pillar 3 disclosures gain capital uk limited/media/forex/files/terms... · 2017-03-28 · gain...

Pillar 3 Disclosures GAINCapitalUKLimited

December 2015

GainCapitalUKLimited|Pillar3Disclosures|December2015 Page2of20

Contents

1. Overview 3

2. Risk Management Objectives & Policies 5

3. Capital Resources 8

4. Principle Risks 11

Appendix 1: Disclosure Waivers 18

Appendix 2 – Capital Instruments 19

Appendix 3 – Financial to Regulatory Balance Sheet Reconciliation 20


1. Overview

1.1. Introduction ThePillar3disclosureispartoftheoverallBaselIIIframeworkcreatedbytheBaselCommitteeonBankingSupervision.EuropeanInvestmentfirms,likeGAINCapitalUKLimited(“GCUK”)aresubjecttotheBaselIIIframeworkthroughrequirementssetoutbytheEUunderitsCapitalRequirementsDirective(“CRDIV”).ThisframeworkconsistsofthreePillarsthatareusedtoregulate,superviseandimprovetheriskmanagementoffirmsinthefinancialindustry.ThethreePillarsare:

• Pillar1–MinimalCapitalRequirements–ThisensuresthatGCUKmaintainsasufficientamountofcapitalaboveitsminimumrequirementatalltimes.Thisismonitorednotonlyonadailybasis,butalsointra-daythroughliveriskmonitors.

• Pillar2–InternalCapitalAdequacyAssessmentProcess(ICAAP)andSupervisoryReviewProcess(SREP)–Thisensuresthatfirmsandsupervisorsactivelyassessthevariousrisksthatafirmfaces,anddevelopsystemsandcontrolstomanageandreducethoserisks.

• Pillar3–MarketDiscipline–ThepurposeofPillar3istopromotemarketdisciplinethroughregulatorydisclosure,allowingmarketparticipantstoviewandcomparemeaningfulinformationrelatingtothefirmanditspeer’smanagementofriskexposure,controlsandregulatorycapital.

ThisPillar3disclosureiscompiledinlinewiththecurrentEUCRDIVanditsaccompanyingCapitalRequirementsRegulations(“CRR”)asimplementedundertheFinancialConductAuthority(“FCA”)HandbookaswellasGCUK’sowninternalPillar3policy.

1.2. Frequency and Scope of Disclosure GCUKisaprivatelimitedliabilitycompanyincorporatedinEnglandandWales.GCUK’simmediateparentcompanyisGAINCapitalHoldingsLimited(“GCHL”),acompanyincorporatedinEnglandandWales.TheultimateparentcompanyandcontrollingpartyisGAINCapitalHoldingsInc.,whichisincorporatedintheUS.


GCUKisconsolidatedintotheGAINCapitalHoldingsLimitedgroup(“Group”).However,asGCUKistheonlyfirmregulatedbytheFCA1withintheGroup,thisdocumentonlydisclosesinformationpertainingtoGCUKonasolobasisasisrequiredunderPartEightofCRR.GCUKpublishesitsPillar3disclosuredocumentannuallyonitswebsiteathttp://www.cityindex.co.uk/important-information.aspxunderthePillar3section,withfurtheradditionaldisclosuresbeingmadeifsignificantchangestothebusinessrequireanupdatetothedocument.

GCUKisnotawareofanycurrentorforeseenmaterialpracticalorlegalimpedimentstotheprompttransferofcapitalresourcesorrepaymentofliabilitiesbetweenGAINCapitalHoldingsLtdanditssubsidiaryundertakingsexcepttotheextentrequiredbytheregulatorycapitalorliquidityrequirements.Intragrouptransferofcapitalissubjecttoanannualreviewaspartofthefirm’sICAAP.

1Asanon-significantinvestmentfirm.


2. Risk Management Objectives & Policies

2.1. Governance Framework GCUK’sRiskManagementFrameworkissetoutinFigure1belowandprovidesthegovernanceframeworkfortheCompanyformanagingitsrisksandcontrols.

GAINCapitalUKLtd RiskManagementFramework

Board

SeniorManagementTeam

RiskCommittee

ThreeLinesofDefence

Roles&Responsibilities

Guidelines&Procedures

RiskCommittee

Structure&Guidance

InternalAudit

ExternalAudit

RegulatoryReview

AuditTeam

IndependentAssurance

InductionTraining

OngoingAwareness

RiskWorkshops

RiskOfficers

RiskTeam

Training&Awareness

RiskIdentification

RiskCategorisation

RiskAssessment

RiskAppetite

RiskTeam

Identification&Assessment

ActionPlansRiskMitigation

RiskMonitoring

LossEventReporting

RootCauseAnalysis

RiskCommittee

Monitoring&Control Pillars

Sponsors

PrimaryOversight

KeyElements

Figure1–RiskManagementFramework

GCUK’sgovernancestructurehasrecentlybeenupdatedtoreflecttheadvantagesofbeingapartofthewiderGAINCapitalgroup.ThishasenabledGCUKtoenhanceitsabilitytoidentify,assessandmanagerisksbyaddingnewinnovativesystemstoanalreadyrobustsetofinternalcontrols.Thegroupwideriskmanagementprocessseekstoidentify,assess,control,monitorandreportrisksthatcouldmateriallyimpacttheGroup’sabilitytoachievetheobjectivesthatithassetout.Thisservesasakeyplatformforasustainablebusinessthatcansurviveduringvolatilemarketevents.TheGroupRiskCommittee(“GRC”)isresponsibleforestablishingandmaintainingriskpoliciesandproceduresfortheGroup’sriskgovernanceframework,whichaimsto:

• identifyallmaterialrisksthattheGroupisexposedto;


• assessthepotentialforlosscausedbyaninternalorexternalexposure;• monitorexposureonacontinuousbasis;• ensureadequatecontrolsandmitigationisinplacetoreducerisks;• ensurethatincidentsarecaptured;and• ensurethatwemeetregulatoryrequirementsandguidance.

Additionally,theGCUKgovernanceframeworkisbaseduponthefollowingfiveprinciples:

• StructureandGuidance.• IdentificationandAssessment.• MonitoringandControl.• TrainingandAwareness.• IndependentAssurance.

2.2. Risk Management Framework TheGCUKBoardhastheoversightofriskmanagementandisresponsibleforensuringmaintenanceofeffectivesystemsandcontrolsformanaginginternalandexternalrisksthatmaymateriallyaffecttheentity’soperations.TheBoarddelegatestheresponsibilitytotheGRCfortheestablishmentandmaintenanceofpoliciesandproceduresrelatedtoriskmanagement,andinparticular,themaintenanceoftheGroupRiskPolicy(“GRP”).GCUK’sapproachtomanagingriskistooperateaThreeLineofDefencemodel(asshowninfigure22),whichclearlydefinesresponsibilities.

FirstLineofDefenceRiskOwnership

ThirdLineofDefenceIndependentAssurance

SecondLineofDefenceRiskPolicy&Oversight

Board

ExecutiveManagement-Directors

Design,implementationandoperationofcontrolswithinareasofresponsibility.

EnsuringthatallRiskManagement,ComplianceandCorporatepoliciesareadheredtoonadaytodaybasis.

AddressingissuesraisedbyInternalAudit,ExternalAuditandRegulators.

AccountabilitytotheBoard.

RiskManagementActivity/Accountability

RiskOwners Risk&Compliance InternalAudit

DefiningRiskManagementandCompliancepoliciesandprocedures.

Ensuringpoliciesarekeptuptodate.

AddressingissuesraisedbyInternalAudit,ExternalAuditandRegulators.



IndependentassurancetotheBoard.

AnnualInternalAuditPlanandOpinion.

Conductingindividualauditreviewsandreportingtheresultstomanagement.

Trackingissuesraised(includingthoseraisedbyExternalAuditandRegulators).



GAINCapitalUKLtd ThreeLinesofDefence

Figure2–ThreeLinesofDefenceModel


AsillustratedinFigure2,thefirstlineofdefenceistheRiskOwners.Theyaretheindividualswhoareaccountableforrisksidentifiedintheirareaofthebusiness,andwhohavetheauthoritytomakedecisionstoensurethatthebalancebetweenriskandrewardisappropriate.ThesecondlineofdefencerelatestotheoversightbyRiskandComplianceastheyreviewandchallengetheriskrelateddecisionsmadebytheriskowners.Thethirdlineofdefenceisanindependentreviewoftherisksthatareidentified,assessedandapprovedbythefirsttwolinesofdefence.ItseekstoaddassurancetothestakeholdersthatGCUKhasadequateinternalcontrolsandprocessesinmanagingrisks.


3. Capital Resources

3.1. Total Capital Ratio Table3showsthecapitalresourcesforGCUKasat31stDecember2015aspartofthePillar1calculationandisderivedfromtheauditedFinancialStatements

Table3–TotalCapitalRatio&RiskExposure

31December20152 31March2015 £m £m CommonTier1Capital 86.8 65.8

TotalRiskExposureAmounts(seebelowforbreakdown) 462.7 375.7

TotalCapitalRatio(%) 18.8% 17.5% BreakdownofTotalRiskExposureAmount:

OperationalRiskRequirement 100.0 97.5

CounterpartyRiskRequirement 89.4 57.1

CreditValuationAdjustment 7.0 7.9

MarketRiskRequirement 266.3 213.2

TotalRiskExposureAmounts 462.7 375.7

3.2. Tier 1 Capital Tier1capitalconsistsofordinarysharecapital,sharepremiumandauditedretainedearnings.Deductionsaremadeinrespectofintangiblefixedassetsanddeferredtaxasset.

3.3. Tier 2 Capital GCUKdoesnotholdanyTier2capital.

2GCUKspreviousyear-endwas31stMarch2015,December2015accountswereproducedfora9monthperiodonly.


3.4. Operational Risk Requirement Operationalrisksareinherentinanybusiness’sactivities.TheoperationalriskexposureforGCUKisnodifferentandcoversabroadrangeofrisks,reflectingthepotentialeconomiclossesthatmightbesustainedduetofailureofcontrolsorprocesses.However,operationalrisksneednotberestrictedtothoseduetofailuresofthefirm.Industrywideeventsmaycreatelossforthefirm,throughnofaultofitsown.Forexample,reputationaldamagemaycausealossofrevenueduetothebehaviourofpeersratherthanGCUK.GCUK’smethodforcalculatingthePillar1capitalrequirementisbasedonthebasicindicatorapproach.Thisapproachsetsthecapitalrequirementas15%ofthegrossincome,averagedoverthelastthreeyears.Iftheincomeinanyyearisnegativeorzero,thatyearisnotconsideredintheaverage.SeeSection4.6forfurtherdetailsonhowweasafirmmanageOperationalRisk.

3.5. Credit and Counterparty Risk AcounterpartyisanypartywhoentersintoacontractorfinancialtransactionwithGCUKandcanincludecontractswithclients,creditinstitutions(banks),primebrokerages,centralcounterpartiesaswellasanyotherfinancialandnon-financialinstitutions.Counterpartyrisk(alsoknownascounterpartycreditriskordefaultrisk)istheriskthatacounterpartyfailstofulfiltheirobligationsunderacontractorfinancialtransaction,whichresultsinafinanciallosstoGCUK.Theriskiscalculatedbytakingintoconsiderationboththeexposureto,andthecreditworthinessofthecounterparty.Allcreditandcounterpartyriskcalculationsarecalculatedunderstandardisedmethodology-nointernalmodelsareused.FurtherdetailscanbefoundinSection4.1undercreditriskalongwithabreakdownofthecounterpartyriskexposureinTables5and6.

3.6. Credit Valuation Adjustment Thecreditvaluationadjustmentistheriskthatacounterpartytoaderivativeinstrumentbecomeslesscreditworthyduringtimesofmarketstress,whichcouldleadtofinancialloss.Thisisineffectanadd-ontothecounterpartyriskexposure.AnadjustmentamountisappliedtotakeintoaccountofanypossibleadverseimpactsthatGCUKmayhaveagainstcounterpartieswhenfinancialmarketsarestressed.


3.7. Market Risk MarketriskistheriskoffinanciallosstoGCUKcausedbyadversemovementsinthepriceofthepositionsthatGCUKholds.Allmarketriskcalculationsarecalculatedunderstandardisedmethodology-nointernalmodelsareused.FurtherinformationonmarketriskcanbeseeninSection4.2.

3.8. Internal Capital Adequacy Assessment Process TheInternalCapitalAdequacyAssessmentProcess(“ICAAP”)isakeyaspectofGCUK’sassessmentoftheeffectivenessofitsriskcontrolsandmanagement.TheICAAPallowsthefirmtoassessthelevelofcapitalthatadequatelysupportsallrelevantcurrentandfutureriskstothebusiness.ItisthroughtheICAAPthatGCUKassessestheadditionalcapitalthatisrequiredunderPillar2oftheBaselframeworkTheICAAPisperiodicallyupdated,whichhasaidedinreflectingandmanagingthisriskarisingfromrecentchangestotheCompany’sstructureandthebusinessenvironment.

3.9. Capital buffers

GCUK,otherthanforitsPillar2requirement,isnotboundbyotherbufferrequirementsundertheCRR.Thefirmisnotasystemicallyimportantfirmanditdoesnotrequireacountercyclicalbuffer(“CCyB”)asitisanon-significantinvestmentfirm3

3Article130ofCRDIVderogatesthepowertosupervisorstonotapplytheCCyBto'mediumsizedinvestmentfirms’.TheFCAhasexorcisedthispowerunderIFPRU1.2.1,whileGCUKfulfilthenon-significantfirmdefinitionasperIFPRU1.2.3.


4. Principle Risks TheBoardisresponsibleforoverseeingandmanagingtheprincipalrisksofthebusiness.GCUKseekstomitigateitsrisksthroughtheapplicationoflimitsandcontrolsandregularmonitoringoperationallevel,andtheuseofhedginginstrumentsandinsurancepolicies.GCUK’sexistingriskmanagementtoolscontinuetobeenhancedbytheon-goingdevelopmentofareal-timeriskmanagementsystemacrossallproducts.TheprincipalrisksanduncertaintiesfacedbytheCompanyareprimarilyfinancialrisks.Theprincipalnon-financialriskfacedbytheCompanyisoperationalrisk.Alloftheserisksaresummarisedfurtherbelow.

4.1. Credit Risk GCUK’stradingoperationsrequirecommitmentofcapitalandinvolveriskoflossbecauseofthepotentialthatacustomer’slossesmayexceedtheamountofcashintheiraccount.Whilethefirmisabletocloselymonitoreachcustomer’sexposure,itdoesnotguaranteeitsabilitytoeliminatenegativecustomeraccountbalancespriortoanadversecurrencypricechangeorothermarketevents.ChangesinmarketconditionsorunforeseenextrememarketeventscouldresultinGCUK’scustomersexperiencinglossesinexcessofthefundstheyhavedepositedwithit.Insuchanevent,thefirmmaynotbeabletorecoverthenegativeclientequityfromitscustomers,whichcouldmateriallyadverselyaffectourresultsofoperations.Inaddition,ifGCUKcannotrecoverfundsfromcustomers,itmaynonethelessberequiredtofundpositionsthatitholdswithliquidityprovidersorotherthirdparties.Insuchanevent,thefirm’savailablefundsmaynotbesufficienttomeetsuchobligations,resultinginamateriallyadverselyaffectforGCUK’sbusiness,financialcondition,resultsofoperationsandcashflows.

4.1.1. Banking book equity exposures GCUKdoesnotcurrentlypossessesanybankingbookequityexposures.

4.1.2. Margin agreements Inordertohelpmitigatecreditrisk,eachtrademustbecollateralisedinaccordancewithGCUK’smarginpoliciesdescribedbelow.Eachcustomerisrequiredtohaveminimumfundsintheiraccountforopeningpositions,referredtoastheinitialmargin,andformaintainingpositions,referredtoasvariationmargin,dependingontheproductbeingtraded.Marginrequirementsareexpressedasapercentageofthecustomer’stotalpositioninthatproduct,andthecustomer’stotalmarginrequirementisbasedontheaggregatemarginrequirementacrossallofthepositionsthatacustomerholdsatanyonemomentintime.Eachnetpositioninaparticularproductismargined


separately.Accordingly,thefirmdoesnotnetacrossdifferentpositions,therebyfollowingamoreconservativemarginpolicy.GCUK’ssystemsautomaticallymonitoreachcustomer’smarginrequirementsinrealtime,andthefirmconfirmsthatallcustomershavesufficientcashcollateralinhisorheraccountbeforetradesareexecuted.GCUKmayalsoadjustrequiredcustomermargins(bothinitialandvariation)fromtimetotimebasedonmonitorsforvariousfactors,includingvolatilityandliquidity.Ifatanypointintimeacustomer'stradingpositiondoesnotcomplywiththeapplicablemarginrequirement,thepositionmaybeautomaticallyliquidated,partiallyorentirely,inaccordancewithGCUK’smarginpoliciesandprocedures.Thispolicyprotectsboththefirmandthecustomer.GCUK’smarginandliquidationpoliciesaresetforthinourcustomeragreements.

4.1.3. Bad debt provisions Themajorityoftheprovisionasat31stDecember2015ismadeupofbalancesbroughtforward,whichrelatestolegacyageddebtorbalancesthathadbeenoutstandingfrompriorperiods.TheCompanypolicyisforabaddebtprovisiontobemadeagainstanyclientdebtwhichfallsdueandremainsoutstandingafter30days.Thetotalbaddebtprovisionfor2015isshowninTable4below:

Table4–BadDebtProvision

31December2015 £mProvisionasat1stApril2015 16.4

Releaseofprovisions (0.3)

IncreaseinBadDebtProvision 1.3

Provisionasat31stDecember2015 17.4

4.1.4. Counterparty credit risk GCUKisalsoexposedtopotentialcreditriskrelatingtothecounterpartieswithwhichithedgesitstradesandthefinancialinstitutionswithwhichitdepositscash.Thefirmmitigatestheserisksbytransactingwithseveralofthelargestfinancialinstitutionsintheworld.IntheeventthatGCUK’saccesstooneormorefinancialinstitutionsbecomeslimited,itsabilitytohedgemaybeimpaired.Duetothenatureofthebusiness,GCUK’scounterpartycreditriskexposurematurityprofileistypicallyshortterm(lessthan3months)withanyexposuresofgreatermaturitybeingofanimmaterialnatureandsize.Table5providesabreakdownofGCUK’soverallcounterpartycreditriskexposurebyassetclassasat31stDecember2015


Table5–CounterpartyCreditRiskExposurebyAssetClass

31December2015 £m Institutional 41.1

Corporates 0.6

Retail 5.3

OtherItems 42.3

TotalCounterpartyRiskExposure 89.4Table6providesfurtheranalysisofthetotalcounterpartyriskexposurebygeographicalregionasat31stDecember2015:

Table6–CounterpartyRiskExposurebyGeographicalRegionat31stDecember2015

UK Europe NorthAmerica APAC Restof

theWorld Total

£m £m £m £m £m £m

Institutional 28.7 0.0 7.5 4.9 41.1

Corporates 0.5 0.1 0.6

Retail 4.3 0.5 0.2 0.3 5.3

OtherItems 42.3 42.3

TotalCounterpartyRiskExposure

75.8 0.7 7.5 5.1 0.3 89.4

NotethatsegregatedclientmoneyheldundertrustdoesnotformanypartoftheabovecreditexposureinlinewithCRDIVrequirements.GCUK’sinstitutionalcounterpartiesareassessedfortheircreditworthiness.ThefirmusesExternalCreditAssessmentInstitutions(“ECAI”)tovalidatethecreditratingsofallinstitutionalcounterparties,andensurethatitdoesnottradewithentitiesratedbelow“BBB-“.AnyunratedfirmsonGCUK’sbooksrelatesonlytointernalgroupentities4.

4NotethatthefirmhaschosennottodisclosethenamesoftheECAI’susedasthefirmjudgesthatthisinformationisimmaterialgiventhesmallsizeofournon-customercreditriskbook


4.2. Market Risk GCUKanditswidergroupofentitiesisabletomateriallydiversifyitsmarketriskthrougheither:

Naturalhedging:wherebyhedgingisachievedbyoffsettingopposinglongandshortpositionstakenbyaportfolioofclientswithdifferentiatedtradingstrategies.

Hedgedbythefirm:wherebyGCUKentersintoahedgepositionwithitswholesaleliquidityproviders,offsettinganysignificantresidualmarketriskexposure.

AlthoughGCUKaimstohedgeitsmaterialmarketriskexposure,itisexposedtothebasisrisk,ortheriskthatthereisavariationbetweenthepricingofapositionanditshedgedrivenby,forexample,thedifferenceintimeoftradeexecutionofbothlegs. ..OtherhedgingstrategiesincludethosethroughoffsettingtradeswithoneofGCUK’sliquidityproviders.

Table7providesabreakdownofGCUK’stradingbookmarketriskexposureasat31stDecember2015:

Table7–MarketRiskExposurebyInstrumentType

31December2015

£m

Tradeddebtinstruments 7.3

Equity 99.6

ForeignExchange 131.5

Commodities 27.9

TotalMarketRiskExposure 266.3

GCUK’smarketriskismanagedbothatagroup-wideandanentity-levelbasisandthefirm’soverallappetiteformarketriskisestablishedbytheGroupRiskCommittee.PeriodicchangesintheallocationofriskappetitebetweenmarketrisktypesandbetweenlegalentitiesaremanagedbytheChiefRiskOfficerandGlobalHeadofTrading,withmaterialre-allocationsbeingdiscussedwithandapprovedbytheRiskCommitteeduringitsmonthlymeetings.MarketriskisthemostvolatilerisktowhichGCUKisexposed,especiallyduringmarketconditionsinwhichthereishighdegreeofuncertainty.Asaresult,thefirmhastakenseveralstepstoensurethatitusesrobustcontrols,themainonesofwhichareidentifiedbelow.ThisallowsforthemanagementofmarketriskwithinGCUK’sriskappetite.

4.2.1. Trading Mandates Tradinglimitsaresetbasedontheinstrumentclassandspecificinstruments.Thesetradinglimitsaremonitoredandamendedonaregularbasis,includingdifferentlimitsbasedonwhenmarketsareopenorclosedasthiscanaffectthespreadandthereforethepricevolatilityofaninstrument.


4.2.2. P&L Loss Limits GCUKhasmeasuresinplacethatlimittheamountoflossesthatthefirmwouldbeexposedtoacrossitsentireportfolio.ThispreventsthefirmfromrunninganyunnecessaryrisklongerthanitneedstobyincreasingtheamounthedgedEnsuringthatitcancontinuetooperateeveninstressedmarketconditionswithoutbreachingcapitalrequirements.

4.2.3. Capital Risk Monitors GCUKhasdevelopedproprietaryapplicationsthatensurethatthefirmmanagesexposuresinrealtime,thusreducingitsmarginperiodofrisk.Thisinformationisavailabletothetradingandriskteamsaswellasseniormanagement,andissupplementedbyautomatedalertswheninternallimitsarereached.

4.3. Currency Risk TheprincipalcurrenciesinwhichtheCompanytradesareBritishPounds(“GBP”),Euros(“EUR”)andUnitedStatesDollars(“USD”).Thisgivesrisetocurrencyriskonthetranslationofitsnetcurrentassets(mainlynetfundsheldonbehalfofclients)togetherwithacurrencyriskontheconversionofitsnon-GBPincomeintoGBP.TheCompanyhedgesbothitstradingandnon-tradingbookFXriskonadailybasis.

4.4. Liquidity Risk LiquidityriskistheriskthatGCUKfailstomeetitsobligationstosettleliabilitiesthatareduebecauseofinsufficientcashorliquidassetstomeetthatliability.Undernormalconditions,providingonlinetradingandrelatedservicesisself-financingasGCUKgeneratessufficientcashflowstopayitsexpensesastheyfalldue.Asaresult,thefirmdoesnotencounterdifficultyinraisingthecashintimetomeetitspaymentobligationsastheyarise.However,GCUK’scashflowsareinfluencedbycustomertradingvolume.Thusthefirmrecognisesitsexposuretomarketvolatilityaffectingliquidityinthosemarketsinwhichcustomersdecidetotrade.Inordertomanagethisrisk,GCUKpossessessufficientliquidityintheeventofsignificantmarketvolatilitybyestablishingtradingrelationshipswithseveralfinancialinstitutionsofferingprimebrokerageservicesacrossavarietyofproducts.Thefirmbelievesthattheserelationshipsprovideuswithsufficientaccesstoliquiditytoallowustoconsistentlyexecutesignificanttradevolumeswhenneededinvaryingmarketconditions.Additionally,GCUK’stradingoperationsinvolvetheriskoflossesduetothepotentialfailureofcustomerstofulfiltheirobligationsenterintowiththefirm.GCUKhasrecognisedthatthiscreditriskalsoincreasesitsexposuretocashliquidityrisk.Toreducethisrisk,thefirm’smarginpolicyrequires


thatcustomeraccountsaremarkedtomarketeachtimethemarketpriceofapositionintheirportfoliochangeswhileprovidingfortheautomaticliquidationofpositions.GCUK’spolicyistoholdbothitsownandclientmoneyusingadiversifiedrangeofcounterparties,eachofwhichisamajorclearingbankorfinancialinstitution.ClientmoneyisheldbyGCUKintrustforitsclientsandisnotusedinthecompany’sbusiness.Therefore,itdoesnotformpartofthefirm’sliquidityresources.GCUKcurrentlyholdsfinancialassetsonlyintheformofcashorcashequivalentwhichisreadilyavailabletomeetGCUK’sfundingneeds.

4.5. Regulatory Risk Thefinancialindustryishighlyregulatedand,withaneversetofevolvingregulations,thereisariskthatGCUKcouldfaceregulatorysanctionsorlegalproceedingsifitfailstocomplywithitsregulatoryorstatutoryobligations,rangingfromfinesandcensuretoimposingpartialorcompleterestrictionsonitsabilitytoconductbusiness.Tomitigatethisrisk,GCUKensuresthatitstaysuptodatewithcurrentregulations,andevaluatesfutureregulatorydevelopments,andtheimpactthattheymaypose.GCUKhasCompliance,Legal,andRegulatoryReportingteamswhichareresponsibleforensuringthatitmeetsitsregulatoryobligationsineachjurisdiction,andthefirmmaintainsopenandtransparentworkingrelationshipswithitsregulators.WhiletheconstantlyevolvingregulatoryenvironmentprovidessignificantchallengesforGCUK,itcontinuestoprovideconsiderableresourcestomeetthosechallenges.GCUKissubjecttothecapitaladequacysupervisionrequirementsoftheFCAandhasmaintainedadequatelevelsofcapitalduringtheyear.TheregulatorycapitalpositionoftheCompanyisextremelystrongandconsistsexclusivelyofTier1ordinarysharecapital.

4.6. Operational Risk GCUK’soperationsaresubjecttobroadandvariousrisksresultingfromtechnologicalinterruptions,failuresorcapacityconstraintsinadditiontorisksinvolvinghumanerrorormisconduct.Regardingtechnologicalrisks,GCUKisdependentuponthecapacityandreliabilityofthecomputerandcommunicationssystemssupportingthefirm’soperations.GCUKhasestablishedaprogramtomonitoritscomputersystems,platformsandrelatedtechnologiesandtopromptlyaddressissuesthatarise.Thefirmhasalsoestablisheddisasterrecoveryfacilitiesinstrategiclocationstoensurethecontinuanceofoperationswithonlylimitedinterruptionsintheeventthatprimarysystemsaredamaged.Additionally,GCUKhasestablishedpoliciesandproceduresdesignedtomonitorandpreventbothhumanerrors,suchasclericalmistakesorincorrectlyplacedtrades,aswellashuman


misconduct,suchasunauthorisedtrading,fraudornegligence.Thefirmalsomitigatestheimpactofanyoperationalissuesbymaintaininginsurancecoverageforvariouscontingencies.

4.7. Interest Rate Risk in the Banking Book GCUKdoesnotmanagebankingbookassetsversesliabilities,wherebothwouldbesubjecttointerestratechanges,thusthefirmisnotexposedinanysignificantmannertointerestrateriskinthebankingbook.


Appendix 1: Disclosure Waivers The disclosure requirements can cover a range of information that can be useful for the user tomakeaninformedassessmentofthecompany’sabilitytomanagerisk.GAINiscognisantofmeetingits necessary disclosure requirementswhile publishing the right level of information necessary toallowathirdpartytomakeanunfettered,informedassessmentoftherisksthatthefirmfaces.

Information on ECAI’s ThefirmhasnotincludeddisclosureitemsreferringtotheuseofECAI’sgiventhatdoingsowillnotaddortakeawayanyadditional informationthatcouldchangeorinfluenceauser’sassessmentofGCUKoritscounterpartiesandsohavedeemedittobeimmaterial.

Information on Remuneration Policy ThedisclosurerequirementssetoutinArticle450ofCRRisrelatedtofirmsthataredeemedtobesignificant by the FCA. A defined list of requirements on determining a firm as significant can befoundunderthePrudentialSourcebookforInvestmentFirms(“IFPRU”)section1.2.3R.AsGCUKdoes notmeet the above requirements for being a significant firm, it is not required todisclosedetailsrelatingtoitsremunerationpolicy.

Transitional provisions ThedisclosurerequirementssetoutinArticle492ofCRRareforthefirm’stransitionalprovisionsforits own funds. Given the simplicity of the firm’s capital arrangements, such disclosure has beenjudgedbythefirmtobeunnecessary,immaterialandwouldonlyservetoconfusethedisclosureofownfunds.


Appendix 2 – Capital Instruments

Capital Instruments Main Features Template CommonEquityShares 1 Issuer GAINCapitalUKLimited

2 Uniqueidentifier(LegalEntityIdentifier) 549300NKG8WR6UWSZS80

3 Governinglaw(s)oftheinstrument UnitedKingdom

RegulatoryTreatment 4 TransitionalCRRrules CommonEquityTier1

5 Post-transitionalCRRrules CommonEquityTier1

6 Eligibleatsolo/(sub-)consolidated/solo&(sub-)consolidated Solo

7 Instrumenttype(typestobespecifiedbyeachjurisdiction) OrdinaryShares

8 Amountrecognisedinregulatorycapital(currencyinmillion,asofmostrecentreportingdate) £86,522,182.80

9 Nominalamountofinstrument 8,652,218,280

9a Issueprice £0.01

9b Redemptionprice N/A

10 Accountingclassification Shareholders'equity

11 Originaldateofissuance 17October1983

12 Perpetualordated Perpetual

13 Originalmaturitydate Nomaturity

14 Issuercallsubjecttopriorsupervisoryapproval No

15 Optionalcalldate,contingentcalldates,andredemptionamount N/A

16 Subsequentcalldates,ifapplicable N/A

Coupons/Dividends 17 Fixedorfloatingdividend/coupon Floating

18 Couponrateandanyrelatedindex N/A

19 Existenceofadividendstopper N/A

20a Fullydiscretionary,partiallydiscretionaryormandatory(intermsoftiming) Fullydiscretionary

20b Fullydiscretionary,partiallydiscretionaryormandatory(intermsofamount) Fullydiscretionary

21 Existenceofstepuporotherincentivetoredeem N/A

22 Noncumulativeorcumulative N/A

23 Convertibleornon-convertible Non-convertible

24 Ifconvertible,conversiontrigger(s) N/A

25 Ifconvertible,fullyorpartially N/A

26 Ifconvertible,conversionrate N/A

27 Ifconvertible,mandatoryoroptionalconversion N/A

28 Ifconvertible,specifyinstrumenttypeconvertibleinto N/A

29 Ifconvertible,specifyissuerofinstrumentitconvertsinto N/A

30 Write-downfeatures N/A

31 Ifwrite-down,write-downtrigger(s) N/A

32 Ifwrite-down,fullorpartial N/A

33 Ifwrite-down,permanentortemporary N/A

34 Iftemporarywrite-down,descriptionofwrite-upmechanism N/A

35 Positioninsubordinationhierarchyinliquidation(specifyinstrumenttypeimmediatelyseniortoinstrument)

Subordinatedunsecureddebt

36 Non-complianttransitionedfeatures No

37 Ifyes,specifynon-compliantfeatures N/A


Appendix 3 – Financial to Regulatory Balance Sheet Reconciliation

BalanceSheetper

FinancialAccounts

RegulatoryAdjustments

BalanceSheetperRegulatoryScope

£m £m £m FixedAssets: Tangiblefixedassets 19.7 19.7Intangibleassets 2.6 (2.6) 0.0Investmentsinassociates 0.6 0.6 22.9 20.3CurrentAssets: Deferredtaxassets 8.5 (8.5) 0.0Tradedebtors 38.2 38.2Prepaymentsandotherdebtors 23.6 23.6Investments 0.1 0.1Cashandcashequivalents 51.6 51.6 122.0 113.5CurrentLiabilities: Tradecreditors 26.4 26.4Othercreditors 11.8 11.8Provisionforliabilitiesandcharges 5.0 5.0 43.2 43.2 NetCurrentAssets 78.8 70.3 TotalAssetsLessCurrentLiabilities 101.6 90.5

NetAssets 101.6 (11.1) 90.5 Capital&Reserve 122.3 122.3SharePremium 55.9 55.9RetainedEarnings (80.0) (14.8) (94.8)SpecialReserve 3.4 3.4

NetAssets 101.6 (14.8) 86.8

pillar 3 disclosures gain capital uk limited/media/forex/files/terms... · 2017-03-28 · gain...

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