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Pillar 3 Disclosure and Policy

Introduction

Regulatory Context

The Pillar 3 disclosure of Caygan Capital Ltd (“the Firm”) is set out below as required by the FCA’s “Prudential Sourcebook for Banks, Building Societies and Investment Firms” (BIPRU) specifically BIPRU 11.3.3 R. This is a requirement which stems from the Capital Requirements Directive (“CRD”) which represents the European Union’s application of the Basel Capital Accord. The regulatory aim of the disclosures is to improve market discipline.

Frequency

The Firm will be making Pillar 3 disclosures annually. The disclosures will be as at the Accounting Reference Date (“ARD”).

Media and Location

The disclosure will be published on our website at www.caygan.com.

Verification

The information contained in this document has not been audited by the Firm’s external auditors, as this is not a requirement, and does not constitute any form of financial statement and must not be relied upon in making any judgement on the Firm (or its parent company, Caygan Capital Pte. Ltd. ).

Materiality

The Firm regards information as material in disclosures if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions. If the Firm deems a certain disclosure to be immaterial, it may be omitted from this statement.

Confidentiality

The Firm regards information as proprietary if sharing that information with the public would undermine its competitive position. Proprietary information may include information on products or systems which, if shared with competitors, would render the Firm’s investments therein less valuable. Further, the Firm must regard information as confidential if there are obligations to customer(s) or other counterparty relationships binding the Firm to confidentiality. In the event that any such information is omitted, we shall disclose such and explain the grounds why it has not been disclosed.

 

SUMMARY

The CRD requirements have three pillars. Pillar 1 deals with minimum capital requirements; Pillar 2 deals with Internal Capital Adequacy Assessment Process (“ICAAP”) undertaken by a firm and the Supervisory Review and Evaluation Process through which the Firm and regulator satisfy themselves on the adequacy of capital held by the Firm in relation to the risks it faces and; Pillar 3 which deals with public disclosure of risk management policies, capital resources and capital requirements.

The regulatory aim of the disclosure is to improve market discipline.

The Firm is a MiFID Investment Management Firm. The Firm’s greatest risks have been identified as business and operational risk. The Firm is required to disclose its risk management objectives and policies for each separate category of risk which include the strategies and processes to manage those risks; the structure and organisation of the relevant risk management function or other appropriate arrangement; the scope and nature of risk reporting and measurement systems; and the policies for hedging and mitigating risk, and the strategies and processes for monitoring the continuing effectiveness of hedges and mitigants.

The Firm has assessed business and operational risks in its ICAAP and set out appropriate actions to manage them.

The Firm has an operational risk framework (described below) in place to mitigate operational risk. The Firm holds all cash balances with banks assigned high credit ratings.

Market Risk exposure has been assessed by the Firm and is limited to the Firm’s exposure to any assets held on the Firm’s Balance Sheet denominated in a foreign currency. The Firms Reporting Currency is GBP and all foreign currency assets are converted into GBP where possible on a regular basis.

BACKGROUND TO THE FIRM

The Firm is incorporated in the UK and is authorised and regulated by the FCA as a MiFID Investment Management Firm. The Firm’s activities give it the BIPRU categorisation of a “Limited Licence” and a “BIPRU €50K” Base Capital firm.

The following entities are covered by the ICAAP:

  • Caygan Capital Ltd.

The Firm is a solo-regulated entity with a Non-EEA parent.

The Firm is a BIPRU Investment Firm without an Investment Firm Consolidation Waiver deducting Material Holdings.

Risk Management Objectives and Policies

Risk Management Objective

The Firm has a risk management objective to develop systems and controls to mitigate risk to within its risk appetite.

Governance Framework

The Board of Directors is the governing body of the Firm and has oversight responsibility. It has given the Management Group the daily management responsibility of the Firm. The Management Group is composed of Naruhisa Nakagawa.

The Board of Directors is responsible for the entire process of risk management, as well as forming its own opinion on the effectiveness of the process. In addition, the Board of Directors decides the Firm’s risk appetite or tolerance for risk and ensures that the Firm has implemented an effective, ongoing process to identify risks, to measure its potential impact and then to ensure that such risks are actively managed. The Management Group is accountable to the Board of Directors for designing, implementing and monitoring the process of risk management and implementing it into the day-to-day business activities of the Firm.

Risk Framework

Risk within the Firm is managed by use of the following disclosures in compliance with BIPRU 3, BIPRU 4, BIPRU 6, BIPRU 7, BIPRU 10 and the Overall Pillar 2 Rule.

BIPRU 3

For its Pillar 1 regulatory capital calculation of Credit Risk, under the credit risk capital component the Firm has adopted the Standardised approach and the Simplified method of calculating risk weights.

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BIPRU 4

The Firm does not adopt the Internal Ratings Based approach and hence this is not applicable.

BIPRU 6

The Firm, being a Limited Licence Firm is not subject to the Pillar 1 Operational Risk Requirement and, therefore, this is not applicable.

BIPRU 7

The Firm has Non-Trading Book potential exposure only.

BIPRU 10

The Firm is not subject to the Large Exposure Rules at BIPRU 10 and, therefore, no disclosure on this is required.

Overall Pillar 2 Rule

The Firm has adopted the “Structured” approach to the calculation of its ICAAP Capital Resources Requirement as outlined in the Committee of European Banking Supervisors Paper, 25 January 2006.

The ICAAP assessment is reviewed by the Management Group and amended at least annually or when a material change to the business occurs. The Management Group presents the ICAAP document to the Board of Directors of the Firm which reviews and endorses the risk management objective at least annually or when a material change to the business occurs at the same time it reviews and signs off the ICAAP document.

 

Credit Risk and Dilution Risk

The Firm is primarily exposed to Credit Risk from the risk that service fees from its parent company, Caygan Capital Pte. Ltd. , cannot be collected and the exposure to banks where revenue is deposited. It holds all cash and performance fee balances with banks assigned high credit ratings. Consequently risk of past due or impaired exposures is minimal. A financial asset is past due when a counterparty has failed to make a payment when contractually due. Impairment is defined as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.

 

Market Risk

The Firm has Non Trading Book potential exposure only.

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Scope of application of directive requirements

The Firm is subject to the disclosures under the Banking Consolidation Directive. However, it is not a member of a UK Consolidation Group and consequently, does not report on a consolidated basis for accounting and prudential purposes.

 

Capital Resources

The Firm is a BIPRU Investment Firm without an Investment Firm Consolidation Waiver deducting Material Holdings. Tier 1 Capital comprises of fully paid-up share capital.

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Operational Risk

The Firm’s Fixed Overhead Requirement (FOR) is disclosed as a proxy for the Pillar 1 Operational Risk Capital calculation. The Firm’s Pillar 1 Capital Resources Requirement is the FOR which is the higher of the sum of Market Risk and Credit Risk Requirement.

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Remuneration

The Firm has a Remuneration Code Proportionality Level 3 Firm and has applied the rules appropriate to its Proportionality Level. The Board of Directors is responsible for the Firm’s remuneration policy. All variable remuneration is adjusted in line with capital and liquidity requirements.

The Firm has one business area, namely, provision of fund management and related services to its parent company, Caygan Capital Pte. Ltd. . For the purpose of the Remuneration Code, the Firm has determined “Code Staff” to comprise the Board of Directors and other Approved Persons performing Controlled Functions. Due to the small size of the Firm, we consider the “aggregate quantitative remuneration” awarded to the Firm’s “Code Staff” proprietary information that, if shared with the public, would undermine the Firm’s competitive position. Nevertheless, information on the “aggregate quantitative remuneration” awarded to the Firm’s “Code Staff” for the financial year ending 31 December 2018 will be disclosed in the Firm’s financial statements for the year ended 31 December 2018.

Other Disclosures

BIPRU 11.5.5 R

This disclosure is not required as the Firm has not adopted the Internal Ratings Based approach to Credit Risk and therefore is not affected by BIPRU 11.5.4 R (3).

BIPRU 11.5.6 R

This disclosure is not required as the Firm has not adopted the Internal Ratings Based approach to Credit Risk and therefore is not affected by BIPRU 11.5.4 R (3).

BIPRU 11.5.7 R

This disclosure is not required as the Firm does not have a Trading Book.

BIPRU 11.5.9 R

This disclosure is not required as the Firm does not make Value Adjustments and Provisions for Impaired exposures that need to be disclosed under BIPRU 11.5.8 R (9).

BIPRU 11.5.10 R

This disclosure is not required as the Firm uses the Simplified method of calculating Risk Weights.

BIPRU 11.5.11 R

This disclosure is not required as the Firm has not adopted the Internal Ratings Based approach to Credit and therefore is not affected by BIPRU 11.5.4 R (3).

BIPRU 11.5.13 R

This disclosure is not required as the Firm does not use a VaR model for calculation of Market Risk Capital Requirement.

BIPRU 11.5.15 R

This disclosure is not required as the Firm does not have a Non-Trading Book Exposure to Equities.

BIPRU 11.5.16 R

Although the Firm has substantial cash balances on its Balance Sheet, there is currently no significant exposure to Interest Rate fluctuations.

BIPRU 11.5.17 R

This disclosure is not required as the Firm does not securitise its assets.

LAST UPDATED: JANUARY 2019