Pillar 3 Disclosure

Amius Limited (“Amius”)  Pillar 3 Disclosure, 2016

 

Background

The Capital Requirements Directive (“CRD”), to which the Firm remains subject as a consequence of the UK CRDIII implementing Regulations, established a regulatory framework consisting of three ‘Pillars’:

  1. Pillar 1 sets out the minimum capital required to meet a firm’s credit, market and operational risk;
  2. Pillar 2 requires a firm to establish an Internal Capital Adequacy Assessment Process (“ICAAP”) to assess whether its Pillar 1 capital requirement is sufficient to cover the risks faced by the firm, and if not, to calculate the additional capital required; and
  3. Pillar 3 requires a firm to disclose specific information concerning its risk management policies and procedures, and its regulatory capital position.

The Firm is no longer formally subject to CRD but remains subject to the UK’s implementation Regulations of CRD prior to CRDIV as implemented by the FCA Handbook, specifically the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Groups (“BIPRU”) which apply to Amius.

This report describes Amius’ risk management objectives, policies and risk management framework and the measures adopted to monitor and report within this framework. Risk is an integral part of Amius’ business.

Detailed in this report are the major components of capital structure, the key risk exposures and its associated capital requirements.

The main risks faced by Amius are counterparty credit and performance risk, market risk and liquidity risk. The risks are discussed in later sections of this statement, and individual risk components, measurement techniques, and management practices are detailed.

Amius has assessed business and operational risks in its ICAAP and set out appropriate actions to manage them.

It is the responsibility of the Amius Management and Risk Committee to ensure appropriate assessment and management of these risks.

Notice

The information contained in this document has not been audited by the firm’s external auditor and does not constitute any form of financial statement.

This report is updated on annual basis or more frequently if significant changes have occurred.  The report has been updated as at 30th September 2016.

Information about the Firm

Amius Limited is incorporated in England & Wales and is authorised and regulated by the Financial Conduct Authority.

Amius Limited is a subsidiary of Amius Services Limited (ASL; a non-trading holding company). It’s ultimate parent company is Amius Group Limited, a holding and service company, which provides administrative support and human resources to Amius.

Risk Management Objectives and Policies

Structure and Organisation of Risk Management Function

The board of Amius (the “Board”) is the main governing body of the firm. The role of the Board is to provide entrepreneurial leadership and ensure that the Company operates within a strong framework of prudent and effective controls, which allows for all risks to be adequately assessed and managed. The Board is collectively responsible for:

The Board has delegated the implementation and oversight of all risk matters to the Management and Risk Committee (“M&RC”), which is led by the Chief Executive Officer (“CEO”) and attended by all members of the board. The M&RC is further attended by all department heads and meets weekly, or more often if required, to deal with all business, strategy, risk and compliance matters of the firm.

The day to day risk control & reporting is carried out by the risk and operations team which is led by the Head of Risk and Operations. The Head of Risk and Operations is a member of the M&RC and reports to the CEO.

Strategies and Processes for Managing Risks

The governance and controls structure for the risk management function of Amius Limited is based on the following three lines of defence against risk:

First Line of Defence Second Line of Defence Third Line of Defence
Individuals and business line management Risk and Operations function / Legal and Compliance function Compliance staff / External Auditors / Compliance consultants
Assesses, evaluates, measures and controls risks through the day-to-day activities of the business, within the frameworks set by the second line of defence. Controls the risk framework within the parameters set by the M&RC and Board. Provides independent oversight of the first line of defence and the tools to support and improve processes to meet risk management objectives. Provides independent assessment of the adequacy and effectiveness of the risk management framework and its constituent parts. Provides independent oversight of the first and second lines of defence.
Reports to senior management and Board Reports to senior management and Board Independent reporting line

 

Risk Management Objective

The objective of the risk management function within Amius is to provide the second line of defence (alongside other support functions) with the Head of Risk and Operations being responsible for:

Risk Categorisation and Profile

 The relevant risk categories for Amius include:

Credit risk is the risk that a counterparty will not settle its debts owed to the Company when due. Performance risk is the risk that a counterparty fails to meet its obligations under its open contracts with the Company.

Amius’ credit & performance risk exposure substantially results from negative variation margin (“VM”) exposure and initial margin (IM) requirements on open contracts with clients. Amius carries out a rigorous credit risk assessment, carefully monitors credit exposures and applies a strict margining process.

Market risk is the risk that the fair value of an OTC, Future, or Option position will change due to market price moves.  Amius is exposed to changes in the value of underlying contracts traded and incorrect positions. For any executed OTC trade, an associated hedge is taken out. Price risks are managed using futures and options traded on major exchanges. All trades are recorded in AL’s proprietary trading and risk management system and all positions are reconciled on a daily basis. Position statements are being sent to all clients on a daily basis.

A wide range of reports are used to monitor live market risk exposures and extensive stress testing of client and hedge positions are also undertaken.

In addition, Amius has limited foreign exchange exposure as revenue is principally earned in USD, and overheads are predominantly incurred in GBP. Foreign currency risk is analysed and managed on an ongoing basis, and hedges are undertaken on a forward and spot basis as necessary.

Liquidity risk is the risk that Amius may not be able to meet its obligations when they fall due. Amius’ policy is to maintain sufficient liquid cash and adequate credit facilities at all times.

The Company’s liquidity position is managed by the Operations Department and overseen by the CFO.  Short term cash requirements and long term funding projections are reviewed to ensure that funding requirements are covered.  A cash report is circulated to the directors and senior management on a daily basis, setting out the current liquidity position, major cash events, and short and medium term commitments in accordance with regulatory requirements.  Amius uses a number of key indicators when assessing actual and projected cash usage, including client position exposure, expected margin exposure, and short and medium term commitments.

Amius splits its cash balances across major international blue chip banks in order to mitigate counterparty risk and operational issues.

Transactional liquidity stress analysis is carried out to determine the level of cash reserves Amius should maintain.

Amius follows the Basel Committee definition for operational risk – the risk of loss caused by human error, ineffective or inadequately designed processes, system failure or improper conduct (including criminal activity).

The key operational risks faced by Amius are as follows:

Amius seeks to minimise operational risks by introducing robust internal risk management process and business controls.  Furthermore, Amius uses the compliance function and compliance monitoring plan to reinforce and oversee the operation of these controls.

Amius aims to mitigate and manage operational risks at all times through a control and operational infrastructure aligned with Amius’ operational risk assessment.

The operational risk assessment review is undertaken to assess the current suitability of the management of operational risk. These steps include:

The Compliance Function has the responsibility for ensuring that an appropriate regulatory risk framework is in place and that regulatory risk is identified, assessed and managed. The scope for regulatory risk covers the risk of material loss, reputational damage or liability arising from a failure to comply with various regulatory requirements. Regulatory risk and how we mitigate against it is set out in full in the Amius Compliance Control Report which is distributed annually to the M&RC.

The Legal Function is responsible for ensuring that Amius’s legal risks are identified, considered and managed.  Legal risks include contractual disputes, employment disputes, breach of supplier/third party contractual arrangements, and the risk of material loss and reputational damage. These risks are managed and mitigated by having in house legal counsel, effective contractual agreements in place, conducting the appropriate level of due diligence and screening on our customers and employees and obtaining appropriate legal advice.

The Board monitors the latest competitor, technological, market and regulatory developments and how these may affect Amius. Amius is exposed to risk arising from changes in its business environment, including the risk that it may not be able to carry out its business plans and its desired strategy. The Board is responsible for establishing Amius’ strategy and monitoring its implementation which is overseen by the M&RC.

Scope and Application of the CRD Requirements

Amius Group

The Amius Group comprises of the following legal entities:

Amius is a BIPRU 50k Limited License Firm. AL operates on a matched principal basis and provides brokerage services on an execution only (‘give up’) basis.  Amius Limited is the only entity within the Amius Group which is authorised and regulated by the FCA.

Regulatory Supervision and Consolidation Group

While Amius is a member of a UK Consolidation Group there is no difference in the basis of consolidation for accounting and prudential purposes on the basis that there are only cash balances, tax payables or receivables and intra-group receivable in the unregulated entities and there are no further regulatory risks to be provided for as a result of the consolidation group.

Capital Resources and Capital Requirements

Amius’ Tier 1 capital consists of ordinary share capital and retained earnings

Amius’ total available capital as at 30/09/2016 ($ mn) is:

capresources
Capital Adequacy

Amius’ Tier1 capital is calculated from Permanent Share Capital and accumulated brought forward profits and reserves.  Amius does not hold Tier 2 or 3 Capital as at 30/09/2016

Counterparty Credit Risk

A counterparty is defined as any third-party with whom the Company does business with. The counterparty may be a Supplier of services, Customer, Bank, Broker or Insurer.  All counterparties are reviewed, rated and approved in accordance with company policy.

Amius has netting agreements with counterparties in order to minimise credit exposure at all times.

The Analysis of Risk Weighted Exposures as at 30/09/2016 is:

riskexposure

Amius prepares its statutory accounts in accordance with UKGAAP and has applied the new FRS102 accounting standards during the financial year ended 30/09/2016.

Further information over accounting treatment including disclosures can be found in the Amius statutory accounts.

Exposures to Interest Rate Risk in the Non-Trading Book

Although the Firm carries significant cash balances on its Balance Sheet, there is currently no significant exposure to Interest Rate fluctuations.

 Remuneration Policy

Amius will provide remuneration in form and amount that is consistent with the FCA’s Remuneration Code as set out in SYSC 19C, whilst being able to attract, motivate and maintain high-calibre employees and promote sound and effective risk management.  Remuneration can be both ‘variable’ and ‘fixed’ and may include salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements.

The Remuneration Policy is reviewed annually by the governing body to ensure that it remains consistent with the Remuneration Code Principles.  The Remuneration Code is based around twelve Principles, some of which are applicable to the firm as a whole and some of which are relevant to ‘Remuneration Code staff’.

Proportionality in application of the Remuneration Code

Amius is classified as a Level 3 firm.  As such, and based upon the ‘General guidance on proportionality’ issued by the FCA, under the BIPRU remuneration principles proportionality rule, it will normally be appropriate for such a firm to disapply various rules.  Therefore, a proportional approach will be adopted in respect of the twelve Remuneration Code Principles where deemed appropriate and where permitted.

Whilst appreciating the contribution that can be made by a Remuneration Committee, Amius considers that such a body would not be proportionate given the size and non-complex nature of both its activities and organisation.  Instead, Amius’ governing body undertakes this role.

Code Staff and Remuneration of Staff Whose Actions Affect the Risk Profile of AL:

Accounting period Ended 30/09/2016

No sign on bonuses were paid to Code Staff

No severance payments were made to Code Staff

Category Number of Code Staff Remuneration $ mn
Total 9 2.28

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