Pillar 3 and Remuneration policies

Pillar 3 Disclosure
Background

This is the Pillar 3 disclosure made in accordance with the UK Financial Conduct Authority (FCA) Prudential Sourcebook for Banks, Building Societies and Investment Firms (‘BIPRU’).

The European Capital Requirements Directive (CRD) created a regulatory capital framework consisting of three ‘pillars’, namely:

  • Pillar 1 – which sets out the minimum capital requirements that firms are required to meet;
  • Pillar 2 – which requires firms to take a view on whether additional capital should be held against capital risks not covered by Pillar 1;
  • Pillar 3 - which requires firms to publish certain details of its risks, capital and risk management process.

 

Disclosure Policy

The rules in BIPRU 11 provide that the firm may omit one or more of the required disclosures if it believes that the information is immaterial. Materiality is based on the criteria that the omission or misstatement of material information would be likely to change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions. Where the firm considers a disclosure to be immaterial, this will be stated in the relevant section.

The firm is also permitted to omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential. Proprietary information is that which, if it were shared, would undermine the firm’s competitive position. Information is considered to be confidential where there are obligations binding the firm to confidentiality with its clients and counterparties.

Where the firm has omitted information for any of the above reasons, a statement explaining this will be provided in the relevant section.

Unless stated as otherwise, all figures contained in this disclosure are based on the firm’s audited annual reports for the year ending 30 April 2021

Frequency

These Pillar 3 Disclosures will be reviewed on an annual basis as a minimum. The disclosures will be published as soon as is practical following the finalisation of the firm’s Internal Capital Adequacy Assessment Process (ICAAP) and the publication of its annual reports.

Verification

The information contained in this disclosure has not been audited by our firm’s external auditors and does not constitute any form of financial statement.

Publication

Our firm’s Pillar 3 Disclosure reports are published on our website.

Scope and application of Directive requirements

The disclosures in this document are made in respect of Castlebay Investment Partners LLP which provides financial advice and discretionary investment management services.

The firm is a BIPRU firm.
Risk management objectives and policies

Our risk management policy reflects the FCA requirement that we must manage a number of different categories of risk. These include: liquidity, credit, market, interest rate, business and operational risks.

1.  Liquidity risk

The firm manages all cash and borrowing requirements to maximise potential interest income whilst ensuring the firm has sufficient liquid resources to meet the continued operating needs of the business. This is supported by a robust budgeting and forecasting process which has the full involvement of the senior management team.

2.  Credit risk

The firm’s revenues include annual management charges received from clients based on a percentage of client assets under management. These charges are made directly to the clients’ portfolios and therefore the credit risk relating to this income is minimal.

3.  Interest rate risk

The firm has no interest rate risk with a small number of outstanding Loan Notes payable at a fixed rate of interest at 5% per annum.

4.  Business risk

The firm’s Pillar 2 business risk assessment principally takes the form of a fall in assets under management following a market downturn that results in lower management fees.  Systems failures are also considered, although deemed very low risk given our business model. To mitigate our business risk, we regularly analyse various different economic scenarios to model the impact of economic downturns on our financial position.

5.  Operational risk

Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems, from the actions of people or from external events.

Major sources of operation risk include: outsourcing of operations, IT security, internal and external fraud, implementation of strategic change and regulatory non-compliance.

The firm operates a robust risk management process which is regularly reviewed and updated with details being provided to all staff. The firm’s Compliance Oversight is responsible for the periodic reviews and recommending any changes to the Board.  All senior management take responsibility for internal controls and the management of business risk, as part of their accountability to the board.

Individuals are responsible for identifying the risks surrounding their work, implementing controls over those risks and reporting areas of concern to their line manager.

The Compliance Oversight will provide the board with a quarterly / half-yearly summary report on all significant risk issues.

6.  Other risks

The firm operates a simple business model.  Accordingly, many of the specific risks identified by the FCA do not apply.    

 

Capital resources

Pillar 1 requirement

In accordance with GENPRU 2.1.45R (calculation of variable capital requirement for a BIPRU firm), our capital requirement has been determined as being our fixed overhead requirement and not the sum of our credit risk capital requirement and our market risk capital requirement.

The Pillar 1 capital requirement for Castlebay Investment Partners LLP was €50,000 as at 30 April 2021.

Pillar 2

Our overall approach to assessing the adequacy of our internal capital is set out in our ICAAP. The ICAAP process involves separate consideration of risks to our capital combined with stress testing using scenario analysis. The level of capital required to cover risks is a function of impact and probability. We assess impact by modelling the changes in our income and expenses caused by various potential risks over a 1-year time horizon. Probability is assessed subjectively.

In addition, we have reviewed the outputs of our risk reviews to quantify any risks identified. This has identified a number of key business risks which we have classified against the risk categories contained in GENPRU 1.2.30R and reviewed the guidance in BIPRU 2.2.61-65.

Our Pillar 2 capital requirement, which is our own assessment of the minimum amount of capital that we believe is adequate against the risks identified, has been assessed as greater than our Pillar 1 requirement. There is a considerable surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified.

Regulatory capital

The main features of Castlebay Investment Partners LLP’s capital resources for regulatory purposes, as at 30 April 2021 are as follows:

Capital item:

(£k)

Tier 1 capital (called up share capital, share premium account, profit and loss account, externally verified interim net profits)

494

Total of tier 2 and tier 3 capital (broadly long and short term subordinated loans)

 36

Deductions from tier 1 and tier 2 capital

 272

Total capital resources, net of deductions

 258

The firm holds regulatory capital in accordance with the Capital Requirements Directive.

 

Castlebay Remuneration Policy Statement


The firm is subject to the MIFIDPRU Remuneration Code. This section provides further information on our remuneration policy for Castlebay Investment Partners LLP (FCA No. 624445) and Castlebay Financial Management (trading name of Castlebay IP LLP).  Castlebay is responsible for investment management and financial advice activities.

Should you wish to discuss aspects of our Remuneration Policy Statement (RPS), please contact David MacNeil (Partner) for more information on:
Tel: 0141 2127930 or email: davidmacneil@castlebayinvestments.com .

The RPS is in respect of the financial year ending 30 April 2023.

 

General Information on variable remuneration schemes

Castlebay operates on a gender neutral basis and we do not discriminate on the basis of gender when determining the remuneration of all team members.  

 

Link Between Pay & Performance

Remuneration paid at Castlebay is split between salaries and annual discretionary bonuses for non-partners of the firm based on their (non-risk taking) performance during the financial year.  The Partners participate in profit share, based on the profitability of the partnership on an ongoing basis.

All remuneration paid at Castlebay is predicated on the long-term performance of the assets under the management of the firm.  Investment management and financial advice revenues are based on a percentage charge on the value of the amount invested.  We believe this approach encourages a long-term approach to providing sound financial advice and managing money.  All members of the Castlebay team are invested alongside their fellow investors for the long term, closely aligning the interests of all parties.  

All investments are managed according to our Quality value investment philosophy and set within agreed investment parameters both within the Castlebay fund and segregated private client portfolios.  These investment parameters are monitored at Board level and by the fund Authorised Corporate Director (ACD), Valu Trac to ensure there is no deviation from the agreed approach or excessive risk taking by the Investment Managers (Partners).

 

Business strategy

We aim to continue developing meaningful relationships with existing and future like minded investors, aligning objectives and long term interests for Castlebay and our fellow investors.  We believe in the importance of Responsible Investment and are signatories of the United Nations Principles of Responsible Investment (UN PRI). We intend to become signatories of the UK Stewardship code in the near future.

The genesis of Castlebay was to manage the partners capital alongside their clients’ ensuring a close long-term alignment of best interests.  Our purpose is to provide security through compounding: returns, knowledge and trust.  As a team we have also agreed on three non-negotiable behaviours: Honesty & integrity, Doing the basics really well and a Growth mindset.  

 

Castlebay Financial Management provides independent financial advice and portfolio management to a small number of private clients.  

 

Avoiding conflicts of interest

Castlebay was established as a Limited Liability Partnership.  The business is owned by the four partners to manage their own capital alongside their fellow investors, ensuring an alignment of long term interests.  Our independent structure allows us to invest and advise fellow investors for the long term, keeping conflicts of interest to a minimum.  We recognise that from time to time conflicts can arise and our conflicts of interest policy and register outline potential conflicts and how we would react if these occurred.

The non-partner team members are paid fixed salaries and a discretionary bonus based on their and the firm’s financial performance each year. Partners draw profit share based on the financial performance of the firm. They are also invested alongside their fellow investors aligning long term interests with all parties.

As business owners, the Partners are focused on ensuring that Castlebay endures for the long term which requires prudent management of the business as well as the investments.

 

Decision Making / Remuneration Committee

Castlebay does not have a Remuneration Committee. The Partners are responsible for our remuneration policy including:
    • Determining the framework and policy for remuneration and ensuring it does not encourage undue risk taking.
    • Agreeing any major changes in remuneration structures.
    • Reviewing the terms and conditions of any new incentive schemes and in particular, considering the appropriate targets for any performance related remuneration schemes.
    • Considering and recommending the remuneration policy for the senior employees taking into account the appropriate mix of salary, discretionary bonus and share based remuneration.
    • In determining remuneration arrangements, the Partners will give due regard to best practice and any relevant legal or regulatory requirements including the MIFIDPRU Remuneration Code.

The Partners review the RPS annually to ensure it remains relevant to Castlebay and our business activities with the last review signed off on 14th August 2023 board meeting with no material changes to the policy suggested or agreed.

Remuneration and capital
In assessing any variable remuneration payments to those with fixed salaries, the partners consider the minimum capital required at Castlebay, the financial performance of the firm and the individual’s own performance during the year. Variable remuneration is entirely discretionary and subject to the partners agreement.

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