Capital Requirements Directive – Pillar 3 Disclosure – 2012

Scope and application of the requirements
The 2006 Capital Requirements Directive (‘the Directive’) as amended January 2011 of the European Union created a revised regulatory framework across Europe based on the provision of the Basel 2 Capital Accord. This governs how much capital financial services firms must retain.  In Ireland, this is being implemented by the Central Bank of Ireland, which requires Companies to have and maintain certain Capital and implement certain business review processes.

The new framework consists of three ‘Pillars’:

  • Pillar 1 sets out the minimum capital requirements that Companies need to retain to meet their credit, market and operational   risk;
  • Pillar 2 requires each Company and the Central Bank of Ireland to take a view on whether the Company needs to hold additional capital against firm-specific risks not covered by Pillar 1; and
  • Pillar 3 requires each company to develop a set of disclosures, which will allow market participants to assess key information about its underlying risks, risk management controls and capital position.

Pillar 3 disclosure requires that Companies provide certain information by way of a formal disclosure document.  The disclosure in this document meets Newcourt Retirement Fund Managers Limited (“Newcourt”) obligation with respect to Pillar 3. The rules provide that a Company may omit one or more of the required disclosures if it believes that the information is immaterial.  Materiality is based on the criterion of whether the omission or misstatement of any information would be likely to change or influence the decision of a reader relying on that information. Newcourt has not omitted any material disclosures from this document.

In addition, Newcourt may also omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential.  Proprietary information is that which, if it were shared, would undermine the competitive position of a Company.  Information is considered to be confidential where there are obligations binding a Company to confidentiality with customers, suppliers and counterparties.  Where Newcourt has omitted information for either of these two reasons it must state this in the relevant section with reasons for the omission.

Risk Management Objectives and Policies
Newcourt’s risk management policy reflects the Central Bank of Ireland’s requirement that adequate financial resources and adequate systems and controls are necessary for the effective management of prudential risk. The Board of Newcourt comprises of directors who have the necessary skills and experience to manage and ensure the proper controls are in place for the effective running of the Company.  The Board of Directors is responsible for setting strategy and risk appetite and for ensuring that management establishes plans to execute the strategy within acceptable parameters.  The Board usually meets on a quarterly or half yearly basis.

To protect the interests of its clients, Newcourt operates a strong and comprehensive control environment.  This is achieved through the internal risk and control framework set out in our Procedures Manual, which provides integrated, robust governance processes. Newcourt is advised on compliance and regulatory matters by Matheson Ormsby Prentice Solicitors. In relation corporate governance the Company is advised by Arthur Cox Solicitors. This ensures the Company’s risks are identified, assessed, monitored and controlled. In line with accepted Industry procedures there are three lines of defence against the mismanagement of risk.  A brief description of the three lines of defence is given below.

First Line of Defence
All Newcourt’s staff are responsible for assessing and managing their risks in line with our comprehensive Procedures Manual. We have invested in robust and sustainable processes and the recruitment and training of experienced staff.  Management review the operation of their controls on a regular basis.

Second Line of Defence
Risk and Compliance form a second line of defence against the mismanagement of risk through gaining assurance from a defined set of monitoring activities on the operation of the first line of defence.  These monitoring activities are risk driven and a particular focus is to ensure compliance with regulations. The Company’s Legal Advisors help ensure these monitoring activities are constantly reviewed to ensure compliance with current market regulation.

Third Line of Defence
The third line of defence is provided by the Newcourt internal procedures and external Auditors.  Control weaknesses identified by internal procedues and external audits are tracked to completion through the Board of Directors. In addition they are monitored closely by the Central Bank of Ireland, who requires confirmation from our external Auditors that any matters highlighted are rectified immediately.

Capital Resources
 Capital is held to ensure a suitable operating margin is maintained in excess of the higher of Pillar 1 and Pillar 2 capital requirements.

Pillar 2 capital requirements are determined using a structured approach that explicitly takes into account management’s view of specific risk exposures.
Pillar 1 capital requirements are the greater of:
  • Base capital requirement of €125,000; or
  • The sum of the market and credit risk requirements; or
  • The Fixed Overhead Requirement.
 Newcourt holds capital based on their Pillar 2 calculation and in addition a fixed overhead requirement as advised annually by the Central Bank of Ireland.
Stress tests are undertaken to determine the impact of severe events such as significant market downturns on Newcourt’s financial position.
There is no current or unforeseen material or practical impediments, to the prompt transfer of capital resources or repayment of liabilities within Newcourt.
The approach to risk assessment and the determination of the adequacy of the Firms’ internal capital to support the risks pertaining to current and future activities is contained in the Internal Capital Adequacy Assessment Process (ICAAP) undertaken by the Firm, which is the key requirement of the Pillar 2 requirements.  This process includes an assessment of the specific risks to the business and the controls in place to mitigate those risks.  Based on the assessment undertaken in the ICAAP we believe that the level of capital currently maintained in our business, under Pillar 2 calculations is sufficient to present and future growth plans and adequately supports the risks faced by the Firm.
Gerard Keane, Managing Director