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Transcript
Disclosure and Market Discipline
Relating to Capital Adequacy and the General
Requirements on Risk Management
Reference Year: 2009
Sharelink Securities and Financial Services Ltd
April 2010
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
Introduction
This report pertains to the “
Disclosure and Market Discipline of Investment Firms”
regulatory obligation as stipulated in Chapter 7 of Cyprus Securities and Exchange
Commission’
s (CySEC’
s) Directives 144-2007-05 & Directive 144-2005 05(A).
Under this regulatory obligation the firm is required to disclose information
relating to the capital it holds and each material category of risk it faces in order
to assist users of its accounts and to encourage market discipline. These
disclosures aim to provide information on the risk exposures faced by the firm and
the risk assessment process it has in place to monitor these exposures.
The risk management objectives and policies of Sharelink Securities and Financial
Services Ltd are disclosed for each applicable category of risk, including the risks
referred to under points 1 to 14 of the Appendix XII of CySEC’
s Directives 1442007-05 & Directive 144- 2005 05(A) as these apply to Company’
s current risk
exposures. If risks referred to under points 1 to 14 do not apply, no reference is
made.
Definitions:
Sharelink Securities and Financial Services Ltd: “
SLSFS”
, the “
Company”
,“
KEPEY”
Risk Management: “RM”
Frequency
The Firm will be making these disclosures annually.
Media and Location
The disclosure will be published on our website:
http://www.sharelinksecurities.com/
2
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
Regarding General Requirements
1. KEPEY’
s Risk Management Framework and Structures
The Company’
s risk management framework aims to establish, implement and maintain
adequate policies and procedures designed to manage any type of risks relating to the
KEPEY’
s activities. The current risk management framework sets the process applied in the
activities of and across the KEPEY, designed to identify potential events that may affect its
business, to manage risks to be within its risk appetite, and to provide reasonable assurance
regarding the achievement of its mission and its objectives.
Within the KEPEY’
s risk management framework there are structures that provide for the
validation role of risk management, compliance and internal audit functions. Even though
these are distinct functions in the KEPEY’
s structure and they perform very specific duties in
the overall risk management framework, there is a considerable degree of overlap and
intersect present.
The Accounting Department, the Operations Department, and the Internal Audit, Risk
Management and Legal and Compliance functions work in concert taking into account the
nature, scale and complexity of the business of the Company, and the nature and range of
investment services and activities undertaken in the course of this business. The integrated
objective of these distinct functions is to enhance the accuracy and overall effectiveness of
the KEPEY’
s risk management and monitoring structure.
Given the desired specialization of duties in the overall RM function and based on particular
knowledge and expertise, the KEPEY’
s risk management function focuses on the financial risk
management area, with emphasis given on quantitative issues regarding financial types of
risk. Compliance and Internal Audit roles are clearly defined for the management of
compliance risk and operational risk respectively.
(a) KEPEY’
s Strategies and Processes in Place
Within the overall risk management framework, the Company aligns the risk management
strategies with its business strategies, processes and capabilities. In its organizational
structure, KEPEY delineates specific tasks and reporting relationships as well as designate
clear risk owners as these are defined by the nature of the business / operation and the risks
inherent in this business / operation (i.e. specialization and risk ownership as per type of
risk). The Company then specifies permissible and desirable actions. The action plans are
formulated and formalized in the Operations Manuals of the Departments or in the
Terms of Operations of every function (or activity), while responsibilities and risk
ownership is delineated in the Job Description of each KEPEY employee (i.e. the authorized
persons to carry out particular tasks).
The specific policies and strategies aiming at managing each specific risk are determined
by KEPEY’
s BoD which has the oversight role. There are other bodies with authority within
KEPEY which co-ordinate decision-making and provide oversight according to the relevant risk
management function such as the SLSFS Internal Audit Committee and the SLSFS Investment
Committee. These authorized bodies may develop Company-wide and specific risk
policies, assign owners of significant risks, and evaluate the effectiveness of the policies in
place for managing specific risks. They may also evaluate measurement methodologies and
establish capital allocation frameworks according to the nature of relevant risks. All specific
policies and strategies in place are defined in various forms or means (either through written
means, manuals, set of rules, standard actions or code of conducts).
3
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
For the critical role of risk management, compliance and internal audit functions there are
clear strategies and policies as these relate to each responsibility and framework of these
functions. Compliance and Internal Audit roles are clearly defined for the management of
compliance (legal and regulatory) risk and operational risk respectively.
(b) The Structure and Organization of the Relevant Risk Management Functions
The Accounting Department is responsible for the day-to-day recording of all financial
information, control of all receipts and payments, internal management reporting and
external financial reporting. The Accounting department is also responsible for the
management accounts which are feeding into the Capital Adequacy requirements monitoring.
The Internal Auditor is responsible for conducting independent appraisals of the KEPEY’
s
activities, functions and operations to ensure that an adequate framework of internal controls
has been established and is operating effectively. The Compliance Officer has the
responsibility for ensuring that structures and procedures are in place to ensure compliance
with laws and regulations, which relate to minimizing the risk of complying by the set up of
internal policies and procedures as well as fostering standards of behavior to protect and
enhance the compliance of the Company towards the KEPEY Law and relevant regulation
directives.
Diagram of Organizational Structure
(c) Risk Reporting and Measurement Systems
Communication of information at all relevant levels of the Company is defined by the
organizational structure which clearly specifies reporting lines and allocates functions and
responsibilities; the Company maintains internal reporting at various risk types, frequency,
and depth of reports. SLSFS internal reporting is intended to provide the BoD (or other
relevant body) with knowledge about specific risks, including the level of exposures versus
4
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
limits, “
what-if”scenarios, trends in risk drivers, risk diversification and concentration, limits
violation and other information set in the policies of the Company. The reporting lines are as
they are depicted in the diagram above.
The Internal Audit Department reports directly to the Audit Committee and the Board of
Directors of the company, thus maintaining its independence. The RM department is
reporting primarily to the BoD and other relevant supervisory bodies of the Company (mainly
the SLSFS Investment Committee), for the enforcement of the relevant risk management
policies and guidelines. The Compliance function is reporting directly to the Managing director
and thereafter to the SLSFS BoD. Some reporting may be ad-hoc as this may relate to risk
controls performed on randomly selected intervals (to monitor various policies in place).
(d) Policy and Procedures of the Company
The Company maintains all policies and procedures according to each department’
s
operations or functions in the Company operations. Departments and Committees are
responsible for the development and updating of their Operation Manuals / Terms of
reference.
The operation manuals (OM) stipulate all relevant operational policies (Company policies)
which are focused statements or descriptions that follow from the regulation, the relevant
legislation or internal regulations and practices adopted by the Board of Directors. The OM
may also include operational procedures that spell out procedural requirements and guidance
on the implementation of policies.
Manuals defining set of Policies:
§
Policy Manual Doc. Ref. I-G000A (GOM)
§
Anti-Money Laundering Manual Doc. Ref. Doc. Ref. M-SCO-1
§
Operations Manual –Order Taking and Firm Credit Limit Management Doc. Ref. PCB088B (GOM)
§
Operations Manual - Account Opening Procedures Doc. Ref. P-CB230A
§
Operations Manual –
§
Operations Manual –Asset Management Operations & Systems Update Doc. Ref. PCB00000
§
Wealth Management Manual Doc. Ref. M-WM-01
§
Internal Audit Operations Manual - Doc. Ref. I-G216A (GOM)
§
Risk Management Manual Doc. Ref. P-RM164A
Clearing Doc. Ref. P- CB000
The policies for hedging and mitigating risk
The Company has various policies for mitigating risk as these risks relate to specific
categories of risk (even though some policies may be geared to the achievement of
objectives in one or more separate but overlapping categories). The Company does not have
any hedging policies since it is not holding positions that would require hedging.
Categories of Policies relating to Compliance Issues are:
§
Client Categorization
§
Complaint Submission Procedure
§
Best Execution Policy
5
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
§
Conflicts of Interest Policy
§
General information to the clients
§
Costs and Associated Charges
§
Description of Financial Instruments and Investment Risks
§
Information Concerning the Safeguarding Financial Instruments and Funds of Retail
Clients
Other Internal Directives relating to Compliance:
§
Policy on Staff Trade activity
§
Reception and transmission of Client Orders
§
Policy and Controls on Clients Order Taking
§
Insider Trading and Market Manipulation
§
KYC for legal persons
§
Policy for submitting documents to CySec
§
Policies relating to Employees Personal Transactions
§
Policies regarding Clients Suitability and appropriateness Tests
§
Internal directives for large financial positions (relating to Capital requirements
directive)
Categories of Policies relating to Risk Management Issues are:
§
Policy and Controls on Asset Management Activities
§
Policy and Processes on Investment banking Activity
§
Policies on systems and model development for other activities
§
Policy and Controls on Proprietary trading activity
§
Controls and monitoring of Strategic Planning Process (macroeconomic environment
etc)
Categories of Policies relating to Internal Audit Issues are:
§
Policy on Financial Audits (To check and confirm the accuracy of data in the financial
statements, as well as assess the effectiveness of controls in accounting activities).
§
Policy on Compliance Audits (To assess the level of compliance of the company and its
employees to all relevant laws, rules and regulations, as well as internal management
directives).
§
Policy on Operational Audits (To assess the efficiency and effectiveness of controls
applied to the general of operational risks: Processes, Systems and People)
2. Sharelink Securities and Financial Services Ltd calculate its capital adequacy on a
consolidation basis with its subsidiary M.H. Value Added Online Ltd.
6
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
3. The company maintains only Tier one Capital as eligible own fund.
The Eligible own funds consist from the following:
Share Capital
Share Premium
Reserves
Intangible Assets (Software)
Bad Debts (Value Adjustment for Credit
Risk Positions in Standardised Approach)
Illiquid Shares (Other Country Specific Deductions from Original and
Additional own funds)
2.565
3.522
(1.593)
(45)
53
(153)
4.349
Under the Directive, Own Funds consists mainly of paid up share capital, retained earnings
less any proposed dividends, translation differences and un-audited current year losses.
Current year profits are not added to own funds unless these are audited.
4. The Company ensures on a regular basis that it complies with externally imposed capital
requirements and that it maintains healthy capital ratios in order to support its business and
to maximise shareholders’value. The preparation is the responsibility of the accounts
department and the monitoring is performed by the risk management department but
decisions regarding the capital adequacy ratio and the minimum level set internally are taken
at the Company’
s BOD level.
The Capital adequacy ratio of the company is 27,19% much higher than the minimum
required 8% and is generally maintained at high levels as per the BOD’
s policy.
During 2009 the Company had fully complied with all externally imposed capital requirements
as shown in the table below.
Total Capital (Own Funds)
2009
€000
4.349
Risk weighted assets –Credit Risk
Risk weighted assets –Market Risk
Risk weighted assets –Operational Risk
Total Risks
496
8
775
1.279
Surplus Capital Against Total Risks
3.070
Total Capital Adequacy Ratio
27,19%
7
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
5. Credit Risk
The Company adopts the Standardised approach for Credit Risk.
In the ordinary course of business, the Company is exposed to credit risk, which is
monitored through various control mechanisms. Credit risk arises when a failure by
counterparties to discharge their obligations could reduce the amount of future cash inflows
from financial assets on hand at the balance sheet date.
Cash balances are held with high credit quality financial institutions and the Company has
policies to limit the amount of credit exposure to any debtor or financial institution.
The table below shows the maximum exposure to credit risk:
Maximum
exposure
to credit
risk
2009
€000
Risk weighted assets:
Cash
3.421
Fees Receivable & Other Assets
2.557
Fixed Assets
220
Total risk weighted assets
6.198
Credit Risk (8% of total risk weighted assets)
496
11. Operational Risk
The Company adopted the Basic Indicator approach for Operational risk. The Basic Indicator
approach calculates the average, on a three year basis, of net income to be used in the risk
weighted assets calculation. This includes the average over a 3 year period of brokerage
income, management fees, investment banking and other revenues.
Operational risk is the risk of loss arising from fraud, unauthorized activities, error, omission,
inefficiency, systems failure or external events. It is inherent in every business organization
and covers a wide range of issues.
8
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group
Sharelink Securities and Financial Services Ltd
Regulated by the Cyprus Securities and Exchange Commission
License No.014/03, Member of the CSE and ASE
The Company manages operational risk through a control-based environment in which
processes are documented and transactions are reconciled and monitored. This is supported
by Internal Auditors of the company (as these are described in the general requirement
section in the first part of the report) and by continual monitoring of operational risk incidents
to ensure that past failures are not repeated.
12. Market risk
The Company adopted the Standardised approach for Market risk.The standardised
measurement method for the capital requirement for position risk in equities adds together
the long and short positions of equities according to predefined models to determine the
capital requirement.
Foreign Exchange Risk
The main sources of foreign exchange risk for the Company are certain bank balances in
foreign currencies and exposures in foreign currencies from fees receivables, which are
immaterial amounts.
13. Interest rate risk
Interest rate risk is the risk that the value of financial assets or liabilities may fluctuate as a
result of changes in the market interest rate environment which might include changes in the
overall level of interest rates, the volatility of interest rates and the interest rate spreads.
Interest rate sensitivity
At 31 December 2009, if interest rates on Euro-denominated bank balances had been 50
basis points higher/lower with all other variables held constant, post-tax profit for the year
would have been €15.443 higher/lower, mainly as a result of higher/lower interest income on
floating rate bank balances.
The Company's management monitors the interest rate fluctuations on a continuous basis
and acts accordingly.
End of this Report
9
Ellinas House, 6 Theotoki Street, P.O.Box 22379, 1521 Nicosia Cyprus, Tel. +357 2255 4200 Fax. +357 2275 0852
www.sharelinksecurities.com
Member of the SFS Group