M & L Capital Management Limited (“MLCM” or “Firm”) is authorised and regulated by the Financial Conduct Authority (“the FCA”). In the United Kingdom the FCA is responsible for the implementation of the 2006 Capital Requirements Directive of the European Union (“the Directive”), which set up the regulatory capital framework for the financial services industry. The framework consists of three pillars:
The Directive created a regulatory framework across Europe, governing how much capital must be retained by financial services firms. In the United Kingdom the Directive is implemented by the FCA, which has created rules and guidance, set out in the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), which are volumes of the FCA Handbook. Additional information is available from MLCM’s Compliance Officer.
2. Risk Management
As a Limited Licence BIPRU Investment Firm, the Firm neither holds client money nor assets nor lends money, and is, therefore, not exposed to Credit Risk in its traditional sense. The Firm’s direct exposure to Credit Risk is the risk that investment management fees cannot be collected and the exposure to banks where revenue is deposited. The Firm’s Credit Risk Appetite is low and the Firm holds all cash with banks assigned high credit ratings. Credit Risk, for the purpose of Pillar 2, is assumed to be that calculated at Pillar 1.
As a Limited Licence BIPRU Investment Firm, the Firm does not have a Trading Book. The only potential direct exposures are Non-Trading Book Exposures, i.e. to Foreign Currency held on deposit and assets or liabilities held in Foreign Currency, such as Debtors, on the Firm’s Balance Sheet. The Firm’s appetite for Market Risk is low and, for the purposes of Pillar 2, is assumed to be that calculated at Pillar 2.
The Firm undertakes Operational Risk identification. Any risk deemed to be unacceptable to the Firm is addressed as a priority – and is either resolved or has Pillar 2 capital allocated to it.
As a BIPRU Limited Licence Investment Firm, the Firm has assessed Business Risks and set out appropriate actions to manage them. Business Risk is modelled using stress testing.
The Firm is subject to the FCA’s Liquidity Rules at BIPRU 12 and has in place systems and controls which include the management of Liquidity Risk. Liquidity Risk is modelled using stress testing.
3. Capital Resource Requirements
The Firm is categorised by the FCA for prudential regulatory purposes both as a collective portfolio management investment firm (CPMI) and a BIPRU 125K firm.
The Firm’s Pillar 1 capital requirement is calculated as the higher of:
The Firm is classified a proportionality level three firm under the UK Remuneration Code, which allows the Directors to adopt a simplified approach to the code. The Firm has disapplied various requirements under SYSC 19B as allowed by the European Commission Recommendation 2009/384/EC of 30 April 2009 (on remuneration policies in the financial services sector).