Effective Date: March 31, 2024

1. Introduction

1.1 Background
This document outlines the Pillar 3 disclosures of Crown and Bates as of March 31, 2024. These disclosures are made in accordance with the Capital Requirements Directive (CRD), which aligns with the Basel II and Basel III capital frameworks. The CRD comprises three main components:

  • Pillar 1: Sets the minimum capital requirements for credit, market, and operational risks.
  • Pillar 2: Requires firms to assess additional capital requirements beyond Pillar 1 through an Internal Capital and Risk Assessment (ICARA).
  • Pillar 3: Mandates firms to disclose specific information about their risks, controls, and capital positions.

Initially introduced on January 1, 2007, the CRD establishes a revised regulatory capital structure for financial institutions in the European Union, incorporating the Basel II standards. The CRD IV package, effective from January 1, 2014, further implemented Basel III standards in the EU, targeting primarily credit institutions and banks but also extending to certain investment firms.

1.2 Implementation at Crown and Bates

Crown and Bates complies with these disclosure requirements, as outlined in the FCA’s BIPRU 11.3.3R. These disclosures are updated at least annually, following the publication of the firm’s annual reports and the completion of its ICARA process.

1.3 Verification

The information provided in this disclosure has not been audited by Crown and Bates’ external auditors and does not form part of the company’s financial statements. As such, it should not be used as a sole basis for making financial judgments regarding the firm.

2. Scope and Application of the Requirements

Crown and Bates provides wealth management services, including Discretionary, Advisory, and Execution-Only services. As a BIPRU limited license firm, Crown and Bates is required to maintain a minimum capital level of £75,000.

Crown and Bates does not deal on its own account and has no trading book exposures. Additionally, it is authorized to control but not hold client money, and all regulatory reporting is conducted at the firm level in accordance with IFPR (Investment Firm Prudential Regime) regulations.

3. Risk Management and Policies

3.1 Framework and Objectives
Crown and Bates is governed by its four directors, who are responsible for determining the company’s business strategy and risk profile. The day-to-day management of risks is overseen by the directors, with support from the compliance manager. Due to its small size, the firm does not have a separate risk management department but adopts a low-risk approach to its operations, avoiding hedging, derivative investments, or leverage.

3.2 Liquidity Risk
Liquidity risk refers to the possibility that the firm may not be able to meet its financial obligations as they arise. Crown and Bates ensures sufficient liquidity by maintaining substantial cash reserves. The firm aims to keep its financial resources at or above 120% of its ICARA requirement. As of March 31, 2024, Crown and Bates held £4.1 million in cash and liquid assets. Cash flow is reviewed quarterly by the Board.

3.3 Counterparty Credit Risk
Counterparty credit risk is the risk that a third party will fail to meet its contractual obligations. Crown and Bates minimizes this risk by clearing its stockbroking business through GPP on a Model A basis. Real-time monitoring and daily reviews of trading ensure that customer defaults are minimized. Commissions are only paid on settled trades, and self-employed advisers are responsible for any client defaults.

3.4 Market Risk

Market risk arises from fluctuations in the value of the firm’s investments. Crown and Bates does not engage in proprietary trading, currency trading, or market-making activities. The firm’s investment policy limits investments to bonds and equities, with a cap of £150,000 per investment. As of the report date, the firm held no marketable investments, thereby eliminating current market risk.

3.5 Operational Risk

Operational risk is the potential for loss due to inadequate internal processes or external events. Crown and Bates regularly reviews its operational risks and controls, with key risks reassessed annually as part of its ICARA process. Any significant changes or new risks are addressed through updates to the firm’s internal policies.

4. Capital Requirements

Under IFPR regulations, Crown and Bates’ capital requirements are determined as the greater of the following:

  • A Permanent Minimum Requirement (PMR) of £825,000.
  • Fixed overhead requirements.
  • Estimated wind-down costs.

For 2024, the firm’s own funds threshold requirement was calculated to be £1.22 million.

5. Capital Resources

As of March 31, 2024, Crown and Bates had total capital resources exceeding £4 million, significantly above the firm’s regulatory capital requirements.

Prepared by: Gavin Masters, Chairman, Crown and Bates.