Pillar 3 Disclosure

Purpose and Scope

This document presents the FCA Disclosure Requirements (previously referred to as the Pillar 3 disclosures) for Square Mile Investment Services Ltd (“SMIS”or “the Firm”) which is authorised and regulated by the Financial Conduct Authority (‘FCA’).

SMIS is authorised and regulated by the Financial Conduct Authority (FRN: 625562) and is categorised as a non-small non-interconnected (“Non-SNI”) MIFIDPRU Investment Firm.

This document contains the disclosures required by the FCA rules at MIFIDPRU 8. It requires Non SNI investment firms to publicly disclose certain details regarding capital resources, risk exposures and governance and risk management arrangements.

These FCA requirements are intended to ensure that SMIS disclosures are sufficient to allow participants to form an assessment of the Firm’s risk profile and capital resources on a basis comparable with other regulated financial services firms.

FCA Disclosure Policy

All disclosures, unless otherwise stated, apply as at 31 March 2024 in line with the Firm’s financial year end. All disclosures are for SMIS on a standalone or company basis.

The disclosures are prepared on an annual basis solely for the purposes of complying with FCA requirements. The disclosures have not been audited and do not form part of the annual audited financial statements of the Firm. However, they are subject to internal review and verification and are approved by the SMIS Board of Directors. The Firm may consider it appropriate to publish updated disclosures more frequently should a significant change in business or operating environment require this.

SMIS disclosures are considered to be appropriate to its size and internal organisation, and to the nature, scope and complexity of its activities.

Governance Structure

The Board of Directors is the ultimate decision-making body for the Firm. The Board defines the purpose and values of the Firm, develops the Firm’s business strategy, and is responsible for directing the Firm’s business and the management of risks that arise in the course of doing business. The directors meet regularly and are collectively responsible for ensuring that the Firm’s operations are aligned to the strategy, regulatory compliance requirements and good governance practices, including how the Firm will act fairly with all stakeholders. The Board met formally circa four times during the financial year. Meetings are minuted and the Board has a schedule of regular and standing agenda items.

As at 31 March 2024, the number of external directorships held by members of the Board outside of the Titan Wealth Group were as follows:

For details of the directors who held office during the year and up to 31st March 2024 please see the Directors Report included in the SMIS Annual Report and Financial Statements.

Board Level Committees

The Directors of SMIS manage the business through a clearly defined and robust governance and decision-making framework.

The SMIS Board is responsible for overseeing the effectiveness of risk management, compliance and the SMIS internal control framework. It also sets SMIS risk appetites and approves key policies.

The Board is also responsible for:

• Monitoring SMIS key current and emerging risks and opportunities.
• Reviewing and monitoring SMIS risk profile based on information generated from the Risk Management Framework.
• Reviewing significant findings of the external audit, reports of fraud or other financial irregularities, together with management’s responses.
• Monitoring SMIS relationship with the FCA and other key regulators. This includes reviewing SMIS responses to regulatory reports, compliance breaches and regulatory changes.
• SMIS risk culture is effectively embedded across all activities.
• Reviewing risk events including near misses.

Executive Management Team

The Executive Management Team is responsible for the day-to-day activities of the firm and ensuring that business operations are within the parameters of the risk management framework. It meets weekly and is comprised of five members.

As appropriate, the Executive Management Team will establish committees and Working Groups to advise on specific projects, issues or risks. These currently include the Risk & Compliance Committee, Investment Oversight Committee, Audit & Risk Committee and Remuneration Committee. They meet regularly and key findings are escalated to the Executive Committee and, where appropriate, the Board.

Risk Management

In accordance with MIFIDPRU 7.1.4R, the Firm is not required put in place a Risk Committee. Risk Management is the responsibility of the Executive Management Team and is regularly assessed at the Risk and Compliance Committee and Board meetings and as part of the risk management process.

Risk Management Framework

SMIS’s Risk Management Framework (“RMF”) defines the firm’s approach to risk appetite, governance and management processes. The Risk Management Framework (RMF) is designed to provide senior management with assurance that risks are being appropriately managed and that the system of internal risk control is adequate, with assurance provided through transparent, timely and objective risk reporting and disclosure.

The RMF includes the following components:

• Setting out the risk culture of SMIS
• Risk identification, assessment and measurement and management processes
• Risk monitoring and reporting process based on key risk indicators
• Scenario analysis and stress testing

Principal Risks

Liquidity Risk & Concentration Risk

Liquidity Risk

This is the risk that the Firm does not have sufficient resources available to meets its obligations as they fall due.

The Firm’s cash is either held within a UK bank account or a money market fund and is not encumbered. All assets and liabilities are denominated in Sterling.

The Firm does not believe that it is materially exposed to any of the following material harms:

• currency conversion risk;
• restrictions on the Firm’s ability to access cash in a timely manner;
• mismatch between maturity of assets and the liabilities the Firm has;
• intra day obligations; or
• any requirements due to off-balance sheet arrangements.

The Firm does not rely on any debt to satisfy its liquidity needs and reviews the liquidity position as part of the monthly reporting on finances.

Concentration Risk

The Firm monitors and controls all sources of concentration risk and those that are relevant to SMIS are:

• Earnings Concentration Risk

This is the risk that the Firm generates a significant proportion of its revenue from a small number of clients and therefore the impact should it lose one or more of those clients. The Firm regularly reviews this concentration risk and at present does not have any concerns.

• Deposits Concentration Risk

Firms are exposed to concentration risk when depositing cash with a narrow range of credit institutions. SMIS annually reviews where it holds it cash deposits, and as part of this review considers the concentration risk. Due diligence is undertaken on any third party with whom the Firm holds cash deposits.

The Firm does not have any material concentration risks at present.

Internal Capital Management

The Firm’s capital management strategy is to maintain sufficient capital resources for its size and complexity of business both in the present and in order to facilitate future growth.

SMIS monitors its financial adequacy regularly and undertakes a formal internal capital and risk assessment at least annually to identify and manage its principal risks and capital requirements in both business-as-usual and stressed scenarios.

This assessment has been conducted in accordance with the FCA’s Internal Capital Adequacy And Review Assessment (ICARA) requirements and expectations.

In accordance with the overall financial adequacy rule, SMIS manages and monitors its principal risks and considers the impact of stressed scenarios on its requirements to determine the amount of own funds and liquid assets, in terms of both amount and quality, it requires to remain financially viable throughout the economic cycle and to address any material potential harm that may result from its ongoing activities. It also considers the amount of own funds and liquid assets it would require if, for whatever reason, SMIS decided to wind down to ensure that this would be done in an orderly manner, minimising harm to consumers or to other market participants.

Own Funds as at 31st March 2024

The level of own funds held by the Firm reflects the potential harms that might impact SMIS including those related to its clients and the market in which it operates. The Firm has considered all harms highlighted by FCA and the following were deemed to be applicable to SMIS:

1. Breach of an investment mandate, resulting in the portfolios and clients being exposed to risks outside of the specified tolerance or to investments which are otherwise unsuitable for the model’s mandate;
2. Trading or dealing errors that result in losses to clients;
3. Outages in, or other problems with, the Firm’s systems that cause disruption to the continuity of the Firm’s services (for example, by preventing the Firm being able to issue trading instructions), leading to financial losses for clients;
4. Provision of unsuitable investment advice, resulting in clients suffering losses; failure of significant clients/counterparties which the Firm relies on to generate significant proportion of revenue;
5. Significant operational events (e.g. failure of key systems/internal fraud);

All these harms and the likelihood of a risk crystallising have been assessed and the Firm has determined that it will hold additional capital to cover potential dealing losses. 

SMIS Own Funds as at 31st March 2024 shown were calculated in accordance with IFPR and reconciled to the SMIS audited Company Statement of Financial Position.

As at the year end of 31 March 2024, SMIS had own funds of £3.564M which was made up of fully paid up ordinary share capital and audited reserves.  

The SMIS share capital consists of allotted, called up and fully paid ordinary shares. 

Own Funds Requirement as at 31st March 2024

As at 31st March 2024, SMIS had the following minimum capital requirements:

Note:  SMIS only has a K-AUM requirement as all other requirements are not applicable. 

The Firm regularly monitors whether it has sufficient own funds to meet its own funds requirement and in addition to this to cover the own funds threshold requirement, to ensure it meets the overall financial adequacy rule.

Remuneration

In accordance with the CRR remuneration disclosure requirements (Article 450), as further elaborated in the FCA’s “General Guidance on Proportionality: The Remuneration Code (SYSC 19A)”, as an IFPRU limited activity firm SMIS falls within proportionality level 3. The Firm is required to provide the following disclosures regarding its remuneration policy and practices for those categories of staff whose professional activities have a material impact on its risk profile.

Policy and Governance

The Remuneration Committee has established a remuneration policy in accordance with the FCA’s Remuneration Code, which is the responsibility of the Board.  The aim of the remuneration policy and governance framework is to establish, implement and maintain remuneration policies, procedures, governance and practices that:

• are in line with the business strategy, and the sustained, long-term performance of the Firm;
• neither encourage, nor reward risk taking outside the Board’s appetite; and
• promote sound and effective risk management.

Link between Pay and Performance

Remuneration at SMIS is comprised of fixed pay and variable, performance-related pay.

Fixed pay refers to the employee’s base salary. This forms the core element of pay and reflects the individual’s role and position within the Firm.

Variable, performance related pay refers to discretionary bonus payments. The Firm considers both individual and firm level performance as factors to determine bonus payments.

SMIS has identified 3 staff who have a material impact on the risk profile of the Firm. The Material Risk Takers of the Firm, which are those individuals whose professional activities have a material impact on the risk profile of the Firm/Group, are the Chief Executive Officer, Chief Operating Officer and the Chief Investment Officer.

When determining which staff fall within the definition of Material Risk Takers the Firm consider the ability of an individual to impact risk within:

• Operational procedures, systems and controls;
• The market in which the Group operates;
• The conduct and culture of the Group, including its reputation; and
• The Square Mile Group’s financial standing and capital requirements.

In the financial year to 31-March 2024, remuneration for Senior Management and MRT resources comprised base salary, fixed pay c.£3,689k and variable, performance-related pay c.£753k.

The below table outlines the disclosure requirements per MIFIDPRU 8.6.8.