Pillar 3 Disclosures:

Transcription

1 Pillar 3 Disclosures: Pillar 3 Overview/Introduction Pillar 3 is the third element of the CRD s 3 pillar concept: Pillar 1 minimum capital requirements; Pillar 2 ICAAP and determination by firms if they should hold capital against risks above those covered in Pillar 1; and Pillar 3 requires firms to publish details of their risks, capital and risk management. Institutions are required to certify to the Central Bank on an annual basis that they have complied with the new disclosure requirements. The disclosures cover three broad areas: Risk Management; Capital Structure Capital Adequacy Wealth Options Limited ( Wealth Options ) core business is the production of structured deposits to the wholesale market (i.e. other Regulated intermediaries). Wealth Options also administers Approved Retirement Funds (ARFs) and Personal Retirement Bonds and provides this service via the Intermediary market. Wealth Options acts as an Investment Manager to a life company. Risk Management Objectives and Policies: The Firm has implemented an integrated approach to risk management and understands that this requires sustained effort on behalf of all staff. The management of the Firm has detailed risk management processes in place. A Risk Champion is in situ is responsible for the implementation of the integrated risk policy and the ongoing assessment of risk and training of staff. The Risk Champion reports to the Board and senior management and directs and sustains integrated risk management by considering corporate risk issues, approaches and performance. Wealth Options have made integrated risk management a key agenda item for the Board. A Risk committee meets in advance of Board meetings and the minutes are presented to the Board. The firm has developed a risk assessment process to evaluate the risks to which it is exposed. The firm identified internal and external factors and risks were identified through an environmental scan, preliminary data collection and analysis. Threats and opportunities were identified and the assessment of them will be adjusted as necessary through ongoing internal and external environmental scans and analysis The following are the principal areas of risk for Wealth Options:

2 Market Risk There is current or prospective risk to earnings and capital arising from external market factors such as competition, loss of agencies, insolvency of product partners and regulatory changes. This risk can arise from external market events and in most instances are outside the control of the firm. The Firm considers market risk to be the primary material risk the firm faces because of the direct relationship between the external market environment and movements and the firm s level of income generation. To address this risk Wealth Options has developed and maintains systems and controls which include: systems to calculate the firm s capital adequacy requirements; constant market monitoring ongoing due diligence on product partners. Diversification of products Concentration on annual income products Counterparty Risk The current or prospective risk to earnings and capital arising from an obligor s failure to meet the terms of any contract with the firm or its failure to perform as agreed. Wealth Options primary counterparties are with Irish credit institutions. The Firm monitors the credit worthiness its counterparties. The Firm considers the failure of any of these counter parties to be a material risk but factors leading to a failure of these counterparties are outside the control of the Firm but any losses can be mitigated by the ongoing assessment of credit worthiness of these counterparties and by taking action in the event of a change or a perceived risk to these counterparties. The credit worthiness of the counterparties is part of the Firm s Board meeting discussions each quarter and senior management addresses the subject monthly or more frequently if required. The Firm would apply the same due diligence to any of its third party counterparties that it applies to the credit institutions mentioned above. The Firm outsources its information technology (IT) requirements to a specialised IT consultancy firm. The Firm considers this to be a critical function and the outsourcing is operated under an outsourcing agreement which is reviewed and approved by the Board each year.

3 The firm considers this a material risk and the Firm believes that the probability of its IT servicing company failing to meet their obligations to the Firm is low but if this did occur the impact to the firm s operations could be high. The firm s exposure to counterparty risk is managed by the following: A comprehensive Service Level Agreement is in place with its IT consultants that is renewable annually; Ongoing monitoring of its IT consutlants performance under the Service Level Agreement is carried out and any issues arising are addressed with them. Server backed up off site Alternative IT provider identified and could be called up to support the Firm at short notice. Operational Risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This risk includes IT, legal and compliance risk. Internal Processes: The Firm has an extensive procedures manual that is reviewed regularly and updated as required. The Firm is not reliant on any one individual in terms of internal process and there is a broad knowledge of the administration procedures amongst the staff. All staff are cross trained to avoid over reliance on one or two staff (see below under people for further clarification). As new categories of business come on stream, new procedures are written, tested and adapted and all administration staff are trained on new procedures, The same applies to new legislation. The Firm see the probability of a breakdown in its internal processes as low and the impact as low also. People: The Firm places high emphasis on its people. The recruitment process is extensive and training forms a key element to our staff development. This training is a continuous process. In terms of the business the two Executive Directors are a key element to the success of the business and the probability of one of the Executive Directors leaving through voluntary departure, forced departure, serious illness or death is low the impact of such an occurrence would be material. To this extent the Firm has key man cover in place to protect the firm in the event of the death of one of

4 the Executive Directors. Another key person to the organization is the Compliance Officer and to protect the Firm in the event of the departure of the Compliance Office the Firm has a contingency for recruitment fees to recruit another Compliance Officer at short notice. Systems and External Events: The Firm has invested extensively in its systems to ensure that they are robust so that any down time is either avoided or rectified within acceptable time limits. The Firm works closely with it s external IT consultants to ensure that it has the latest and most secure systems possible. The Firm is currently upgrading its server to ensure ongoing reliability. The Firm has a robust documented disaster recovery plan in place and all parties to the plan know their role. The disaster plan is tested annually and the Firm has premises that it can move into in the event of a disaster hitting their premises. The Firm sees the probability of either a systems failure or a disaster as low but the impact would be material. IT Risk (a subcategory of operational risk): This is the current or prospective risk to earnings and capital arising from inadequate information technology and processing in terms of manageability, exclusivity, integrity, controllability and continuity, or arising from an inadequate IT strategy and policy or from inadequate and/or inappropriate use of the firm s information technology. As stated above the Firm has invested extensively in its systems to ensure that they are robust so that any down time is either avoided or rectified within acceptable time limits. The Firm works closely with its external IT consultants to ensure that it has the latest and most secure systems possible. The Firm is currently upgrading its server to ensure ongoing reliability. The data held on the Firm s IT systems are backed up externally and can be accessed within an acceptable time period in the event of the office becoming inaccessible. The Firm s IT arrangement are monitored frequently and formally reviewed annually. The Firm sees the probability of an IT disaster as low but the impact would be high Legal and Compliance Risk (a subcategory of operational risk): The current or prospective risk to earnings and capital arising from violations or noncompliance with laws, rules, regulations, agreements, prescribed practices or ethical standards. The firm believes that, after market risk and counterparty risk, operational risk is the next most significant area of possible risk it faces. To address this risk the firm has the following arrangements in place:

5 Oversight by the Board of Directors: Quarterly Board meeting where the Risk Committees and the Compliance Officer report into. At least annually the Board reviews the assignment of roles and responsibilities within the firm as well as assesses the effectiveness of the compliance function; Outsourcing certain IT activities to a third party including building database systems for daily reconciliations of client accounts. The nature, scale and complexity of the Firm operations does not warrant having this role staffed on a full time, permanent basis within the firm. Attendance at industry meetings to ensure that the Firm adheres to best practice Work with an external Compliance Firm to ensure the Firm own internal compliance arrangement are sound and robust. Ongoing dialogue with the Central Bank Part of a small industry compliance group that meet regularly to discuss compliance matters and ensure best practice in the Firm. The Firm has a professional indemnity policy in place to cover any issues resulting in a claim against the Firm The Firm has an insurance policy in place the pays for some of the cost involved in a Central Bank inspection. The Firm sees a legal or compliance issue impacting on the Firms earnings as low but the occurrence of such an event would be material. Reputation Risk The current or prospective risk to earnings and capital arising from adverse perception of the image of the Firm on the part of clients, counterparties, investors and/or Regulators. The firm considers reputational risk to be material because although it is a risk with a low probability of occurrence, if damage to the firm s reputation was sustained in the market place it would have a significant impact on the firm s operations. To address this risk the Firm keeps in constant contact with its intermediary clients and its Regulator. This ranges from providing intermediaries with updates on existing or current projects to educational seminars on market issues. The Firm regularly

6 invites feedback on its products and services from intermediaries to ensure consistency of service. Strategic Risk The current or prospective risk to earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or a lack of responsiveness to changes occurring in the business environment. The firm considers this to be a material risk given the potential for volatility in the market place. To address this risk the Firm reviews it Strategic Plan on a regular basis taking into account ever changing market conditions and market forces. Heavy emphasis is placed on strategic policy at Board level. The current general economic environment has emphasized the need for a diverse range of products and the preference for products with smaller ongoing fees as opposed to products with lager upfront fees. The Firm is constantly looking at new business opportunities to ensure that it is not overly dependent on a single product range. The Firm is also developing offerings the offer ongoing management fees that will mean that there is an income generator even if the single premium market is slow or effective by external economic factors. Liquidity Risk The current or prospective risk to earnings and capital arising from an institution s inability to meet its liabilities as they come due. The firm considers this to be a non-material risk because we have a high cash reserve

7 Capital Structure: Capital and Reserves 2014 Called up share capital 376 Share Premium account 99,949 Other Reserves 124 Profit and Loss account 606,103 Equity Shareholders Funds 706,552 Capital Adequacy: 2014 Available Capital 706,552 Required Regulatory Capital 502,138 Surplus 204,414