The following information is provided pursuant to the Pillar 3 disclosure rules as laid out by the Financial Conduct Authority (‘FCA’) in section 11 of its Prudential sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).
The FCA has implemented a prudential framework for investment firms that consist of three ‘pillars’:
The rules provide that disclosures are not required where the information is not regarded as material to a user relying on that information for the purpose of making economic decisions or where the information is proprietary or confidential. WK Capital LLP (‘WKC’) is a BIPRU €50,000 limited licence firm and these disclosures are not subject to audit.
WKC’s Management Committee (the ‘MC’) is the main governing body of the business. The MC is responsible for the process of risk management, as well as forming its own opinion on the effectiveness of the process. In addition, the MC decides WKC’s risk appetite or tolerance for risk and ensures that it has implemented an effective, on-going process to identify risks, to measure its potential impact and then to ensure that such risks are actively managed. Senior management is accountable to the MC for designing, implementing and monitoring the process of risk management and implementing it into WKC’s day-to-day business activities.
WKC has produced a Risk Management Policy. The objective of this policy is to identify the business risks that WKC faces as a result of carrying on its business. WKC’s risk management policy identifies the probability of the risk occurring and the procedures put in place by WKC to control, eliminate or mitigate the identified risks. The policy details WKC’s assessment of the degree of residual risk in light of its risk management controls. WKC’s risk management policy considers the following risks:
WKC has assessed business and operational risks and has set out appropriate actions to manage them. It has a risk framework in place to mitigate risks including operational, credit and market risks. Risk within WKC is managed by use of the following:
Since incorporation, WKC has complied with the Capital Requirements Directive. WKC’s Pillar 1 capital resources requirement is the greater of:
In accordance with Pillar 2, WKC has undertaken an Internal Capital Adequacy Assessment Process (‘ICAAP’) based upon the risks to which the business is exposed. This analysis concluded that additional capital above the Pillar 1 requirement is not required.
WKC is a BIPRU securities and futures firm without an investment firm consolidation waiver deducting material holdings under (GENPRU 2 Annex 4). Tier 1 Capital consists of capital contributions. As all profits of WKC are allocated to its members, it has no profit and loss reserves. WKC had the following regulatory capital position as at 30 April 2013:
|Profit and (loss) account and other reserves||0|
|Tier 2 capital after deductions||0|
For its Pillar 1 regulatory capital calculation of credit risk, under the credit risk capital component WKC has adopted the standardised approach (BIPRU 3.4) and the simplified method of calculating risk weights (BIPRU 3.5). WKC’s capital requirements in accordance with BIPRU 3 are shown below:
|Fixed Assets (8% x£0)||0|
|Cash (1.6% x £60k)||1|
|Debtors (8% x £0)||0|
WKC is primarily exposed to credit risk as a result of potential non-collection of advisory and management fees. It holds all cash balances with UK banks assigned credit ratings of single A or above. Furthermore given the nature of WKC’s clients, the MC believes that the risk of past due or impaired exposures is minimal. A financial asset is past due when a client has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.
WKC has non-trading book potential exposure only. As at 30 April 2013 WKC had no market risk exposures.
WKC’s fixed overhead requirement (‘FOR’) is disclosed as a proxy for the Pillar 1 operational risk capital calculation. WKC’s Pillar 1 capital resources requirement is the FOR which is the higher of the FOR and the sum of Market Risk and Credit Risk Requirement. As at 30 April 2013 the FOR (GENPRU 2.1.53) amounts to £22,403.