IMPORTANT INFORMATION

REGULATION & INVESTOR PROTECTION

REGULATION & INVESTOR PROTECTION

INTRODUCTION

R C Brown Investment Management PLC (RCBIM) takes its regulatory responsibilities very seriously. In the current climate it is only natural for intermediaries and clients to have questions about the security of their investments. We want to ensure that all stakeholders are entirely comfortable with the procedures that have been put in place both by our Regulator and ourselves before using RCBIM’s portfolio management services.

In this document we attempt to address some of the key questions that you may have regarding what is one of the most fundamental parts of our potential relationship with you. More detailed information on some of these areas are included in our Terms of Business, likewise details about the investor compensation scheme are available on the websites of;

Financial Services Compensation Scheme (FSCS)

Financial Conduct Authority (FCA)

HOW SAFE ARE INVESTMENTS HELD IN THE RCBIM’S NOMINEE SERVICE?

We see this covering three broad areas:

1. OUR REGULATORY POSITION

RCBIM is authorised and regulated by the Financial Conduct Authority (FCA).

RCBIM, as the regulated firm, is governed by the European Union Capital Requirements Directive, which establishes the regulatory capital framework with which FCA regulated investment firms must comply. It sets out the amount and nature of capital that must be maintained to ensure an adequate financial base and to provide security for investors. RCBIM is required to provide details of its capital position to the FCA on a quarterly basis in line with industry wide regulatory guidelines. RCBIM’s capital position as at 31 March 2018, its latest available financial year-end, showed a solvency ratio of 347% in excess of minimum regulatory capital requirement.

In common with our industry, the firm operates a nominee service. The FCA sets out the rules by which regulated firms that hold client assets and client money must operate to ensure its protection. We are required to report to the FCA monthly on client money and client assets.

Client assets held by the firm are held in the firm’s nominee company, RCBIM Nominees Limited. Sub-custodian arrangements are in place for the efficient administration and dealing of collective based investments and listed securities. In addition, all client money accounts have trust status, which is confirmed at the outset. This means that the money is ring-fenced by the bank, in the event of the firm’s insolvency.

The firm has robust systems and controls in place to ensure the firm and individuals comply with regulations. There are a range of controls to ensure the safety and protection of client money and assets, with no single individual having control of client cash. In addition, cash balances are reconciled on a daily basis.

The firm has Professional Indemnity Insurance in place in the event of a fraud, or significant client complaint. We consider this an important part of our commitment to protect client assets. We believe our insurance cover is adequate and appropriate for the business that the firm conducts and is regularly reviewed.

To offer additional comfort, RCBIM is a member of the Financial Services Compensation Scheme (FSCS). This means in the event of the firm’s default private clients will be eligible, within the rules of the scheme, to recoup some of their investments and/or cash. The FSCS provides protection for private clients of up to £85,000 for deposits, and up to £50,000 for investments, in the event that RCBIM could not repay or return client assets or private client money.

2. CUSTODY OF CLIENT ASSETS

Client assets are held in RCBIM’s nominee company, RCBIM Nominees Limited.

In common with most other UK financial institutions which have nominee companies, RCBIM Nominees Limited is a non-trading company, formed solely for the purpose of holding assets on behalf of investors. It is completely ring-fenced from the company, being guaranteed by RCBIM’s primary bank, NatWest, part of the Royal Bank of Scotland group.

The nominee company holds assets in trust. This ensures the assets are carefully segregated from the assets of the company and remain client property at all times. Assets are subject to regular checking and reconciliation.

This pooling of assets improves efficiency and lowers administration costs whilst ensuring that in the event RCBIM defaulted, assets would not form part of the firm’s assets. Assets held by this nominee company cannot be pledged or used as collateral without the express instructions of the beneficial owners.

External approved custodians, which are used to hold client assets, are risk assessed prior to opening accounts and this risk assessment is reviewed annually. We use two principal sub-custodians to administer and deal in assets.

CREST (Certificate-less Registry for Electronic Share Transfer) is the central securities depositary for the UK and Ireland. Almost every transaction in equities and Gilts conducted on the London Stock Exchange is conducted electronically using CREST to enable faster settlement. CREST is akin to a large messaging system, which conveys information about share trades and share ownership. The UK’s securities system, CREST, is operated by the Euroclear group the pre-eminent provider of post trade services to some 2,000 financial institutions in over 90 countries. The Bank of England supports the real time settlement process in CREST through the provision of intraday liquidity to the CREST settlement banks. All transactions in listed securities are reconciled through CREST on a daily basis.

Collective based investments, principally unit trusts, are electronically administered through Allfunds Bank. This is one of the leading pan-European institutional platforms, with more than €295 billion of assets under administration. It provides trading, settlement and custodianship for collective based investments.

Please see the illustration below:

diagram

PILLAR 3 DISCLOSURES 31 MARCH 2018

PILLAR 3 DISCLOSURES 31 MARCH 2018

1. Capital Resources

Introduction

The Capital Requirements Directive (CRD) of the European Union establishes the regulatory capital framework with which FCA regulated investment firms must comply, and sets out the amount and nature of capital they must maintain.

The FCA framework consists of three “pillars”:

  • Pillar 1 sets out the minimum capital firms must maintain to cover its credit, market and operational risks;
  • Pillar 2 requires firms to assess any firm-specific risks not covered by Pillar 1 and, if necessary, set additional capital aside to mitigate them.
  • Pillar 3 requires the public disclosure of key information relating to the firm’s risk management controls and capital resources, for use by the market.

This document is designed to fulfil RCBIM’s Pillar 3 requirement and is published annually on our website www.rcbim.co.uk.

Scope & Application of the Requirements

RCBIM is a discretionary investment management firm with permission to hold and control client money, and is authorised and regulated by the FCA. It is categorised as a IFPRU Limited Licence €125k firm for capital purposes.

Risk Appetite and Management

Risk appetite is the level of risk RCBIM is prepared to accept without applying further resources (financial or otherwise) to mitigate it.

The Board of RCBIM determines the firm’s business strategy and risk appetite and meets monthly to consider financial and operational issues, thus enabling the directors and senior management to play an integral part in the early identification and successful management of risk.

The Board prepares, at least annually, an internal Capital Adequacy Assessment Process (ICAAP) which identifies and analyses the material risks faced by the firm and the controls in place to mitigate them.

RCBIM has identified the following risks to its business:

  • Credit risk
  • Market risk and loss of income
  • Legal and Operational risk
  • Regulatory Risk
  • Loss of key personnel
  • Business Interruption
  • Remuneration risk
  • Under performance and loss of clients

A “probability versus impact” assessment is carried out to arrive at a suitable level of capital to be held in mitigation (Pillar 2). The risks are then “stress-tested” against various scenarios to determine if even more capital is required

The Board has adopted a conservative approach to risk, which is achieved in the following ways:

  • The firm’s simple business structure and service offering;
  • The appointment of experienced and independent senior managers to the controls and oversight functions within the firm;
  • Limited exposure to credit risk;
  • Regular investment strategy meetings;
  • A comprehensive compliance monitoring programme;
  • An appropriate range of insurance policies;
  • The retention of expert external advisers.

Capital Requirements and Resources

RCBIM’s Capital Requirement is the total of its Pillar 1 and Pillar 2 capital.

Pillar 1 capital is the greater of:

  • The base capital requirements of €125,000
  • The sum of the market and credit risk requirements
  • The Fixed Overheads Requirement (FOR)

Pillar 2 capital is the amount calculated by the firm within its ICAAP as necessary to cover any risks not covered by Pillar 1.

As RCBIM has a low exposure to credit, market and operational risk, and no Pillar 2 capital is currently required, its capital requirement is equal to the FOR.

RCBIM’s Capital Resource comprises Tier 1 capital with no deductions. Tier 1 capital consists of called up share capital, reserves and profit and loss, and is regarded by the FCA as the core measurement of a firm’s financial strength.

RCBIM’s capital position as at 31st March 2018 was as follows:

£000
Pillar 1 requirement 340
Pillar 2 requirement 0
Tier 1 capital 1324
Surplus 984
Solvency ratio 289%

2. Remuneration

Introduction

The Capital Requirements Directive (CRD) of the European Union and the FCA Code on Remuneration require regulated investment firms to establish and maintain remuneration policies, procedures and practices that are consistent with and promote sound and effective risk management. The Code also requires firms to report annually on their remuneration policy for employees termed Code Staff. Code Staff can generally be defined as employees who perform a significant influence function, senior management and other staff who have a material impact on the risk profile of the business.

How RCBIM’s remuneration is determined

The Board of RCBIM reviews remuneration annually for all staff. Basic salaries are reviewed in line with individual performance. Bonuses and pension contributions are discretionary and linked directly to the firm’s overall financial position but will not exceed the ratio between fixed and variable components as specified in the Regulations.

RCBIM have set the ratio between the fixed and variable components of total remuneration to ensure that the total remuneration to the fixed component does not exceed 1:1. RCBIM may on occasion exceed the 1:1 ratio providing that it is approved by the shareholders or owners of the firm and in any case does not exceed a ratio of 1:2.

Quantitative Disclosure

In the year ended 31st March 2018 RCBIM defined its Code Staff as its Board of Directors plus one other senior manager. The aggregate annual remuneration for Code Staff for the year was £462,000.

POLICIES

POLICIES

Privacy Policy

At R C Brown Investment Management, we take your privacy seriously and will only use your personal information to administer your account and to provide the services you have requested from us.

Once you become a client, from time to time we may also need to contact you to provide you with details of changes to our services. In order to meet our regulatory obligations, we will retain information about you and the advice we provide for at least six years from the end of our business relationship.

In providing our service we may share your information with associated companies, service providers, their agents and regulators. We will endeavour to ensure that your information is only used in line with your instructions and our strict policies on confidentiality. Some recipients may be based in other countries where standards of data protection may be different. Wherever possible we will make sure that you have the same levels of protection as in the UK.

We will not contact you to market other services and we will only pass on your details to other agencies where we have a legal or regulatory duty to do so.

Complaints

In the first instance all complaints must be addressed to the Compliance Director at the firm’s registered address (a copy of our complaints procedure is available upon request). In certain circumstances, and subject to specific timeframes, if you are unhappy with our final response, or eight weeks have passed since we received the compliant you may refer your complaint to the Financial Ombudsman Service. For more information, please refer to the Financial Ombudsman Service, Exchange Tower, London E14 9SR. Tel. 0845 080 1800. Web: www.financial-ombudsman.org.uk.

How RCBIM’s remuneration is determined

The Board of RCBIM reviews remuneration annually for all staff. Basic salaries are reviewed in line with individual performance. Bonuses and pension contributions are discretionary and linked directly to the firm’s overall financial position but will not exceed the ratio between fixed and variable components as specified in the Regulations.

RCBIM have set the ratio between the fixed and variable components of total remuneration to ensure that the total remuneration to the fixed component does not exceed 1:1. RCBIM may on occasion exceed the 1:1 ratio providing that it is approved by the shareholders or owners of the firm and in any case does not exceed a ratio of 1:2.

USE OF COOKIES BY RCBIM PLC

USE OF COOKIES BY RCBIM PLC

Cookies are small text files that are placed on your computer by websites that you visit. They are widely used in order to make websites work, or work more efficiently, as well as to provide information to the owners of the site.

We use 3 sets of cookies: Google Analytics cookies, Google Maps cookies and EU Cookie consent cookie.

Google Analytics Cookies

The 4 Google Analytics cookies provide us with data about visitor usage patterns on our site. They allow us to recognise and count the number of visitors and to see how visitors move around the site when they’re using it. This helps us to improve the way our website works, for example by making sure users are finding what they need easily. The visitor remains anonymous.

Google Maps Cookies

The embedded Google Map on our site sets 3 cookies known as NID, PREF and khcookie. These cookies allow Google Maps to remember which browser you are using and what preferences you have set when you view maps.

EU cookie consent cookie

Cookie set by the EU cookie consent script to record that you accept the fact that the site uses cookies.

The table below explains the cookies we use and why.

Cookie Name Purpose Expires
Google Analytics _utma _utmb _utmc _utmz These cookies are used to collect information about how visitors use our site. We use the information to compile reports and to help us improve the site. The cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come to the site from and the pages they visited. 2 years, 30mins, when you close your browser, 6months respectively
Google Maps nid pref khcookie These cookies allow Google Maps to remember which browser you are using and what preferences you have set when you view maps. 6 months, 2 years, when you close your browser, respectively
EU cookie consent cookie_notice_accepted Cookie set by the EU cookie consent script to record that you accept the fact that the site uses cookies. This cookie is used to stop the Cookie notification displaying each time a new session is opened. 1 year
Professional Advisers proadviser Cookie is set when the user agrees that they are a Professional Adviser 1 day

For more information about cookies, please see www.allaboutcookies.org/

RISK DISCLAIMER

RISK DISCLAIMER

This website and any downloadable content may not be suitable for all recipients and does not constitute a personal recommendation to invest. If you have any doubts as to the suitability of this service, you should seek advice from your investment adviser. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. Any tax reliefs referred to are those currently applying.

All estimates and prospective figures quoted in this publication are forecasts and are not guaranteed. RCBIM, its associate companies and/or their clients, directors and employees may own or have a position in the securities mentioned herein and may add to or dispose of any such securities.

ORDER EXECUTION POLICY

Order Execution Policy

1. Introduction

RC Brown Investment Management PLC (RCBIM) manages portfolios of investments on a discretionary and advisory basis for investment funds and managed account clients (“clients”). RCBIM is authorised and regulated in the United Kingdom by the Financial Conduct Authority to undertake regulated investment business.

This document outlines the Order Execution Policy (“the Policy”) for executing a client order as required by the Financial Conduct Authority (FCA) Conduct of Business sourcebook (COBS 11.2) and as stipulated by the EU Markets in Financial Instruments Directive (‘MiFID II”) and EU Markets in Financial Instruments Regulation (“MiFIR”).

We will take all sufficient steps to obtain the best possible result for our clients by abiding by this policy when executing orders, or receiving and transmitting orders to other entities for execution.
Aside from the explicit best execution rules explained in this policy, we have an overriding duty to act honestly, fairly and professionally in accordance with the best interests of our clients at all times.

2. Scope

Our Order Execution Policy applies to the execution of client orders by RCBIM on behalf of Retail and Professional Clients for the following classes of financial instruments: Equities, Derivatives (both Exchange-traded and OTC), Units/Shares in Collective Investment Schemes, Fixed Income Instruments, Money market and cash instruments, as well as any other financial instruments in which we may execute orders from time to time.

RCBIM will always execute client orders as Agent, which we pass on (i.e. transmit) at our discretion to another broker or dealer (‘Third Party’) for execution.

3. Client Orders

These may result from:

A decision by us to deal on behalf of a discretionary client;

A client instruction to deal, following a recommendation from us or as a result of our advice

Where we are appointed Discretionary Manager the timing of transmitting orders will be at our discretion. Where we are acting on an instruction from a client, the order will be transmitted as soon as practicably possible following receipt of the instruction.

4. Execution Factors

When executing trades on behalf of its clients and the Funds it manages, RCBIM places all orders with another entity for it to execute on behalf of the client (e.g. a broker or investment bank). In these instances, Article 24 of MiFID II and Article 65 of the Delegated Regulation will apply. In such scenarios, while we will owe our client a duty of Best Execution, we will also receive a duty of best execution from the third party. We select brokers that we are satisfied provide “Best Execution” in accordance with MiFID II and FCA regulations and we have established and implemented order execution arrangements that enable us to obtain on a consistent basis the best possible result for our own clients.

Subject to any specific instructions received, RCBIM will take the following execution factors into consideration in determining how to obtain the best possible result for the order, namely:

  • Price paid for the investment
  • Costs incurred as a result of the transaction being placed (including clearing and settlement costs)
  • Speed of the execution and settlement
  • Likelihood of the order being executed and settled
  • Liquidity in the instrument being traded
  • Size and nature of the transaction
  • Nature of the financial instrument including whether it is executed on a regulated market, multilateral trading facility (MTF), Organised trading facility (OTF), over-the-counter (OTC) or with a Systematic Internaliser (SI)
  • Any other consideration relevant to the execution of the order

In determining the relevant importance of each of the above factors when executing an order, we will use our commercial judgement, experience in light of current market information as well as the following criteria (as defined in COBS 11.2.6):

  • The characteristics of the client including the categorisation of the client as retail or professional;
  • The characteristics of the client order;
  • The characteristics of financial instruments that are the subject of that order;
  • The characteristics of the execution venues to which that order can be directed and
  • For UCITS schemes, the objectives, investment policy and risks specific to the scheme, as indicated in its prospectus or instrument constituting the fund.

The total consideration of the trade (i.e. the price of the financial instrument and the costs related to execution) will be our primary focus for the majority of transactions, although in some circumstances we may determine that other execution factors are more important in obtaining the best possible execution result for our clients.

5. Execution venues

An execution venue is the term used to describe a place where a client order is executed and includes Regulated Markets, Multi-lateral Trading Facilities (MTF), Organised Trading Facilities (OTF) Systematic Internalisers (SI) and market makers or any other liquidity providers.

RCBIM will in all instances transmit client orders, or place client orders with, a broker for execution. The broker will choose the execution venue used for a particular trade. In choosing which broker to use, RCBIM will take into consideration the following factors relating to that broker:

  • Access to alternative markets and trading venues;
  • Adequate coverage to asset classes globally
  • Commission rates and prices/spreads provided;
  • Execution speed/latency;
  • Quality of execution and service, both historical and current;
  • Clearing and settlement efficiency and capabilities;
  • Risk profile and creditworthiness; and
  • Regulatory status and reputation

6. Broker Approval Process

RCBIM has a process for the selection of brokers, with whom it executes client orders or transmits client orders to for execution.

All brokers are reviewed/assessed on an on-going basis against mentioned above factors (see Section 6) in accordance with our obligation to provide the client with the best possible execution results on a consistent basis.

Each quarter we receive a best execution report from each of our top 5 brokers, which we monitor to ensure they are actually meeting their obligations regarding this. We also undertake an annual review of all brokers utilised by RCBIM. This includes assessments of execution quality, service delivery, regulatory status and the financial standing of the firm.

A list of all Brokers that we use for execution is available on request, however, we reserve the right to change the Brokers we use from time to time, as we deem appropriate subject to our internal authorisation process and this Policy.

In order to minimise the risk of potential conflicts of interests, RCBIM does not receive any form of remuneration, discount or non-monetary benefit for directing orders to a particular venue or broker for execution. The selection of a broker for an order is driven solely by the factors and inputs as described in Section 6 of this Policy.

7. Limit Orders under Client instruction

Limit orders are specific instructions received from the client to deal on their behalf where the client places a ‘limit’ on the price for execution. If an order has been placed with us with a ‘limit’ on the price for execution, we may not be able to execute it immediately. We, nor our brokers, will publicly disclose details of any unexecuted part of such ‘limit’ order without your consent.

8. Order Management and Aggregation

RCBIM will take all sufficient steps to obtain the best possible execution result for its clients. For all client orders, we will consider the different execution factors in the context of the clients’ instructions in order for us to form a suitable execution strategy.

Where practical, RCBIM will look to aggregate purchase or sell orders for the same security or other instrument for multiple accounts so that the clients may be able to benefit from the better prices achieved through larger, bulk transactions in line with our obligation to treat customers fairly. RCBIM aggregates order when it considers doing so appropriate and in the interest of its clients generally and may elect block trade treatment, when available, as prescribed by the FCA in COBS 11.3.7

Although it may do so in certain circumstances, RCBIM does not always aggregate orders for different accounts, if the portfolio management decisions relating to the orders are made by separate portfolio management teams, if aggregating is not appropriate or practicable from RCBIM’s operational or other perspective or if doing so would not be appropriate in light with applicable regulatory considerations.
The executed orders are allocated to clients fairly and proportionately in accordance with RCBIM’s Trade Aggregation and Allocation policy.

9. Review of RCBIM’s Execution Policy

RCBIM reviews this execution policy annually, as well as whenever there is a material change that affects its ability to continue to obtain the best possible result for the execution of orders on a consistent basis.

 

Appendix 1- Execution Methodology for Financial Instruments

Equities, Investment Trusts, Fixed Income & Exchange Traded Funds (ETF’s)

In order to meet these distinct needs of each order, we consider the following factors:

a) Price and liquidity– as a general rule, we will try to identify brokers which are sources of natural liquidity before entering an order into the market; deep liquidity is likely to provide material opportunities which may take the form of a better price and the ability to trade significant additional size at a similar price

b) Speed and likelihood of execution– this is the rate at which we are able to progress your order; we will seek a balance between creating market, and thereby potentially moving the price, and executing your order in a timely manner so as to reduce execution risk.

c) Size and nature of the order

d) Costs – we believe that one of the steps to achieve best execution is equity markets is to negotiate the lowest possible terms for the explicit cost of trading (such as commissions) and minimise the implicit costs (such as market impact and opportunity cost).

e) Likelihood of settlement– our approved broker selection process as described in Section 6 helps us mitigate the credit and settlement risk we may face. We will generally not use a broker if we cannot either settle a transaction or resolve failed settlements

Units/Shares in Collective Investment Schemes

This policy covers Units/Shares in Collective Investment Undertakings for open-ended funds, e.g. Unit Trusts, OEICs. For orders in collective investment schemes (e.g. Unit Trusts, OEICs) we will place the order directly with the relevant fund manager/platform provider and/or the operator of the collective investment scheme.

Foreign Exchange (FX)

RCBIM trades deliverable Spot contracts which are not financial instruments within the scope of MiFID II and therefore Best Execution requirements will not apply to stand-alone spot FX transactions.

TERMS OF BUSINESS FOR RETAIL CLIENTS
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