Ramek Asset Management Limited “RAM”
Pillar 3 Disclosure 2020
1 Introduction
Firms are required under the Senior Management Arrangements, Systems and Controls (SYSC) manual of the Financial Conduct Authority Handbook to have in place robust governance arrangements and effective procedures which allow it to identify, manage, monitor and report the risks it is or might be exposed to.
Ramek Asset Management Limited (“RAM”) is authorised and regulated by the Financial Conduct Authority and this document sets out how the Firm complies with its obligations to identify, manage and mitigate risks.
2 Overview
The Capital Requirements Directive (‘CRD’) of the European Union created a regulatory capital framework across Europe governing how much capital financial services firms must retain. The rules are set out in the CRD under three pillars:
- Pillar 1 sets out the minimum capital resource requirement firms are required to maintain to meet credit, market and operational risks
- Pillar 2 requires firms to assess firm-specific risks not covered by Pillar 1 and, where necessary, maintain additional capital
- Pillar 3 requires firms to disclose information regarding their risk assessment process and capital resources with the aim to encourage market discipline by allowing market participants to assess key information on risk exposure and the risk assessment process.
The rules in the FCA Prudential Sourcebook for BIPRU sets out the requirements for a Pillar 3 disclosure. The document is designed to meet RAM’s Pillar 3 Disclosure obligations.
2.1 Frequency and location of disclosure
Future disclosures will be issued on an annual basis once they have been reviewed and approved by the Directors. The disclosures are not subject to audit except where they are equivalent to those prepared under accounting requirements for inclusion in the financial statements.
The report and all future ones will be published on our Firm’s website.
2.2 Scope of disclosure
The firm’s principle activity is the provision of discretionary investment management services for professional clients and eligible counterparties. Our core business model seeks to maximise returns for investors whose portfolios will be managed according to investment mandates. We also offer ancillary advisory and execution-only brokerage services. The Firm is classified as a BIPRU Firm as it carries out the activity of portfolio management and investment advice but does not provide safekeeping and administration of financial instruments (only arranges).
3 Governance Arrangements
3.1 The Management Body
The Directors are responsible for the Firm’s risk management governance structure and how the Firm’s risk exposure must be managed in line with the Firm’s overall business objectives and within its stated risk appetite. This includes the governance of the process for identifying, evaluating, managing and reporting the significant risks faced by the Firm.
The Directors are ultimately responsible for ensuring that the Firm maintains sufficient capital and liquidity resources to meet its regulatory capital and liquidity requirements and to support its growth and strategic objectives. Risk management is embedded throughout the business, with the overall risk appetite and risk management strategy approved by the Directors propagated down throughout the business as appropriate.
The Firm has reviewed the number of directorships held by members of the Board and are satisfied that the arrangements are such that the management body is able to commit sufficient time and resources to perform their obligations in the Firm. The number of directorships held is monitored on an ongoing basis.
4 Capital Adequacy and ICAAP
The Firm’s overall approach to assessing the adequacy of its internal capital is documented in the Internal
Capital Adequacy Assessment Process (“ICAAP”).
The ICAAP process includes an assessment of all material risks faced by the Firm and the controls in place to identify, manage and mitigate these risks. The risks identified are stress-tested against various scenarios to determine the level of capital that needs to be held.
Where risks can be mitigated by capital, the Firm has adopted the CRD requirements for Pillar 1. Following an assessment under Pillar 2 of risks significant to the firm arising from its particular activities, the directors of the firm are of the opinion that the firm is sufficiently capitalised for the risks to which it is exposed and that it is not necessary to retain a Pillar II capital add-on at this time, or in the foreseeable future.
Whilst the ICAAP is formally reviewed once a year, the Directors review risks and the required capital more frequently and will particularly do so when there is a planned change impacting risks and capital or when changes are expected in the business environment potentially impacting the ability to generate income.
4.1 Capital Resources
The Firm is a BIPRU firm because it manages individual portfolios and provides investment advice and does not provide safekeeping and administration of financial instruments or deal in any instruments on its own account.
A BIPRU firm must maintain at all times capital resources equal to or in excess of the base requirement (€50,000). The Pillar 1 capital requirement for a BIPRU firm is the higher of:
- Base Capital Requirement OR
- Credit Risk plus Market Risk plus Counterparty Risk Capital Requirements OR
- Fixed Overhead Requirement
The Firm has no innovative Tier 1 capital instruments or deductions.
The Firm must maintain at all times capital resources equal to or in excess of the Pillar 1 requirement. At point of authorisation and during the period after, the Company complied fully with all capital requirements and operated well within regulatory requirements. At the point of authorisation, the Firm held the following capital position:
| Description | Amount (000’) |
| Ordinary share capital | £75 |
| Share Premium | £0 |
| Other Reserves | £0 |
| Retained Earnings | £116 |
| Regulatory Adjustments | £0 |
| Core Tier 1 Capital | £191 |
| Tier 2 Capital | £0 |
| Total Capital Resources | £191 |
| Credit Risk Capital Requirement @ 8% | £11 |
| Market Risk Capital Requirement @8% | £0 |
| Fixed Overhead Requirement (Estimated for the year ahead) | £48 |
| Total Pillar 1 Requirement | £48 |
| Total Pillar 2 Requirement | £0 |
| Base Capital Requirement (using an exchange rate of 0.774) | £42 |
| Total Capital Requirement | £48 |
| Surplus capital over minimum requirement | £142 |
The Directors are therefore comfortable that the Firm is adequately capitalised for Pillar 1 purposes. The Directors constantly monitor the performance of the Firm and capital adequacy is regularly assessed by the same. The Firm will also monitor risks throughout the year and decide if additional capital should be held against them. Additional risks that supplement the Pillar 1 requirements are detailed below and, where necessary, additional capital will be provided.
5 Management of Risk Framework
5.1 Risk Profile
RAM has identified the following core risk categories: investment risk, reputational risk, liquidity risk and operational risk.
RAM’s profile of these risks is continually evolving and is generally driven by:
- Changes to the market in which we operate;
- RAM’s strategies and business objectives and;
- RAM’s business/operating models
RAM will seek to generate positive returns through carefully considered risk taking and robust risk management. As such the effective management and control of both the upside of risk taking and its potential downside is a fundamental core competency of the Firm.
5.2 Risk Appetite
The Directors are responsible for setting the Firm’s risk appetite, defining the type and level of risk that the Firm is willing to accept in pursuit of its business objectives.
5.3 Three Lines of Defence
The Firm’s governance structure is designed such that the business is the first line of defence, the compliance function is the second line of defence with the Directors representing the third line of defence.
| First line of Defence
Business |
Strategies and goals | Firm Values | Risk Appetites | |
| Identification, control and management of risks. Operating requirements: roles and responsibilities, supervision, procedures, systems and controls | ||||
| Identifying Risks Faced | Identifying Risks Taken | |||
| Control and Management of Risks | ||||
| Second line of Defence
Compliance and independent oversight of business |
Risk Management Framework | |||
| Policies and Procedures, Guidance and Training | ||||
| Monitoring | ||||
| Third Line of Defence
Board |
Governance | |||
| Full accountability for the management of risks | ||||
5.4 Risk Assessment Framework
The Board are responsible for approving the Risk Assessment Framework, which is used to ensure that the Firm has a comprehensive understanding of its risk profile, including both existing and emerging risks facing the Firm, and to enable it to assess the adequacy of its risk management in the context of the Firm’s risk appetite.
| Principal Risks | Appetite | Key Drivers | Mitigation |
| Strategic Risk | |||
| The risk that arises decisions that fail to reflect the full business operating environment and the impact of failing to adequately identify changes to the business model. | The Firm will remain competitive by identifying opportunities and assessing the risks, rewards and costs associated with them before proceeding | Regulatory landscape impacting the business.
Commercial/market conditions Internal business/operating model |
Due diligence is carried out prior to any new business opportunity and a full assessment of the potential and actual risks taken into account.
Appointment of external compliance consultants |
| Credit Risk | |||
| Refers to the risk that a borrower or counterparty will default on any type of debt owed to the firm by failing to make required payments, or failure to deliver, or deliver on time, an instrument owed to the firm. The risk also includes lost principal and interest and disruption to cash flows | The Firm will only engage with reputed and where applicable authorised third party firms. As far as individuals are concerned due diligence processes are in place to on-board reputed customers.
|
Market conditions
Counterparty credit worthiness |
The Firm uses the standardised method of calculating Credit Risk and ensures capital is held to cover exposures. |
| Liquidity Risk | |||
| The risk that the Firm does not have sufficient liquid resources or is unable to deploy such resources to meet its actual or potential obligations in a timely manner as they fall due | The Firm will have sufficient and accessible financial resources as to meet any financial obligations as they fall due | Operational risk
Credit risk events Internal business operating model |
Periodic reviews of financial resources
Directors have access to contingency funding arrangements
|
| Operational Risk | |||
| The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events | The Firm will actively identify and manage the risk of its people, processes or systems failing. Operational risk is inherent in any business however the Firm will take steps to prevent such risks from increasing operating costs | Internal business operating model
External threats Market conditions |
Where applicable employees will be provided training and guidance on their obligations
Given the small nature of the firm and Director involvement operational risk will be closely monitored.
|
| Legal | |||
| The risk arising from defective transactions, failing to take appropriate measures to protect assets, changes in law and claims resulting in a liability or loss to the Firm. | The Firm will appoint external legal advisors (as needed) however the Firm does not intend to have any appetite for legal breaches | Regulatory regime
Legislative framework |
Staff training and regular monitoring of changes in law and the implications to the Firm |
| Interest Rate Risk | |||
| The risk that interest rates (e.g. Libor, Euribor) and/or their implied volatility will change | The Firm accepts that volatility in interest rates will impact on cash balances and any future borrowings and has sufficient resources in place | Market movements
Liquidity |
Entities with whom balances are held are regularly monitored |
| Risk of Excessive Leverage | |||
| The potential increase in risk caused by a reduction in the Firm’s own funds through expected or realised losses. | The Firm will have adequate financial resources in place | Operational risk
Market conditions Liquidity |
Regular reviews of financial resources and financial position via the ICAAP process. |
| Financial Crime Risk | |||
| The risk that the Firm fails to prevent its involvement in or use by other parties to commit financial crime | The Firm has no appetite for any breaches or lapses occurring that result in financial crime taking place | External threats
Internal controls |
Financial crime policies and procedures are in place and employee training will be provided. |
6 Remuneration Policy
RAM’s Remuneration Policy complies with the Remuneration Code in relation to its size, nature, scope and complexity of our activities.
The Policy is aligned to the Firms’ business strategy, objectives, values and long term interests in respect of performance and effective risk management in line with the Firm’s risk appetite.