This Pillar 3 disclosure (the “disclosure”) has been prepared to show how Oxford Capital Partners LLP (OCP or the “Firm”) has addressed the obligation placed upon it regarding capital adequacy disclosure requirements.
The Capital Requirements Directive (the “Directive”) of the European Union established a regulatory capital framework across Europe governing the amount and nature of capital that credit institutions and investment firms must maintain. In the United Kingdom, the Directive has been implemented by the Financial Conduct Authority (FCA).
The FCA framework consists of three Pillars:
- Pillar 1 establishes minimum capital requirements, defines eligible capital instruments, and prescribes rules for calculating risk weighted assets;
- Pillar 2 requires banks and investment firms to have an Internal Capital Adequacy Assessment Process (ICAAP) and requires that regulatory supervisors evaluate each firm’s overall risk profile as well as its risk management and internal control processes; and
- Pillar 3 encourages market discipline through a prescribed set of disclosure requirements which allow market participants to assess the risk and capital profiles of banks and investment firms.
BIPRU 11 Disclosure (Pillar 3) requires that a firm subject to the provisions of the Directive must disclose the relevant information required under this rule unless the information is believed to be immaterial, proprietary or confidential.
It is the Firm’s view that proprietary information is that which, if it were shared, would undermine the Firm’s competitive position. Information is considered to be confidential where there are obligations binding the Firm to confidentiality with customers or third parties that OCP have entered into a contracts with.
Scope and application of the requirements
OCP is authorised and regulated by the FCA under firm reference number 585981. OCP is a small authorised UK Alternative Investment Fund Manager (sub-threshold) and is part of a group as it is a subsidiary of the unregulated holding company, Oxford Capital Holdings Limited (“Holdings”). The Firm is categorised as a BIPRU 50K firm by the FCA. It is an investment management firm which does not deal on own account or hold client money.
Frequency of review, verification, and publication
The Firm’s Pillar 3 disclosure will be reviewed annually or more frequently if appropriate. The disclosure will be published as soon as practicable after the completion of OCP’s annual financial statements and ICAAP. The information contained in this document has not been 1 audited by OCP’s external auditors and does not constitute any form of financial statement. This disclosure is published on OCP’s website www.oxcp.com
It is noted that the current Pillar 3 disclosure requirements will be replaced by the IFPR disclosure requirements due to be implemented in 2022.
Risk management objectives and policies
The Firm has developed and implemented policies, procedures and practices in order to identify, measure, manage and monitor risk. These are proportionate given the nature, scale and complexity of the Firm’s activities and its risk tolerance. The Firm has a defined Risk Management Framework which draws together all the elements of Risk Management within the Firm:
- Definition of the Firm’s risk tolerance
- Risk identification
- Risk documentation
- Risk monitoring
- Risk measurements
- Management/Mitigation of conflicts.
OCP has a Risk Management Committee (RMC) which takes responsibility to identify, review and monitor the risks that are posed against the Firm and implement the Risk Management Framework which incorporates OCP’s Risk Monitor. The RMC meets on a quarterly basis. In addition, key risks identified on the Risk Monitor are discussed by the Senior Management Team (SMT) on a monthly basis.
Capital Resources and Capital Adequacy
OCP continuously monitors capital resources and formal Finance Committee meetings take place on a monthly basis which are attended by members of the SMT. The Firm is small with a simple operational infrastructure. There is no market risk and all cash held is in GBP and neither accounts receivable nor payable are in foreign currency. The Firm does not extend loans with its own capital, nor does it have any loans of its own. The Firm does not enter into complex settlement transactions with any derivatives. The Firm does however have exposure to counterparty risk through its placement of its liquid cash funds, the majority of which are placed with A-rated banking institutions. Credit risk has been calculated under the standardised methodology.
The main features of OCP’s capital resources for regulatory purposes are as follows:
|Tier 1 capital||£3,123,000|
|Total tier 2 and tier 3 capital||£-|
|Deductions from tier 1 and tier 2 capital||£-|
|Total capital resources, net of
The results of OCP’s ICAAP analysis are summarised below:
|Credit risk capital requirements, calculated
under the standardised methodology
|Market risk capital requirement||£-|
|Total credit and market risk capital
|Fixed overhead requirement||£499,500|
|Pillar 1 capital requirement||£499,500|
|Pillar 2 capital requirement||£-|
|Orderly Wind Down requirement||£418,000|
|Highest of Pillar 1, Pillar 2 or Wind Down||£499,500|
The Firm is a BIPRU firm and as such its capital requirements are the highest of:
- Base Capital Requirements of €50,000; or
- Variable Capital Requirements (the sum of the market & credit risk requirements); or
- The Fixed Overheads Requirement
At 30 June 2021, the business held cash of £2,344,000 and net assets of £3,123,000 and consequently holds sufficient resources to meet its obligations under Pillar 1 Capital Resource Requirements and Pillar 2 ICAAP requirements. It is the Firm’s experience that the capital requirements for Market Risk and Credit Risk are exceeded by the Fixed Overhead Requirement.
Credit risk has been calculated under the standardised approach to market risk. Under this approach, the market risk capital requirement is calculated as 8% of the Firm’s total risk weight exposures.
FCA Remuneration Code
The aim of the Remuneration Code (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 them to excessive risk. OCP has a Remuneration Policy that appropriately addresses conflicts of interest and ensures that OCP’s staff are not rewarded for taking inappropriate levels of risk. Under the Code, OCP is classified as a level three firm, which allows the Firm to disapply many of the technical requirements of the Code and proportionately apply its rules and principles in establishing its policy.
Decision-making process for remuneration policy
The Governing Body of the Firm, the Management Committee, is responsible for approving and maintaining the Remuneration Policy and overseeing its implementation. The broad conduct of the Management Committee is overseen by the Board of Holdings. In establishing the Firm’s top-down Remuneration Framework, the Governing Body will take into consideration the performance of:
- The Firm overall;
- The business line; and
- The individual (both financial and non-financial performance).
Link between remuneration and performance
The Firm is dedicated to ensuring that individuals are not remunerated for exceeding the risk tolerances of the Firm. When assessing individual performance, the Firm takes account of financial as well as non-financial criteria.
In order to support the Firm’s long-term business strategy, the remuneration strategy is contextualised in a multi-year framework. This ensures that variable remuneration is only paid from risk adjusted profits based upon the performance of the business as a whole, as well as the performance of the business line and of the individual, and only after the Firm’s liquidity and capital requirements have been considered on a rolling three-year period.
The FCA classifies Code Staff as those staff whose activities could have a material impact on a firm’s risk profile. They comprise senior management, material risk-takers, staff engaged in control functions and any employees receiving total remuneration which takes them into the same remuneration bracket as senior management and material risk-takers.
The Firm is required to disclose the aggregate remuneration of Code Staff on a fixed and variable basis. For the financial year ending 30 June 2021 the annual aggregate fixed remuneration of the 7 employees or partners identified as Code Staff was £648,556 and the annual aggregate variable remuneration was £75,506. Remuneration is gross of all employer taxes and pension contributions. The only form of variable remuneration in the period was cash relating to bonuses and performance fees.
As a result of the limited number of employees within the Firm and therefore business areas, the Firm does not consider it appropriate to disclose aggregate remuneration across all business areas in order not to prejudice individuals with regard to disclosure of personal information.