MIFIDPRU Public Disclosure Document
Investment Firms Prudential Regime (IFPR) Disclosure
Year ending 31 March 2022
Introduction
Purpose
This document sets out Harwood Capital LLP’s (“HCLLP” or “the Firm”) public disclosures in relation to Governance Arrangements, Own Funds and Own Funds Requirements as required under MIFIDPRU as at 31 March 2022.
Background
The Investment Firms Prudential Regime (IFPR) is the FCA’s new prudential regime for MiFID investment firms which aims to streamline and simplify the prudential reporting and disclosure requirements for MiFID investment firms. The IFPR came into effect on 1st January 2022 and replaces, for investment managers, the previous framework of the Capital Requirements Directive (CRD) IV and Capital Requirements Regulation (CRR).
The provisions apply to the Firm as a result of Harwood Capital LLP being authorised and regulated by the Financial Conduct Authority (“FCA”), FCA Ref No. 224915) as an operator of unregulated collective investment schemes and as an investment management firm under MiFID.
The Firm is a MIFIDPRU limited licence firm and has been authorised as a Small Authorised UK Alternative Investment Fund Manager (Sub-Theshold) under the Alternative Investment Fund Managers Directive (“AIFMD”).
The IFPR regime distinguishes between “small and non-interconnected investment firms” (“SNI” firms) and non-SNI firms. For the purposes of MIFIDPRU, the Firm has been categorised as a non-SNI firm, given it crosses at least one or more of the thresholds and or requirements set out in MIFIDPRU 1.2.1 R. The Firm is required to publish disclosures in accordance with the provisions outlined in MIFIDPRU 8.1.13 R of the IFPR.
Basis of Disclosures
The disclosures in this document relate to Harwood Capital LLP , which is a wholly owned subsidiary of Harwood Capital Management Limited and its results are included in the consolidated accounts prepared by the parent company.
The disclosures have been prepared on a solo entity basis, inline with the requirements described in MIFIDPRU 8, taking account of the FCA’s transitional provisions for disclosure requirements contained in MIFIDPRU TP12, which limit the disclosures requirements to matters relating to Governance, Own Funds and Own Funds Requirements.
The Firm makes the disclosure annually inline with the publication of the audited report and accounts as at 31 March each year. It will be updated more frequently if there are significant changes to the business (such as changes to the scale of operations or range of activvities) or to its risk profile.
The disclosure does not constitute any form of audited financial statement and has been produced for the purpose of complying with MIFIDPRU 8. The disclosure made in this document is proportionate to the size of the Firm, and to the nature, scope and complexity of its activities.
Under the MIFIDPRU Prudential sourcebook requirements, the Firm as a MIFID investment firm is required to:
- At all times hold own funds and liquid assets which are adequate, both as to their amount and to their quality, to ensure it is able to remain financially viable throughout the economic cycle, with the ability to address any material harm that may result from its ongoing activities; and
- Ensure that the business can be wound down in an orderly manner, minimising harm to consumers or other market participants.
This Disclosure is aviable to view on the Harwood Capital Management Limited group website.
Governance Arrangements
The Firm is a small Limited Liability Partnership, that is governed by its Members who make up the the Firm’s Governing body. The Governing Body determines the business strategy of the Firm. The Firm maintains a clear organisational structure with the Members and Senior Management who are responsible for establishing and maintaining internal governance as well as implementing a risk management framework that recognises the core risks that the business faces in financial control, regulation and compliance, operations, and reputation. Amongst other things the Governing Body is responsible for: approving and maintaining business policies, procedures and controls; and audit, compliance and regulatory affairs. The Governing Body is is permitted to delegate its authority and powers to a Senior Management or such company employees as it deems fit.
The Members and Senior Management collectively are responsible for the supervision and authorisations of the Firm’s regulated activities for example managing and AIF as a result of being a Small Authorised UK AIFM (Sub-Threshold).
The Firm’s Governing Body is responsible for supervising the effective and prudent management of the business and affairs of the Firm and for ensuring the Firm has a robust corporate governance structure with well defined, transparent and consistent lines of accountability. This includes oversight of the Firm’s risk framework and internal controls. It also includes segregation of responsibilites within the business and the identification and management of conflicts of interest.
The Governing body acts in the best interests of the Firm and its clients. Each Partner and Senior Manager are directly accountable to the Firm’s Governing Body. The Governing Body also takes into account the interests of its clients, employees and other third-party stakeholders.
Governing body does rely on certain Group functions to manage, monitor and analyse key areas of responsibility, but gains sufficient information to discharge its duties. The Firm is to small for a separate Risk Committee, However the Governing body to compensate for this delegates the review and monitoring of activities to Senior Management such as Compliance, Chief Operating Officer and key members of the Operations department for specific purposes.
The Firm, through the Governing body, adopts, as applicable, Compliance and Risk Policies. The Governing body may also rely on the advice, reports and opinions of consultants, counsel, accountants, auditors and other expert advisers.
The Firm’s Members are registered with the FCA and under SMCR, regulatory approval has to be granted before the appointment of a Member holding a Senior Management function.
The Firm’s Members are focused full-time in the business and hold no other commercial positions outside of holding positions in investee companies of the funds we manage.
The Firm is independent and has no commercial ties with any other organisation.
Given the size of the firm and taking proportionality into consideration, the requirement to have separate Risk, Remuneration and Nomination Committees does not apply.
Directorships Held
The total number of executive and non-executive directorships held by members of the Board as at 31 March 2022 are as below. Directorships held within the samegroup are counted as a single directorship and those in non-commercial organisationsare excluded.
| Partner | Position | Number of External Directorships within Investee Companies. |
| Christopher Mills | Chairman/CEO | 27 |
| Jeremy Brade | Managing Partner | 5 |
| Tim Sturm | Partner | 3 |
| James Agnew | Partner | 4 |
| Harry Mills | Partner | 1 |
| Stavros Jones | Partner | 0 |
Diversity in the workplace
We continue to develop the firm as an organisation which represents and reflects the diversity of backgrounds and cultures in which the organisation operates. We aim to ensure that in our organisational structures, decision-making processes, our ways of working, communicating and managing, diversity is welcomed and embraced. We treat all individuals both within and outside the firm with whom we associate openly, fairly, with dignity and respect. We strive to provide a working environment free from any harassment, bullying, victimisation and unlawful discrimination, ensuring equality of opportunity throughout all our processes and practices.
Risk management Objectives and Policies
The Firm’s Governing Body has adopted a conservative risk appetite to maintain a strong capital position, liquidity and balance sheet throughout market cycles.
As an investment management company, risk is a fundamental characteristic of the Firm’s business. The Firm is committed to ensuring all business activities are conducted with a clear understanding of the risks, to maintaining a robust risk management framework, ensuring transparent disclosure, treating its clients fairly, and to meet the expectations of major stakeholders, including clients, employees, Partners and regulators.
Capital Adequacy
The Firm is required to maintain sufficient capital resources at all times. Own funds describe the available capital resources of the Firm while own funds requirement describes the capital funds required as a result of the business activities of the Firm.
Own Funds
The table below shows the Tier 1 capital, specifically Common Equity Tier 1 (CET1) capital held by the Firm. The Firm does not hold any Additional Tier 1 or Tier 2 capital.
The following tables below, in compliance with MIFIDPRU disclosure requirements, disclose:
- the composition of the Firm’s own funds
- a reconciliation of own funds to the capital in the balance sheet per the audited financial statements of the firm, followed by
- a description of the main features of the CET1 capital issued by the firm.
The tables are based on Firm’s Financial Statements as at 31 March 2022.
Composition of regulatory own funds
| Item | Amount (GBP thousands) | Source based on reference numbers/letters of the balance sheet in the audited financial statements |
|
| 1 | OWN FUNDS | 1203 | |
| 2 | TIER 1 CAPITAL | 1203 | |
| 3 | COMMON EQUITY TIER 1 CAPITAL | 1203 | |
| 4 | Fully paid up capital instruments | N/A | |
| 5 | Share premium | N/A | |
| 6 | Retained earnings | N/A | |
| 7 | Accumulated other comprehensive income | N/A | |
| 8 | Other reserves | N/A | |
| 9 | Adjustments to CET1 due to prudential filters | N/A | |
| 10 | Other funds | 1203 | |
| 11 | (-)TOTAL DEDUCTIONS FROM COMMON EQUITY TIER 1 | N/A | |
| 19 | CET1: Other capital elements, deductions and adjustments | N/A | |
| 20 | ADDITIONAL TIER 1 CAPITAL | N/A | |
| 21 | Fully paid up, directly issued capital instruments | N/A | |
| 22 | Share premium | N/A | |
| 23 | (-) TOTAL DEDUCTIONS FROM ADDITIONAL TIER 1 | N/A | |
| 24 | Additional Tier 1: Other capital elements, deductions and adjustments | N/A | |
| 25 | TIER 2 CAPITAL | N/A | |
| 26 | Fully paid up, directly issued capital instruments | N/A | |
| 27 | Share premium | N/A | |
| 28 | (-) TOTAL DEDUCTIONS FROM TIER 2 | N/A | |
| 29 | Tier 2: Other capital elements, deductions and adjustments | N/A |
Own Funds Requirements
The Firm is required to disclose the K-Factor requirement and the fixed over head requirement (FOR) amounts in relation to its compliance with the own funds requirements set out in MIFIDPRU 4.3. These amounts are shown within the table below.
The Firm’s Pillar 1 capital requirement is calculated as the higher of:
- permanent minimum capital requirement of £150,000;
- total K-Factor requirement; and
- the fixed over heads requirement.
| Item | £'000s |
| Permanent Minimum Requirement (PMR) | 150 |
| Fixed Overhead Requirement (FOR) | 856 |
| K-Factor; | |
| K-AUM, K-CMH and K-ASA | 202 |
| K-COH and K-DTF | 0 |
| K-NPR, K-CMG, K-TCD and K-CON | 0 |
| Total K-Factor Requirement (KOR) | 202 |
As at 31 March 2022, the Firm ’s Fixed Over head Requirement of £856,000 establishes its Pillar1 capital requirement, being higher than the base capital requirement and the total K-Factor requirement.
Assessing the adequacy of own funds
The Firm assesses the adequacy of its own funds in accordance with the prescribed permanent minimum capital and fixed overheads requirements. In addition, the Firm undertakes an assessment of own funds requirements through its internal processes to identify additional own funds requirements of the Firm as a result of (i) the material risks associated with ongoing business operations and (ii) those required to facilitate an orderly wind-down of the business. Own funds requirement is formally reviewed,challenged and approved by the Board. The Firm has assessed its additional own funds requirements using the Internal Capital Adequacy and Risk Assessment process (ICARA). The Firm has at all times met the own fund requirements.
Remuneration
For the year ended 31 March 2022, the Firm has applied the transitional provisions available for public disclosure requirements contained in rule 12.8 of MIFIDPRU TP12. As such, this section of the disclosures has been prepared under the previous regime’s rules and the remuneration disclosure is set out below, as required by the UK CRR. Specifically, the disclosure provides details in relation to Remuneration Code Staff , employees whose professional activities have a material impact on the firm’s risk profile, including any employee who is deemed to have a material impact on the firm’s risk profile in accordance with the SYSC19G(5). This includes categories of staff , such as senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management.
The Remuneration Policy:
- Is consistent with and promotes sound and effective risk management;
- Does not encourage adverse risk taking that exceeds the level of risk tolerated by the firm;
- Encourages behaviour that delivers results which are aligned to the interests of the Firm’s clients and comply with the investment policies of the funds we manage;
- Aligns the interests of Code Staff with the long-term interests of the Firm’s clients and the funds we manage;
- Recognises that remuneration should be competitive and reflect both financial and personal performance. Accordingly, Remuneration for Code Staff is made up of fixed pay (salary and benefits, including pension) and variable (performance-related) pay;
- Recognises that fixed and variable components should be appropriately balanced and that the variable component should be flexible enough so that in some circumstances no variable component may be paid at all. Variable pay is made up of short-term awards typically based on short-term financial and strategic measures for the area of the business in which the member of Code Staff works;
In accordance with BIPRU 11.5.18R the following disclosures are made:
- Decision making process for determining remuneration policy, link between pay and performance
There is no remuneration committee. The Firm’s Governing body oversees the setting and review of remuneration levels. Remuneration is set within the context of a 1-year plan which ensures any threats to capital adequacy, liquidity and solvency caused by excessive remuneration would be identified. However, should adverse market conditions dictate, remuneration levels will be reviewed and adjusted, as appropriate, through out the year. The bonus arrangements are agreed annually before the end of the year and are approved by the Governing body. There is no guaranteed or specified bonus scheme. The Firm’s annual Budget includes the level of remuneration for all staff including Code Staff .
2. Policy on link between pay and performance
The staff bonus scheme is operated to allow for meaningful rewards to be paid to staff whose performance during the year merits recognition but within the context of the firm’s financial Budget. Payment of non-guaranteed bonused to individuals is linked to their performance against agreed financial and non-financial objectives from staff appraisals.
External disclosure and data protection
Recital (21) of CRD III – States: good governance structures, transparency and disclosure are essential for sound remuneration policies. Firm’s must ensure adequate transparency to the market of their remuneration structures and the associated risk. Firms should disclose detailed information on their remuneration policies practices and, for reasons of confidentiality, aggregated amounts for those members of staff whose professional activities have a material impact on the risk profile of the institution.
That information should be made available to all stakeholders (shareholders, employees and the general public). However, this obligation should be without prejudice to Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with the regard to the processing of personal data and the free movement of such data.