notesco financial services limited - ironfx. 31.12... · ironfx is a trade name of notesco...

Notesco Financial Services Limited

Disclosures in accordance with Capital Requirements Regulation (EU) No 575/2013 on prudential requirements for

credit institutions and investment firms (the “CRR”) As at 31 December 2018

April 2019

IronFX is a trade name of Notesco Financial Services Ltd, a company authorised and regulated by

CySEC with License number 125/10.

Table of Contents

1. INTRODUCTION .......................................................................................................................... 4

1.1. Corporate Information ......................................................................................................... 4

1.2. Pillar III Regulatory Framework – Overview ..................................................................... 4

1.3. Frequency and Means of Disclosures ................................................................................. 5

1.4. Verification ......................................................................................................................... 5

1.5. Scope of Application of Disclosures ................................................................................... 5

2. GOVERNANCE ARRANGEMENTS ........................................................................................... 6

2.1. Recruitment Policy .............................................................................................................. 6

2.2. Diversity policy ................................................................................................................... 6

2.3. Risk management committee .............................................................................................. 6

2.4. Reporting and Information flow ......................................................................................... 7

2.5. Number of Directorships held by members of the Board ................................................... 8

3. RISK MANAGEMENT OBJECTIVES AND POLICIES ............................................................. 9

3.1. Risk Management Framework and Governance ................................................................. 9

3.2. Credit Risk Management .................................................................................................. 10

3.3. Operational Risk ............................................................................................................... 10

3.4. Market Risk ....................................................................................................................... 12

3.5. Liquidity Risk ................................................................................................................... 13

3.6. Regulatory Risk................................................................................................................. 14

3.7. Legal and Compliance Risk .............................................................................................. 14

3.8. Reputational Risk .............................................................................................................. 15

3.9. Risk Management Declaration .......................................................................................... 15

4. OWN FUNDS ............................................................................................................................... 15

4.1. Reconciliation of regulatory capital with consolidated audited financial statements ....... 15

4.2. IFRS 9 Financial Instruments ........................................................................................... 17

4.3. Internal Capital Adequacy Assessment Process (“ICAAP”) ............................................ 19

5. Minimum Required Own Funds For Credit, Market And Operational Risk ................................ 20

5.1. Credit Risk - Capital requirements & Risk weighted exposures ....................................... 21

5.2. Breakdown of exposures by geographical areas and exposure classes ............................. 21

5.3. Breakdown of Exposures by residual maturity and exposure classes ............................... 22

5.4. Market Risk - Capital requirements & Risk weighted exposures ..................................... 23

5.5. Operational Risk - Capital requirements & Risk weighted exposures .............................. 23

6. COUNTERPARTY CREDIT RISK ............................................................................................. 23

7. EXPOSURE TO CREDIT RISK AND IMPAIRMENT .............................................................. 23



8. CREDIT ASSESSMENTS OF EXTERNAL CREDIT ASSESSMENT INSTITUTIONS

(“ECAI”) ............................................................................................................................................... 24

9. EXPOSURE IN EQUITIES NOT INCLUDED IN THE TRADING BOOK .............................. 25

10. LEVERAGE ................................................................................................................................. 25

11. REMUNERATION DISCLOSURES ........................................................................................... 28

11.1. Performance Related Pay .................................................................................................. 28

11.2. Design and structure of Remuneration .............................................................................. 28

APPENDIX I: GLOSSARY ................................................................................................................. 29



1. INTRODUCTION

1.1. Corporate Information

Notesco Financial Services Limited (hereinafter the “Company” or “Notesco”) is an

investment firm regulated by the Cyprus Securities and Exchange Commission (“CySEC)

under the license number 125/10. The license permits the Company to provide investment and

ancillary services. In particular, the Company offers its clients with direct access to the global

over-the-counter (“OTC”) FX market. All of the trading products that are offered are contracts

for difference (“CFD”). The Company also offers other CFD products, including:

• CFDs on metals, such as gold;

• CFDs on shares listed on public exchanges in the United States and the United

Kingdom and;

• CFDs on futures linked to equity indices, metals and other products.

The Company was incorporated in Cyprus on 12 January 2010. The ultimate parent of the

Company is IBIH Limited, a company incorporated in British Virgin Islands as a limited

liability company under the BVI Business Companies Act, 2004 on August 9, 2012.

1.2. Pillar III Regulatory Framework – Overview

The European Union’s Capital Requirements Regulation No 575/2013 (the “CRR”) and the

European Union’s Capital Requirements Directive 2013/36/EU, collectively known as “CRD

IV”, are transposed and implemented into local legislation through the Directive DI144-2014-

14 for the prudential supervision of Investment Firms (“Directive DI144-2014-14”) and

Directive DI144-2014-15 on the discretions of the Cyprus Securities and Exchange

Commission arising from Regulation (EU) No 575/2013 (“Directive DI144-2014-15”)

(together “the Directives”), issued by CySEC and entered into force on 19 December 2014

(Circular C038).

The CRD IV is the framework for implementing Basel III in the European Union. Basel III

implements a risk sensitive framework for the calculation of regulatory capital. The CRD IV

consists of three mutually re-enforcing pillars, as follows:

Pillar 1 defines the minimum regulatory capital requirements that are required for

credit, market and operational risk.

Pillar 2 covers the Supervisory Review & Evaluation Process (“SREP”) which

assesses the internal capital adequacy processes and whether additional capital is

required against risks not covered in Pillar 1.

Pillar 3 (Market discipline) covers external disclosures that are designed to provide

transparent information on regulatory capital adequacy, risk exposures and risk

management, and internal control processes.

The Pillar 3 report sets out both quantitative and qualitative information in accordance with the

CRD IV Framework and the aforesaid Directives.



1.3. Frequency and Means of Disclosures

The Company publishes its Pillar III Report on an annual basis. The Pillar III Disclosures

should be read in conjunction with the audited financial statements of the Company, which

contain supplementary information in relation to the requirements of the above mentioned

Directives.

The Company’s Pillar III Disclosures for the year can be found at:

https://www.ironfx.eu/en/download-center/legal-documentation.

1.4. Verification

The Disclosures were approved by the Board of Directors (the “Board” or “BoD”), approving

the adequacy of risk management arrangements of the Company and providing assurance that

the risk management systems in place are adequate with regards to the Company’s profile and

strategy.

1.5. Scope of Application of Disclosures

The Disclosures are made on a consolidated basis, incorporating the subsidiaries of the Cyprus

entity (hereinafter called the “Group”), including a related company as instructed by CySEC.

In accordance with Article 432 of the CRR, institutions may omit information that is not

material if certain conditions are respected. Information in disclosures shall be regarded as

material if its omission or misstatement could change or influence the assessment or decision

of a user relying on that information for the purpose of making economic decisions.

Furthermore, institutions may omit information that is proprietary or confidential if certain

conditions are also respected. In this respect, information shall be regarded as proprietary to an

institution if disclosing it publicly would undermine the institution’s competitive position.

Information shall be regarded as confidential if there are obligations to customers or other

counterparty relationships binding an institution to confidentiality.

Information is presented in thousands of US Dollars (“US$”), unless otherwise indicated.

https://www.ironfx.eu/en/download-center/legal-documentation



2. GOVERNANCE ARRANGEMENTS

The Company’s Board constitutes the ultimate administrative body of Notesco Financial

Services Limited, and is responsible for monitoring and supervising the operations of the

Company.

2.1. Recruitment Policy

Members of the board of directors shall at all times be of sufficiently good repute and possess

sufficient knowledge, skills and experience to perform their duties. The overall composition of

the board of directors shall reflect an adequately broad range of experiences. Members of the

board of directors shall fulfil the requirements set out in the Investment Services and Activities

and Regulated Markets Law of 2017 (hereinafter the “Law”). The Board is responsible for the

final approval on the recruitment of Board members.

2.2. Diversity policy

The Company embraces diversity as it recognises the benefits of having a diverse Board which

makes use of differences in the skills, experience, knowledge, background, race and gender

between directors. When recruiting members for the Board, diversity in its members is

seriously taken into account for forming the optimal composition of the Board. A balance of

these differences is considered when determining the optimum composition of the Board,

without jeopardizing the best interests of the Company.

In accordance with Article 10(2)(b)(ii) of the Law, the setting of a target for the representation

of the underrepresented gender in the board of directors and the preparation of a policy on how

to increase the number of the underrepresented gender in the board of directors in order to meet

that target is required. The Company recognises the aforementioned target and takes it into

consideration when assessing the need for board diversity.

2.3. Risk management committee

The Company has a separate Risk management committee, which is an independent unit and

reports directly to the Board of Directors. The Risk Management Committee is responsible in

assisting the Board with the following:

Assessing and managing the Company’s risks;

Ensuring the adequacy and effectiveness of controls in place for managing the risks;

Reviewing the applicable risk limits and recommending amendments, if required, to

the Board;

Identifying additional risks that the Company is exposed to;

Addressing control failures and suggesting remedial action.

The Risk Committee of the Company, acting on behalf of the Board, formally met four times

during 2018.



2.4. Reporting and Information flow

The management and Board of Directors of the Company recognize that risk is embedded in

all of the Company’s activities. The Company also appreciates the need for the information

flow regarding risk management to reach the Board and the appropriate regulatory body. This

is illustrated in the table below:

Report Name Report description Owner Recipient Frequency

Compliance

Report Annual Compliance review

Compliance

Officer BoD, CySEC Annual

Internal Audit

Report Annual Internal Audit review Internal Auditor BoD, CySEC Annual

Risk Management

Report

Annual Risk Management

report Risk manager BoD, CySEC Annual

Pillar 3 Report

Disclosures regarding the

risk management, capital

structure, capital adequacy

and risk exposures of the

Firm Risk manager BoD, CySEC Annual

Audited Financial

Statements

Audited financial statements

of the Company

Chief Executive


ICAAP Report

The Internal Capital

Adequacy Assessment

Process identifies the capital

requirements to address

current and future risks Risk manager BoD, CySEC Annual

AML Report

Annual Money

Laundering

Compliance

Officer Report

Money

Laundering

Compliance


Capital Adequacy

ReportsCapital requirement

calculation

Chief Executive

Officer

Senior

Management,

CySEC Quarterly



2.5. Number of Directorships held by members of the Board

As per the Investment Services and Activities and Regulated Markets Law of 2017 (the

“Investment Law” or the “Law”), the number of directorships which may be held by a member

of the board of directors at the same time shall take into account individual circumstances and

the nature, scale and complexity of the CIF’s activities.

As per the Investment Law, unless representing the republic, members of the board of directors

of a CIF that is significant in terms of its size, internal organisation and the nature, the scope

and the complexity of its activities shall not hold more than one of the following combinations

of directorships at the same time:

a) one executive directorship with two non-executive directorships;

b) four non-executive directorships

In accordance with the Law, executive or non-executive directorships held within the same

group shall count as a single directorship. Furthermore, executive or non-executive

directorships held within institutions which are members of the same institutional protection

scheme, provided that the conditions set out in Article 113, paragraph (7) of Regulation (EU)

No 575/2013 are fulfilled or Undertakings (including non-financial entities) in which the CIF

holds a qualifying holding, are also considered as a single directorship.

The Company’s Board of Directors is consisted of two (2) Executive Directors and two (2)

independent Non-Executive directors.



3. RISK MANAGEMENT OBJECTIVES AND POLICIES

Risk taking constitutes a major business characteristic of the Group, and the development of a

robust risk management framework is considered of high importance. The identification and

classification of risks begins from the definition of the vision and business objectives, which

clearly provide guidance and direction, defining the approach that the Group adopts in order to

successfully confront and respond to different risks inherent in its operations and functions.

3.1. Risk Management Framework and Governance

Risk Management Policy

The Risk Management Policy aims to elucidate the approach taken by the Group towards the

risks confronted by the Group and the principles guiding its approach. The risk management

policy refers to the risks confronted by the Group and the strategies employed for their

mitigation or elimination. Importantly, the approach of the Group’s management and the

resulting policy adopted regarding the issue of risk is exemplified throughout.

Risk management function and organizational structure

The Company is governed by the Board of Directors and has also established the Risk

Management Committee. In addition, the Company has a risk Manager who is responsible to

monitor the Company’s risk exposure and report to the risk management committee and Board

of Directors. The objective is to strengthen the Company’s internal control system and

reinforce a sound and robust corporate governance framework. Furthermore, to support the

best oversight of the Internal Control System, the Company has set up a Risk Management

Function, an Internal Audit Function, a Compliance and an Anti-Money Laundering Function,

as proposed by the relevant Directives. The Company outsources the Internal Audit Function

whereas the rest functions are staffed with full-time employees.

Risk Appetite Statement

The Board ensures that the Company manages to pursue its strategic and business objectives

while monitoring the risks the Company is exposed to, so that they are within the predefined

risk appetite/tolerance levels. The risk appetite of the Company is a result of its Internal Capital

Adequacy Assessment Process (“ICAAP”). Each identified specific risk is classified into its

general risk category and risk type and is given a risk profile (Low/Medium/High) based on

the overall score received after quantification of the specific risk. The specific risk is quantified

by considering the expected impact of a specific risk and its likelihood of occurrence.

This process is implemented to assure the Board that the Company currently operates and will

continue to operate within its current and future aggregate risk limit as represented by its

current and projected Internal Capital. In case that the aggregate risk limit is expected to exceed

the Company’s expected risk tolerance (as represented by its projected regulatory own funds),

the Board plans ahead by securing the injection of additional capital and/or the establishment

of additional risk controls. Key figures are provided in the capital management section,



providing external stakeholders with a comprehensive view of the company's management of

risk. The detailed measures that the Company applied to manage, hedge and mitigate risks, are

described in the Company’s approved Risk Management policy. The management of all risks

that are significant to the Company is discussed below.

3.2. Credit Risk Management

Credit Risk is defined as the risk of loss that the Company/Group would incur if a counterparty

will fail to perform its contractual obligations. Credit risk arises primarily on the Group’s own

funds deposited with institutions, amounts due from related parties and other receivables and

derivative financial assets. The Group does not bear any credit risk in relation to the client

money because it is not required to compensate clients from losses suffered due to the default

of the bank at which the client money is deposited.

Credit risk is monitored by management and the Risk Management Committee, on an ongoing

basis. The Group addresses credit risk in a number of ways, including the ones set out below:

The Groups aims to maintain a diversified client portfolio, so as to avoid high

concentration and exposure to a few number of clients. Most of clients’ open positions

are mostly offset between each other, hence the net exposure is usually at acceptable

levels.

The Group own funds as well as the client funds are deposited solely at highly rated

banking institutions in different jurisdictions.

The Group’s clients begin to trade once money have been deposited into the clients’

account.

The Groups has the right to close positions, at its discretion, at margin level equal or

less than 20%, starting from the less profitable.

The Group offers a negative protection balance policy that implies zero credit risk, as

the necessary margin is tied for any open positions and the predefined stop-out levels

where client’s positions are automatically closed below a certain level. This does not

allow the client to go below zero or lose more than the money already deposited into

their account.

There are additional in-house plug-ins for protection of negative balances.

Leverage is being monitored every Friday between the hours of 21:00 to 24:00 and

occasionally before the release of major economic news.

The Group uses prime brokers and establishes agreements with counterparties that are

considered highly rated. The Group conducts its own research in those institutions to

verify that they are indeed financially sound and healthy.

Furthermore, the credit risk that arises from client positions is further reduced by the Group’s

policies and tools, which include manual and automatic stop-loss limits, to prevent any open

positions exceeding the Group’s pre-set margin. The Group follows the Standardised Approach

for calculating the capital requirements for credit risk.

3.3. Operational Risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal



processes, people and systems or from external factors. Operational risk is divided into

numerous risk categories, relating among others to the following:

Internal and External fraud;

Marketing & Advertising;

Regulatory reporting;

Internal procedures and controls;

Client communication damage to physical assets business disruption & systems

failures;

Chinese walls;

Employment practices and workplace safety;

Conflicts of interest;

Client & Business Practice;

Legal risk.

The Group has established various techniques for the mitigation of operational risk and include

the following:

Maintaining a four-eye structure and implementing board oversight. The Board of

Directors reviews significant strategic decisions made by management and monitors

their activities.

The compliance officer must ensure the accuracy of any statements made during the

marketing and advertising processes and ensures that the information addressed to the

client is fair, clear and not misleading.

The compliance officer ensures that proper information/reports are sent in due time to

CySEC.

Management formally communicates duties and responsibilities to employees through

regular meetings, seminars and trainings.

Internal audit visits are implemented to ensure that employees comply with the Group’s

internal procedures.

Several policies and procedures have been established and followed in an attempt to

identify and minimize any fraudulent activities.

An online web-based screening program called World-Check is used in an attempt to

improve the know-your-clients procedures and to minimize fraud activities;

The Group uses third parties for the implementation of customer identification and due

diligence procedures, which have access to governmental data for clients from specific

countries and can verify the validity of client’s information by providing, passport

number and address.

Instant online reporting is available to clients to minimize the risk of mismarking the

clients’ positions;

The Group has a comprehensive and detailed business contingency plan in place, with

recovery procedures and actions to be followed in case damage is deemed vital to the

Group’s structure.



The Group has an updated Conflicts of Interest Policy to ensure that any conflicts are

identified and resolved in a consistent and appropriate manner.

The Group obtains legal advice from its legal advisors for all its official documents and

before it enters into new markets.

Financial accounts are audited by one of the big four audit firms, eliminating the risk

of Company statement manipulation or tax evasion;

The Group uses the Basic Indicator Approach for the calculation of the capital requirements

of operational risk

3.4. Market Risk

The Group defines Market Risk as the risk of adverse movements in the level of interest rates,

in the rate of exchange between currencies and the current prices of securities, commodities

and other financial instruments. Accordingly, these movements may affect the Group's

profitability. The Group is exposed to the following sub-categories of market risk:

Interest Rate Risk: Interest rate risk is the risk that the fair value or future cash flows of

a financial instrument will fluctuate because of changes in market interest rates.

Fluctuations of market interest affect the prices of securities. The Group’s management

monitors the interest rate fluctuations and acts accordingly. However, it does not

consider interest rate risk as significant since it does not hold any material interest

bearing assets and liabilities.

Foreign Exchange Risk: Foreign currency risk is the risk that the value of financial

instruments will fluctuate due to unfavourable changes in foreign exchange rates. As

the Group's principal activity is trading in foreign currencies, it is exposed to foreign

currency risk as a result of the existence of open currency positions in the currencies in

which it performs transactions with its customers. The Group maintains position limits

for its open positions for each currency, in order to mitigate these risks. The open

positions up to a limit are monitored on a continuous basis by the Group's traders.

Price risk: Price risk is the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in market prices (other than those arising

from interest rate risk and currency risk). The Group is primarily exposed to price risk

with regards to open CFD positions on foreign exchange, equities (including indices)

and commodities. Part of this price risk is naturally hedged as part of the Group’s

overall risk management process and any remaining net exposure is monitored on a real

time basis by the Group’s Dealing Room.

For the mitigation and management of market risk, the following procedures are established

by the Group:



The Group employs a Risk Manager, on a full time basis, who is responsible for the

monitoring of the Group’s risk exposure. Any deviation is reported to the Risk

Management Committee and appropriate action is taken.

Aggregate net exposures are monitored as they develop from the opening and/or closing

of positions by clients. If risk exceeds desired levels, appropriate actions should be

taken to hedge risk until intended levels are achieved.

Hedging is also performed naturally from opposite positions that clients take.

The Risk Management Committee and the Risk Manager developed a number of

custom-made tools and plug-ins to detect risk exceeding the internally determined risk

tolerance levels.

The Group maintains trading accounts with other regulated companies for engaging in

proprietary positions in financial instruments for its own account as a hedging measure

and in order to minimize market risk, if and when this is needed.

An Agency model (Straight through Processing or “STP”) has been implemented which

acts as a hedging measure. Under this model no risk on clients’ trades arises since all

trades are fully offset by the liquidity provider. Under the Agency model, every order

which the Group may take is accepted and executed on the basis that the Group is acting

on its own account. When a customer executes a trade with the Group on the quoted

price, the Group enters simultaneously into a trade with its liquidity providers. This

results to hedging of the Group’s market price risk and decreasing net exposure to

various instruments. This model applies to clients who elect this specific service but

also to certain clients upon the Group’s own judgment taking into account the trading

profile of the client.

Trading with thousands of clients from multiple locations achieves a natural

diversification of its risk benefiting from a significant degree of natural hedging

between the clients.

The Risk Management Committee monitors the Trading Book in regards to risk

exposures undertaken and assesses the effectiveness of its hedging strategy. The trading

activity is recorded so as to allow the risk committee to review and monitor the Group’s

exposure in real time. The hedging of the Own Account portfolio in performed in

liaison with the Head of Dealing on own Account/Execution Department.

The Group uses the Standardised Approach to calculate the capital requirements of market risk.

3.5. Liquidity Risk

Liquidity risk is the risk that the Group may encounter difficulty in meeting its payment

obligations and potential payment obligations, as and when they fall due. Liquidity risk also



arises from the inability to find buyers on the terms desired. Infrequently traded

securities/assets bear higher liquidity risk. The imbalance between the number of buyers and

sellers or because the securities/assets are not traded very often cause this liquidity risk. The

liquidity risk is usually reflected in a wide bid-ask spread or large price movements. To mitigate

liquidity risk, the following have been established:

The Group prepares monthly budgets to ensure that it meets its obligations on time;

The Group ensures that it has sufficient cash on demand to meet expected operational

expenses, including the servicing of its financial obligations;

The finance department monitors rolling forecasts of the Group’s liquidity requirements

based on expected cash flows in order to ensure that it has sufficient cash to meet its

operational needs, under normal and abnormal (stressed) market conditions.

The Group does not consider liquidity risk to be significant as it maintains bank balances which

are adequate to cover its immediate current liquidity needs or potential broker margin

requirements.

3.6. Regulatory Risk

Regulatory risk is the risk that the Company may fail to report on time certain

information/reports to any local or regulatory body, including but not limited to CySEC. The

Group established the following procedures for the mitigation of regulatory risk:

The Group has documented procedures and policies in place, based on the requirements

of relevant Laws and Directives issued by CySEC; these can be found in the Procedures

Manual.

Each person (i.e. Compliance Officer, Risk Manager, Internal and External Auditor,

etc.) is responsible to timely prepare and send the reports to CySEC or any other local

authority;

The Compliance Officer acts as a second eye to ensure that all the Company’s reports

are sent by the relevant persons to CySEC on time.

3.7. Legal and Compliance Risk

The Company is exposed to Legal Risk which can be defined as the risk arising out of legal

actions or uncertainty in the applicability or interpretation of contracts, laws or regulation. In

other words, the legal and compliance risk may arise because of breaches or non-compliance

with legislation, regulations or practices or the imposition of possible penalties from CySEC.

The Group established the following procedures for the mitigation of legal and compliance

risk:

The Group employs lawyers on a full-time basis responsible for the preparation of an

agreements and documentation, such as marketing material, prone to legal risk.

Outsourcing legal experts is also common practice depending on the materiality of the



issue and the location the legal opinion is addressed to due to the international

operations of the Company.

The Company has an in-house Compliance department that ensures compliance with

the applicable laws and regulations through its monitoring controls and policies.

An Anti-Money Laundering Officer has been appointed by the Group with the

responsibility to address all issues regarding anti-money laundering while

communicating with the relevant law enforcement agencies.

3.8. Reputational Risk

The Company is exposed to Reputational Risk which can be defined as the possibility that

negative publicity concerning the Company’s practices or relations result in a loss in its quality

of service, its integrity or its financial solidity, causing substantive losses (i.e. deposits,

customers) or valuation losses (i.e. prices of its tradable securities) that can potentially

undermine its existence. In particular, reputation risk can materialize in the case of non-

compliance with regulations, a breach of ethical values or the perception by the customer of an

unfavourable discrepancy between the commercial offering and the reality of staff’s practices.

To manage its Reputational Risk, the Group acknowledges that it is responsible for market

changes (including regulatory changes) and ensures that policies and procedures are adhered

to. To this end, the Company controls all marketing communication that goes out to the public

and stays up to date with new regulatory requirements and obligations in an effort to maintain

a strong reputation. In addition, it obtains legal opinions on new jurisdictions in which it wants

to operate to ensure that it doesn't violate any laws. According to the third country's

requirements, it adjusts its marketing material accordingly. Furthermore, employees are bound

by confidentiality policies and there are several controls to minimize the risk of internal

fraudulent activity not being spotted/prevented. The Group’s management ensures

responsiveness to changes of a market or regulatory nature, that may impact its reputation in

the marketplace.

3.9. Risk Management Declaration

The Board has the ultimate responsibility on the adequacy of risk management arrangements

of the Group, internal controls, risk appetite and monitoring of risks versus the internal controls

which are in place. The Board considers that that the risk management systems in place are

adequate with regard to the company's profile and strategy and provide on a reasonable basis

risk mitigation, thus avoiding any material loss and damages to the Company and the Group.

4. OWN FUNDS

4.1. Reconciliation of regulatory capital with consolidated audited financial statements

The following table provides a reconciliation between the Group Statement of Financial

Position presented in the Financial Statements with the statement of financial position prepared

for prudential purposes. The below consolidated equity figures include a related company



which is not part of the Group but is included at the request of the Regulator. The own funds

of the Company as at 31 December 2018 were USD10.246 thousands.

31/12/2018

Own Funds/Tier 1 Capital US$000

Share Capital 2,696

Share premium 5,660

Reorganization reserve 414

Retained earnings 3,779

Total equity - As per the consolidated audited Financial Statements1 12,549

Deductions from CET1 capital:

Intangible Assets (92)

Additional deductions as per prudential supervision (2,211)

Total deductions from CET1 Capital (2,303)

Common Equity TIER 1 capital 10,246

TIER 1 Capital 10,246

TIER 2 Capital -

Total Own Funds 10,246

Share Capital and Share Premium:

Share capital represents the ordinary shares issued by the Company. Ordinary shares are

classified as equity. Incremental costs directly attributable to the issue of new shares are shown

in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of

consideration received over the par value of shares issued is recorded as share premium in

equity.

During 2018 the authorized share capital of the Company was increased by 3,000 shares, by

creating new ordinary shares of nominal value of EUR1,00 each, which rank pari passu with

the existing ordinary shares of the Company.

Following the increase in the authorized share capital, the Company issued to its parent

company 3,000 ordinary shares of a nominal value of EUR1,00 each, at a premium of EUR999

per share. As at 31 December 2018, the Company’s issued share capital increased by

EUR3,000 (US$ 3,415) and share premium by EUR2,997,000 (US$3,411,885).

The share premium is maintained pursuant to the provisions of section 55 of the Companies

Law, Cap. 113 and is not available for distribution to equity holders in the form of a dividend.

Reorganisation Reserve:

1 Total equity of US$12,549 thousands represents the total equity as per the audited consolidated Financial

Statements of the Group, amounting to US$ 12,232 thousands, plus the total equity figures of the related company

which even though is not part of the Group is being consolidated for regulatory purposes. Refer to section 4.1

above.



Relates to the difference between the carrying value of assets and liabilities of a subsidiary as

reflected at their carrying values and the consideration paid, under the pooling of interest

method, recognised during 2017.

Deductions from Own Funds

• Intangible assets: Intangible assets relate to trademarks and computer software. These are

carried at cost, less accumulated amortization and any impairment in value. Amortization

is calculated from the month that the asset has been put to use on a straight line basis over

the estimated useful lives of the respective assets. Intangible assets bear amortisation at

rates of 10% and 20%, for trademarks and computer software respectively.

• Other deduction to CET1 Capital: As per CySEC instructions certain additional deductions

as per prudential supervision have been removed from common equity tier 1.

Main terms and conditions of regulatory capital

As at 31 December 2018, the Company maintained only Tier 1 capital as eligible own funds

and no Additional Tier 1 Capital and Tier 2 Capital. The Company’s Tier 1 Capital is comprised

of the components discussed in section 4.1 above. They also meet the conditions of Article 28

of CRR (EU) 575/2013.

4.2. IFRS 9 Financial Instruments

IFRS 9 ''Financial instruments'' replaces the provisions of IAS 39 that relate to recognition and

derecognition of financial instruments and classification and measurement of financial assets

and financial liabilities. IFRS 9 further introduces new principles for hedge accounting and a

new forward-looking impairment model for financial assets.

The new standard requires debt financial assets to be classified into two measurement

categories: those to be measured subsequently at fair value (either through other comprehensive

income (FVOCI) or through profit or loss (either FVTPL or FVPL) and those to be measured

at amortized cost. The determination is made at initial recognition. For debt financial assets the

classification depends on the entity's business model for managing its financial instruments and

the contractual cash flows characteristics of the instruments. In particular, assets that are held

for collection of contractual cash flows where those cash flows represent solely payments of

principal and interest are measured at amortised cost. Assets that are held for collection of

contractual cash flows and for selling the financial assets, where the assets' cash flows represent

solely payments of principal and interest, are measured at fair value through other

comprehensive income. Lastly, assets that do not meet the criteria for amortised cost or fair

value through other comprehensive income are measured at fair value through profit or loss.

IFRS 9 also introduces a single impairment model applicable for debt instruments at amortised

cost and fair value through other comprehensive income and income statement and removes

the need for a triggering event to be necessary for recognition of impairment losses. The new

impairment model under IFRS 9 requires the recognition of allowances for doubtful debts

based on expected credit losses (ECL), rather than incurred credit losses as under IAS 39.



The standard further introduces a simplified approach for calculating impairment on trade

receivables as well as for calculating impairment on contract assets and lease receivables;

which also fall within the scope of the impairment requirements of IFRS 9.

For financial liabilities, the standard retains most of the requirements of IAS 39. The main

change is that, in case where the fair value option is taken for financial liabilities, the part of a

fair value change due to the entity's own credit risk is recorded in other comprehensive income

rather than in profit or loss, unless this creates an accounting mismatch. With the introduction

of IFRS 9 ''Financial Instruments'', the IASB confirmed that gains or losses that result from

modification of financial liabilities that do not result in derecognition shall be recognized in

profit or loss.

The Company has adopted IFRS 9 with a date of transition of 1 January 2018, which resulted

in changes in accounting policies for recognition, classification and measurement of financial

assets and liabilities and impairment of financial assets.

Impact of adoption: In accordance with the transition provisions in IFRS 9, the Company has

elected the simplified transition method for adopting the new standard. In accordance with the

transition method elected by the Company for implementation of IFRS 9 the comparatives have

not been restated but are stated based on the previous policies which comply with IAS 39.

Consequently, the revised requirements of IFRS 7 ''Financial Instruments: Disclosures'' have

only been applied to the current period. The comparative period disclosures repeat those

disclosures made in the prior year.

On 1 January 2018 for debt instruments held by the Company, management has assessed which

business models apply to the financial assets and whether the contractual cash flows represent

solely payments of principal and interest (SPPI test). In addition, separate assessment for

derivatives (open positions) held by the Company was performed, in respect of whether they

are held for trading or not. As a result of both assessments, Management has classified its debt

instruments into the appropriate IFRS 9 categories.

As a result of the adoption of IFRS 9 the Company revised its impairment methodology for

each class of assets subject to the new impairment requirements. From 1 January 2018, the

Company assesses on a forward-looking basis, the expected credit losses associated with its

debt instruments carried at amortised cost and FV through income statement and cash and cash

equivalents. The impairment methodology applied depends on whether there has been a

significant increase in credit risk and whether the debt instruments qualify as low credit risk

and whether the debt investments qualify as low credit risk.

The Company has the following types of assets that are subject to IFRS 9's new expected credit

loss model: Other receivables, related party receivables and cash and cash equivalents.

The Company has adopted the simplified expected credit loss model for its other receivables,

related party receivables with significant financing component as required by IFRS 9, and the



general expected credit loss model for financial assets at amortised cost and cash and cash

equivalents.

Other financial instruments: For all other financial assets Management assessed that the

Company's business model for managing the assets is ''hold to collect'' and these assets meet

SPPI tests. As a result all other financial assets were classified as financial assets at amortised

cost. Previously under IAS 39 these financial assets were also measured at amortised cost. Thus

there were no impact of adoption of IFRS 9 as of 1 January 2018.

At 31 December 2017, the Company's financial liabilities were carried at amortised cost and

fair value through profit and loss (open positions on CFDs). Starting from 1 January 2018 the

Company's financial liabilities continued to be classified at amortised cost and the client open

positions were continued to be measured at fair value through profit and loss.

4.3. Internal Capital Adequacy Assessment Process (“ICAAP”)

The Company decided that the Minimum Capital Requirement Approach is the most

appropriate approach to be used for the planning and design of its ICAAP. As its name

indicates, the ICAAP is an internal tool, which allows Notesco to assess its position and hold

the internal capital that it considers appropriate in order to cover all the risks it is facing or to

which it could be exposed in the future thereby having the ability to support its current and

future activities. The ICAAP falls under the scope of Pillar 2 which is described as a set of

relationships between CySEC and the Company. Its objective is to enhance the link between a

CIF’s risk profile, its risk management and risk mitigation systems, and effectively its capital.

Pillar 2 establishes a process of prudential interaction that complements and strengthens Pillar

1, by promoting an active dialogue between the CySEC and the investment firm such that, any

inadequacies or weaknesses of the internal control framework and also other important risks,

the fulfilment of which may entail threats for the firm, are identified and managed effectively

with the enforcement of additional controls and mitigating measures. The ICAAP is an

important part of the process through which Notesco’s Board is informed of the ongoing

assessment of the Company's risks, sets mitigation measures and controls for those risks and

identifies and measures current and future capital needs having considered the above

The ICAAP is clearly owned and approved by the Company’s Board of Directors. Notesco

considers the ICAAP as a key element of its day to day governance process and its strategic

management initiatives.

The ICAAP Report is a document submitted to the Board and to CySEC, upon request by the

latter, explaining:

How the CIF has implemented and embedded the ICAAP process within its business

The risk profile and the extent of risk appetite that the CIF is prepared to accept

The capital that it considers as adequate to be held against all the risks that the CIF is

exposed to in accordance with its assessment



This report reflects the reality of Notesco’s ICAAP as a discipline embedded within its

business. The report will be submitted to the CySEC, upon request, in accordance with the

Directive 2013/36/EU and Directive 144-2014-14 of CySEC for the Prudential Supervision of

Investment Firms.

5. Minimum Required Own Funds For Credit, Market And Operational Risk

The different methods used to assess the adequacy of the capital for the different categories of

risks are described above. The Pillar I regulatory capital of the Company is calculated on the

basis of account balances computed and derived based on the adoption by the Company of the

International Financial Reporting Standards (“IFRS”) as adopted by the European Union

(“EU”) and the requirements of the Cyprus Companies Law, Cap 113. The available regulatory

capital is classified under two main categories:

Tier 1 capital (Common Equity Tier 1 Capital plus Additional Tier 1 Capital);

Tier 2 capital

Capital Adequacy Ratio

The table below represents the risk weighted exposures and the capital adequacy ratio as at

31 December 2018.

Risk Weighted Exposures Risk Weighted

Exposures 31/12/2018

US$000

Credit Risk (Standardised approach) 14,585

Market Risk (Standardised approach) 26,732

Operational Risk (Basic Indicator Approach) 23,940

Total Risk Weighted Exposures 65,256

Capital Adequacy Ratio 15,70%

As at 31 December 2018, the Capital Adequacy Ratio of the Company on a consolidation basis

reached 15,70%.

As at 31 December 2018, the Company is required to maintain a minimum capital adequacy

ratio of 8% for Pillar 1, plus a capital conservation buffer (“CCB”) of 1,875% according to the

transitional implementation provisions, resulting to a combined minimum requirement of

9,875%. The CCB was gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in

2018 and was fully implemented on 1 January 2019 at 2.50%.

The Company is not designated as Other Systemically Important Institution Buffer (“O-SII),

by CBC, and therefore is not subject to an additional O-SII capital buffer.

Capital Ratios and Capital Levels as at 31 December 2018



The table below represents the CET1, T1 and Total Capital ratio and respective surplus capital

as at 31 December 2018.

Item Amount ($000)/%

CET1 Capital ratio 15.7%

Surplus (+)/Deficit (-) of CET1 capital 7,310

T1 Capital ratio 15.7%

Surplus (+)/Deficit (-) of T1 capital 6,331

Total capital ratio 15.7%

Surplus (+)/Deficit (-) of total capital 5,026

Further to the above, it should be noted that the Company has maintained own funds more than

the required minimum in all subsidiaries.

5.1. Credit Risk - Capital requirements & Risk weighted exposures

The Company uses the Standardized Approach for measuring Credit Risk. Information on

credit risk shall be read in conjunction with the Consolidated Financial Statements of the

Company.

Total and average amount of net exposures for 2018 by exposure class and corresponding

industry type are presented below. The average corresponds to the average of the quarterly net

amounts by exposure class and corresponding industry type. Exposure classes that are not

relevant to the Company’s activities are not included in the table below.

Exposure class & industry

type (US$000)

Capital requirements

as at 31 December

2018

Risk Weighted

Exposures as at 31

December 2018

Average risk

Weighted

Exposures over

the period

Total Net

Exposures

as at 31

December

2018

Public Sector Entities

(Tax & Regulatory services) 3 34 117 34

Institutions (Banking

services) 145 1,811 3,086 9,054

Corporates (Retail industry) 45 568 845 568

Retail (Financial services) 185 2,308 2,818 3,079

Other

(Related parties and other) 789 9,863 20,716 9,863

Total 1,167 14,584 27,582 22,598

5.2. Breakdown of exposures by geographical areas and exposure classes

In accordance with the CRR, the Company shall disclose the following information in relation

to its compliance with the requirement for a countercyclical capital buffer referred to in Title

VII, Chapter 4 of Directive 2013/36/EU:

the geographical distribution of its credit exposures relevant for the calculation of its

countercyclical capital buffer;

the amount of its institution specific countercyclical capital buffer.



An additional Counter-Cyclical Capital Buffer (“CCyB”) is required by the CBC, as the

designated macroprudential authority of Cyprus, to protect against perceived threats to

financial stability. The CCyB is currently set by the CBC at 0% for Cyprus exposures. Other

national authorities determine the appropriate CCyBs that should be applied to exposures in

their respective jurisdictions.

The CCyB is currently set by the CBC at 0% for Cyprus exposures. Other national authorities

determine the appropriate CCyBs that should be applied to exposures in their jurisdiction.

Based on the Company’s current exposures the CCyB is zero.

The tables below present the geographic distribution of the exposures, broken down in

significant areas by material exposure classes, as at 31 December 2018. The geographical area

in which the exposure is classified relates to the country of residence or incorporation of the

counterparty.

Geographical Breakdown US$000

Domestic original exposures 5,516

Non-domestic original exposures 17,082

Total credit exposures 22,598

Non-domestic / Total original exposures 75,59%

Geographical Area

Exposure Class (in thousands USD$)

Total Institutions Corporates Public Sector Retail

Other

Exposures

Cyprus 1,405 286 3 3,078 744 5,516

United

Kingdom 15 258 30 - 73 376

Australia 827 22 1 - 226 1,076

South Africa - - - - 1,123 1,123

British Virgin

Islands (BVI) - - - - 5,586 5,586

Other Countries 6,807 2 - - 2,112 8,921

Total 9,054 568 34 3,078 9,864 22,598

5.3. Breakdown of Exposures by residual maturity and exposure classes

The total net exposures and total risk-weighted exposures by residual maturity and exposure

classes as at 31 December 2018 are presented below.

Credit Risk

Net

Exposures

≤ 3 months

Net

Exposures

≥ 3 months

Total Net

Exposures

US$000 US$000 US$000

Public Sector Entities - 34 34

Institutions 9,054 - 9,054

Corporates 568 - 568



Retail 3,079 - 3,079

Other - 9,863 9,863

Total 12,701 10,131 22,598

Credit Risk

Risk Weighted

Exposures

≤ 3 months

Risk Weighted

Exposures

≥ 3 months

Total

US$000 US$000 US$000

Public Sector Entities - 34 34

Institutions 1,811 - 1,811

Corporates 568 - 568

Retail 2,307 - 2,307

Other - 9,864 9,864

Total 4,686 9,898 14,584

5.4. Market Risk - Capital requirements & Risk weighted exposures

The Company uses the Standardized Approach for measuring Market Risk, whereby the capital

requirement is estimated by risk category based on predetermined models. The table below

shows the Capital Requirements for each Market Risk category as at 31st December 2018.

Market Risk Category Capital requirements

US$000

Risk Weighted Exposures

US$000

Equity Risk 693 8,668

Foreign Exchange Risk 1,199 14,989

Commodity Risk 246 3,075

Total 2,138 26,732

5.5. Operational Risk - Capital requirements & Risk weighted exposures

The Company recognises additional risk exposure amount based on the Basic Indicator

Approach (“BIA”) for measuring Operational Risk. The capital requirements for operational

risk amount to US$ 1,915 thousand and its risk weighted exposures amount to US$ 23,940

thousand as at 31st December 2018.

6. COUNTERPARTY CREDIT RISK

As at 31 December 2018, the Group did not have any outstanding securities or commodities

lending or borrowing transactions, long settlement transactions, margin lending transactions or

derivative instruments transactions. The Group however, maintains deposits of own and client

funds in financial institutions or prime broker(s). In an attempt to mitigate this risk, the

Company deposited its own and clients’ funds to various financial institutions located in

different geographic locations in order to achieve a well diversification approach and all client

funds are held in segregated accounts, separated from the Company’s own funds.

7. EXPOSURE TO CREDIT RISK AND IMPAIRMENT



Impaired financial assets:

The Group assesses at each reporting date whether there is any objective evidence that a

financial asset or a group of financial assets is impaired. A financial asset or a group of financial

assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a

result of one or more events that has occurred after the initial recognition of the asset (an

incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of

the financial asset or the group of financial assets that can be reliably estimated. Evidence of

impairment may include indications that the debtors or a group of debtors is experiencing

significant financial difficulty, default or delinquency in interest or principal payments, the

probability that they will enter bankruptcy or other financial reorganization and where

observable data indicate that there is a measurable decrease in the estimated future cash flows,

such as changes in arrears or economic conditions that correlate with defaults.

Past due financial assets:

A financial asset is past due when a counterparty fails to make a payment that is contractually

due i.e. a delayed payment or in the event of an excess of the authorised credit limits.

8. CREDIT ASSESSMENTS OF EXTERNAL CREDIT ASSESSMENT

INSTITUTIONS (“ECAI”)

For the purposes of applying the Standardised Approach, the nominated External Credit

Assessment Institutions ("ECAIs"), which is recognised by CySEC, the Group uses Moody’s

external credit ratings. Exposures which do not have an available Moody's credit ratings are

considered to be unrated. The ECAIs are not taken into account when relevant exceptions as

per the CRR apply. The Group uses the credit step mapping table below to map the credit

assessment to credit quality steps.

Credit Quality Step (“CQS”) Moody’s

1 Aaa1 to Aa3

2 A1 to A3

3 Baa1 to Baa3

4 Ba1 to Ba3

5 B1 to B3

6 Caa1 and below

The analysis of the exposure values before and after Credit Risk Mitigation ("CRM")

associated with each credit quality steps as at the year-end is as follows:

Credit Quality Step

(“CQS”)

Exposure values before and after

credit risk mitigation as at 31 December 2018 (US$000)

Institutions

1 837

2 —

3 6,749

4 —



5 533

6 45

Unrated 890

Total 9,054

9. EXPOSURE IN EQUITIES NOT INCLUDED IN THE TRADING BOOK

Non-trading equity risk is defined as the potential variation in the Group’s non-trading income

and reserves arising from changes in equity prices. The risk may crystallise during the course

of normal business activities or in stressed market conditions. During 2018 the Group held no

Equities not included in the Trading Book.

10. LEVERAGE

The Company, in accordance with Article 429 needs to disclose information in relation to its

leverage ratio defined as the company’s capital measure, i.e. Tier 1 capital, divided by the

institution’s total exposure measure and shall be expressed as a percentage in accordance with

the European Commission’s Regulation (EU) 2015/62.

The Company calculates its Leverage ratio at the end of the quarterly reporting period. The

minimum requirement for the purposes of the Leverage ratio is currently assessed to 3%. The

Company’s Leverage ratio as at the reference date 31 December 2018 was 45,28%.

The table below provides a breakdown of the exposure measure by exposure type.

On-balance sheet exposures (excluding derivatives and SFTs) as at 31 December 2018

US$’000

On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but

including collateral) 19,610

(Asset amounts deducted in determining Tier 1 capital) (60)

Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary

assets) 19,550

Derivative exposures

Replacement cost associated with all derivatives transactions 3,078

Add-on amounts for PFE associated with all derivatives transactions -

Exposure determined under Original Exposure Method -

Gross-up for derivatives collateral provided where deducted from the balance

sheet assets pursuant to the applicable accounting framework -

(Deductions of receivables assets for cash variation margin provided in

derivatives transactions) -



(Exempted CCP leg of client-cleared trade exposures) -

Adjusted effective notional amount of written credit derivatives -

(Adjusted effective notional offsets and add-on deductions for written credit

derivatives) -

Total derivatives exposures 3,078

SFT exposures

Gross SFT assets (with no recognition of netting), after adjusting for sales

accounting transactions -

(Netted amounts of cash payables and cash receivables of gross SFT assets) -

Counterparty credit risk exposure for SFT assets -

Derogation for SFTs: Counterparty credit risk exposure -

Agent transaction exposures -

(Exempted CCP leg of client-cleared SFT exposure) -

Total securities financing transaction exposures -

Other off-balance sheet exposures

Off-balance sheet exposures at gross notional amount -

(Adjustments for conversion to credit equivalent amounts) -

Other off-balance sheet exposures -

Exempted exposures in accordance with Article 429(7) and (14) of Regulation (EU) No 575/2013 (on and

off balance sheet)

(Intragroup exposures (solo basis) exempted in accordance with Article 429(7) of

Regulation (EU) No 575/2013 (on and off balance sheet)) -

(Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No

575/2013 (on and off balance sheet)) -

Capital and total exposure measure

Tier 1 capital 10,246

Leverage ratio total exposure measure 22,628

Leverage ratio

Leverage ratio 45,28%



Choice on transitional arrangements and amount of derecognized fiduciary items

The table below provides a breakdown of total on balance sheet exposures (excluding

derivatives, SFTs and exempted exposures) by asset class:

Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures)

Total on-balance sheet exposures (excluding derivatives, SFTs, and

exempted exposures), of which: 19,519

Trading book exposures -

Banking book exposures, of which: 19,519

Covered bonds -

Exposures treated as sovereigns 34

Exposures to regional governments, MDB, international organizations

and PSE not treated as sovereigns -

Institutions 9,054

Secured by mortgages of immovable properties -

Retail exposures -

Corporate 568

Exposures in default -

Other exposures (eg equity, securitisations, and other non-credit

obligation assets) 9,863

Description of the processes used to manage the risk of excessive leverage The Company monitors the leverage ratio quarterly and assesses the risk of excessive leverage

while maintaining sufficient return on regulatory capital and takes action accordingly. In case

the leverage ratio decreases significantly, the Board of the Company considers on necessary

actions. The Company’s leverage ratio of 33.60% is considered by the Board to be well above

the minimum ratio of 3%, suggesting that no further actions are required to manage the risk of

excessive leverage.

Description of the factors that had an impact on the leverage Ratio during the period to which

the disclosed leverage Ratio refers

During 2018 the main factors that had an impact on the leverage ratio were attributed to the

eligible funds as indicated in section 4.1 under Tier 1 capital and the elements of the banking

book exposures as indicated in the above table.



11. REMUNERATION DISCLOSURES

In accordance with the requirements of CRDIV and the Directives, the Group publicly

discloses information regarding the remuneration policy and practices for those categories of

staff whose professional activities have a material impact on the risk profile of the investment

firm. The Group’s Remuneration Policy captures provisions from the Regulation and relevant

Guidelines of CySEC and aims to align the remuneration of Directors, Senior Management,

officers and staff with the business strategy, objectives and long-term interests of the Group. It

is consistent with the effective management of risks and does not encourage excessive risk

taking.

The remuneration of staff is dependent on various elements such as jurisdiction legal and

regulatory requirements, employment law requirements, market and industry practices and

competition analysis. The remuneration of the Group’s Senior Management and employees are

decided with reference to the above elements by the Human Resources Department and the

Board of Directors. The Board ensures that all remuneration decisions are in line with the stated

risk appetite and framework of the Group and its current and future financial position.

The Group does not retain external consultants, although external consultants are used from

time to time to provide advice on specific issues. The Board also seeks advice from the HR

Department and Senior Management, who may provide relevant information and advice to the

Board.

The setting of remuneration supports the business objectives and corporate values of Notesco

and is aimed at promoting prudent risk management and to avoid excessive risk taking, by

attracting, retaining and motivating the key talent needed to achieve these outcomes.

11.1. Performance Related Pay

The Group's remuneration arrangements represent a combination of salary, bonuses and long-

term incentive schemes that are designed to align the interest of the Group and its employees

with those of its clients and other stakeholders and to effectively ensure the Group's continuous

long-term profitability. Non-salary remuneration plans are completely variable, based on the

Group's performance and individual performance.

The Group ensures that the variable remuneration bonus pool is a conservative percentage of

its net income. This means that staff remuneration is dependent upon Notesco’s profitability

and it allows the Group to manage its capital prudently.

No variable remuneration was provided during the year.

11.2. Design and structure of Remuneration



Members of the Board of Directors receive a fixed fee. Board members are not covered by

incentive programs and do not receive performance-based remuneration. The basic fee of a

Board member is set at a level that is aligned with the rest of the market and reflects the

qualifications and contribution required in view of the Company’s complexity, the extent of

the responsibilities and the number of board meetings.

The directors’ fees for non-executive directors for the year ended 31 December 2018 amounted

to USD$ 45,431.

Senior Management is independent from the business units they oversee, has appropriate

authority, is remunerated in accordance with the achievement of the objectives linked to their

functions and is independent of the performance of the business areas they control. Other

benefits provided to the Directors and Senior Management include medical fund contributions

and life insurance contributions.

During the year ended 31 December 2018, the key management personnel compensation

included only fixed salaries of US$373,960, with three persons being the beneficiaries.

Also, there were no severance payments or deferred remuneration awarded and paid out during

the financial year.

The table below provides a breakdown of the fixed remuneration for key management

personnel by business area, whose actions had a material impact on the risk profile of the

Group.

Business functions Total USD$

Control functions & Investment activities 373,960

(Reception/Transmission/Execution & Dealing on own account)

Total 373,960

APPENDIX I: GLOSSARY

BoD Board of Directors

BVI British Virgin Islands

CCyB Countercyclical Capital Buffer

CET1 Common Equity Tier 1

CFD Contracts-for-Difference

CIF Cyprus Investment Firm

CQS Credit Quality Step

CRM Credit Risk Mitigation

CRR Capital Requirements Regulation

CRD IV EU Capital Requirements Regulation No. 575/2013 and the EU Capital

Requirements Directive No. 2013/36/EU

CYSEC Cyprus Stock Exchange



ECAI External Credit Assessment Institutions

EU European Union

ICAAP Internal Capital Adequacy Assessment Process

IFRS International Financial Reporting Standards

LAW or

INVESTMENT

LAW

Investment Services and Activities and Regulated Markets Law of 2017

OTC Over the Counter

SFT Securities Financing Transactions

SREP Supervisory Review & Evaluation Process

US United States

notesco financial services limited - ironfx. 31.12... · ironfx is a trade name of notesco...

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