GOVERNANCE ARRANGEMENTS AND MANAGEMENT OF RISK FRAMEWORK
Introduction
Firms are required under the Senior Management Arrangements, Systems and Controls (SYSC) manual of the Financial Conduct Authority Handbook to have in place robust governance arrangements and effective procedures, which allow it to identify, manage, monitor and report the risks it is or might be exposed to.
MB Capital is authorised and regulated by the Financial Conduct Authority and this document sets out how the Firm complies with its obligations to identify, manage and mitigate risks.
Governance and Risk Management Framework
The CEO is responsible for the Firm’s risk management governance structure and how the Firm’s risk exposure must be managed in line with the Firm’s overall business objectives and within its stated risk appetite. This includes the governance of the process for identifying, evaluating, managing and reporting the significant risks faced by the Firm.
Due to the size of the firm, risk is reviewed and managed on a constant basis, particularly market risk.
The CEO is ultimately responsible for ensuring that the Firm maintains sufficient capital to meet its regulatory capital requirements and to support its growth and strategic objectives. Risk management is embedded throughout the business, with the overall risk appetite approved by the CEO propagated down throughout the business as appropriate. A risk register is prepared a reviewed by the CEO on a half-yearly basis, in addition, the firms ICAAP is reviewed on an ongoing basis.
Business Objectives
MB Capital’s Risk Profile
MB Capital has identified the following core risk categories: strategic, market, credit, liquidity, operational, legal, interest rate, excessive leverage and financial crime.
MB Capital’s profile of these risks is continually evolving and is generally driven by:
- Changes to the market in which we operate;
- MB Capital’s strategies and business objectives and;
- MB Capital’s business/operating models
MB Capital will seek to generate positive returns through carefully considered risk taking and robust risk management. As such, the effective management and control of both the upside of risk taking and its potential downside is a fundamental core competency of the Firm.
Risk Appetite
The CEO is responsible for setting the Firm’s risk appetite, defining the type and level of risk that the Firm is willing to accept in pursuit of its business objectives.
Risk Management Framework
The CEO is responsible for approving the Risk Assessment Framework and Risk Register, which is used to ensure that the Firm has a comprehensive understanding of its risk profile, including both existing and emerging risks facing the Firm, and to enable it to assess the adequacy of its risk management in the context of the Firm’s risk appetite.
| Principal Risks | Appetite | Key Drivers | Mitigation |
| Strategic Risk | |||
| The risk that arises decisions that fail to reflect the full business operating environment and the impact of failing to adequately identify changes to the business model. | The Firm will remain competitive by identifying opportunities and assessing the risks, rewards and costs associated with them before proceeding. | Regulatory landscape impacting the business.
Commercial/market conditions. Internal business/operating model. |
Due diligence is carried out prior to any new business opportunity and a full assessment of the potential and actual risks taken into account. |
| Credit Risk | |||
| The risk of financial loss due to the failure of a customer to meet their obligations to settle outstanding amounts. | The Firm will only engage in activities where customers have adequate collateral deposited. | Market conditions.
Counterparty credit worthiness. |
All trades are held with our clearing broker, Jarvis. Share trading is not on credit. |
| Market Risk | |||
| Risk of losses on and off balance sheet positions arising from adverse movements in market prices. | The Firm does not engage in propriety trading and does not actively seek market exposure. | Volume and complexity of trading.
Market movements. Liquidity. |
All trades are placed with our clearing broker, Jarvis. |
| Liquidity Risk | |||
| The risk that the firm does not have sufficient liquid resources or is unable to deploy such resources to meet its actual or potential obligations in a timely manner as they fall due | The Firm will have sufficient and accessible financial resources as to meet any financial obligations as they fall due. | Operational risk.
Credit risk events. Internal business operating model. |
All trades are placed with our clearing broker, Jarvis. |
| Operational Risk | |||
| The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. | The Firm will actively identify and manage the risk of its people, processes or systems failing. Operational risk is inherent in any business however, the Firm will take steps to prevent such risks from increasing operating costs. | Internal business operating model.
External threats. Market conditions. |
Employees provided training and guidance on their obligations.
Critical technology performance monitored. Risk scenario contingency planning. Timely escalation and mitigation of identified risks. Regular review of the Firm’s operational risk manager. |
| Legal | |||
| The risk arising from defective transactions, failing to take appropriate measures to protect assets, changes in law and claims resulting in a liability or loss to the firm. | The Firm will appoint external legal advisors however, the Firm does not intend to have any appetite for legal breaches. | Regulatory regime.
Legislative framework. |
Training is provided to all employees.
Regular monitoring of changes in law and the implications to the Firm. |
| Interest Rate Risk | |||
| The risk that interest rates (e.g. Libor, Euribor) and/or their implied volatility will change. | The Firm accepts that volatility in interest rates will impact on cash balances and borrowings and has sufficient resources in place. | Market movements.
Liquidity. |
Entities with whom balances are held are regularly monitored. |
| Risk of Excessive Leverage | |||
| The potential increase in risk caused by a reduction in the firm’s own funds through expected or realised losses. | The Firm will only engage in activities where collateral is held.
The Firm will have adequate financial resources in place. |
Operational risk.
Market conditions. Liquidity. |
Collateral is monitored and trading margin managed.
Regular reviews of financial resources. |
| Financial Crime Risk | |||
| The risk that the firm fails to prevent its involvement in or use by other parties to commit financial crime. | The Firm has no appetite for any breaches or lapses occurring that result in financial crime taking place. | External threats.
Internal controls. |
Training is provided to all employees.
Financial crime procedures and regular monitoring. |
Remuneration Policies
MB Capital’s Remuneration Policy complies with the Remuneration Code in relation to its size, nature, scope and complexity of our activities.
The Policy is aligned to the Firms’ business strategy, objectives, values and long-term interests in respect of performance and effective risk management in line with the Firm’s risk appetite.
A copy of the Firm’s Remuneration Policy is available via our website and sets out how the Firm complies with the Remuneration Code.
Risk Warning Notice
Contracts For Difference May Be Subject To Rapid And Unexpected Price Movements And Past Performance Is Not Necessarily A Guide To Future Performance. Trading In These Markets Is Generally Considered To Be Suitable Only For The More Experienced Investor As It Poses A Risk Of Loss To Your Capital. An Investor May Not Receive Back The Amount Of Their Original Investment And In Certain Circumstances May Be Liable For A Sum That Is Greater Than Their Original Investment. Tax Treatment Depends On Your Individual Circumstances And May Be Subject To Change In The Future. If In Any Doubt Please Seek Further Independent Advice.