1.1 The Capital Requirements Directive (“CRD”) prescribesthe minimum regulatory capital to be maintained by financial services firms and the related disclosures that must be made in relation thereto. The requirements arising under CRD are set out under three pillars as follows:
- Pillar 1 defines the minimum regulatory capital resources firms are required to maintain in order to meet credit, market and operational risks;
- Pillar 2 requires an assessment to be made of those firm-specific risks which are not covered by Pillar 1 and, where necessary, for firms to maintain additional capital resources to mitigate such risks; and
- Pillar 3 requires firms to disclose information regarding their risk assessment process and capital resources with the aim of encouraging market discipline by allowing market participants to assess key information on risk exposure and the risk assessment process.
1.2 Third Platform Service’s (“TPS”, the “Firm”, “our” or “we”) Pillar 3 disclosures are issued annually. The disclosures herein are not subject to audit except where they are equivalent to those prepared under accounting standards for inclusion in the Firm’s financial statements. The report is published on Third Financial Group’s website at www.thirdfin.com.
1.3 Scope of disclosure
TPS offers a Model B settlement and safe custody service for customers, such as wealth managers, comprising trade execution, settlement and safeguarding of monies and assets for the underlying clients of such customers.
2 Governance Arrangements
2.1 The Management Body
The Directors are responsible for TPS’ risk management governance structure and for determining how its risk exposure is managed in line with the Firm’s overall business objectives and within its stated risk appetite. This includes the Firm’s procedures for identifying, evaluating, managing and reporting the significant risks it faces.
The Directors are ultimately responsible for ensuring that TPS maintains sufficient capital and liquid 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 being set by the Directors and communicated to the business.
3 Capital Adequacy and ICAAP
3.1 TPS’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 established to identify, manage and mitigate these risks. Where risks can be mitigated by capital, the Firm has adopted the CRD requirements for Pillar 1. Where the Directors consider that the Pillar 1 calculations do not adequately reflect the firm’s risk profile, additional capital is provided in accordance with Pillar 2. Whilst the ICAAP is formally reviewed by the Directors once a year, they review risks and the related capital requirements more frequently, particularly when there are any planned changes in business activities or operating arrangements or when changes are expected in the business environment that could potentially impact the ability to generate income.
3.2 Capital Requirement and Resources
TPS is categorised as an IFPRU €125k firm because it does not deal for its own account or underwrite issues on a firm commitment basis. However it does hold client money and assets. TPS has no innovative Tier 1 capital instruments or deductions.
The Pillar 1 capital requirement for an IFPRU firm is the higher of:
- Base Capital Requirement OR
- Credit Risk Capital Requirement plus Market Risk Capital Requirement OR
- Fixed Overhead Requirement
The Base Capital Requirement (“BCR”) specifies the minimum level of regulatory capital that a firm is required to maintain at all times and reflects both the nature of activities conducted by the firm and the capacity in which these are undertaken. TPS is subject to a BCR of £125k.
However, the highest measure of regulatory capital requirement arising under Pillar 1 for TPS is the Fixed Overhead Requirement which, on the basis of the firm’s audited financial statements for the financial year ended 31st December 2019, has been calculated at £477k.
Accordingly, TPS must at all times maintain regulatory capital resources at a level that is equal to or in excess of its Pillar 1 capital requirement. Throughout the twelve months to end 31st December 2019 the firm complied fully with its regulatory capital requirements. At the Firm’s accounting reference date, TPS’ regulatory capital position was as follows:
|Ordinary Share Capital||17|
|Core Tier 1 Capital||1,234|
|Tier 2 Capital||0|
|Total Capital Resources||1,234|
|Credit Risk Capital Requirement @ 8%||182|
|Market Risk Capital Requirement @ 8%||0|
|Fixed Overhead Requirement||478|
|Base Capital Requirement||106|
|Total Pillar 1 Requirement||478|
|Total Pillar 2 Requirement||0|
|Total Capital Requirement||478|
|Regulatory Capital Surplus||756|
The Directors are, therefore, satisfied that TPS maintains a sufficient level of regulatory capital resources to meet the firm’s current regulatory requirements and to provide a buffer for reasonably foreseeable risks. As at the firm’s 2019 financial year end, TPS held approximately £2,178K in cash and cash equivalents and the Directors consider this provides an adequate level of liquidity for the day-to-day needs of the business and a reasonable contingency for unforeseen events.
The Directors constantly monitor the performance of the Firm and capital adequacy is regularly assessed by them. They also monitor risks throughout the year and decide if additional capital should be held against such risks. Additional risks that supplement the Pillar 1 requirements are detailed below and, where necessary, additional capital will be provided.
4 Management of Risk Framework
4.1 Risk Profile
TPS has identified the following core risk categories: Strategic, Credit, Market, Operational, Liquidity and Reputational.
TPS’ profile of these risks is continually evolving and is generally driven by:
- Changes to the market in which TPS operates;
- TPS strategies and business objectives;
- Changes in customers’ service requirements; and
- TPS business/operating models
4.2 Risk Appetite
The Directors are responsible for setting TPS’ risk appetite and defining the type and level of risk that the Firm is willing to accept in pursuit of its business objectives.
4.3 Risk Assessment Framework
The Directors are responsible for approving the Risk Assessment Framework, which is used to ensure that the Directors have a comprehensive understanding of TPS’ risk profile, including both existing and emerging risks, and to enable them to assess the adequacy of the Firm’srisk management in the context of the agreed risk appetite.
|Principle Risks||Appetite||Key Drivers||Mitigation|
|The risk arises due to decisions that fail to reflect the full business operating environment and the impact of failing to adequately identify changes to the business model.||TPS will remain competitive by identifying opportunities and assessing the related risks, rewards and costs before proceeding.|
Regulatory landscape impacting the business
Commercial / market conditions
Internal business / operating model
Changes in customers’ service requirements
|Due diligence is carried out prior to undertaking any new business opportunity or change in service and a full assessment made of the potential and actual risks involved.|
|The risk of financial loss due to the failure of creditors to meet their obligations to settle outstanding amounts.||TPS is primarily exposed to credit risk from customers in relation to its fees and exposure to the banks where the firm holds its own cash balances.|
Creditworthiness of customers and third parties
|Creditors are monitored monthly. TPS uses the standardised method of calculating Credit Risk. TPS only uses banks with assigned high credit ratings.|
|Risk of losses in on and off balance sheet positions arising from adverse movements in market prices.||TPS does not engage in propriety trading and does not actively seek market exposure.|
Volume and complexity of trading
Adverse market movements
|TPS does not have any proprietary positions and does not hold the firm’s cash balances in any currency other than GBP.|
|The risk that TPS does not have sufficient liquid resources to meet its actual or potential obligations in a timely manner as they fall due.||TPS aims to maintain sufficient and accessible financial resources so as to meet any financial obligations as they fall due and to provide a reasonable contingency for unforeseen events.|
Credit risk events
Internal business operating model
|TPS regularly reviews its liquid resources and will put in place contingency funding arrangements should additional funds be required.|
|The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.||TPS will actively identify and manage the risk of its people, processes or systems failing. Operational risk is inherent in any business however TPS will take steps to prevent such risks from increasing operating costs.|
Internal business operating model
Changes in customers’ service requirements
Market conditions External threats
|All employees are provided training and guidance on their obligations and adequate human resources are in place to mitigate exposure in this area. Thorough due diligence is undertaken in advance of changes being made to the firm’s service offering.|
|The risk arising from defective documentation, transactions, failing to take appropriate measures to protect assets, changes in law and claims resulting in a liability or loss to TPS.||TPS seeks to mitigate legal risk through the appointment of external legal advisors where required. Careful design of systems and controls to ensure adequate protection of clients’ assets and adherence to agreed service standards.|
Changes in business environment and customers’ service requirements
|TPS regularly monitors changes in the legal and regulatory environment and assesses the implications of such for the Firm. TPS conducts appropriate due diligence on changes in customers’ service requirements prior to committing to provide such.|
|The risk of loss resulting from damage to TPS’ reputation.||TPS ensures that customers understand the services it provides. Careful design of systems and controls to protect clients’ assets and ensure adherence to agreed service standards.||Conduct of Business Operational Risk||All customers are provided with full disclosure as to the extent of the Firm’s services. TPS carefully screens its partners to ensure the quality of their services is in line with the Firm’s service offering.|
5 Remuneration Policy
TPS’s Remuneration Policy complies with the Remuneration Code in relation to the size, nature, scope and complexity of the Firm’s activities. The Policy is aligned to the Firm’s business strategy, objectives, values and long term interests in respect of performance and effective risk management in line with its risk appetite.