Pillar 3 Disclosures & Remuneration Policy

Pillar 3 Disclosures

Introduction

Alpha Real Capital LLP (“ARC” or the “Company” or the “Firm”) is authorised and regulated in the UK by the Financial Services Authority (“FSA”) and is therefore subject to the FSA’s Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), specifically BIPRU 11.3.3 R.  This follows the introduction of the Capital Requirements Directive (“CRD”), which came into force on 1st January 2007.  The CRD rules were designed to generally increase investor protection throughout the market and these rules require the Company to assess the adequacy of its capital resources given its risks. 

The CRD requirements have three pillars:

  • Pillar 1 establishes the minimum capital requirements given the credit, market and operational risks;
  • Pillar 2 requires the Company and the FSA to take a view on whether the Company needs to hold additional capital to cover firm-specific risks not covered by the Pillar 1 minimum requirements; and
  • Pillar 3 requires the Company to publish certain details about its risks and risk management process.

The Company’s Pillar 3 disclosures provide transparency about its capital requirements, risk exposures and risk assessment processes and are made for the benefit of the Company’s clients.  The FSA generally requests that firms address specific risks pertinent to its business (i.e.: market, credit, liquidity, operational, business, concentration and any residual risks), and these items are addressed below.

The rules in BIPRU 11 require a Pillar 3 disclosure.  This document satisfies our obligation and the Company will provide its Pillar 3 disclosure annually, covering the previous financial year.

Location

The Pillar 3 will be published on the Company’s website.

Materiality

Information is generally viewed as material if its omission or misstatement could change or influence the assessment or decision of someone relying on that information for the purpose of making economic decisions.  If a certain disclosure is omitted from this statement, we viewed the disclosure to be immaterial or inapplicable to us.

Confidentiality

Information is generally viewed as proprietary if sharing that information with the public would undermine a competitive position.  Proprietary information may include information on products or systems that, if shared with competitors, would render the Company’s investments therein less valuable.  Further, the Company must regard information as confidential if there are obligations to customers or other counterparty relationships binding the Company to confidentiality. 

Background of the Company 

ARC is a co-investing fund manager. It has received FSA permission for advising and managing investments. Please refer to the FSA register at http://www.fsa.gov.uk/fsaregister for full details of ARC’s permissions.

Risk Management Objectives and Policies

The Company’s general risk management objective is to develop systems and controls that mitigate risk to a level that does not require the allocation of Pillar 2 capital.

The Company’s annual Internal Capital Adequacy Assessment Process (“ICAAP”) did not identify any internal or external risks that resulted in the Company having to increase its capital levels.  Accordingly, the Company’s business and operational risks are limited in scope and the Company believes that it has a minimal risk profile. 

Governance and Risk Framework

The Company oversees and manages its risks through a combination of a Compliance Manual, routine monitoring of policies and procedures, a Business Continuity Plan, an annual independent audit and reporting process, and the use of an independent UK compliance consultant.  The Company’s policies, procedures and financial controls are regularly reviewed and revised as needed. 

Disclosures

  • Market Risk

Market risk is the risk that the value of, or income arising from, the ARC’s assets and liabilities varies as a result of changes in the market price of financial assets, changes in exchange rates or changes in interest rates.

  • Credit Risk

Credit risk refers to the potential risk that customers fail to meet their obligations as they fall due.  ARC is exposed to the credit risk of its bankers and receivables from its Funds and clients. ARC considers these risks on a continuous basis but does not believe that they are significant.

  • Liquidity Risk

ARC’s liquidity policy is to maintain sufficient liquid resources to cover cash flow imbalances and fluctuations in fees received/receivable.  The Company maintains sufficient cash balances with its banking partners to cover liquidity risk. Furthermore, the Company continuously monitors income and expenditure levels and adjusts plans accordingly.

  • Operational Risk

The Company has simple systems and data processing requirements and the Company does not require its systems to be available ‘real time’.  The risk of any systems failures is therefore not high-risk and the Company believes that it has minimal operational risk.

  • Other risks

Other risks the Company considered included:

  • Business Risk: failure of business plan, resulting in losses or reduced income
  • Concentration Risk: whether overly dependent on any customer or group in terms of income or credit risk
  • Residual Risk: any other material risk specific to the company

The Company does not consider these risks, or any other material risks mentioned above, would require the Company to increase its capital levels.

Capital Resources

ARC is designated as a BIPRU Limited Licence Firm (base capital requirement is €50,000) and is subject to an expenditure requirement. 

Remuneration Disclosures

The FSA has amended the Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU), and specifically BIPRU 11, to now include a requirement for disclosure of the Company’s approach to linking remuneration to risk.

The Company feels that its Remuneration Policy appropriately addresses potential conflicts of interest and that the Company’s authorised persons are not rewarded for taking inappropriate levels of risk.  Under the Remuneration Code, the Company is classified as a Level Three firm, which allows the Company to disapply many of the technical requirements of the Code and proportionately apply the Code’s rules and principles in establishing the Company’s policy. 

The Decision Making Process

On grounds of proportionality ARC’s Executive Committee also serves as the remuneration committee. 

The link between pay and performance

Overall remuneration may include an annual incentive compensation reflecting individual performance and responsibility, both short-term and long-term, as well as the Company’s overall performance.

Incentive Compensation

The award of incentive compensation is a qualitative decision where employee and supervisory input are significant components and is currently not used.

Code Staff

ARC has assessed that the Code Staff in relation its Remuneration Policy are its partners.

Quantitative Remuneration Data

We are required to disclose the aggregate quantitative information on remuneration, broken down by business area). The total remuneration (which includes partner drawings) to code staff (which includes corporate partners) during the year ended 31 March 2018 was £14.9m.