Pillar 3 Disclosure





The 2006 Capital Requirements Directive (“the Directive”) of the European Union created a regulatory framework across Europe based on the provisions of the Basel 2 Capital Accord. This Directive affects bank and building societies and certain types of investment firms.

The Directive was implemented in the United Kingdom by the Financial Conduct Authority (“FCA”) (previously the Financial Service Authority) through its General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“MIFIDPRU”).

The framework consists of three ‘pillars’


Pillar 1 the minimum capital requirements of firms to cover credit, market and operational risk
Pillar 2 the requirements for firms and regulators to assess the need to hold additional capital to cover risks not covered under Pillar 1
Pillar 3 a set of disclosure requirements which enable market participants to assess the information of firms’ risk, capital and risk management procedures


This document has been prepared by IPS Capital LLP to fulfil its regulatory obligations under Pillar 3.


IPS Capital LLP (“IPS”) is authorised by the FCA as a Limited Licence firm, classified under MIFIDPRU 4.4.4 as an Advisor / Agent with a Minimum Capital Requirement of £75,000. IPS is not a member of a group and so is not required to prepare consolidated reporting for BIPRU purposes.

IPS provides discretionary and advisory investment management services to retail high net worth clients. The Partnership does not hold client money or assets. The Partnership only acts as agent for its clients and does not deal as principal.

Location and Verification

These Pillar 3 disclosures were approved by the Partners of IPS. The disclosures are not subject to audit.

Frequency of disclosure

Pillar 3 disclosures will be made on an annual basis by IPS.

Risk Appetite and Management

The general acceptance within IPS is that risk is an inherent part of any business. The Partners of IPS decide their appetite for risk in consultation with its external Compliance Consultants. Risks with a high probability of occurring that could have a significant impact on the Partnership, and could not be mitigated would not be acceptable to the Partners.

Risk is a fundamental part of the day to day management of IPS both within operational procedures and within the approach to stock selection and evaluation of investments. IPS ensure that all risks are minimised and mitigated through adequate internal controls

Risk is formally managed through the Partners working with internal and external compliance consultants. Risk is reviewed quarterly at Partners Meetings.

The key areas of risk identified by the Partners are as follows

1. Operational risk


Overview The most widely used definition of operational risk is “The risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events” (Basel Committee). For IPS operational risk is most significant in the following areas:-

  • Regulatory compliance
  • Control over client assets
  • Accuracy of performance monitoring and reporting
  • Maintenance of records
  • Contingency planning
Regulatory compliance


IPS employs a compliance officer who deals with regulatory compliance issues for IPS. The compliance officer prepares reports quarterly to the Partners on any compliance issues that have arisen and potential important areas for the future of IPS.
Control over client assets


All new client assets and cash are to be held at external third-party custodians. IPS will not under any circumstances handle client money.

Any transfers of cash or other client assets can only be carried out by the Custodians to accounts designated by the client and this requires the approval of two authorised signatories separate from the person who inputs the transaction.

Maintenance of records


IPS’s systems are CLOUD based and are backed daily and stored off site. In addition there is an automatic back up each night to a remote disaster recovery server.  Weekly back-ups are taken and stored in a separate location. Technical support is provided by independent IT consultants.
Contingency planning


IPS has a fully documented Business Continuity Plan to identify who is responsible for taking action in the event of an emergency and what are the appropriate actions.

This plan is reviewed every twelve months to ensure that the proposed actions remain feasible and appropriate (e.g. in respect of disaster recovery sites or computer systems and software). In addition business Continuity Insurance has been put in place.






2. Credit risk


Counterparty Risk for Structured Products
  • The institution should have either a long term rating of AA- or better from a recognised rating agency, or
  • The institution should be considered  systemic (e.g. it should have a Support Rating (Fitch) of 1 or 2)
Overview Credit risk for IPS arises as follows:-

  • On client assets held at the third party custodians
  • On the providers of products
  • Non-payment of investment management fees

In addition there is indirect credit risk for IPS on the credit risks incurred by the underlying funds. It is not possible for IPS to directly control this type of risk as fund managers may choose to switch their prime brokers at any time.

However, as part of its credit and performance review process IPS monitors the prime brokerage arrangements of the managers. If necessary IPS will redeem from funds to limit their prime broker risk.

Custodian exposure Inevitably there is concentration of risk at the Custodians, as all cash balances and all liquidity is required to be maintained there. However, this is mitigated by

  • The fact that all investments and cash balances are segregated
  • The Custodian (or parent company) must have a minimum long term credit rating of single A or better from a recognised rating agency, where IPS are appointing the Custodian
Total Counterparty Risk Total direct or indirect credit exposure to any one financial institution either by structured products or other direct investment exposure should not exceed 50% of any investor’s portfolio. For the avoidance of doubt, indirect credit exposure taken via the counterparty and prime broker exposures of individual funds is excluded from this calculation.
Investment Management Fees Investment management fees are collected in the majority of cases directly by the custodian responsible for holding client assets. As such there is low risk of non-payment of management fees.


3. Concentration Risk


Overview Concentration Risk is the risk of lack of diversity in business activities i.e. risk of over dependency on certain client relationships or streams of income.
Mitigation IPS has a substantial client base and the loss of any one client would not have a significant impact on the business of IPS.

The concentration risk from the use of custodians is addressed above under credit risks


Capital Resources

IPS is a limited liability partnership and the capital arrangements are set down in the Partnership Agreement.

IPS has calculated its capital needs in accordance with relevant FCA regulations for the base capital requirement, the credit risk requirement and the variable capital requirement. As a result of these calculations the final level of capital required is the fixed overhead requirement rather than the total of the market risk and credit risk components.as at 31 March 2023 the amount of required capital is £520,000

The financial year end for IPS is 31 March and the audited results as at 31st March 2023 show that IPS at that date had sufficient regulatory capital in accordance with the Pillar 1 FCA requirements.

The capital resources for IPS Capital LLP as at 31 March 2023 were as follows:


TIER 1 Capital Resources £’000
Permanent Capital 206
Profit & Loss account 1,104
TOTAL CAPITAL RESOURCES (net of regulatory deductions) 634 


Following the completion of an Internal Capital Adequacy Assessment Process and Risk Assessment (“ICARA”) that has assessed all the risk affecting the business and stress tested these the Partners are of the opinion the no additional capital is required under Pillar 2. The ICARA has been fully documented and challenged by the Partners of IPS and adopted by the Partners as a fair assessment of the specific risks to the business and the internal and external controls in place to mitigate these risks.

The ICARA is updated as required when new risks are identified and need to be addressed or where the stress testing of previously identified needs to be revised. The updated ICARA is formally approved by the Partners once updated.

The Partners of IPS consider that the assessments of risk carried out and the risk management framework adopted is appropriate for the size and complexity of the organization and that the capital in place is adequate. Situations or new risks may arise in the future that require addition capital and these will be assessed as and when they arise.


IPS has identified that the Code Staff, as defined by the FCA Remuneration Code, are certain Partners of the Firm, all of whom exercise significant control functions. Due to the size and scale of the business no separate remuneration committee exists at IPS; this function is instead undertaken by the governing body (Partners) of the firm.

The overall policy is that the remuneration of Code Staff complies with the FCA’s Remuneration Code, with an appropriate balance being struck between financial performance and risk management. Key elements of the policy are:

  • The remuneration of Partners is based primarily on the Firm’s financial and service performance to motivate and reward success
  • The remuneration of the Partners is based on provisions of the Partnership Agreement as applied to the annual audited profits of the Partnership.
  • Personal reviews of the Partners are carried out at least annually to assess their performance in meeting individual and strategic objectives.
  • The remuneration policy is agreed and approved by the Partners having due regard to risk management.
  • In addition to remuneration certain Code Staff are entitled to healthcare benefit.