PILLAR THREE DISCLOSURE
Cresco Capital Management (UK) Ltd (“the Firm”) is authorised and regulated by the Financial Conduct Authority and is categorised as a BIPRU €50,000 Limited Licence Firm for regulatory purposes. The disclosure has been prepared by the Firm in accordance with BIPRU 11 and summarises the material disclosures the Firm is required to make under Pillar 3 of the Capital Requirements Directive.
The day-to-day management of the risks of the Firm is carried out by two directors of the Firm: Mr Derek Mayne and Mr Max Steinkopf are responsible for the oversight of the Firm’s compliance and financial arrangements. The directors meet formally a minimum of nine times per year with a set agenda and key decisions are documented.
The Firm is supported in its compliance and accounting arrangements by two independent service providers. The Firm produces monthly management accounts – subject to annual external audit and a mid-term review by an external consultant – from which it is able to monitor and project its capital resources. It has a compliance manual, a compliance monitoring program and an ICAAP process that ensures it is able to manage the risks that it faces. Given the nature and activities of the Firm, its risk appetite is low. It does not deal in a principal capacity and therefore does not have a trading book. The key risks that it faces are as follows:
The main market risk of the Firm is foreign exchange risk as a result of its management fees being calculated in US dollars whilst the Firm’s operating and reporting currency is sterling. This risk is monitored by the board of directors and is either converted at the time that the fees are calculated or hedged against the operating currency of the Firm. As at 31st December 2017, the Firm did not incur significant market risk. The market risk as of 31 December 2017 was £5,000.00.
Interest rate risk
The Firm is not exposed to interest rate risk as it does not rely on borrowings to meet operating expenditure and does not make loans to clients.
The main credit risk of the Firm is a defaulting debtor. As noted above, the Firm does not extend credit to its clients. Management fees are payable within 30 days of their calculation as are consultancy fees. Such exposures are settled within 30 days of their occurrence and are risk-weighted at 8% of their face value for the calculation of credit risk under Pillar 1 Credit Risk assessment.
The key credit exposures that the Firm has are cash balances maintained with its UK clearer and management fees receivable from its clients. Cash balances are held in overnight deposit accounts and readily available. Under Pillar 1, cash balances are risk weighted at 8% of its risk weighted exposure amount (i.e. 8% of 20% of the balance).
The directors believe that the Pillar 1 risk weight is adequate and that a Pillar 2 adjustment is not required. As at 31 December 2017, the credit risk was £17,000.00.
The liquidity risk that the Firm faces is the inability to settle its liabilities as they fall due. Part of the risk management structure noted above monitors the liquidity position of the Firm at all times. Bank reconciliations and cash flows are prepared on a regular basis to ensure that all liabilities are understood and able to be settled as they fall due. Cash resources of the Firm are maintained in accounts with instant access as noted above.
As a BIPRU €50,000 Limited Licence Firm, the Firm is not subject to operational risk under Pillar 1. However, the Firm is aware of the reputational damage that could result from a failure in operating procedures. The Firm’s key policy and procedures are documented in the compliance manual and monitored via the compliance monitoring program.
Changes to procedures are communicated to directors and staff as they occur and if significant all individuals will provide a written confirmation of their understanding and acknowledgement of the changes. Directors and staff remain aware of the policies and procedures and periodically confirm their compliance via a biannual compliance declaration.
Given the nature and small size of the business, remuneration for all employees is set by the board of directors. The board of directors reviews the performance of all employees and based thereon determines each employee’s overall level of remuneration and the split of that between base salary, bonus etc.
Given that the Firm has only one fund management business area, all remuneration disclosed in our audited financial statements is from these business areas. The Firm has defined “Code Staff”. The aggregate level of remuneration is disclosed in our audited financial statements.
The Firm is a BIPRU Limited Licence firm and is therefore a “tier three” firm for the purposes of the FCA’s General Guidance on proportionality in relation to its Remuneration Code. Tier three firms are permitted to disapply certain principles contained within the FCA’s Remuneration Code. Where the Firm has elected to disapply certain principles this has been noted below in the relevant section of the policy.
As the Firm is a BIPRU €50,000 Limited Licence firm it has calculated its capital resources in accordance with GENPRU 2.2. The Firm’s capital resources are detailed in the below.
Tier 1 capital resources 87
Tier 2 capital resources 0
Tier 3 0
Deductions form total capital e.g. illiquid assets (0)
Total capital resources as at 31 December 2017 87
Capital Resource Requirements
The Firm’s Pillar 1 requirement is calculated as the higher of:
- The Base Capital Requirement (€50,000)
- The sum of:
- The Credit Risk Capital Requirement; and
- The Market Risk Capital Requirement.
- The Fixed Overheads Requirement (3 months’ expenditure of the Firm)
In the opinion of the Board of Directors, the higher of these three is likely to be the Fixed Overhead Requirements.
Summary: Pillar 1 and Pillar 2
As at the date of this report, the Firm has a surplus of capital resources over its Pillar 1 and Pillar 2 capital resources requirements.
The Firm has undertaken an Internal Capital Adequacy Assessment Process (ICAAP) to determine whether it needs any further regulatory capital due to the risks it faces as set out above.
As a result of this the Firm has concluded that it needs no additional level of capital resources to meet its requirements under Pillar 2.