Pillar 3 Disclosures

30th June 2016

 

Brandon Hill Capital Limited is a subsidiary of Optima Worldwide Group PLC. The following is for Brandon Hill Capital Limited alone.

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 forBanks, 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 Firmto 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 confidentialitywith 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

Brandon Hill 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 BIPRU €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 prudential purposes and therefore is not required to prepare consolidated FCA reporting

 

PUBLICATION

The Pillar 3 disclosure is published on the Firm's website.

 

FREQUENCY OF DISCLOSURE

The Firm will report its Pillar 3 disclosure annually or upon material change. These disclosures are based on the company's position as at the 30th June 2016. The Pillar 2 (ICAAP) capital requirements are excluded fromthis summary but are reviewed annually or upon material change.

 

LOCATION AND VERIFICATION

These disclosures have been validated by the board of directors. These disclosures are not subject to an audit except to the extent where they are equivalent to disclosures made under accounting requirements.

 

RISK MANAGEMENT

The Firm is governed by its directors 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 riskmanagement framework that recognises the risks that the business faces.

The directors also determine how the risk the Firm's business faces may be mitigated and assess on an on-going basis the arrangements to manage those risks and mitigants. The directors meet on a regular basis and discuss current projections for profitability, cash flow, 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 and are constantly reviewed for effectiveness by the appropriate committees.

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 30 June 2016 of £1,404,349 (£1,292,551 - 2015) was adequate.

 

RISK APPETITE

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.

 

MARKET RISK

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 themarket and market risk before deciding on disposal of the assets.

The Firmhas 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 Firms' equity risks are due to positions in FTSE stocks making the general risk calculation relatively straightforward.

 

CREDIT RISK

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 Firms 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 Firms clearer is an FCA regulated entity which is part of a large banking group and the Firmmaintains a banking relationship with Barclays (aAArated 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).

 

OPERATIONAL RISK

The Firm defines operational risk in the standard way as the risk of loss resulting from inadequate or failed internal process, people, systems and /or from external events.

The identification and assessment of the mitigation of operational risks within the Firm is carried out as part of the process of compiling, updating and reviewing the Risk Register. The register is comprised of a comprehensive description of the Firm's operational risks.

The Firm has adopted to use the basic indicator approach for operational risk in accordance with BIPRU 6.3, thus requiring capital equal to 15% of the three year average of the Firm's net turnover.

 

LIQUIDITY RISK

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.

 

CAPITAL ADEQUACY

In compliance with BIPRU 3, 4 6, 7 & 10 (BIPRU 11.5.4). 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 BIPRU €125k limited licence Firm and, as such, is required to calculate its operational risk capital requirement under Pillar 1 in accordance with BIPRU 6. This figure has been calculated as £800,095 (£619,427 - 2015).

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 bank balances in accordance with BIPRU 3.4.127 - 3.1.133, resulting in a Credit Risk Capital Component of £877,209 (£271,071 - 2015).

The Counterparty Risk Capital Component is calculated in accordance with BIPRU 14.2.1, and is £0 (£0 -2015).

The Firm's Market Risk Capital Component is made up of its Foreign Currency PRR, Equity PRR Risk and Commodity PRRRisk. 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 £2,572 (£465 - 2015). The Firm's Equity PRR has been calculated as £nil (£nil - 2015), the Firm's Interest Rate PRR at £0 (£0 - 2015), and Commodity PRR at £0 (£0 - 2015). This gives a total Market Risk Capital Component of £328 (£465 - 2015).

CAPITAL RESOURCE 2016 2015
  £'000s £'000s
Core Tier 1 Capital 10,126 4,172
Total Tier 1 Capital after deductions 10,126 4,172
Total Tier 2 and 3 capital 0 0

 

The firm also received unsecured loans from its parent company which do not incur interest charges.

 

STRESS TESTING

The Firm performs stress tests on its business model based on a number of adverse scenarios in order to assess and ensure the Firms capability of continuing in business with sufficient capital and liquidity. 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.

 

REMUNERATION POLICY

As an FCA regulated entity the Firm is required to comply with the requirements of the Remuneration Code. The obligations under the code are proportionate to the size, nature, scope and complexity of a Firm. The FCA has categorised Firms into 4 tiers. By virtue of it being a full scope BIPRU €125k investment Firm Brandon Hill Capital Limited has been categorised a tier 3 Firm.

The Firm has established a Remuneration Committee (the 'RemCo'), which meets at least twice a year to consider human resource issues relating to terms and conditions of employment and remuneration. RemCo is responsible for the development remuneration policy which is approved and implemented by the Board.

The Firm's remuneration arrangements represent a combination of salary, bonuses and long term incentive schemes that are designed to align the interest of the Firm and its employees with those of its clients and other stakeholders to ensure the Firm's continued long term profitability. Non-salary remuneration plans are completely variable, based on the Firm's performance and individual performance. The Firm does not pay any compensation tied to business development.

The Firm does not currently use a pre-set formulaic matrix to determine either basic remuneration or variable remuneration. The determination of remuneration is a fully discretionary process informed by various performance metrics including individual performance measured against standard Firm competencies and qualitative annual goal attainment, industry peer group remuneration levels and affordability. The Firmensures that the variable remuneration bonus pool is a conservative percentage of the Firm's net income. This means that staff remuneration is dependent upon the Firm's profitability and it allows the Firm to manage its capital prudently.

Due to its size and the small number of employees data is not broken down in accordance with 11.5.20.

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