Disclosures

Introduction

The Capital Requirements Directive (“CRD”) establishes a regulatory capital framework across Europe setting out the amount and type of capital that credit institutions and investment firms must maintain. In the UK the CRD has been implemented by the Financial Services Authority (“FSA”). The FSA framework consists of three “Pillars”:

Pillar 1: sets out the minimum capital requirements that regulated entities are required to meet;

Pillar 2: requires regulated entities to assess whether additional capital is required to capture risks not covered in Pillar 1 by means of the Internal Capital Adequacy Assessment Process (“ICAAP”); and

Pillar 3: requires disclosure of specified information about the underlying risk management controls and capital position.

The FSA introduced Pillar 3 by creating Chapter 11 of the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), which details the disclosures that all BIPRU firms are expected to consider.

This statement is designed to meet the Pillar 3 disclosure requirements for Cushman & Wakefield Investors (Finance) Limited.

Corporate Background

Cushman & Wakefield Investors Limited provides a complete property investment management service in both a discretionary and advisory capacity across the UK and Europe.

Cushman & Wakefield Investors (Finance) Limited (“CWIFL”) was established to undertake the regulated element of the business and has been authorised and regulated by the FSA since February 2004. It is a wholly owned subsidiary of Cushman & Wakefield Inc.

Basis of Disclosure

CWIFL is categorised as a BIPRU €50k limited licence firm for capital purposes. It does not operate a trading book. As a wholly owned subsidiary its results are included in the consolidated accounts prepared by the parent company. CWIFL is not part of a consolidation group for prudential purposes and this Pillar 3 disclosure is therefore made on an individual basis.

These disclosures are made on an annual basis as a minimum and if appropriate more frequently. CWIFL has an accounting reference date of 31 December and disclosure will be made as soon as practicable after publication of the Annual Report and Accounts.

Preparation and Verification

This disclosure covers both the qualitative and quantitative requirements. Please note that CWIFL has adopted the standardised approach to risk calculations.

These disclosures explain the basis of preparation of certain capital requirements and provide information about the management of certain risks for no other purposes. They do not constitute any form of audited financial statement and have been produced solely for the purposes of Pillar 3.

Capital Management Process

Capital adequacy is the degree to which the capital resources of a firm’s balance sheet are sufficient to cover the capital requirements for the business both now and for the foreseeable future. CWIFL’s authority to operate as an investment firm is dependent upon the maintenance of adequate capital resources. CWIFL’s capital management process ensures that its capital resources and requirements are continually reviewed against financial projections and risk assessments to enable the firm to:

meet the minimum regulatory requirements in the UK; and
support its growth plans and strategic objectives.

Risk Management

CWIFL is managed and controlled as an integral part of the overall Cushman & Wakefield Investors Limited (“CWI”) business in Europe. The CWI EMEA Management Committee is the governing body which has responsibility for determining the business strategy and risk appetite of the business as a whole. This Committee meets quarterly and is composed of senior CWI and Cushman & Wakefield LLP staff as well as CWI’s non-executive director. In addition CWI senior management meet regularly, both formally and informally, to discuss and review the business and make investment decisions.

The firm operates a straightforward business model of property investment management on behalf of professional clients and the risk profile is inherently low. The systems, processes and internal control mechanisms are considered adequate and proportionate to the nature, scale and complexity of the firm’s activities.

Pillar 2 Assessment

Pillar 2 requires regulated entities to assess whether or not additional capital is required to cover those risks not covered in Pillar 1. The key risks identified by CWIFL as well as the management strategies in place for dealing with such risks, have been recorded in a risk register.

This assessment forms part of the ICAAP which is formally reviewed by the Board on a bi-annual basis.

Capital Resources

The capital resources of CWIFL comprise the following:

share capital; and
retained reserves.

Capital resources as at 31 December 2011 totalled £213,915, consisting of £89,496 of ordinary share capital and £179,902 of reserves less illiquid assets of £55,482. The capital held by CWIFL is all categorised as core tier 1 capital.

Pillar 1

CWIFL is categorised as a BIPRU ‘Limited Licence €50k Firm’ and the minimum capital resource requirement under Pillar 1 is the higher of:

the base capital requirement of €50k;
the sum of its market and credit risk requirements; and
the fixed overhead requirement.

Credit risk

The balance sheet credit risk arises from management fees receivable in respect of funds under management along with bank deposits. Given the calibre of the client base and the processes in place for collecting and managing receivables, CWIFL believes this risk to be mitigated.

CWIFL uses the standardised approach for credit risk and calculates its credit risk capital requirement as 8% of its risk weighted assets. As at 31 December 2011 CWIFL had a credit risk of £15,528.

Market risk

CWIFL is not exposed directly to market risk as it does not hold principal positions and has limited exposure to currency risk.

Neither credit risk nor market risk are considered material in the context of these Pillar 3 disclosures.

Fixed overhead requirement

The fixed overhead requirement is based on one quarter of the latest audited expenses. Based on the latest audited accounts for 2010 the fixed overheads requirement is £67,560.

Summary

CWIFL’s Pillar 1 capital requirement is based on the fixed overheads requirement, which is currently £67,560.

Pillar 2 Assessment

Pillar 2 requires regulated entities to assess whether additional capital is required to cover risks not covered in Pillar 1.

Following the ICAAP exercise the Board concluded that the Pillar 2 regulatory capital requirement should consist of an element of business risk, calculated as the exposure that would remain in the event CWIFL had no business. It amounts to a small amount of administrative costs that relate directly to the winding up of CWIFL, totalling £20,000. No additional capital to that held to cover the Pillar 1 requirements is considered necessary.

CWIFL has no exposure to any interest rate risk in its non trading book or any securitisation risk. As a BIPRU limited licence firm the FSA rules on the operational risk capital requirement do not apply.

Summary

CWIFL’s Pillar 2 capital requirement is £20,000.

Overall Capital Resources as at 31 December 2011

	Pillar 1	Pillar 2

Ordinary share capital	£ 89,496
Reserves	£179,902
Less illiquid assets	£ 55,482
Total capital resources available	£213,915


Base requirement (€50,000)	£ 43,000
Fixed overheads requirement (“FOR”)	£ 67,560
Credit risk	£ 13,493
Business risk		£ 20,000

Capital required is based on FOR	£ 67,560
Excess	£146,355

Remuneration

The aim of the Remuneration Code is to ensure that firms have risk focused remuneration policies, which are consistent with and promote effective risk management and do not expose them to excessive risk.

Remuneration is reviewed on an annual basis by senior management with oversight from a Remuneration Committee or Salary Review Panel. The remuneration policy takes into account the achievement by employees of established goals and targets and will include a mix of financial and non financial criteria. In assessing performance, consideration will also be given to performance in relation to compliance and risk management and the fair treatment of clients.

Employees are assessed against quantitative and qualitative criteria including information provided from their annual appraisal. Performance measures include financial success measures, developing and improving relationships with clients both internal and external, managing staff and leadership skills, identifying and capitalising on opportunities to grow the organisation and improvements in operational efficiencies.

The below tables disclose a breakdown of remuneration for Remuneration Code Staff as defined in SYSC 19A.3.4R of the FSA handbook. CWIFL notes the FSA requirement to disclose aggregate quantitative information on remuneration broken down by business area. Given the nature and scale of our business, individual Code Staff are not split out into separate business areas and CWIFL operates instead as a single business unit.

Aggregate quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the firm
	Senior management	Other members of staff	Totals
Fixed remuneration	£1,582,675	£443,730	£2,026,405
Variable remuneration	£141,825	£55,270	£197,095
Number of staff	7	3	10

As at 31 December 2011, all variable remuneration was paid in the form of cash, none of which has been deferred. During the period there were no recruitment or severance payments made to Code Staff.

7. Conclusion

In conclusion, CWIFL’s capital resources exceed its capital requirements and CWIFL considers that the company is sufficiently capitalised for the risks to which it is exposed.