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PARABELLUM MARKETS LLP

PILLAR 3 DISCLOSURE

 

Overview

 

The European Capital Requirements Directive (“the Directive”) established a revised regulatory capital framework across Europe governing the amount and nature of capital which credit institutions and investment firms must maintain.  In the United Kingdom, the Directive has been implemented by the FCA in its Handbook of rules and guidance, including in particular in the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).

 

The Directive’s framework consists of three ‘Pillars’:

 

Pillar 1

This sets out the minimum capital amount that meets the Firm’s credit, market and operational risk.

 

Pillar 2

Requires the Firm to assess whether its capital is adequate to meet its risks that are not covered by Pillar 1 and is subject to review by the FCA.

 

Pillar 3

Requires public disclosure of qualitative and quantitative information about the underlying risk management controls and capital position of a firm.

 

The rules in BIPRU 11 set out the provision for Pillar 3 disclosure.  This document is designed to meet the obligations of Parabellum Markets LLP (“Parabellum” or the “Firm”) Pillar 3 obligations by setting out the Firm’s risk management objectives and policies.

 

Frequency and location of disclosure

Pillar 3 disclosures will be updated on the Firm website on an annual basis.

 

Scope and application of the requirements

Parabellum is authorised and regulated by the FCA and has permission to provide arranging and dealing services on behalf of professional clients and eligible counterparties.

 

Parabellum is subject to the FCA’s minimum regulatory capital requirements and has been categorised as a BIPRU firm for capital purposes.

 

Risk Management

 

The Partners determine the Firm’s business strategy and risk appetite along with designing and implementing a risk management framework that recognises the various risks that the business faces. They also determine how those risks may be mitigated and assess on an ongoing basis the arrangements to manage those risks. The Partners generally meet on a quarterly basis (or more frequently should the need arise) and discuss all key business issues, including the current budget, forecast profitability, regulatory capital management, business planning and risk management.  The Partners manage the Firm’s risks though a framework of policies and procedures, having regard to relevant laws, standards, principles and rules (including FCA principles and rules), with the aim to operate a defined and transparent risk management framework.  These policies and procedures are updated as required.  The Board have identified that the main risks to which the Firm is exposed are as follows:

 

Operational Risk

 

This is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.

 

Parabellum seeks to mitigate all operational risks to acceptable levels, in accordance with its risk appetite, by maintaining a strong control environment, ensuring that staff have appropriate skills and training and establishing an efficient and effective management structure.

 

Business Risk

 

The most significant business risk faced by the Firm is that of a substantial and sustained loss of clients, caused by adverse market conditions resulting in a loss of fee income.

 

Market Risk

 

Parabellum has limited exposure to market risk.  It does not have a trading book and as such, market risk is limited to exposure to net foreign exchange risk on the net amounts receivable and payable in foreign currency.

Management has assessed the available capital resources required for Market risk under Pillar 1 as adequate.

 

Credit Risk

 

This is the risk that a third party will default on a financial obligation.  Parabellum is exposed to credit risk from client fees due from which Parabellum is engaged.

 

Credit risk is typically defined as the risk that a party will default on a financial arrangement. Parabellum deems this risk to be minimal as the company does not provide loans or credit facilities to its clients. In addition, Parabellum does not maintain positions.

 

As part of assessing credit risk, management has assessed the exposure that the company has to concentration risk.  No calculation for concentration risk is calculated under Pillar 1 as the company does not have a trading book.  The company has an exposure to one bank through holdings of its cash deposits. The bank is one of the most respected banks in the UK and is regulated by FCA and PRA. The exposure is monitored by the Partners and could easily be transferred another bank in the event of any concerns re their solvency.

 

Regulatory capital

 

Parabellum is small with an operational infrastructure appropriate to its size and regulatory activities.  The Firm follows the simplified standard approach to credit risk and is subject to the Fixed Overhead Requirement or Base Capital Requirement and is not required to calculate an operational risk capital charge.

 

As stated above, Parabellum is a limited licence firm and as such its capital requirements are the greater of:

 

Base capital requirement of €50,000; or

The sum of its market and credit risk requirements; or

Its Fixed Overhead Requirement.

 

It is the Firm’s belief and experience that the sum of market and credit risks establishes its capital requirements and hence the fixed overhead requirement is considered not to be material.

Internal Capital Adequacy Assessment Process (ICAAP) Pillar 2 requirements

 

Pillar 2 requires the Firm and the FCA to take a view on whether the Firm needs to hold additional capital against firm-specific risks not adequately covered by Pillar 1.

 

The Firm has carried out a full business risk assessment and scenario analysis and concluded that the Firm considers it appropriate to hold additional capital.

 

The main features of the Firm’s capital resources for regulatory purposes as at 30 November 2015 are as follows:

 

Capital item         $’000

 

Tier 1 capital less innovative tier 1 capital:   1,230

 

Total tier 2, innovative tier 1 and tier 3 capital: -

 

Deductions from tier 1 and tier 2 capital: 855

 

Total capital resources, net of deductions:   375

 

Pillar 2 Capital Assessment 110

Remuneration

 

Parabellum has adopted a remuneration policy that complies with the requirements of chapter 19A of the FCA's Senior Management Arrangements, Systems and Controls Sourcebook ("SYSC"), as interpreted in accordance with the FCA's guidance publication entitled "General Guidance on Proportionality: The Remuneration Code (SYSC 19A) and Pillar 3 Disclosures on Remuneration (BIPRU 11)" and subsequent items of guidance issued by the FCA, including its document entitled "Frequently Asked Questions on the Remuneration Code".

 

As a BIPRU limited licence firm, Parabellum falls within proportionality level 3.  The Management Committee at the Firm oversees compliance with the Firm’s remuneration policy including reviewing the terms of the policy at least annually.

 

Parabellum currently sets the variable remuneration of its staff in a manner which takes into account staff and firm performance, by reference to individual employee performance; performance of the individual's business unit or department and the Firm’s overall results.  As permitted for firms falling within proportionality level 3, the Firm takes into account the specific nature of its own activities (including the fee based nature of its revenues) in conducting any ex-ante risk adjustments to awards of variable remuneration and, given the nature of its business, has disapplied the requirement under the Remuneration Code to make ex-post risk adjustments.

 

The Firm only has one "business area", namely its brokerage business. All of the Firm’s Code Staff fall into the “senior management” category of Code Staff (rather than the “risk taker” category) for the purposes of the Remuneration Code.  The aggregate "remuneration" (as defined in the FCA Rules) awarded to the Parabellum’s Code Staff during the financial year ending on 30 November 2014 will be disclosed in the Firm’s accounts.

 

 

Parabellum Markets is authorised and regulated by the Financial Conduct Authority

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