Pillar 3

Hassium Asset Management LLP

Capital Requirements Directive Pillar 3 Disclosure

Date: 31st March 2019

 

  1. Introduction

The Capital Requirements Directive (‘the Directive’) of the European Union created a revised regulatory capital framework across Europe governing how much capital financial services firms must retain. In the United Kingdom, this is being implemented by our regulator, the Financial Conduct Authority (‘FCA’) who has created new rules and guidance specifically through the creation of the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).

The FCA framework consists of three ‘Pillars’:

  • Pillar 1 sets out the minimum capital requirements that we need to retain to meet our credit, market and operational risk;
  • Pillar 2 requires us, and the FCA, to take a view on whether we need to hold additional capital against firm-specific risks not covered by Pillar 1; and
  • Pillar 3 requires us to develop and publish a set of disclosures which will allow market participants to assess key information about our underlying risks, 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. The disclosure of this document meets our obligation with respect to Pillar 3.

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.

We have made no omissions on the grounds that it is immaterial, proprietary or confidential.

  1. Scope and application of the requirements

Hassium Asset Management LLP (‘the Firm’) is authorised and regulated by the Financial Conduct Authority and as such subject to minimum regulatory capital requirements. The disclosures in this document are made with respect to discretionary portfolio management services to clients. Services are provided through discretionary or advisory investment management mandates.

Hassium Asset Management LLP is not a member of a larger group and therefore not subject to consolidated reporting. The Firm does not hold client money or client assets.

The Firm is categorised as a BIPRU €50,000 Limited Licence Investment Firm for regulatory purposes, with no additional corporate or partnership levels. Disclosure will be issued on an annual basis unless circumstances warrant a more frequent update.

  1. Risk management

The Firm’s approach to risk management is predicated on the need to manage the full range of risks facing the Firm including operational, business, liquidity, credit and market risks. The Firm’s overriding aim in this area is to minimise the risks to the Firm’s clients, its counterparties and other stakeholders and to ensure it remains in full compliance with regulatory and legal requirements.

The Partners of the Firm determine its business strategy and risk appetite; accordingly they are responsible to design and oversee the implementation of a risk management framework that recognises the risks that the business faces. The Partners meet on a regular basis and discuss current projections for profitability and regulatory capital management, business planning and risk management.

The Firm’s risk management framework incorporates analysis of the impact of each material risk on the business, the probability of each risk occurring and the procedures in place for its mitigation.

The relevant risks applicable to the Firm are categorised as operational, business, credit, market and liquidity risks. These are quantified in our Internal Capital Adequacy Assessment Process (ICAAP) and Pillar 2 disclosure.

Operational risk

Operational risk is defined by the Firm as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

The Firm’s risk management framework emphasises operational risk. Management reviews all aspects of the business on a regular basis to ensure operational risks have been identified and effective controls put in place to mitigate the risks identified, so the combination of the impact assessment and probability of each risk is kept to an acceptable level. The Firm has identified a number of key operational risks; amongst these are key man risk, client concentration risk, staff errors and IT security or system failures.

Business risk

Business risk is the risk of loss inherent in the Firm’s operating, business and industry environment. 

The Firm’s main business risk relates to a possible fall in assets under management and a consequent diminution in investment management fees.  As such, poor performance, service and or adverse market conditions could also impact revenues and hinder the ability to acquire new clients.

Business risk exposure is mitigated, to a certain extent by the high levels of capital held by the Firm, which ensure operating expenses coverage for a meaningful period.

Credit risk

Credit risk is the risk of financial loss if a client, fund or counterparty fails to meet its contractual obligations.

As the Firm does not provide credit to clients, its credit exposure to clients is limited to accrued fees. The mitigation of these risks is governed by the terms and conditions of individual agreements with clients.

The Firm is also exposed to the credit risk of its custodian banks, and to the custodian banks of its clients, both in respect of the Firm’s own cash held on deposit and for the fees owed from clients to the Firm.

The Firm constantly monitors and actively attempts to diversify its counterparties and jurisdiction risks.

Market risk

Market risk is categorised as the impact that adverse market conditions could have on the Firm’s revenues.

The Firm focuses on wealth preservation; consequently the market risk profile of clients’ portfolios has historically limited the Firm’s market risk when adverse market conditions occurred.

The Firm’s business development team is constantly focused on increasing assets under management, while the Firm’s investor relations effort focuses on retention and client satisfaction.

The Firm takes no proprietary market risk other than foreign exchange risk in respect of its quarterly management fees.

Liquidity risk

We have consistently maintained sufficient liquid resources to meet our obligations. Cash flow and capital forecasting is performed on a regular basis and quantified in our ICAAP. Excess cash is held on deposit or in interest bearing accounts at institutions with an investment grade credit rating. Currently liquid assets are held on deposit at Coutts and Credit Suisse (Zurich). Coutts are authorised and regulated by the Financial Conduct Authority in the UK. Credit Suisse AG are regulated by FINMA in Switzerland. Coutts has a credit rating of BBB+ and Credit Suisse has an A- credit rating.

  1. Capital resources and requirements (unaudited as at 31st March 2019)

The Firm’s Pillar 1 requirement is calculated as the higher of:

  • The Base Capital Requirement (€50k); or
  • The sum of the Credit Risk Capital Requirement and the Market Risk Capital Requirement; or
  • The Fixed Overheads Requirement.

In the opinion of the Senior Management the highest of these three is always likely to be the Fixed Overheads Requirement which currently stands at GBP 265,000 and therefore none of the Base Capital Requirement, the Credit Risk Capital Requirement or the Market Risk Capital Requirement are material to the Firm.

The total of called up share capital as at 31st March 2019 is GBP 302,000 (unaudited).

The Firm has undertaken an ICAAP to determine whether it needs any further regulatory capital due to the operational, business, credit, market and other risks it faces, this is the Firm’s Pillar 2 requirement.

As part of the ICAAP, the Firm considered risks to capital combined with stress testing and scenario analysis of operational and business risks as well as an assessment of costs to wind down the business. This analysis concluded that the Firm has adequate capital to withstand unexpected losses arising from these risks.

As at the date of this report the Firm has a surplus of capital resources over its Pillar 1 and Pillar 2 capital resources requirement.

  1. Remuneration Disclosure

As a BIPRU limited licence firm, Hassium is within scope of the FCA’s Remuneration Code (the “Code”), which governs the application of remuneration policies and practices within the firm in order to promote sound and effective risk management. The Firm is classified as a Tier 4 firm, which allows for a proportional approach to be taken in the application of the Code. In addition, Hassium is required to make certain remuneration disclosures under the Basel Pillar 3 framework, as encapsulated in BIPRU 11.

Whilst appreciating the contribution that can be made by a remuneration committee, Hassium considers that such a body would not be proportionate to the size and complexity of the business. The role of setting remuneration policy (the “Policy”) is undertaken instead by Hassium’s Partners, with input and the monitoring of the application of the policy provided by the firm’s Compliance Officer. The Policy is reviewed at least annually by the Partners, using all available information, for example risk metrics and financial performance reports.

Remuneration for Code Staff consists of fixed (‘salary’) and variable (‘bonus’) components. Salary is set in line with market rates in order to retain and if necessary attract appropriately skilled staff. Bonus awards are performance related, taking into consideration both success in meeting individual targets, and the overall results of the firm. Individual targets will not relate solely to financial criteria, but will also look at skills acquisition, compliance with regulatory obligations, and adherence to effective risk management over both the short and long term time horizon.

As awards will reflect the financial performance of the firm as a whole, based on profits rather than revenue or turnover, variable remuneration may be contracted where subdued or negative financial performance occurs in the time period in question. Hassium will not ordinarily make any variable remuneration awards should the firm make a loss. In exceptional circumstances where such payments may need to be considered to reward outstanding individual performance, the Partners in conjunction with the Compliance Officer will consider and document whether such an award would be consistent with the underlying principles of the Remuneration Code as implemented through the firm’s Policy.

 

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