Pillar 3 Disclosures (2019)


CS Managers Ltd (“CSML” or “the Firm”) is a UK based private client investment management firm with a single office location in Edinburgh, providing discretionary and advice services  to a range of clients. It is regulated in the UK by the Financial Conduct Authority (“FCA”) under registration number 830853 and conducts its regulated activities under the  trading name of CS Investment Managers. Under the FCAs Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), CS Managers Ltd is classified as a BIPRU €50,000 investment firm, unable to hold client money and subject to restrictions on its activities. As such, it is required to comply with the framework comprising:

  • The Capital Requirements Directive 2013/36/EU (“CRD”) which was transposed into the FCA Handbook via UK Regulation ;
  • The Capital Requirements Regulation EU No 575/2013 (“CRR”), which is directly binding on ‘in scope’ firms; usually referred to together as CRD IV. This is the EU implementation of Basel 111 containing the three “Pillars”.

These are:

  • Pillar 1– which sets out the minimum amount of capital the Firm needs to meet its regulatory requirements;
  • Pillar 2 – which requires the Firm and its regulatory supervisors to consider the requirement to hold additional capital against risks not covered in Pillar 1. In the UK, this is implemented through the Internal Capital Adequacy Assessment Process (“ICAAP”) which is confidential between CS Managers Ltd and by the FCA through the Supervisory Review and Evaluation Process (“SREP”);
  • Pillar 3 – which requires the Firm to disclose to market participants key information about the Firm’s underlying risks, risk management controls and capital position.

The firm has examined credit, market and operational risks – the details of which are in the undernoted table. The firm has determined that given its business model these risks are modest and appropriately mitigated. We have determined that, as at 31 March 2019, the Fixed Overhead Requirement established our Pillar 1 capital requirements a as detailed in the table immediately following. The firm’s tier 1 capital resources comprise entirely of share capital and audited reserves. The table below details the components of Pillar 1 capital as at 31.03.2019:




BASE CAPITAL REQUIREMENT                              (a) €50,000



Credit Risk


Market Risk


Operational risk


AGGREGATED RISK EXPOSURE                             (b)



FIXED OVERHEAD REQUIREMENT                        (c)



PILLAR 1 TOTAL CAPITAL REQUIREMENT (the higher of a or b & c)







The purpose of this document is to meet the Firm’s obligations in respect of Pillar 3, which requires  investment firms to disclose information relating to their risk management approach and capital adequacy and is designed to complement the two other pillars of the CRD, namely the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). The disclosures are the responsibility the Board of Directors of CSML. The Pillar 3 disclosures in this document relate to the single entity, CS Managers Limited, which is not part of a prudential consolidation group. These disclosures are provided on our corporate website www.csmanagers.com . CS Managers Ltd will make Pillar 3 disclosures on at least an annual basis, and more frequently if circumstances or regulation require, as soon as practicable after its Annual Report & Financial Statements are filed at Companies House. The reporting period in every case will relate to the financial position as at the Firm’s financial year end of 31 March. Throughout this document, therefore, the financial position presented will be as at 31 March 2019, being the last audited Accounts, and the capital resource requirement has been calculated in relation to the position at that date. The disclosures themselves in this document are unaudited but subject internal review by the management body. They explain how certain capital requirements have been calculated and provide general information only about risk management, but they are not financial statements and should not be relied upon for any other purpose than stated in this document.

  • Risk Appetite Risk appetite is the degree of risk that the Firm willing to accept without applying further resources and capital to mitigate the risk. CSML maintains a comprehensive risk management framework, including suitable processes and controls for identifying risk concerns and ensuring these are managed in line with the Firm’s risk appetite. These processes are designed to:
    • Define the level of risk that CSML is willing to accept (or not accept) while pursuing its business objectives;
    • Protect the interests of all stakeholders; and
    • Meet the Firm’s responsibilities as a UK FCA regulated entity

The Board of CSML is responsible for setting and overseeing the risk appetite of the Firm, and for reviewing this a minimum of annually to ensure alignment with the Firm’s strategic plan and its conservative risk culture. CSML maintains a prudent amount of excess in its capital base above the amounts calculated for the assessed risks. An assessment is made of the key risks that are believed to materially impact the Firm’s strategic aim of increasing its asset under management and enhancing its position, as a provider of highly personalised private client investment management services. The surplus capital retained is designed to allow CSML to maintain and grow its business without further capital injection.

  • Risk Management Framework CSML recognises that management of risk and regulatory compliance are inextricably inter-connected. For that reason, the  risk management framework is governed and structured through a variety of mechanisms so that employees throughout the Firm are aware of, and understand, their responsibilities in these areas. Risk is a core consideration when setting strategy, formulating business plans and managing performance. The ultimate responsibility for this rest with the Board of CSML who delegate the day to day management of the Firm’s risk to a senior management committee, with responsibility for reporting by them to the Board on an annual basis. The  risk management framework process is designed to facilitate the identification ,monitoring and mitigation of risks across the business in line with accountability for service delivery.

Application of  the Three Lines of Defence Model of risk and control as follows:

First Line Operational & Business Development activity Where the day to day activities are conducted according to agreed regulatory processes and checks are reported, with escalation as required.
Second Line Oversight & Quality Assurance Function Where risk procedures are set, and oversight checks identify and monitor the effectiveness of compliance with the framework, with escalation as required to senior management.
Third Line Audit Functions (internal & external) Where independent assessment is made and reported as to the effectiveness of key controls and the working of the framework itself.

The Firm is required to complete an Internal Capital Adequacy Assessment Process (“ICAAP”) at least on an annual basis, or more frequently if required. The ICAAP document sets out the key risks to the business and demonstrates how the Firm satisfies itself that it has sufficient capital. The ICAAP process ensures the Board regularly oversees and assesses:

  • The major sources of risk to the company’s ability to meet its current and future liabilities according to its planned activities
  • The results of internal stress testing of these risks;
  • The amount and types of financial and capital resources; and
  • Whether they are adequate to cover the nature and level of the risks to which the Firm is exposed.

The ICAAP is used within the business to support the decision-making process, identify potential risk exposures and implement appropriate mitigants. The ICAAP is formally reviewed by the Board as part of the annual business planning cycle. Should business plans or significant re-positioning dictate then interim reviews will be undertaken. Management information allows the Board to regularly monitor the business against the risk framework and use it to make adjustments throughout the year and whenever else this may prove necessary. MATERIAL RISKS The Firm has identified and assessed the key risks to the business to be credit, market and operational as set out in the table in Section 1, and liquidity risk. Given the size of the Firm and its business model, which is not complex, CSML considers these risks to be modest and appropriately managed or mitigated.

  • Credit Risk This is the risk of loss arising from default by a client. The main source of credit risk for the Firm comes from non-payment of discretionary management fees. Under its client Terms of Business, all fees are automatically deducted quarterly from the funds sitting at credit of the portfolio accounts held by the custodian, and paid to CSML with 9 days from the quarter month end . There is little credit risk associated with these fees. All client trades are conducted by CSML as agent for clients and, in any event, all trades require to be client funded and are undertaken on a delivery versus payment ( matched booking) . Therefore, these have been excluded from credit risk considerations.
  • Operational Risk Operational risk can arise from inadequate or failed business processes and systems, human error or external events. This could include administration and/or dealing errors or breaches or investment mandate breach. The Firm seeks to identify potential sources of error arising from its operations and strengthen, as necessary, its internal systems and processes, supervisory and oversight functions to reduce residual risk exposure.  Where inefficiencies in controls are identified, appropriate action is taken to rectify this going forward. The frequency of compliance monitoring in each area is determined by the significance of the risk. The Firm has a resilient infrastructure and  regularly tests its Business Continuity arrangements. In addition, CSML maintains comprehensive Professional Indemnity Insurance cover.
  • Market Risk This is the risk to the Firm’s financial position resulting from adverse movement in securities markets. CSML is subject to market risk as its revenue is dependent on the value of funds under management. This creates the potential risk of income fluctuating and, potentially, dropping in times of poor market performance. There is also an investment risk associated with over exposure to certain sectors or assets. The Firm seeks to mitigate these risks  by:
    • Breadth of diversification and sound research and analysis;
    • The Firm’s Cash balances being held in Sterling ;
    • Client portfolios being held in Sterling and so fees are not at risk of exchange rate fluctuations.

The Firm does not take market or contractual positions to hedge balance sheet risk or take foreign currency positions. The risk is also mitigated by retaining appropriate capital resources which are assessed on the basis of stress testing and scenario analysis as part of the ICAAP process.

  • Liquidity Risk This is the risk that the Firm has insufficient funds to meets its financial obligations in a timely manner. Senior management is responsible for monitoring of cash balances and expenditure commitments, and reporting these on a regular basis to the Board. Capital and Liquidity provision are important considerations that are monitored and reviewed regularly by the Board, and a formal liquidity analysis of the Firm’s capital base is conducted on a monthly basis. The framework in place is designed to ensure that the Firm’s resources are available at any given time to meet future funding requirements and to maintain sufficient liquid assets to meet its obligations as they fall due. CSML does not hold any illiquid assets on its Balance Sheet except for fixed assets, nor does it have any borrowing and is not dependent on external financing for any aspect of its business.


  • Concentration Risk CSML recognises the risk of over reliance on particular clients or a key man within the Firm. Its business development strategy is designed to reduce business concentration , and Keyman insurance to mitigate the risk. The Firm’s Training & Competence Policy develops competencies throughout the business and, in doing so, mitigate reliance on any one individual. The Firm reduces the risk of exposures to specific sectors or assets, that could result in losses or poor performance, through portfolio diversification and the quality of its own investment research.
  • Business Risk This is the risk arising from changes in its business, which may  prevent CSML  from carrying out its business plan and desired strategy. The Board reviews progress against the Firm’s  strategic objectives, and any material structural changes are discussed. The Firms applies internal and external sources of regulatory advice to minimise the risk of breaches occurring, which could affect Reputational risk and regulatory standing. The Firm maintains professional indemnity cover from established industry provider to minimise the risk of loss.
  • Business Continuity CSML audits  its systems annually, and a full test of systems  business continuity and disaster recovery procedures is conducted by external consultants every 6 months.
  • Interest Rate Risk CSML does not engage in any trades as principal or run any trading book exposures that could be subject to interest rate risk. In the current environment, the Firm is not dependent on interest as a source of revenue.

Capital is held to ensure a suitable operating margin is in place in excess of the Pillar 1 and Pillar 2 requirements. As a BIPRU €50K Firm, CSML’s Pillar 1 capital requirements are the greater of:

  • Base capital requirement of €50,000; or
  • The sum of market and credit risk requirements; or
  • The Fixed Overhead Requirement (“FOR”)

The Firm has determined the Fixed Overhead Requirement established on the Pillar 1 capital requirements. The Firm’s Tier 1 capital resources consist entirely of share capital and audited reserves . Accordingly, the total capital resources available to the business as at 31 March 2019 were as follows:

CAPITAL RESOURCES comprising £000’s
Tier One Capital 1,094
Deductions 0
Pillar 1 Minimum capital requirement 215

The Firm has no Tier 2 capital deduction. It considers, therefore, that it maintains an adequate level of total capital reserves to satisfy the regulatory capital requirement, which is regularly monitored and reviewed by the Board .


The Firm is expected by the FCA to apply the Remuneration Code in a proportionate manner based on size, nature and complexity of its business. In these circumstances and taking into account the responsibilities under the Senior Managers Regime, the Firm has identified 3 individuals subject to the Code, whose aggregate value of remuneration for the year end 31 March 2019 was £203K. The implementation of the Firm’s Remuneration Policy  is overseen by the Board, the aim being:-

  • to encourage all employees to put clients’ interests first;
  • to align the interest of Executives with shareholders by rewarding performance that creates long term shareholder value; and
  • support key employee retention.

For that reason, the Firm’s Remuneration Policy is framed in such a way as to protect both the interests of clients and shareholders. All employees are remunerated with an annual fixed salary, which is not linked to business introduced or other performance targets but is set at market competitive levels. Any variable payments, such as bonuses depend on profitability, and are determined entirely at the discretion of the Firm determined from an annual appraisal of each individual’s performance and its overall contribution to the Firm’s profitability.  Remuneration decisions in relation to senior Executives  are approved by the Board. The Firm does not operate a Share Option Scheme as such, but individual share option arrangements are available, at the discretion of the Board, to senior managers in order to align employee achievement in growing the value of the business, through the retention of sustainable business and to encourage retention of talent. This form of equity interest will vest at the end of three years but only in relation to those conditions that are fully met.

Approved by: Andrew C Campbell,  Director                                           

Approved by: William F Forsyth, Director

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