Capital Requirements Directive


Pillar 3 Disclosures

Full Circle Asset Management Ltd


Background

These disclosures are made in accordance with the rules of the Financial Conduct Authority which implement in the UK the EU directives regarding the revised capital adequacy framework agreed by the Basel Committee on Banking Supervision. It is this application of the capital Requirements Directive and Basel II that requires Full Circle Asset Management Ltd to make these disclosures.


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 for Banks, Building Societies and Investment Firms ('BIPRU'). The new 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 firm to 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.


Materiality

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.


In the event that any such information is omitted, we shall disclose and explain the grounds for such omission. We have made no omissions on the grounds that it is immaterial, proprietary or confidential.


Scope and Frequency of Disclosure

Full Circle Asset Management Ltd (“the Firm”) is an investment manager, authorised and regulated by the FCA. The Firm is categorised as a Limited Licence €50,000 firm. It acts solely as an investment manager, and does not hold client money.


Pillar 3 disclosures are reported annually. These disclosures are based on the Firm's position as at 30th September 2016. They are published as soon as practicable after the publication of Annual Financial Statements, unless circumstance warrant update on a more frequent basis.


The report will be published on the Firm’s website.


These disclosures are not subject to audit.


Risk management objectives and policies

Full Circle Asset Management Ltd is governed by a board of directors who determine the business strategy and associated risks. The Firm seeks to mitigate risks by designing and implementing sound systems and risk controls that recognise the risks being taken so that they can be effectively managed and mitigated where possible.


The Board of Directors is the Governing body of the Firm and meets frequently to consider market conditions, profitability, cash flow, level of reserves and business planning. Risks are managed through policies and procedures, principles and rules (including FCA principles and rules) which are updated as required.


The Board decides the Firm's tolerance for risk and ensures that the Firm has implemented an effective, ongoing process to identify risks, measure their potential impact and then ensure they are actively managed. Senior Management are accountable to the Directors for implementing the risk management into the day to day business activities of the Firm.


The Board decides the Firm's tolerance for risk and ensues that the Firm has implemented an effective, ongoing process to identify risks, measure their potential impact and then ensure they are actively managed. Senior Management is accountable to the Directors for implementing the risk management into the day to day business activities of the Firm.


The firm is relatively small with an operational infrastructure appropriate to its size.


The Board have identified that the greatest risk to which the company is exposed are business, reputation and operational risks. The Board formally reviews risk and controls annually and this includes the level of capital deemed adequate to cover the risk identified.


Below, we have disclosed our risk management objectives for each category of risk, our strategies for managing those risks, the scope and nature of the risk and policies for mitigating the risks.


Credit Risk

The Firm's exposure to credit risk arises from the possibility that a counterparty to the Firm's deposits might fail, resulting in the Firm incurring a loss, however we monitor this risk carefully and diversify cash resources to minimise this risk.


Our bank deposits are with UK regulated banks.


The provision for non-payment of fees is governed by our agreement with clients.



Operational Risk

Operational risk includes those risks or events that could impact the Firm’s people, processing and technology in such a way as to impact the achievement of our goals and objectives.


We continuously evaluate our internal controls to ensure they are operating as designed and are effective in preventing losses or errors. We do this both through our own checking and monitoring and by using third parties to undertake independent reviews.


The Firm's Fixed Overhead Requirement is disclosed for the Pillar 1 Operational Risk Capital calculation, this is the higher of the Fixed Overhead Requirement and the sum of Market Risk and Credit Risk Requirement as explained below in our 'Captial Requirement' section.



Market Risk

We do not hold client assets or money and do not deal on our own account.


Liquidity Risk

At the end of each quarter the Firm receives cash flows from investment management fees which are deducted from the client funds by our Custodian and remitted to the firm.


We have policies and processes in place to measure and manage our position and requirements on an ongoing and forward looking basis, to ensure that we have enough liquidity to manage the business. In a liquidity crisis we have many cost reducing measures that we could undertake before we would deem it necessary to factor any additional resource requirement, especially given our current and historic liquidity ratios.


Concentration Risk

We use our judgment to ensure that the Firm's funds are as safe as they can be, however if we feel that credit risk was greater than we were willing to accept then we would withdraw, we therefore do not consider this as something that we need to allocate additional capital to.


Residual Risk

There is always a risk resulting from the partial performance or failure of our credit risk mitigation, however we believe that this risk is covered in our additional business risk resource.


Business Risk

The firm operates in a very competitive industry and like any business, the Firm is exposed to risk resulting from general business and economic conditions, which could lead to reduction in assets under management and decrease in management fees.


Risks that we have identified include human or trading errors, fraud and compensation risk. Whilst we believe that procedures in place would enable us to identify and mitigate such risks the board believe it prudent to retain an additional level of capital of £55,000.


Interest Rate Risk

A substantial increase in interest rates would simply mean that we would be more comfortable with holding deposit related investments and this would not have a huge impact on the sensitivity of our business rate model. The Firm does not have any borrowings and surplus funds are placed on short term deposits, therefore there is no significant exposure to Interest Rate fluctuations.


Asset Valuation Risk

Asset valuation risk is the risk that a decline in the value of assets managed by the company adversely impacts on the profitability of the Firm, through the decline of assets under management generating lower fees. The principal exposure of the Firm is in respect of lower management fee revenue, this risk is mitigated by strict controls of investment decisions and monitored through ongoing stress testing.


Securitisation Risk

As the firm does not enter into any securitisation arrangement this risk is not applicable to the firm.


Capital resources

The capital resources of the firm comprises Tier 1 capital with no deductions. As a limited license firm the consolidated capital resources requirement is calculated as the total of Pillar 1 and Pillar 2 capital.


Pillar 1 capital is the greatest of:

1.a base capital requirement of €50,000

2.the sum of market and credit risk requirements; and

3.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 capital requirement normally consists of FOR, although market and credit risks are reviewed periodically. The Firm applies a standardised approach to credit risk, applying 8% to the Firm risk weighted exposure amounts, consisting mainly of management fees due but not paid, and bank balances.


Having performed the ICAAP it is the Firm's opinion that £55,000 of additional capital is required in excess of its Pillar 1 capital requirement.


As at 30th September 2016 the Firm's regulatory capital position was:

Capital Items

£000

Share capital

35

Profit and loss reserves

1261

Total Tier 1 Capital

1296

Pillar 1 requirement

187

Pillar 2 requirement

55


There is a considerable surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified.
In line with BIPRU 11.5.18R our remuneration disclosure for the performance year ended 30th September 2016 is as follows;
Remuneration levels are set and agreed by the board.
A discretionary bonus is paid annually to non Code Staff based on the profits of the company and an individuals performance.
The remuneration is all derived from Wealth Management.
Total rewards are set at levels that are competitive within the relevant market.
Total remuneration to Code Staff for the performance year ended 30th September 2016 was £222,591.



Full Circle Asset Management

Full Circle Asset Management Limited

6 East Point, High Street, Seal, Sevenoaks, Kent, TN15 0EG. Telephone: 01732 746700


Authorised and Regulated by the Financial Conduct Authority, Registered in England no. 02486204, 6 East Point, High Street, Seal, Sevenoaks, Kent, TN15 0EG,