Pillar 3 Disclosure and Policy
The following information is provided for Tavistock Private Client (“the Company”) pursuant to the Pillar 3 disclosure rules as laid out by the Financial Conduct Authority (“FCA”) in section 11 of its Prudential sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”).
The FCA has implemented a prudential framework for investment firms through changes to the FCA Handbook of Rules and Guidance (specifically in BIPRU). The framework consists of three “pillars”:
- Pillar 1 sets out the minimum capital requirements;
- Pillar 2 is an assessment of whether additional capital is needed over and above that determined under Pillar 1; and
- Pillar 3 requires the firm to publish its objectives and policies in relation to risk management, and information on its risk exposures and capital resources.
The rules provide that disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions. The Company is a “BIPRU €50,000 limited license firm” not authorised to handle client money or take proprietary trading positions. As a consequence the main risks facing the Company relate to its operations and its business environment. Whilst the Company does have some exposure to credit and market risk, this is not considered to be material.
Although the Company believes the risk management framework outlined herein is appropriate for the size and complexity of the Company and that the Company’s capital is adequate to meet the risks assessed, it cannot guarantee that this will actually be the case in the event any particular risk arises. There will always be some unlikely risks with unusually high impact which may require additional capital should they arise.
We may omit one or more of the disclosures listed in BIPRU 11.5 if the information provided by such disclosures is not, in light of the criteria specified in BIPRU 11.4 IR, regarded as material.
Risk management framework
The Company operates a risk management framework that sets out the responsibilities and escalation procedures for the identification, monitoring, and management of operational and business risks. The above risks are assessed and mitigated as part of the Internal Capital Adequacy Assessment Process (“ICAAP”).
The Board of Directors takes overall responsibility for identifying material risks to the Company and putting appropriate mitigating controls in place, usually by assigning responsibility for specific areas to senior individuals of the Company.
Risks and mitigating controls are periodically reassessed, taking into account the Company’s risk appetite. Where risks are identified which fall outside of the Company’s risk tolerance levels, or where the need for remedial action is identified, then actions are taken to improve the control framework.
The Board meets periodically to review the quality of the control framework and to satisfy itself that appropriate controls are in place and that mitigating actions are moving forward.
The Company contributes to, and receives guidance from, the Tavistock Group Risk Management Committee which coordinates risk management across the whole of Tavistock in accordance with the Tavistock values, those of best practice, consistency and continuous improvement having particular relevance to the risk management framework. The Tavistock Group Risk Management Committee is independent of both the Company’s Board and that of Tavistock Group and it reports no less frequently than annually to members.
The Company rates operational and business risks as “medium” and therefore the Board focuses its attention on risks within these areas.
All of the other categorised risks set out in the FCA’s guidance are rated no more than “low” and accordingly are only referred to the Board as part of routine review processes and when exceptional circumstances arise.
This is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal and regulatory risks. The Company seeks to minimise operational risk through a controls framework, particularly when taking instructions from new clients, when assessing new investment opportunities and when engaging in new business activity. The Company considers risks which may impact the Company directly or indirectly.
Business risk arises from external sources such as changes to the economic environment or one‐off economic shocks, and also from internal sources such as poor decisions resulting in poor performance and damage to the Company’s reputation.
Various different scenarios are modelled in order to assess the impact of adverse economic conditions on the Company’s financial position. This enables the Company to monitor its business risk and to assist in its financial planning.
The Company is exposed to credit risk in respect of income receivable and cash held on deposit at large international credit and regulated institutions. Fees due from institutions are generally calculated monthly by an external administrator based on month end funds under management and are received monthly (occasionally quarterly) in arrears. Consequently the Company has a limited number of credit exposures in respect of which it uses the simplified standardised approach when calculating risk weighted exposures, in accordance with the provisions of BIPRU 3.5.
The Company does not invest or transact on its own account and therefore direct market risk is not material for the purpose of this disclosure. However the Company’s clients are directly affected by market movements and therefore the Company has indirect exposure to the market. This is managed by ensuring Client’s attitude to risk is adequately assessed and communicated.
Liquidity risk would only arise in the Company should a credit, market or other risk arise which results in financial loss.
The Company has robust liquidity management and corporate governance procedures for continuous monitoring to enable remedial action if and when required.
The Company has full cover in place to cover all risks pertaining to its operations. The level of cover is reviewed at least annually and as and when there are changes in risk levels. The Directors monitor the appropriateness of the cover and financial stability of the insurer each year.
Regulatory and other Legal risks
The Company has a structured complaints handling policy which includes monthly reports to the Board, which considers whether individual complaints could have implications for the Company as a whole, and when necessary takes exceptional action.
The Company operates in a highly regulated environment in a relatively young industry, where traditional standards of professional business behaviours are repeatedly challenged and extended, and where consumer protection standards are set at levels far higher than for most business sectors. As a willing participant in the Independent Financial Advisor market the Company accepts the regulatory environment but observes that this itself increases operational and business risks. The Company manages this risk by employing a compliance manager to oversee all elements of business operations and report monthly to the Board.
As at 31 March 2017, the Company’s regulatory capital resources of £521,000 are made up as follows:
|Total regulatory capital
The Company’s Pillar 1 capital requirement is calculated in accordance with the General Prudential Sourcebook (“GENPRU”) as the higher of the Fixed Overhead Requirement (“FOR”), the sum of market and credit risk requirements, and the base capital requirement of €50,000. The FOR is calculated in accordance with GENPRU and equates to one quarter of the Company’s annual expenses excluding discretionary costs but including the total of unavoidable costs actually shared with others, and it is this number which determines the Company’s base capital requirement. As at 31 March 2017 the Company’s Pillar 1 requirement was £272,000.
The Company takes a prudent approach to the management of its capital base and monitors its expenditure on a monthly basis in order to take account of any material fluctuations which may cause its Fixed Overheads Requirement to be reassessed. The Company ensures that at all times it has sufficient capital to meet its Fixed Overheads Requirement and formally verifies this on a monthly basis.
Under Pillar 2 of the FCA’s capital requirements, the Company has undertaken an internal assessment of the adequacy of capital based upon all the risks to which the business is exposed (“ICAAP”). Having performed the ICAAP it is the Company’s opinion that the Pillar 1, Fixed Overhead Requirement is pertinent.