REDLINE CAPITAL (UK) LIMITED
Disclosure under Pillar 3 of Capital Requirements Directive
Date as at: 31/12/2020
The Capital Requirements Directive (“CRD”) of the European Union (“EU”) establishes a revised regulatory capital framework across the EU based on the provisions of the Basel II Capital Accord governing the amount and nature of capital credit institutions and investment firms must maintain.
In the United Kingdom, CRD has been implemented by the Financial Conduct Authority (“FCA”) in its regulations through the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”).
This FCA framework consists of three Pillars:
- Pillar 1 sets out the minimum capital requirement for credit, market and operational risks;
- Pillar 2 requires regulated firms to assess whether a firm’s capital reserves, processes, strategies and systems are adequate to meet Pillar 1 requirements and further determine whether it should apply additional capital, processes, strategies or systems to cover any other risks that it may be exposed to not covered by Pillar 1;
- Pillar 3 complements Pillar 1 and Pillar 2, and requires public disclosure of objectives and policies in relation to risk management processes and information on its risk exposures and capital resources to promote market discipline.
The following disclosures are provided pursuant to the Pillar 3 disclosure rules as laid out by the FCA in BIPRU 11 and are designed to meet Redline Capital (UK) Limited’s Pillar 3 obligations.
Background to the Firm and Scope of Disclosure
Redline Capital (UK) Limited (the “Firm”, “we”, “us” or ‘’ours’’) is authorised and regulated by the Financial Conduct Authority and is categorised as a BIPRU €50,000 Limited Licence Firm for regulatory purposes. The Firm is not subject to consolidated reporting. This statement has been prepared by the Firm in accordance with BIPRU 11 and summarises the material disclosures the Firm is required to make under Pillar 3 of the Capital Requirements Directive.
Pillar 3 disclosures will be issued on an annual basis after the Firm’s audited accounts have been prepared. The disclosures are made at the Firm’s accounting reference date which is 31st December. At the Firm’s discretion, the disclosures can either be published on the website or published in the Firm’s Annual Report and Accounts.
The Firm may exclude required disclosures where the information is regarded as proprietary or confidential. Proprietary information may include information which, if shared, would undermine the Firm’s competitive position. Information is considered to be confidential where there are obligations binding the Firm to confidentiality with its clients, suppliers and counterparties. In the event that any such information is omitted, the Firm shall disclose such and explain the grounds why it has not been disclosed.
The information contained in this document has not been audited by the Firm’s external auditors, as this is not a requirement, and does not constitute any form of financial statement and must not be relied upon in making any judgement on the Firm.
The Firm may omit disclosures if it believes the information is immaterial as it would be unlikely to influence or change the decision of a user relying on that information for the purposes of making economic decisions. If a certain disclosure is omitted from this statement, the Firm considered such disclosure to be immaterial or inapplicable to it.
While the Board of Directors is ultimately responsible and accountable for the risk management at the Firm, the firm operates the following lines of defence:
- First line of defence: Line management are responsible for identification, measurements and management of risks within the Firm, ensuring appropriate controls are in place and operating effectively.
- Second Line of Defence: The Firm’s compliance function provides risk management expertise and challenges the employees in their performance of risk management activities through independent reviews, monitoring and testing.
- Third line of defence: The Board oversee and review the effectiveness of the risk management structure and framework and ensure results are in line with the Firm’s risk appetite.
Monthly management accounts are used to monitor and project its capital resources and a compliance manual and a compliance monitoring programme have been adopted to facilitate risk management in the Firm. Given the nature and activities of the Firm, its risk appetite is low. It does not securitize assets or deal as principal and therefore does not have a trading book. The key risks are as follows: market risk, credit risk, liquidity risk and operational risks.
As the firm is a BIPRU €50,000 Limited Licence Firm. It has calculated its capital resources in accordance with GENPRU 2.2. The Firm’s capital resources are detailed in the below.
Tier 1 capital resources* £ 1,462,000
Tier 2 capital resources £ 0
Tier 3 £ 0
Deductions form total capital e.g. illiquid assets £ 0
Total capital resources as at 31st December 2020 is: £ 1,462,000
Capital Resource Requirements
Pillar 1 capital is the minimum capital requirement that firms are required to meet for credit, market and operational risk.
The Firm’s Pillar 1 requirement is calculated as the higher of:
- The Base Capital Requirement (€50k)
- The sum of:
The Credit Risk Capital Requirement; and
The Market Risk Capital Requirement.
- The Fixed Overheads Requirement (3 months expenditure of the firm or £818,000).
In the opinion of the directors the highest of these three is the Fixed Overheads Requirement.
Pillar 1 and Pillar 2
As at the date of this report the firm meets its Pillar 1 capital resources requirement.
Pillar 2 capital is additional capital against risks not adequately covered in Pillar 1. The firm has undertaken an Internal Capital Adequacy Assessment Process (ICAAP) to determine whether it needs any further regulatory capital due to the risks it faces as set out above. As a result of this review the Firm has concluded that its Pillar 2 capital requirement does not exceed Pillar 1 requirement. As at the date of this report the Firm meets its Pillar 2 capital resources requirement.
Remuneration Code Disclosure
The Firm is Authorised and Regulated by the FCA as a Limited Licence Firm and as such, it is subject to the FCA Rules on remuneration. These are contained in the FCA’s Remuneration Code (the “Code”) located in the SYSC 19C of the FCA’s Handbook. The aim of the Code is to ensure that the Firm has risk-focused remuneration policies, which are consistent with and promote effective risk management and do not expose the Firm to unnecessary risk.
The Firm has only become Authorised and Regulated by the FCA on 1 October 2020 and was therefore not subject to the Remuneration Code requirements for the first three quarters of the Reporting Period.
The FCA expects the Firm to make disclosures regarding its remuneration policy and practices for those categories of staff whose professional activities have a material impact on the Firm’s risk profile.
The Code covers those employees’ total remuneration, fixed and variable as well as:
- information regarding the decision-making process used to determine remuneration policy;
- information concerning the link between pay and performance; and
- aggregate quantitative remuneration by business area and by reference to senior management and other relevant staff whose action have a material impact on the risk profile of the Firm.
The Firm is a Remuneration Code Proportionality Level 3 Firm and has applied the rules appropriate to its Proportionality Tier. The Firm’s Board of Directors is responsible for the remuneration policy, which is developed in conjunction with the Firm’s external compliance advisor and the Firm’s Compliance Officer.
The Firm is making the following Code disclosures:
- Due to the size, nature and complexity of the Firm, the Firm is not required to appoint an independent remuneration committee.
- The Firm’s policy will be reviewed as part of annual review of policies and procedures, or following a significant change to the business requiring an update to its internal capital adequacy assessment.
- The majority of the variable remuneration of the employees comes from a carry structure which ensures the long term alignment of interests of the employees and the stakeholders.
- The Firm’s ability to pay bonus is based on the performance of Firm overall and derived after the Fund’s performance has been assessed.
- Individuals are rewarded based on their contribution to the overall strategy of the business.
- Other factors such as performance, reliability, effectiveness of controls, business development and contribution to the business are taken into account when assessing the performance of the senior staff.
Aggregate quantitative information
The Firm is obliged to comply with the BIPRU 11.5.18R Disclosures in a manner without prejudice to the UK version of the Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data.
The Firm only has a small number of Code Staff. Therefore, it has deemed the disclosure of aggregate quantitative information on remuneration as required in BIPRU 11.5.18R (6) and (7) and break down by business area to be disproportionate and pose a compromise to the individual’s confidential information. Quantitative data is therefore withheld.
UK STEWARDSHIP CODE DISCLOSURE STATEMENT
Under Rule 2.2.3.R of the FCA’s Conduct of Business Sourcebook, Redline Capital (UK) Limited (the “Firm”) is required to include on its website a disclosure about the nature of its commitment to the UK Stewardship Code (the “Code”), which was published by the Financial Reporting Council (“FRC”) and the latest version of which became effective 1 January 2020.
The Code is voluntary and sets out a number of principles relating to engagement by investors with UK equity issuers, fixed income, private equity, infrastructure investments, and with the investments outside the UK.
The FRC recognises that not all parts of the Code will be relevant to all institutional investors and that smaller institutions may exercise judgement and proportionality to the rules.
The British Private Equity and Venture Capital Association’s (“BVCA”) published a response in March 2019 to the FRC’s proposed revision to the Code in the context of private equity (“PE”) and venture capital (“VC”) firms. The BVCA stated that in its view, considering the stewardship and corporate governance practices already in place within the industry, the Stewardship Code is less applicable to PE/VC firms and hence there would be limited benefits for such firms in adopting it. Furthermore, it would result in duplicate reporting requirements.
The Firm pursues a VC/PE strategy, focusing on B-2-B early stage and growth technology companies in UK, Europe, US and Israel .
The Firm supports the BVCA’s view on the limited applicability of the Code to its activities and therefore, whilst supporting the objectives underlying the Code and adhering to the highest standards of corporate governance and due diligence in respect of its investments, the Firm believes that the Code’s principles are not applicable to its investment activities at this time.
Should that change in the future, the Firm will review its commitment to the Code and update this disclosure accordingly.
This disclosure will be reviewed at least annually.
Date the disclosure was last updated: 14 December 2021.
For further information on the Firm’s approach to the Code please contact the Firm’s Compliance Officer Anastasiya Putilova at [email protected].