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Fairstone Private Wealth Pillar 3 Disclosure

Background

The Capital Requirements Directive (CRD) of the European Union establishes the regulatory capital framework for FCA regulated investment firms and sets out the amount and nature of capital they must hold.

The FCA framework consists of three “pillars”:

  • Pillar 1 sets out the minimum capital a firm must maintain to cover its credit, market and operational risks;
  • Pillar 2 requires firms to assess any firm-specific risks not covered by Pillar 1 and, if necessary, set additional capital aside to mitigate them;
  • Pillar 3 requires the public disclosure of key information relating to the firm’s risk management controls and capital resources, for use by the market.

This document has been drawn up to fulfil the Pillar 3 requirements for Fairstone Private Wealth Limited.

Firm Overview

Fairstone Private Wealth Limited (FPW) is authorised and regulated by the Financial Conduct Authority under firm registration number 457588.

FPW has permissions to provide discretionary portfolio management services to clients. It is not authorised to hold client money or assets or to deal on its own account.

As such, it is a BIPRU €50K Limited Licence Firm and is subject to the requirements of the Markets in Financial Instruments Directive (MiFID). Under the Prudential Sourcebook for Banks Building Societies and Investment Firms (BIPRU) 11 of FCA’s Handbook, FPW has to make various disclosures about the firm’s underlying risks, models of control and capital position.

Frequency, Location and Verification of Disclosure:

FPW complies with the requirements of BIPRU 11 by publishing the necessary Pillar 3 disclosures on its website as soon as practicable every year following the firm’s year-end on 31st December. The disclosure will be further updated if necessary during the year.

The information is prepared by FPW’s directors who shall use all reasonable care in producing these disclosures. The disclosures are not audited by the firm’s external auditors.

Risk Management:

FPW’s senior managers meet regularly to consider financial and operational issues, thus facilitating the early detection and management of risk. The Board prepares, at least annually, an internal Capital Adequacy Assessment Process (ICAAP) which identifies and analyses the material risks faced by the firm and puts controls in place to mitigate them.

FPW has identified, as part of this process, the following risks:

Credit risk Reputational risk
Market risk Residual risk
Group risk Securitisation risk
Liquidity risk Operational risk
Interest rate risk Pension obligation risk
FPW has also considered the potential cost of winding down the firm.

FPW has a low tolerance of risk and has developed a robust framework of systems and controls in order to mitigate any risks which fall outside of its conservative risk appetite.

Capital Resources and Requirements

The firm’s Pillar 1 capital resources requirement is set out in GENPRU 2.1, and is the higher of:

(1) The sum of

  1. The “credit risk capital requirement”
  2. and “market risk capital requirement”

(2) The fixed overhead requirement, which is one quarter of the firm’s relevant fixed expenditure calculated in accordance with GENPRU 2.1.54 R.

Capital resources are subject to a minimum base capital requirement of €50k.

FPW has also analysed the potential costs that the risks identified in its ICAAP could pose to the firm and has concluded that it needs an additional £19,801 of capital under its Pillar 2 capital requirement to cover these risks and the outcome of stress testing.

The following table documents FPW’s pillar 1 and pillar 2 capital requirements for comparison purposes. The figures are derived from the last set of audited accounts dated 31st December 2019. FPW estimates that the cost of winding down the firm would be less than the Pillar 2 requirement, and as such, no additional capital is required to cover the cost of a wind-down.

Remuneration

FPW is subject to the BIPRU Remuneration Code as set out in SYSC 19C of the FCA Handbook, the aim of which is to promote effective risk management and discourage behaviours which might expose the firm to excessive risk.

The Code also requires firms to report annually on their remuneration policy for senior managers and other employees who perform a significant influence function or who have a material impact on the risk profile of the business (known as Remuneration Code Staff).

Remuneration Policy

Remuneration is reviewed annually for all FPW employees and is overseen by the Fairstone Group Limited Remuneration Committee, chaired by a non-executive director. Remuneration payments take into account the firm’s overall financial position and are not sourced directly from the firm’s capital.

Where an employee’s remuneration incorporates both fixed and variable elements, sufficient consideration is given to individual performance and behaviours, and the ratio between fixed and variable components will not exceed the ratio specified in the FCA rules. Variable remuneration is not guaranteed.

FPW operates a bonus scheme for its senior executives designed to attract and retain high quality employees capable of delivering high levels of service for FPW’s customers and stakeholders.  Awards are discretionary and take into consideration both qualitative and quantitative indicators on business performance and client outcomes.

A share option scheme is in place for certain individuals. An interest in the scheme will only be triggered by an event defined as a change of control. Options may be forfeited in the event of the holder leaving the business in adverse circumstances.

Quantitative Disclosure

FPW is required to disclose aggregate information on the remuneration of its BIPRU Remuneration Code Staff broken down by business area and category of employee.

The firm has only one relevant business area – discretionary investment management.

FPW has identified its Remuneration Code Staff as the executive directors plus three other individuals engaged in the management of client assets. The aggregate annual remuneration for Code Staff for the year ended 31st December 2019 was £283,714.

 

Date

This document was updated in February 2021, based on the firm’s position as at 31st December 2019.