Pillar 3 Risk Disclosure Statement

Amiya Capital LLP

PILLAR 3 RISK DISCLOSURE STATEMENT

 

 

Introduction

 

The firm is required by the Financial Conduct Authority (“FCA”) to disclose information relating to the capital it holds and each material category of risk it faces in order to assist users of its accounts and to encourage market discipline. These disclosures aim to provide information on the risk exposures faced by the firm and the risk assessment process it has in place to monitor these. Known as “Pillar 3” disclosures, they are required to be made under Chapter 11 of the FCA’s Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”) and are seen as complimentary to the firm’s minimum capital requirement calculation (“Pillar 1”) and the internal review of its capital adequacy (“Pillar 2”).

 

The Pillar 3 disclosure document has been prepared by Amiya Capital in accordance with the requirements of BIPRU 11 and is verified by the management committee. Unless otherwise stated, all figures are as at the 31 March 2015 financial year-end.

 

Pillar 3 disclosures will be issued on an annual basis after the year end and published as soon as practical when the audited annual accounts are finalised.

 

 

Risk management

 

The firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is overseen by the Chief Operating Officer, with the management committee taking overall responsibility for this process and the fundamental risk appetite of the firm. The COO has responsibility for the implementation and enforcement of these risk principles.

 

A formal update on operational matters is provided to the management committee on a regular basis. Management accounts demonstrating continued adequacy of the firm’s regulatory capital are prepared on a quarterly basis.

 

Appropriate action is taken where risks are identified which fall outside of the firm’s risk tolerance levels or where the need for remedial action is required in respect of identified weaknesses in the firm’s mitigating controls.

 

 

Specific risks applicable to the firm come under the headings of business, operational, credit and market risks.

 

Business risk

 

The firm’s revenue is reliant on the performance of the existing funds under management. As such, the risk posed to the firm relates to underperformance resulting in a decline in revenue and ultimately the risk of redemptions from the funds managed by the firm. This risk is mitigated by significant levels of capital held by the firm.

 

 

Operational risk

 

The firm places strong reliance on the operational procedures and controls that it has in place in order to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.

 

The firm has identified a number of key operational risks to manage. These relate to systems failures and key man (Ian Mukherjee) risk. Appropriate polices are in place to mitigate against these risks, which includes taking out adequate professional indemnity insurance.

 

The risk of loss of key investment management personnel is mitigated by having an appropriate remuneration structure in place. The firm has alternative arrangements in place should a disaster recovery event occur. These arrangements are tested on a regular basis in order to ensure that they would be effective should they be required to be invoked.

 

Credit risk

 

The firm is exposed to credit risk in respect of investment management fees billed and cash held on deposit.

 

The credit exposure relating to the firm’s investment management client is limited. Management fees are drawn monthly from the Fund managed and performance fees are drawn annually where applicable. The firm considers that there is little risk of default by its client. All bank accounts are held with Barclays Bank which has an A1 short-term rating from Moody’s and Standard & Poors.

 

Given the nature of the firm’s exposures, no specific policy for hedging and mitigating credit risk is in place. The firm uses the simplified standardised approach detailed in BIPRU 3.5.5 of the FCA Handbook when calculating risk weighted exposures in respect of its debtors. This amounts to 8% of the total balance due. All bank balances are subject to a risk weighted exposure of 1.6% in accordance with BIPRU 3.4 of the FCA Handbook.

 

Credit risk summary

 

Credit risk exposure

Risk weighting

Risk weighted exposure

Cash in the bank

1.60%

£0

Inter-company

8%

£84,742

Trade Debtor

8%

£6,956

Prepayments and Accruals

8%

£187

Other debtors (<1 year)

8%

£0

Other debtors (>1 year)

8%

£0

 

 

 

 

Market risk

 

The firm takes no market risk other than foreign exchange risk in respect of its accounts receivable and cash balances held in currencies other than sterling.

 

Hedging strategies may be used from time to time to mitigate against potential foreign exchange losses and these are monitored by the COO and CEO. Losses arising on foreign exchange movements are monitored on a regular basis and reported to senior management via the management accounts.

 

The firm calculates its foreign exchange risk by reference to the rules in BIPRU 7.5.1 of the FCA Handbook and applies an 8% risk factor to its foreign exchange exposure.

 

Market risk summary

 

Market risk exposure

Risk weighting

Risk weighted exposure

Foreign currency deposits

8%

£3,053

 

 

Liquidity risk

 

The firm is required to maintain sufficient liquidity to ensure that there is no significant risk that its liabilities cannot be met as they fall due or that financial resources can only be secured at excessive cost.

 

The Firm retains an amount it considers suitable for providing sufficient liquidity to meet the working capital requirements under normal business conditions. The firm has always had sufficient liquidity within the business to meet its obligations and there are no perceived threats to this given the cash deposits its. Additionally, it has historically been the case that all management fee debtors are settled promptly, thus ensuring further liquidity resources are available to the firm on a timely basis.  The cash position of the firm is monitored by the COO on a regular basis.

 

The Firm maintain a Liquidity risk policy which formalises this approach.

 

 

Capital adequacy

 

Capital resources

 

As at 31 March 2014 the firm held regulatory capital resources of £1,123,000. This comprised solely of core Tier 1 capital (eligible members’ LLP capital and retained audited reserves).

 

 

Capital requirement

 

As at 31 March 2014, the firm’s Pillar 1 capital requirement was £784,000. This has been determined by reference to the firm’s Fixed Overheads Requirement (“FOR”) and calculated in accordance with the FCA’s General Prudential Sourcebook (“GENPRU”) at GENPRU 2.1.53. The requirement is based on the FOR since at all times this exceeds the total of the credit and market risk capital requirements it faces and also exceeds its base capital requirement of €50,000.

 

The FOR is based on annual expenses net of variable costs deducted, which include discretionary bonuses paid to staff. The firm monitors its expenditure on a monthly basis and takes into account any material fluctuations in order to determine whether the FOR remains appropriate to the size and nature of the business or whether any adjustment needs to be made intra-year.

 

This is monitored by the Chief Operating Officer and reported to senior management on a regular basis.

 

Satisfaction of capital requirements

 

Since the firm’s ICAAP (Pillar 2) process has not identified capital to be held over and above the Pillar 1 requirement, the capital resources detailed above are considered adequate to continue to finance the firm over the next year. No additional capital injections are considered necessary and the firm expects to continue to be profitable.

 

In managing its capital, the Firm considers the variety of requirements and expectations. Sufficient capital is in place to support current and projected business activities, according to both the Firm’s own internal assessment and the requirements of its regulator.

 

Capital is also managed in order to achieve sound capital ratios at all times, and it therefore considers not only the current situation but also the projected developments in both its capital base and capital requirements. The main tools by which Amiya Capital manages the supply side of its capital ratios are active management of capital instruments / fees and dividend payments / drawings’.

 

Remuneration code disclosure

 

The firm is authorised and regulated by the Financial Services Authority as a Limited Licence Firm and so, it is subject to FCA Rules on remuneration.  These are contained in the FCA's Remuneration Code located in the SYSC Sourcebook of the FCA’s Handbook. The Remuneration Code (“the RemCode”) covers an individual’s total remuneration, fixed and variable. The Firm incentivises staff through a combination of the two.

 

The Firm's business is to provide investment management services to a fund managed by the firm (the "Fund"). 

 

Our policy is designed to ensure that we comply with the RemCode and our compensation arrangements:

  1. are consistent with and promotes sound and effective risk management;
  2. do not encourage excessive risk taking;
  3. include measures to avoid conflicts of interest; and
  4. are in line with the Firm's business strategy, objectives, values and long-term interests.

 


Proportionality

 

Enshrined in the European remuneration provisions is the principle of proportionality. The FCA have sought to apply proportionality in the first instance by categorising firms into 4 tiers. The Firm falls within the FCA's fourth proportionality tier and as such this disclosure is made in line with the requirements for a Tier 4 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.

 

  1. 1.Summary of information on the decision-making process used for determining the firm’s remuneration policy including use of external benchmarking consultants where relevant.

 

  • The firm’s policy has been agreed by the Senior Management in line with the RemCode principles laid down by the FCA.
  • Due to the size, nature and complexity of the firm, we are not required to appoint an independent remuneration committee.
  • 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.
  • The firm’s ability to pay bonus is based on the performance of firm overall and derived after the fund’s managed returns have been calculated by client appointed third party administrators.
  • There is limited involvement of the firm in deriving asset prices.

 

  1. 2.Summary of how the firm links between pay and performance.

 

  • Individuals are rewarded based on their contribution to the overall strategy of the business.
  1. a.Investment Generation
  2. b.Investment Trading
  3. c.Sales & Marketing
  4. d.Operations
  • 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.

 

  1. 3.Aggregate quantitative info on remuneration broken down by significant business division (where such business divisions exist).

 

Business Area

Aggregate compensation expense for prior fiscal year

Investment Management and Trading

£2.5m

Non-Trading

Nil

 

  1. 4.Aggregate quantitative information on remuneration, for staff whose actions have a material impact on the risk profile of the firm.

 

Code Staff

 

Aggregate compensation expense for prior fiscal year

Senior Management

£0.7m

 

We may omit required disclosures where we believe that the information could be regarded as prejudicial to the UK or other national transposition of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.

 

We have made no omissions on the grounds of data protection.