London & Capital

Pillar 3 Disclosure

The following information is provided pursuant to the Pillar 3 disclosure rules as laid out by the Financial Services Authority (FSA) in section 11 of its Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU).

Background

London and Capital Asset Management Ltd (LCAM) and London and Capital Plc (L&CPlc) form a UK Consolidation Group, as defined by the FSA. The majority of the companies within the London and Capital Group Ltd (L&C) structure are however included within the risk assessment and management process. L&C has two subsidiary companies authorised and regulated by the FSA, LCAM and L&CPlc. The FSA has implemented a prudential framework for investment management firms that consists of 3 “pillars”.

• Pillar 1 sets out the minimum regulatory capital requirements:
• Pillar 2 is an assessment of whether additional capital is needed over and above that determined under Pillar 1: and
• Pillar 3 deals with public disclosure of the objectives and policies in relation to risk management and information on its risk exposures and capital resources.

The rules provide that disclosures are only required where the information would be considered material to a user relying on that information to make economic decisions and where they are not proprietary / confidential. LCAM is a “BIPRU €125k limited licence firm” and is not authorised to take proprietary trading positions. As a consequence the main risks facing LCAM relate to its operations and its business environment.

The disclosures below are the required Pillar 3 disclosures and apply solely to L&C. The disclosures do not apply to the funds managed by LCAM which are exposed to different risks.

Risk Management

The L&C Group Management Board (“the Board”) is the Governing Body of L&C and has management and oversight responsibility. It meets quarterly and is composed of senior members of L&C staff.

The Board is responsible for the process of risk management, as well as forming its own opinion on the effectiveness of this process. In addition, the Board decides L&C’s risk appetite or tolerance for risk and ensures that the company has implemented an effective, ongoing process to identify risks, to measure its potential impact and then to ensure that such risks are actively managed. Senior Management is accountable to the Board for designing, implementing and monitoring the process of risk management and implementing it into the day-to-day business activities of L&C.

In assessing the risk appetite of the business, consideration has been given to identifying the key risk indicator applicable. This has been identified as “loss of value”, which can be related at both client level and at the management entity level taking the form of loss of revenue, loss of assets or higher costs. Two specific factors have been considered in defining the risk appetite, firstly, the likelihood of occurrence of an event and secondly, the impact level of an event.

Further information on the risk exposures of the business are set out below:

Operational Risk

This is the main focus of management attention and covers the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events including legal risk. We seek to minimise operational risk through a controls framework and the more significant operational risks faced include the failure of an administrator, a catastrophic systems failure, the mispricing of a fund NAV and fund losses due to malfunctioning market and liquidity controls.

Business Risk

Arises from external sources such as changes to the economic environment or one-off economic shocks and also from internal sources such as poor investment decisions resulting in poor investment performance and damage to the company’s reputation. This risk is managed by carrying out ongoing market research and by having an effective product development process that can quickly respond to market change.

Credit Risk

The company is not exposed to credit risk other than in respect of suppliers and service providers and cash held on deposit at large international institutions. Specific procedures cover the management of this exposure and it is not considered material for the purposes of this disclosure.

Market Risk

Market risk arises in relation to investments made either in deposits or as strategic investments; and income, as revenue may be impacted by market downturn where fees are linked to performance or AUM. This risk is not considered material for the purposes of this disclosure.

Liquidity Risk

L&C arranges its investments to avoid having to realise assets at short notice. Working capital will not be held in illiquid instruments, and generally will be held in the form of cash deposits on overnight or short term deposits. The primary objective of Liquidity risk management is to ensure good communication regarding the amount and timing of cash requirements and sufficient notice for the best possible disposal of assets, if required.

Capital Adequacy

As at 30th September 2011 the company’s capital resources comprised solely Tier 1 capital with no deductions.

The company has calculated its capital needs in accordance with the relevant FSA regulations for the base capital requirement, the credit risk requirement and the variable capital requirement. The final level of capital is calculated as being the fixed overhead requirement rather than the total of the market risk and credit risk components.

The approach of the business to assessing the adequacy of its internal capital to support current and future activities is contained in the Internal Capital Adequacy Assessment Process (ICAAP). This process includes an assessment of the specific risks to the business and the internal controls in place to mitigate these risks. These are tested under different scenarios in order to provide a robust picture of exposures for the company. Finally an assessment is made of the probability of occurrence and the potential impact in order to arrive at a level of required capital. The capital level has been assessed in accordance with Pillar 2 to be less than the Pillar 1 fixed overhead requirement. L&C maintains sufficient capital to meet this Pillar 1 requirement.

Although L&C believes the risk management framework outlined herein is appropriate for its size and complexity and that its capital is adequate to meet the risks assessed it cannot guarantee that this will actually be the case in the event any particular risk arises. There will always be some unlikely risks with unusually high impact which may require additional capital should they arise.

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