Pillar 3 Disclosure
Introduction
The third EU Capital Requirements Directive (CRD), enacted on January 1, 2007, established a regulatory capital framework across Europe for credit institutions and investment firms. This framework was later updated on January 1, 2014, with CRD IV.
The framework is structured around three 'Pillars':
- Pillar 1: Defines the minimum capital requirements.
- Pillar 2: Mandates firms to evaluate the sufficiency of their Pillar 1 capital against their risks, subject to annual review by the FCA.
- Pillar 3: Requires public disclosure of a firm's risks, risk management approaches, and capital position.
In the UK, the Financial Conduct Authority (FCA) has incorporated this Directive into its Handbook of Rules and Guidance. This document fulfills the Pillar 3 disclosure obligations as outlined in these rules.
While we are permitted to omit disclosures deemed immaterial or sensitive (proprietary or confidential), we have chosen not to do so. We define proprietary information as anything that, if disclosed, could compromise our competitive standing, and confidential information as that which we are contractually bound to keep private with clients, suppliers, and counterparties.
C B Financial Services Limited ("the Firm") will publish its Pillar 3 disclosures annually. The Firm has determined that more frequent disclosures are unnecessary due to the stable nature of its business model and services. This assessment will be revisited annually. The disclosures reflect the financial status as of the Accounting Reference Date (ARD), December 31, 2016.
These Pillar 3 disclosures are not subject to external audit unless mandated by accounting standards. They are prepared solely to explain the basis for the Firm's capital requirements and risk management and do not constitute financial statements.
Scope and Application of Requirements
The Firm is authorized and regulated by the FCA and must meet minimum regulatory capital requirements. Given its permissions, the Firm is classified as an IFPRU €730K full-scope investment firm.
All disclosures are presented on an unconsolidated basis.
Risks and Risk Management
The Firm is governed by its Directors ("Principals"), who define its business strategy and risk tolerance. They are also responsible for establishing governance structures and implementing a risk management framework to identify and address business risks.
The Principals determine risk mitigation strategies and continuously evaluate the effectiveness of these arrangements. Regular meetings are held to discuss profitability projections, cash flow, regulatory capital management, business planning, and risk management. The Principals manage business risks through established policies and procedures, adhering to relevant laws, standards, principles, and FCA rules, to maintain a clear and transparent risk management framework.
The Firm's Internal Capital Adequacy Assessment Process (ICAAP) details its approach to evaluating capital adequacy. The ICAAP assesses capital risks and incorporates stress testing through scenario analysis.
The Principals have identified business, operational, market, and credit risks as the primary areas of exposure. An annual review of risks, controls, and other mitigation measures is conducted to assess their effectiveness. Identified material risks are analyzed for their financial impact within business planning and capital management to ensure adequate regulatory capital is maintained.
The Firm operates with a lean and simple operational structure. Its market risk is limited to unhedged open client positions and foreign exchange exposure on foreign currency accounts receivable.
The Firm's Pillar 2 capital requirement, representing the Principals' assessment of adequate capital to mitigate identified risks, is lower than its Pillar 1 capital requirement. Consequently, the Firm's Pillar 1 requirement constitutes its minimum regulatory capital obligation.
Capital Resources
As previously noted, the Firm is a 'full-scope firm,' and its capital requirements are calculated under the IFPRU Sourcebook within the FCA Handbook, based on its 'own funds' and 'leverage ratios.'
The Firm's capital as of the ARD is:
| Capital and Reserves | USD |
|---|---|
| Share Capital | 3,498,590 |
| Audited Reserves | 9,345,517 |
The Firm's capital resources consist solely of core Tier 1 capital, with no other items or deductions. The total Tier 1 capital, calculated as ordinary share capital plus brought forward profits, amounts to $12,844,107.
The Firm's capital requirement is detailed below:
| Tier Capital | Capital Requirement | Capital Held | Surplus Capital |
|---|---|---|---|
| Common Equity Tier 1 Ratio 4.5% | 2,444,383 | 12,844,107 | 10,399,724 |
| Tier 1 Ratio 6% | 3,259,177 | 12,844,107 | 9,584,930 |
| Total Capital 8% | 4,345,570 | 12,844,107 | 8,498,537 |
The Firm maintains a robust financial position with capital well in excess of regulatory requirements. The Principals do not intend to significantly alter the Firm's strategy within the next twelve months.
Remuneration Policy
The Firm complies with the requirement to have an approved Remuneration Policy in place.
Broad Principles:
Remuneration for all staff is based on a market-standard basic salary supplemented by a bonus. No other reward or compensation schemes are utilized.
Some employees may receive performance-based bonuses tied to predefined targets, while others may receive discretionary bonuses.
All bonuses are contingent on the Firm's underlying profitability. No bonus will be paid if, in the Remuneration Committee's judgment, it could compromise the Firm's financial resources or credibility.
Bonuses are designed to acknowledge and reward exceptional performance, particularly among high-performing senior management, and to aid in their retention.
Bonuses will not incentivize behaviors that heighten the Firm's risk exposure.
All bonuses must be proportionate, prudent, and compliant with regulatory mandates.
Remuneration Code Staff
Remuneration Code Staff includes senior management, risk-takers, and employees in controlled functions. During the 2016/2017 performance year, there were 19 such staff members, with one new addition. No Middle East personnel are classified as Remuneration Code Staff.
The total remuneration for all Remuneration Code Staff in the financial year 2016/2017 was approximately £1,112,000.
The Company's complete Remuneration Policy is available upon request.
