Pillar 3 disclosure

London Wealth Management Limited

Background

The regulatory framework for capital adequacy and financial resources in the UK consists of three ‘pillars’ – namely;

- Pillar 1 – which sets out the minimum capital requirements that firms are required to meet

- Pillar 2 – which requires firms to take a view on whether additional capital should be held against any  risks not covered by Pillar 1; and

- Pillar 3 – which requires firms to publish certain details of its capital and risk management process.

This document contains the Pillar 3 disclosure for London Wealth Management.

This Pillar 3 Disclosure has been subject to internal review procedures. The information has not been audited by the firm’s external auditors.

Scope and application of Directive requirements

The disclosures in this document are made in respect of London Wealth Management which provides independent financial advice and discretionary investment management services.

London Wealth Management Limited is authorised and regulated by the Financial Services Authority (“FSA”) and is classified by the FSA as a Limited Licence Firm.

Risk management objectives and policies

Our risk management policy reflects the FSA requirement that we must manage a number of different categories of risk. These include: liquidity, credit, market, interest rate, business and operational risks.

i. Liquidity risk

The firm manages all cash and borrowing requirements to maximise potential interest income whilst ensuring the firm has sufficient liquid resources to meet the continued operating needs of the business. This is supported by a robust budgeting and forecasting process which has the full involvement of the senior management team.

ii. Credit risk

The main credit risk for the firm relates to advisory fees, being the risk that a client does not pay amounts due for services provided. This risk is mitigated by the fact that these fees generally take the form of “offset commissions”. The risk of non payment is also reduced due to the nature of the clients as they i.e. they are typically wealthy individuals.

The firm’s revenues also include annual management charges received from clients based on a percentage of client assets under management. These charges are made directly to the clients’ portfolios, and therefore the credit risk relating to this income is minimal.

The risk relating to amounts due from providers as a result of legacy renewal commission streams is considered to be low. This is because these amounts are due from institutions that are regulated by the FSA.

iii. Market Risk

The firm is indirectly subject to market risk as income is dependent upon the value of client funds under management. This risk is mitigated by the asset allocation strategy adopted, which ensures that clients have highly diversified portfolios with limited exposure to any one asset class.    Accordingly exposure to market risk is considered minimal.

iv. Interest rate risk

The firm has no borrowings and no exposure to interest rate risk.

v. Business Risk

The firm’s Pillar 2 business risk assessment principally takes the form of a fall in assets under management following a market downturn that leads to lower management fees, although other risks such as loss of advisers and systems failures are also considered. To mitigate our business risk, we regularly analyse various different economic scenarios to model the impact of economic downturns on our financial position.

vi. Operational Risk

Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems, from the actions of people or from external events.

Major sources of operation risk include: outsourcing of operations, IT security, internal and external fraud, implementation of strategic change and regulatory non-compliance.

The firm operates a robust risk management process which is regularly reviewed and updated with details being provided to all staff. The firm’s Compliance Oversight is responsible for the periodic reviews and recommending any changes to the Board

All senior management will bear responsibility for internal controls and the management of business risk as part of their accountability to the board.

Individuals are responsible for identifying the risks surrounding their work, implementing controls over those risks and reporting areas of concern to the board.

The Compliance Oversight will provide the board with a monthly report on all significant risk issues.

vii. Capital resources

Pillar 1 requirement

In accordance with GENPRU 2.1.45R (calculation of variable capital requirement for a BIPRU firm), our capital requirement has been determined as being our fixed overhead requirement and not the sum of our credit risk capital requirement and our market risk capital requirement.

The Pillar 1 capital requirement for London Wealth Management is Euros 50,000.

Pillar 2

Our overall approach to assessing the adequacy of our internal capital is set out in our Internal Capital Adequacy Assessment Process (ICAAP). The ICAAP process involves separate consideration of risks to our capital combined with stress testing using scenario analysis. The level of capital required to cover risks is a function of impact and probability. We assess impact by modelling the changes in our income and expenses caused by various potential risks over a 1-year time horizon. Probability is assessed subjectively.

Our Pillar 2 capital requirement, which is our own assessment of the minimum amount of capital that we believe is adequate against the risks identified, has been assessed as the same as our Pillar 1 requirement.      Nevertheless, for reasons of good business practice, London Wealth Management holds a considerable surplus of reserves above the minimum capital resource requirement deemed necessary to cover the risks identified.

Other risks

The firm operates a simple business model.  Accordingly, many of the specific risks identified by the FSA do not apply.

Regulatory capital

The main features of London Wealth Management’s capital resources for regulatory purposes, as at November 2011 are as follows:

The firm holds regulatory capital in accordance with the Capital Requirements Directive.      All such capital is classified as Tier 1 capital and is therefore of the highest quality.

Remuneration Code Disclosure

Under the FSA rules, a firm must disclose certain information regarding its remuneration policy and practices for certain categories of staff.    These categories of staff include those individuals performing a “Significant Influence Function” (“SIF”) and those individuals whose professional activities may have a material impact on the firm’s risk profile.    The information that must be disclosed is as follows:

a)      The process for determining remuneration policy

b)      The link between pay and performance (including the main performance metrics and the forms of remuneration)

c)       Aggregate quantitative remuneration data by business area

d)      Aggregate quantitative remuneration data broken down by reference to senior management and other staff whose actions have a material impact on the risk profile of the firm.

London Wealth Management has three directors, all of whom fall under the remit of the Remuneration Code.     London Wealth Management has no “risk takers”.      This disclosure is therefore made in respect of the three directors.

The directors divide all profits equally between them.      Director remuneration is agreed formally at board meetings.    The link between performance and pay is inevitable in a small firm, but the firm’s risk adverse strategy and robust risk management systems mean that individual directors have no opportunity to generate artificial revenue and profits.

Quantitative data is withheld because it would lead to identification of specific individuals.

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