Pillar 3 Disclosure
Introduction
Pamplona Capital Management LLP (“Pamplona” or the “Firm”) is required by the FCA to disclose information relating to the capital it holds and each material category of risk it faces to assist users of its accounts and to encourage market discipline. The Pillar 3 has been completed on a consolidated basis.
The Capital Requirements Directive (CRD) created a revised regulatory capital framework across Europe covering how much capital financial services firms must retain. In the United Kingdom, rules and guidance are provided in the General Prudential Sourcebook (GENPRU) for Banks, Building Societies and Investments Firms (BIPRU).
The FCA framework consists of three “Pillars”:
- Pillar 1 sets out the minimum capital requirements that companies need to retain to meet their credit, market and operational risk;
- Pillar 2 requires companies to assess whether their Pillar 1 capital is adequate to meet their risks and is subject to annual review by the FCA;
- Pillar 3 requires companies to develop a set of disclosures which will allow market participants to assess key information about its underlying risks, risk management controls and capital position. These disclosures are seen as complimentary to Pillar 1 and Pillar 2.
Rule 11 of BIPRU sets out the provisions for Pillar 3 disclosure. The rules provide that companies may omit one or more of the required disclosures if such omission is regarded as immaterial. Information is considered material if its omission or misstatement could change or influence the decision of a user relying on the information. In addition, companies may also omit one or more of the required disclosures where such information is regarded as proprietary or confidential. The Firm believes that the disclosure of this document meets its obligation with respect to Pillar 3.
Firm Overview
Pamplona is incorporated in the UK and is authorised and regulated by the FCA as a BIPRU investment management firm.
The CEO is responsible for the day to day management of the Group.
Risk within the Group is managed by use of the following:
Senior management is accountable for designing, implementing and monitoring the process of risk management and implementing it into the day-to-day business activities of the Group;
The Governing Body has approved a risk appetite statement;
The Group identifies the most material Business Risks to its business and subjects them to scenario analyses and stress tests in order to assist in its risk management and capital planning;
The Group has implemented an operational risk event data collection procedure to ensure that all events, be they actual operational losses or near misses, are captured.
Capital Resources and Requirements
Capital Resources
Pillar 1
Pamplona was authorised by the FSA on 22 March 2005 and holds regulatory capital resources of £16,560,865, comprised solely of core Tier 1 capital.
The Firm has calculated its BIPRU capital resources in accordance with GENPRU 2.2:
As a limited liability partnership its capital arrangements are as follows:
| Eligible members’ capital | £2,006 |
| Audited reserves | £11,242,664 |
| Hybrid Capital | £0 |
| Tier 2 Capital | £0 |
| Total | £11,244,670 |
As a BIPRU firm, Pamplona is required to maintain ‘own funds’ which equal or exceed the higher of:
- Base capital requirement of €50,000;
- The sum of its market and credit risk requirements; or
- The fixed overhead requirement (which is a quarter of the Firm’s fixed annual costs).
As at 31 December 2021, the Firm’s Pillar 1 capital requirement was 2,063,156.
Satisfaction of Capital Requirements
Pillar 2
The Firm has adopted the “Structured” approach to the calculation of its Pillar 2 Minimum Capital Requirement as outlined in the Committee of European Banking Supervisors Paper, 27 March 2006 which takes the higher of Pillar 1 and 2 as the Internal Capital Adequacy Assessment Process (“ICAAP”) capital requirement. It has assessed Business Risks by modeling the effect on its capital planning forecasts and assessed Operational Risk by considering if Pillar 2 capital is required taking into account the adequacy of its mitigation.
Since the Firm’s ICAAP has not identified capital to be held over and above the Pillar 1 requirement, the capital resources detailed above are considered adequate to continue to finance the Firm over the next year. No additional capital injections are considered necessary and the Firm expects to continue to be profitable.
Risk Management
The Firm has established a risk management process in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process is overseen by the Firm’s partners.
As risks are identified within the business, appropriate controls are put in place to mitigate these and compliance with them is monitored on a regular basis. The frequency of monitoring in respect of each risk area is determined by the significance of the risk. The Firm does not intend to take any risks with its own capital and ensures that risk taken within the portfolios that it provides advice to is closely monitored. The results of the compliance monitoring performed is reported to the partners by the Compliance Officer.
Operational Risk
The Firm places strong reliance on the operational procedures and controls that it has in place in order to mitigate risk and seeks to ensure that all personnel are aware of their responsibilities in this respect.
The Firm has identified a number of key operational risks. These relate to disruption of the office facilities, system failures, trade failures and failure of third party service providers. Appropriate policies are in place to mitigate against risks, including appropriate insurance policies and business continuity plans.
Credit Risk
The main credit risk to which the Firm is exposed is in respect to the failure of its debtors to meet their contractual obligations. Most the Firm’s receivables are related to investment advisory activities. The Firm believes its credit risk exposure is limited since the Firm’s revenue is ultimately related to investment advisory fees received. These fees are drawn throughout the year. Other credit exposures include bank deposits and office rental deposits.
The Firm undertakes periodic impairment reviews of its receivables. All amounts due to the Firm are current and none have been overdue during the year. As such, due to the low risk of non-payment from its counterparties, management is of the opinion that no provision is necessary. A financial asset is overdue when the counterparty has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.
The Firm has adopted the standardised approach to credit risk, and therefore follows the provision within BIPRU 3 (Standardised Credit Risk) of the FCA handbook. The Firm applies a credit risk capital component of 8% to its non-trading book risk weighted exposure. As the Firm does not make use of an external credit rating agency, it is obligated to use a risk weight of 100% to all non-trading book credit exposures, except cash and cash equivalents which are held by investment grade firms and currently attract a risk weighting of 20%.
The table below sets forth the Firm’s credit exposures and corresponding capital resource requirements as at the date of its ICAAP assessment:
| Capital | £11,244,670 |
| Base capital requirement (a) | £41,978 |
| Fixed overheads requirement (b) | £2,063,156 |
| Credit risk (c) | £756,636 |
| Market risk (d) | £786,450 |
| Total Capital requirements which is the higher of (a) or (b) or (c)+(d) | £2,063,156 |
| Surplus | £9,181,514 |
| Credit Risk Calculation | Credit Exposure | Risk weighted Exposure |
| Fixed assets | £2,121,322 | £2,121,322 |
| Trade Receivables | £107,031 | £107,031 |
| Intergroup loan | £6 | £6 |
| Prepayments | £803,182 | £803,182 |
| Accrued Income | £0 | £0 |
| Cash at bank | £10,938,103 | £2,187,621 |
| Bank short term loan
VAT |
£1,283
£127,699 |
£257
£0 |
| Other | £4,238,528 | £4,238,528 |
| ————— | ———— | |
| Total | £18,337,154 | £9,457,947 |
| ========= | ======= | |
| Credit Risk Capital Component (8% of risk weighted exposure) | £756,636 |
Market Risk
The Firm does not have a Trading Book positions on its own account. The only potential exposures are Non-Trading Book Exposures, i.e. to Foreign Currency held on deposit and assets or liabilities held in Foreign Currency. The Firm’s appetite for Market Risk is low. Settlement of debtor balances take place without undue delay, the timing of the amount becoming payable and subsequently being paid is such that it is not considered to present a material risk to the Firm.
| Market Risk Calculation | Position | |
| USD Cash | £9,780,613 | |
| USD Receivables | £0 | |
| EUR Cash | £21,329 | |
| EUR Receivables | £28,685 | |
| ———— | ||
| Total | £9,830,627 | |
| ======= | ||
| Market Risk Capital Component (8% of risk weighted exposure) |
£786,450 |
Remuneration Code
The Firm has adopted a remuneration policy and procedures that comply with the requirements of chapter 19C of the FCA’s Senior Management Arrangements, Systems and Controls Sourcebook (SYSC), and in accordance with ESMA’s Guidelines on sound remuneration policies. The Firm have considered all the proportionality elements in line with the FCA Guidance.
As a BIPRU investment management firm, Pamplona has assessed the proportionality elements and disapplies the Pay Out Rules. Furthermore, the Firm has concluded, on the basis of its size and the nature, scale and complexity of its legal structure and business that it does not need to appoint a remuneration committee. Instead, the CEO sets, and oversees compliance with, the Firm’s remuneration policy including reviewing the terms of the policy at least annually.
Pamplona will make the Pillar 3 quantitative disclosure on an annual basis, following the completion of its ICAAP.