The Capital Requirements Directive (CRD) created a regulatory capital framework across Europe governing how much capital financial services firms must hold. The CRD was transposed into UK regulation and is implemented by the Financial Conduct Authority (FCA).
The CRD consists of three pillars:
Canada Life Asset Management Limited (CLAM) will make annual Pillar 3 disclosures. These disclosures are based on the Company’s position as at 31 December each year. The Board of Directors feel that disclosure on an annual basis is appropriate based on CLAM’s current risk exposures and will review the need to disclose more frequently as part of its internal review process.
CLAM is authorised and regulated by the FCA as an Investment Management Firm. The firm’s activities give it the BIPRU categorisation of a “Limited Licence” and a “BIPRU €50k” firm. CLAM is the appointed investment manager of a number of collective funds and manages portfolios on behalf of other companies in the Great-West Lifeco (GWL) group.
CLAM is governed by a Board of Directors. The Board is comprised of directors who have the necessary skill and experience to lead and control the Company. The Board is responsible for implementing the Enterprise Risk Management (ERM) Framework which sets out the risk universe, preferences and appetite. ERM is a suite of processes applied in conducting business and strategy setting. The processes are designed to identify potential events or emerging issues that may affect CLAM, manage risks to be within risk appetite, and provide reasonable assurance regarding the risk consequences of achievement of CLAM’s objectives.
There is a Board Risk Committee which has responsibility for monitoring risk and reporting to the Board.
CLAM operates in a competitive industry, downturns in the economy and capital markets can lead to a reduction in assets under management and fee income. As part of the strategic planning process the Board will assess the impact of various economic scenarios on the performance of the Company.
CLAM is constantly developing the funds and products it provides which gives rise to expense risk. Expenses have therefore been stressed in respect of any unanticipated expenditure requirements and increases in the cost of expected expenses.
CLAM does not employ any staff but utilises staff from CLFIS Limited, a group services company. Pensions are provided at the group level and charged out along with other staff costs. On a look through basis CLAM would be responsible for its portion of the pension scheme risk.
CLAM is exposed to credit risk through non-receipt of fee income from clients and exposure to bank deposits and Money Market Funds (MMF’s). Strong internal controls exist to ensure clients pay within the agreed credit terms. The majority of surplus cash is moved to MMF’s which includes an internal CLAM managed Liquidity Fund and bank deposits to provide a greater spread of credit risk and an enhanced return. The external MMFs used are regulated AAA rated funds. Bank deposits can only be placed with regulated credit institutions that are on the group approved list with a minimum credit rating of “A”.
CLAM does not hold any investments in its own name other than money market instruments which are operated as Collective Schemes. Therefore the assets held by CLAM do not directly face Market Risk. CLAM is however potentially at risk from a general fall in the market or any specific asset class as this affects the level of fee income that can be earned. The impact of changes in market value on income levels have been reviewed and are considered not to be significant in terms of CLAM’s capital.
CLAM manages some portfolios of foreign currency denominated assets where its investment management fee is received in the same currency. The amount received in respect of these fees is therefore exposed to fluctuations in exchange rates.
CLAM consistently maintains sufficient liquid resources to meet its obligations for financial liabilities. Cash flow and capital adequacy forecasts are carried out on a regular basis. Surplus cash is placed on short term deposits or MMF’s with approved credit institutions to ensure liquidity.
These are risks resulting from inadequate or failed internal processes, people and systems or from external events such as suppliers or changes in regulations or law which may adversely affect CLAM. CLAM has in place a Risk & Control Self-Assessment process to assure itself that all key operational risks to which it is exposed are effectively identified and assessed. The Board, as part of its internal control and corporate governance procedures, regularly review operational risks and their impact.
CLAM has developed a range of collective vehicles that it actively markets to IFAs, institutional investors and fund managers. CLAM is therefore exposed to a number of conduct risks such as funds not being appropriate to the customers they are being sold to; funds being misrepresented in the sale and marketing process and funds not achieving expected outcomes. CLAM has an extensive review process before any fund is launched. Investment Governance personnel review fund launches to ensure all conduct issues have been considered. In addition Link Asset Services as the Authorised Corporate Director of the funds has its own extensive review and authorisation processes as do the Depositaries.
As at the 31st December 2017, the capital position of CLAM in relation to its regulatory requirement is as follows:
Pillar 1 capital requirement is the greater of
|base capital requirement of €50,000
|the sum of the market risk and the credit risk
|the fixed overhead requirement||£2,405,000|
|Pillar 1 capital requirement (fixed overhead requirement)||£2,405,000|
|Pillar 2 capital requirement||£6,701,000|
|Capital requirement under the CRD highest of Pillar 1 and 2||£6,701,000|
|Tier 1 Capital||£12,384,000|
|Tier 2 Capital||Nil|
|Total Capital resources under the CRD||£12,384,000|
|Surplus / ( Deficit ) Capital||£5,683,000|
|Remuneration disclosure year ending 31 Dec 2017||View PDF|