Pillar 3 Disclosure
Pillar 3 Disclosures for Vartan Ravenscroft – June 2017
A Vartan Limited operates under the trading name of Vartan Ravenscroft (VR). VR is a bespoke investment management company which provides discretionary and advisory investment management services primarily to private clients, but also to trusts, charities, companies and pension funds. Occasional Execution Only transactions occur.
VR is regulated by the Financial Conduct Authority (FCA) for all its affairs including prudential matters and in regards to ownership is 75% owned by Ravenscroft Limited (who is regulated by the Guernsey Financial Services Commission) with Andrew Vartan (CEO) holding the remaining 25%.
This disclosure document is published in accordance with the FCA rules concerning Pillar 3 disclosures.
More recently, the Basel III regulations, commonly referred to as CRD IV, revised the definition of capital resources and included additional capital and disclosure requirements for certain firms. This took effect from 1st January 2014; however VR as a firm that does not hold client money or assets remains subject to CRD III.
The FCA framework consists of three “Pillars”:
- Pillar 1 is the minimum capital requirement set out by the Directive and instructed in the national discretions. The minimum capital requirement has three main components:
a) Market Risk (Market Risk Capital Requirement)
b) Operational Risk (Operational Risk Requirement) and
c) Credit Risk (Credit Risk Capital Requirement)
- Pillar 2 is the capital adequacy assessment made by each individual firm. The adequacy of the firm’s minimum capital is no longer dictated by the regulatory minimum requirement and the firm must assess itself as to whether the capital it holds is adequate. This is achieved by the firm through its Internal Capital Adequacy Assessment Process (ICAAP) which quantifies the risks of certain events on the firm’s profitability and the impact on its ability to continue to operate.
- Pillar 3 sets out disclosure requirements regarding capital and risk management. The disclosure requirements aim to complement the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2) and aim to encourage market discipline by allowing market participants to assess key pieces of information on risk exposure and the risk assessment process of the firm.
In regards to the disclosure statement, the rules provide that we may omit one or more of the required disclosures if we believe that the information is immaterial. Materiality is based on the criteria that the omission or misstatement of material information could change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions.
3. GOVERNANCE FRAMEWORK
The VR Board comprises:
Jon Ravenscroft (Chairman, Group CEO Ravenscroft Ltd)
Mark Bousfield (Director, Group Managing Director Ravenscroft Ltd)
Andrew Vartan (Director, VR CEO)
Michael Kenyon (Director)
The VR Board meets quarterly.
4. RISK MANAGEMENT OBJECTIVES & POLICIES
The VR Board takes ultimate responsibility for the risks undertaken by the business. Risk management objectives and policies are a key driver within the overall business. These policies:
- Are appropriate to the size, nature and complexity of transactions entered into by VR and its counterparties and reflect the expertise and quality of the firm’s monitoring capabilities, systems and processes.
- Identify the risks to which the capital of VR is exposed.
- Set down appropriate risk mitigation processes.
- Articulate appropriate risk mitigation tools such as system checks and insurance cover.
VR does not have a separate risk function. The VR Board delegates authority to Compliance to co-ordinate risk matters and Compliance reports on a formal basis to each quarterly Board Meeting. This requires Compliance to:
- Oversee VR’s risk profile and actions taken to manage and mitigate the key risks facing the firm.
- Ensure that the policies and procedures for conducting business are adequate and up to date.
- Ensure appropriate internal controls are in place.
- Co-ordinate any appropriate risk limits.
- Assist the monitoring of conduct risk across VR and its effectiveness in the delivery of “treating customers fairly”.
- Ensuring Business Risk assessments and the VR ICAAP are completed annually.
Compliance reports on a formal basis to each quarterly Board Meeting.
5. RISK APPETITE
VR has an overall conservative appetite to risk which is applied to all areas of business activity and is reviewed regularly by the Board.
5.1 Credit Risk
Credit risk is the risk that a client or counterparty defaults. As the majority of client trades are settled via a delivery versus payment process, VR’s exposure to credit risk is incidental to its main business of investment management.
5.2 Market Risk
Market risk requirement covers market risk and foreign exchange risk. VR does not undertake any proprietary trading activity and is not therefore exposed to any market price risk other than occasional dealing errors. Also, VR does not run any interest rate mis-matches and is not exposed to trading book interest rate risk. Consequently the firm considers that it does not have any market risk and additionally as VR has no exposure to foreign currency the firm has no foreign exchange risk.
5.3 Operational Risk
Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems, from the actions of people or from external events.
VR operates a robust risk management process. Processes and procedures are in place and available to all staff and are kept current. The Compliance Department perform numerous checks and monitoring and in addition Professional Indemnity Insurance is held.
5.4 Liquidity Risk
Liquidity risk is the risk that a firm’s cash flow is insufficient to meet its payment obligations as and when they fall due. Ravenscroft Limited operate and manage all cash and borrowing requirements for VR whilst ensuring VR has sufficient liquid resources to meet the continued operating needs of the business. This is supported by a robust budgeting and forecast process which has the full involvement of VR’s Board. VR does not rely on any debt financing.
6. CAPITAL ADEQUACY
As mentioned in Section 2 above, the firm has a requirement to carry out internal capital adequacy assessments. VR has a process of monitoring its capital resource availability with comprehensive analysis of its capital requirements and potential risk exposures carried out within the firm’s Internal Capital Adequacy Assessment Process (ICAAP).
This document includes a review of the adequacy of the firm’s capital resources for the next 3 years based on its latest financial projections and considers the risks to which the business is exposed. The ICAAP also includes the results of various scenario analyses aimed at assessing the firm’s position under different scenarios. Based on the ICAAP, the firm expects to have sufficient capital to cover its requirements. The ICAAP is updated annually and reviewed and approved by the Board of VR.
7. CAPITAL RESOURCES
VR holds sufficient monies to cover the capital requirement.
Tier 1 Capital
Deductions from Tier 1 Capital
Total Tier 1 Capital After Deductions
Upper Tier 2 Capital
Lower Tier 2 Capital
Deductions from Tier 2 Capital
Deductions from Total of Tiers 1 and 2 Capital
Total Tier 1 Capital Plus Tier 2 Capital After Deductions
Total Tier 3 Capital
Deductions from Total Capital
Total Capital After Deductions
Pillar 1 Capital Requirement
Excess of Total Capital Over Capital Requirement
8. REMUNERATION CODE
VR has a Remuneration Policy which applies to the remuneration of all staff, including the two Executive Directors and the Compliance/MLRO incumbent (VR’s Remuneration Code staff), Approved Persons (CF30’s) and all other permanent staff.
VR operates a Remuneration Committee (Remco) comprising two Directors of the VR Board, both of whom are employees and Directors of Ravenscroft. Remco normally meets two times per year, or more frequently if required, in order to fulfil the Committee’s obligations and duties.
The Remco deals with all decisions regarding remuneration and identifying the “code staff” (members of staff whose activities have a material impact on the firm’s risk profile BIPRU 11.5.18R). Quantitative information is not given on the grounds of individual privacy.