Pillar 3 Disclosures GAIN Capital UK Limited/media/forex/files/terms... · 2017-03-28 · Gain...
Transcript of Pillar 3 Disclosures GAIN Capital UK Limited/media/forex/files/terms... · 2017-03-28 · Gain...
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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
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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.
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GCUKisconsolidatedintotheGAINCapitalHoldingsLimitedgroup(“Group”).However,asGCUKistheonlyfirmregulatedbytheFCA1withintheGroup,thisdocumentonlydisclosesinformationpertainingtoGCUKonasolobasisasisrequiredunderPartEightofCRR.GCUKpublishesitsPillar3disclosuredocumentannuallyonitswebsiteathttp://www.cityindex.co.uk/important-information.aspxunderthePillar3section,withfurtheradditionaldisclosuresbeingmadeifsignificantchangestothebusinessrequireanupdatetothedocument.
GCUKisnotawareofanycurrentorforeseenmaterialpracticalorlegalimpedimentstotheprompttransferofcapitalresourcesorrepaymentofliabilitiesbetweenGAINCapitalHoldingsLtdanditssubsidiaryundertakingsexcepttotheextentrequiredbytheregulatorycapitalorliquidityrequirements.Intragrouptransferofcapitalissubjecttoanannualreviewaspartofthefirm’sICAAP.
1Asanon-significantinvestmentfirm.
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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;
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• 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.
AccountabilitytotheBoard.
RiskManagementActivity/Accountability
IndependentassurancetotheBoard.
AnnualInternalAuditPlanandOpinion.
Conductingindividualauditreviewsandreportingtheresultstomanagement.
Trackingissuesraised(includingthoseraisedbyExternalAuditandRegulators).
AccountabilitytotheBoard.
RiskManagementActivity/Accountability
GAINCapitalUKLtd ThreeLinesofDefence
Figure2–ThreeLinesofDefenceModel
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AsillustratedinFigure2,thefirstlineofdefenceistheRiskOwners.Theyaretheindividualswhoareaccountableforrisksidentifiedintheirareaofthebusiness,andwhohavetheauthoritytomakedecisionstoensurethatthebalancebetweenriskandrewardisappropriate.ThesecondlineofdefencerelatestotheoversightbyRiskandComplianceastheyreviewandchallengetheriskrelateddecisionsmadebytheriskowners.Thethirdlineofdefenceisanindependentreviewoftherisksthatareidentified,assessedandapprovedbythefirsttwolinesofdefence.ItseekstoaddassurancetothestakeholdersthatGCUKhasadequateinternalcontrolsandprocessesinmanagingrisks.
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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.
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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.
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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.
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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
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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
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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
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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.
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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
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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
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misconduct,suchasunauthorisedtrading,fraudornegligence.Thefirmalsomitigatestheimpactofanyoperationalissuesbymaintaininginsurancecoverageforvariouscontingencies.
4.7. Interest Rate Risk in the Banking Book GCUKdoesnotmanagebankingbookassetsversesliabilities,wherebothwouldbesubjecttointerestratechanges,thusthefirmisnotexposedinanysignificantmannertointerestrateriskinthebankingbook.
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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.
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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
GainCapitalUKLimited|Pillar3Disclosures|December2015 Page20of20
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