GOODBODY STOCKBROKERS UC
PILLAR III DISCLOSURES
As at 30th June 2019
The disclosures made hereunder are in respect of the FEXCO Holdings regulated firm Goodbody Stockbrokers in accordance with Pillar III of the Capital Requirements Directive. Goodbody Stockbrokers is a majority owned subsidiary of FEXCO Holdings and is subject to consolidated supervision at the level of FEXCO Holdings.
Goodbody Stockbrokers UC ("Goodbody") is authorised and regulated by the Central Bank of Ireland ("CBI"). The CBI is responsible for the implementation in Ireland of the EU Capital Requirements Directive ("CRD"), which sets out the regulatory capital framework for the financial services industry in Europe.
The new Basel Accord (Basel II) came into effect by way of the revised CRD, in all European Union member states from 1st January 2008. Basel II is a revision of the Basel I framework, which, among other things, introduces a more risk sensitive framework to more accurately assess an individual investment firm’s capital requirements given its distinctive risk profile. It directly affects investment firms in terms of how they assess their capital requirements. The new framework consists of three 'Pillars';
- Pillar I of the new standards sets out the minimum capital requirements firms will be required to meet for credit, market and operational risk
- Under Pillar II firms and supervisors have to take a view on whether a firm should hold additional capital against risks not covered in Pillar I
- The aim of Pillar III is to improve how institutions publish certain details of their risks, capital and risk management
Frequency of Disclosures:
Disclosures will be made on an annual basis, unless there has been a material change
Goodbody is a leading, diversified financial services firm operating in Ireland since 1874 and provider of Investment Banking, Wealth management and Asset Management services to domestic and international clients. Goodbody also acts as a market maker on the Irish and London Stock Exchanges.
The Board monitors the effectiveness of the internal financial and operating systems in order to safeguard shareholders’ investment and the Group’s assets. The Board reviews the financial controls over the Group’s business through a series of regular Board meetings during the financial year. GANMAC, the parent company of the Group, also monitors the operations of the Group through the permanent Board committees it has established.
The GANMAC Board has established four permanent committees to assist in the execution of its responsibilities. The GANMAC committees have governance responsibility over all the companies within the GANMAC Group. The permanent committees of the Board are:
- Remuneration Committee
- Audit Committee
- Risk Committee
- Compliance Committee
In addition, ad-hoc sub-committees are formed from time to time to deal with specific matters. Duties and responsibilities formally delegated to the above committees are reflected in the terms of reference approved by the GANMAC Board. Responsibilities of the committees are described below:
The Group has established a Remuneration Committee within the firm in order to ensure a high level of oversight on the Group’s remuneration structures and policies. The Remuneration Committee’s responsibilities include overseeing that the Group operates remuneration policies and practices which are in line with the Irish Regulations and associated guidance.
The Audit Committee has oversight on and responsibility for the quality and integrity of the Group’s accounting policies, financial statements and disclosure practices. It ensures compliance with relevant laws, regulations and codes of conduct.
The Audit Committee also ensures the independence and performance of the Internal Auditor, as well as the adequacy and performance of systems of internal control and the management of financial and non-financial risks. These responsibilities are discharged through its communications with Management, the External Auditor, the Chief Financial Officer and the Internal Auditor.
The external auditors have direct access to the Audit Committee at all times. The Head of Internal Audit has a dotted line report to the Chair of the Audit Committee.
The purpose of the Risk Committee is to enable senior management to focus on the fundamental prudential risks of the Group which include Market, Operational, Regulatory & Compliance, Business, Liquidity, Credit & Counterparty risk. The Committee has responsibility for oversight and to advise the Board on the current risk exposures of the Group and future risk strategy. The Committee takes into account the current and prospective macro-economic environment in preparing advice to the Board on overall risk appetite and tolerance.
The Chief Risk Officer reports to the Chair of the Risk Committee.
The purpose of the Compliance Committee is to enable senior management and compliance staff to review the strength of the Compliance culture within the business and inform Management of areas of weakness of controls identified and remedial actions which have or are required to be taken. Responsibility for ensuring that the regulated entities under GANMAC act in a compliant manner rests with the Board.
The Head of Compliance reports to the Chair of the Compliance Committee.
The Board has recognised the following risks arising from the activities of the regulated firms:
The risk to Goodbody earnings and shareholder value (capital) resulting from adverse movements in the level or volatility of market prices of equities and currencies.
Market Risk in Goodbody can arise from the following activities:
- (a) Equity Trading activities of the Goodbody Equity Trading Desk.
- (b) Non-trading related Foreign Exchange exposures (i.e. from underlying client and proprietary trading activities where there is a settlement currency mismatch).
Market Risk is managed through a dedicated risk management framework that includes:
- An annual, Board-approved Market Risk Appetite.
- Dedicated and specific Board-approved limits to the scope of trading activities.
- A control environment that includes inter alia, segregation of duties, risk monitoring and escalation procedures.
- Clearly defined segregation of duties between front and back office functions, system access controls and “four-eyes” principle.
- Sophisticated trading systems that facilitate the close monitoring of exposures at instrument and portfolio level.
- Trader mandates clearly outlining the scope of the trading authority provided.
The risk of loss arising from inadequate or failed internal processes, people and systems, or from external events. This includes:
- (a) Trade, Dealing, Valuation, Processing or Accounting Errors: Operational Risk incidents that result in financial loss to Goodbody.
- (b) Business Interruption: Business Interruption is defined here as the inability to deliver key business processes following any incident that causes disruption to those processes. Failure by Goodbody to adequately manage business continuity risks can result in financial loss, censure from regulators and damage to its reputation with customers as a trusted service provider.
- (c) Business Change: Taking on a new business and developing new business initiatives brings additional operational risk to the firm. This may take the form of additional project workload and the challenge in integrating the new business into the existing model in a seamless fashion. Failure to adequately plan for the take on and integration of the new business acquisition or initiative could have a significant financial and reputational impact on both the existing and new business.
- (d) Outsourced Risk: Goodbody outsources its clearing and settlement processes to Pershing Securities International Ltd (Pershing) on a “Model A” basis (i.e. Goodbody continues to use its own name and balance sheet to support transactions). Pershing also provides clearing, custody, cash management and settlement services to a significant number of other UK and Irish brokers. Pershing is a subsidiary of Bank of New York Mellon which was rated AA by Fitch as at 21st June 2019.
- (e) Information Security: Information technology focuses on protecting computers, networks, programs and data from unintended or unauthorised access, change or destruction. Failure by Goodbody to adequately manage information security can result in financial loss, censure from regulators and damage to its reputation with its customers as a trusted service provider.
- (f) People Risk: People risk, also referred to as Key Person Risk, is a risk of an overreliance on key individuals, whose departure may have a significant impact on the firm in terms of operational risk and business risk in the form of reduced profitability.
- (g) Brexit: Whether following a Transition Period, in the event of a Withdrawal Agreement, or immediately, in the event of a Hard Brexit, passporting of services between the EEA and the UK cannot be relied upon for an operating business model given that equivalence is at the EU’s discretion. This brings a number of key Operational Risks to the firm.
Operational Risk is managed through a dedicated risk management framework that includes:
- Comprehensive policy framework.
- Documented procedures across the regulated firms.
- Clearly defined segregation of duties.
- Continuous self-assessment.
- A robust incident management framework including:
- (a) root cause analysis
- (b) control environment optimisation
- (c) continuous improvement
- (d) oversight and challenge from senior management
- (e) escalation and reporting to the Risk Committee
- A well-defined change management framework including dedicated internal governance structures.
- Matured outsourcing governance and management processes.
- A highly evolved Information Security
- A refined and regularly tested Business Continuity Management (“BCM”) plan.
- Independent assurance provided by Internal Audit function.
- A Brexit programme of work overseen by a dedicated steering committee and resourced by senior management with reporting to the Risk Committee.
Regulatory Compliance Risk:
Regulatory compliance risk is defined as the risk of regulatory sanctions, material financial loss or loss to reputation which Goodbody may suffer as a result of failure to comply with all applicable laws, regulations, rules, related self-regulatory organisation standards, and codes of conduct applicable to its activities.
Regulatory Risk is managed through a dedicated risk management framework that includes:
- Mature and robust internal governance structures.
- Clearly defined policies & procedures.
- Mandatory training.
- A Compliance Manual underpinning the framework.
- A Board-approved Compliance Monitoring Plan executed by the Compliance Department across the regulated firms.
- Issue escalation to both the Compliance & Risk Committees
- Ongoing identification, assessment, measurement and management of key compliance risks by the Board and management.
Client Asset Requirements
- Segregation of duties.
- A mature, Board-approved Client Asset Management Plan.
- Policies and procedures.
- A dedicated Client Asset Oversight team.
- A Board-approved Client Asset Oversight Monitoring plan.
- An annual Client Asset Examination performed by the external auditor.
- Dedicated and specific Board-approved limits to the scope of trading activities.
- Well-defined client suitability procedures.
- Internal Product Governance structures.
- Internal Investment Committees.
- A matured Performance Management framework involving a balanced assessment.
- A variable remuneration framework overseen by the Remuneration Committee.
- Comprehensive client complaints management.
- Staff surveys.
- Anti-fraud, conflicts of interest and best execution policies.
The risk that Goodbody faces as a result of developments in the external marketplace, such as the economic, competitive and technological environment. Business risk is defined as:
- (a) Loss of clients to competitors: The loss of a number of large institutional clients or private client investment mandates over a short period of time would be a major risk to the business and could cause significant losses and a reduction in the equity base of the company.
- (b) Loss of revenue due to adverse market conditions: Market volatility is an inherent part of the investment management industry. However, sustained falling asset values has a material impact on business profitability.
- (c) Loss of key third party relationships: Goodbody has a number of relationships with third parties which are key to maintain continuity of trading. The loss of these relationships could create an impediment to trading, subsequently impact the revenue line causing a reduction in the equity base of the company.
Business Risk is managed through a dedicated risk management framework that includes:
- Development of business plans that take into account the key business risks.
- Experienced management team and Board representation.
- Continuous management oversight that is prepared to take action to protect the regulated firms.
The risk arising from the need to ensure that, at all times, the company holds sufficient funds to meet its contracted and contingent commitments to customers and counterparties, at an economic price. Liquidity Risk is a secondary risk type that would be caused by a significant and sustained deterioration in operating performance of the business.
Liquidity Risk is managed through:
- The availability of appropriate levels of funding facilities.
- A prudent and cautious approach to utilisation.
The risk that a customer or counterparty will be unable or unwilling to meet a commitment that it has entered into and that the Company is unable to recover the full amount that it is owed through the realisation of any security interests. This includes;
- (a) Failure of a counterparty holding Firm Assets: Counterparties with which surplus firm cash or assets have been placed.
- (b) Settlement Risk: Loss arising in situations where Goodbody has given irrevocable instructions for a transfer of a principal amount or security in exchange for receiving a payment or security from a counterparty which defaults before the transaction is completed.
- (c) Non-payment of investment management or other service-related fees.
Credit Risk is managed through a dedicated risk management framework that includes:
- Minimising of the firm’s credit risk appetite through a combination of transaction processing styles.
- Formal governance structure for the review and approval of counterparties with which Goodbody places firm and client cash and assets with continuous monitoring.
- Clear segregation of client assets from firm assets as required under Client Asset Requirements (“CAR”) regulations.
- Teams dedicated to the continuous monitoring of all the firm's unsettled exposures.
- Internal Investment committees.
- Alignment of product distribution procedures to counterparty approval and risk management processes.
- Mature debtor-management procedures.
- Payment controls.
- Controls for stock lenders
- Settlement performance review and challenge.
Capital Adequacy & Resources
Following the acquisition of the Goodbody Group of Companies effective the 7th January 2011, FEXCO Holdings and all regulated entities within the FEXCO Group are in compliance with the capital requirements of the Central Bank. The Group Investment Firms, as part of the FEXCO Group are subject to the consolidated supervision at the level of FEXCO Holdings.
The table below details the composition of the capital resources of FEXCO Holdings UC available as at 30 December 2018. The total capital resources include 2018 retained profits.
|30 DECEMBER 2018
|Other components of equity||(25,292)|
|Equity attributable to owners of the parent||306,168|