INTRODUCTION

The European Union (EU) Capital Requirements Directive (CRD) introduced a revised capital adequacy framework across financial markets in Europe in order to reduce the risk to consumers of financial loss and to minimise the effects of market disruption. The CRD applies to all investment firms authorised under the Investment Intermediaries Act, 1995 and the European Union (Markets in Financial Instruments) Regulations 2017.  CRD is designed to ensure that investment Firms have sufficient financial resources in relation to their risk profile and the controls that we have in place.

The Central Bank of Ireland is responsible for the implementation and supervision of CRD in Ireland.

the CRD required regulated firms to make significant changes to the way they calculate their capital requirements including the application of the concepts of three pillars under the CRD Framework:

• Pillar 1 Sets out the minimum capital requirements for credit, market and operational risks;

• Pillar 2: Pillar 2 requires the firm to assess, as part of its supervisory dialogue with the

Central Bank of Ireland, whether any additional capital should be maintained against risks not covered under Pillar 1. The process by which this is achieved is the Internal Capital Adequacy Assessment Process (“ICAAP”), which includes an assessment of each of the risks faced by the firm and the internal controls in place to manage or mitigate those risks.

• Pillar 3: Pillar 3 requires firms to disclose their assessment of the risks identified for their business and seeks to promote greater market discipline and transparency through the disclosure of key information about risk exposures and risk management processes.

Elkstone is subject to the requirements of the European Union (EU) Capital Requirements Directive IV (hereafter ‘CRD IV’) and Capital Requirements Regulation (hereafter ‘CRR’). CRD IV and CRR repeal Directives 2006/48/EC and 2006/49/EC.

 Pillar 1 capital requirements are the greater of:

• Initial minimum capital requirement of €75,000, OR

• the sum of credit risk and market risk OR

• the FOR (Fixed Overhead Requirement)         

Internal Capital Requirement

The Firm’s minimum capital requirements are calculated CRR and CRD IV and the Firm is satisfied its initial capital requirement is €75,000.The Firm will not be providing Investment Services 3 (Dealing on own account) or 6 (Underwriting of financial instruments or placing on a firm commitment basis as listed in Schedule I of  the European Union (Markets in Financial Instruments) Regulations 2017. As a result, Article 95(1), of the CRR applies and consequently Article 97 is available. It requires investment firms to provide own funds which are always more than or equal to the higher of the capital requirements calculated in accordance with the requirements contained in Article 92 of the CRR and the amount set out in Article 97 of the CRR which states that an investment firm shall hold eligible capital of at least one quarter of the fixed overheads of the previous year.

The internal capital requirement is the higher of Pillar 1 and Pillar 2 capital requirement. See ‘Capital Assessment’ section below for the calculation of Elkstone Private’s internal capital requirement.

Business Model

Elkstone Private Advisors Ltd. (‘the Firm’ or ‘Elkstone Private’) is an Irish-incorporated company and was incorporated on the 28th of May 2013. It is a 100% owned subsidiary of Elkstone Capital Partners Ltd (‘Elstone Partners’). The Firm was authorised by the Central Bank of Ireland on 14th June 2014 under the European Communities (Markets in Financial Instruments) Regulations 2007 to carry out the following regulated investment services:

Investment Services

1. The reception and transmission of orders in relation to one or more financial instruments.

2. Execution of orders on behalf of clients.

3. Portfolio management.

4. Investment advice.

5. Placing of financial instruments without a firm commitment basis.

Ancillary Services

1. Advice to undertakings on capital structure, industrial strategy and related matters and

Advice and services relating to mergers and the purchase of undertakings.

1. Investment research and financial analysis or other forms of general recommendation

Relating to transactions in financial instruments.

The Firm’s business vision is to operate as a client focused multi-family office primarily for high net worth individuals. The Firm’s vision is to be positioned both locally and globally as a recognised multi-family internationally focussed office, which can serve an increasing number of clients.

The Firm offers a range of services including non-regulated consulting and accounting services in addition to regulated investment services outlined above and these services extend to institutional clients.

The following Pillar 3 disclosures have been prepared as at 31st March 2021, which is the accounting period end date for the Firm.

RISK MANAGEMENT FRAMEWORK 

The Board of Elkstone Private has established a comprehensive framework for the management of risk and has overall responsibility for risk management systems and related controls and for reviewing their ongoing effectiveness. The Board has delegated certain of its responsibility to the Operational Risk Committee and management in the first instance. The Board monitors the Company’s various risk exposures and also reviews financial performance, oversees regulatory compliance and monitors key performance indicators.

The primary objective of the Risk Management Framework is the protection, preservation and integrity of client assets both in custody and advisory terms. A secondary objective is the protection, preservation and integrity of Elstone Private. Having a Risk Management Framework facilitates the Firm in identifying, measuring, analysing, monitoring and reporting on the Firm’s key risks.

Risk Governance and Responsibilities

The Board of Directors has ultimate responsibility for ensuring the Firm has appropriate structures, processes, policies and procedures in place in respect of Risk Management. The Board has delegated more detailed oversight of risk to Operational Risk Committee and to the Head of Compliance & Risk and to the rest of the Senior Management team.

Elkstone Private employs the three lines of defence model whereby business units are responsible for identifying risks in their areas and complying with the controls and procedures in their business area. The Head of Compliance & Risk carries out monitoring and provides advice.

Internal Control 

A core element of the Firm’s internal control process is the Firm’s company policies and procedures for the operations of the Firm. Key internal control policies include Business Continuity Plan (BCP), the Remuneration Policy and the Compliance Plan.

 Risk Register 

The risk management process of identifying, analysing and treating risks is documented in the Firm’s Risk Register. The Head of Compliance and Risk is responsible for updating the Risk Register with input from the business units.

 Business Error Process

The Firm has a business error process whereby incident report forms are required to be completed and sent to the Head of Compliance & Risk when a business error occurs. All reported incidents are investigated by the Head of Compliance & Risk, in consultation with management, and where appropriate, a report is prepared that is finalised following discussion. Corrective actions, lessons learned and any procedural changes are identified. The Head of Compliance & Risk enters the details on the Business Error log and provides a summary of the incident to Senior Management, the Risk Committee and the Board.

 Risk Appetite Statement

Risk appetite defines the amount and nature of risk the Firm is prepared to accept in pursuit of its business objectives. Risk appetite guides the Firm in its risk taking and related business activities, having regard to the maintenance of financial stability and solvency.

Key Risk Indicators

The Firm has defined Key Risk Indicators to track its profile against the most significant risks that it assumes.  The Key Risk Indicators have defined ranges which would rate a risk green, amber or red. The status of the Key Risk Indicators are reported to the Risk Committee and any risks rated red are discussed in detail at the Risk Committee.

 ICAAP Process  

The final element of the Risk Management Process is composing the ICAAP document.

 CAPITAL ASSESSMENT

The principal areas of risk identified as Part of the Pillar 2 Capital Assessment are outlined below:

• Strategic / Business risk

• Client Portfolio related risk

• Transactional & Operational risk

• Client Services

• Security

• Fraud/Breach of mandate

• Key Man/Personnel

• Reliance on third parties

• Internal Management of earnings

• Other (Employee claim, Rogue client, Regulatory Risk & Data Breach)

To calculate the Pillar 2 requirement, scenarios were run for the key risks and capital set aside based on the potential financial impact and the likelihood. The minimum Pillar 2 capital requirement was calculated as €400,000.

The Pillar 1 Capital requirement was calculated €322,000.

The internal capital requirement is the higher of the Pillar 1 and Pillar 2 capital requirement and was therefore €400,000

Capital Resources

The most recent audited accounts for the Firm show the capital and reserves of Elkstone Private to be €501,000 which is in excess of the Firm’s regulatory capital requirement.  All capital is categorised as Tier 1 capital.

Cathy Gaynor

Head of Compliance & Risk