SCIO Capital LLP (the ‘Firm’) is authorised and regulated by the Financial Conduct Authority (the ‘FCA’). The Firm is a UK domiciled discretionary investment manager to professional clients. The Firm is categorised as ‘BIPRU Firm’ for capital purposes and reports on a solo basis. The Firm’s Pillar 3 Disclosure fulfils the Firm’s obligation to disclose to market participants’ key pieces of information on a firm’s capital, risk exposures and risk assessment processes.
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.
The Firm’s Management determines its business strategy and the level of risk acceptable to the Firm. They have designed and implemented a risk management framework that recognises the risks that the business faces and how those risks may be monitored and mitigated and assess them on an ongoing basis. The Firm has in place controls and procedures necessary to manage those risks.
The Firm considers the following as key risks to its business:
Business risk – This risk represents a fall in assets under management, investment performance or the loss of key staff which may reduce the fee income earned by the Firm and hinder its ability to finance its operations and reimburse its expenses. Business risks are assessed and mitigated as part of the Internal Capital Adequacy Assessment Process (‘ICAAP’).
Market risk – The risk is the exposure to foreign exchange fluctuations due to investment management and performance fees being denominated in currencies other than sterling. The Firm operates currency bank accounts permitting it to receive/pay currency directly. In addition, the Firm can manage such exposure by hedging certain positions.
Operational risk – This risk covers a range of operational exposures from the risk of the loss of the key personnel to the risk of the provision of investment advice. Legal, reputational and business continuity risks are also included within the category of operational risk. Operational risks and how they may be mitigated are assessed as part of the ICAAP.
Credit risk – This risk relates to the exposure to the Funds for non-payment of management and performance fees and counterparty exposure relating to the Firm’s bank balances and any other debtors. Counterparty risk is monitored on an ongoing basis.
The Firm is a Limited Liability Partnership and its capital arrangements are established in its Partnership deed. Its capital contains members’ capital contributions.
The Firm is small with a simple operational infrastructure. Its market risk is limited to foreign exchange risk on its accounts receivable in foreign currency, and credit risk from management and performance fees receivable from the funds under its management.
Pillar 1 capital is the higher of:
- the base capital requirement of €50,000;
- the sum of market and credit risk requirements; or
- the Fixed Overhead Requirement (‘FOR’).
Pillar 2 capital is calculated by the Firm as representing any additional capital to be maintained against any risks not adequately covered under the requirement in Pillar 1 as part of its ICAAP.
It is the Firm’s experience that its Pillar 1 capital requirement normally consists of the FOR, although market and credit risks are reviewed monthly. The Firm applies a standardised approach to credit risk, applying 8 per cent to the Firm risk weighted exposure amounts, consisting mainly of investment management and performance fees due but not paid, and bank balances. Having performed the ICAAP, the Firm has concluded that no additional capital is required in excess of its Pillar 1 capital requirement.
As at the date of this disclosure the Firm’s regulatory capital position is:
|Tier 1 capital||615|
|Total capital resources, net of deductions||615|
The Firm’s ICAAP assesses the adequacy of its internal capital to support current and future activities. This process includes an assessment of the specific risks to the Firm, the internal controls in place to mitigate those risks and an assessment of whether additional capital mitigates those risks. The Firm also considers a wind down scenario to assess the capital required to cease regulated activities.
Concerning Pillar 1, it is the Firm’s experience that the FOR established its capital requirements i.e. the sum of the credit risk and market risk requirements is a lower figure, in part to the limits on the types of risk as detailed above. Our capital requirements are currently £446,000 which is well within the level of regulatory capital held.
We consider this amount to be sufficient regulatory capital to support the business and have not identified any areas which give rise to a requirement to hold additional risk based capital.
The Firm’s ICAAP is formally reviewed by Management annually but will be revised should there be any material changes to the Firm’s business or risk profile.
The Firm is subject to the BIPRU Remuneration Code (‘the Code’) and has applied this proportionality and, pursuant to this application (and where relevant) has disapplied various provisions of the Code.
Given the nature and small size of our business, remuneration for all employees is set by the Management of the Firm. The Firm formally reviews the performance of all employees and based thereon determines each employee’s overall total annual remuneration which is split between base salary and a discretionary bonus in compliance with the FCA Rules on remuneration. The remuneration of the partners of the Firm is set down in accordance with the capital contribution of each member, the time spent and function etc. within the Firm. The Firm also complies with the requirements imposed by the Pensions Regulator in terms of worker pension contributions
The Firm only has one business area, investment management. The aggregate remuneration of the identified Code Staff in the period 1 March 2017 to 28 February 2018 is £5,121,558.
The Firm supports the principles enshrined in the Financial Reporting Council’s Stewardship Code which sets out good practice for investor engagement. The FCA requires all authorised asset managers to publicly disclose either a statement of compliance with the Stewardship Code or where they do not commit, their alternative investment strategy.
The FCA and the Financial Reporting Council have acknowledged that certain aspects of the Stewardship Code are not directly relevant to all managers. The Firm is a fund manager which is currently the delegated portfolio manager of a Luxembourg regulated SICAV (‘SICAV’) and an investment advisor in respect of advised accounts. Consequently, compliance with the Stewardship Code is not relevant to the Firm because:
- it does not manage or advise on UK listed assets for investors
- there is no interaction with the management of companies with respect to assets managed or advised by the Firm
The Firm’s Management will continue to review the Code’s applicability.
31 October 2018