BACKGROUND
This disclosure is made in accordance with the UK Financial Conduct Authority’s (FCA) new Investment Firm Prudential Regime, which came into force on 1st January 2022.
The aim of this disclosure is to inject market discipline on firms by requiring them to disclose information to key stakeholders and counterparties. The key information will cover the firm’s financial strength, investment policy and culture.
FREQUENCY
This Disclosure will be reviewed on an annual basis as a minimum.
SCOPE
The disclosures in this document are made in respect of DJWM Ltd which provides discretionary and advisory investment management services.
RISK MANAGEMENT OBJECTIVES AND POLICIES
DJWM Ltd has a low-risk appetite which is set by the firm’s Directors and is illustrated by the business strategy.
Our risk management policy reflects the FCA requirement that we must manage a number of different categories of risk. The firm’s risk assessment matrix details all the processes in place to manage risk. In general terms risk management is done on a rolling basis and the continuous reviews in conjunction with the auditors and compliance consultants ensure that any harms as a result of these risks would be highlighted in a timeous manner. These include liquidity, credit, business and operational risks.
1 – LIQUIDITY RISK
DJWM Ltd.’s liquidity is in the form of cash deposits, consequently the potential for harm is minimal. The bank used to deposit the firm’s cash is also regulated by the FCA. The firm manages all cash to maximise potential interest income whilst ensuring the firm has sufficient liquid resources to meet the continued operating needs of the business. The firm has no requirement to borrow cash. This is supported by a quarterly budgeting and forecasting process which has the full involvement of the senior management team.
2 – CREDIT RISK
The firm’s revenues include annual management charges received from clients based on a percentage of client assets under management. These charges are made directly to the clients’ portfolios and therefore the credit risk relating to this income is minimal.
3- BUSINESS RISK
The firm’s business risk assessment principally takes the form of a fall in assets under management following a market downturn that results in lower management fees. Systems failures are also considered, although deemed very low risk given our business model. To mitigate our business risk, we regularly analyse various economic scenarios to model the impact of economic downturns on our financial position.
4- OPERATIONAL RISK
Operational risk is defined as the potential risk of financial loss or impairment to reputation resulting from inadequate or failed internal processes and systems, from the actions of people or from external events.
Major sources of operation risk include outsourcing of operations, IT security, internal and external fraud, implementation of strategic change and regulatory non-compliance.
The firm operates a robust risk management process which is regularly reviewed and updated with details being provided to all staff. The firm’s Compliance Oversight is responsible for the periodic reviews and recommending any changes to the Board. All senior management take responsibility for internal controls and the management of business risk, as part of their accountability to the board.
Individuals are responsible for identifying the risks surrounding their work, implementing controls over those risks and reporting areas of concern to their line manager.
The Compliance Oversight will provide the board with a half-yearly summary report on all significant risk issues.
5- CONCENTRATION RISK
DJWM Ltd have a broad spectrum of clients with one client representing approx. 20% of our income. DJWM Ltd does not deal on its own account and does not hold client money or assets, so this risk does not apply. Mitigation measures in place are to grow the business to ensure that this remains the case.
6- OTHER RISKS
The firm operates a simple business model. Accordingly, many of the specific risks identified by the FCA do not apply.
OWN FUNDS
Composition of Regulatory Own Funds (share capital, profit and loss, externally verified interim net profits) : £192,709
| 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 | £192,709 | 15 |
| 2 | TIER 1 CAPITAL | £192,709 | 15 |
| 3 | COMMON EQUITY TIER 1 CAPITAL | £192,709 | 15 |
| 4 | Fully paid up capital instruments | £57,717 | 15 |
| 5 | Share premium | 0 | |
| 6 | Retained earnings | £134,992 | 15 |
| 7 | Accumulated other comprehensive income | 0 | |
| 8 | Other reserves | 0 | |
| 9 | Adjustments to CET1 due to prudential filters | 0 | |
| 10 | Other funds | 0 | |
| 11 | (-)TOTAL DEDUCTIONS FROM COMMON EQUITY TIER 1 | 0 | |
| 19 | CET1: Other capital elements, deductions and adjustments | £192,709 | 15 |
| 20 | ADDITIONAL TIER 1 CAPITAL | 0 | |
| 21 | Fully paid up, directly issued capital instruments | 0 | |
| 22 | Share premium | 0 | |
| 23 | (-) TOTAL DEDUCTIONS FROM ADDITIONAL TIER 1 | 0 | |
| 24 | Additional Tier 1: Other capital elements, deductions and adjustments | 0 | |
| 25 | TIER 2 CAPITAL | 0 | |
| 26 | Fully paid up, directly issued capital instruments | 0 | |
| 27 | Share premium | 0 | |
| 28 | (-) TOTAL DEDUCTIONS FROM TIER 2 | 0 | |
| 29 | Tier 2: Other capital elements, deductions and adjustments | 0 | |
| Own funds: reconciliation of regulatory own funds to balance sheet in the audited financial statements | ||||
| Flexible template – rows to be reported in line with the balance sheet included in the audited financial statements of the investment firm. Columns should be kept fixed, unless the investment firm has the same accounting and regulatory scope of consolidation, in which case the volumes should be entered in column (a) only. 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 template OF1 | ||
| As at period end | As at period end | |||
| Assets – Breakdown by asset classes according to the balance sheet in the audited financial statements | ||||
| 1 | Cash at bank and in hand | £108,842 | ||
| 2 | Trade debtors | £140,478 | ||
| 3 | Other debtors | £8,750 | ||
| 4 | Prepayments and accrued income | £80,151 | ||
| 5 | Office Equipment (Fixed Assets) | £35 | ||
| xxx | Total Assets | £338,256 | ||
| Liabilities – Breakdown by liability classes according to the balance sheet in the audited financial statements | ||||
| 1 | Trade creditors | £22,207 | ||
| 2 | Corporation Tax | £68,305 | ||
| 3 | Other taxation and social security | £32,261 | ||
| 4 | Other creditors | £6,532 | ||
| 5 | Accruals and deferred income | £16,233 | ||
| 6 | Deferred Tax Liability | £9 | ||
| xxx | Total Liabilities | £145,547 | ||
| Shareholders’ Equity | ||||
| 1 | Ordinary Share Capital | £57,717 | ||
| 2 | Profit and Loss Reserves | £134,992 | ||
| 3 | ||||
| xxx | Total Shareholders’ equity | £192,709 | ||
OWN FUNDS REQUIREMENT
DJWM Ltd are expected to maintain a minimum baseline capital known as their Own Funds Requirement (OFR). This is calculated by applying the higher of the following:
– Permanent minimum capital requirement; or
– Fixed overhead requirement
DJWM Ltd is categorised as MIFIDPRU Investment Firm – Small Non-Interconnected Firm and so the permanent minimum capital requirement is set at £75,000 as at 31 December 2024.
In our case, it is the Fixed Overhead Requirement (“FOR”) which is applicable, and it is this amount that DJWM Ltd are required to hold to satisfy the regulatory requirements. The FOR is meant to be a proxy for winding-down costs for a firm such as ours. When assessing the adequacy of our regulatory capital, we need to examine whether this amount would cover all the costs of winding-down the business in a manner that ensures all client interests are protected. DJWM Ltd has a Fixed Overhead requirement of £76,896.
The firm’s capital requirements are determined by the outcome of its ICARA process.
Our overall approach to assessing the adequacy of our internal capital is set out in our ICARA. This process involves separate consideration of risks to our capital combined with stress testing using scenario analysis. The level of capital required to cover risks is a function of impact and probability. We assess impact by modelling the changes in our income and expenses caused by various potential risks over a 1–3-year time horizon. Probability is assessed subjectively.
Our own assessment of the minimum amount of capital that we believe is adequate against the risks identified, has been assessed as greater than the permanent minimum requirement. There is a considerable surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified.
REMUNERATION DISCLOSURE
For The Financial Year Ending 31 December 2024
The business is owned by a Principal holder and the Principal is remunerated solely through drawings payable from surplus capital.
Revenue is derived from fees on assets under management and profit is therefore variable and dependent on the business’ ability to meet investor expectations. This provides clear alignment of interest in the long-term.
Employees are remunerated with both fixed salaries and variable payments. Fixed salaries are subject to annual appraisal in June each year and reflect each employee’s professional experience and organisational responsibility. Variable payments are determined annually, at the sole discretion of the Principal.
Variable payments are based on individual and firm performance and, in alignment with current guidance, individual performance is also considered in the context of longer-term performance and performance in excess of job descriptions and terms of employment.
The Principal regularly reviews the employee remuneration policy to ensure that there is always an appropriate ratio of fixed and variable components.
The remuneration structure is intended to incentivise and reward while at the same time promoting effective risk management, discouraging excessive risk-taking and aligning interests with the long-term interests of the business.
The level of variable remuneration is set by the Principal having first ensured that the Firm has sufficient capital and liquidity resources.
For the year ending 31st December 2024 the variable and fixed remuneration for employees was:
- Fixed (Wages and salaries): £70,738
- Variable (Pension costs): £221,321
All variable amounts were distributed as a onetime voluntary pension contributions outside of Workplace and one time end of year bonus. There was no remuneration in the form of shares, share-linked instruments and other types of instruments. No remuneration was deferred and no new sign-on or severance payments were made during the financial year.