Sanlam Private Wealth (the “Group”) Pillar 3 Disclosure and Policy for an IFPRU Group as at 31 December 2017
 
Regulatory Context
The Pillar 3 disclosure of Sanlam Private Wealth Group (the “Group”) is set out below (the “Disclosure”) as required by the Capital Requirement Regulation Art. 431et seq. This is a requirement which stems from Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on Prudential requirements for Credit Institutions and Investment Firms and amending Regulation (EU) No 648/2012 (“Capital Requirement Regulation” or “CRR”) which represented the European Union’s application of the Basel Capital Accord. The regulatory aim of the disclosures is to improve market discipline.

The Capital Requirements Directive (‘CRD’) of the European Union establish a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain.

In the United Kingdom, the CRD has been implemented by the Financial Conduct Authority (‘FCA’) in its regulations through the General Prudential Sourcebook (‘GENPRU’), the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’), The Interim Prudential Sourcebook for Investment Business (“IPRU (INV)”).
 
Frequency
The Group will be making Pillar 3 disclosures at least annually.
 
Verification
The information contained in this Disclosure has not been audited by the Group’s external auditors, as this is not a requirement, and does not constitute any form of financial statement and must not be relied upon in making any judgement on the Group.
 
Summary
The CRD, to which the Group is subject, has three pillars; Pillar 1 deals with minimum capital requirements; Pillar 2 deals with Internal Capital Adequacy Assessment Process (“ICAAP”) undertaken by a firm and the Supervisory Review and Evaluation Process through which the Group and its Regulator satisfy themselves on the adequacy of capital held by the Group in relation to the risks it faces; and Pillar 3 which deals with public disclosure of risk management policies, capital resources and capital requirements.

The regulatory aim of this Disclosure is to improve market discipline. The Group consists of three regulated entities;

  • Sanlam Private Investments (UK) Ltd is classified as an IFPRU 125k limited licence firm,

  • Sanlam Securities UK Ltd is classified as a IFPRU 50k limited license firm,

  • Sanlam Private Investments Wealth Management (UK) Ltd (SPIWM) is classified as a Non-MIFID Personal Investment firm and is a B3 Resource firm under IPRU(INV).

 
The Group adheres to the Sanlam UK risk management framework. This assesses each risk for the likelihood of its occurrence and its impact, after allowing for the controls in place. The Group continually monitors its current and future capital requirements through this risk management framework.
 
The Group is required to disclose its risk management objectives and policies for each separate category of risk which include the strategies and processes to manage those risks; the structure and organisation of the relevant risk management function or other appropriate arrangement; the scope and nature of risk reporting and measurement systems; and the policies for hedging and mitigating risk, and the strategies and processes for monitoring the continuing effectiveness of hedges and mitigants.

The Group has assessed relevant business and operational risks in its ICAAP and has set out appropriate actions to manage those specific risks.
 
Risk Management Framework
The Group adheres to the Sanlam Investment Holdings (SIH) Risk Policy and Framework.
SIH’s risk management framework aims to ensure that the company:

  • Takes risks aligned with its strategy and its risk appetite;

  • Takes acceptable levels of risk to create and preserve value;

  • Takes improved decisions to deal with risk.  This could be risk avoidance, reduction, transfer or acceptance;

  • Considers the impact of risk management decisions on customers;

  • Has a tolerable level of operational surprises and losses;

  • Can take a holistic view and manage company-wide risks;

  • Can take opportunities when identified – the upside of risk; and,

  • Allocates risk capital effectively and efficiently.

 
Capital Requirements
Pillar 1 is the base capital requirement for a firm under the Capital Requirements Directive. For the Group this Pillar 1 requirement is equivalent to its Fixed Overhead Requirement (FOR) as the sum of its credit and market risk was lower. The FOR is calculated as one-quarter of its relevant expense base (excludes introducers’ fee share, non-guaranteed staff bonuses and exceptional items).

This was calculated at 31 December 2017 as £4,499,000 while the Group held £14,475,000 (322% Capital Adequacy ratio).
 
Pillar 2 is the assessment of whether any additional capital is required to be held over the Pillar 1 requirement. The FCA has identified 14 risk categories to be assessed.

This risk assessment has been undertaken using an estimating method to measure the likelihood of occurrence and potential impact.  Estimates have been further adjusted to take account of (a) the possible margin of error in assessing impact and (b) that in any one year the number of concurrent risks may well exceed the mathematical average.

This was calculated at 30 September 2017 as £6,057,000 while the Group held £15,117,000 (250% Capital Adequacy ratio).
 
Exposure to Key Risks
Operational Risk

a.           Key person risk:
The risk of a key member of staff leaving is ever present and given the nature of the Group’s business the possibility of related client losses is potentially a significant one. However, the Group believes the structure of its business model mitigates this risk and this lower risk status is borne out by the historical experience of previous staff departures.

b.           Operational process risk:
The Group believes operational risk is relatively low due to its strong compliance culture. The Compliance team also monitor the firm’s rigorous induction and on-going training programme. There is an annual appraisal system and active ‘management’ of under-performing staff.
The Group makes appropriate investments in technology, capital and staff to ensure that its operational risks are adequately managed.

c.           Business continuity / Disaster recovery:
The Group considers the likelihood of this risk to be low but with a significant potential impact. It has prepared a business continuity plan, which is communicated to staff and conducts regular disaster recovery tests.

d.           Client assets & money (CASS):
The Group has zero risk appetite for non-compliance with the regulations regarding the controls and risk management framework over client monies and assets. The CASS Oversight Committee reviews this.
 
Credit Risk
Credit risk is the risk that the counterparty to a financial obligation will default.

The status of the counterparties is monitored in light of any relevant market developments and formally on a quarterly basis by the Group’s ExCo. Client monies are managed in accordance with the FCA rules and are specifically subject to a CASS Officer’s quarterly report and an annual audit by the external auditors.
 
Market Risk
Market risk arises from movements in the value of assets held by the Group due to changes in price, interest rate or exchange rate.

The Group does not engage in proprietary trading and only holds assets for their own accounts as a result of correcting dealing errors and therefore its exposure is deemed to be low.

The Group is not liable for the loss in value of their private clients’ holdings unless they have not been invested in accordance with the clients’ mandate. This risk is covered under operational risk.
 
Business Risk
The key business risk for the Group is a failure to achieve projected revenues or a significant increase in costs, thereby pushing the firm into a loss-making position.

The group considers its revenues at risk in the event of the following:-

  1. Conduct risk:

The risk of financial and/or reputational detriment which adversely affects the customer due to failings in the customer lifecycle, e.g. not meeting clients’ expectations / lack of quality service.

The Group is liaising with other UK based Sanlam entities to create a conduct risk framework across all legal entities. Additionally, all employees of the Group have undertaken training in order to engender a greater awareness of conduct risk.

b.           Change in regulation impacting revenue sources / failure to meet regulatory obligations:
The Group believes that it has established a strong compliance culture throughout the business, which emphasises adherence to Group policies and procedures, a willingness to acknowledge breaches and errors, and an effective recognition of its regulatory responsibilities to clients. The Group has an experienced Compliance team, which conducts regular reviews of the business to ensure adherence to procedures, monitors regulatory developments as well as signing off new services and literature as compliant with regulatory obligations.

c.           The reputation of the firm is damaged e.g. from public sanction by the FCA or an employee fraud:
The firm has procedures in place to mitigate reputational damage.

d.           Departure of an investment manager(s) to a competitor, resulting in the loss of a number of clients:
The Group believes the loss of key persons, such as investment managers, to competitors will occur at some point as this is the nature of the investment management business. However, as noted under key person risk, it believes, from its past experience, the number of clients likely to be lost will not be significant. It is anticipated that the departing manager will be replaced by another with similar experience or not replaced, resulting in a cost saving at least equivalent to the loss of revenue.

e.           Deterioration in economic and market conditions:
The Group is a well-established business with a large number of long-term clients and strong relationships with a wide range of introducers. There is not a dependence on a small number of clients or introducers. It believes this business model will provide further protection in the event of a downturn i.e. revenues may fall, but clients will not leave in significant numbers as a result.

f.           Poor investment performance or poor service:
The Group believes that, as a specialist investment management company, it has sufficient expertise and depth of resources to achieve better than average investment returns over the medium term. This is the key objective of the dedicated Investment Team headed by the CIO and comprising highly experienced and qualified investment professionals. Additionally, a primary function of the Risk Management Team is to independently review and analyse performance results on a regular basis.
 
Liquidity Risk
Liquidity risk is the risk arising from a difficulty in realising assets or otherwise raising funds to meet commitments associated with liabilities or financial obligations as they fall due.

The Group maintains a risk-averse attitude to liquidity and Group cash holdings total £12.3m.
 
Insurance Risk
It is recognised in the case of all insurance policies there is a risk of a technical issue which may allow the underwriter to avoid liability.

The Group believes their cover is appropriate and the insurers are good credit risks. Insurance cover is thoroughly checked and reviewed annually.
 
Concentration Risk
The Groups funds under management are spread across a large number of clients and introducers.
 
Securitisation Risk
The Group does not undertake securitisation and therefore this is not considered to be a risk.
 
Pension Obligation Risk
The firm only operates defined contribution pension schemes and does not bear the risk of future pension obligations inherent in a defined benefits scheme. This is not considered to be a significant risk.
 
Outsourcing Risk
Outsourcing risk considered here is in the broader business meaning of the term. Risk quantification considers the cost of disruption / switching to alternative suppliers. Due diligence is conducted on each outsource provider both at the initiation of the contract and ongoing with a frequency dependent upon the perceived risk of the provider.

The Group adheres to the SUK Outsourcing framework.
 
Financial Crime (including Bribery) Risk
The FCA has a statutory responsibility to reduce the extent to which the financial system is used for financial crime.

The Group, its staff and Directors all adopt a positive approach to combating financial crime. All members of staff receive an appropriate briefing when they join the Group on what is expected of them in relation to the prevention and detection of money laundering and other financial crime and the consequences for the Group if they fall short of that expectation. Employees who are ‘client-facing’ and who handle transactions (and their line managers) receive detailed training. In addition, internal refresher training sessions are provided regularly.
The Group has a dedicated compliance consultant who specialises in operations and financial crime.
 
 
Remuneration Policy
The Group is authorised and regulated by the Financial Conduct Authority as an IFPRU Firm and, so, it is subject to FCA Rules on remuneration. These are contained in the FCA's Remuneration Codes located in the SYSC Sourcebook of the FCA’s Handbook.

The Remuneration Code covers an individual’s total remuneration, fixed and variable. The Firm incentivises staff through a combination of the two.

The Firm's business is to provide portfolio management services to its clients and funds.
Our policy is designed to ensure that we comply with the Remuneration Code and our compensation arrangements:

1.are consistent with and promotes sound and effective risk management;
2.do not encourage excessive risk taking;
3.include measures to avoid conflicts of interest; and
4.are in line with the Firm's business strategy, objectives, values and long-term interests.

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