1. Introduction
1.1. Overview
TFS-ICAP Limited ('TFS-ICAP') is a joint venture between
Compagnie Financière Tradition ('CFT') Group, CME Group and
Volbroker.com Limited.
The firm is authorised and regulated in the UK by the Financial
Conduct Authority ('FCA') to undertake certain regulated activities
and meets the definition of a non-SNI MIFIDPRU investment firm.
TFS-ICAP is also regulated in the United States by the Commodities
Futures Trading Commission ('CFTC') on behalf of the National
Futures Association ('NFA') as an introducing broker.
Tradition Management Services Limited ('TMS') provides TFS-ICAP
with administrative support services. TMS recharges to TFS-ICAP any
costs it incurs on its behalf. TMS is a subsidiary of CFT.
1.2. Business Activities
TFS-ICAP is an intermediary in financial markets. The firm
provides brokerage services on an arranging, and execution basis
for currency options. Its customers are mainly commercial and
investment banks.
TFS-ICAP also provides access to the Volbroker electronic
broking system and operates the Tradition-NEX Currency Options
organised trading facility ('OTF').
In addition to its brokerage services, TFS-ICAP provides market
information to clients and data providers, including real-time
price information.
TFS-ICAP does not perform any proprietary trading.
1.3. Scope of Disclosures
The Investment Firms Prudential Regime ('IFPR') came into force
from 1 January 2022 and is applicable to TFS-ICAP as a UK regulated
entity. The IFPR requirements are incorporated into UK regulation
in the MIFIDPRU sourcebook section of the FCA handbook.
MIFIDPRU 8 permits firms to aggregate remuneration information
for senior management and other material risk takers, where
splitting the information between those two categories would lead
to the disclosure of information about one or two people. Where
aggregation of the remuneration information would still lead to the
disclosure of information about one or two people, firms are not
required to report quantitative remuneration disclosures.
The firm's disclosures are not required to be independently
audited, but where they include data also presented in the Annual
Report and Financial Statements, this is independently audited. The
disclosures have been reviewed and approved by senior management
and the Board of Directors. In accordance with MIFIDPRU 8.1.13, the
disclosures are available on the traditionicap.com
website.
2. Governance
Arrangements
2.1. Internal Governance
Arrangements
TFS-ICAP's Board is supported by two functional committees that
meet monthly: the Management Committee and the Oversight
Committee.
The Management Committee comprises representatives from senior
management and independent non-executive Board members. Members of
TMS are invited to attend as required. The committee considers
matters relating to:
- risk and controls;
- capital and liquidity;
- regulation and compliance; and
- culture and conduct.
The Oversight Committee considers any matters relating to the
support services provided to TFS-ICAP Ltd, including those provided
by Tradition. It comprises independent non-executive Board
members.
The Remuneration Committee comprises non-executive directors.
Its role is to assist and make recommendations to the Board and
provide oversight of remuneration policies, structures and
practices of TFS-ICAP and to ensure that:
- individuals are rewarded fairly and responsibly having regard
to their role and performance; and
- those policies, structures and practices, particularly in the
context of performance related or variable remuneration, align with
the Board's standards on governance and risk, its strategic
objectives, customer and shareholder interests and applicable laws
and regulations.
The firm does not have a dedicated Risk Committee. Risk is an
agenda item at each Board meeting when the CRO presents a risk
report with relevant management information.
2.2. Board Governance and Control
The Board has created a governance and control framework that
sets out the way in which the formal Board and Committee structure
and approval systems operate. The framework covers policy, risk
appetite, business performance, limits setting, delegation of
levels of authority, capital management and assurance
mechanisms.
The Board's governance and control framework is based upon the
concept of internal lines of defence against risk. This arrangement
aims to ensure that accountability for the management of risk is
embedded in day-to-day management.
The Board's governance and control framework is based on the
following lines of defence:
- First line - process owners and the management functions which
have primary responsibility for the assessment and monitoring of
their own risks; and
- Second line - support functions which provide the business with
specialist support in analysing risks and monitoring controls.
The TFS-ICAP Board provides the following governance and
oversight:
- setting appropriate risk strategy and risk appetite;
- promoting internal risk culture and risk awareness;
- monitoring the implementation of the risk strategy by
Risk;
- ensuring the independence of control functions;
- ensuring the independence of Internal Audit (assurance
activity); and
- verifying that independent control functions operate
correctly.
Figure 1. The number of external directorships held by
each member of the TFS-ICAP management body
| . |
Executive
Directorships |
Non-Executive
Directorships |
|
Non-Executive Directors |
| Anthony Belchambers |
- |
1 |
| Ian Chicken |
- |
1 |
| Scott Fitzpatrick |
- |
- |
| Simon Manwaring |
- |
1 |
| Jon Marchese |
- |
- |
| Ellen Miller |
- |
- |
| Paul Newman |
- |
- |
| Executive
Directors |
| Tom Milligan |
- |
- |
| Larry Rosenshein |
- |
- |
2.3. Board Recruitment and
Diversity
Recruitment of members of the management body follows FCA
requirements, and a suitability assessment is completed. A
multiple-stage interview and selection process is able to assess
potential directors' aptitude, skills and experience and gauge the
potential contribution to achieving the firm's strategic
objectives.
TFS-ICAP is committed to a diverse and inclusive workplace and
the Board is particularly mindful of the firm's responsibilities as
a fair and just employer. Realising the potential of a diverse
workforce is critical to business success. It enhances creativity,
different approaches to problem solving and more effective team
working.
3. Risk Management
Objectives and Policies
3.1. Risk Management Overview
TFS-ICAP's Enterprise-Wide Risk Management Framework ('EWRMF')
provides a high-level overview of the key processes related to risk
management. It sets out how risk is managed across all identified
risk categories. The EWRMF is formalised and supported by a suite
of risk related policies and procedures. It comprises key processes
related to risk management, including the approaches that are used
for identification, assessment, quantification, escalation and
reporting of risk.
The objectives of TFS-ICAP's EWRMF are to:
- identify and assess the risks inherent within the firm's
activities;
- identify, implement, assess and monitor mitigation strategies
in order to reduce the firm's risk exposure;
- alert the Board of any substantive threats to its risk
appetite;
- identify, record and analyse risk events;
- monitor key risks and report on their threat levels;
- ensure that issues identified internally or by third parties
are recorded, remediated, escalated and reported;
- ensure the various components of the EWRMF are integrated and
cohesive;
- provide senior management with risk-related information in
order to encourage risk-informed decision making;
- embed a robust risk management culture within the firm;
and
- contribute to the risk-based quantification of regulatory
capital and to the continuous improvement of the management of the
firm's capital requirements.
3.2. Risk Oversight
The Board has ultimate responsibility for risk oversight of the
firm. It is supported by a risk governance structure, which is in
place as part of the overall EWRMF. TFS-ICAP operates two lines of
defence to ensure that its risks are appropriately managed and that
there is due oversight of how the risks are being managed. The
lines of defence are described further below.
The firm does not have an in-house internal audit function,
which the Board considers to be appropriate, given the
straight-forward nature, small scale and lack of complexity of
TFS-ICAP's activities.
The First Line of Defence
The first line of defence consists of operations and business
process owners across the firm who have primary responsibility for
their Risk and Control Self-Assessment ('RCSA'). They act as risk
owners with a responsibility to be proactive in reducing the
likelihood and severity of incidents, including establishing
appropriate risk controls and ensuring that when incidents occur
they are recorded, reported and remediated where appropriate.
The day-to-day management of certain controls are delegated to a
number of support functions, which support the first line of
defence business and operational management. These support
functions include, but are not limited to: Finance, IT,
Legal, HR, Facilities, and Front Office Risk and Control
('FORC').
The Second Line of Defence
The second line of defence consists of the risk and control
functions that establish overarching systems and processes to
assess, monitor and minimise risks across the firm, overseeing the
effectiveness of the first line risk management and control
environment, and where necessary defining additional controls,
mitigation or other risk management measures. The second line
is responsible for challenging and formally reviewing the
effectiveness of the first line in managing the risks that it
incurs and owns.
This role is primarily performed by the control functions and
senior managers described below:
Risk Function
The Chief Risk Officer has a reporting line to the Board.
The Risk Function is responsible for the measurement, monitoring
and reporting of risks within TFS-ICAP and for driving the
development of risk management capability and the firm's EWRMF.
Compliance Function
The Compliance Officer has a reporting line to the Board.
The objective of compliance is to monitor adherence to all
regulatory rules and requirements and to ensure that all regulatory
issues are effectively monitored and managed.
Oversight of Outsourced Services
The majority of operational support is outsourced to TMS. The
firm maintains responsibility and accountability for the services
of the outsourced functions. It ensures it has appropriate and
adequate management information to assist with monitoring of the
individual services provided by the outsourced provider.
3.3. Board Risk Appetite
The Board's approach to setting risk appetite and tolerances is
set-out in the Risk Appetite Framework. Its risk appetite defines
the type and level of risk that the Board is prepared to accept in
pursuit of its strategic objectives and business strategy, taking
into account the interests of its clients and shareholders, as well
as regulatory requirements. Details of the measures, tolerances and
qualitative statement that are the Board's assessment of its
appetite are captured in the Risk Appetite Statement. The Board's
appetite for principal risks is defined in terms of both
quantitative measures and qualitative statements.
The Board calibrates risk appetite at least annually. It is
documented in the Risk Appetite Framework which explains:
- how risk appetite is being used to support strategy setting and
business planning.
- the link between TFS-ICAP Board level risk appetite and
operational limits used to run the business; and
- escalation procedures and corrective action in event that
appetite is breached.
The Board requires the firm to hold sufficient capital resources
to meet its requirements under the ICARA process. Capital that
falls below the regulatory minimum (Own Funds Threshold
Requirement) is outside the Board's risk appetite.
The Board requires the firm to hold sufficient liquidity
resources that are realisable at appropriate intervals to meet the
Liquid Assets Threshold Requirement plus an internal buffer at any
point on a six-month forward forecast basis.
TFS-ICAP does not perform any proprietary trading and its risk
profile is based on arranging options trades for clients, operating
an OTF and providing data. It is exposed to operational risk of
interruption to or inaccuracy or incompleteness in provision of
these services. Its business strategy is based on delivering
excellent client service and maintaining client trust. The Board
adopts a conservative approach and sets low tolerance for risks
that could materially impact the business strategy.
3.4. Principal Risks and the Potential
for Harm
The Board assesses principal risks and sources of potential harm
that TFS-ICAP could cause through the conduct of its activities and
changes to its business model. A central feature of the EWRMF that
has specific importance for identification of principal risks is
the RCSA process where management identify and assess the risks
facing their business. The approach is documented in the RCSA
Policy.
A principal risk, if it were to crystallise, may cause harm to
the firm's clients, to markets, or to the firm itself. TFS-ICAP
derives its principal risks from the RCSA results. Risks across
TFS-ICAP are scored for inherent impact and net impact after
mitigating controls. The Risk function confirms completeness of the
firm's risk types from the RCSA and maps these to individual
harms.
The Risk Function ensures that the principal risks are actively
monitored through key risk indicators ('KRI') and that any
identified control gaps have associated remedial action plans.
Risk-based management information is reported through the firm's
governance structure to promote timely and informed
decision-making. The Board considers the principal risks within its
risk profile quarterly.
Principal risks identified include:
Credit Risk
TFS-ICAP is exposed to two principal forms of credit risk:
- Financial Counterparty: the firm holds funds with banks that
could be at risk of recovery in the event the bank fails.
- Debtors: clients may fail to pay their invoices for broking
commission. TFS-ICAP's universe of core clients primarily comprises
banks and financial institutions. TFS-ICAP has not experienced any
significant credit losses.
Market Risk
TFS-ICAP is exposed to foreign currency risk that arises through
its normal operating activities, which generate receivables and
payables in foreign currencies. In addition to GBP, revenue is
principally earned in EUR and USD and to a lesser degree in other
currencies.
Operational Risk
TFS-ICAP may experience operational risk losses in its
day-to-day business from errors, penalties and differences in
broking activities.
Regulatory Risk
TFS-ICAP management is responsible for overall compliance with
legal and regulatory requirements. The Compliance function has
day-to-day responsibility for the regulatory risk framework and to
ensure that regulatory risk is identified, assessed and
managed.
Strategic/Business Risk
TFS-ICAP is exposed to risk arising from changes in its business
environment, including the risk that it may not be able to carry
out its business plans and its agreed strategy.
Liquidity Risk
Liquidity risk is the risk that TFS-ICAP is unable to meet its
liabilities as they fall due, is unable to maintain access to
effective and stable sources of funding, or that in order to meet
liabilities it is obliged to sell assets at prices that lead to
losses.
Balance sheet liquidity risk arises from changes in the profile
of the firm's current assets and liabilities. These may
result from changes in foreign exchange rates, the rate at which
receivables are collected or payables are settled, unexpected
costs, or from changes in financing arrangements.
3.5. Strategies to Manage Risk and
Reduce Harm
Through its internal capital adequacy and risk assessment
('ICARA') process the Board has identified potential harms to
financial markets, to clients or to the firm itself and has
determined an appropriate level of own funds to hold after
assessing the effectiveness of mitigating systems and controls.
TFS-ICAP's governance structure ensures that capital and
liquidity adequacy is at the forefront of the Board's and Senior
Management's mind throughout the year.
4. Own Funds
TFS-ICAP's 'share capital', 'share premium' and 'retained
earnings' qualify as a Common Equity Tier 1 capital, meeting the
conditions of loss absorbency laid out in Chapter 2 of Title I of
Part Two of the UK CRR. TFS-ICAP has not issued capital defined as
Alternative Tier 1 capital, and as a result, capital ratios Common
Equity Tier 1, Tier 1 and total are identical.
TFS-ICAP has issued Tier 2 capital in the form of a subordinated
loan from Volbroker.com Ltd and TFI Holdings Ltd for a principal
amount of £700,000 each. The loans meet the conditions in Chapter 4
of Title I of Part Two of the UK CRR. The amount of the loans do
not exceed the limits for relative qualities of capital, and it
qualifies for use as Tier 2 capital in full.
TFS-ICAP takes capital deductions in accordance with UK CRR
Articles 36 and 66, and a prudent valuation adjustment in
accordance with UK CRR Article 105. Deductions are taken for
intangible assets and any tax charge relating to capital items.
At 31 December 2023 the total own funds of TFS-ICAP was as
follows:
Figure 2. Composition of TFS-ICAP regulatory own funds at
31 December 2023
|
Own funds
|
2023
|
2022
|
| Own Funds |
14,839 |
12,198 |
| Tier 1 Capital |
13,439 |
10,798 |
| Common Equity Tier 1 Capital |
13,439 |
10,798 |
| Fully
paid up capital instruments |
20 |
20 |
| Share
premium |
540 |
540 |
| Retained earnings |
12,897 |
10,255 |
| Other
reserves |
- |
- |
| (-)
Total Deductions from Common Equity Tier 1 |
(18) |
(17) |
| CET1:
Other capital elements, deductions and adjustments |
(18) |
(17) |
| Additional Tier 1 Capital |
- |
- |
| Tier 2 Capital |
1,400 |
1,400 |
| Fully
paid up, directly issued capital instruments |
1,400 |
1,400 |
Figure 3. Reconciliation of regulatory own funds to the
audited financial statements at 31 December 2023
Balance sheet description
|
Regulatory Own
Funds |
Audited
Financial
Statements |
| Fully paid up
capital instruments |
20 |
20 |
| Share
premium |
540 |
540 |
| Retained
Earnings |
12,897 |
12,897 |
| Less regulatory
deductions |
| Prudent valuation
adjustment |
0 |
- |
| Intangible
assets |
1 |
- |
| Deferred
tax |
17 |
- |
| Common
Equity Tier 1 Capital |
13,439 |
13,457 |
| Subordinated
Debt |
1,400 |
- |
| Total own
funds/shareholders' funds |
14,839 |
13,457 |
Figure 4. Main features of own instruments issued by
TFS-ICAP
| |
| Issuer |
TFS-ICAP Limited |
TFS-ICAP Limited |
| Public or private
placement |
Private |
Private |
| Instrument
type |
Ordinary shares |
Subordinated loan |
| Amount recognised
in regulatory capital |
£560,000 |
£1.4 million |
| Nominal amount of
instrument |
£19,607 |
£1.4 million |
| Issue
price |
£1 |
£1.4 million |
| Accounting
classification |
Shareholder's Equity |
Subordinated Loan |
| Original date of
issuance |
June 2002 |
September 2020 |
| Perpetual or
dated |
Perpetual |
Dated |
| Maturity
date |
None |
15-Sep-30 |
| Issuer call
subject to prior supervisory approval |
No |
No |
| Optional call
date, contingent call dates and redemption amount |
None |
None |
| Subsequent call
dates |
None |
None |
| Fixed or floating
dividend/coupon |
No |
Fixed rate interest |
| Coupon rate and
any related index |
None |
5.50% |
| Existence of a
dividend stopper |
No |
Not applicable |
| Convertible or
non-convertible |
Non-convertible |
Non-convertible |
| Write-down
features |
No |
No |
5. Own Funds
Requirements
5.1. Own Funds Requirements
TFS-ICAP's own funds requirement is calculated in accordance
with MIFIDPRU 4.3, and is the highest of its:
- permanent minimum capital requirement under MIFIDPRU 4.4
- fixed overheads requirement under MIFIDPRU 4.5
- K-factor requirement under MIFIDPRU 4.6
Figure 5. TFS-ICAP own funds requirements
Own funds requirement
|
2023
|
2022
|
| Permanent Minimum
Requirement (PMR) |
750 |
750 |
| Fixed Overheads
Requirement (FOR) |
2,855 |
2,855 |
| K Factor
Requirement (KFR) |
687 |
593 |
| of which
RtC |
668 |
577 |
| of which
RtM |
17 |
15 |
| of which
RtF |
1 |
1 |
| |
| Own Funds
Requirement |
2,855 |
2,855 |
5.2. Overall Financial Adequacy
TFS-ICAP is required to hold own funds and liquidity at all
times that is adequate in their amount and quality to ensure:
- it is able to remain financially viable throughout the economic
cycle, with the ability to address any material potential harm that
may result from its ongoing activities; and
- its business can be wound down in an orderly manner, minimising
harm to consumers or to other market participants.
TFS-ICAP performs its ICARA process to ensure the firm meets the
overall financial adequacy rule ('OFAR'). The ICARA process is a
key component of the firm's business planning and risk management
processes. The embedded risk management, capital and liquidity
adequacy assessment processes and a structured wind-down plan
enable the Board to refine its understanding of the harms and risks
associated with the business, confirm its risk appetite and assess,
on an ongoing basis, the level of own funds required to safeguard
the financial security of the firm and its stakeholders. The FCA
has issued Individual Capital Guidance, requiring the firm to hold
capital in excess of the own funds requirement: the maximum of 360%
of the firm's own funds requirement, and £9.73 million.
TFS-ICAP has a formalised wind-down plan ('WDP'), the purpose of
which is to confirm the firm has sufficient financial resources to
undertake an orderly wind down of its operations in order to help
reduce the risks of harm to clients and market participants.
Wind-down planning identifies the steps and resources the firm
needs to wind-down its business, and minimise the potential risk of
harm to clients and the market.
6. Remuneration
Policy and Practices
TFS-ICAP applies the MIFIDPRU Remuneration Code.
Remuneration is a key driver of behaviour for all firms and
individuals. Appropriate remuneration policies and practices help
support prudential soundness and risk management in regulated
environments. They also help ensure appropriate outcomes for
customers and markets, and reduce the likelihood of harm.
6.1. Approach to Remuneration
TFS-ICAP's remuneration policy sets out the policies, practices
and procedures applicable to all TFS-ICAP employees. It is designed
to discourage excessive risk taking behaviour and to ensure
remuneration is consistent and commensurate to performance.
TFS-ICAP's Remuneration Committee is responsible for reviewing
the operation and effectiveness of the firm's remuneration
policy.
6.2. Remuneration Governance
TFS-ICAP's Remuneration Committee comprises non-executive
members of the Board. The Chair and committee members do not
perform any executive function. Their own remuneration is fixed
with no variable component.
The Committee is responsible for the preparation of remuneration
decisions, which may have implications for the risk profile and
risk management of TFS-ICAP. The Committee is also responsible for
appointing internal auditors involved in remuneration reviews.
The Board reviews the Remuneration Policy annually to ensure it
remains aligned to the firm's business strategy, risk appetite, and
long-term interests, and maintains consistency with current
legislation, including employment law and financial regulation.
6.3. Remuneration of Material Risk
Takers
The aim of Material Risk Taker identification is to recognise
all those individuals whose professional activities can have a
material impact on the risk profile of the firm.
TFS-ICAP has two UK Material Risk Takers, who are members of
Senior Management.
Figure 6. Total number of UK material risk takers
| 2023 UK Material Risk
Takers |
Senior Management |
Other Material Risk Takers |
Total Material Risk Takers |
| Total UK Material Risk Takers |
2 |
0 |
2 |
6.4. Components of Remuneration
The remuneration paid to TFS-ICAP employees comprises fixed
salary, variable pay in the form of bonuses, non-contributory
pension and benefits in kind.
All members of staff are subject to a performance review in
connection with the setting and adjustment of remuneration.
Performance is assessed by reference to appraisals; compliance with
internal HR and Compliance policies and regulation and contractual
performance clauses.
In addition, from time to time, an independent benchmarking
exercise is carried out to ensure that the firm's compensation and
benefits packages are appropriate and in line with industry
peers'.
Fixed Compensation
Fixed remuneration principally reflects an employee's
professional experience and organisational responsibility, and is
permanent, pre-determined, nondiscretionary, non-revocable and not
dependent on performance.
The fixed component of remuneration at TFS-ICAP may include:
salary including holiday pay; fixed firm-specific allowance;
parental leave pay or maternity pay; overtime; pension sacrifice
and contribution; study costs; and other benefits, for example
healthcare and gym
Variable Compensation
The variable component of TFS-ICAP's remuneration may include
any of the following: broker commission; discretionary bonus;
variable firm-specific award. TFS-ICAP does not pay discretionary
pension benefits.
Variable remuneration is quantified for all eligible staff using
a combination of financial and non-financial performance metrics,
and based on multi-year results for the firm, business unit, and
individual.
Discretionary - bonuses are allocated periodically by senior
management depending on contractual provisions. Factors considered
include the employee's ability, performance and conduct, their
personal contribution (often within a team environment), the
profitability of the employee's particular desk or business area
(if applicable), and the overall profitability of the firm.
Formulaic - many broking staff receive variable remuneration
pursuant to a contractually-specified formula. Such formulae
are devised pursuant to experience and market practice, and are the
subject of regular review.
Management percentage - certain front office managers receive
whole or part of their variable remuneration based on the
profitability of the business area(s) for which they have
responsibility. Calculations are based on net profits and paid out
at the frequency of the broking staff in their business area(s).
Senior management performance is also rewarded in the context of
the strength or weakness of TFS-ICAP's performance in the relevant
period and anticipated market conditions.
Post risk events including those related to conduct issues or
business unit results may result in an adjustment of bonuses. To
align reward and performance, a portion of variable remuneration
paid in instruments is deferred at the point of award, subject to
certain de minimis thresholds and categorisations, and is retained
after vesting subject to terms.
Non-broking staff are employed and remunerated in TMS.
Proportionate costs are recharged under the terms of the outsourced
services contract between the firm and TMS.
TFS-ICAP made no guaranteed variable remuneration awards to UK
material risk takers in 2023. TFS-ICAP made no severance awards to
UK material risk takers in 2023.
Figure 7. Aggregate fixed and variable remuneration
awarded to UK staff in 2023
| Total Remuneration |
2023 |
2022 |
| Fixed
Remuneration |
£5,778 |
£5,832 |
| Variable
Remuneration |
£4,576 |
£4,030 |
| Total
Remuneration |
£10,354 |
£9,862 |
7. Investment
Policy
TFS-ICAP does not hold shares in any company that is admitted to
trading on a regulated market.
