Pillar III disclosures & remuneration policy
Henry Spain Investment Services Limited is a private client wealth management firm, authorised and regulated in the United Kingdom by the Financial Conduct Authority (‘FCA’).
Under the FCA’s Prudential Sourcebook for Banks and Investment Firms (‘BIPRU’), Henry Spain Investment Services Limited is classified as a BIPRU €50K Limited Licence investment firm. As such, it is required to comply with the three “Pillars” of the EU’s Capital Requirements Directive (‘CRD’) framework. These are:
Pillar 1, which sets out the minimum amount of capital the Firm needs to meet its regulatory requirements;
Pillar 2, which requires us and our regulatory supervisors to consider the requirement to hold additional capital against risks not covered in Pillar 1. In the UK, this is implemented through the Internal Capital Adequacy Assessment Process (“ICAAP”) undertaken by Henry Spain Investment Services Limited, and by the FCA through the Supervisory Review and Evaluation Process (“SREP”);
Pillar 3, which requires us to disclose to market participants key information about our underlying risks, risk management controls and capital position.
The purpose of this document is to meet our obligation in respect of Pillar 3.
- DISCLOSURE POLICY
Henry Spain Investment Services Limited is a directly authorised discretionary fund management and financial advisory company.
Henry Spain Investment Services Limited makes Pillar 3 disclosures on at least an annual basis, as soon as practicable following the end of our Financial Year. These are provided on our corporate website, www.henryspain.co.uk. Under the rules of BIPRU 11, the firm may omit certain information from the Pillar 3 disclosure, in specifically defined circumstances, where it believes that the disclosure contains information that is immaterial, proprietary or confidential. We confirm that we have not omitted any disclosures on these grounds.
All figures in this document are correct at 30th June 2020 unless stated otherwise.
- RISK MANAGEMENT POLICIES AND OBJECTIVES
Our interpretation of risk appetite is how comfortable would we be if a risk were to emerge. This is quite a subjective analysis, however, it does gauge how the Board is feeling about the risks within our firm.
The current view is that the Board are relatively comfortable with the key risks potentially affecting the Firm, but we will keep this in view on an ongoing basis.
The Board will review the overall effectiveness and relevance of the Firm’s system and controls for each financial year. The Board will also carry out an evaluation of the major risks affecting the business and the processes in place within the business to control and monitor such risks on an ongoing basis. On this basis the Board will report and disclose its findings and whether it believes that all necessary actions have been, or are being, taken to remedy any significant failings identified as part of the ongoing risk management process and that no significant weaknesses were identified during the year.
The Firm’s activities are non-complex and the Firm does not hold client money or client assets.
Risk Management Framework
In order to ensure that the Henry Spain Investment Services Limited regularly reviews and monitors all the potential areas of risk to the business, the Firm has put in place a risk management framework which enables all senior management and any relevant committee and the Board to be kept fully informed of any potential risks to the business and also how those risks might impact the group’s capital adequacy position.
A Risk Matrix has been designed which captures the core fundamental risks inherent in the firm and assesses how those risks are managed and mitigated, the key indicators that would suggest if the risk is likely to materialise together with an assessment that each risk may have on the Firms regulatory capital. This is the core assessment of the Pillar 2 requirements.
A thorough Compliance Monitoring Programme (“CMP”) is managed via an annual programme of reviews. Details of the CMP and the current status are provided to the Board on a regular basis, with any material issues being escalated to the Board immediately they are identified.
The CMP also includes undertaking stress and scenario testing of its key risks to determine the impact to our current and future profitability and balance sheet.
The key risk exposures the Firm faces and the mitigating controls in place are listed below:
The value of the assets that we manage or advise upon could reduce for a variety of reasons, including the loss of clients and a reduction in the value of a clients’ portfolio either due to market movements or poor portfolio performance. The highest potential risks are:
Loss of Clients – The firm has a diverse client base for our discretionary managed clients. Client relationship management and retention is at the very centre of operations. Should a client be deemed to be ‘at risk’ a formal action plan would be managed to prevent the loss of the client.
Poor relative performance is monitored and reported on an ongoing basis. Should the performance be such that either we or the clients were unhappy with portfolio performance, we would instigate a formal action plan.
The risk resulting from inadequate or failed business processes and systems. Henry Spain Investment Services seeks to monitor potential sources of errors arising from its operations and continually strengthen our internal systems and processes, supervisory and oversight functions to reduce our residual risk exposure. The Firm maintains resilient infrastructure, and regularly tests its Business Continuity and Disaster Recovery arrangements to limit the impact of potential external events. Additionally, the Firm maintains comprehensive Professional Indemnity Insurance cover to cap our exposure to potential large claims or operational losses.
There are two registered investment managers, who act as a contingency for each other. The Chief Investment Officer maintains a buy list with target prices for all holdings and potential holdings, to assist with any transitional phase, should that be required.
Liquidity Risk & Market Risk
Reduction in Portfolio Values – The two principal reasons for a reduction in the value of a clients’ portfolio, would either be adverse market movements or poor relative investment performance. We have modelled the impact of a downturn in the markets, which has demonstrated we have sufficient liquidity.
The key liquidity requirements within the firm are the cashflows within the business and how a non-receipt of funds may significantly impact the firm.
At present the firm is not materially reliant on any one client for income (materiality is defined as any exposure to one client which may impact by the balance sheet by more than 10%).
The firm has undertaken an analysis of how a significant increase, or decrease, in business volumes may impact the firm. We are confident in either scenario of increase or decreasing client numbers we have enough resources to maintain our ongoing service.
- BUSINESS STRATEGY
The mission of Henry Spain Investment Services is to provide the highest standards of advice, discretionary investment management and service to its clients. We wish to establish a successful partnership with our clients, our staff and product providers that respect the interests and the goals of each party.
We strive to maintain and increase our current customer base by providing our services in a manner whereby the fair treatment of customers is consistently at the heart of the business.
Success is measured by our clients choosing us above the competition because of their belief in our ability to meet or exceed their expectations on cost, service and expertise.
- CAPITAL RESOURCES
As at 30th June 2020 the firm’s Capital Resources are £1,660,741 which cover a capital adequacy requirement of approximately £177,925. This provides a surplus of £1,482,816.
The following table itemises the components of the Capital Resource Requirement, the Firm’s Pillar 2 current Capital figures and the Total Capital and Surplus.:
Capital Requirements Date: 30th June 2020
Pillar 1 Minimum Capital
ICAAP Pillar 2 Capital
Base Capital Requirement
Credit Risk Capital Requirement (CRCR)
Market Risk Capital Requirement (MRCR)
Operational Risk Capital Requirement (OCR)
CRCR + MRCR + OCR Total
Fixed Overhead Requirement (FOR)
Pillar 1 Total
Pillar 2 Operational Risk
Pillar 2 Credit Risk
Pillar 2 Market Risk
Pillar 2 Business and Strategic risk
Pillar 2 Net Wind Down Risk
Pillar 2 Total
ICAAP capital requirement
Firm capital and reserves
It is anticipated that there will not be any material changes to the firm’s regulatory capital requirement. Should there be any changes, these will be considered carefully and documented within this document.
- REMUNERATION CODE
SYSC 19F, which came into force on 1 January 2018, requires that where remuneration arrangements have the potential to create material conflicts of interest between individuals and Clients:
(a) Incentives must not be solely or predominantly based on quantitative commercial criteria, and must take fully into account appropriate qualitative criteria reflecting compliance with the applicable regulations, the fair treatment of clients and the quality of services provided to clients.
(b) A balance between fixed and variable components of remuneration must be maintained at all times, so that the remuneration structure does not favour the interests of the firm or its relevant persons against the interests of any client.
SYCS 19 requires Henry Spain Investment Services Limited to implement remuneration policies and procedures consistent with sound risk management and which do not incentivise staff to take risks outside the Company’s risk profile.
In line with FCA Rules and Guidance, Henry Spain Investment Services Limited has deemed that it does not need to comply with the prescriptive quantitative requirements in SYSC 19C on variable remuneration as these are not appropriate to the nature scope and complexity of its activities. Nevertheless, Henry Spain Investment Services has adopted a remuneration policy (“the Remuneration Policy”) that covers all aspects of staff reward, including all fixed and variable components of remuneration, such as salaries, pensions and other benefits.
The Policy is intended to incentivise and reward performance and encourage staff retention, but to do so in a manner that:
- a) Is consistent with, and promotes sound and effective risk management;
- b) Does not encourage risk-taking which is inconsistent with the risk profiles of the Company or its clients; and
- c) Does not impair our compliance with our duty to act in the best interests of clients.
The Policy comprises a number of interlinked components, which are applied depending on the level of an individual’s seniority within the business:
Annual Pay Review – Awards are based upon the job evaluations and with reference to market rates.
Annual Bonus (Short Term Incentive Compensation) – Awards are based on a combination of Company and Personal Performance factored against market rates. Company results adjust the level of personal performance awards available based upon agreed business measures such as New Money, Assets, profit and loss, customer scope, expenses etc.
All staff performance measurement is subject to qualitative as well as quantitative commercial criteria and at least one performance measurement for all staff must be linked to risk control
FCA BIPRU Remuneration Code staff comprises categories of staff including senior management, risk-takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk-takers, whose professional activities have a material impact on the firm’s risk profile.
In line with the requirements of the Code, Henry Spain Investment Services Limited has identified the key individuals in the firm who act either as senior managers, risk takers or control functions. These individuals are nominated “Code Staff”. There is only one individual designated as code staff and this is currently Tom Spain the Director of the Business.