Pillar 3 Disclosure

1    Overview

1.1  The Capital Requirements Directive (“CRD”) prescribesthe minimum regulatory capital to be maintained by financial services firms and the related disclosures that must be made in relation thereto. The requirements arising under CRD are set out under three pillars as follows:

  • Pillar 1 defines the minimum regulatory capital resources firms are required to maintain in order to meet credit, market and operational risks;
  • Pillar 2 requires an assessment to be made of those firm-specific risks which are not covered by Pillar 1 and, where necessary, for firms to maintain additional capital resources to mitigate such risks; and
  • Pillar 3 requires firms to disclose information regarding their risk assessment process and capital resources with the aim of encouraging market discipline by allowing market participants to assess key information on risk exposure and the risk assessment process.

1.2 In the United Kingdom the requirements of CRD have been implemented by the Financial Conduct Authority (FCA) through various sourcebooks including the General Prudential Sourcebook (GENPRU), Prudential Sourcebook for Investment Firms (IFPRU) and Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU). In 2022 GENPRU, IFPRU and BIPRU will be replaced by a new sourcebook, the Prudential Sourcebook for MiFID Investment Firms (MIFIDPRU). During the transition period this Pillar 3 Disclosure is still subject to GENPRU, IFPRU and BIPRU requirements.

1.3  Third Platform Service’s (“TPS”, the “Firm”, “our” or “we”) Pillar 3 disclosures are issued annually.  The disclosures herein are not subject to audit except where they are equivalent to those prepared under accounting standards for inclusion in the Firm’s financial statements. The report is published on the  Third Financial Group’s website at www.thirdfin.com.

1.4  Scope of disclosure

TPS offers a Model B settlement and safe custody service for customers, such as wealth managers, comprising trade execution, settlement and safeguarding of monies and assets for the underlying clients of such customers.

2    Governance Arrangements

2.1  The Management Body

The Directors are responsible for TPS’ risk management governance structure and for determining how its risk exposure is managed in line with the Firm’s overall business objectives and within its stated risk appetite. This includes the Firm’s procedures for identifying, evaluating, managing and reporting the significant risks it faces.

The Directors are ultimately responsible for ensuring that TPS maintains sufficient capital and liquid resources to meet its regulatory capital and liquidity requirements and to support its growth and strategic objectives. Risk management is embedded throughout the business, with the overall risk appetite and risk management strategy being set by the Directors and communicated to the business.

3    Capital Adequacy and ICAAP

3.1  TPS’s overall approach to assessing the adequacy of its internal capital is documented in the Internal Capital Adequacy Assessment Process (“ICAAP”). The ICAAP process includes an assessment of all material risks faced by the Firm and the controls established to identify, manage and mitigate these risks. Where risks can be mitigated by capital, the Firm has adopted the CRD requirements for Pillar 1. Where the Directors consider that the Pillar 1 calculations do not adequately reflect the firm’s risk profile, additional capital is provided in accordance with Pillar 2. Whilst the ICAAP is formally reviewed by the Directors once a year, they review risks and the related capital requirements more frequently, particularly when there are any planned changes in business activities or operating arrangements or when changes are expected in the business environment that could potentially impact the ability to generate income.

Under the change to MIFIDPRU, the ICAAP will be replaced in 2022 by the Internal Capital and Risk Assessment (“ICARA”) process. The data in this disclosure is derived from TPS’s ICAAP.

3.2  Capital Requirement and Resources

TPS is categorised as an IFPRU €125k firm because it does not deal for its own account or underwrite issues on a firm commitment basis. However it does hold client money and assets. TPS has no innovative Tier 1 capital instruments or deductions.

The Pillar 1 capital requirement for an IFPRU firm is the higher of:

  1. Base Capital Requirement OR
  2. Credit Risk Capital Requirement plus Market Risk Capital Requirement OR
  3. Fixed Overhead Requirement

The Base Capital Requirement (“BCR”) specifies the minimum level of regulatory capital that a firm is required to maintain at all times and reflects both the nature of activities conducted by the firm and the capacity in which these are undertaken. TPS is subject to a BCR of €125k.

However, the highest measure of regulatory capital requirement arising under Pillar 1 for TPS is the Fixed Overhead Requirement which, on the basis of the firm’s audited financial statements for the financial year ended 31st December 2021, has been calculated at £623k.

Accordingly, TPS must at all times maintain regulatory capital resources at a level that is equal to or in excess of its Pillar 1 capital requirement. Throughout the twelve months to end 31st December 2021 the firm complied fully with its regulatory capital requirements. At the Firm’s accounting reference date, TPS’ regulatory capital position was as follows:

DescriptionAmount (£000's)
Ordinary Share Capital1,267
Share Premium1,485
Retained Earnings15
Regulatory Adjustments0
Core Tier 1 Capital2,767
Tier 2 Capital0
Total Capital Resources2,767
Credit Risk Capital Requirement @ 8%193
Market Risk Capital Requirement @ 8%0
Fixed Overhead Requirement623
Base Capital Requirement66
Total Pillar 1 Requirement689
Total Pillar 2 Requirement0
Total Capital Requirement689
Regulatory Capital Surplus2,078

The Directors are, therefore, satisfied that TPS maintains a sufficient level of regulatory capital resources to meet the firm’s current regulatory requirements and to provide a buffer for reasonably foreseeable risks.  As at the firm’s 2021 financial year end, TPS held approximately £4,285k in cash and cash equivalents and the Directors consider this provides an adequate level of liquidity for the day-to-day needs of the business and a reasonable contingency for unforeseen events.

The Directors constantly monitor the performance of the Firm and capital adequacy is regularly assessed by them.  They also monitor risks throughout the year and decide if additional capital should be held against such risks.  Additional risks that supplement the Pillar 1 requirements are detailed below and, where necessary, additional capital will be provided. 

4    Management of Risk Framework

4.1  Risk Appetite

The Directors are responsible for setting TPS’ risk appetite. The firm’s overall risk appetite is conservative whilst still exploiting business opportunities that are aligned with the achievement of approved business strategies, goals and plans. At the same time balancing the expectations and interests of shareholders, investors, staff, regulators and custodians.

4.2  Risk Profile

TPS has identified a number of core risk categories which are summarised below. TPS’ profile of these risks is continually evolving and is generally driven by:

  • Changes to the market in which TPS operates;
  • TPS strategies and business objectives;
  • Changes in customers’ service requirements; and
  • TPS business/operating models

4.3  Risk Assessment Framework

The Directors are responsible for approving the Risk Assessment Framework, which is used to ensure that the Directors have a comprehensive understanding of TPS’ risk profile, including both existing and emerging risks, and to enable them to assess the adequacy of the Firm’s risk management in the context of the agreed risk appetite. A brief summary of the main risks that have been identified and analysed are listed below:

Principal RisksDetailMitigation

Strategic Risk

New business opportunities are taken on that don’t align with the firm’s existing business model and capabilities.

TPS does not react to changing requirements of existing customers.

Due diligence is carried out prior to undertaking any new business opportunity or change in service and a full assessment made of the potential and actual risks involved.

Strong customer relationships are maintained to ensure TPS can work with customers as their business requirements evolve.

Systems Risk

TPS is reliant on the systems it operates. The loss of these systems will prevent TPS from delivering its service effectively. Inadequate systems would impact performance and competitiveness of the service offering, while insecure systems could result in the loss or impairment of customer data.

Third Financial makes available sufficient resources to ensure it can properly maintain and develop its systems to meet the needs of current and future customer strategies. The internal support function ensures systems remain at the cutting edge of technology available to its customers. TPS has in place a robust Business Continuity Plan and cyber security policies that ensure systems are available 24/7 and all data is continuously backed up and secure.
Market Risk

The risk that adverse market conditions can negatively impact TPS’s financial strength of revenues and balance sheet due to fluctuations in the market value of Assets under Administration (AuA).

The majority of TPS customers and clients have below average risk appetites so correlation with the market is not excessively high. All customers have fixed minimum fees in place which would help protect the business from severe market declines. Customers are not permitted to apply leverage to client portfolios. TPS is part of Third Financial and 35% of group revenues are not linked to market prices.
Operational RiskTPS undertakes regulated and other important operational functions on behalf of customers. Operational risk is that these processes are undertaken incorrectly or adequate arrangements are not in place resulting in potential errors and breaches.TPS has in place operational procedures for all processes that are undertaken which are reviewed annually. TPS also commissions the completion of an independently verified ISAE 3402 Type 2 Assurance Report. All employees are provided adequate training and guidance on their obligations andadequate human resources are in place. 
Credit RiskThe risk of financial loss due to the failure of creditors to meet their obligations to settle outstanding amounts. Also the risk that TPS places client money in institutions that fail, or access becomes restricted.

Thorough due diligence is undertaken on all customers before they are taken on including review of their business model, financial projections and balance sheet capitalisation. Security deposits are placed with TPS which are multiples of monthly minimum fees.

TPS undertakes initial and ongoing annual due diligence on all financial institutions where client money is placed. All institutions have to be approved by TPS before they can be used to hold client money.
Liquidity RiskThe risk that TPS does not have sufficient liquid resources to meet its actual or potential obligations in a timely manner as they fall due.TPS regularly reviews its liquid resources in order to maintain sufficient and accessible levels to meet any obligations and also to put in place contingency funding arrangements should additional funds be required. 
Legal RiskThe risk arising from defective documentation, transactions, failing to take appropriate measures to protect assets, changes in law and claims resulting in a liability or loss to TPS.

TPS seeks to mitigate legal risk through the appointment of external legal advisors where required and regular monitoring of changes to the legal and regulatory environment.

Careful design of systems and controls to ensure adequate protection of clients’ assets and adherence to agreed service standards.
5    Remuneration Policy

TPS’s Remuneration Policy complies with the Remuneration Code in relation to the size, nature, scope and complexity of the Firm’s activities. The Policy is aligned to the Firm’s business strategy, objectives, values and long term interests in respect of performance and effective risk management in line with its risk appetite. 

A copy of the Firm’s Remuneration Policy is available on request.