Pillar 3 Disclosures
These statements are not part of the audited financial statements and therefore have not been subject to review or audit by the firm’s auditors.
The EU Capital Requirements Directive (“CRD”) sets out the regulatory capital framework which is overseen in the UK by the Financial Conduct Authority (“FCA”) and the Prudential Regulatory Authority (“PRA”) through the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”). From 1 January 2014, with the implementation of the Capital Requirement Directive IV (CRV IV), regulations under BIPRU for this firm have been replaced by:
– The Capital Requirements Regulation (“CRR”)
– IFPRU sourcebook of the FCA handbook
– additional standards released by the European Banking Authority
The FCA framework consists of three ‘Pillars’:
Pillar 1: Minimum capital requirements
Pillar 2: Supervisory review process: the need to assess whether the capital held under Pillar 1 is sufficient to meet the additional risks not covered by Pillar 1
Pillar 3: Disclosure requirements allowing market participants to assess information on a firms’ risks, capital and risk management procedures
The Financial Conduct Authority outlines the minimum disclosure requirements. The information below satisfies Fox-Davies Capital Limited’s Pillar 3 requirement.
Frequency of disclosure
Fox-Davies Capital Limited will report their Pillar 3 disclosure annually or upon material change. These disclosures are based on the firm’s financial position *DATE*. The Pillar 2 (ICAAP) capital requirements are excluded from this summary but are reviewed annually or upon material change.
Location and verification
These disclosures have been validated by the board and posted on the firm’s website. These disclosures are not subject to an audit except to the extent where they are equivalent to disclosures made under accounting requirements.
Scope and application of requirements
Fox-Davies Capital Limited (“the Firm”) is authorised and regulated by the Financial Conduct Authority and as such is subject to minimum regulatory capital requirements. For the purposes of Pillar 3, the Firm is categorised as a IFPRU €125k limited licence Firm by the FCA.
The Firm’s principle business activity is the provision of corporate finance and investor relations advisory service provided to junior natural resource companies. The Firm specialises in assisting international resource companies to gain access to the UK, European and North American capital markets and has been advising and raising funds for the natural resource sector since February 2001.
The Firm is not a member of a group for prudential purposes and therefore is not required to prepare consolidated FCA reporting
This disclosure is made on an individual basis.
The directors of the firm, in addition to the risk mapping structure of the ICAAP, are very much involved with the day to day running of the firm including the continual assessment of risk. They meet on a regular basis to discuss current projections for profitability, regulatory capital management, business planning and risk management. The directors manage the firm’s risks through 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 firm is relatively small with an operational infrastructure appropriate to it size.
Annually the directors formally review the risks, controls and other risk mitigation arrangements and assess their effectiveness. Where the directors identify material risks they consider the financial impact of these risks as part of the business planning and capital management process and conclude whether the amount of regulatory capital is adequate.
This assessment process is documented in the Firm’s Internal Capital Adequacy Assessment Process (“ICAAP”), and the conclusion of the ICAAP is that the Firm’s Pillar 1 requirement as at 31 December 2018 of £1,299,796 (£1,644,461 – 2017) was adequate.
The Firm has a conservative appetite for risk and seeks to have a broad revenue base that is made of varying streams. The directors seek a balance of “assured” revenues in the form of retainers and commissions to less assured revenues such as corporate finance fees.
The Firm faces equity risks through its holding of current asset investments such as stocks, shares and warrants acquired for investment purposes or received in lieu and as part of fees and commissions. These investments are subject to varying degrees of price movement.
The directors constantly review the investments and balance regulatory requirements, liquidity, the effect on the market and market risk before deciding on disposal of the assets.
The Firm has now suspended market-making activities and hence the use of derivatives is very limited.
For legacy positions, the Firm uses the standard approach to assessing its equity risk. An 8% charge is applied to the absolute value of long and short positions to cover the specific risk and an 8% charge is applied to the net position to cover the general risk. All of the Firm’s material equity risks are due to positions in AIM stocks making the general risk calculation relatively straightforward.
Credit risk is the risk of loss caused by the failure of a counterparty to perform its contractual obligations. Credit risk in the Firm manifests itself in the form of fees due from clients, commissions due from the Firm’s clearer and in balances held at banks. To mitigate these risks the Firm constantly monitors receivables and has had a strong recovery record over a number of years, the Firm’s clearer is an FCA regulated entity which is part of a large banking group and the Firm maintains a banking relationship with Barclays (AAA rated bank).
The Firm has adopted the standardised approach (BIPRU 3.4) and simplified method of calculating risk weights (BIPRU 3.5) which comprises of 8% x 100% of all debtors and fixed assets (excluding bank and cash balances which are risk weighted at 20% before applying the 8% requirement).
This is the risk associated with inadequate, or the failure of, internal processes or external factors such as regulation.
Compliance is an increasing risk to all regulated firms as the complexity and scope of the regulations increases. The firm recognises this risk and, by way of mitigation, has engaged professional assistance.
Liquidity risk is the risk that the Firm becomes unable to meet its current obligations. The directors recognise cash flow and cash balances as being of the utmost importance to the Firm. Whilst the Firm has always been able to meet its obligations on a timely basis there is no complacency and management of liquidity is achieved through a combination of maintaining a strong capital base, producing regular cash flows, monitoring cash on a daily and intra- day basis, monitoring market making positions on a constant basis, robust management of receivables and assiduous control over settlement of market debtors and creditors.
In compliance with IFPRU 3, 4, 6 & 7, the Firm have forecasts in place to ensure that they will continue to meet regulatory capital requirement on an on-going basis.
The Firm is a IFPRU €125k limited licence Firm and, as such, is not required to calculate their operational risk capital requirement. Instead they are required to calculate a Fixed Overhead requirement in accordance with GENPRU 2.1.53R
The Credit Risk Capital Requirement is made up of the Credit Risk Capital Component and the Counterparty Risk Capital Component.
The Credit Risk Capital Component is calculated in accordance with BIPRU 3.5 – The Simplified Method. The company makes an 8% adjustment on all fixed assets, debtors, prepayments and and a 1.6% adjustment on all bank balances in accordance with BIPRU 3.4.127 – 3.1.133, resulting in a Credit Risk Capital Component of £1,281,754 (£1,644,461 – 2017).
The Counterparty Risk Capital Component is calculated in accordance with BIPRU 14.2.1, and is £0 (£0 -2017).
The Firm’s Market Risk Capital Component is made up of its Foreign Currency PRR, Equity PRR Risk and Commodity PRR Risk. The Firm’s Foreign Currency PRR is calculated on the Firm’s trading book debtors and creditors which are denominated in a foreign currency and also its bank accounts some of which are also in the same currencies. The foreign currency PRR is calculated in accordance with BIPRU 7.5 as 8% of the total net long or short position, and totals £18,043 (£0 – 2017). The Firm’s Equity PRR has been calculated as £nil (£nil – 2017), the Firm’s Interest Rate PRR at £0 (£0 – 2017), and Commodity PRR at £0 (£0 – 2017). This gives a total Market Risk Capital Component of £18,043 (£0 – 2017).
The Firm includes a stress scenario that sees the Firm required to discontinue business. The Firm has satisfied itself that it has sufficient capital to wind up the business in an orderly fashion.
BIPRU 11.5.18R requires that a firm makes a disclosure of details regarding its remuneration policy.
Given the relatively small size of the firm, remuneration policy for all code staff is set by the board. The board review remuneration for code staff based upon individual, both financial and non financial criteria, and overall firm performance. Individual performance is also reviewed over an extended period to ensure the long term objectives of the staff and the firm is not in conflict. The overall level of remuneration is set in the form of a base salary and a bonus. The resources available for bonuses are directly linked to the performance of the firm.
Fox-Davies Capital Limited has one key business activity and under BIPRU 11.5.20R, the firm does not consider that it is ‘significant in terms of size, internal organisation and nature and scope of its activities’, so is not required to disclose the quantitative information referred to in BIPRU 11.5.18R at the level of senior personnel.
The Firm falls within FCA proportionality Level 3 and as such this disclosure is made in line with the requirements for a Level 3 Firm.
The number of identified code staff is seven.
Should you have any queries please contact:
Daniel Fox-Davies Director
Fox-Davies Capital Limited
12 Hay Hill
London W1J 6DQ