Jupiter Asset Management Ltd Pillar 3 Disclosures as at 31 December 2014

Transcription

1 Jupiter Asset Management Ltd Pillar 3 Disclosures

2 CONTENTS Overview 2 Risk management framework 3 Own funds 7 Capital requirements 8 Credit risk 9 Interest rate risk in non-trading book 11 Non-trading book exposure in equities 12 Remuneration 13 Appendix - Capital instrument main features 14 1

3 OVERVIEW Introduction On 1 January 2014 Basel III was implemented in the European Union (EU) via the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR). The Basel framework consists of three pillars: Pillar 1 Pillar 2 Pillar 3 Minimum Capital Requirement Supervisory Review Process Market Discipline Pillar 1 and 2 are assessed through the Internal Capital Adequacy Assessment Process (ICAAP). Pillar 3 disclosure requirements, the purpose of which is to provide information on the basis of calculating capital requirements and management of risks, are contained in this document. Summary of capital and capital requirements 2014 Capital after deductions 81.7 Pillar 1 capital requirement 16.9 Surplus 64.8 % 38.6% Basis and frequency of disclosures Jupiter Fund Management plc is the ultimate parent company of Jupiter Asset Management Limited which is a company that is regulated by the FCA and falls under the scope of CRD IV. The annual financial statements include the consolidation of all the entities controlled by Jupiter Fund Management plc. For the purposes of this disclosure, Jupiter Asset Management Limited is the only entity in the Group subject to CRDIV. The Group has a waiver from consolidated supervision and therefore the numerical disclosures provided are for Jupiter Asset Management Ltd and not the consolidated group. These disclosures are only subject to external verification in those instances where they are equivalent to those included in the audited financial statements for the year ended 31 December CRR Rules provide for the following: Article 432 (1): The Group is not required to disclose information which is not material. Article 432 (2): The Group is not required to disclose information if it is proprietary or confidential. Means of disclosure The Pillar 3 disclosure document is published on the Jupiter website ( 2

4 RISK MANAGEMENT FRAMEWORK Risk management framework The Board has ultimate responsibility for the risk strategy of the Group and for determining an appropriate risk appetite as well as the tolerance levels within which the Group must operate. By defining these, the Board demonstrates that it is aware of and, where appropriate, has taken steps to mitigate the impact of risks that may have a material impact on the Group. The Board has established a committee structure to assist in the discharge of its responsibilities, namely the Audit, Remuneration and Nomination Committees. Each Committee reports to and has terms of reference approved by the Board. The minutes of the Committee meetings, where appropriate, are circulated to and reviewed by the Board. The Executive Committee has operational responsibilities for developing the business in accordance with the strategy and objectives set by the Board. In late 2010, it formed an executive Risk Committee chaired by the Chief Financial Officer, to oversee the risk and control framework within the Group and the independent monitoring and reporting of risk and controls. The Risk Committee reviews the key corporate risks facing the Group. The Risk Committee is attended by all members of the Executive Committee, together with the Heads of Compliance, Operational Risk and Investment Risk and is responsible for the oversight of strategic, operational, investment and counterparty risks within a coherent and manageable structure. It oversees a separate Counterparty Review Group which is responsible for monitoring counterparty exposures and setting limits, at both a corporate and fund level. Committee structure A description of each of the individual committees assisting the Board with discharging its responsibilities in respect of risk monitoring and mitigation is set out below. Executive Committee The purpose of the Committee is to provide an efficient forum for discussion and decision making regarding the development of the business in accordance with the strategy and objectives set by the Board. The minutes from this meeting are made available to the Chairman of the Board. The Committee meets weekly with one meeting every fortnight having a formal agenda and minutes. The following committees report to the Executive Committee. Risk Committee Balance Sheet Management Committee Product Development Committee Operations Committee TCF Committee Risk Committee The Committee provides support to the Executive Committee on the establishment, implementation and maintenance of adequate risk management policies and procedures. In particular, it advises the Executive Committee on: the appropriate level of risk to be tolerated by the Group ( risk appetite/tolerance ); the management of risks within the determined risk tolerances; and 3

5 RISK MANAGEMENT FRAMEWORK the effectiveness of risk management processes across the business, including compliance with such policies and any remedial action, where required. The Committee reviews the Group s primary risk exposures (with consideration of impact and likelihood assessment and the effectiveness of existing controls) in the context of the Board s tolerance thresholds and ensures that the governance arrangements within the Group are effective in the mitigation of risk. The scope of the Committee s remit encompasses risk control issues facing the Group in relation to any aspects of risk as categorised in the Group s risk management framework, as described further below. The Risk Committee is supported in its role by a number of focused sub-committees, namely the Portfolio Review, Monitoring and Conflicts Committees and the Counterparty Review Group.The Risk Committee is supported by the Risk department, which provides assurance to internal and external stakeholders on the Group s risk management activities. It is an independent function that supports and challenges the business on their assessment of risks and controls. Balance Sheet Management Committee The Balance Sheet Management Committee provides support to the Executive Committee on the establishment, implementation and maintenance of adequate balance sheet management policies and procedures. It advises the Executive Committee, on both a current and forecast basis, on the areas under its remit, as well as reviewing the risk and control issues facing the Group in those areas. Product Development Committee The purpose of the Committee is to ensure new product proposals and changes to existing products have been adequately considered so that they are designed to meet client needs, can be appropriately managed and supported from an operational, risk, and compliance perspective and are appropriate additions to Jupiter's range of products. TCF is an integral part of the Committee s deliberations in respect of sign-off, implementation and post launch analysis. This applies to all of Jupiter s product range, including UK unit trusts, SICAVs and investment companies. Operations Committee The purpose of the Committee is to provide a forum through which senior operational management from across the business can discuss operational issues and changes to the business. The Committee considers any significant errors occurring during the year and any pertinent risk assessment findings from the Operational Risk function. The Committee reviews health & safety risks and practices as well as any incidents that have occurred. TCF Committee Through its sub-committees, the Committee seeks to ensure that funds managed by the Group and services provided to clients are operated and undertaken in a manner consistent with TCF obligations. The TCF Funds sub-committee considers the extent to which product launches and enhancements have met the Group s TCF obligations. It meets quarterly and considers available management information (including performance, target audience, distribution approach, market share analysis, subscription and redemption patterns, administrative statistics and complaint data) to consider whether the products continue to meet the general needs of the target audience for which they were designed and whether the performance is in line with expectations and the information communicated to distributors at the time of sale. The TCF Clients sub-committee considers the private client reporting arrangements to ensure that the services being provided to private clients are consistent with TCF objectives and that poor customer outcomes are being avoided. It meets quarterly and receives reports and management information. 4

6 RISK MANAGEMENT FRAMEWORK Approach to risk The Board determines the appropriate approach to risks within which the Group must operate. Risk tolerances are the Group s actual boundaries and limits through which the business monitors and, if appropriate, escalates concerns to the Board. Risks and the Group's attitude to them are considered and monitored in the following categories: 1 Strategic risk: the risk that the Group is unable to meet its strategic objectives due to matters inherent in the nature of our business or the markets in which we operate. 2 Operational risk: the risk of loss caused by weaknesses or failures in the Group s systems and controls, related to people, systems and process. These include risks arising from failing properly to manage key outsourced relationships. 3 Liquidity risk: the risk that the Group may be unable to meet its financial obligations. 4 Capital risk: the risk that the Group may lack sufficient capital to be able to continue to operate as a going concern. 5 Counterparty/credit risk: the risk of loss caused by the corporate failure of one of the trade, prime brokerage or treasury counterparties to which the Group may be exposed, or by a custodial institution with which the Group has a relationship. 6 Regulatory/reputational risk: the risk of censure due to the Group s failure to meet its regulatory obligations, which may lead to reputational damage, a monetary fine or ultimately the withdrawal of its licence to carry out business. Depending on the risk category, the monitoring of these internally will be owned by the Risk Committee or the Balance Sheet Management Committee. If the latter has any concerns, these will also then be considered by the Risk Committee. Internal control The Board is responsible for the Group s system of internal control and for reviewing its effectiveness. Such a system can provide only reasonable and not absolute assurance against material financial misstatement or loss and is designed to mitigate, not eliminate, risk. The Board, with the assistance of the Audit Committee, carried out its annual assessment of the effectiveness of internal controls during 2014 using the following to support its conclusion: reports from the Compliance Director on the regulatory control environment within the Group; reports provided by both the Operational Risk department (ORD) and Risk Committee setting out the key risk exposures faced by the Group and, where appropriate, quantifying these exposures and the adequacy of the corresponding control mitigation in place within the Group; a report from the Compliance Director on the effectiveness of the risk assurance arrangements in place within the Group; a review of the method by which the Executive Committee gains assurance that the business is operated in alignment with the risk appetite that is set by the Board; a review of the Risk Committee s heatmap methodology and the roles of various committees in overseeing risks within the business; reports from the General Counsel outlining the Group s legal and litigation risks; a report outlining the design and operating effectiveness of the Group s 3 lines of defence model and the manner in which the assurance functions and risk committees interact with each other in supporting the risk management framework; reports from the Internal Audit function on key control and governance issues arising from their review programme; 5

7 RISK MANAGEMENT FRAMEWORK an annual report from the Money Laundering Reporting Officer (MLRO) on the anti-money laundering and fraud prevention (financial crime) measures in place within the Group; and a report from an external audit firm on the internal framework in place within the Group (AAF01/06 - ISAE 3402). Assurance process Jupiter has an outsourced internal audit function, supplied by Ernst & Young LLP, which provides the Audit Committee with a regular assessment of internal systems and controls. Its approach is undertaken in accordance with an annual risk-based audit plan, taking into consideration information provided by the Operational Risk and Compliance departments as well as any other concerns identified through discussions with senior management and Audit Committee members. The control environment in place across the Group is reviewed during the course of a year by one or more of the four assurance functions (Compliance, Operational Risk, Internal Audit and External Audit) and assurance reports provided to senior management, the Board and Audit Committee as appropriate. On an annual basis, Jupiter commissions the external audit firm to perform testing of the integrity of the Group-wide control environment. Jupiter has adopted the International Standard on Assurance Engagements (ISAE) 3402 together with AAF 01/06 as recommended by the Institute of Chartered Accountants of England and Wales in the November 2010 technical release of AAF 01/06. The results of this testing, including any exceptions identified, are made available to our institutional and investment trust clients. Management Declaration The Board is of the view that there is an ongoing process for identifying, evaluating and managing the Group s significant risks that: was in place for the year ended 31 December 2014 and up to the date of approval of the Annual Report and Financial Statements; is regularly reviewed by the Board; and complies with the Financial Reporting Council s revised guidance for Directors on internal control. The Board is also of the view that: necessary actions have been, or are being, taken to remedy any significant failings identified as part of the ongoing risk management process. no significant weaknesses were identified during the year. 6

8 OWN FUNDS Reconciliation of the balance sheet to own funds 2014 Per financial statements Share capital 19.0 Share premium 0.3 Retained earnings Other reserves 0.4 Capital and reserves per financial statements less: unverified profit* for the year net of dividends paid (33.1) Less: share-based payments and other adjustments (12.8) Common Equity Tier 1 before regulatory adjustments 81.7 *This represents profits which had not been verified at 31 December 2014, but have subsequently been audited. Own Funds Capital Resources Common Equity Tier 1 (CET1) Capital: instruments and reserves 2014 Capital instruments and the related share premium accounts 19.3 Retained earnings (beginning of year) 62.0 Accumulated other comprehensive income (and other reserves) 0.4 Independently reviewed interim profits net of any foreseeable charge or - dividend Common Equity Tier 1 (CET1) capital before regulatory adjustments 81.7 Deductions from Tier 1 - Common Equity Tier 1 (CET1) capitalⁱ 81.7 Risk Weighted Assets Core Tier 1 Ratio 38.6% At 31 December 2014, the Company did not have Tier 2 or Tier 3 capital or any related deductions. 7

9 CAPITAL REQUIREMENTS From 1 January 2014, regulated entities within the Group are required to meet the general own funds requirement in accordance with Article 92 of the Capital Resources Requirements (CRR): Institutions shall at all times satisfy the following own funds requirements: i) A Common Equity Tier 1 capital ratio of 4.5% ii) A Tier 1 capital ratio of 6% iii) A total capital ratio of 8% The Pillar I capital requirement under CRDIV is the higher of: i) the fixed overhead requirement, and ii) the sum of the credit risk capital requirement, market risk capital requirement and settlement risk capital requirement (Article 92 (3)). The regulated entity, Jupiter Asset Management Limited, maintained surplus regulatory capital throughout the year. Fixed overhead requirement (FOR) The FOR is based on the firm holding at least one quarter of fixed overheads of the proceeding year and is calculated in accordance with Article 97 of the CRR. Credit Risk Jupiter has adopted the standardised approach for credit risk and calculates the Pillar 1 requirement in accordance with Title II of the CRR. Market Risk The Pillar 1 market risk requirement is calculated in accordance with the CRR Title IV. For Jupiter this relates to foreign exchange risk on balance sheet exposures denominated in foreign currencies. TOTAL PILLAR I MINIMUM CAPITAL REQUIREMENT: 8% own funds requirement Risk weighted assets Risk weighted exposure amounts for credit, counterparty credit and dilution risks and free deliveries Total risk exposure amount for position, foreign exchange and commodities risk Additional risk exposure due to fixed overheads Pillar 1 requirement Tier 1 Capital 81.7 Excess of own funds over Pillar 1 capital requirement

10 CREDIT RISK Overview Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract leading to a financial loss in its operating activities. The Group is exposed to credit risk primarily on its trade receivables and from its financing activities, including deposits with banks and financial institutions. Trade receivables arise principally within the Group s investment management business and amounts are monitored regularly. Historically, default levels have been insignificant and the Group s maximum exposure to credit risk is represented by the carrying value of its trade receivables and cash and cash equivalents. MINIMUM CAPITAL REQUIREMENT FOR CREDIT RISK: Exposure Classes 8% own funds capital requirement Risk weighted assets Institutions Corporates Claims on institutions and corporates with a short-term credit assessment Collective investment undertakings (CIU) Other Items Credit Risk minimum capital requirement GROSS AND AVERAGE CREDIT RISK The gross credit exposure and the average exposure for the year are as follows: Risk Weighted Assets Gross exposure before counterparty adjustments Average Exposure Value Institutions Corporates Claims on institutions and corporates with a short-term credit assessment Collective Investment Undertakings (CIU) Other items Total Exposure

11 CREDIT RISK OTHER CREDIT RISK DISCLOSURES Further information (such as the geographic distribution of the exposures and the amount of past due exposures have not been provided, as the exposure is not considered material. Asset Encumbrance Jupiter Asset Management Ltd did not have any encumbered assets as at 31 December

12 INTEREST RATE RISK IN NON-TRADING BOOK Overview Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Jupiter Asset Management Ltd has limited exposure to interest rate risk as it does not have any borrowings on which interest is paid. The firm has cash balances which earn interest. 11

13 NON-TRADING BOOK EXPOSURE IN EQUITIES Jupiter Asset Management holds equity investments in its seed capital portfolio and is exposed to the risk of changes in the equity markets that will reduce the value of the investments. At 31 December 2014, these investments were accounted for at the lower of cost and net realisable value. Balance sheet value Fair value Listed securities As at 31 December 2014, there was no exposure to unlisted equity securities. The cumulative realised gains/losses arising from the sales of seed capital investments in the year ending 31 December 2014 was 1.0m. Total net unrealised gains were 2.3m. As the investments are held on the balance sheet at the lower of cost and NRV, only unrealised losses are included in the calculation of own funds. At 31 December 2014, the amount included in own funds was nil. 12

14 REMUNERATION Remuneration Disclosures are made separately at 13

15 APPENDIX 1 APPENDIX 1 Capital Instrument Main Features Feature 1 Issuer Jupiter Asset Management Ltd 2 Unique identifier GK9KWVQKHQ5S16 (LEI) 3 Governing law(s) of the instrument United Kingdom Regulatory treatment 4 Transitional CRR rules Common Equity Tier 1 5 Post-transitional CRR rules Common Equity Tier 1 6 Eligible at solo/(sub-)consolidated/ solo&(sub- )consolidated Sub-consolidated 7 Instrument type Ordinary Shares 8 Amount recognised in regulatory capital ( as of most recent reporting date) 19,000,000 9 Nominal amount of instrument 1 per Ordinary Share 9a Issue price 1 per Ordinary Share 9b Redemption price N/A 10 Accounting classification Shareholder's equity 11 Original date of issuance 11/07/1986 (date of incorporation) 12 Perpetual or dated Perpetual 13 Original maturity date N/A 14 Issuer call subject to prior supervisory approval N/A 15 Optional call date, contingent call dates and redemption amount N/A 16 Subsequent call dates, if applicable N/A Coupons / dividends 17 Fixed or floating dividend/coupon Floating 18 Coupon rate and any related index N/A 19 Existence of a dividend stopper No 20a Fully discretionary, partially discretionary or mandatory (in terms of timing) N/A 20b Fully discretionary, partially discretionary or mandatory (in terms of amount) N/A 21 Existence of step up or other incentive to redeem N/A 22 Noncumulative or cumulative N/A 23 Convertible or non-convertible N/A 24 If convertible, conversion trigger(s) N/A 25 If convertible, fully or partially N/A 26 If convertible, conversion rate N/A 27 If convertible, mandatory or optional conversion N/A 28 If convertible, specify instrument type convertible into N/A 29 If convertible, specify issuer of instrument it converts into N/A 30 Write-down features N/A 31 If write-down, write-down trigger(s) N/A 32 If write-down, full or partial N/A 33 If write-down, permanent or temporary N/A 34 If temporary write-down, description of write-up mechanism N/A 35 Position in subordination hierarchy in liquidation (specify instrument type immediately senior to N/A instrument) 36 Non-compliant transitioned features No 37 If yes, specify non-compliant features N/A 14