August 2023
1. Introduction
1.1 Background
The purpose of this document is to present the Pillar 3 disclosures of Garrick and Crown as of March 31, 2023.
The Capital Requirements Directive (CRD) for the financial services industry is a supervisory framework in the European Union that aligns with the Basel II and Basel III rules on capital measurement and standards. This framework comprises three “Pillars”:
• Pillar 1 sets out the minimum capital requirements for credit, market, and operational risks.
• Pillar 2 requires assessing additional capital against risks not covered by Pillar 1 through an Internal Capital and Risk Assessment (“ICARA”).
• Pillar 3 requires disclosure of specified information about firms’ risks, management controls, and capital position.
The CRD, effective from January 1, 2007, introduced a revised regulatory capital framework, governing the amount and type of capital to be maintained by credit institutions and investment firms based on Basel II Capital Accord provisions. CRD IV, effective from January 1, 2014, implemented the Basel III agreement in the European Union, primarily targeting credit institutions and banks but also certain investment firms.
1.2 Implementation at Garrick and Crown
Garrick and Crown’s Pillar 3 disclosures are presented in this document, as required by the FCA’s sourcebook, specifically BIPRU 11.3.3R.
Garrick and Crown aims to update these Pillar 3 disclosures at least annually. Disclosures will be published promptly following the release of Annual Reports and the finalization of Garrick and Crown’s ICARA.
1.3 Verification
The information contained in this disclosure is neither audited by Garrick and Crown’s external auditors nor constitutes a financial statement. It should not be relied upon for making judgments about Garrick and Crown.
2. Scope and Application of the Requirements
Garrick and Crown provides wealth management services, including Discretionary, Advisory, and Execution Only services. Garrick and Crown is subject to minimum regulatory capital requirements.
Garrick and Crown is classified as a BIPRU limited license firm for capital requirements and is therefore required to maintain a minimum capital of £75k. For reporting purposes, capital requirements are based on a consolidated group level (see below for further information).
As a limited license firm, Garrick and Crown is not authorized to “deal on own account,” and as a result, it has no trading book exposures. Garrick and Crown is authorized to control but not hold client money.
Garrick and Crown is not part of a consolidation group for prudential reporting, and all reporting in this document is based on Garrick and Crown as per IFPR regulations.
3. Risk Management and Policies
3.1 Framework and Objectives
Garrick and Crown is governed by its four directors, who determine its business strategy and risk profile.
The directors of Garrick and Crown are responsible for establishing the company’s governance and risk management arrangements. Garrick and Crown, being a small business with a total headcount of 25, manages risk on a day-to-day basis under the guidance of its directors, with support from the compliance manager. There is no separate risk management function.
The directors have adopted a low-risk approach to running the business, which is reflected in its business model and internal controls. Garrick and Crown does not engage in hedging strategies, invest in derivatives, or operate on a geared basis.
The directors meet regularly and informally to discuss current projections for profitability, cash flow, regulatory capital, and business planning. The ICARA is updated and approved annually. The directors manage risk through a framework of policies and procedures that are updated as required. The key risks and policies adopted to mitigate those risks are outlined below.
3.2 Liquidity Risk
Liquidity risk is the risk that the business will be unable to meet its financial obligations as they fall due.
Garrick and Crown’s policy is to maintain sufficient cash deposits to meet its obligations without recourse to bank borrowing. In particular, Garrick and Crown aims to maintain cash deposits above a “worst-case scenario” net expenditure requirement and to keep financial resources at or above 120% of Garrick and Crown’s ICARA Requirement.
As of March 31, 2023, Garrick and Crown held cash and liquid reserves of £4.1 million. The firm’s outflows are stable and predictable, reducing liquidity risk. The Directors tightly control payment of invoices and fund transfers between current and deposit accounts on a daily basis. Cash flow is reviewed by the Board quarterly.
3.3 Counterparty Credit Risk
Counterparty credit risk refers to the risk that a third party will default on its contractual obligations, resulting in financial loss to the company.
Third-party receivables mainly consist of amounts due from GPP, numerous customers, and Garrick and Crown’s principal banker, DBS Plc. Garrick and Crown clears its stockbroking business on a Model A basis via GPP, which minimizes market counterparty risk. However, Garrick and Crown may only use market-makers permitted by GPP to further reduce risk.
The more likely risk is a default by a customer not settling its bought instructions. This risk is tightly controlled through real-time monitoring of trading and a daily review of all trading and late settlements by the Head of Operations. The policy dictates payment of commissions only on settled trades. Additionally, Garrick and Crown’s self-employed investment advisers are liable for any client defaults should they arise.
3.4 Market Risk
Market risk is the risk of loss resulting from fluctuations in the market value of the firm’s positions or investments due to changes in market variables, such as interest rates, foreign exchange rates, equity and commodity prices, or an issuer’s creditworthiness.
Garrick and Crown does not act as a market maker, engage in proprietary trading, or trade in foreign currencies. Therefore, market risk is limited to the extent that poor market conditions lead to a decline in the value of its current asset investments. Garrick and Crown has adopted an investment policy to mitigate this risk.
Under this policy, only the directors are authorized to make investments on behalf of the company, and investments are limited to bonds or equities, fully funded. Internal investment guidelines are in place to ensure no more than 20% of net assets are invested, with a maximum upper limit of £150k per investment.
The company does not employ leverage or derivatives. Currently, Garrick and Crown has no investments, resulting in no current market risk.
3.5 Operational Risk
Operational risk encompasses the risk of loss arising from inadequate or failed internal processes, people, processes, systems, and external events.
Garrick and Crown has documented its key operational risks and controls to identify, monitor, manage, and mitigate losses resulting from people, processes, systems, and external events.
The key risks will be reviewed annually as part of the ICARA process, which also considers whether additional capital should be set aside to cover such risks.
4. Capital Requirements
Garrick and Crown reports to IFPR, and its consolidated capital requirements are determined as the greater of:
• Its PMR (Permanent Minimum Requirement) of £825,000.
• Fixed overhead requirements.
• Wind-down costs.
Garrick and Crown’s Own Funds Threshold requirement was calculated to be £1.22 million.
5. Capital Resources
As of March 31, 2023, Garrick and Crown, on a consolidated basis, had capital resources in excess of £4 million, significantly exceeding capital requirements.
Hamilton Keats
