The Stewardship Code & Pillar 3


icf management limited (“icf”) provides investment management and advisory services to a variety of professional clients.

This statement is intended to describe icf’s approach to the Financial Reporting Council’s (“FRC”) UK Stewardship Code. The publication of this statement is being made in accordance with Rule 2.2.3 R of the FSA’s Conduct of Business Sourcebook.

The UK Stewardship Code (“the Code”) was published by the FRC, the United Kingdom’s independent regulator responsible for promoting high quality corporate governance.  The Code aims to enhance the quality of “engagement” between institutional investors and the companies they invest in.  “Engagement” includes pursuing purposeful dialogue on strategy, performance and the management of risk, as well as on issues that are the immediate subject of votes at general meetings.    In essence, the Code sets out good practice on engagement between institutional investors and investee companies.

The Code sets out 7 principles. These are summarised below. 

Institutional investors should:

  1. publicly disclose their policy on how they will discharge their stewardship responsibilities
  2. have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed
  3. monitor their investee companies
  4. establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value
  5. be willing to act collectively with other investors where appropriate
  6. have a clear policy on voting and disclosure of voting activity
  7. report periodically on their stewardship and voting activities

The nature of icf’s business model is such that it does not invest in single equities. Accordingly, icf has taken the view that the Code, and its principles, is not of direct relevance to its business. Consequently, while icf supports the objectives underlying the Code, it has not committed to the Code on the grounds that it is not directly relevant to its business model.

If the investment strategy of icf changes in such a manner that the provisions of the Code become relevant, this disclosure will be amended accordingly.

Should you require further information on icf’s approach to the Code please contact Mark Lynam at This email address is being protected from spambots. You need JavaScript enabled to view it. or telephone 020 7127 4874.

Pillar 3 Disclosure

Background

This is the Pillar 3 disclosure made in accordance with the UK Financial Conduct Authority (FCA) Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).

The European Capital Requirements Directive (CRD) created a regulatory capital framework consisting of three ‘pillars’ namely;

  • Pillar 1 – which sets out the minimum capital requirements that firms are required to meet for;
  • Pillar 2 – which requires firms to take a view on whether additional capital should be held against capital risks not covered by Pillar 1; and
  • Pillar 3 - which requires firms to publish certain details of its risks, capital and risk management process.

Disclosure Policy

The rules in BIPRU 11 provide that the firm may omit one or more of the required disclosures if it believes that the information is immaterial. Materiality is based on the criteria that the omission or misstatement of material information would be likely to change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions. Where the firm considers a disclosure to be immaterial, this will be stated in the relevant section.

The firm is also permitted to omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential. Proprietary information is that which, if it were shared, would undermine the firm’s competitive position. Information is considered to be confidential where there are obligations binding the firm to confidentiality with its clients and counterparties.

Where the firm has omitted information for any of the above reasons, a statement explaining this will be provided in the relevant section.

Unless stated as otherwise, all figures contained in this disclosure are based on the firm’s audited annual reports for the year ending September 2014

Frequency

These Pillar 3 Disclosures will be reviewed on an annual basis as a minimum. The disclosures will be published as soon as is practical following the finalisation of the firm’s Internal Capital Adequacy Assessment Process (ICAAP) and the publication of its annual reports.

Verification

The information contained in this disclosure has not been audited by our firm’s external auditors and does not constitute any form of financial statement.

Publication

Our firm’s Pillar 3 Disclosure reports are published on our website.

Scope and application of Directive requirements

The disclosures in this document are made in respect of icf which provides financial advice and / or discretionary investment management services.

The firm is a BIPRU firm.

Risk management objectives and policies

Our risk management policy reflects the FCA requirement that we must manage a number of different categories of risk. These include: liquidity, credit, market, interest rate, business and operational risks.

  1. Liquidity risk
    The firm manages all cash and borrowing requirements to maximise potential interest income whilst ensuring the firm has sufficient liquid resources to meet the continued operating needs of the business.
  2. Credit risk
    The main credit risk for the firm relates to receipt of fees, being the risk that a client does not pay amounts due for services provided. This risk is mitigated by the low number of clients in respect of which amounts are due at any one time. The risk of non payment is also reduced due to the nature of the clients as they are typically robust institutional organisations.

    The firm’s revenues also include annual management charges based on a percentage of assets under management. These charges are made directly to the funds, and therefore the credit risk relating to this income is minimal.
  3. Interest rate risk
    The firm has no borrowings and no exposure to interest rate risk.
  4. Business risk
    The firm’s Pillar 2 business risk assessment principally takes the form of a fall in assets under management following a market downturn that leads to lower management fees, although other risks such as loss of personnel and systems failures are also considered. To mitigate our business risk, we regularly analyse various different economic scenarios to model the impact of economic downturns on our financial position.
  5. Operational risk
    Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems, from the actions of people or from external events.

    Major sources of operation risk include: outsourcing of operations, IT security, internal and external fraud, implementation of strategic change and regulatory non-compliance.
  6. Other risks
    The firm operates a simple business model.  Accordingly, many of the specific risks identified by the FCA do not apply.

Capital resources

Pillar 1 requirement

As a Bipru Limited Licence Firm the base capital requirement is Euro 50,000.

Pillar 2

icf has considered the risks to which it may be exposed and whether additional capital needs to be held to meet those risks.  icf has taken the view that the base capital requirement of Euros 50,000 is adequate and that no additional capital is required. This is because icf will be exposed to very few risks.

Regulatory capital

The main features of icf’s capital resources for regulatory purposes, as at 30.03.18 are as follows:

Capital item: £000s
Tier 1 capital (called up share capital, share premium account, profit and loss account, externally verified net profits) £81,000
Total of tier 2 and tier 3 capital (broadly long and short term subordinated loans) 0
Deductions from tier 1 and tier 2 capital 0
Total capital resources, net of deductions £81,000

The firm holds regulatory capital in accordance with the Capital Requirements Directive. All such capital is classified as Tier 1 capital and is therefore of the highest quality.