Polunin Capital Partners Limited (“PCP” or the “Firm”) Pillar 3 Disclosures as at 31st December 2021

The following information is provided pursuant to the Pillar 3 disclosure rules as laid out by the Financial Conduct Authority (“FCA”) in section 11 of the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”).


The FCA’s prudential framework for investment firms consists of three “Pillars”:

  • Pillar 1 sets out the minimum capital requirements;
  • Pillar 2 is an assessment of whether additional capital is needed over and above that determined under Pillar 1; and
  • Pillar 3 requires the Firm to publish its objectives and policies in relation to risk management, and information on its risk exposures and capital resources as well as disclosures with respect to FCA’s “Remuneration Code”.

The rules provide that disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions.

PCP is a “BIPRU firm and a Collective Portfolio Management Investment Firm”; it does not have permission to deal with retail clients and is not authorised to hold client money or assets. The Firm has the permission to provide advisory, arranging and investment management services. As a consequence the main risks facing the Firm relate to its operations and its business environment.

The disclosures below are the required Pillar 3 disclosures and apply solely to the Firm.

Although the Senior Management of PCP Firm believes that the risk management framework outlined herein is appropriate for the size and complexity of the Firm and that the Firm’s capital is adequate to meet the risks assessed, it cannot guarantee that this will actually be the case in the event any particular risk arises.

Risk management

The Firm operates a risk management framework that sets out the responsibilities and escalation procedures for the identification, monitoring, and management of operational and business risks. Capital planning takes these identified risks into account.

As part of its control and corporate governance arrangements the Board has established an Operational Risk Committee which meets quarterly to collectively consider the individual risks and mitigating controls as identified via the Firm’s Risk Map and to ensure that all identified risks are adequately mitigated. Specific personnel are assigned responsibility for the risks across the Firm.

Where risks are identified which fall outside of the Firm’s risk tolerance levels, or where the need for remedial action is identified in respect of identified weaknesses in the Firm’s mitigating controls, then actions are taken to improve the control framework.

The Senior Management of PCP determines the Firm’s business strategy and risk appetite together with the design and implementation of a risk management framework. To further strengthen risk monitoring and management, since 2010 Senior Management has commissioned Deloitte to perform an independent, annual audit of the company’s systems and controls. This was an SSAE18 type II audit in 2021.

The Firm’s Chief Executive takes overall responsibility, with the assistance of all the other Directors for identifying material risks to the Firm and putting appropriate mitigating controls in place.

The specific types of risks faced by the Firm are;

  • Operational risk,
  • Business risk,
  • Credit risk, and
  • Market risk.

Operational risk

This is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. The Firm seeks to minimize operational risk through a controls framework, particularly when engaging in new business ventures or trading new products. The Firm considers risks which may impact the Firm directly or indirectly. The systems and controls that the Firm is currently reliant upon as an advisor/arranger and Investment Management firm are considered adequate and the Firm considers its operational risks to be minimal.

Business risk

Business risk arises from external sources such as changes to the economic environment or one-off economic shocks, and also from internal sources such as poor decisions or suboptimal allocation of capital resulting in poor performance and damage to the Firm’s reputation.

An extreme scenario has been modelled in order to assess the impact of adverse economic conditions on our financial position. This enables the Firm to monitor its business risk and to assist in its capital planning.

Credit risk

The Firm’s credit risk is limited to fees receivable and cash held on deposit at large international credit and regulated institutions. Fees are drawn down monthly on activity in the month, and are received by the Firm in arrears. Consequently, the Firm has a credit exposure in respect of which it uses the simplified standardised approach when calculating risk weighted exposures, in accordance with the provisions of BIPRU 3.5. As at 31st December 2021, the Firm had a total weighted credit risk of £17,432,000 giving a Credit Risk Requirement of £1,395,000.

Market risk

The Firm’s exposure to Market Risk is limited to foreign exchange risk in respect of its accounts receivable and cash balances held in currencies other than GBP. The Firm calculates its foreign exchange risk by reference to the provisions of BIPRU 7.5. As at 31st December 2021, the aggregated foreign exchange risk accounted for a total Market Risk of £37,971,000 giving a Market Risk Requirement of £3,038,000.

Capital adequacy

As at 31st December 2021, the Firm’s Tier 1 regulatory capital resources of £14,514,000 were made up as follows:

Permanent share capital£1,205
Audited reserves less dividends paid£13,309
Tier 1 and regulatory capital£14,514

The audited PCP financial statements for the year ended 31st December 2021 were finalised on 1st April 2022, as of this date the Firm’s profit for 2021 was recognised as audited and £18,837,085 was added into the Firm’s Tier 1 and regulatory capital calculation, lifting PCP’s Tier 1 regulatory capital resources to £33,351,085.

PCP’s Pillar 1 capital requirement is calculated in accordance with the General Prudential Sourcebook (“GENPRU”) as the higher of the Fixed Overheads Requirement (“FOR”), the aggregate of Market and Credit Risk Requirements, or the base capital requirement of €125,000. The Firm’s Credit Risk is calculated as per the “Standardised Approach (BIPRU 3.4)” and Market Risk in line with BIRU 7.5. As at 31st December 2021 the Firm’s Pillar 1 requirement equated to the aggregated Market and Credit Risk Requirements at £4,433,000.

The Firm takes a prudent approach to the management of its capital base and monitors its expenditure on a monthly basis in order to take account of any material fluctuations which may require its FOR to be reassessed. The Firm ensures that at all times it has sufficient capital to meet its FOR and formally verifies this on a quarterly basis.

Under Pillar 2 of the FCA’s capital requirements, PCP has undertaken an assessment of the adequacy of capital based upon all the risks to which the business is exposed (“ICAAP”). As at 31 December 2021, this analysis concluded that the Firm required £133,000 capital against the identified key residual risks.

The Firm has concluded that as at 31st December 2021, the applicable internal regulatory capital required was the higher of its aggregated (Pillar 1) Market and Credit Risk Requirements, and the Pillar 2 calculation, and that its financial resources are more than adequate to support its operations over the next year, and no additional capital injections are necessary.

Code Staff remuneration

PCP is required under Chapter 11 of BIPRU to disclose, inter-alia, its approach vis-à-vis linking remuneration to risk. By virtue of its status as a €125,000 BIPRU firm and a Collective Portfolio Management Investment firm the Firm believes it is permitted to apply the rules set out BIPRU 11 on a proportionate basis.

PCP does not maintain a Remuneration Committee and all remuneration decisions are taken by the PCP Board, the Firm’s governing body. Salaries are benchmarked against the industry practice.

PCP’s compensation arrangements are designed to keep key investment professionals’ interests aligned with those of investors, encourage long term planning and minimise staff turnover. Remuneration of the Firm’s employees comprises a basic salary and an annual discretionary bonus. Salaries are commensurate with seniority, experience and qualifications. The Board of Directors has sought to set the fixed element of remuneration at a level that is sufficient to provide staff with comfortable living standards, in attempt to avoid over reliance on any variable element of remuneration. Salaries are benchmarked annually against an asset management remuneration study. The bonus process involves annual staff reviews with clearly documented objectives and performance appraisals for each employee.

PCP operates an employee Share Award Scheme designed to act as part retention mechanism and part succession plan. Any employee with more than three years’ service may elect to receive part of their performance related bonus in non-redeemable preference shares. To date approximately 6.9% of the company’s equity has been distributed to employees under this scheme.

Risk is considered when setting goals and objectives for staff and PCP Board when making decisions on individual remuneration and policy in general. Any variable remuneration arrangements are linked to performance. The firm does not make any guaranteed bonus commitments.

The Firm’s board has identified four persons as ‘Code staff’, being persons holding significant influence roles, investment and other senior managers whose actions could have a material impact on the risk profile of the Firm.

The aggregate remuneration for PCP Code Staff for the year ended 31st December 2021 was £2,120,100, of which £795,000 was fixed, and £1,224,500 was variable remuneration.