Regulatory Information

INDOS Financial Limited

Disclosure under Pillar 3 of Capital Requirements Directive

Date: December 2017

INDOS Financial Limited (“the Firm”) is authorised and regulated by the Financial Conduct Authority and is categorised as an IFPRU €730,000 full scope firm for regulatory purposes. The Firm is not part of a group or subject to consolidated reporting.  This statement has been prepared by the Firm in accordance with the FCA IFPRU rules 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 as of the Firm’s accounting reference date, the most recent of which is 31st December 2017.


The Firm regards the information in these disclosures as material if its omission or misstatement could change or influence the assessment or decision of a user relying on this information to make an economic decision. If the Firm deems a certain disclosure to be immaterial, it may be omitted from this statement. There are no such omissions.

Risk Management

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, measurement and management of risks within the firm, ensuring appropriate controls are in place and operating effectively.
  • Second Line of Defence: the Firm’s Risk and Governance Director 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. The external auditors assure reliability and integrity of financial reporting processes.

Monthly management accounts are used to monitor and project its capital resources and a compliance manual, a compliance monitoring programme and an Internal Capital Adequacy Assessment Process (“ICAAP”) have been adopted to facilitate risk management in the Firm.

Given the nature and activities of the Firm, its risk appetite is low. It solely provides depositary services and whilst it is developing an investment advisory business, it will not engage in trading activity.   The key risks are as follows:

Market risk

Market risk addresses the Firm’s exposure to risk through its interactions with the wider economic environment. Whilst the Firm itself has no direct exposure to market risk, its client funds may have greater exposure. Given that most of the Firm’s revenue originates from its investment fund clients, exposure of the funds to market risk could impact the firm through reduction in revenue.

Business strategy risk

The Firm’s main source of income is currently derived from providing depositary services to a diverse and growing number of alternative investment funds. The revenue impact from lost business could be significant.

The Firm has sought to diversify its revenue streams by expanding beyond hedge funds to private equity and real estate type funds, and in May 2017 the Firm extended its regulatory permissions to enable it to act for unauthorised UK funds. The investment advisory side of the business will provide further diversification.

Regulatory risk

AIFMD depositary services are still in their relative infancy and there could be gaps between regulatory expectations of the role of the depositary and the actual role undertaken. Interpretation of the depositary requirements also presents some risk in the short to medium term. The Firm retains the services of a third party regulatory consultants. The Firm is also an affiliate member of the UK Depositary and Trustee Association (DATA) Affiliates Group which provides a useful forum to discuss and formulate industry best practice.

Personnel/ Key person risk

Key individuals leaving the Firm or becoming incapacitated. A loss of the CEO (and founder) at the current time would have a negative impact on the Firm.

Operational risk

The depositary requirements are complex. The business has been trading for four years and remains in growth phase. All combine to present a degree of inherent operational risk. The mitigating factors of the risk are: appropriate systems and controls and suitable and experienced staff and organisational structure. The Firm completes annual SOC1 controls testing.  Significant professional indemnity insurance is maintained to mitigate the risk of errors and financial loss to the business.

Custody risk

An inherent risk when undertaking depositary duties for UK Funds is the requirement for the depositary to take on the strict liability for loss of financial instruments held in custody, although the Firm would always seek to discharge liability to a sub-custodian. As above insurance is maintained to mitigate potential loss.

Financial risk

Inherently high for the business in its stage of growth. Profitable since 2016 and its €730,000 regulatory capital requirement is a high level of capital given the size of the firm’s operations. Ongoing growth of the business will generate profits which will further increase reserves.

Pension Obligation Risk

Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. The Firm’s pension obligations commenced on 1st July 2017 although the amounts are modest in the context of the overall expense base of the Firm.

Residual Risk

Residual risk is what remains after the systematic application of risk models, controls and mitigations applied by the Firm. The most likely source of such exposure arises from unrecognised errors or deficiencies in systems or procedures used for undertaking depositary activities.

Interest rate risk

The firm is not exposed to interest rate risk as it does not rely on borrowings to meet operating expenditure and does not make loans to clients.

Credit risk

The main credit risk of the Firm is a defaulting debtor, although the Firm does not extend credit to its clients. The key credit exposures that the Firm has are depositary fees payable by its clients and the risk of default by the Firm’s own bankers, HSBC Bank plc and Allied Irish Banks.

Most depositary fees are payable by the clients monthly in arrears.

Under Pillar 1 capital calculations, cash balances are risk weighted at 1.6% and depositary income receivable at 8%. The directors believe that the Pillar 1 risk weight is adequate and that a Pillar 2 adjustment to hold additional capital is not required.

Liquidity risk

The liquidity risk that the Firm faces is the inability to settle its liabilities as they fall due. The risk management process includes frequent monitoring of the liquidity position of the Firm. Bank reconciliations and cash flow forecasts are prepared/ updated on a regular basis to ensure that all liabilities are identified promptly and can be settled as they fall due.

Cash resources of the Firm are maintained in bank accounts with instant access.

Remuneration risk

The Firm is subject to FCA Rules on remuneration.  The Remuneration Code (“the RemCode”) rules are located in the SYSC Sourcebook of the FCA’s Handbook. The RemCode covers an individual’s total remuneration, fixed and variable. The Firm incentivises staff through fixed remuneration with an annual discretionary bonus subject to certain caps.

The Firm’s business is to provide depositary, as well as investment advisory, services.

Our policy is designed to ensure that we comply with the RemCode and our compensation arrangements:

  1. are consistent with and promotes sound and effective risk management;
  2. do not encourage excessive risk taking;
  3. include measures to avoid conflicts of interest; and
  4. are in line with the Firm’s business strategy, objectives, values and long-term interests.


Enshrined in the European remuneration provisions is the principle of proportionality. The FCA has sought to apply proportionality in the first instance by categorising firms into three levels. The Firm falls within the FCA’s proportionality level three and as such this disclosure is made in line with the requirements for a Level Three firm.

Application of the requirements

We are required to disclose certain information on at least an annual basis regarding our Remuneration policy and practices for those staff whose professional activities have a material impact on the risk profile of the Firm. Our disclosure is made in accordance with our size, internal organisation and the nature, scope and complexity of our activities:

Summary of information on the decision-making process used for determining the firm’s remuneration policy.

  • The Firm’s policy has been agreed by the Senior Management in line with the RemCode principles laid down by the FCA.
  • Due to the size, nature and complexity of the Firm, we are not required to appoint an independent remuneration committee.
  • The Firm’s policy will be reviewed as part of annual process and procedures, or following a significant change to the business requiring an update to its internal capital adequacy assessment.
  • The Firm’s ability to pay bonus is based on the performance of the Firm overall as well as individual employee performance.

Summary of how the firm links between pay and performance.

  • Individuals are rewarded based on their contribution to the overall strategy of the business.

Aggregate quantitative information on remuneration, for staff whose actions have a material impact on the risk profile of the firm.

Aggregate compensation expense in 2017  
Code Staff £480,000

We may omit required disclosures where we believe that the information could be regarded as prejudicial to the UK or other national transposition of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals regarding the processing of personal data and on the free movement of such data. We have made no omissions on the grounds of data protection.

Capital Resources

As of 31 December 2017, the firm has the following capital resources to meet its capital resources requirements as an IFPRU €730,000 full scope firm:

Tier 1 capital resources* 586,631
Tier 2 capital resources** 164,999
Tier 3 n/a
Deductions form total capital e.g. illiquid assets  n/a
Total capital resources as at 31 December 2017 751,630

*Tier 1 capital is not subject to any deductions and does not include any hybrid capital or capital instruments.

** Tier 2 capital is a qualifying subordinated loan.

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 (€730k)

The sum of:

The Credit Risk Capital Requirement
The Market Risk Capital Requirement; and
The Operational Risk Capital Requirement

and The Fixed Overheads Requirement (3 months expenditure of the firm).

In the opinion of the directors the highest of these three is the base capital requirement of €730,000 (sterling equivalent of approximately £649,000 as of 31 December 2017).

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.  The Firm has concluded that its Pillar 2 capital requirement is lower than that its Pillar 1 capital requirement.