SAPIEN CAPITAL LIMITED (“SCL”) Pillar 3 disclosures and remuneration disclosures For the year ended 31 March 2015
The Capital Requirements Directive 2013/36/EU (“CRD IV”) of the European Union establishes a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain. In the United Kingdom, the Directive has been implemented by the Financial Conduct Authority (“FCA”) and the Prudential Regulatory Authority (“PRA”) since 1 April, 2013) in its regulations through the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, IFPRU and the Regulation of the European Parliament and the Council on prudential requirements for credit institutions and investment firms (Regulation (EU) No 575/2013) and amending Regulation (EU) No 648/2012 together “EU CRR”.

The FCA framework consists of three ‘Pillars’:

  • Pillar 1 sets out the minimum capital amount that meets the firm’s credit, market and operational risk;
  • Pillar 2 requires the firm to assess whether its Pillar 1 capital is adequate to meet its risks and is subject to annual review by the FCA and PRA; and
  • Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position.

SCL is permitted to omit required disclosures if its management believes that the information is immaterial and that such omission would be unlikely to change or influence the decision of a reader relying on that information. The Firm has made no omissions on the grounds that it is immaterial, proprietary or confidential.

Scope and application of the resources
SCL is a Full Scope IFPRU 730K firm and is subject to IFPRU and the EU CRR. SCL Firm has the permission to provide advisory and arranging services in addition to dealing on a principal and agency basis. The permissions allow the Firm to hold own account positions, only utilising this permission to acquire positions necessary to fulfil customer requirements. The Firm also has permissions to hold client money and safeguarding and administering client assets. The Firm, in the main deals in foreign exchange, commodities, metals and securities transactions. SCL also provides corporate finance advisory and arranging services. SCL only deals with professional customers and eligible counterparties.

Statement of risk appetite
SCL’s risk appetite is low by design and limited by its business model, the products it trades and in the main dealing as a matched principal broker. Risk is further mitigated by SCL’s Control and “Risk Management Framework” and in relation to credit risk with managing customer positions on a real time basis reduce the risk of customers going into deficit where there are quick volatile moves in the market. The Firm also limits the trade volumes to a counterparty creditworthiness.

Risk appetite is approved at board level.

Risk management objectives and policies
SCL has identified the material risks below.

Liquidity risk
SCL holds fully paid up share capital of £220K plus a share premium of £20Kand retained earnings of £1,131K which is made up mainly of cash.

Under normal trading conditions liquidity risk is not generally an issue, however, liquidity risk could become an issue in the event of one of its settlement brokers or banks going into liquidation or in the event of large deficits arising on customer accounts as a result of volatile movements in the market.

Liquidity risk has been separately analysed in the SCL Liquidity Policy document, covering areas of the organisational structures for liquidity management, liquidity monitoring and management and early warning indicators and strategies followed by scenario analysis. SCL follows the rules and guidance as set out in IFPRU 2.2.2, in the managing of its liquidity risk. SCL has high levels of liquidity and no risk capital allowance has therefore been made for liquidity risk in the ICAAP.

Credit risk (including counterparty risk)
Credit risk is determined pursuant to EU CRR Capital Requirement for Credit Risk, Chapter 1 and Chapter 2 specifically; Art 107, 111 – 122 and 134.

The extent to which SCL provides credit to clients and, therefore, the extent to which it is subject to credit risk and how we mitigate this is governed by the terms and conditions of individual agreements with those clients.

With regard to bank deposits, SCL only deposits money with approved reputable credit institutions. As far as fee debtors are concerned, the risk of not receiving sums due to the Firm is mitigated as fees is deducted from customer transaction accounts at the time of executing each transaction.

Market Risk
SCL’s market risk is limited to its exposure to foreign exchange fluctuations, due to some assets and liabilities being denominated in currencies other than sterling, and a position risk requirement based on our own account positions in financial instruments.

Business Risk
The principal business risk assessment principally takes the form of a fall in execution business following a market downturn that leads to lower brokerage fees. To determine impact the Firm regularly analyses various different economic scenarios to model the impact of economic downturns on its financial position. Senior management is seeking to add further revenue streams to limit impact.

Operational Risk
Operational risk includes everything, from risk to the Firm’s high-level strategy to risk of administrative errors. SCL’s policy is to operate a robust and effective risk management process, embedded within the governance and management structures of its business.

Internal Capital Adequacy Assessment Process (“ICAAP”)
As required by the FCA rules, SCL has established an Internal Capital Adequacy Requirement Process. SCL monitors the adequacy of its capital and other resources relative to its risks on a regular basis. The Board of Directors reviews and approves the ICAAP document at least once a year.

Capital adequacy (own funds & leverage ratios)

CAPITAL SUMMARY 31/03/2015 £, 000
Capital Adequacy - Own funds  
Paid up capital instruments - issued ordinary share capital 220
Share premium 20
Previous years retained earnings 1131
Capital Adequacy - Risk Exposure Amounts  
Institutions 1432
Corporates 16
Other items 58
Operational risk (Basic indicator Approach) 2359
Market risk (Foreign exchange) 1390
Capital Adequacy - Ratios  
CET1 Capital ratio 26.08%
Surplus(+)/Deficit(-) of CET1 capital 1135
Tier 1 Capital ratio 26.08%
Surplus(+)/Deficit(-) of Tier 1 capital 1056
Total capital ratio 26.08%
Surplus(+)/Deficit(-) of total capital 951

Pillar 3 Remuneration Disclosure

Decision-making process for remuneration policy
The Board of Directors is responsible for human resource issues connected to terms and conditions of employment, remuneration (fixed and variable) and benefits.

Remuneration disclosures for the year ended 31 March 2015
The board determines remuneration policy taking full account of the firm’s business strategy, objectives, values and long term interests of the firm. The Remuneration Policy encourages staff to improve how they undertake work rather than with a focus on how much revenue or profit they can make. This is based on the fact that most of the criteria which determine any variable remuneration are non-financial.

Remuneration Code Staff comprise staff that hold significant influence functions, are senior management, risk takers, staff who undertake controlled functions and employees receiving remuneration on a par with senior management.

Pay-performance link
The pay performance link for Code Staff is made up of fixed pay of salary and benefits and performance related pay which is determined by a set of criteria for each Code Staff member.

These criteria are performance measures linked to the quality of the work done with linkage to agreed financial targets. The performance component of the remuneration relates to a percentage of a Code Staff members salary with bonuses determined by the overall financial performance of the Firm.

Code Staff remuneration
SCL has 5 Code Staff which are Senior Management. Aggregate remuneration in respect of Code Staff was £224K. Fixed Remuneration consists of base salaries for Senior Management. No fees are paid for non-executive directors.

Variable remuneration consists of semi-annual and annual bonuses.

For all Code Staff total fixed remuneration was £204K and total variable remuneration was £20K.