Pillar 3 Disclosure
Established in 1885, James Sharp & Co (“the Firm”) is a leading independent stockbroking Partnership based in the North West of England. The firm provides discretionary, advisory, execution only and custodial services to private clients, professional intermediaries, companies, trusts and charities. By offering a highly personal, bespoke service we believe we can provide timely advice and create long term relationships based on trust.
James Sharp & Co is authorised and regulated by the Financial Conduct Authority (“FCA”) to conduct investment business, with permission to hold and control client money and client assets.
The Capital Requirements Directive (the Directive) of the European Union established a revised regulatory capital framework across Europe governing the amount and nature of capital that credit institutions and investment firms must maintain. In the United Kingdom, the Directive, as it impacts Investment Firms, is governed by the Financial Conduct Authority.
From 1 January 2014, with the implementation of the Capital Requirement Directive IV (CRD IV), the applicable regulations are:
- The Capital Requirements Regulation (CRR)
- The IFPRU sourcebook of the FCA handbook
- Additional standards released by the European Banking Authority.
The framework consists of three “pillars”:
- Pillar 1: sets out minimum capital requirements firms are required to meet for credit, market and operational risk.
- Pillar 2: requires firms to assess the amount of internal capital they consider adequate to cover all the risks to which they are, or are likely to be, exposed. This is implemented through the Internal Capital Adequacy Assessment Process (ICAAP) undertaken by the firm. The FCA reviews and evaluates the firm’s ICAAP as part of the Supervisory Review and Evaluation Process (SREP).
- Pillar 3: requires firms to publicly disclose certain details of their risks, capital, and risk management arrangements.
This disclosure document is for the Firm and its wholly owned subsidiaries:
- James Sharp & Co LLP (FCA Registered number 813845) is categorised as an IFPRU €125k Limited Licence Firm
- Rulegale Nominees Limited
- James Sharp & Co Pep Nominees Limited
Both nominee companies are wholly owned non trading subsidiaries of James Sharp & Co.
This disclosure has been prepared to fulfil our regulatory requirements under Pillar 3 and to provide information on our risk management environment and the implications on our capital requirements. The information is based on historical information and is updated on an annual basis. Whilst the disclosure has been reviewed by the Partners it has not been subject to an audit by the Firm’s external auditors. In addition, we have not disclosed information which could either compromise a client’s confidentiality or undermine the competitiveness of the Firm’s position. Accordingly, this disclosure must not be relied solely upon when making any financial judgement on the Firm.
Risk Management Objectives
The Firm’s main activity is as an agency stockbroker that does not deal on its own account nor does it underwrite or place financial instruments. In addition, the Firm does not lend client’s stock or provide credit facilities to clients. The management of risk is central to the effective and efficient day to day management of the business through appropriate controls and processes. The Partners dictate the Firm’s business strategy, its risk appetite, the design and implementation of a risk management framework that takes account of the risks that the business faces and how these risks should be mitigated.
Risk categories and definitions
The Firms ICAAP is reviewed and approved by the Partners on an annual basis but will be revised should there be any material changes to the Firms business or risk profile. The ICAAP outlines the risk in BIPRU 11; the following risks have been identified as material to the business and can be divided into four categories:
- Operational Risk
- Credit Risk
- Liquidity Risk
- Business Risk
Risk Each of these risks have been addressed in the ICAAP, however the risks can never be eliminated completely.
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Firm recognises that operational risk can never be eliminated but seeks to design and implement processes, systems and controls to minimise the possibility and potential impact of such events. The Firm manages this process through applicable controls, monitoring including compliance monitoring and the use of insurance as a loss mitigation tool.
Credit risk forms part of the firm’s counterparty risk process for unsettled bargains. Essentially it is the risk of loss through a counterparty defaulting. Most of our business is carried out on a delivery versus payments basis and thus the exposure is mainly for the market movement of unsettled positions both client and market. It is very unlikely that any single client default would be material to the overall business. Exposure values to either client or market counterparties are determined using the mark to market basis using the standard approach. The Firm considers that the Pillar 1 determination of capital requirement through the Counterparty Credit Risk Requirement is adequate in this regard.
Liquidity risk is that where the business does not have enough financial resources to enable it to meet its obligations as and when they fall due. The Firm does not rely on debt financing. Working capital requirements are monitored daily. With a stable workforce operating from a single site environment the Partnership is satisfied that there is no specific risk arising from liquidity.
This is the risk that the exposure to a wide range of macro-economic, geopolitical, industry, regulatory might deflect a firm away from its desired strategy and business plan. As part of the ICAAP process we carry out stress-testing under different scenarios to assess the potential impact on the profitability of the Firm. We are confident that the structure of the Firm will allow it to survive prolonged periods of severe market downturn.
The capital requirements of the Firm are always monitored on an ongoing basis to ensure there is enough capital in place. The Pillar 1 requirement at 31st December 2019 was £1.487m. Regulatory capital after deductions was £1.302m resulting in a 188% surplus.