Amended and reviewed by Nimrod Capital LLP 26 February 2020
The Capital Requirements Directive (‘the Directive’) 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’) in its regulations through the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).
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
Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position.
The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations
We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information.
In addition, we may omit required disclosures where we believe that the information is regarded as proprietary or confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our customers, suppliers and counterparties.
We have made no omissions on the grounds that it is immaterial, proprietary or confidential.
Scope and application of the requirements
Nimrod Capital LLP (“the Firm”) is authorised and regulated by the Financial Conduct Authority and as such is subject to minimum regulatory capital requirements. The Firm is categorised as a limited licence firm by the FCA for capital purposes. It is an investment management firm and as such has no trading book exposures.
The Firm is not a member of a group and so is not required to prepare consolidated reporting for prudential purposes.
The Firm is governed by its members (“Principals”) who determine its business strategy and risk appetite. They are also responsible for establishing and maintaining the Firm’s governance arrangements along with designing and implementing a risk management framework that recognises the risks that the business faces.
The Principals also determine how the risk our business faces may be mitigated and assess on an ongoing basis the arrangements to manage those risks. The Principals meet on a regular basis and discuss current projections for profitability, cash flow, regulatory capital management, and business planning and risk management. The Principals manage the Firm’s risks though a framework of policy and procedures having regard to relevant laws, standards, principles and rules (including FCA principles and rules) with the aim to operate a defined and transparent risk management framework. These policies and procedures are updated as required.
The Principals have identified that business, operational, market and credit risks are the main areas of risk to which the Firm is exposed. Annually the Principals formally review their risks, controls and other risk mitigation arrangements and assess their effectiveness. Where the Principals identify material risks they consider the financial impact of these risks as part of our business planning and capital management and conclude whether the amount of regulatory capital is adequate.
The Firm is an IFPRU €50,000 firm.
Its capital resources as at 30 June 2019 are as follows:
|Tier 1 Capital||£350,000|
|Tier 2 and Tier 3 Capital||–|
|Deductions from Tiers 1,2 and 3 Capital||–|
|Total Capital Resources net of Deductions||£350,000|
The minimum capital requirement is the greater of
- €50,000 – base capital requirement
- 8 per cent of its Total Risk Exposure Amount (i.e. sum of credit and market risk)
- Own Funds Requirement based on Fixed Overheads Requirement (“FOR” is calculated in accordance with FCA rules, based on the Firm’s previous years audited expenditure – which is essentially 25% of the Firm’s operating expenses less certain variable costs).
In practice as at 30 June 2019 the item “Own Funds Requirement based on FOR” was the largest of these items which thereby establishes the minimum capital requirement.
In practice also the Total Risk Exposure Amount consisted solely of the Risk Weighted Exposure Amounts for Credit, Counterparty Credit and Dilution Risks and free Deliveries – using the Standardised Approach.
This is because the Risk Exposure Amounts for all other risk categories such as Settlement, Position, Foreign Exchange, Commodities, Operational, Credit Valuation and Trading Book have all proved in practice to be £nil.
In summary, the Firm follows the standardised approach to foreign exchange risk and the simplified standard approach to credit risk. The Firm is subject to the FOR and is not required to calculate an operational risk capital charge, though it considers this as part of its process to identify the level of risk based capital required
Nimrod’s minimum capital requirement as at 30 June 2019 has been determined; being £233,000, as 25% of the FOR exceeded the values produced by the other 2 tests.
Remuneration code disclosure
Nimrod Capital LLP (“the Firm“) is authorised and regulated by the Financial Conduct Authority as an IFPRU Limited Licence Firm and is subject to the FCA Rules on remuneration. These are contained in the FCA’s Remuneration Code located in the SYSC Sourcebook of the FCA Handbook (SYSC 19A for IFPRU firms). The Remuneration Code (“the RemCode”) covers an individual’s total remuneration, fixed and variable. The Firm incentivises staff through a combination of the two. It should be noted that at present, the Firm does not undertake investment management activity and so the application of the Remuneration Code is limited.
The Firm’s business is to provide investment management services.
Our policy is designed to ensure that we comply with the RemCode and our compensation arrangements:
2. are consistent with and promotes sound and effective risk management;
0. do not encourage excessive risk taking;
1. include measures to avoid conflicts of interest; and
2. are in line with the Firm’s business strategy, objectives, values and long-term interests.
The FCA have sought to apply proportionality in the first instance by categorising firms into 3 levels. The Firm falls within the FCA’s third proportionality level and as such this disclosure is made in line with the requirements for a Level 3 Firm.
Application of the requirements
We are required to disclose certain information on at least an annual basis regarding our Remuneration policy and practices for those staff whose professional activities have a material impact on the risk profile of the firm. Our disclosure is made in accordance with our size, internal organisation and the nature, scope and complexity of our activities.
- Summary of information on the decision-making process used for determining the firm’s remuneration policy.
1.1. The firm’s policy has been agreed by the Senior Management in line with the RemCode principles laid down by the FCA.
1.2. Due to the size, nature and complexity of the firm, we are not required to appoint an independent remuneration committee.
1.3. The Firm’s policy will be reviewed as part of annual process and procedures, or following a significant change to the business requiring an update to its internal capital adequacy assessment.
- Summary of how the firm links between pay and performance.
2.1. Employees are rewarded based on their contribution to the overall strategy of the business particularly in the area of Operations.
2.2. Other factors such as performance, reliability, effectiveness of controls, business development and contribution to the business are taken into account when assessing the performance of the senior staff responsible for the infrastructure of the firm.
2.3. The firm does not operate any ‘bonus’ schemes in respect of its Code Staff and the controlling members (who, as set out below, are the firm’s only two Code Staff members) do not receive any fixed remuneration by way of salary. Remuneration of Code Staff is by way of profit share under the LLP structure which is by its nature variable rather than fixed.
2.4. The controlling members meet on an annual basis shortly after the financial year end to discuss the extent to which any profit distribution is appropriate. The firm’s accountant also attends these meetings in an advisory capacity to ensure that any profit distribution is appropriate in light of the firm’s capital adequacy requirements. In circumstances in which the firm’s profit is low (or if there is no profit), no distributions will be made.
- Aggregate quantitative remuneration information for Code Staff
Partnership profits allocated to members of the LLP are disclosed in aggregate in the report and accounts, which are publicly available via Companies House.