Independent Advice Ltd
- Confidentiality and Materiality
- Risk Management Policies and Objectives
- Structure of Risk Management Function
- Capital Resources
- Integration into Business Strategy
The Pillar 3 disclosure for Independent Advice Ltd. (“IA Ltd”) as at 4th September 2019 is set out below as required by the FCA’s “Prudential Sourcebook for Banks, Building Societies and Investment Firms” (BIPRU) specifically BIPRU 11.3.3 R.
This is a requirement which stems from the UK’s CRD III implementing Regulations which represented the European Union’s application of the Basel Capital Accord. IA Ltd. is no longer formally subject to CRD but remain subject to the UK’s implementation Regulations of CRD prior to CRD IV. The regulatory aim of the disclosures is to improve market discipline.
The aim of Pillar 3 is to encourage market discipline by developing a set of disclosure requirements for investment firms and credit institutions that will allow other market participants to access key pieces of information on a firm’s capital, risk exposures and risk assessment processes. the disclosures are to be made public for the benefit of the market.
IA Ltd. makes Pillar 3 disclosures annually. The disclosures will be as at the Accounting Reference Date (“ARD”) which is 31st July. However, where there is a material change IA Ltd. will make interim Pillar 3 disclosures. This disclosure is published on the company website.
The accuracy of the Pillar 3 disclosures is the responsibility of and have been reviewed by the Board.
IA Ltd was authorised by the Financial Services Authority on 2nd August 2010. The data contained within this disclosure covers the period from 1st August 2018 to the financial year end on 31st July 2019.
IA Ltd is classified as BIPRU Limited Licence €50k firm and, as such, is required to comply with the three Pillars of Basel II (the Capital Requirements Directive). The three Pillars that make up the Capital Requirements Directive are set out below.
- Pillar 1 – sets out the minimum capital requirements that we need to retain to meet our credit, market and operational risk.
- Pillar 2 – requires us, and the FCA, to take a view on whether we need to hold additional capital against firm specific risks not covered by Pillar 1. This is known as the Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP)
- Pillar 3 – requires us to develop and publish a set of disclosures which will allow market participants to assess key information about our underlying risks, risk management controls and capital position.
This document is designed to satisfy the requirements of Pillar 3 by setting out IA Ltd’s risk management objectives and policies.
The information contained in this document has not been audited by IA Ltd’s external auditors, as this is not a requirement, and does not constitute any form of financial statement and must not be relied upon in making any judgement on IA Ltd.
5. Confidentiality and Materiality
The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. We are permitted to omit required disclosure if we believe that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information. In addition, we may omit required disclosures where we believe that the information is regarded as proprietary of confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our clients, suppliers and counterparties. We have made no omissions on the grounds that it is immaterial, proprietary or confidential.
5. Risk Management Policies and Objectives
The disclosures in this document are made with respect to Investment Advice and Discretionary Fund Management services to clients. IA Ltd. acts solely as agent and does not hold client money or client assets so the main protection to our clients is provided through their own client asset arrangements.
Where possible, IA Ltd. will attempt to manage all the risks that arise from its operations. As IA Ltd. is a BIPRU Limited Licence €50k firm it is not usually exposed to Credit Risk, Market Risk (including interest rate risk) or Operational Risk. Nevertheless, IA Ltd. has separately considered the risks associated with its business.
The ways in which the IA Ltd. manages the risks faced include producing key risk information and indicators to measure and monitor performance. The directors personally monitor and control specific risks.
- IA Ltd is not currently exposed to Market Risk, Position Risk, Foreign Exchange Risk, Counterparty Risk or Large Exposures resulting from the same, as IA Ltd. is not authorised to, and consequently does not Deal as Principal or underwrite new issues of securities.
- IA Ltd. has potential Credit Risk arising from clients. However, in practice IA Ltd’s fees are invoiced to and settled directly from clients or by third party settlement against a clients investments held upon a platform. As a result IA Ltd. has virtually no credit risk exposure.
- IA Ltd. does not use the IRB Approach when calculating its Credit Risk Component.
- Operational risk is defined by IA Ltd as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. IA Ltd’s risk management framework emphasises operational risk. The Directors review all aspects of the business on a regular basis to ensure operational risks have been identified and effective controls put in place to mitigate the risks identified, so the combination of the impact assessment and probability of each risk is kept to an acceptable level. IA Ltd. has identified a number of key operational risks; amongst these are key man risk, key trusted provider risk, staff errors and IT security or system failures.
- Business risk is the risk of loss inherent in IA Ltd’s operating, business and industry environment. IA Ltd’s main business risks relates to a possible fall in new client enquiries and assets under management and a consequent diminution in investment management fees. As such, poor performance, service and or adverse market conditions could also impact revenues and hinder the ability to acquire new clients. Business risk exposure is mitigated, to a certain extent by the high levels of capital held by IA Ltd, which ensure operating expenses coverage for a meaningful period.
- Market risk is categorised as the impact that adverse market conditions could have on IA Ltd’s revenues. Ia Ltd. focuses on wealth preservation; consequently, the market risk profile of clients’ portfolios has historically limited IA Ltd’s market risk when adverse market conditions occurred. IA Ltd is focused on increasing assets under management, client retention and client satisfaction. IA takes no proprietary market risk.
- Liquidity Risk IA Ltd has consistently maintained sufficient liquid resources to meet our obligations. Cash flow and capital forecasting is performed on a regular basis and quantified in our ICAAP. Excess cash is held on deposit or in interest bearing accounts at institutions with an investment grade credit rating.
- Concentration Risk The IA Ltd. is highly unlikely to have any significant exposures to any individual client or third party.
- The IA Ltd. is not subject to Consolidated Financial Reporting.
6. Structure of Risk Management Function
IA Ltd is a small firm with 7 employees of which three are directors. The directors hold bi-monthly meetings to review and identify any new risks and monitor previously identified risks.
7. Risk Reporting and Management Systems
There are a number of reports and processes that are employed by IA Ltd. to enable key risks to be identified, reported to the directors for consideration and, where required, actioned and managed. These may include:
- Compliance Risk Assessment – This is an assessment of all relevant risks that IA Ltd. is likely to face in the next twelve months and is performed on an annual basis. The report is reviewed and approved by the directors and is used as the basis for the firm’s compliance monitoring for the following period. A director attends all local FCA business risk awareness workshops and where possible FCA compliance workshops.
- Compliance Resource Assessment – This assessment determines the level of internal compliance resource required by IA Ltd. for the period covered by the compliance risk assessment and will identify shortfalls in resourcing that could lead to compliance weakness and breaches. This is performed annually by the directors. The outcome of the review dictates how much third party compliance work is brought in. IA Ltd. expects additional resources are required mainly for variations in permission or due to future regulatory change.
- Anti Money-laundering Risk Assessment – A forward looking annual assessment of the risks IA Ltd. faces from money laundering and wider financial crime. The MLRO will use this assessment to drive the necessary anti-financial crime initiatives within the firm.
- Compliance Oversight Officer’s Report – An annual consideration of the standard of the IA Ltd.’s governing body for consideration and action as necessary.
- MLRO Report – An annual consideration of the standard of IA Ltd.’s anti-money laundering and other financial crime practices over the preceding year, The report is presented to the firm’s directors for consideration and action as necessary.
8. Capital Resources
- IA Ltd.’s capital resources comprise entirely share capital and reserves.
- Our Tier 1, Tier 2 and Tier 3 capital is as set out below:
Tier 1 Capital (£000’s)
Tier 3 Capital (£000’s)
Total Capital Resources (£000’s)
NET OF DEDUCTIONS IN GENPRU 2.2 AND LIMITS LAID DOWN IN GENPRU 2.2.25-30R AND GENPRU 2.2.42-50R
9. Integration into Business Strategy
It is the intention of IA Ltd. to maintain sufficient capital resources to allow it to continue to operate profitably in the private wealth management sector and to provide a reasonable return for the shareholders of the firm. In order to maintain this capital IA Ltd. must generate and retain profits that will add to the firm’s financial reserves.
Internal Capital Adequacy Assessment Process (“ICAAP”)
The ICAAP combines Pillar 1 and Pillar 2 requirements and involves a detailed analysis of the various elements of the business to understand the need for capital in the forthcoming period. Various models are tested in the process to identify areas where additional capital may be required to manage the risks to which IA Ltd. is exposed.
The result of the ICAAP is challenged by a party independent of the preparation of the ICAAP and this is ultimately reviewed and approved by the directors to ensure that there is sufficient capital within IA Ltd. to meet our future plans and anticipated risks.
The Directors of IA Ltd. consider they currently need no further capital resources to meet any identified Pillar 2 requirements.