Legal and Regulatory Information
REGULATED STATUS OF ENTITIES
Thompson Taraz LLP is regulated to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001105656. Thompson Taraz LLP is a limited liability partnership registered in England and Wales under number OC307438.
Thompson Taraz Managers Limited (“TTML”) and Thompson Taraz Depositary Limited (“TTDL”) are authorised and regulated by the Financial Conduct Authority (“FCA”). Their firm reference numbers are 226978 and 465415, respectively.
The registered office of all three entities is 4th Floor, Stanhope House, 47 Park Lane, London, W1K 1PR.
Thompson Taraz Managers Limited and Thompson Taraz Depositary Limited are covered by both the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).
Eligible complainants may raise a complaint with the FOS if they are not satisfied with the firm's handling of their complaint. The FOS may be contacted at:
The Financial Ombudsman Service
Exchange Tower
London E14 9SR
www.financial-ombudsman.co.uk
In the event of the firm’s failure, eligible claimants may be able to seek compensation from the FSCS. The FSCS may be contacted at:
Financial Services Compensation Scheme
10th Floor
Beaufort House, 15 St Botolph Street
London EC3A 7QU
www.fscs.org.uk
PILLAR 3 DISCLOSURES
The Pillar 3 disclosure of Thompson Taraz group is set out below, as required by the Capital Requirement Regulation (“CRR”) Article 431. The regulatory aim of the disclosures is to improve market discipline.
1. Background
The Capital Requirements Regulation and Capital Requirements Directive (known as “CRD IV”) and the Alternative Investment Fund Managers Directive (“AIFMD”) together establish a revised regulatory capital framework across Europe governing the amount and nature of capital investment firms must maintain.
The Thompson Taraz group (“TT”) operates under the Basel II capital adequacy framework. This consists of three “pillars”:
• Pillar 1 is a formal set of rules for calculating the minimum capital required by TT to cover potential losses arising from credit, market and operational risks.
• Pillar 2 focuses on TT’s internal capital adequacy assessment and this covers other risks (such as business risk) as well as the three risk types covered by Pillar 1.
• Pillar 3 aims to encourage market discipline through the public disclosure of TT’s risk and capital profile. The information disclosed includes qualitative information (about TT’s risk governance and risk and capital management processes) and quantitative information (about its risk exposures and capital). The quantitative disclosures provide data on the calculation of risk and capital resources and requirements as set out in Pillar 1.
Thompson Taraz Depositary Limited ("TTDL") and Thompson Taraz Managers Limited ("TTML") (together, the “Firms”) are regulated firms within TT. The TT group also consists of TT Shared Services Limited (“TTSS”) and Thompson Taraz Group plc (“TTGL”). TTSS serves as the group’s employer and group management services provider and TTGL is the parent holding company.
TT constitutes a Consolidation Group for the purposes of the CRR and the disclosures set out herein are made accordingly.
The UK Financial Conduct Authority ("FCA") supervises TT and has set out its Pillar 3 requirements within its “Prudential Sourcebook for Investment Firms” (“IFPRU”). This document satisfies our obligations under those requirements.
Frequency
TT makes Pillar 3 disclosures at least annually. The disclosures will be made as at TT’s accounting reference date of 31 March 2018. During 2017 the accounting reference date was changed from 30 April to 31 March.
Verification
It should be noted that these disclosures do not constitute financial statements of TT nor of the Firms and should not be relied on for any purpose other than the disclosure requirements referred to above. TT is not required to have the Pillar 3 disclosures audited by external auditors.
Confidentiality
TT regards information as proprietary if sharing that information with the public would undermine its competitive position. Proprietary information may include information on products or systems which, if shared with competitors, would render TT’s investments therein less valuable. Further, TT must regard information as confidential if there are obligations to customers or other counterparty relationships binding TT to confidentiality. In the event that any such information is omitted, we shall disclose such and explain the grounds why it has not been disclosed.
2. Location
The Pillar 3 disclosures will be published on the Thompson Taraz website (www.thompsontaraz.co.uk)
3. Scope
Within the TT consolidation group for capital requirements, the following entities are regulated by the FCA:
· TTDL - TTDL’s principal business is to act as a depositary for private equity and real estate alternative investment funds and associated custodian and administration services. Previously TTDL was an IFPRU limited licence €125k firm, however this changed to an IFPRU full scope €730k firm following a change in TTDL’s regulatory permissions (approved 15 November 2018).
· TTML - TTML’s principal business is to act as an operator and/or manager of unregulated collective investment schemes (“UCIS”) and investment manager for Enterprise Investment Scheme (“EIS”) funds. TTML is approved as a full scope UK AIFM and to hold client money and assets. TTML is an IFPRU limited licence €125k firm.
Senior management considers that this business model is sound and capable of withstanding economic stresses and downturns.
The quantitative disclosures are being made on the basis of TT’s audited annual financial statements for the period ended 31 March 2018.
Due consideration has been given to the materiality of all required disclosures and to the question as to whether to withold any of the required disclosures on the basis that they contain proprietary or confidential information
4. Risk management overview
Governance
Boards of Directors are in place for TT and the Firms. The relevant Boards approves risk management policies and sets the overall risk appetite and tolerance levels. The Firms’ Boards (“Boards”) meets on a regular basis and receives reports on overall risk exposure and identifies, monitors and controls risk exposures.
The Boards are compact and perform functions that would otherwise be performed by sub-committees. Generally, TT engages in low risk activity and a limited scope of activity therefore a risk committee is not considered necessary, but we nevertheless remain very focused about risks. Risks are discussed as a specific board agenda item.
Strategies and processes to manage risks
The main categories of risk which require consideration are the following:
• Market and Credit risk;
• Capital and Liquidity risk;
• Operational risk;
• Regulatory and Legal risk; and
• Reputational risk.
TT places considerable weight on the management of exposures to risk. Its risk management policies are designed to identify, monitor, mitigate and control such exposures to ensure that the activities of TT and the Firms are managed within the risk tolerances determined by the respective Boards.
Risk exposures are identified, monitored and controlled by the business heads who are also Directors and members of the Boards. Responsibility for the approval of all risk management policies and for setting the overall risk appetite and tolerance levels rests with the Boards. The core responsibilities are to:
1. Assess and report on the effectiveness of TT’s internal control systems in managing risks;
2. Provide an appropriate level of reporting of the status of risk within TT; and
3. Act on issues as and when they arise.
The Boards meets on a regular basis and receives reports concerning the overall risk exposure covering areas such as exposures to market risk, credit risk, liquidity risk and operational risk. TT maintains a risk register and risk heat maps which are reviewed at least quarterly and presented, at least annually, to the Boards, or more frequently if there is a material change. Risks may be entity specific or group wide.
Risk are assessed based on qualitative assessment of likelihood of occurrence and scale of impact. Controls are identified and subject to management monitoring and independent testing. The key risks, summarised in heat maps, help inform the material risks considered in the internal capital adequacy assessment process and are reviewed against the risk appetite.
TT has insurance designed to reduce its exposure to liability and to protect its assets. These are provided by third party insurers and aim to financially mitigate the economic consequences of risks. Any significant changes in the risk profile of TT are taken into account by tailoring the insurance to TT’s risk exposures. This approach is designed to maximise breadth of cover and certainty of response in respect of key third party liabilities, loss of assets, business interruption and people-related exposures.
The management of TT consider that the risk systems in place are adequate for the organisation in light of its risk profile and strategy.
5. Governance
The following table shows the number of directorships held by the members of the Boards as at 31 March 2018.
|
|
Position in TT Group
|
Number of directorships - TT group and other TT entities
|
Number of directorships
- External
|
|
Kelvin Gray
|
TTGL & TTML Director
|
12
|
26
|
|
Martin Heffernan
|
TTGL & TTDL Director
|
13
|
29
|
|
Afshin Taraz
|
TTGL & TTDL Director
|
16
|
28
|
|
Simon Webber
|
TTML Director
|
4
|
2
|
In line with the CRR rules, multiple relationships within the same group are treated as a single role and directorships with bodies that do not predominantly pursue commercial objectives are also excluded. The directors have adequate time to spend on the oversight of TT as the majority of the external directorships are for inactive entities.
The Boards are committed to having a diverse and inclusive leadership team. It monitors the balance of skills, knowledge, experience and diversity on the Boards; considers succession planning for appointments to the Boards and the executive team; and supports the development of staff across the group.
TT does not have a separate risk committee as this is not considered necessary given the scale and risk profile of the organisation.
6. Disclosures
Credit risk
This is the risk of loss as a result of the non-payment of a debtor.
TT has adopted the ‘Standardised Approach’ to calculating its Pillar 1 credit risk requirement. The main credit risk is the non-payment of fees and cash holdings at banks.
TT seeks to deal only with creditworthy counterparties. Outstanding fees are monitored closely. Strict payment terms are written into engagement letters. In the case of retained clients, fees are billed quarterly. TT’s cash and cash equivalents are held with a range of banks which are major UK clearing banks currently supported by a government guarantee. TT has a low bad debt experience and performs due diligence and creditworthiness checks for banks used.
|
Risk weighted credit exposures by class
|
£ millions
|
|
Institutions
|
27.3
|
|
Corporates
|
31.6
|
|
Equity
|
0.3
|
|
Other
|
9.0
|
|
Total
|
68.2
|
Liquidity risk
This is the risk that a business will be unable to meet its financial obligations as they fall due. TTDL and TTML maintain cash resources adequate to meet its projected obligations.
Ultimate responsibility for liquidity management rests with the Boards. TTDL and TTML manages liquidity risk by maintaining sufficient cash reserves to meet its actual and forecast cash flows.
Operational risk
This is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.
As investment management, depositary and operator firms, the main risks that TT faces are of an operational nature. TT seeks to avoid, mitigate, manage or transfer operational risk in order to attain acceptable residual levels. This objective is implemented largely through the maintenance of appropriate systems, processes and controls. TT employs experienced staff and maintains clear segregation of duties and clear lines of escalation appropriate to its size and activities. Relevant operational procedures are documented, and staff are provided with appropriate training. Outsourced relationships, where they exist, are monitored to ensure adherence to contractual obligations. Business continuity plans are in place and are subject to regular review and testing. There are prudent controls and processes in place to minimise data security risks. Operational risk is further mitigated by professional indemnity insurance which we consider to be at a prudent level given the nature of our business. Reputational risk can arise as a result of failure to manage TT’s other risk; TT manages this by placing the highest importance on risk management at all levels of the organisation and ensuring all employees are aware of the need to observe the highest ethical standards in their day to day work and interaction with TT’s clients, regulators and other stakeholders. Whilst we have strong mitigating controls in place to reduce the risks set out above, we will put aside additional capital to the Pillar 1 requirement where required to cover operational risks.
Market risk
Market risk in relation to a firm is the risk that arises from fluctuations in values of, or income from, assets or in interest or exchange rates.
No firm within the group holds any material holdings in investments, commodities, etc. We do not hold any trading positions. TTGL does hold some immaterial investments which are accounted for under Credit Risk. TTDL does operate a fund denominated in euros but all fees are invoiced and paid in sterling and as such there are no non-sterling balances. Therefore, we are not required to calculate a market risk capital requirement.
TTGL holds investments in unlisted securities and in subsidiary companies but these have immaterial impact.
Other risks
· Concentration risk: The Firms do not have large exposures to individual or groups of counterparties.
· Business risk: The main sub-risks in this category are the loss of clients or poor performance of services. The risk of loss of clients occurring due to either external of internal factors is remote due to the structure of the agreements with clients. There is also a risk of poor performance however these would stem from operational risks which are considered above in the Operational Risk section.
Risk appetite
The establishment of TT’s risk appetite and tolerance is the responsibility of the Boards. In addition to the implementation of the policy set by the Boards, significant new business developments and changes are subject to Board approval. The Boards are provided with the relevant management information to enable it to conduct its oversight and governance responsibilities appropriately. Through the composition of the Boards it has a comprehensive understanding of the risks throughout the business.
TTDL and TTML are privately owned entities in which the parent company’s (TTGL’s) shareholders are directors and employees of the Firms. Consequently, the interests of the shareholders are aligned with the interests of the management and employees of the group.
TT uses its short lines of communication to agree new policies, procedures or business developments quickly and if necessary at short notice. Any new developments will always be made in the context of the current and future risks, cash and profits projection.Reviews of financial cover required for potential risk are undertaken periodically.
7. Capital adequacy
Capital Resources are defined under a number of different tests including regulatory, accounting and internal economic capital criteria. Each of the different tests permits or requires certain additions or deductions, and these are summarised below:
At 31 March 2018, the capital resource requirement is calculated as the higher of:
· The base capital resources requirement of €125k;
· The sum of credit risk and market risk capital requirements; and
· The fixed overhead requirement (“FOR”).
[Note that from November 2018, the capital resource requirement will be calculated as the higher of:
· The base capital resources requirement of €730k; and
· The sum of operational, credit and market risk capital requirements.]
As at 31 March 2018, TT had £1,667,000 of regulatory capital in place (comprising ordinary share capital and retained profits) compared with a requirement of £511,000. This resulted in a £1,156,000 surplus. Details are set out below. The Firms have built up a considerable capital surplus over and above their existing regulatory requirement.
At 31 March 2018 and throughout the reporting period, TT complied with the capital requirements as set by the FCA.
|
Capital Resources
|
£'000
|
|
|
Tier 1 capital (fully paid ordinary share capital)
|
50
|
|
|
Tier 1 capital (retained profits)
|
1,617
|
|
|
Deductions from Tier 1 capital
|
0
|
|
|
Tier 1 capital after deductions
|
1,617
|
|
|
Total capital resources
|
1,667
|
|
|
|
|
|
|
Capital Resources Requirement
|
|
|
|
Credit risk plus market risk capital requirement (A)
|
68
|
|
|
Fixed overhead requirement (B)
|
511
|
|
|
Base requirement €125,000 equivalent (C)
|
109
|
|
|
Total capital resources requirement
|
511
|
being the higher of (A), (B) and (C)
|
|
Surplus
|
1,156
|
|
Capital Ratios (%)
|
Required (%)
|
Actual (%)
|
|
CET1 Capital Ratio
|
4.5%
|
26.1%
|
|
Total Capital Ratio
|
8.0%
|
26.1%
|
8. Capital resources
TT has a simple capital structure comprising Common Equity Tier 1 (“CET1”). CET1 capital comprises ordinary share capital, retained profits and other reserves.
TT has undertaken an internal capital adequacy assessment process (“ICAAP”). The ICAAP was last revised in May 2018 and did not identify any risks for which additional capital is required. The TT group and Firms (TTDL and TTML) currently have capital resources in excess of the regulatory minimum capital requirement.
REMUNERATION DISCLOSURE
The EU Capital Requirements Regulation (Regulation (EU) No 575/2013) imposes a requirement for disclosure of TT’s approach to linking remuneration to risk. The aim is to ensure that firms have in place remuneration policies which are both consistent with and promote effective risk management and do not expose them to excessive risk.
TT has a remuneration policy that appropriately addresses potential conflicts of interest and aims to ensure that its authorised persons are not rewarded for taking inappropriate levels of risk. Under the Remuneration Code (“the Code”), TTDL is classified as a Tier Three firm and TTML satisfies the necessary proportionality elements; this allows the Firms to disapply many of the technical requirements of the Code and to proportionately apply its rules and principles in establishing the Firms' policies.
TT is satisfied that the policies in place are appropriate to the size, internal organisation and the nature, scope and complexity of their activities.
The decision-making process
TT does not have a formal Remuneration Committee; rather, the remuneration of TT’s Directors and staff are reviewed on an annual basis by the Founding Directors, who, on a day-to-day basis perform activities on behalf of the entire group and therefore are cognisant with the performance of TTDL, TTML and its staff. Remuneration is specifically determined with reference to the performance of the individual during the year (using qualitative criteria set out in their annual appraisal) and with regard to the group's actual and projected reserves, profits and cash position.
TT has assessed its personnel and conclude that during the period to 31 March 2018, six members of staff (three of whom are Founding Directors) qualified as Code Staff. As at 31 March 2018, five members of staff qualified as Code Staff (three of whom are Founding Directors).
Quantitative remuneration data
The table below sets out the remuneration information required by EU Capital Requirements Regulation (Regulation (EU) no 575/2013 Article 450 1(g) and 1 (h). Thompson Taraz Managers Limited and Thompson Taraz Depositary Limited each have only one business line, however as the Remuneration Code staff provide support to the whole TT Group, a breakdown across business lines cannot be provided.
Aggregate quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the firm*
|
11 months to Mar 2018
|
Senior Management (£)
|
Other members of staff (£)
|
Totals (£)
|
|
Fixed Remuneration
|
708,000
|
0
|
708,000
|
|
Variable Remuneration
|
0
|
0
|
0
|
|
Number of Staff
|
6
|
0
|
6
|
During the reported periods, any variable remuneration paid was in the form of cash and was not deferred. Further, there were no guaranteed bonuses, new sign-on payments or severance payments paid.
*The aggregate disclosed remuneration relates to services performed on behalf of Thompson Taraz Depositary Limited, Thompson Taraz Managers Limited and Thompson Taraz LLP (the previous parent entity of the Firms).
