Pillar 3 Disclosures
Arena Wealth Management Limited (“Arena Wealth”, the “Firm” or “us”) is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”) and is therefore subject to the FCA's Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), specifically BIPRU 11.3.3 R. This follows the introduction of the Capital Requirements Directive (“CRD”), which came into force on 1st January 2007. The CRD rules were designed to generally increase investor protection throughout the market and these rules require the Firm to assess the adequacy of its capital resources given its risks.
The CRD requirements have three pillars:
- Pillar 1 establishes the minimum capital requirements given the credit, market and operational risks;
- Pillar 2 requires the Firm and the FCA to take a view on whether the Firm needs to hold additional capital to cover firm specific risks not covered by the Pillar 1 minimum requirements; and
- Pillar 3 requires the Firm to publish certain details about its risks and risk management process.
The Firm’s Pillar 3 disclosures provide transparency about its capital requirements, risk exposures and risk assessment processes and are made for the benefit of the Firm’s clients. The FCA generally requests that firms address specific risks pertinent to its business (i.e. market, credit, liquidity, operational, business, concentration and any residual risks), and these items are addressed below.
The rules in BIPRU 11 require Pillar 3 disclosures. This document satisfies our obligation and the Firm will provide its Pillar 3 disclosure annually, covering the previous financial year.
The Pillar 3 will be published on the Firm’s website.
Information is generally viewed as material if its omission or misstatement could change or influence the assessment or decision of someone relying on that information for the purpose of making economic decisions. If a certain disclosure is omitted from this statement, we viewed the disclosure to be immaterial or inapplicable to us.
Information is generally viewed as proprietary if sharing that information with the public would undermine a competitive position. Proprietary information may include information on products or systems that, if shared with competitors, would render the Firm’s investments therein less valuable. Further, the Firm must regard information as confidential if there are obligations to customers or other counterparty relationships binding the Firm to confidentiality. In the event that any such information is omitted, the Firm shall disclose such and explain the grounds as to why it has not been disclosed.
Background of the Firm
Arena Wealth Limited has been managing investments for clients on a discretionary basis for over 40 years.
The Firm’s principal operations are to advise clients in the management and placing of their investments, with a proactive approach and with due regard to their risk control needs by the use of the insurance policies.
Systems are in place to ensure that the investments recommended are appropriate and that risks are covered by insurance.
The firm is the manager of the Lapis Top 25 Dividend Yield Fund and earns a fee of 0.1% of the fund value for this work.
Risk Management Objectives and Policies
The Firm’s general risk management objective is to develop systems and controls that mitigate risk to a level that does not require the allocation of Pillar 2 capital.
The Firm’s 2012 Internal Capital Adequacy Assessment Process (“ICAAP”) did not identify any internal or external risks that resulted in the Firm having to increase its capital levels. Accordingly, the Firm’s business and operational risks are limited in scope and the Firm believes that it has a minimal risk profile.
Arena Wealth is not a firm of independent financial advisers and does not offer independent advice. In order to be able to describe itself as “independent” a firm like Arena Wealth would have to provide advice across the full range of retail investment products, and Arena Wealth does not do this. Specifically, Arena Wealth does not provide advice about life policies. Furthermore, in practice, we do not offer advice concerning such products as stakeholder pension schemes. The term for the type of advice we provide is “restricted “ advice. In addition to those restrictions in our service, we use a restricted range of professional service providers from the market, rather than researching the whole market.
We work with providers who we consider to be financially sound and good at the service they provide. We do NOT receive any remuneration from them nor do we have any agreement with them that we will use their services. The reasons that we do not use similar providers from across the whole market are that Arena Wealth has a relatively small number of clients and we do not consider it to be cost efficient to spend time on reviewing the whole market for these services. Whilst we do not provide advice across the full range of investment products, we do strive to provide advice that we consider most suitable to our clients' personal circumstances, using trusted partners where required. We do review the services of our chosen providers periodically to ensure that it is fit for the purpose of meeting our clients' investment needs and objectives.
If advice is required concerning areas of business which we do not cover, we can recommend another firm.
Governance and Risk Framework
The Firm oversees and manages its risks through a combination of a Compliance Manual, routine monitoring of policies and procedures, a Business Continuity Plan, an annual independent audit and reporting process, and the use of an independent UK compliance consultant. The Firm’s policies, procedures and financial controls are regularly reviewed and revised as needed.
Market risk is the risk that the value of, or income arising from, the Firm’s assets and liabilities varies as a result of changes in the market price of financial assets, changes in exchange rates or changes in interest rates.
Credit risk refers to the potential risk that customers fail to meet their obligations as they fall due. The Firm is exposed to the credit risk of its bankers and receivables from the Fund and clients. The Firm considers these risks on a continuous basis but does not believe that they are significant.
The Firm’s liquidity policy is to maintain sufficient liquid resources to cover cash flow imbalances and fluctuations in fees received/receivables. The Firm maintains sufficient cash balances with its banking partners to cover liquidity risk. Furthermore, the Firm continuously monitors income and expenditure levels and adjusts plans accordingly.
The Firm has simple systems and data processing requirements and the Firm does not require its systems to be available ‘real time’. The risk of any systems failures is therefore not high-risk and the Firm believes that it has minimal operational risk.
Other risks the Firm considered included:
- Business Risk: failure of business plan, resulting in losses or reduced income
- Concentration Risk: whether overly dependent on any customer or group in terms of income or credit risk
- Residual Risk: any other material risk specific to the Firm
The Firm does not consider these risks, or any other material risks mentioned above, would require the Firm to increase its capital levels.
The Firm is designated as a BIPRU Limited Licence Firm (base capital requirement is €50,000) and is subject to an expenditure requirement.
The FCA has amended the Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU), and specifically BIPRU 11, to now include a requirement for disclosure of the Company’s approach to linking remuneration to risk.
The Firm feels that its Remuneration Policy appropriately addresses potential conflicts of interest and that the Firm’s authorised persons are not rewarded for taking inappropriate levels of risk. Under the Remuneration Code, the Firm is classified as a Tier Four firm, which allows the Firm to disapply many of the technical requirements of the Code and proportionately apply the Code’s rules and principles in establishing the Firm’s policy.
The Decision Making Process
On grounds of proportionality Arena Wealth’s Board of Directors also serve as the remuneration committee.
The Link between Pay and Performance
Overall remuneration may include an annual incentive compensation reflecting individual performance and responsibility, both short-term and long-term, as well as the Firm’s overall performance.
The award of incentive compensation is a qualitative decision where employee and supervisory input are significant components. There is no compensation linked to sales of any product.
The code staff of the Firm are the Directors, the investment team, the client executives and the Compliance Officer.
Quantitative Remuneration Data
Owing to the relative size and complexity of the Firm’s business the aggregate quantitative information on remuneration, broken down by 1) business area and 2) by senior management and members of staff whose actions have material impact on the risk of the Firm is the same. For the year ended 31 March 2018 this was £o/s