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Compliance with Certain Restrictions Relating to the Chikara Funds

SWITZERLAND

Apart from as noted below, the Chikara Funds have not been and cannot be registered with the Swiss Financial Market Supervisory Authority (FINMA) and cannot be distributed in Switzerland.

Chikara Funds plc, one of the Chikara Funds, may be distributed in Switzerland to both non-qualified investors and qualified investors.

The representative in Switzerland is 1741 Fund Solutions Ltd, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent in Switzerland is Tellco Ltd, Bahnhofstrasse 4, CH-6430 Schwyz. The prospectus, the articles of association, the Key Investor Information Documents, as well as the annual and semi-annual reports in relation to Chikara Funds plc, may be obtained free of charge from the representative. In respect of the units distributed in and from Switzerland, the place of performance and jurisdiction is the registered office of the representative.

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30 April 2024

1. MIFIDPRU 8 DISCLOSURE

The Firm is authorised and regulated by the Financial Conduct Authority (the “FCA”). The Firm is a UK domiciled discretionary investment manager and investment adviser to a Irish domiciled UCITS fund, a UK listed investment trust and to professional segregated account clients.

The Firm is categorised as a “Non-SNI MIFIDPRU investment firm” by the FCA for capital purposes. The Firm reports on a solo basis. The Firm’s MIFIDPRU 8 disclosure fulfils the Firm’s obligation to disclose to market participants’ key information on a firm’s:

  • Risk management objectives and policies
  • Governance arrangements
  • Own funds
  • Own funds requirement
  • Remuneration policies and practices

In making the qualitative elements of this disclosure, the Firm is required to provide a level of detail that is appropriate to the Firm’s size and internal organisation, and to the nature, scope and complexity of its activities.

This disclosure is made annually on the date the Firm publishes its annual financial statements. As appropriate, this disclosure is made more frequently, for example if there is a major change to the Firm’s business model.

2. RISK MANAGEMENT OBJECTIVES AND POLICIES

The Firm is subject to ICARA (Internal Capital Adequacy and Risk Assessment) process requirements. The purpose of the ICARA process is to ensure that the Firm:

  • Has appropriate systems and controls in place to identify, monitor and, where proportionate, reduce all potential material harms; and
  • Holds financial resources that are adequate for the business it undertakes.

As part of the ICARA process, the Firm sets out its risk management processes including an analysis of the effectiveness of its risk management processes.

The Firm has established risk management arrangements that seek to:

  • Meet regulatory requirements as detailed in the FCA handbook, including the requirement to have effective processes to identify, manage, monitor and report the risks it is or might be exposed to;
  • Reflect industry best practices; and
  • Are appropriate and effective, taking into account the Firm’s size, nature, characteristics, risk profile and risk appetite.

The Firm maintains a risk register that sets out all identified potential and actual risks, and mitigants in place. The Firm’s Senior Management regularly discuss and review risks to which the Firm is exposed. This ICARA process forms one of the methods through which Senior Management manage the risks within the business, in particular the deployment of risk mitigation techniques to address potential and actual material harms. The governing body meets on a monthly basis to review all identified risks and analyse the Firm’s approach to managing them and discuss any new material risks identified by Senior Management. The Chief Operating Officer and the Chief Compliance Officer are responsible for ensuring appropriate action is taken in case of breaches.

3. GOVERNANCE ARRANGEMENTS

3.1.    Overview

The Firm’s Senior Management comprises the Chief Executive Officer, Chief Operating Officer and the Chief Compliance Officer. The governing body consists of the members of the partnership which includes the Chief Executive Officer. The Chief Operating Officer and the Chief Compliance Officer attend the monthly meetings of the governing body.

The Firm’s governance arrangements ensure that the effective and prudent management of the Firm is prioritised with respect to the Firm’s overall structure, including the segregation of duties within the wider organisation.

The Firm maintains conflicts of interest procedures and processes. This includes the identification, managing and monitoring of potential or actual conflicts under the overall supervision of the governing body. The Firm emphasises the need to prioritise the interests of its clients and to resolve potential or actual conflicts between clients.

The Firm’s Internal Capital Adequacy and Risk Assessment (“ICARA”) process assists the Firm in determining its material harms, including those affecting its clients and the integrity of the market. The Firm’s governing body reviews the ICARA at least annually.

3.2.    External Directorships

The number of external directorships held by the members of the Firm’s governing body are as follows[1]:

Governing Body

Executive directorships

Non-executive directorships

James Tollemache

Nil

Chikara Funds plc

3.3.    Diversity

The Firm’s diversity policy aims to reflect the Firm’s values and inclusivity at all levels within the organisation, including the governing body.

When making appointments, the Firm adopts the following guidelines:

  • The appointment process is based on the principles of non-discrimination, recognition of diversity and equality of opportunity
  • Appointments are made on the basis of individual competence, skills and expertise
  • The selection process gives due consideration to candidate suitability without bias with respect to personal factors such as education, professional background, ethnicity, age, disability, sexual orientation, socio-economic status or geographic location.

As a small organisation with a small number of individuals comprising the management body, the Firm does not have any diversity ‘targets’ as such. However, the Firm is satisfied that its practices with respect to appointment to the governing body are consistent with the objectives stated above.

3.4.    Risk Committee

The Firm is not subject to a mandatory requirement to put in place a risk committee, per MIFIDPRU 7.3.1.

Notwithstanding this, the Firm ensures that risk management is embedded into its culture and its overall systems and controls framework.

4. OWN FUNDS

 The Firm is a Limited Liability Partnership. Its capital comprises members’ capital in accordance with the LLP Agreement.

Table A

As at the date of this disclosure the Firm’s regulatory capital position is:

Composition of regulatory own funds

 

Item

Amount (GBP thousands)

Source based on reference numbers/letters of the balance sheet in the audited financial statements

1

OWN FUNDS

1,716

 

2

TIER 1 CAPITAL

1,716

 

3

COMMON EQUITY TIER 1 CAPITAL

1,716

 

4

Fully paid-up capital instruments

   

5

Share premium

   

6

Retained earnings

   

7

Accumulated other comprehensive income

   

8

Other reserves

   

9

Adjustments to CET1 due to prudential filters

   

10

Other funds

   

11

(-)TOTAL DEDUCTIONS FROM COMMON EQUITY TIER 1

   

19

CET1: Other capital elements, deductions and adjustments

   

20

ADDITIONAL TIER 1 CAPITAL

   

21

Fully paid up, directly issued capital instruments

   

22

Share premium

   

23

(-) TOTAL DEDUCTIONS FROM ADDITIONAL TIER 1

   

24

Additional Tier 1: Other capital elements, deductions and adjustments

   

25

TIER 2 CAPITAL

   

26

Fully paid up, directly issued capital instruments

   

27

Share premium

   

28

(-) TOTAL DEDUCTIONS FROM TIER 2

   

29

Tier 2: Other capital elements, deductions and Adjustments

   

Table B

The following table sets out a reconciliation of the Firm’s own funds to the balance sheet in the Firm’s audited financial statements:

Own funds: reconciliation of regulatory own funds to balance sheet in the audited financial Statements

Figures should be given in GBP thousands unless noted otherwise.

   

A

B

C

   

Balance sheet as in published/audited financial statements

Under regulatory scope of consolidation

Cross- reference to Table A

   

As at period end

As at period end

 

Assets – Breakdown by asset classes according to the balance sheet in the audited financial Statements

1

Debtors

946

   

2

Cash at Hand and in Bank

2,738

   

3

Creditors

(1,256)

   

xxx

Total Assets

2,430

   

Liabilities – Breakdown by liability classes according to the balance sheet in the audited financial Statements

1

       

2

       

3

       

xxx

Total Liabilities

     

Shareholders’ Equity

1

Loans and other debts due

714

   

2

Capital

1,716

   

3

       

xxx

Total Shareholders’ equity

2,430

   

5. OWN FUNDS REQUIREMENT

The Firm’s own funds requirement includes the following components:

K-factor requirement:

GBP

Sum of the K-AUM requirement, the K-CMH requirement and the
K-ASA requirement:

323

Sum of the K-COH requirement and the K-DTF requirement:

2

Sum of the K-NPR requirement, the K-CMG requirement, the K-TCD requirement and the K-CON requirement:

1

TOTAL K-factor requirement:

326

Fixed overheads requirement

945

The Firm is required to assess the adequacy of its own funds in accordance with the overall financial adequacy rule. This requires the Firm to hold financial resources that are adequate for the business it undertakes. This is designed to achieve two key outcomes for the Firm:

  1. To enable it to remain financially viable throughout the economic cycle, with the ability to address any potential material harms that may result from its ongoing activities (including both regulated activities and unregulated activities); and
  2. To enable it to conduct an orderly wind-down while minimising harm to consumers or to other market participants, and without threatening the integrity of the wider UK financial system.

The Firm achieves this via its Internal Capital Adequacy and Risk Assessment (“ICARA”) process. The Firm sets out:

  • A clear description of the Firm’s business model and strategy and how this aligns with the Firm’s risk appetite
  • The activities of the Firm, with a focus on the most material activities
  • Whether or not the ICARA process is ‘fit-for-purpose’. Where this is the case the Firm must explain why it has reached this conclusion. Where this is not the case, the Firm must set out the improvements needed, the steps needed to make the improvements and the timescale for making them, and who within the Firm is responsible for taking these steps
  • Any other changes to the Firm’s ICARA process that have occurred following the review and the reasons for those changes
  • An analysis of the effectiveness of the Firm’s risk management processes during the period covered by the review
  • A summary of the material harms identified by the Firm and any steps taken to mitigate them
  • An overview of the business model assessment and capital and liquidity planning undertaken by the Firm
  • A clear explanation of how the Firm is complying with the overall financial adequacy rule (“OFAR”) (i.e. the obligation to hold adequate own funds and liquid assets) vis-à-vis the Firm’s ongoing business activities and wind-down arrangements
  • A summary of any stress testing carried out by the Firm
  • The levels of own funds and liquid assets that, if reached, may indicate that there is a credible risk that the Firm will breach its threshold requirements
  • The potential recovery actions that the Firm has identified
  • An overview of the Firm’s wind-down planning

6. REMUNERATION POLICIES AND PRACTICES

The Firm is subject to the Remuneration Code (the “Code”) for MIFIDPRU Firms as codified in Section 19G of the SYSC sourcebook of the Financial Conduct Authority handbook.

In addition, the Firm is subject to the Remuneration Code for alternative investment fund managers as codified in Section 19B of the SYSC sourcebook of the Financial Conduct Authority handbook.

This disclosure sets out qualitative and quantitative information on the Firm’s remuneration processes and practices.

A.  Qualitative Information

The Firm must establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote effective risk management and do not encourage excessive risk taking.

The Firm ensures that the remuneration policy and its practical application are consistent with the Firm’s business strategy, objectives and long-term interests.

Given the nature and small size of our business, remuneration for all employees is set by the Firm’s governing body.

Staff receive a salary which reflects their market value, responsibilities and experience.

All staff may also receive variable remuneration, such as an annual bonus, where the individual operates within the risk appetite of the company and has demonstrated appropriate behaviour.

Variable remuneration is intended to reflect contribution to the Firm’s overall success. Staff are assessed throughout the year and rated based on company, team and individual performance. The performance assessment considers both financial measures such as profits and non-financial measures such as risk management and compliance with policies and procedures.

The Firm’s linkage between variable remuneration and performance is based upon the following tenets:

  1. Attract and retain staff members
  2. Link a proportion of a staff member’s total compensation to the Firm’s performance
  3. Discourage excessive risk-taking
  4. Ensure client interests are not negatively impacted
  • Material Risk Takers

The Firm is required to disclose the types of staff it has identified as material risk takers:  these are individuals whose professional activities have a material impact on the firm’s risk profile.

Material risk takers are subject to additional requirements regarding variable remuneration, including provisions related to guaranteed variable remuneration, retention awards, severance pay, buy-out awards, performance adjustment, discretionary pension benefits and personal investment strategies.

Material risk takers comprise the following:

  1. the staff member is a member of the senior management
  2. Staff with managerial responsibilities for the activities of a control function (risk management and compliance)
  3. Staff with managerial responsibilities for the prevention of money laundering and terrorist financing
  4. Staff responsible for managing a material risk within the firm
  5. Staff member responsible for the management of information technology, information security and/or critical or important outsourcing arrangement)
  6. anyone not falling into the foregoing categories that meets the ‘material risk taker’ criterion i.e., individuals whose professional activities have a material impact on the firm’s risk profile.
  • Performance adjustment

Variable remuneration is subject to malus and clawback in various circumstances.

Chikara may apply the following different methods of ex-post risk adjustment to all forms of variable remuneration (including incentive awards, guaranteed variable remuneration, retention awards and severance pay):

  • In-year adjustment: the reduction of current year awards.
  • Malus: the reduction or cancellation of deferred incentive awards that have not yet vested.
  • Clawback: the recovery of variable remuneration awards that have already vested and been paid.

Chikara may apply malus to an MRT at any time until full vesting of a deferred incentive award.

Chikara may apply clawback to an MRT for the longer of:

  • the combined period of any deferral and retention periods of an award of variable remuneration; and
  • the period of three years from the date on which an award of variable remuneration is made to a member of staff.

Depending upon the nature of the event giving rise to performance adjustment, Chikara may make ex-post risk adjustments to variable remuneration either:

  • collectively at bonus pool level or to groups of staff; and/or
  • on an individual basis.

Chikara anticipates applying collective ex-post risk adjustments where there are widespread failings or to meet all or a significant part of the cost of regulatory action and fines, redress and other associated costs from bonus pools. Where the misconduct, failings or poor performance which led to a relevant event (as defined below) occurred primarily in particular business units or divisions, collective adjustments will be weighted towards those areas.

  • Guaranteed Variable Remuneration

In limited circumstances the Firm may pay out a guaranteed variable remuneration – for example, per SYSC 19G, guaranteed variable remuneration can be awarded, paid or provided if: it occurs in the context of hiring a new material risk taker; it is limited to the first year of services; and the firm has a strong capital base.

  • Severance Pay

It is not the Firm’s policy to pay severance pay except in exceptional circumstances which does not include rewarding an individual for failure or misconduct.

B.  Quantitative Information

The following quantitative information is with respect to the financial year 2023.

Number of material risk takers:

12[2]

 

Aggregated remuneration:

5,336,857

The Firm has aggregated the data for material risk takers for reasons of confidentiality/privacy, including to prevent individual identification of a material risk taker.

Senior management/Other Material Risk Takers

Fixed remuneration

Variable remuneration

Total remuneration

 

4,168,095

225,000

4,393,095

       

Other staff/NMRT

Fixed remuneration

Variable remuneration

Total remuneration

 

823,763

120,000

943,763

 

Guaranteed variable remuneration and severance payments:

 

The Firm has disapplied the requirement to provide aggregated remuneration for reasons of confidentiality/ privacy, including to prevent individual identification of a material risk taker.

The purpose of this is to avoid firms having to disclose information: that would enable a material risk taker to be identified; or that could be associated with a particular risk taker.

1 This excludes: (a) executive and non-executive directorships held in organisations which do not pursue predominantly commercial objectives; and (b) executive and non-executive directorships held within the same group or within an undertaking (including a non-financial sector entity) in which the firm holds a qualifying holding.

2 The Firm has concluded that ‘Code Staff’ and ‘Material Risk Takers’ comprises the same group of individuals.