GOODBODY STOCKBROKERS UC
PILLAR III DISCLOSURES
As at 30th June 2017
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 provider of institutional equity, wealth management and corporate finance services since 1877. Goodbody also acts as a market maker on the Irish and London Stock Exchanges.
The Board of Goodbody has established a risk management framework within the regulated firms and has overall responsibility over the systems and controls and for reviewing their effectiveness. The Board of Goodbody meets at least six times a year.
The Risk Committee is chaired by an Independent Non-Executive Director. The purpose of the Risk Committee is to enable senior management to focus on the fundamental prudential risks of the company. The Risk Committee has responsibility for oversight and advice to the Board on the current risk exposures of the company and future risk strategy. The Risk Committee takes into account the current and prospective macro-economic environment in preparing advice to the Board on overall risk appetite and tolerance. The Risk Committee advises the Board on the adequacy of capital resources having regard to the nature and scale of the business and the inherent risks in its operations.
The Compliance Committee is chaired by an Independent Non-Executive Director. 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.
Internal Audit Committee & Department:
The Goodbody Audit Committee is a sub committee of the Board which focuses on aspects of financial reporting and on the entity's processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee assists the Board with the oversight of internal control within Goodbody including;
- The integrity of the entity's financial statements.
- The entity's compliance with legal and regulatory requirements.
- The external auditors' qualifications and independence.
- The performance of the entity's internal audit function.
Internal Audit is an independent evaluation and appraisal function whose purpose is to assist the Board in the discharge of their governance responsibilities and to support management in the achievement of approved strategic and operational objectives.
The Board have recognised the following risks arising from the activities of the regulated firms:
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;
- Failure of a counterparty holding Firm Assets: Counterparties with which surplus firm cash or assets have been placed.
- 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.
- Non-payment of investment management or other service related fees.
Credit Risk is managed through the following mechanisms:
- Review and approval of counterparties with which Goodbody places firm and client cash and assets.
- Clear segregation of client assets from firm assets as required under Client Asset Requirements ("CAR") regulations.
- The continuous monitoring all of the firm's unsettled exposures
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:
- Equity Trading activities of the Goodbody Equity Trading Desk.
- 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 the following mechanisms:
- Market Risk Strategy & Appetite Paper that is approved by the Board sets the limits and scope of trading activities and provides details of the control environment that supports trading activity including inter alia, segregation of duties 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 outline 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;
- Outsourced Settlements Service Provider: Goodbody outsource their 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 23rd June 2016.
- Trade, Dealing, Valuation, Processing or Accounting Errors: Operational Risk incidents that result in financial loss to Goodbody. If incidents are deemed significant the issues are promptly escalated in accordance with Significant Incident Reporting procedures.
- Business Interruption: Business Interruption is defined here as the inability to deliver key business processes following any incident that causes disruption to those processes. Goodbody’s Business Continuity Management (BCM) plan considers loss of premises, loss of key IT systems, loss of key people and major risks arising from loss of third party services. 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.
- New Business acquisitions and initiatives: 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.
- Cyber Security: Cyber security, also referred to as information technology security, focuses on protecting computers, networks, programs and data from unintended or unauthorised access, change or destruction. Failure by Goodbody to adequately manage cyber security can result in financial loss, censure from regulators and damage to its reputation with its customers as a trusted service provider.
- 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.
Operational Risk is managed through the following mechanisms:
- Documentation of controls and procedures across the regulated firms.
- Comprehensive policy framework.
- Clearly defined segregation of duties.
- Continuous monitoring of performance of Pershing based on a detailed Service Level Agreement ("SLA").
- Rigorous review of Operational Risk incidents by local management and the Risk and Compliance Committees.
- Business Continuity Management ("BCM") Plan is tested on a regular basis.
- Independent assurance provided by Internal Audit function.
The risk that Goodbody faces as a result of developments in the external market place, such as the economic, competitive and technological environment. Business risk is defined as;
- 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.
- 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.
- 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 the following mechanisms:
- 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.
Liquidity risk 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.
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 the following mechanisms:
- Compliance Monitoring Plan approved by the Board and executed by the Compliance Department across the regulated firms
- Ongoing identification, assessment, measurement and management of key compliance risks by the Board and management.
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 available as at 01 January 2017. The total capital resources include 2016 retained profits.
|TIER 1 CAPITAL||01 JANUARY 2017
|Called Up Share Capital||2,187|
|Deductions from Tier 1 Capital||(47,273)|
|Total Tier 1 Capital||290,320|
|TIER 2 CAPITAL||-|
|TOTAL CAPITAL RESOURCES||290,320|