remuneration risk
- Under performance and loss of clients
A “probability versus impact” assessment is carried out to arrive at a suitable level of capital to be held in mitigation (Pillar 2). The risks are then “stress-tested” against various scenarios to determine if even more capital is required
The Board has adopted a conservative approach to risk, which is achieved in the following ways:
- The firm’s simple business structure and service offering;
- The appointment of experienced and independent senior managers to the controls and oversight functions within the firm;
- Limited exposure to credit risk;
- Regular investment strategy meetings;
- A comprehensive compliance monitoring programme;
- An appropriate range of insurance policies;
- The retention of expert external advisers.
Capital Requirements and Resources
RCBIM’s Capital Requirement is the total of its Pillar 1 and Pillar 2 capital.
Pillar 1 capital is the greater of:
- The base capital requirements of €125,000
- The sum of the market and credit risk requirements
- The Fixed Overheads Requirement (FOR)
Pillar 2 capital is the amount calculated by the firm within its ICAAP as necessary to cover any risks not covered by Pillar 1.
As RCBIM has a low exposure to credit, market and operational risk, and no Pillar 2 capital is currently required, its capital requirement is equal to the FOR.
RCBIM’s Capital Resource comprises Tier 1 capital with no deductions. Tier 1 capital consists of called up share capital, reserves and profit and loss, and is regarded by the FCA as the core measurement of a firm’s financial strength.
RCBIM’s capital position as at 31st March 2023 was as follows:
| £000 | |
| Pillar 1 requirement | 322 |
| Pillar 2 requirement | 0 |
| Tier 1 capital | 1268 |
| Surplus | 946 |
| Solvency ratio | 293% |
2. Remuneration
Introduction
The Capital Requirements Directive (CRD) of the European Union and the FCA Code on Remuneration require regulated investment firms to establish and maintain remuneration policies, procedures and practices that are consistent with and promote sound and effective risk management. The Code also requires firms to report annually on their remuneration policy for employees termed Code Staff. Code Staff can generally be defined as employees who perform a significant influence function, senior management and other staff who have a material impact on the risk profile of the business.
How RCBIM’s remuneration is determined
The Board of RCBIM reviews remuneration annually for all staff. Basic salaries are reviewed in line with individual performance. Bonuses and pension contributions are discretionary and linked directly to the firm’s overall financial position but will not exceed the ratio between fixed and variable components as specified in the Regulations.
RCBIM have set the ratio between the fixed and variable components of total remuneration to ensure that the total remuneration to the fixed component does not exceed 1:1. RCBIM may on occasion exceed the 1:1 ratio providing that it is approved by the shareholders or owners of the firm and in any case does not exceed a ratio of 1:2.
Quantitative Disclosure
In the year ended 31st March 2023 RCBIM defined its Code Staff as its Board of Directors plus one other senior manager. The aggregate annual remuneration for Code Staff for the year was £425,000.