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 Conduct Authority (“FCA”) and is therefore subject to the FCA’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 FCA 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 FCA 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 FCA permission for advising and managing investments. Please refer to the FCA register at http://www.fca.gov.uk/fcaregister 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

Governance

The purpose of the Remuneration Code is to ensure that firms establish, implement and maintain remuneration policies, procedures and practices that are consistent with, and promote, sound and effective risk management.

Alpha Real Capital LLP (“ARC”) has a Remuneration Policy that applies to senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the firm’s risk profile.

ARC has considered the contribution that can be made by a Remuneration Committee.  In order to take a proportionate approach given the size and non-complex nature of both the activities undertaken and the organisation, ARC has decided that the governing body will undertake the role which would otherwise be undertaken by a Remuneration Committee.  The governing body will be responsible for setting ARC’s policy on remuneration.

ARC’s Remuneration Policy will, at least annually, be approved by the governing body to ensure that it remains consistent with the Remuneration Code Principles, MiFID II requirements and ARC’s objectives.  The governing body will use all information available to it in order to carry out its responsibilities under the Remuneration Code, for example, information on risk and financial performance.  In addition, the Compliance Officer, as part of ARC’s regulatory monitoring, will include a review of the implementation of this Policy by the firm. 

Link between pay and performance

Remuneration at ARC is made up of fixed (‘salary’) and variable (‘bonus’) components.

Salary is set in line with the market at a level to retain and attract skilled staff.

Any bonus paid is designed to both reflect the performance of a person in contributing to the success of the firm and their success in meeting, or exceeding, targets that have been set by the firm on an individual basis.  The bonus will also take into account the fair treatment of clients and, where applicable, the quality of services provided to clients.

Where remuneration is performance-related then, in addition to the performance of the individual, ARC will also take into account the performance of the business unit concerned and the overall results of the firm.  Performance assessment will not relate solely to financial criteria but will also include compliance with regulatory obligations and adherence to effective risk management.  In keeping with ARC’s long term objectives, the assessment of performance will take into account longer-term performance, and payment of any such performance related bonuses may need to be spread over more than one year to take account of the firm’s business cycle.

The measurement of financial performance will be based principally on profits and not on revenue or turnover.

Awards will reflect the financial performance of ARC and as such variable remuneration may be contracted where subdued or negative financial performance occurs.  ARC will not ordinarily make any variable remuneration awards should the firm make a loss.  In exceptional circumstances such payments may need to be considered.  In such cases the governing body, in conjunction with the Compliance Officer, will consider and document whether such an award would be in keeping with the Remuneration Code.

Quantitative remuneration information

ARC is required to disclose aggregate information on remuneration in respect of its Code Staff, broken down by business area and by senior management and other Code Staff.  The relatively small size and lack of complexity of the firm’s business is such that ARC only has the one business area (investment management) and does not regard itself as operating, or needing to operate, separate ‘business areas’ and the following aggregate remuneration data should be read in that context

The total remuneration (which includes partner drawings) to code staff (which includes corporate partners) during the year ended 31 March 2019 was £14.5m.