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Monument Securities Limited
Introduction
Monument Securities Limited is authorised and regulated by the Financial
Securities Authority. As part of the Capital Requirement Directive ('CRD')
Monument Securities Limited ('MSL') is required to carry out an Internal Capital
Adequacy Assessment Process ('ICAAP').
The capital requirements
for firms such as MSL to which the FSA Prudential Sourcebook for Banks, Building
Societies and Investment Firms applies consist of three pillars.
Pillar 1 is a variable
capital requirement based on the sum of operational, market and credit risk
requirements. A firm must maintain at all times capital resources equal to or in
excess of the amount specified.
Pillar 2 requires each
firms and supervisors to review whether additional capital should be held
against risks not covered in Pillar 1, to instigate additional controls to
mitigate such risks or a combination of these two approaches.
Pillar 3 requires firms
to publish certain details of capital and risk management and to review and
update this information at least annually.
Under the rules a firm
may omit one or more disclosures where the information provided by such
disclosure is not regarded as material.
The Company
Monument Securities Limited was formed in 1991 as an independent institutional
and corporate broker and the Pillar 3 disclosures relate to this entity.
Monument's customer base is institutions, fund managers, market professional,
corporate and hedge fund clients. The sectors covered are primarily equity
markets, equity and index derivative markets and fixed income both underlying
and derivatives.
The business model has
been one of steady growth and the focus is on providing an excellent service to
customers.
In 2006 the company
became part of the Insinger de Beaufort group of companies however after a
successful two years with Insinger in 2008 Monument again became an independent
company and now has a close association with Oakley Capital Private Equity. MSL
is a wholly owned subsidiary of Monument Securities 11 Limited ('MSL 11') which
acts as the holding company.
Risk Management Objectives and Policies
The Board of MSL 11
determines the business strategy and the risk profile of MSL. As a consequence
of MSL's focus on specific product areas and a clearly defined customer base
coupled with a very experienced in house team and the use of clearing and
settlement services providers, the company considers that it is aware of and
clearly recognises the risks that the business faces.
The MSL Senior
Management Systems and Controls document is a high level document that seeks to
clearly allocate significant responsibilities among senior personnel to ensure
that these can be adequately monitored and controlled and to ensure that
appropriate systems and controls are established and maintained.
The senior management of
the company meet on a regular basis, both formally and informally to discuss and
review the risk exposure of the business and the effective and efficient
management of those risks.
MSL's appetite for risk is inherently low and it only engages in services and
products if it believes that it can ensure sound and effective risk management.
The business is
controlled initially be soft limits applied internally which seek to express the
maximum accepted risk exposure both in qualitative and quantitative terms. These
combined with policies and monitoring provide a balanced and effective control.
Operational Risk
Operational risk is the
risk of loss or other negative impact on the company from inadequate or failed
internal processes, people and systems or from external events. It is indicated
that this definition excludes systemic risks, legal risk or reputation risk.
MSL's operational risk policy includes a review to assess the risks of any
deficiencies from the execution of the agreed business strategy and business
plans, processes and procedures, outsourcing arrangements, management of
information, relationship management and any compliance related risk.
Each have been reviewed
and documented as part of the ICAAP and have included an assessment of various
arrangements to mitigate these and as part of an efficient and effective
corporate governance structure. These include client due diligence and staff
training as well as appropriate employment procedures and Business Continuity
and Disaster Recovery planning.
The approach adopted
includes the use of a risk matrix. The purpose of the risk matrix is to identify
levels of risk as well as the impact and likelihood of the occurrence of any
event. It also serves to provide a measure for the assessment of the structure
and performance of controls and to highlight any vulnerabilities.
Although the MSL
business is relatively diverse in the number of product areas in which the firm
operates, the activity is limited to the reception and transmission of orders in
relation to financial instruments and the execution of orders on behalf of
clients.
Credit Risk
Credit Risk is the risk
of unexpected loss as a result of counterparties failing to meet obligations to
pay outstanding balances.
A credit risk assessment
is carried out at the beginning of each relationship with a customer and a
general overall exposure limit is set. Accounts are reviewed and monitored on a
regular and ongoing basis both internally and in conjunction with the clearing
and settlement services providers.
For MSL credit risk
relates in large part to amounts due for clearing and settlement services
providers being commissions owed and amounts due from clearers and prime brokers
in relation to give up business.
Liquidity Risk is
managed as part of this process to ensure that sufficient liquidity is available
to meet foreseeable requirements.
Market Risk
The market risk capital
requirement is calculated as the sum of the Position Risk requirements. In
general MSL does not currently hold any proprietary positions and thus does not
carry any market risk related to such exposures. In the event that any positions
are held for any reason these are monitored according to agreed risk management
parameters.
MSL does have Foreign Exchange risk related to amounts due from counterparties
receivable in a foreign currency. MSL is also exposed to Interest Rate risk on
cash balances and deposits held.
Capital Resources
31 December 2008
£ 000s
Tier 1 capital
resources
Total Tier 1 capital
after deductions 3,650
Total Tier 2
capital
0
Total Tier 3
capital
0
Total Capital Resources
net of deductions 3,650
Pillar 2 Assessment
Under Pillar 2 the firm
is required to consider whether additional capital should be held against risks
not covered in Pillar 1.
For MSL this assessment
has been undertaken using two approaches. The first is a top down approach to
look at the key risks and to reflect where MSL is exposed to such potential
risks. The second is a bottom up approach which is used to document key
processes, identify risks and assist in the implementation of controls within
the firm.
The combination of these
approaches producing a comprehensive analysis of the risks faced by the
business.
This assessment has
covered financial risk comprising credit, market and liquidity risk. These are
then elaborated into organisational procedures. The aim being in addition to the
operational and IT controls to ensure the reliability of information, implement
adequate and appropriate procedures to mitigate the risks identified.
The high
level categories addressed cover operational risk implementation, processes and
procedures, outsourcing, fraud, legal risk, business continuity and disaster
recovery, liquidity risk and business risk.
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