This page contains EQ Investors Limited's regulatory disclosures under Best Execution Article 65(6), Pillar 3 of the EU Capital Requirements Directive and the FCA Renumeration Code.
Best Execution Article 65(6)
Pillar 3 disclosures
The Capital Requirements Directive (‘the Directive’) of the European Union is the regulatory capital framework used across Europe governing how much capital financial services firms must retain. In the United Kingdom, this is supervised by the Financial Conduct Authority (‘FCA’) using rules and guidance as outlined within the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’). The FCA framework consists of three ‘Pillars’:
- Pillar 1 – sets out the minimum capital requirements that firms are required to meet for credit, market and operational risk;
- Pillar 2 – requires firms to take a view on whether additional capital should be held against any risks not covered by Pillar 1; and
- Pillar 3 – requires firms to publish certain details of its risks, capital and risk management process.
This document contains the Pillar 3 disclosure for EQ Investors Limited (‘the firm’). This Pillar 3 Disclosure has been subject to internal review procedures. The information has not been audited by the firm’s external auditors.
The rules in BIPRU 11 provide that the firm may omit one or more of the required disclosures if it believes that the information is immaterial. Materiality is based on the criteria that the omission or misstatement of material information would be likely to change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions. Where the firm considers a disclosure to be immaterial, this will be stated in the relevant section.
The firm is also permitted to omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential. Proprietary information is that which, if it were shared, would undermine the firm’s competitive position. Information is considered to be confidential where there are obligations binding the firm to confidentiality with its clients, suppliers and counterparties.
Where the firm has omitted information for any of the above reasons, a statement explaining this will be provided in the relevant section.
Unless stated as otherwise, all figures contained in this disclosure are based on the firm’s audited annual reports for the year ending 30th April 2019.
These Pillar 3 Disclosures will be reviewed on an annual basis as a minimum. The disclosures will be published as soon as is practical following the finalisation of the firm’s Internal Capital Adequacy Assessment Process (ICAAP) and the publication of its annual reports.
The firm’s Pillar 3 Disclosure reports are published on the website.
Scope and application of directive requirements
The disclosures in this document are made in respect of EQ Investors Ltd (“the Firm”) which provides financial advice and discretionary investment management services. The Firm is authorised and regulated by the Financial Conduct Authority and is classified by the FCA as a Limited Licence Firm.
Risk management objectives and policies
The Firm’s risk management framework reflects the FCA requirement that they must manage a number of different categories of risk. These include liquidity risk, operational risk, credit risk, reputational risk, business risk, market risk, interest rate risk and concentration risk.
The Firm generates cash from its operations and holds sufficient cash reserves to meet the continued operating needs of the business. This is supported by a robust budgeting and forecasting process which has the full involvement of directors.
Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems. The firm does not handle client money and uses 3rd party custodians, all regulated by the FCA.
The Risk Assessment Committee meets six-monthly to review the Risks matrix and that disaster and continuity plans are in place.
The Firm does not undertake any lending activity. The major assets on the Firm’s balance sheets are bank deposits; commission due from fund managers, intercompany debt representing amounts due from the holding company and outstanding investment management invoices. Most of these amounts are due from institutions that are regulated by the FCA.
The Firm is potentially exposed to Reputational risk in the event that clients’ funds are invested in unsuitable investments. All investments are reviewed by the in house investment team and any recommendations must be derived from the Approved List.
The Firm’s Pillar 2 business risk principally takes the form of a fall in assets under management either due to a market downturn or a loss of clients through reputational risk that leads to a significant reduction in revenue. To mitigate business risk, the Finance team regularly analyses various different economic scenarios to model the impact of economic downturns on our financial position. The exposure to business risk is hedged, to a degree, by clients’ portfolios having significant exposure to both bonds and equities.
The Firm does not have any foreign exchange exposures nor does it have permission to engage in proprietary trading book activities and are therefore not directly exposed to market risk. Company revenues are linked to market movements and these have been addressed within business risk.
Interest rate risk
The Firm has no borrowings and no exposure to interest rate risk.
The Firm has a wide client base and diverse revenue streams and is not reliant on the income generated by a single client or single revenue stream.
The firm’s capital requirement under GENPRU has been determined as the Fixed Overhead Requirement (FOR). Our Pillar 1 requirement is based on expenses for the year ended 30th April 2019.
The Pillar 1 requirement was £1,349,000. This is the FOR which currently exceeds the firm’s credit risk and operational risk requirements. As at 30th April 2019 EQ Investors Ltd had total Tier 1 regulatory capital of £2,719,000, against a requirement of £1,349,000 representing a surplus of £1,370,000.
The annual Internal Capital Adequacy Assessment Process identifies credit risk, business risk and operational risk capital requirements and will determine future capital requirements for the Firms.
FCA Remuneration Code
The Capital Requirements Directive (CRD) of the European Union and the FCA Code on Remuneration (the ‘Code’) require regulated investment firms to establish and maintain remuneration policies, procedures and practices that are consistent with and promote sound and effective risk management. The Code also requires firms to report annually on their remuneration policy for employees termed Code Staff. Code Staff can generally be defined as employees who perform a significant influence function, senior management and other staff who have a material impact on the risk profile of the business.
How the firm’s remuneration is determined
The Boards review remuneration annually for all staff. Basic salaries are reviewed in line with individual performance and agreed by the Remuneration Committee. Bonuses and pension contributions are discretionary and agreed by the Remuneration Committee linked to the firm’s overall financial position.
In the year ended 30th April 2019 the Firm defined its Code Staff as the Boards of Directors. The aggregate annual remuneration for Code Staff for the year was £1,376,000.