Coventry Capital Limited Pillar 3 Disclosure

Overview

The Basel II Accord, as legislated in the European Union by the Capital Requirements Directive, provides for the application of a standard regulatory capital framework to the financial services industry.  In the United Kingdom, the Capital Requirements Directive has been implemented by the Financial Services Authority (“FSA”) in its regulations through the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”).

The FSA framework consists of three ‘Pillars’:

Pillar 1 deals with minimum capital requirements;

Pillar 2 deals with the Internal Capital Adequacy Assessment Process (“ICAAP”) undertaken by a company and the supervisory review and evaluation process through which the company and regulator satisfy themselves on the adequacy of capital held by the company in relation to the risks it faces; and

Pillar 3 deals with public disclosure of risk management policies, capital resources and capital requirements.

Scope of Application

Coventry Capital Limited (the “Company”) is authorised and regulated by the FSA as an investment management company.  It is categorized as a BIPRU 50k limited licence firm, and is not required to prepare consolidated reporting for prudential purposes. In accordance with Chapter 11 of BIPRU, the Company is required to disclose Pillar 3 information.

Disclosure Policy

The information within the scope of Pillar 3 will be published on an annual basis. Disclosure will be based on the position as at the Accounting Reference Date (30 November) and be published as soon as practicable after the signed financial statements are available. The information included within the Pillar 3 disclosure will not be audited by the Company’s external auditors, and does not constitute any form of financial statement.

The Company 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 Company deems a certain disclosure to be immaterial, it will not be disclosed.

The Company is also permitted to omit one or more of the required disclosures where it regards that information as proprietary or confidential. The Company 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 Company’s investments therein less valuable.  Further, the Company must regard information as confidential if there are obligations to customers or other counterparty relationships binding the Company to confidentiality.  In the event that any such information is omitted, the Company shall disclose such and explain why it has not been disclosed.

Risk Management Objectives and Policies

The Company has the following risk management objectives:

• Identify the material risks facing the Company;
• Implement a system of internal controls designed to address each material risk; and
• Utilise insurance coverage or other protective measures where possible to mitigate the impact of an adverse outcome.

The Company has adopted a risk management framework that includes:

• A system of internal controls over operations and capital management that is reviewed on an ongoing basis;
• Guidance from outside experts;
• Proper levels of insurance; and
• A disaster recovery/business resumption plan.

The Company manages its exposure to economic and business risk by:

• Hiring managing directors with substantial experience in business or operational management; and,
• Having in place meaningful controls based upon the Company’s tolerance for risk.

An independent risk management function is not currently deemed necessary in light of the nature and scale of the Company’s business. The need for an independent risk management function is reviewed on an ongoing basis. If the underlying nature or scale of the Company’s business were to change significantly, the necessary steps would be taken to introduce such a function.

Oversight

The Board of Directors (the “Board”) is the governing body of the Company.  The Board’s responsibilities include:

• Assessing whether the managing directors have implemented an effective, ongoing process to identify risks and measure their potential impact;
• Reviewing management’s assessment of the Company’s risk appetite or tolerance for risk; and
• Overseeing the active management of such risks by the managing directors.

Company Risks

The Company’s principal risks have been identified as credit risk, business risk, and operational risk.

Credit Risk

The Company’s main exposure to credit risk is the risk that advisory fees due from affiliates cannot be collected.  Since the services being provided by the Company are integral to the continuing operations of these affiliates, credit risk is considered to be low. 
The Company maintains its cash balance in an account at a reputable multi-national financial institution. A third party financial advisor does a periodic review of the quality of this financial institution.  
Consequently risk of past due or impaired exposures is considered to be minimal.

Business Risk

Damage to the Company’s reputation is the Company’s principal business risk.  Maintaining a good reputation with investors and counterparties is important to the growth of the business.  Loss in reputation may impact the Company’s ability to access capital.  The Company has policies in place designed to ensure that the Company does not suffer an unnecessary loss of reputation. Capital resources in excess of the Company’s Fixed Overhead Requirement (“FOR”) ensure that in the event of a prolonged downturn, capital would be available to meet all obligations arising or to finance an orderly wind-down.

Operational Risk

The Company has adopted a risk management framework that includes a system of internal controls over operations and capital management that is reviewed on an ongoing basis, guidance from outside experts, proper levels of insurance, and a disaster recovery/business resumption plan. The Company manages its exposure to economic and business risk by hiring managing directors with substantial experience in business or operational management, having in place meaningful controls based upon the Company’s tolerance for risk, and by following the other practices of the risk management framework.

The following risks are considered to be not applicable or insignificant to the Company’s activities:

• Market risk
• Securitization risk
• Pension obligation risk
• Residual risk
• Interest rate risk

Capital Resources

All the Company’s capital is Tier 1 capital. The total of called up share capital plus audited reserves at 30 November 2010 is £2,662,430.  There are no deductions to the Company’s Tier 1 capital.  No Tier 2 or Tier 3 capital is held.

Pillar 1 Rule

The Company's Pillar 1 capital requirement is summarised below:

Pillar 2 Rule

Under Pillar 2, the Company is required to enact an ICAAP. The data and assumptions used in the ICAAP are continually assessed and updated by members of senior management.  Senior management has identified credit risk, business risk and operational risk as the major risks to which the Company has exposure. New risks will be incorporated into this process as they are identified.  The ICAAP is presented to the Board for formal review and approval.  Currently, the Company is subject to a Pillar 2 capital requirement that is higher than its Pillar 1 capital requirement.   

Remuneration

Under the FSA Remuneration Code, the Company is considered a Tier 4 firm. The Board approves the Company’s remuneration policy. All variable remuneration is adjusted in line with capital and liquidity requirements.

Total remuneration paid for the year ended 30 November 2011 by staff classification and business area is as follows: