CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ (‘the Firm’). CS Managers Ltd is a UK based private client investment management firm with a single office location in Edinburgh. It provides, in its trading name above, investment management discretionary and advice services to a range of clients. It is regulated in the UK by the Financial Conduct Authority (‘FCA’) under registration number 830853.
Under the FCAs Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), the Firm is classified as a BIPRU €50,000 investment firm. As such, it is required to comply with the three “Pillars” of the EU’s Capital Requirements Directive (‘CRD’) framework, which was retained in UK law after the BREXIT transition period and remains effective from 1 January 2021, implemented through the Sourcebook.
These 3 Pillars are:
- Pillar 1– which sets out the minimum amount of capital the Firm needs to meet its regulatory requirements;
- Pillar 2 – which requires the Firm and its regulatory supervisors to consider if there is a requirement to hold additional capital against risks not covered in Pillar 1. In the UK, this is implemented through the Internal Capital Adequacy Assessment Process (‘ICAAP’);
- Pillar 3 – which requires the Firm to disclose to market participants key information about the Firm’s underlying risks, risk management controls and capital adequacy position.
The purpose of this document is to meet the Firm’s obligations in respect of Pillar 3.
2. DISCLOSURE POLICY
The Pillar 3 disclosures in this document relate to the single entity, CS Managers Limited trading as CS Investment Managers, which is not part of a prudential consolidation group. The disclosures are the responsibility of the governing body of the Firm, comprising the Board of Directors. These disclosures are provided on our corporate website www.csmanagers.com
The Firm will make Pillar 3 disclosures on at least an annual basis , and more frequently if circumstances or regulation require. The reporting period in every case will relate to the financial position as at the Firm’s financial year end of 31 March. Throughout this document, therefore, the financial position presented, and the capital resource calculations, will be as at 31 March 2020, being the last audited Accounts filed at Companies House.
The disclosures themselves in this document are unaudited but subject to internal review by the governing body. They explain how certain capital requirements have been arrived at and provide general information about risk management. However, they are not financial statements and should not be relied upon for any other purpose.
3. RISK MANAGEMENT OBJECTIVES AND POLICIES
The Firm’s activities are non-complex and the Firm does not hold client money or assets or trade on its own account. The Firm maintains a comprehensive risk management framework, to reflect the degree of risk that the Firm is willing to accept without applying further resources and capital to mitigate the risk. Suitable processes and controls are in place for identifying key risks and ensuring these are managed in line with the Firm’s risk appetite.
The governing body is responsible for setting and overseeing the risk appetite of the Firm, and for reviewing this a minimum of annually to ensure alignment with the Firm’s strategic plan and its conservative risk culture.
Risk Management Framework
The ICAAP is used within the Firm to support the risk framework by assisting in the decision-making process, identification of potential risks deemed relevant to the Firm and implementation of appropriate mitigating steps. It is designed to satisfy the Firm that the amount and types of financial and capital resources available to it are sufficient to cover the nature and level of the risks to which the Firm is exposed and to meet its current and future liabilities according to its planned activities. This will be reviewed annually or more frequently, as circumstances may require, with input from senior management and the governing body.
The Firm maintains a prudent surplus of capital reserves beyond the amount deemed necessary to cover the risks identified, of which the key risk exposures to the Firm are assessed as the credit, market and operational, and liquidity risk. Given the size of the Firm and its business model, these risks are considered to be modest and appropriately managed or mitigated by the controls in place , as follows:
The main source of credit risk for the Firm comes from client default due to non-payment of discretionary management fees. Under its client Terms of Business, all fees are automatically deducted quarterly from the funds sitting at credit of the portfolio accounts held by the custodian, and paid to the Firm. There is little credit risk associated with these fees. All client trades are conducted by the Firm as agent for clients and, in any event, all trades require to be client funded and are undertaken on a delivery versus payment (matched booking) . Therefore, these have been excluded from credit risk considerations.
Operational risk can arise from inadequate or failed internal business processes and systems, human error or external events, such as IT security breaches or fraud. The Firm seeks to identify potential sources of risk arising from its operations and strengthen, as necessary, its internal systems and processes, supervisory and oversight functions to reduce residual risk exposure. Where inefficiencies in controls are identified, appropriate action is taken to rectify this going forward. The frequency of compliance monitoring in each area is determined by the significance of the risk. The Firm has a resilient infrastructure and regularly tests its Business Continuity arrangements. In addition, the Firm maintains comprehensive Professional Indemnity Insurance cover.
This is the risk to the Firm’s financial position resulting from adverse movement in securities markets which, in turn, impact the revenue dependent on the value of funds under management. This creates the potential risk of income fluctuating and, potentially, dropping in times of poor market performance. There is also an investment risk associated with over exposure to certain sectors or assets.
The Firm seeks to mitigate these risks by the breadth of diversification and sound research and analysis; the Firm’s Cash balances being held in Sterling ; and Client portfolios being held in Sterling and so not at risk of exchange rate fluctuations in revenues.
The Firm does not take market or contractual positions to hedge balance sheet risk or take foreign currency positions. The risk is also mitigated by retaining appropriate capital resources which are assessed on the basis of stress testing and scenario analysis as part of the ICAAP process.
Capital and Liquidity provision are monitored and reviewed regularly by the governing body, and a formal liquidity analysis of the Firm’s capital base is conducted on a monthly basis. The framework in place is designed to ensure that the Firm maintains sufficient liquid assets at any given time to cover any cash flow fluctuations and to meet its obligations as they fall due. The Firm does not hold illiquid assets on its Balance Sheet except for fixed assets, nor does it have borrowing or dependence on external financing for any aspect of its business.
The Firm also takes into account other risks, which include the following:-
Concentration Risk: from the risk of over reliance on particular clients or a key man within the Firm. Its business development strategy is designed to diversify its revenue sources, and Keyman insurance to mitigate the risk. The Firm’s Training Policy develops competencies throughout the business, to reduce reliance on any one individual.
Business Risk: arising from changes which may prevent the Firm from carrying out its strategic business plan. The Board reviews progress against the Firm’s strategic objectives. The Firm applies internal and external sources of regulatory advice to minimise the risk of breaches occurring, which could affect reputational and regulatory standing. Professional indemnity cover from an established industry provider is in place to minimise the risk of loss.
Business Continuity: the Firm audits its systems a minimum of annually, and a full test of systems business continuity and disaster recovery procedures is conducted by external IT consultants at least every 6 months.
Interest Rate Risk: the Firm does not engage in any trades as principal or run any trading book exposures that could be subject to interest rate risk. The Firm is not dependent on interest as a source of revenue.
4. CAPITAL RESOURCES
All the capital of the Firm is Tier 1 capital consisting of eligible members’ share capital and audited reserves. It has no Tier 2 capital deduction.
As a BIPRU €50K Firm, the Firm’s Pillar 1 capital requirements are the greater of:
- Base capital requirement of €50,000;
- The sum of market and credit risk requirements;
- The Fixed Overhead Requirement (‘FOR’)
The Firm has determined that as at 31 March 2020 the Fixed Overhead Requirement is the highest of these requirements. The Pillar 2 capital requirement, therefore, has been assessed as greater than the Pillar 1 requirement. The Firm considers, therefore, that it maintains a considerable surplus of reserves above the capital resource required to satisfy the regulatory capital requirement.
Accordingly, the total capital resources available to the Firm as at 31 March 2020 were as follows:
|REGULATORY CAPITAL AS AT 31.03.20||£000’s|
|Tier 1 Capital and deductions||1,266|
|Tier 2 Capital||–|
|TOTAL REGULATORY CAPITAL||1,266|
|Pillar 2 capital requirements||238|
The Firm is subject to the BIPRU Remuneration Code and maintains a record of employees to whom the Code applies. The governing body is responsible for considering and reviewing the Code and has adopted the Firm’s Policy in this respect.