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Monument Securities Limited
Pillar 3
Disclosures
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 by 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 and to counterparties receivable and payable in a
foreign currency. MSL is also exposed to Interest Rate risk
on cash balances and deposits held.
Capital Resources
31 December 2009
£ 000s
Tier 1 capital
resources
Total Tier 1 capital
after deductions
3,770
Total Tier 2
capital
0
Total Tier 3
capital
0
Total Capital Resources
net of deductions
3,770
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 and to 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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