MIFIDPRU 8 Disclosure – Financial Year End 31 December 2022

Introduction

Third Platform Services (TPS) is authorised by the FCA (FRN 717915) and is categorised as a non-small non-interconnected (Non-SNI) MIFIDPRU investment firm. TPS offers a Model B settlement and safe custody service for customers comprising trade execution, settlement and safeguarding of monies and assets for the underlying clients of these customers.

As a UK investment firm undertaking activities within the scope of the Markets in Financial Instruments Directive (MiFID), TPS is subject to the prudential requirements of the Investment Firms Prudential Regime (IFPR) as contained in the MIFIDPRU Sourcebook of the Financial Conduct Authority (FCA) Handbook. TPS is required to publish disclosures in accordance with the provisions and guidance outlined in MIFIDPRU 8 and this disclosure replaces the previous Pillar 3 Disclosure requirements.

This disclosure is prepared annually and relates to TPS’s most recent financial year which ended on 31st December 2022. This report is published on the company’s website at www.thirdfin.com.

The provisions of MIFIDPRU require TPS to maintain sufficient capital and liquid resources, the details of which are included in the firm’s Internal Capital and Risk Assessment (ICARA) document. The ICARA process includes an assessment of all material harms faced by the firm and the controls established to identify, manage and mitigate these harms. The ICARA is formally updated and reviewed by the management body at least once a year and may be updated more frequently if a material change in the risk or business profile of the firm.

Governance Arrangements

The Board of Directors of TPS is responsible for the firm’s 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, managing and reporting the significant harms 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 Board and communicated to the business.

Although the Board of Directors has overall responsibility for oversight of the business, it delegates day to day responsibilities to various business groups and committees. TPS has the following management groups in place: Executive Management Team, Senior Management Team, Operations Committee, CASS Committee and Treasury Committee. Under the  provisions of MIFIDPRU 7.1.4R, TPS is not required to have in place Risk, Remuneration or Nomination Committees; where relevant the required functions of these committees are undertaken by the Executive Management Team.

As per the requirements of MIFIDPRU 8.3.2 the current TPS Board Directors are:

Diversity and Inclusion

TPS understands the advantages of diversity and inclusion, but as a small firm with low staff turnover we do not consciously look to equalize gender or minority roles within the firm, nor do we set any diversity goals. Instead when hiring new staff we look to recruit the most suitable candidate in each specific case. TPS has zero tolerance with respect to unfair treatment or any kind of discrimination, both internally as well as in relation to customers, clients or third parties.

Risk Appetite and Risk Management Framework

TPS’s overall risk appetite is conservative whilst still exploiting business opportunities that are aligned with the achievement of approved business strategies, goals and plans of the group, at the same time balancing the expectations and interests of shareholders, investors, staff, regulators and customers.

The Board expects all staff to manage the business and performance with integrity, honesty and transparency. The Board does not tolerate illegal or fraudulent action by any member of the firm’s staff, suppliers and/or customers as well as any actions or activities that have the potential to significantly damage the brand and/or reputation and public standing of the company, its shareholders and staff.

TPS’s risk management approach incorporates a number of overall guiding principles:

• Risk management is effected across every level of TPS
• There exists a consistent, robust and shared set of policies and processes
• Risk must be actively considered when assessing all business decisions, including their impact on the adequacy of financial resources both during the strategy setting and planning processes
• The identification and management of risk must be constantly reviewed as part of an ongoing process
• Risk management policies and procedures must be designed to assist the achievement of approved business objectives in one or more separate but overlapping categories:
  • Strategic; high level goals, aligned with, and supporting the approved business strategy
  • Operations; effective and efficient use of resources
  • Safeguarding of assets; prevent or detect the unauthorised acquisition, use or disposition of assets, including information
  • Reporting; reliability of reporting and management information (internal and external)
  • Compliance; compliance with applicable laws and regulations
• TPS has a Chief Risk Officer responsible for administering policies and procedures and for investigating complaints regarding the conduct of TPS and its employees
• TPS will only employ qualified and experienced individuals in the compliance function, and sufficient human and technological resources will be made available to allow a thorough investigation, analysis, implementation and monitoring of risk oversight and compliance actions
• TPS has established and will maintain a thorough Business Continuity Plan to address disaster recovery or periodic disruptions to operations
• Achievement of strategic and operational objectives are subject to external events outside of TPS’s control. Accordingly, for these objectives, risk management policies and procedures can only be designed to provide reasonable assurance that TPS is moving toward the achievement of those objectives
• The Board acknowledges that there are limitations to any risk management approach which result from human judgment in decision making potentially being at fault. Decisions on responding to risk and establishing controls need to consider the relative costs and benefits. Controls can be circumvented by collusion of two or more people. These limitations preclude the Board from having absolute assurance as to achievement of approved business objectives.
• TPS has in place a number of processes that are used to identify potential risks and harms that may impact our customers, the wider market and TPS itself. These include annual operational risk assessments, an Errors and Breaches Policy and procedures, client status reporting, system analysis tools and other types of management information reporting.
• A brief summary of the main risks that have been identified are listed below:

Capital Resources Requirements

Under MIFIDPRU 8.4 TPS is required to disclose the composition of its Own Funds and provide a reconciliation of these to the balance sheet of the firm’s most recent set of audited financial statements:

TPS is required to hold Own Funds of a sufficient quantity and quality to absorb certain losses and meet specific regulatory requirements, referred to as Own Funds Threshold. TPS’s Own Funds Threshold is the largest of the following:

1. Permanent Minimum Capital requirement as determined by FCA rules. This is currently £150,000
2. Fixed Overhead Requirement which is equivalent to 25% of TPS’s annual overheads. TPS’s Fixed Overhead Requirement as of 31st December 2022 is £1,109,446
3. K Factor Requirements designed to require the firm to hold capital driven by specific metrics of the value of Client Money Held, Assets Safeguarded and Administered and Client Orders Handled. This requires TPS to hold £2,523,648

Plus any capital allocated to cover residual risks identified in the risk assessment process.

As the K factor Requirement of £2,523,648 is the higher of a), b) and c) this is the figure taken as TPS’s Own Funds requirement. With Capital of £7,504,842 this provides an excess of £4,981,194.

Remuneration

TPS’s policy towards remuneration is to ensure a consistent approach in recruiting and retaining employees who will be engaged, appraised, trained and motivated to play a key part in TPS’s growth and culture. TPS’s approach has two main objectives: To ensure that the firm’s remuneration policy is in line with its business strategy, objectives, values and long term interests, and to ensure that a consistent approach is taken to attract, develop, retain and reward employees for contributing to the firm’s success whilst maintaining financial stability and robust and effective risk management.

Composition of Remuneration

Remuneration for staff is made up of a fixed basic salary plus additional benefits such as pension contributions and private health care.  Base salaries are dependent upon the employee’s professional experience and organisational responsibility as set out in their job description and terms of employment, as well as performance and expertise in specific areas.

The firm offers variable compensation bonuses to a small number of senior employees. The level of variable remuneration is capped per employee and constitutes only a small percentage of the total amount and is dependent on the firm and individuals meeting certain targets agreed by the Board. 

Quantitative Remuneration Disclosure

TPS is required to disclose quantitative remuneration information for its Code Staff in a manner that is appropriate to its size, internal organisation and nature, scope and complexity of its activities. Remuneration Code Staff comprises categories of staff including senior management, risk takers, staff undertaking FCA control functions and staff in positions whose professional activities have a material impact on the firm’s risk profile as per SYSC19G.5. The following table summarises the aggregate remuneration expenditure for Code Staff for the financial year ending 31st December 2022;