Pillar 3 Disclosures

Capital Requirements Directive
Margetts Fund Management Ltd

The 2006 Capital Requirements Directive (‘the Directive’) of the European Union establishes a revised regulatory capital framework across Europe based on the provisions of the Basel 2 Capital Accord governing the amount and nature of capital credit institutions and investment firms must maintain. In the United Kingdom, the Directive has been implemented by the Financial Conduct Authority (‘FCA’) in its regulations through the General Prudential Sourcebook (‘GENPRU’) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).

The new framework consists of three ‘Pillars’: # Pillar 1 sets out the minimum capital amount that meets the firm’s credit, market and operational risk; # Pillar 2 requires the firm to assess whether its Pillar 1 capital is adequate to meet its risks and is subject to annual review by the FCA; and # Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position. The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations.

We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information. In addition, we may omit required disclosures where we believe that the information is regarded as proprietary or confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our customers, suppliers and counterparties. We have made no omissions on the grounds that it is immaterial, proprietary or confidential.

The extent to which we are exposed to credit risk is in the issue of new units in funds where we act as ACD or operator. This risk is substantially reduced as Margetts would substitute the ownership of the assets in the event of a default and therefore exposure is limited to any adverse market move.

Margetts is governed by a board of directors who determine the business strategy and associated risks. They are responsible for designing and implementing risk controls that recognise the risks being taken so that they can be effectively managed and mitigated where possible. The board meets frequently to consider market conditions, profitability, cash flow, level of reserves and business planning.

Risks are managed through policies and procedures, principles and rules (including FCA principles and rules), which are updated as required. The board have identified that business, reputational, operational, market and credit risks are the main areas of risk to which the company is exposed. The board formally review risks and controls annually and this includes the level of capital deemed adequate to cover the risks identified.

The provision for non-payment of fees is governed by our agreement with clients.

The majority of our risk management efforts are focused in this area. This considers the entire operation of the business including administrative errors, procedures, functionality of our premises, reliance on third party providers such as IT systems and competency of our employees. All operational risks which can be identified are logged and categorised on an annual basis. The strategy for dealing with these risks is reviewed and approved by the Margetts board. We continuously evaluate our internal controls to ensure they are operating as designed and are effective in preventing losses or errors. We do this both through our own checking and monitoring and by using third parties to undertake independent reviews.

Margetts is not exposed to any significant risk as our assets are held in cash with UK regulated banks. Margetts occasionally holds box positions which represent units or shares in funds where we act as ACD. These positions are normally small, temporary and underwritten by the value of the units held and therefore this is not a material risk in our view and has been included in our ICAAP assessment.

The company held capital and reserves of £1,344,884 as at 30 June 2012. The internal capital to be held against Capital Resource Requirements (CRR) pillar 1 calculation is £599,000 which represents the fixed overhead requirement (FOR). This is the figure that the board have decided should be held as a capital resource and is believed to be sufficient to cover all risks identified. The figure of £160,000 has been calculated as risk based capital, however, this has not been added to the FOR as it is deemed that the FOR is sufficient to cover all risks currently faced by the business. There is a considerable surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified.