2019 Pillar III Disclosures Report
CONTENTS
Specific References to CRR
4
1. Introduction
8
1.1. CIF Information
8
1.2. Scope of application
9
1.3. Pillar III Regulatory framework
9
1.3.1. Overview
9
1.3.2. Disclosure Policy: Basis and Frequency of Disclosure / Location and verification .. 10
1.4. Risk Management objectives and policies
11
1.4.1. Risk Management Framework
12
1.4.2. Risk Statement
13
1.4.3. Risk Culture
14
1.5. Declaration of the Management Body
15
2. Corporate Governance and Risk Management
16
2.1. Organisational Structure
16
2.2. The Board of Directors
16
2.3. Number of Directorships held by members of the Board
17
2.4. Policy on Recruitment
17
2.5. Policy on Diversity
18
2.6. Governance Committees
18
2.7. Other Governance Functions
18
2.8. Information flow on risk to the management body
22
3. Own Funds
24
3.1. Tier 1 & Tier 2 Regulatory Capital
24
3.2. Main features of Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments
25
3.3. Balance Sheet Reconciliation
26
4. Compliance with the Regulation and the overall Pillar II Rule
28
4.1. Internal Capital
28
4.2. Approach to assessing adequacy of Internal Capital
28
5. Pillar I Capital Requirements
30
5.1. Credit Risk
30
5.1.1. Credit Risk Adjustments
31
5.1.2. Credit Risk - Risk Weighted Assets
31
5.1.3. Credit Risk - Analysis of Average exposures and total amount of exposures after
accounting offsets
32
5.1.4. Credit Risk - Risk Weighted Assets by Geographical distribution of the exposure
classes
32
5.1.5. Credit Risk - Distribution of exposures by industry
33
5.1.6. Residual maturity broken down by exposure classes
33
2019 Pillar III Disclosures Report
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5.2. Use of ECAIs
34
5.3. Market Risk
35
5.3.1. Foreign Exchange Risk
35
5.3.2. Interest Rate Risk
36
5.4. Operational Risk
36
5.4.1. Fixed Overheads Requirements
38
6. Other Risks
40
6.1. Concentration Risk
40
6.2. Reputation Risk
40
6.3. Strategic Risk
40
6.4. Business Risk
40
6.5. Capital Risk Management
41
6.6. Regulatory Risk
41
6.7. Legal and Compliance Risk
41
6.8. IT Risk
42
6.9. Risk Reporting
42
6.10. Liquidity Risk
42
6.11. Conduct Risk
42
7. Remuneration policy
46
7.1. Remuneration System
46
7.2. Link between the pay and performance
48
7.3. Remuneration of Senior Management Personnel and Directors
48
SPECIFIC REFERENCES TO CRR
Scope of disclosure requirements
Section
431(1)
Requirement to publish Pillar III disclosures
1.2
431(2)
Disclosures regarding operational risk.
5.4
Institution shall adopt a formal policy to comply with the
431(3)
disclosures and have policies for assessing their
1.3.2
appropriateness, including their verification and frequency
Non - material, proprietary or confidential information
Section
The policy on diversity with regard to selection of
2.5
members of the management body
432
3
Own Funds
Remuneration policy
7
Frequency of disclosure
Section
Disclosures must be published at least on an annual basis,
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in
1.3.2
433
conjunction with the date of publication of the financial
statements
Means of disclosure
Section
Determine the appropriate medium, location and means to
1.3.2
434(1) publish the disclosures, preferably all disclosures in one medium
Crossreferences
to
accounting and
Equivalent disclosures made under accounting, listing or
other
other
disclosures are
434(2)
requirements may be deemed to constitute compliance with Pillar
indicated in the
III
report
Risk management objectives and policies
Section
Disclosure of risk management objectives and policies for
435(1)
1.4
each category of risk including
435(1) (a)
strategies and processes
1.4.1
the structure and organisational structure of the relevant
435(1) (b)
1.4.1
risk management function
435(1) (c)
the scope and nature of risk reporting and measurement
1.4.1
systems
Declaration approved by the management body on the
435(1) (e)
1.5
adequacy of risk management arrangements
435(1) (f)
Concise risk statement approved by the management body
1.4.2
435(2)
Disclosure at least annually, regarding governance
2
arrangements.
Number of directorships held by members of the
435(2) (a)
2.3
management body
Recruitment policy for the selection of members of the
435(2) (b)
management body and their actual knowledge, skills and
2.4
expertise
Policy on diversity of management body, its objectives and
435(2) (c)
2.5
targets and the extent to which these have been achieved
Whether a separate risk committee has been set up, and number
435(2) (d)
2.6
of meetings in the year.
435(2) (e)
Description of information flow on risk to the management body
2.8
Scope of application
Section
436 (b)
2019 Pillar III Disclosures ReportDifference in the basis of consolidation for
accounting and prudential purposes, describing entities that are:
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436 (b) (i)
Fully consolidated;
436 (b) (ii)
Proportionally consolidated;
436 (b) (iii)
Deducted from own funds;
436(a)
Name of institution.
1.1
1.2
436 (b) (iv)
Neither consolidated nor deducted.
Own Funds - Requirements regarding the own funds table
Section
A full reconciliation of Common Equity Tier 1 items, Additional
Tier 1 items, Tier 2 items and filters and deductions applied
437 (1) (a)
pursuant to Articles 32 to 35, 36, 56, 66 and 79 to own funds of
3.3
the institution and the balance sheet in the audited financial
statements of the institution;
a description of the main features of the Common Equity Tier 1
437 (1) (b)
and Additional Tier 1 instruments and Tier 2 instruments issued by
3.2
the institution
the full terms and conditions of all Common Equity Tier 1,
437 (1) (c)
3.2
Additional Tier 1 and Tier 2 instruments
437 (1) (d) (ii) each deduction made pursuant to Articles 36, 56 and 66
3.1
437 (1) (d) (iii) items not deducted in accordance with Articles 47, 48, 56, 66 and
3.1
7
9
Capital Requirements
Section
438(a)
Summary of institution’s approach to assessing the adequacy of
4.2
its internal capital
Capital requirement amounts for credit risk for each Standardised
5.1
438(c) approach exposure class (8% of risk-weighted exposure).
Credit Risk Adjustments
Section
442(a)
Definitions for accounting purposes of ‘past due’ and ‘impaired’.
5.1
Approaches for determining specific and general credit risk
5.1.1
442(b)
adjustments.
Exposures after accounting offsets and without taking into
442(c)
account the effects of credit risk mitigation, and the average
5.1.3
amount of the exposures over the period
442(d)
Geographical distribution of exposures, broken down in
5.1.4
significant areas by material exposure classes
The distribution of the exposures by industry or counterparty
442(e)
type, broken down by exposure classes, including specifying
5.1.5
exposure to SMEs
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The residual maturity breakdown of all the exposures, broken
5.1.6
442(f) down by exposure classes
Use of ECAI’s
Section
Names of the nominated ECAIs used in the calculation of
444(a)
5.2
Standardised approach RWAs, and reasons for any changes.
444(b)
Exposure classes for which ECAI is used
5.2
444(d)
Mapping of external rating to credit quality steps.
5.2
Exposure values pre- and post-credit risk mitigation, by credit
5.2
444(e) quality step.
Exposure to market risk
Section
Disclosure of position risk, large exposures exceeding limits, FX,
5.3
445 settlement and commodities risk.
Operational Risk
Section
Disclosure of the scope of approaches used to calculate
446
operational risk, discussion of internal and external factors
5.4
considered in the case of advanced measurements approach.
Remuneration Disclosures
Section
450
Remuneration Policy
7
Information concerning the decision-making process used for
450(1)
(a)
7.1
determining the remuneration policy
450(1)
(b)
Information on link between pay and performance
7.2
The most important design characteristics of the remuneration
450(1)
(c)
7.1
system
450(1)
(d)
The ratios between fixed and variable remuneration
7.3
Information on the performance criteria on which the entitlement
450(1)
(e)
to shares, options or variable components of remuneration is
7.1
based
The main parameters and rationale for any variable component
450(1)
(f)
7.1
scheme and any other non-cash benefits
Aggregate quantitative information on remuneration, broken
450(1)
(g)
7.3
down by business area
450(1)
(h)(i)
450(1)
(h)(ii)
450(1)
(h)(iii)
Aggregate quantitative information on remuneration, broken
7.3 down by senior management and members of staff whose actions
450(1)
(h)(iv)
have a material impact on the risk profile of the institution
450(1)
(h)(v)
450(1)
(h)(vi)
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The number of individuals being remunerated EUR 1 million or more per financial
year, for remuneration between EUR 1 million
450(1)
(i)
and EUR 5 million broken down into pay bands of EUR
500.000
7.3 and for remuneration of EUR 5 million and above broken
down into pay bands of EUR 1 million
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1. INTRODUCTION
1.1. CIF Information
AgeFX (hereinafter the “Company”) was incorporated in the Republic of Cyprus on 28 August 2012
as a private limited liability company with registration number HE 310943 and it is a Cyprus
Investment Firm (hereinafter “CIF”). The Company was licensed by the Cyprus Securities and
Exchange Commission (hereinafter the “CySEC”) with number CIF 272/15 to provide financial
services, on 07 April 2015.
Moreover, based on Article 95(1) of the Regulation (EU) 575/2013 (the “Regulation” or
“CRR”), the Company is categorised as “Limited Licence” CIF with minimum/initial capital
requirement of €125,000.
The table below illustrates the current licence information of the Company:
Table 1: Company Licence Information (based on the First Appendix of the Law 87(I)/2017 (the
“Law”), as amended)
The Company is authorised to provide the following Investment Services, in accordance with Part Ι
of the First Appendix of the Law, as amended:
Reception and transmission of orders in relation to one or more financial instruments.
Execution of orders on behalf of clients.
The Company is also authorised to provide the following Ancillary Services, in accordance with Part
ΙI of the First Appendix of the Law, as amended:
Safekeeping and administration of financial instruments for the account of clients, including
custodianship and related services such as cash/collateral management.
Granting credit and loans to one or more financial instruments, where the firm granting the
credit or loan is involved in the transaction.
Foreign exchange services where these are connected to the provision of investment services.
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The Company is authorised to provide the aforementioned investment and ancillary services
for the Financial Instruments of “Financial contracts for differences”, in accordance with Part III of
the First Appendix of the Law.
1.2. Scope of application
The Company reviewed its Group structure as at 30 June 2019 as per CySEC’s Dear CEO letter and
the relevant provisions as stipulated in CySEC’s Directive DI 144-2014-14 & DI 144-201414 (A)
(the “Directive”) and CRR and reached to the conclusion that the Company does not fall under
consolidated supervision by CySEC. In this respect, the Company is publishing the disclosures on
an individual (solo) basis in accordance to the CRR.
The Pillar III disclosures Report (the ‘Report’) is prepared in accordance with the Pillar 3 disclosure
requirements as laid out in Part Eight of the CRR and have as a starting point the financial
information used in the Company’s Financial Statements which are prepared in accordance with the
International Financial Reporting Standards (“IFRS”). As the two documents serve different
purposes, the reported figures illustrate differences, which lie on the differences of the fundamental
concepts between the CRR and the IFRS. The regulatory exposure classes are based on different
criteria from accounting asset types and are therefore not comparable on a line by line basis.
Moreover, through financial statements, a company aims to provide the value of all on-balance sheet
items at a given point in time, whereas regulatory exposures entail an element of risk which is taken
into consideration during the calculation and determination of the said exposures.
1.3. Pillar III Regulatory framework
1.3.1. Overview
This Pillar III report (the ‘Report’) has been prepared in accordance with Section 4 (Paragraph. 32)
of the CySEC Directive DI144-2014-14 of 2014 for the prudential supervision of investment firms
which implements the CRR and the CRDIV, as well as the relevant provisions of new Law
87(I)/2017 (hereinafter, the “Law”), as amended.
The CRR establishes the prudential requirements for capital, liquidity and leverage that entities need
to abide by. Furthermore, CRR introduces significant changes in the prudential regulatory regime
applicable to institutions including amended minimum capital ratios, changes to the definition of
capital and the calculation or risk weighted assets and the introduction of new measures relating to
leverage, liquidity and funding. Additionally, CRR is immediately binding on all EU member states.
CRD IV governs access to internal governance arrangements including remuneration, Board of
Directors (the “Board” or “BoD”) composition and transparency.
The Regulatory framework consists of a three “Pillar” approach:
Pillar I - Establishes minimum capital requirements, defines eligible capital instruments, and
prescribes rules for calculating RWA for credit risk, market risk and operational risk.
Pillar II - Requires firms and supervisors to take a view on whether a firm should hold
additional capital against: risks considered under Pillar I that are not fully captured by the Pillar
I process (e.g. credit concentration risk), risks not taken into account by the Pillar I process (e.g.
interest rate risk in the banking book, business and strategic risk) and factors external to the
firm (e.g. business cycle effects). Pillar II connects the regulatory capital requirements to the
Company’s Internal Capital Adequacy Assessment Process
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(“ICAAP”) and to the reliability of its internal control structures. The function of Pillar II is
to provide communication between supervisors and institutions on a continuous basis and
to evaluate how well the institutions are assessing their capital needs relative to their risks.
If a deficiency arises, prompt and decisive action is taken to restore the appropriate
relationship of capital to risk.
Pillar III
- Market Discipline requires the disclosure of information regarding the risk
management policies of the Company, as well as the results of the calculations of minimum
capital requirements, together with concise information as to the composition of original own
funds.
1.3.2. Disclosure Policy: Basis and Frequency of Disclosure / Location and verification
The Company has a formal policy, approved by the Board, which details its approach in complying
fully with the Pillar 3 disclosure requirements as laid out in Part Eight of the CRR.
According to the Directive, the risk management disclosures should be included in either the
financial statements of the CIF if these are published, or on their websites. The Pillar III disclosure
requirements are contained in Articles 431 to 455 of the Regulation. In addition, these disclosures
must be verified by the external auditors of the CIF. The CIF will be responsible to submit its
external auditors’ verification report to CySEC. The Company has included its risk management
disclosures as per the Directive on its website as it does not publish its financial statements. The
verification of the disclosures is verified by the external auditors and submits the relevant report to
CySEC as per the provisions of Circular C114 - Pillar III Disclosures in accordance with Part Eight
of CRR.
As per the Article 432(1) of the CRR, institutions may omit one or more disclosures, if such disclosures
are not regarded as material, except for the following disclosures:
Regarding the policy on diversity with regard to selection of members of the management body,
its objectives and any relevant targets set out in that policy, and the extent to which these
objectives and targets have been achieved (Article 435(2)(c) of CRR)
Own funds (Article 437 of CRR)
Remuneration policy (Article 450 of CRR)
Materiality is based on the criterion that the omission or misstatement of information would be
likely to change or influence the decision of a reader relying on that information for the purpose of
making economic decisions. Where the Company has considered a disclosure to be immaterial, this
was not included in the document.
Disclosures and Confidential Information
The Regulation also provides that institutions may omit one or more of the required disclosures, if
such disclosures are regarded as confidential or proprietary. The CRR defines proprietary as if
sharing that information with the public would undermine its competitive position. It may include
information on products or systems which, if shared with competitors, would render an institution’s
investments therein less valuable.
Information is regarded as confidential if there are obligations to customers or other counterparty
relationships binding the institution to confidentiality. Under the light of the above, the Company
avoided to disclose such confidential information in this report.
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Frequency
The Company’s policy is to publish the disclosures required on an annual basis. The frequency of
disclosure will be reviewed should there be a material change in approach used for the calculation
of capital, business structure or regulatory requirements.
Medium and location of publication
Institutions may determine the appropriate medium, location and means of verification to comply
effectively with the disclosure requirements. In this respect, the Company’s Pillar III disclosures
are published on the Company’s websites:
www.agefx.io
Verification
The Company’s Pillar III disclosures are subject to internal review and validation prior to being
submitted to the Board for approval. The Company’s Pillar III disclosures have been reviewed and
approved by the Board. In addition, the Remuneration disclosures have been reviewed by the Risk
Management Committee.
1.4. Risk Management objectives and policies
To ensure effective risk management, the Company has adopted the Three Lines of Defence model,
with clearly defined roles and responsibilities.
First Line of Defence: Managers are responsible for establishing an effective control framework
within their area of operation and identifying and controlling all risks so that they are operating
within the organisational risk appetite and are fully compliant with Company policies and where
appropriate defined thresholds. First Line of Defence acts as an early warning mechanism for
identifying (or remedying) risks or failures.
Second Line of Defence: The Risk Management Function is responsible for proposing to the Board
appropriate objectives and measures to define the Company’s risk appetite and for devising the suite
of policies necessary to control the business including the overarching framework and for
independently monitoring the risk profile, providing additional assurance where required. The Risk
Management Function will leverage their expertise by providing frameworks, tools and techniques
to assist management in meeting their responsibilities, as well as acting as a central coordinator to
identify enterprise wide risks and make recommendations to address them. Integral to the mission
of Second Line of Defence is identifying risk areas, detecting situations/activities, in need of
monitoring and developing policies to formalise risk assessment, mitigation and monitoring.
Third Line of Defence: Comprises by the Internal Audit Function which is responsible for providing
assurance to the Board on the adequacy of design and operational effectiveness of the systems of
internal controls. Internal Audit undertakes on-site inspections/visits to ensure that the
responsibilities of each Function are discharged properly (i.e. soundly, honestly and professionally)
as well as reviews the Company’s relevant policies and procedures. Internal Audit works closely
with both the First and Second Lines of Defence to ensure that its findings and recommendations
are taken into consideration and followed, as applicable.
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1.4.1. Risk Management Framework
Managing risk effectively in a continuously changing risk environment, requires a strong risk
management culture. As a result, the Company has established an effective risk oversight structure
and the necessary internal organisational controls to ensure that the Company undertakes the
following:
The adequate risk identification and management
The establishment of the necessary policies and procedures
The setting and monitoring of the relevant limits and
Compliance with the applicable legislation
The Board meets on a regular basis, and receives updates on risk and regulatory capital matters from
management. The Board reviews regularly
(at least annually) written reports concerning
compliance, risk management and internal audit policies, procedures and work as well as the
Company’s risk management policies and procedures as implemented by Management.
As part of its business activities, the Company faces a variety of risks, the most significant of which
are described further below. The Company holds regulatory capital against three allencompassing
main types of risk: credit risk, market risk and operational risk.
1.4.2. Risk Statement
The Company’s activities expose it to a variety of risks, and in particular to credit risk, market risk,
operational risk, compliance risk, regulatory risk, reputational risk, group risk, strategic risk,
liquidity risk, conduct risk etc. The Company, through its operations, has significant exposure to
the economies and financial markets.
Even though the global economy has recorded growth in the latest year after overcoming the latest
economic recession, the overall future economic outlook of the economy remains unstable due to
the recent developments on the outbreak of Coronavirus (COVID-19).
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In particular and following the outbreak of COVID-19 in Cyprus, the Firm has taken the required
measures to ensure that its employees have access to its technology infrastructures necessary for the
completion of their tasks and that additional system for critical functions are being provided. In this
respect, the Business Continuity Plan has been amended accordingly. Furthermore, the Company is
closely monitoring the impact of COVID-19 on its financial position in order to be able to take
proactive measures.
Risk Strategy
The risk strategy of the Company is the responsibility of the BoD, which formulates it and is
responsible for monitoring its implementation. This is achieved through the development of risk
management processes and procedures as well as through an assessment of the risks undertaken and
the effectiveness of the risk management framework, given the Company’s business model. One
important characteristic of the Company’s risk strategy is the alignment with the strategic and
operational targets that are set by the Board. The risks that arise from the implementation of the
Company’s strategic and business plans are regularly analysed in order to ensure the adequacy of
the relevant policies, procedures and systems.
The risk strategy of the Company aims to provide to both Senior Management and employees a
general risk framework for the management of the different types of risk in line with the overall risk
management and risk bearing capacity of the Company. The Company recognizes the importance
of risk management to its business success and therefore the overall objective is to establish effective
risk management policies that are able to mitigate the Company’s exposure to the various risks.
Risk Appetite
Risk appetite is the level and type of risk a firm is able and willing to assume in its exposures and
business activities, given its business objectives and obligations to stakeholders. Risk appetite is
generally expressed through both quantitative and qualitative means and should consider extreme
conditions, events and outcomes. In addition, risk appetite should reflect potential impact on
earnings, capital and funding/liquidity.
The company has a low risk appetite in respect to investing and to managing business and operational
activities
According to Financial Stability Board (FSB) an appropriate risk appetite framework (RAF) should
enable risk capacity, risk appetite, risk limits, and risk profile to be considered for business lines and
legal entities as relevant, and within the group context. The Risk appetite framework is defined as the
overall approach, including policies, processes, controls, and systems through which risk appetite is
established, communicated, and monitored. It includes a risk appetite statement, risk limits, and an
outline of the roles and responsibilities of those overseeing the implementation and monitoring of the
RAF. The RAF should consider material risks to the financial institution, as well as to the institution’s
reputation vis-à-vis policyholders, depositors, investors and customers. The RAF aligns with the
institution's strategy.
The company is assessing its risk appetite in respect to investing and to managing business and
operational activities while the Company’s Risk Appetite Statement is prepared by the Risk
Manager and approved by the Board of Directors.
Table 2: Risk Appetite areas
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Indicator
Normal 1
Warning 2
Limit 3
Own Funds
≥€150k
<€150k
€125k
<8.00%
≥8.00%
Common quity ier
1 Ratio4
4.50
<11.50%
≥11.50%
Total Capital Ratio4 8.00%
Exposure with Shareholders
0%
> 0%
2.00%
Exposure with Directors
0%
> 0%
1.00
Notes
1. The level of the indicator is within the acceptable limits as per the Company’s risk appetite.
2. The Company should take proactive actions in order to ensure that the level of the indicator will remain
above the acceptable limits.
3. The level of the indicator falls below the acceptable limits and as such the Company should proceed with
the required actions in order to restore the level of the said indicator to the normal predefined levels.
4. ICAAP add-on + 1.50% as per the paragraph 18 of the Law 20(I)/2016 have been taken into
consideration for Normal and Warning thresholds
The Risk Appetite framework has been designed to create links to the strategic long term plan, capital
planning and the Company’s risk management framework.
The Board approves the Company’s corporate strategy, business plans, budget, long term plan and
ICAAP. The Company employs mitigation techniques defined within the Company’s policies to ensure
risks are managed within Risk Appetite.
1.4.3. Risk Culture
Risk culture is a critical element in the Company’s risk management framework and procedures.
Management considers risk awareness and risk culture within the Company as an important part of
the effective risk management process. Ethical behaviour is a key component of the strong risk
culture and its importance is also continuously emphasised by the management.
The Company is committed to embedding a strong risk culture throughout the business where
everyone understands the risks they personally manage and are empowered and qualified to take
accountability for them. The Company embraces a culture where each of the business areas is
encouraged to take risk-based decisions, while knowing when to escalate or seek advice.
1.5. Declaration of the Management Body
The Management Body is required to proceed with an annual declaration on the adequacy of the
Company’s risk management framework and ensure that the risk management arrangements and
systems of financial and internal control in place are in line with the Company’s risk profile.
The Company’s risk management framework is designed to identify, assess, mitigate and monitor
all sources of risk that could have a material impact on the Company’s operations. The Board
considers that it has in place adequate systems and controls with regard to the Company’s size, risk
profile and strategy and an appropriate array of assurance mechanisms, properly resourced and
skilled, to avoid or minimise loss.
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2. CORPORATE GOVERNANCE AND RISK MANAGEMENT
The Company’s systems of risk management and internal control include risk assessment,
management or mitigation of risks, including the use of control processes, information and
communication systems and processes for monitoring and reviewing their continuing effectiveness.
The risk management and internal control systems are embedded in the operations of the Company
and are capable of responding quickly to evolving business risks, whether they arise from factors
within the Company or from changes in the business environment.
2.1. Organisational Structure
The company’s latest organizational structure is as follow:
2.2. The Board of Directors
The Board has the overall responsibility for the establishment and oversight of the Company’s Risk
Management Framework. The Board satisfies itself that financial controls and systems of risk
management are robust. The Board comprises of three executive directors and three nonexecutive
directors.
The Company has in place the Internal Operations Manual which lays down the activities, processes,
duties and responsibilities of the Board, Committees, Senior Management and staff of the Company
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The Company implements and maintains adequate risk management policies and procedures
which identify the risks relating to the Company’s activities, processes and systems, and where
appropriate, set the level of risk tolerated by the Company. The Company adopts effective
arrangements, processes and systems, in light of that level of risk tolerance, where applicable.
2.3. Number of Directorships held by members of the Board
All members of the Board commit sufficient time to perform their functions in the Company. The
number of directorships which may be held by a member of the Board at the same time shall take
into account individual circumstances and the nature, scale and complexity of the Company’s
activities. Unless representing the Republic, members of the Board of a CIF that is significant in
terms of its size, internal organisation and the nature, the scope and the complexity of its activities
shall not hold more than one of the following combinations of directorships at the same time:
One executive directorship with two non-executive directorships;
Four
non-executive directorships.
For the purposes of the above, Executive or non-executive directorships held within the same group
shall count as a single directorship. Furthermore, directorships in organisations which do not pursue
predominantly commercial objectives such as non-profit or charitable organisations shall not count
for the purposes of the above guidelines.
The table below discloses the number of directorships held by members of the management body.
Table 3: Number of Directorships of the members of the Board of Directors
Number of
Number of
Director
Function
Executive
Non-Executive
Directorships
Directorships
Mr. Pawel Polatynski
Executive Director
1
-
Mr. Boleslaw Michalski
Executive Director
2
1
Mr. Xenios Drousiotis
Executive Director
1
2
Independent, Non-
Mr. Michael Ellinas
-
2
Executive Director
Mr. Michal Andrzej
Non-Executive Director
6
1
Brzostowski
Independent, Non-
Ms. Katerina Charalampous
2
1
Executive Director
2.4. Policy on Recruitment
Recruitment into the Board combines an assessment of both technical capability and competency
skills referenced against the Company’s leadership framework. Members of the Board possess
sufficient knowledge, skills and experience to perform their duties. The overall composition of the
Board reflects an adequately broad range of experiences to be able to understand the CIF’s activities,
including the main risks to ensure the sound and prudent management of the Company as well as
sufficient knowledge, of the legal framework governing the operations a CIF.
2.5. Policy on Diversity
The Company is committed to promote a diverse and inclusive workplace at all levels, reflective of
the communities in which it does business. It approaches diversity in the broadest sense, recognizing
that successful businesses flourish through embracing diversity into their business strategy, and
developing talent at every level in the organisation. For this purpose, the Company takes into
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consideration various aspects such as broad industry experience, knowledge, independence,
gender, age, cultural and educational background, for the Board appointments.
2.6. Governance Committees
Risk Management Committee
The Risk Management Committee of the Company is formed with the view to ensure the efficient
monitoring of the risks inherent in the provision of the investment and ancillary services to Clients,
as well as the overall risks underlying the operations of the Company. To this effect, the Company
has adopted and maintains an applied risk management framework/policy, which identifies the risks
relating to the Company’s activities, processes and systems and sets the risk tolerance levels of the
Company.
The Risk Management Committee bears the responsibility to monitor the adequacy and
effectiveness of the said risk management framework/policy and procedures that are in place, the
level of compliance by the Company and its relevant persons with the policies and procedures
adopted, as well as the adequacy and effectiveness of measures taken to address any deficiencies
with respect to those policies and procedures that are in place, including failures by the Company’s
relevant persons to comply with those policies and procedures.
The Risk Management Committee meets at least annually, unless the circumstances require
extraordinary meetings.
Risk Manager
Further to the formation of the overall Internal Governance Framework, it should be noted that the
Board has appointed a Risk Manager to ensure that all the different types of risks taken by the
Company are in compliance with the Law and the obligations of the Company under the Law, and
that all the necessary procedures, relating to risk management are in place and are functional on an
operational level from a day to day basis. The Risk Manager reports directly to the Senior
Management of the Company while as previously discussed, the Risk Management Committee is
responsible to control and overview the Risk Manager’s actions/ performance at work.
2.7. Other Governance Functions
Internal Audit
The Company has appointed a qualified, experienced and independent Internal Auditor outsourced
from MAP S.Platis. The Internal Auditor reports to the Senior Management and the Board of the
Company and is separated and independent from the other functions and activities of the Company.
The Internal Auditor has access to the Company’s premises, systems, information, personnel and
financials. The Board ensures that internal audit issues are considered when presented to it by the
Internal Auditor and appropriate actions are taken according to the Board’s assessment and
prioritization.
Compliance Function
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Pursuant to the regulatory obligations of the Company and with the view to complement the
Internal Governance framework of the Company, the Board has appointed a Compliance Officer, to
head the Compliance Function of the Company in order to establish, implement and maintain
adequate policies and procedures designed to detect any risk of failure by the Company to comply
with its obligations, to put in place adequate measures and procedures designed to minimize such
risks and to enable the competent authorities to exercise their powers effectively. The Compliance
Officer is independent and reports directly to the Senior Management of the Company, having at the
same time the necessary authority, resources, expertise and access to all relevant information.
Table 4: Roles and Responsibilities
Role
Responsibilities
Scrutinize and decide on various risks associated with the
operation of the Company with the view to increase the
awareness of, formulate internal policies and measure the
performance of the said policies
Review the risk management procedures in place
Review the ICAAP on a yearly basis
Monitor and control the Risk Manager’s and Risk
Management
Department’s performance and effectiveness
Ensure that the Company has clear policy in respect of the
assumption, follow up and management of risks duly notified to
all interested parties or organizational units of the Company.
Break down of such risk limits further where necessary, for
example, per class of investment service or Financial Instrument,
or
Client or market
Implement stop loss-control limits
Follow up open positions within the approved limits
Ensure the immediate tracking down and scrutiny of important
abrupt changes in the Company’s financial figures, procedures
or personnel, as well as the regular control of the volume and
causes underlying deviations between projections and corporate
end results, as submitted to the Board Approve Client and
counterparty limits
Risk Management
Committee
Approve policy description concerning information systems and
monitor the information systems in place
Establish policy regarding the amount of information provided
to Clients about the nature and risks of Financial Instruments
according to the Client classification
Supervise the Disaster Recovery Plan
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Design the overall risk management system of the Company
• •
Comply and implement the relevant provisions of the Law
Prepare the Risk Management policies and procedures
Provide training to relevant employees and the Senior
Management, on risk-related issues
Analyze the market and its trends
Evaluate the effect of the introduction of any potential new
services or activities on the Company’s risk management
Measures for the monitoring of capital adequacy and large
exposures
Draft written reports to the Management Body including
recommendations.
Monitor Client and counterparty limits
Identify and manage the overall risks faced by the Company
Risk Manager
Establish methods for risk monitoring and measurement
Prepare and implement the ICAAP of the Company
Apply stress testing scenarios and undertake analysis of
the results,
Propose for additional, if necessary, capital allocation for Pillar
2 risks and other risks not covered by Pillar 1
Apply the relevant provisions of the CRDIV requirements, as
amended from time to time
Review the policy on maximum limits with respect to liquidity
risk and market risk
Liaise with all relevant business and support areas within the
Company
Monitor and assess the adequacy and effectiveness of the
measures,
policies and procedures put in place
Monitor and assess the level of Legal & Compliance Risk that
the Company faces
Provide training to the staff of the Company in respect with the
compliance function according to the Law
Communicate the relevant statutes of the IOM to each employee
and notify them of any relevant changes therein
Develop and design the appropriate procedures of the Company,
so as to prevent and resolve potential conflicts of interest
Ensure that all employees have the ability to identify cases of
Compliance
potential conflicts of interest.
Function
Disclose to Clients the general nature and any potentially present
conflicts of interest
Keep records regarding conflict of interest situations
Consent and approve the Company’s Replacement Policy
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Establish and implement the measures as regards personal
transactions and notify each relevant person of the restrictions on
personal transactions
Review the Company’s website, on at least annual basis
Ensure that the termination process of Clients account is
followed
Ensure that all relevant information are included in the
Company’s outsourcing agreements
Ensure that the performance of multiple functions by the
Company’s relevant persons does not and is not likely to prevent
those persons from discharging any particular function soundly,
honestly, and professionally
Follow up Client complaints or grievances in relation to the
Administration/Back Office Department and filing these
complaints.
Approve the information script and/or standard FAQ which shall
state the information that can be shared with Clients
Monitor the development and periodic review of product
governance arrangements
Establish, implement and maintain an audit plan to examine and
evaluate the adequacy and effectiveness of the Company’s
systems, internal control mechanisms and arrangements
Issue recommendations based on the result carried out in
accordance with point
Verify compliance with the recommendations of point
Provide timely, accurate and relevant reporting in relation to
internal audit matters to the Board of Directors and the Senior
Management of the Company, at least annually.
Provide the Company with an Independent confirmation that the
process followed by the Company is according to the Board’s
requirements,
Provide the Company with an Independent review of the risk
Internal Audit
assessment, stress testing and capital allocation exercises
performed, and shall confirm their compliance with the policies
and procedures approved by the Board of the Company
Perform an Independent validation of all numbers included in the
ICAAP Report and shall confirm their agreement with the
financial records
Outsourcing
The Company outsources some functions and activities to reputable and skilled individuals or
companies, as per the provisions of the Law.
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In outsourcing the functions and activities, the Company remains fully responsible for
discharging all of its obligations under the Law and complies in particular with the following
conditions:
a) the outsourcing must not result in the delegation by senior management of its responsibility
b) the relationship and obligations of the Company towards its Clients under the Law must not be
altered
c) the conditions with which the Company must comply in order to be authorized in accordance
with the conditions for granting a CIF authorization as stated by the Law, and to remain so,
must not be undermined
d) none of the other conditions subject to which the Company's authorization was granted must
be removed or modified
e) where the compliance function is outsourced, the responsibility shall lay with the service
provider (physical person) and in no case the responsibility shall be limited through the
outsourcing agreement
It is noted that the following principle is adhered at all times, during any outsourcing: in the case
that outsourcing concludes the transfer of functions of the Company to such a degree which renders
the Company’s a letter box entity, it is considered to undermine the conditions for authorization of
the Company by CySEC.
The Compliance Officer ensures that the outsourced functions are included in the relevant
outsourcing agreements with the service providers or individuals, and the Managing Director
ensures that these are adhered to at all times.
The Board passes a resolution for selecting a service provider or individual for outsourcing and the
Internal Auditor receives all feedback on the performance of the outsourced duties, at least annually.
The Company exercises due skill, care and diligence when entering into, managing or terminating
any arrangement for the outsourcing to a service provider of critical or important operational
functions or of any investment services or activities.
The respective rights and obligations of the Company and of the service provider are clearly
allocated and set out in a written agreement. In particular, the Company keeps its instruction and
termination rights, its rights of information, and its right to inspections and access to books and
premises. The agreement ensures that outsourcing by the service provider only takes place with the
consent, in writing, of the Company.
2.8. Information flow on risk to the management body
Risk information flows up to the Board directly from the business departments and control
functions. The Board ensures that it receives on a frequent basis, at least annually written reports
regarding Internal Audit, Compliance, Anti-Money Laundering and Terrorist Financing and Risk
Management issues and approves the Company’s ICAAP report as shown in the table below:
Table 5: Information flow on risk to management body
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Report Name
Owner of Report
Recipient
Frequency
1
Risk Management
Risk Manager
Senior Management,
Annually
Report
Board
2
Pillar I - CRDIV
Risk Manager
Senior Management,
Quarterly
CoRep Forms
Board
3
ICAAP (Pillar 2)
Risk Manager
Senior Management,
Annually
Report
Board
4
Pillar 3 Disclosures
Risk Manager
Senior Management,
Annually
Board
5
Risk Register
Risk Manager
Senior Management,
Annually
Board
6
Compliance Report
Compliance Officer
Senior Management,
Annually
Board
7
Internal Audit
Internal Auditor
Senior Management,
Annually
Report
Board
8
Anti-money
Anti-money
Senior Management,
Annually
laundering
laundering
Board
(AMLCO) Report
Compliance Officer
Audited Financial
Senior Management,
9
External Auditor
Annually
Statements
Board, CySEC
Form 144-14-11
‘Prudential
Senior Management,
10
Risk Manager
Annually
Supervision
Board, CySEC
Information’
Furthermore, the Company believes that the risk governance processes and policies are of utmost
importance for its effective and efficient operation. The processes and policies are reviewed and
updated on an annual basis or when deemed necessary and are approved by the Board.
3. OWN FUNDS
Own Funds (also referred to as capital resources) is the type and level of regulatory capital that must
be held to enable the Company to absorb losses. The Company is required to hold own funds in
sufficient quantity and quality in accordance with CRD IV which sets out the characteristics and
conditions for own funds.
Throughout the year under review the Company manages its capital structure and made adjustments
to it in light of the changes in the economic and business conditions and the risk characteristics of
its activities.
During the year, the Company complied fully with its capital requirement (i.e. €125,000) and
fulfilled its obligations by successfully submitting, on a quarterly basis, the CRD IV CoRep Forms.
In this respect, the minimum Total Capital Adequacy Ratio (i.e. 8%) was maintained above the
regulatory limit (i.e. 8%) by the Company during the year 2019.
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3.1. Tier 1 & Tier 2 Regulatory Capital
Institutions shall disclose information relating to their own funds. Furthermore, institutions shall
disclose a description of the main features of the Common Equity Tier 1 (CET1) and Additional
Tier 1 (AT1) instruments and Tier 2 (T2) instruments issued by the institution. In this respect, the
Company’s total capital is comprised of CET1 and T2 Capital.
Table 6: Composition of the capital base and capital ratios
Capital Instruments
€000
CET1 capital: instruments and reserves
Capital instruments and the related share premium accounts
2,224
Accumulated losses
(1,900)
CET1 capital: regulatory adjustments
Additional deductions of CET1 Capital due to Article 3 of the CRR (*)
(60)
Intangible Assets
0
CET1 capital
264
AT1 capital
-
Tier 1 capital
264
T2 capital
47
Total capital (TC = T1 + T2)
311
Risk weighted assets
Credit risk
132
Market risk
14
Additional Risk Exposure Amount due to Fixed Overheads(**)
1,163
Total risk weighted assets
1,309
Capital ratios
Common Equity Tier 1
20.18%
Tier 1
20.18%
Total Capital
23.79%
*Treatment pursuant to Circular C162 (Capital adequacy requirements - Change in the treatment
of the Investors Compensation Fund (“ICF”) Contribution) on 10 October 2016, according to which
the contribution to ICF will no longer be risk weighted as an “exposure to public sector entities”
pursuant to paragraph 13(3) of Directive DI144-2014-15. The said ICF exposure will be deducted
from CET1 Capital pursuant to Article 3 (Application of stricter requirements by institutions) of the
CRR. The aforementioned Article gives the member states the power to request from the institutions
to hold own funds in excess of those required by the CRR. Moreover, according to the Circular C334
(Treatment of the additional cash buffer of Investors Compensation Fund
(‘ICF’) in the own funds calculation), CIFs should deduct the additional Cash Buffer of 3 per
thousand of the eligible funds and financial instruments of their clients as at the previous year
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calculated according to paragraph 11(6) of the Directive DI87-07 (operation of the ICF).
**Based on the 2019 Audited expenditures
The figures below illustrate the Company’s Capital Ratio and the Overall Exposure Breakdown for the
year ended 31 December 2019.
Capital Requirements
Overall Exposure Breakdown
Credit Risk
Market Risk
10%
1%
Additional
Fixed
Overheads
Requirement
89%
3.2. Main features of Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments
In order to meet the requirements for disclosure of the main features of Common Equity Tier 1,
Additional Tier 1 and Tier 2 instruments, the company discloses the capital instruments’ main
features as outlined below:
Table 7: Main features of capital instruments
Capital Instruments Main Feature
CET1
Tier 2
Issuer
AgeFX
AgeFX
Regulatory Treatment
Eligible at Solo/(sub-)consolidated/solo
Solo
Solo
Instrument type
Common Equity
Subordinated loan
Amount recognized in regulatory capital
€2,224k
€47k
Nominal amount of instrument
€2,224k
€47k
Issue Price
€1
€100k
Accounting classification
Shareholders’ Equity
Liability
Share
Effective
Effective Date
Capital
Date
Amount of Increase/Original date of
Increase
issuance
€200k
Incorporation
€200k
31/08/2015
08 May 2017
€210k
31/12/2015
€210k
24/06/2016
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€204k
30/09/2016
€100k
01/12/2017
€900k
28/03/2018
€200k
29/03/2019
Perpetual or dated
Perpetual
Dated
Original maturity date
No maturity
09 May 2022
Issuer call subject to prior approval
No
No
Coupons / Dividends
Fixed or floating dividend/coupon
Floating
Fixed
Coupon rate and any related index
N/A
0%
The Company’s capital resources consist of CET 1 Capital and Tier 2 Capital.
3.3. Balance Sheet Reconciliation
Institutions shall disclose a full reconciliation of Common Equity Tier 1 items, Additional Tier 1
items, Tier 2 items, filters, deductions and the balance sheet in the audited financial statements of
the institution as follows:
Table 8: Balance Sheet Reconciliation
2019
€000
Equity
Share capital
2,224
Audited Reserves
(1,900)
Total Equity as per Audited Financial Statements
324
Regulatory Deductions
Additional deductions of CET1 Capital due to Article 3 of the CRR
(60)
Intangible Assets
0
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Tier 2
Subordinated Loan
100
Amortization as per Article 64 of the CRR
(53)
Total Own funds as per CoRep
311
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4. COMPLIANCE WITH THE REGULATION AND THE OVERALL PILLAR II RULE
4.1. Internal Capital
The purpose of capital is to provide sufficient resources to absorb unexpected losses over and above
the ones that are expected in the normal course of business. The Company aims to maintain a
minimum risk asset ratio which will ensure there is sufficient capital to support the Company during
stressed conditions.
4.2. Approach to assessing adequacy of Internal Capital
The Company has established an ICAAP, documented it in a Manual and produced in this regard
the ICAAP Report, as per the Guidelines GD-IF-02 (Circular C026) & GD-IF-03 (Circular C027).
Upon CySEC’s request the ICAAP Report shall be submitted to CySEC.
The Company has adopted the Pillar I plus approach whereby it determines the minimum capital
required under Pillar I methodology and subsequently incorporates in that methodology the risks
that are either not covered or are partially covered by Pillar I. Initially an assessment is made on the
general financial position of the Company both from its financial statements and its Capital
Adequacy Returns.
The Pillar I variable capital requirement is the sum of the credit risk and market risk requirements
and the operational risk. In order to validate the adequacy of the above requirements under the
Pillar I calculations, the ICAAP proceeds with the following individual tests:
The adequacy of the credit and market risk requirements is assessed with reference to all
relevant balance sheet items in order to ascertain if there are additional risks that are not covered
by Pillar I
Other risks connected with the balance sheet, such as liquidity risk and concentration risk, are
reviewed in order to establish whether there should be an additional requirement that might not
be covered under Pillar I
The overall capital adequacy is tested by adding together the resulting requirement of the
identified risks.
The absolute impact of combinations of scenarios, including a severe market downturn, is
considered in relation to the financial forecasts of the business to assess the potential impact on
the capital base over a three year period (forward-looking).
A comprehensive risk assessment is carried out for all risks, categorizing them under a risk
profile by attributing the anticipated impact and likelihood of occurrence.
Finally, additional measures are set for the mitigation of the identified risks as well as capital
allocation.
The Company operates a fully integrated ICAAP process throughout the year that rolls into the final
ICAAP assessment. The Company also performs monthly key risk assessments supported by
periodic stress testing. The ICAAP process considers all of the risks faced by the Company, the
likely impact of them if they were to occur, how these risks can be mitigated and the amount of
capital that it is prudent to hold against them both currently and in the future.
The ICAAP Report describes how the Company implemented and embedded its ICAAP within its
business. The ICAAP also describes the Company’s Risk Management framework e.g. the Company’s
risk profile and the extent of risk appetite, the risk management limits if any, as well as the adequate
capital to be held against all the risks (including risks other than the Pillar I risks) faced by the
Company.
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With regards to the ‘use test’ the following evidence shall be used to support that the ICAAP is
embedded within the Firm:
Senior management or board challenge, review and sign-off procedures; including any relevant
notes in minutes from board and risk committee meetings.
The extent to which the ICAAP is part of the firm’s capital management process, including the
extent and use of capital modelling or scenario analysis and stress testing within the firm’s
capital management policy. For example, in setting pricing and charges and the level and nature
of future business.
In line with the Basel requirements, the key instruments to help the Company maintain adequate
capitalization on an ongoing and forward-looking basis are:
A strategic planning process which aligns risk strategy and appetite with commercial objectives;
A continuous monitoring process against approved risk and capital targets set;
Regular risk and capital reporting to management; and
An economic capital and stress testing framework which also includes specific stress tests to
underpin the Company’s recovery monitoring processes.
The graph below illustrates the process between ICAAP and SREP:
The Supervisory Review and Evaluation Process (SREP) is the supervisory tool for establishing the
appropriate level of capital resources that a CIF should hold in order to meet its present and future
capital requirements over a period of up to five years. Circular C027 outlines how CySEC applies
the supervisory review and evaluation process (SREP) when reviewing the CIFs’ ICAAP under the
framework of the paragraph 33 of the Directive.
5. PILLAR I CAPITAL REQUIREMENTS
The following sections show the overall Pillar I minimum capital requirement and risk weighted
assets for the Company under the Standardised Approach to Credit Risk, Market Risk and the Fixed
Overheads requirements.
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5.1. 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 counterparties fail to discharge their
obligations and this could reduce the amount of future cash inflows from financial assets on hand
at the balance sheet date.
The Company aims to diversify risks and to limit the amount of credit exposure to any particular
counterparty in compliance with the requirements of the Directive. The Company continuously
monitors the fair value calculations, forecast and actual cash flows, and cost budgets so that to
ensure that the carrying level of Company’s own funds and consequently the Capital Adequacy ratio
meet the regulatory requirements at all times.
The management believes that no additional credit risk, beyond amounts provided for collection
losses, is inherent in the trade receivables. Cash balances are held with high credit quality financial
institutions and the Company aims to limit the amount of credit exposure to any financial institution.
Impairment
IFRS 9 introduced a new model for recognition of impairment losses - the expected credit losses
(“ECL”) model. The new rules require that entities will have to record an impairment loss equal to
the 12-month ECL for financial assets that have not suffered a significant increase in credit risk
since initial recognition. Where there has been a significant increase in credit risk since initial
recognition, impairment is measured using lifetime ECL rather than 12-month ECL. Entities must
calculate probability of default (“PD”), losses given default (“LGD”) and exposures at default
(“EAD”) to estimate expected credit loss provisioning amounts. The model includes operational
simplifications for lease and trade receivables which require lifetime losses to be calculated.
Impairment of financial assets
The Company has the following types of financial assets that are subject to the expected credit loss
model: cash and cash equivalents The Company provides for credit losses against loans to related
parties, receivables, other receivables, and cash and cash equivalents. The loss allowance was not
reflected on the position as it is the Company's policy not to adjust for immaterial amounts. The first
€100.000 has been deducted from the calculation in case of EU banks under the Deposit Guarantee
Scheme.
5.1.1. Credit Risk Adjustments
The Company assesses at the balance sheet date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a “loss event”)
and that loss event (or events) has an impact on the estimated future cash flows of the financial asset
or group of financial assets that can be reliably estimated.
Trade receivables are recognized initially at fair value and are subsequently measured at amortized
cost using the effective interest method, less provision for impairment. For those trading receivables
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that are 90 days or more past due, in non-accrual status, the Company classifies them as “in
default”, thus an impairment test will emerge.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost,
using the effective interest method, less provision for impairment. A provision for impairment of
other receivables is established when there is objective evidence that the Company will not be able
to collect all amounts due according to the original terms of receivables. Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy or delinquency in
payments are considered indicators that the trade receivable is impaired. The amount of the
provision is the difference between the asset's carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate. When a receivable is
uncollectible, it is written off against the allowance account for other receivables. Subsequent
recoveries of amounts previously written off are credited in the statement of comprehensive income.
None of the derivative financial instruments is either past due or impaired.
5.1.2. Credit Risk - Risk Weighted Assets
The minimum capital requirement for Credit risk is calculated by exposure using a factor of 8%.
The following table shows the risk-weighted exposure amounts and the corresponding minimum
capital requirements as at 31 December 2019 for the Company broken down by exposure class.
Table 9: Exposures by Exposure class as at 31 December 2019
Risk Weighted Assets
Capital Requirements
Exposure class
€000
€000
Institutions
53
4
Other Items
79
6
Total
132
11
Risk Weighted Assets
Institution
40%
Other Items
60%
The Regulation requires disclosure for additional asset classes. These have not been shown in the table
above as these are nil as at the reporting period.
5.1.3. Credit Risk - Analysis of Average exposures and total amount of exposures after
accounting offsets
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The Company shall disclose the total amount of exposures after accounting offsets and
without taking into account the effects of credit risk mitigation and the average amount of the
exposures over the period broken down by different types of exposures as follows:
Table 10: Analysis of Average Exposures
Original exposure amount,
Average Exposure
Exposure class
net of specific provisions
€000
€000
Institutions
264
406
Other Items
79
86
Total
343
492
5.1.4. Credit Risk - Risk Weighted Assets by Geographical distribution of the exposure classes
The Company shall disclose the geographical distribution of the exposures, broken down in
significant areas by material exposures classes. The geographical distribution of the exposure
classes of the Company are as follows:
Table 11: Geographical distribution of the exposure classes
Cyprus
Poland
United Kingdom
Total
Exposure class
€000
€000
€000
€000
Institutions
-
14
249
264
Other Items
79
-
-
79
Total
79
14
249
343
Geographical Distribution of the Exposures
300
200
Other Items
100
Institution
0
Cyprus
Poland
United Kingdom
he Regulation requires disclosure for additional asset classes. These have not been shown in the table
above as these are nil as at the reporting period.
5.1.5. Credit Risk - Distribution of exposures by industry
The Company shall disclose the distribution of the exposures by industry or counterparty type,
broken down by exposure classes, including specifying exposure to SMEs, and further detailed if
appropriate as follows:
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Table 12: Exposures by industry
Banking/Financial
Other
Total
Exposure class
services
€000
€000
€000
Institutions
264
-
264
Other Items
-
79
79
Total
264
79
343
Exposure by Industry
Other
23%
Banking/Financial
services
77%
The Regulation requires disclosure for additional asset classes. These have not been shown in the ta le
above as these are nil as at the reporting period.
5.1.6. Residual maturity broken down by exposure classes
The Company shall disclose the residual maturity breakdown of all the exposures, broken down by
exposure classes, as follows:
Table 13: Residual maturity broken down by exposure class
Residual Maturity
Residual Maturity
Total
Exposure class
≤ 3 months
> 3 months
€000
€000
€000
Institutions
264
-
264
Other Items
-
79
79
Total
264
79
343
5.2. Use of ECAIs
The Company shall disclose the names of the nominated External Credit Assessment Institution
(“ECAI”) and the exposure values along with the association of the external rating with the credit
quality steps. In determining risk weights for use in its regulatory capital calculations, the Company
uses Moody’s as ECAI and the exposure values with their associated credit quality steps are as
follows:
Table 44: ECAI Association with each credit quality step
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Credit
Moody’s
Corporate
Institutions
Sovereign
Quality
Rating
Sovereign
Credit Assessment
Step
method
method
Maturity
Maturity 3
> 3
months or
less
months
1
Aaa to Aa3
20%
20%
20%
20%
0%
2
A1 to A3
50%
50%
50%
20%
20%
3
Baa1 to Baa3
100%
100%
50%
20%
50%
4
Ba1 to Ba3
100%
100%
100%
50%
100%
5
B1 to B3
150%
100%
100%
50%
100%
6
Caa1 and
150%
150%
150%
150%
150%
below
Exposures to unrated institutions are assigned a risk weight according to the credit quality step to
which exposures to the central government of the jurisdiction in which the institution is
incorporated, as specified in Article 121 of CRR. Notwithstanding the general treatment mentioned
above, short term exposures to institutions could receive a favourable risk weight of 20% if specific
conditions are met.
Exposures to corporate counterparties were risk weighted by 100% risk factor since they were all
unrated.
The Other Items category includes tangible assets and prepayments for which the Company cannot
determine the counterparty risk weighted at 100%, cash items in the process of collection risk
weighted at 20% and cash in hand risk weighted at 0%.
Table 15: Breakdown of exposures by asset class and risk weight under the Standardised
approach
Exposure
Risk Weight as at 31 December 2019
Of which
Total
Class
0%
20%
100%
unrated
€000
€000
€000
€000
€000
Institutions
-
264
-
264
-
Other Items
1
-
79
79
79
Total
1
264
79
343
79
The table below presents exposure values before and after credit risk mitigation of the Company,
corresponding to Credit Quality Steps (CQS). The values before credit risk mitigation represent the
initial exposure value net of value adjustments while the values after credit risk mitigation
represent exposures taking into account the eligible financial collateral funded and unfunded credit
protection
Table 16: Exposures before and after credit risk mitigation as at 31 December 2019
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Credit Quality Step
Exposure values before
Exposure values after credit
credit risk mitigation
risk mitigation
€000
€000
CQS 1
249
249
CQS 2
14
14
Unrated
79
79
Total
343
343
5.3. Market Risk
Market risk can be defined as the risk of losses in on and off-balance sheet positions arising from
adverse movements in market prices. From a regulatory perspective, market risk stems from foreign
exchange risk positions in the whole balance sheet.
As a “Limited Licence” CIF, the Company does not deal for its own account. Market risk is therefore
limited to movements in foreign exchange rates.
5.3.1. Foreign Exchange Risk
The Company’s reporting currency is Euro. Foreign currency risk arises when future commercial
transactions and recognized assets and liabilities are denominated in a currency that is not the
Company's functional currency
The Company is exposed to foreign currency risk arising from various currency exposures.
Furthermore, funds deposited by clients may not always be maintained in the originally deposited
currency but may instead be converted to other currencies on the basis of the management’s
decisions. This may expose the Company to Foreign currency risk. The Company's management
monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
If the sum of the Company’s overall net foreign-exchange position and its net gold position exceeds
2% of its total own funds, the Company calculates own funds requirements for foreign exchange risk.
The own funds requirement for foreign exchange risk is the sum of its overall net foreign-exchange
positions and its net gold position in the reporting currency, multiplied by 8%.
The foreign exchange risk is effectively managed by setting and controlling foreign exchange risk
limits, such as through the establishment of maximum value of exposure to a particular currency
pair as well as through the utilization of sensitivity analysis.
The Company’s foreign exchange risk capital requirement is EUR 1k emanating from a net foreign
exchange exposure of EUR 14k based on the latest relevant calculations of the Company’s capital
requirements, as at 31st of December 2019.
Closely Correlated Currencies
Following the EBA’s Final draft Implementing Technical Standards on Closely Correlated
Currencies under Article 354 (3) of CRR, the Company may apply lower own funds requirements
against positions in relevant closely correlated currencies as those are disclosed by EBA. In this
respect, for the calculation of the foreign exchange risk for matched positions on closely correlated
currencies, a capital requirement of 4% instead of 8% is used.
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The Company’s positions in matched closely correlated currencies for the period up to 31
December 2019 were zero.
5.3.2. Interest Rate Risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in
market interest rates. The Company’s income and operating cash flows are substantially
independent of changes in market interest rates. Other than cash at bank, which attracts interest at
normal commercial rates, the Group has no other significant interest bearing financial assets or
liabilities.
The Company's income and operating cash flows are substantially independent of changes in market
interest rates as the Company has no significant interest-bearing assets and liabilities. The bank
balances held in current accounts have no significant interest.
The Company’s management monitors the interest rate fluctuations on a continuous basis and acts
accordingly.
5.4. Operational Risk
Operational risk means the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events. Operational risk includes legal risk but excludes strategic and
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reputational risk. monitoring of operational risk incidents to ensure that past failures are not
repeated.
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Furthermore, the Company has in place policies and processes whose implementation assists with the
evaluation and management of any exposures to operational risk.
The Company has implemented an operational risk management framework designed to ensure that
operational risks are assessed, mitigated and reported in a consistent manner consisting of, inter
alia, the following components:
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Maintaining a four-eye structure and implementing board oversight over the strategic decisions
made by the heads of departments;
A Disaster Recovery Plan has been designed in order to be used in the event of a force majeure
affecting the Company’s internal systems and databases; and
Maintenance of Risk Registers in the Context of the ICAAP;
A Business Continuity Plan has been implemented which helps protect all of the Company’s
information databases including data, records and facilities.
The majority of actions occurring in the Company’s systems are automated and therefore it is
less likely that a human error will occur;
Review of risks and controls as part of the Internal Audit function;
Regular review and updating of the Company’s policies;
Following the outbreak of COVID-19 in Cyprus, the Firm has taken the required measures to
ensure that its employees have access to its technology infrastructures necessary for the
completion of their tasks and that additional systems for critical functions are being provided. In
this respect, the Business Continuity Plan has been amended accordingly.
5.4.1. Fixed Overheads Requirements
Following the CRDIV implementation, Operational Risk is replaced by Fixed Overheads
requirements for “Limited Licence” CIFs (under Article 95(1) of the CRR, pursuant to Article 97
of the CRR).
The purpose of this new requirement is to enable CIFs to protect their investors in case of winding
down or restructuring their activities and to hold sufficient financial resources to withstand
operational expenses over an appropriate period of time. In this respect, CIFs are required to hold
eligible capital of at least one-quarter of the fixed overheads of the previous year based on the most
recent audited annual financial statements, or projected fixed overheads in the case where a CIF has
not completed business for one year.
In addition to holding eligible capital of at least one-quarter of the fixed overheads of the previous
year, CIFs have to calculate their total risk exposure based on fixed overheads. In this respect, the
total eligible capital is
€311k which is greater than €105k, the fixed overheads requirement.
Moreover, CIFs have to calculate their total risk exposure based on fixed overheads of the previous
year’s audited expenditures. The Total Risk Exposure Amount for “Limited Licence” CIFs is the
greater of the Total risk exposure amount (excluding Operational Risk) and the Fixed Overhead of
the preceding year (x 12.5 x 25%).
The Company’s Fixed Overheads Risk Exposure amount based on the Audited Financial Statements
for the year 2019 is provided by the table below:
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Table 17: Fixed Overheads Risk Exposure amount analysis
Fixed
Fixed
Fixed
Additional
Total Risk
Overheads Risk
Overheads
Overheads
Exposure
Exposure
Exposure
Requirements
Amount
Amount
Amount
€000
€000
€000
€000
€000
419
105
1,309
1,163
1,309
In this respect, the Fixed Overheads risk exposure amount is €1,309k which is more than the sum of
the Credit Risk and Market Risk Exposure amount which is €145k.
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6. OTHER RISKS
6.1. Concentration Risk
Concentration Risk includes large individual exposures and significant exposures to companies
whose likelihood of default is driven by common underlying factors such as the economy,
geographical location, instrument type etc.
Concentration risk was partly addressed through diversification of counterparties, namely banking
institutions. Moreover, the Company’s experience in the collection of trade receivables has never
caused debts which are past due and have to be impaired.
Large Exposures
The Company is not subject to the Large Exposures regime, in accordance with Article 388 of the CRR
due to the fact that it is a Limited Licence CIF (under Article 95(1) of the CRR).
Nevertheless, according to the Directive, Paragraph 61, Limitations on exposures to directors and
shareholders, a CIF is not allowed to have exposures to all directors more than 1% and to all
shareholders that are not an institution, more than
2% of its eligible capital. Exposures to
shareholders and directors are monitored and kept within the limits.
The Company’s exposures are within the limits and as such no further actions are required.
6.2. Reputation Risk
Reputation risk is the current or prospective risk to earnings and capital arising from an adverse
perception of the image of the Company on the part of customers, counterparties, shareholders,
investors or regulators. Reputation risk could be triggered by poor performance, the loss of one or
more of the Company’s key directors, the loss of large customers, poor customer service, fraud or
theft, customer claims, legal action and regulatory fines.
The Company has transparent policies and procedures in place when dealing with possible customer
complaints in order to provide the best possible assistance and service under such circumstances.
The possibility of having to deal with customer claims is very low as the Company provides high
quality services to customers.
6.3. Strategic Risk
Strategic Risk could occur as a result of adverse business decisions, improper implementation of
decisions or lack of responsiveness to changes in the business environment. The Company’s
exposure to strategic risk is moderate as policies and procedures to minimize this type of risk are
implemented in the overall strategy of the Company.
6.4. Business Risk
Business Risk includes the current or prospective risk to earnings and capital arising from changes
in the business environment including the effects of deterioration in economic conditions. Research
on economic and market forecasts are conducted with a view to minimize the Company’s exposure
to business risk. These are analyzed and taken into consideration when implementing the
Company’s strategy.
6.5. Capital Risk Management
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Capital Risk is the risk that the Company will not comply with capital adequacy requirements. The
Company's objectives when managing capital are to safeguard the Company's ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders. The
Company has a regulatory obligation to monitor and implement policies and procedures for capital
risk management. Specifically, the Company is required to test its capital against regulatory
requirements and has to maintain a minimum level of capital. This ultimately ensures the going
concern of the Company. Such procedures are explained in the Procedures Manual of the Company.
The Company is further required to report on its capital adequacy quarterly and has to maintain at
all times a minimum total capital adequacy ratio which is set at 8%. The capital adequacy ratio
expresses the capital base of the Company as a proportion of the total risk weighted assets.
Management monitors such reporting and has policies and procedures in place to help meet the
specific regulatory requirements. This is achieved through the preparation on a monthly basis of
management accounts to monitor the financial and capital position of the Company.
6.6. Regulatory Risk
Regulatory risk is the risk the Company faces by not complying with relevant Laws and Directives
issued by its supervisory body. If materialized, regulatory risk could trigger the effects of reputation
and strategic risk. The Company has documented procedures and policies based on the requirements
of relevant Laws and Directives issued by the Commission; these can be found in the Procedures
Manual. Compliance with these procedures and policies are further assessed and reviewed by the
Company’s Internal Auditors and suggestions for improvement are implemented by management.
The Internal Auditors evaluate and test the effectiveness of the Company’s control framework at
least annually. Therefore the risk of non-compliance is very low.
6.7. Legal and Compliance Risk
Legal and Compliance Risk could arise as a result of breaches or non-compliance with legislation,
regulations, agreements or ethical standards and have an effect on earnings and capital. Following
the replacement of the Law 144(I)/2007 by Law 87(I)/2017 for the purpose of harmonization with
MIFID II, several regulatory changes were applied that may cause the Company’s exposure to
compliance risk. The Company among others, is also exposed to legal and compliance risk arising
from inability or inadequate arrangements to comply with the requirements related to the:
Product Governance (Circular C236, Directive DI87-01),
New rules governing derivatives on virtual currencies (Circular C268),
Commission Delegated Regulation of 8 June 2016 of the European Parliament and of the
Council with regard to regulatory technical standards for the annual publication by investment
firms of information on the identity of execution venues and on the quality of execution,
Provisions of the General Data Protection Regulation (GDPR) 2016/679 and
4th AML Directive (Directive (EU) 2015/849)
5th AML Directive (Directive (EU) 2015/849) EMIR Refit
The probability of such risks occurring is relatively low due to the detailed internal procedures and
policies implemented by the Company and regular reviews by the Internal Auditors. The structure
of the Company is such to promote clear coordination of duties and the management consists of
individuals of suitable professional experience, ethos and integrity, who have accepted
responsibility for setting and achieving the Company’s strategic targets and goals. In addition, the
Board meets at least annually to discuss such issues and any suggestions to enhance compliance are
implemented by management. Finally and with respect the Implications of NBP, the Company has
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contractual agreements with solely with European Economic Area regulated entities and as
such is not required to maintain a minimum additional capital buffer.
6.8. IT Risk
IT risk could occur as a result of inadequate information technology and processing, or arise from
an inadequate IT strategy and policy or inadequate use of the Company’s information technology.
Specifically, policies have been implemented regarding back-up procedures, software maintenance,
hardware maintenance, use of the internet and anti-virus procedures. Materialization of this risk has
been minimized to the lowest possible level.
6.9. Risk Reporting
The Company’s personnel discuss with Senior Management and the Compliance officer of any risk
related events that comes to their attention or they have concern about, and it is then dealt with
accordingly by the Compliance officer and/or Risk Manager and/or senior management.
6.10. Liquidity Risk
Liquidity risk is defined as the risk when the maturity of assets and liabilities does not match. An
unmatched position potentially enhances profitability, but can also increase the risk of losses. The
Company has policies and procedures with the object of minimizing such losses.
6.11. Conduct Risk
Conduct risk is defined as the risk of an action, by an individual, financial institution or the industry
as a whole, which leads to customer detriment or, undermines market integrity. This can bring
sanctions and negative publicity. Moreover, EBA has defined conduct risk as the current or
prospective risk of losses to an institution arising from inappropriate supply of financial services
including cases of wilful or negligent misconduct. Consequently, conduct risk arises from failures
of designated liquidity providers located in third countries associated with the Company.
Additionally, the Company is exposed to negative balances with its Liquidity Providers, in case of
fast-pacing volatile market, where the LP cannot close a position at the Company’s stop out limit.
Therefore, the Company may be exposed to conduct risk arising from inadequate agreements with the
Liquidity Providers and/or with the third parties that hold client’s funds.
As part of risk management policy and tools, the Company has procedures in place to diversify its
liquidity providers and monitor their financial position on an on-going basis. The financial soundness
of the liquidity providers is closely monitored and the company is ready to switch to alternative LPs,
if necessary. Furthermore, the receivable/payable amounts with the LPs are monitored on a daily basis.
In particular, the Company examines its existing procedures and arrangements with respect to the
products offered and services provided.
Further to the above, the agreement of MoUs between CySEC and FCA is expected to maintain
investors’ protection via the appropriate communications channels between the two competent
authorities and as such nay negative impact on the Company’s risk profile due to hard Brexit
Scenario is mitigated.
Product Intervention Measures on CFDs and Binary Options
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The Cyprus Securities and Exchange Commission has published a Policy Statement dated 10
July 2019, on its decision to impose permanent national measures regarding the marketing,
distribution and sale of binary options, pursuant to the Article 42 of the EU Regulation No 600/2014.
In this respect and following ESMA’s measures in relation to binary options, CySEC permanently
prohibits the marketing, distribution and sale of the binary options to retail clients from or in the
Republic of Cyprus, irrespective of whether these are traded on OTC markets or on organised
exchanges.
Moreover, CySEC issued Policy Statement IV (PS-04-2019) to summarise the feedback received in
response to CP-02-2019 and contains CySEC’s final position on the matter by way of Directive
DI87-09 which has been published in the Official Gazette of the Republic of Cyprus.
According to the PS-04-2019, CySEC adopts the same leverage limits as ESMA’s for all retail
clients. Therefore retail clients will be required to pay at least the following initial margin protection
of the notional value of the CFD (i.e. leverage limits):
Table 18: Initial Margin Protection and Leverage Limits per type
Type of Underlying
Initial Margin Protection
Leverage Limit
Major Currency Pairs
3,33%
30:1
Non-major currency pairs,
5%
20:1
gold and major indices
Commodities other than gold
10%
10:1
and non-major equity index
For individual equities and
20%
5:1
other reference values;
Crypto assets
50%
2:1
CySEC also clarifies what are the grey area of Target Market and the trades of significant size. The
specific terms are used in the ESMA Guidelines on MiFID II Product Governance Requirements
and in MiFID II (elective professional status eligibility) respectively.
Further to the above and with respect to the Margin Close-out protection and the Negative
Balance protection requirement, CySEC decided to proceed with the measures adopted by ESMA.
Moreover and as regards the risk warning, CySEC does not share the view:
a) That an annual assessment of the content of the warning would provide up to date data to clients
and prospective clients, in order to be able to make an informed decision; or
b) That the marketing intensity is relevant to the content of the risk warning.
CySEC took note of the proposal to request that the risk warning includes details on the average
loss/average gain of retail client per account. However in view of the fact that further clarity is
needed as to the practical implementation and that such requirement is substantive and such option
was not included in CP-02-2019, is in CySEC’s view premature to examine such option and its
possible merits or risks.
Moreover, CySEC proposed under CP-02-2019 to adopt the same requirements as provided for in
the ESMA Decision on CFDs in relation to NBP and the restriction on the incentive offered to trade
CFDs.
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In addition to the above, CySEC has also took note of the UK’s FCA and Austria’s
Finanzmarktaufsichtsbehörde (FMA) approach, in relation to the content of the risk warning for
new firms that do not have 12 months of retail client trading data. In CySEC’s view such warning
reflects the risks of trading in CFDs in an equivalent manner without using data that might not be
relevant for the firm in question.
In addition to this, a predefined range as per the ESMA’s warning for newcomers will need to be
constantly revaluated by CySEC in order to ensure that it reflects the current conditions in the
market on ongoing basis, rendering such risk warning administratively burdensome. To this end
CySEC believes that the risk warning proposed for newcomers is justified and proportionate.
In view of the above CySEC will proceed with adopting the same risk warning as ESMA’s, except
for the case of new firms that do not have 12 months of retail client trading data where we request
that the percentage range is replaced with a reference stating that “The vast majority of retail client
accounts lose money when trading in CFDs” in the durable medium and webpage standard risk
warning and in the abbreviated standard risk warning and with a reference stating that “‘CFD-retail
client accounts generally lose money” in the reduced character standard risk warning.
In particular, the CFD provider should not send directly or indirectly a communication to or publish
information accessible by a retail client relating to the marketing, distribution or sale of a CFD
unless it includes the appropriate risk warning specified by and complying with the conditions
provided.
Conflicts of interest
The Company takes all reasonable steps to identify conflicts of interest situations between the
Company and its employees/relevant persons, the Company and its Clients or between its Clients
during the course of the provision of investment and ancillary services.
The Compliance Officer is responsible for maintaining Chinese Walls, by means of regular checks and
is monitored by the Company’s Internal Auditor. Moreover, the Company has in place conflict of
interest policy which set out the Company’s approach in identifying and managing conflicts of interest
which may arise during the course of its normal business activities.
7. REMUNERATION POLICY
The Company has established a remuneration policy, which its purpose is to set out the remuneration
practices of the Company taking into consideration the salaries and benefits of the staff, in
accordance with the provisions of Directive as well as the Circular 031 (Circular 031 has been
issued in place of Guidelines GD-IF-07 for the correct filing purposes) on remuneration policies
and practices, where these comply with specific principles in a way and to the extent that is
appropriate to the Company’s size, internal organization and the nature, scope and complexity of its
activities. Furthermore, the Company’s remuneration strategy is designed to reward and motivate
the people who are committed to maintaining a long term career with the Company and performing
their role in the interests of the Company.
The design of the Policy is approved by the people who effectively direct the business of the
Company, after taking advice from the compliance function, and implemented by appropriate
functions to promote effective corporate governance. The people who effectively direct the business
are responsible for the implementation of remuneration policies and practices and for preventing
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and dealing with any relevant risks, that remuneration policies and practices can create. The
Board discusses remuneration policy matters at least annually.
Furthermore, the Policy also benefits from the full support of senior management or, where
appropriate, the supervisory function, so that necessary steps can be taken to ensure that relevant
persons effectively comply with the conflicts of interest and conduct of business policies and
procedures.
Finally, the Policy adopts and maintains measures enabling them to effectively identify where the
relevant person fails to act in the best interest of the client and to take remedial action.
7.1. Remuneration System
The Company's remuneration system and policy is concerned with practices of the Company for
those categories of staff whose professional activities have a material impact on its risk profile, i.e.
the Senior Management and members of the Board; the said practices are established to ensure that
the rewards for the “executive management” are linked to the Company’s performance, to provide
an incentive to achieve the key business aims and deliver an appropriate link between reward and
performance whilst ensuring base salary levels are not set at artificially low levels. The Company
uses remuneration as a significant method of attracting and retaining key employees whose talent
can contribute to the Company’s short and long term success.
The remuneration mechanisms employed are well known management and human resources tools
that take into account the following factors in order to determine the remuneration of each staff
member:
a) knowledge and skills,
b) the adding value to the business,
c) the demands (physical and mental) of the job,
d) amount of training and/or experience needed,
e) working conditions,
f) the importance and the amount of responsibility,
g) market dynamics such as the supply and demand for labour,
h) financial viability of the Company,
i) economic performance of the country in which the Company operates,
j) employee’s personal goals and performance evaluation in relation to the objectives set up at the
beginning of the period,
k) employee’s professional conduct with clients.
l) Staff’s skills, experience and performance, whilst supporting at the same time the longterm
business objectives.
The Company’s remuneration system takes into account the highly competitive sector in which the
Company operates, and the considerable amount of resources the Company invests in each member
of the staff. The remuneration includes all forms of benefits provided by the Company to its staff
and can be Financial or non-Financial remuneration.
It is noted that the Company has taken into account its size, internal organization and the nature, the
scope and the complexity of its activities and it does not deem necessary the establishment of a
specific remuneration committee. Decisions on these matters are taken on a Board level while the
remuneration policy is reviewed and updated when it is deemed necessary.
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The remuneration varies for different positions/roles depending on each position’s actual functional
requirements, and it is set at levels which reflect the educational level, experience, accountability,
and responsibility needed for a staff member to perform each position/role. The remuneration is
also set in comparison with standard market practices employed by the other market participants/
competitors. Furthermore, the employee’s personal goals and performance evaluation in relation to
the objectives set up at the beginning of the period and the employee’s professional conduct with
clients are taken into account in order to determine the remuneration.
The total remuneration of staff currently consists of a fixed and a variable component. On the one
hand, the Fixed Remuneration (FR) has purpose to attract and retain Company’s employees. This
fixed amount of remuneration includes salary, fixed pay allowance and other cash allowances and
all are determined based on the role and position of each employee, taking into account the
experience, seniority, education, responsibility, and market conditions. On the other hand, the
variable remuneration is a performance-based remuneration which motivated and rewards staff
members based on their results in relation with the targets set in the beginning of the year. This kind
of remuneration is not guaranteed and the BoD has determined a maximum percentage of variable
remuneration relative to the fixed remuneration in order to ensure a compliant ratio between these
two kinds of remuneration. Although, the maximum limit on variable remuneration set at 100% of
fixed salary, the limit could be set at 200% upon shareholders’ approval according to the Article 94
of Directive 2013/36/EU.
Furthermore there no remuneration is payable under deferral arrangements (with vested or unvested
portions). Finally the Company did not pay any non-cash remuneration for the year under review,
since the Company does not have non-cash instrument, such as shares or other equivalent non-cash
instrument, in place.
The Company recognizes that its remuneration system have some features that increases the
misselling risk. Therefore, the Company applies effective mitigation controls for each part of the
remuneration system.
7.2. Link between the pay and performance
The Company recognises the responsibility that the Staff has in driving its future success and delivering
value for the Company and that remuneration is a key component in motivating and compensating its
employees. Furthermore, the overall remuneration policy incorporates an annual variable incentive
compensation reflecting individual performance and overall performance.
The individual performance is assessed during the annual appraisal process, which establishes
objectives for all staff covering both financial and non-financial factors, specific behavioral
competencies including compliance and risk management behaviors with regards to the Company’s
procedures.
Further to the above, the Company implements a performance appraisal method, which is based on
a set of Key Performance Indicators, developed for each business unit and its target is to promote
the healthy competition amongst personnel, analysis of weak and strong sides of each employee
performance-based and give feedback to the staff member in order to motive them to be improved.
At the most of the times, the performance appraisal takes place in a multiyear framework in order
to ensure that the appraisal process assess employee’s long-term performance. However, sometimes
the performance appraisal is performed on medium and short-term basis, and the performance
indicators of this type of performance appraisal include quantitative as well as qualitative criteria.
The appraisal is being performed as follows:
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2019 Pillar III Disclosures Report
Performance Checks &
The Company Feedbacks • The Company at the implements a end of each year performance
appraisal evaluates the overall program based on key • The Company's managers provide support and
feedback to the staff during performance of the year using quantitative
and qualitative criteria.
performance indicators and
targets.
• Each department sets
the
daily activities, time
• The performance targets for which the
review determines the
periods decided and/or
Company functions, during formal or
informal
level of variable departments and
performance reviews.
remuneration to be
individuals are expected
• The aim is to assist the staff awarded.
to achieve
over a to develop their skills and specific timeframe.
competencies.
Annual Performance
SettingTargets
Evaluation
7.3. Remuneration of Senior Management Personnel and Directors
The remuneration policy of the Company is intended to ensure that the Company will attract and retain
the most qualified Senior Management Personnel and Directors. As stated above, in the criteria used
for determining the remuneration of the Company’s directors are segregated into quantitative and the
qualitative criteria.
The quantitative remuneration criteria mostly rely on numeric and financial data such as the
Company’s performance and the individual performance evaluation and ratings of each member of
the staff whose professional activities affect the risk profile of the firm. In addition to the
quantitative criteria, the Company has put in place qualitative criteria which include compliance
with regulatory requirements and internal procedures, fair treatment of clients and client
satisfaction.
Moreover, the remuneration of the Company’s non-executive directors is fixed and it is set at a level
that is market aligned and reflects the qualification and competencies required based on the
Company’s size and complexity, the responsibilities and the time that the non-executive directors
are expected to consume in order to serve the Company. The remuneration of the senior
management personnel of the Company, including Board are shown in the following tables:
Table 19: Remuneration analysis split by Senior Management and key management personnel
Senior Management
Key Management
Non-Executive
2019
(Executive Directors)
personnel
Directors
Fixed reward
126,106
68,449
26,680
Variable reward
-
418
-
AgeFX - Regulated by the Cyprus Securities and Exchange Commission - CIF Licence No. 317/17
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2019 Pillar III Disclosures Report
Total
126,106
68,867
26,680
Number of
3
3
2
beneficiaries
*The variable to fixed remuneration ratio is 0%.
Companies are required to disclose the number of natural persons that are remunerated €1mln or
more per financial year, in pay brackets of €1mln, including their job responsibilities, the business
area involved and the main elements of salary, bonus, long-term award and pension contribution.
Nevertheless, currently there are no natural persons at the Company that are remunerated €1mln
or more per financial year and as such the above disclosure is not applicable to the Company. No
sign-on payments have been awarded during 2019, while no severance payments were paid during
the year. Furthermore, aggregate remuneration analyzed by business area is presented below:
Table 20: Aggregate remuneration analysis by business area
Aggregate Remuneration
Business Area
Control Functions
164,491
Administration/ Back Office Department
30,482
Total
194,973
*Control functions include the Executive Directors, Compliance Department, the AML Department.
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