Important Information
Material on this site is issued in the United Kingdom (“UK”) by Sparrows Capital Limited (“Sparrows”) which is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”).
Use of Information and Material
The information contained on this site (including any expression of opinion or forecast) has been obtained from, or is based on, sources believed by Sparrows and its associated companies to be reliable, but is not guaranteed as to its accuracy or completeness. This does not exclude or restrict any duty or liability that Sparrows has to its customers under the regulatory system in the United Kingdom. This Site and the information herein is for general information purposes only. Your eligibility for particular products and advisory or management services is subject to local law and regulation.
Risk Factors
Past performance is no indication of future performance. The value of investments may fall as well as rise and investors may not get back the full amount invested. Changes in rates of foreign exchange may cause the value of investments to go up or down.
No Advice, Offers or Solicitations
The information and materials in this Site should not be construed as providing tax, legal or investment advice. In addition, they do not constitute an offer or solicitation, or an offer to sell, shares of any funds or any advisory or management service.. The type of securities mentioned may not be suitable for everyone.
USERS ARE URGED TO BASE THEIR INVESTMENT DECISIONS UPON A THOROUGH INVESTIGATION AND TO OBTAIN ALL NECESSARY PROFESSIONAL ADVICE.
Material Interests
Staff and/or directors of Sparrows may have holdings in the investment funds referred to on this site.
United Kingdom Stewardship Code
The Stewardship Code (the “Code”) was developed from the Walker Review on Corporate Governance in the UK and aims to enhance the quality of engagement between investors (and investment managers) and UK listed companies.
Sparrows supports the principles enshrined in the Code. Although the Code is voluntary, the FCA requires Sparrows to include on this website a disclosure about its commitment to the Code or, where it does not so commit, its alternative strategy. The FCA and the Financial Reporting Council have acknowledged that certain aspects of the Code are not directly relevant to all investment firms.
Sparrows invests almost exclusively in rule-based ETFs and index funds in order to capture market returns across all asset classes globally. Sparrows does not directly invest in shares or bonds issued by UK listed companies and therefore has no direct interaction with the management of such companies and does not enjoy voting rights in relation to such companies. For this reason, the Code is not directly relevant to Sparrows and it is not practical for Sparrows to implement a policy of direct engagement.
Sparrows’ due diligence prior to investing in an ETF or index fund does, however, take specific account of the fund manager’s own commitment to the Code (or equivalent depending on jurisdiction) and the nature of their engagement and voting policies with regard to companies in which their funds invest.
Given both Sparrows’ and the ETF or index fund provider’s index tracking requirements, there is very limited scope for stewardship through selective allocation or de-allocation decisions. For this reason, Sparrows’ analysis focuses on stewardship through engagement and through the exercise of voting rights.
Copyright, Trademarks and Other Rights
Copyright and trademarks and all similar rights in this site are owned by Sparrows, or relevant third-party content providers. You may use the information on this site and reproduce it in hard copy for your personal reference only. Such information may not otherwise be reproduced, distributed, stored in a data retrieval system or transmitted, in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior written permission of Sparrows.
Complaints
Any complaints about the Sparrows service or website should be directed to:
The Compliance Officer, Sparrows Capital Limited, Office 7, 35-37 Ludgate Hill, London, EC4M 7JN
If we are unable to resolve the matter to your satisfaction, you may have access to the Financial Ombudsman Service. The Financial Ombudsman Service’s website is at http://www.financial-ombudsman.org.uk/
Pillar 3 Disclosures
Background
These are the Pillar 3 disclosures made by Sparrows Capital Limited (“Sparrows”) in accordance with the UK Financial Conduct Authority’s (“FCA”) Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”).
The European Union Capital Requirements Directive (“CRD”) created a regulatory capital framework consisting of three ‘pillars’ namely:
Pillar 1 – sets out the minimum capital requirements that firms are required to meet;
Pillar 2 – requires firms to take a view on whether additional capital should be held against capital risks not covered by Pillar 1; and
Pillar 3 – requires firms to publish certain details of their risks, capital and risk management process.
Disclosure policy
The rules in BIPRU 11 provide that Sparrows may omit one or more of the required disclosures if it believes that the information is immaterial. Materiality is based on the criteria that the omission or misstatement of material information would be likely to change or influence the assessment or decision of a user relying on that information for the purposes of making economic decisions. Where Sparrows considers a disclosure to be immaterial, this will be stated in the relevant section.
Sparrows is also permitted to omit one or more of the required disclosures where it believes that the information is regarded as proprietary or confidential. Proprietary information is that which, if it were shared, would undermine Sparrows’ competitive position. Information is considered to be confidential where there are obligations binding Sparrows to confidentiality with its clients and counterparties.
Where Sparrows has omitted information for any of the above reasons, a statement explaining this will be provided in the relevant section.
Unless stated as otherwise, all figures contained in this disclosure are based on Sparrows’ audited annual reports for the year ending 31 December 2022.
Frequency
These Pillar 3 disclosures will be reviewed on an annual basis as a minimum. The disclosures will be published as soon as is practical following the finalisation of Sparrows’ Internal Capital Adequacy and Risk Assessment (“ICARA”) and its annual accounts.
Verification
The information contained in these disclosures has not been audited by Sparrows’ external auditors and does not constitute any form of financial statement.
Publication
Sparrows’ Pillar 3 disclosures are published on its website.
Scope and application of CRD requirements
These disclosures are made in respect of Sparrows, a BIPRU firm authorised and regulated by the FCA, providing financial advice and discretionary investment management services.
Risk management objectives and policies
Sparrows’ risk management policy reflects the FCA requirement that it must manage a number of different categories of risk. These include: liquidity; credit; interest rate; market; and operational risks.
- Liquidity risk
Sparrows manages all cash and borrowing requirements to maximise potential interest income whilst ensuring it has sufficient liquid resources to meet the continued operating needs of its business. This is supported by a robust budgeting and forecasting process which has the full involvement of the senior management team.
- Credit risk
The main credit risk for Sparrows relates to income from fees, the risk being that a client does not pay amounts due for services provided by Sparrows. In most cases, quarterly management fees are charged to clients based on a percentage of the client’s assets under management. Concentration risk is defined as the risk of loss of income through external changes having a disproportionate impact on overall income due to a reliance on revenue from certain sectoral, geographic areas and/or businesses. Credit risk concentrations include significant exposure to an individual client or group of clients and credit exposures to clients in the same economic sector or geographic region.
A significant proportion of Sparrows’ income is received from clients that are part of the same group as Sparrows’ major shareholders. This ongoing interest in the activities of Sparrows by the group mitigates the risk of the group jeopardising Sparrows’ income flow.
Sparrows is exposed to country risk as a number of clients are based in a non-European Economic Area country. As these clients are all high net worth or ultra-high net worth long-term investors with spare capital invested in globally diversified liquid financial instruments, the risk of being unable to meet unforeseen financial needs and payment of Sparrows’ fees is low.
Based on the analysis of concentration risk, the risk of non-payment of fees has been assessed as minimal.
- Interest rate risk
Sparrows has no exposure to interest rate risk as it has no debt and no client cash deposits
- Market risk
The main market risk for Sparrows relates to falls in value of assets under management following a market downturn, which would lead to lower management fees. To mitigate its market risk, Sparrows regularly analyses various different economic scenarios to model the impact of economic downturns on its financial position.
- 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 potential operational risk include: Outsourcing of operations, IT security, internal and external fraud, implementation of strategic change and regulatory non-compliance.
Sparrows operates a robust risk management process which is regularly reviewed and updated by its Board. The Board formally reviews all significant risk issues at least annually as part of the ICARA.
All senior members of staff bear responsibility for internal controls and the management of business risk as part of their accountability to the Board. All staff are responsible for identifying the risks surrounding their work, implementing controls over those risks and reporting areas of concern to their senior member of staff.
- Other risks
Sparrows operates a simple business model. Accordingly, many of the specific risks identified by the FCA do not apply. For example, it has no material outsourcing arrangements and does not hold any client assets.
Capital resources
Pillar 1 requirement
In accordance with the FCA rule GENPRU 2.1.45R (calculation of variable capital requirement for a BIPRU firm), Sparrows’ capital requirement has been determined as being its fixed overhead requirement and not the sum of its credit risk capital requirement and its market risk capital requirement.
The Pillar 1 capital requirement for Sparrows was £532,000 as at 31 December 2022.
Pillar 2 requirement
Sparrows’ overall approach to assessing the adequacy of its internal capital is set out in its ICARA report. The ICARA involves separate consideration of risks to Sparrows’ capital, combined with stress testing using scenario analysis. The level of capital required to cover risks is a function of impact and probability. Sparrows assesses impact by modelling the changes in its income and expenses caused by various potential risks over a 1-year time horizon. Probability is assessed subjectively. In addition, Sparrows has reviewed the outputs of its risk reviews to quantify any risks identified. This has identified a number of key business risks, which (having reviewed the guidance in BIPRU 2.2.61-65) Sparrows has classified against the risk categories outlined in FCA rule GENPRU 1.2.30R.
Sparrows Pillar 2 capital requirement, which is its own assessment of the minimum amount of capital that it believe is adequate against the risks identified, has been assessed as greater than its Pillar 1 requirement.
There is a considerable surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified.
Regulatory capital
The main features of Sparrows’ capital resources for regulatory purposes, as at 31 December 2022 are as follows:
| Capital item: |
£000 |
| Tier 1 capital (called up share capital, share premium account, profit and loss account, externally verified interim net profits) |
1,344 |
| Total of Tier 2 and Tier 3 capital (broadly long and short term subordinated loans) |
– |
| Deductions from Tier 1 and Tier 2 capital |
– |
| Total capital resources, net of deductions |
1,344
|
Sparrows holds regulatory capital in accordance with the CRD. All such capital is classified as Tier 1 capital and is therefore of the highest quality.
Remuneration Code Disclosures
Sparrows is subject to the BIPRU Remuneration Code. This section provides further information on Sparrows’ remuneration policy.
BIPRU Remuneration Code Staff
Sparrows has identified, and maintains a record of, BIPRU Remuneration Code staff (“Code staff”), i.e. staff to whom the BIPRU Remuneration Code applies. This includes senior management and members of staff whose actions may have a material impact on Sparrows’ risk profile. All of Sparrows’ Code staff fall into the “senior management” category of Code staff (rather than the “risk taker” category) for the purposes of the BIPRU Remuneration Code.
Decision Making / Remuneration Committee
Sparrows does not have and is not required to have a Remuneration Committee. The Board is responsible for Sparrows’ remuneration policy including determining the framework and policy for remuneration and ensuring it does not encourage undue risk taking; agreeing any major changes in remuneration structures; reviewing the terms and conditions of any new incentive schemes and in particular, considering the appropriate targets for any performance related remuneration schemes; and considering and recommending the remuneration policy for senior staff taking into account the appropriate mix of salary, discretionary bonus and share based remuneration.
In determining remuneration arrangements, the Board will give due regard to best practice and any relevant legal or regulatory requirements including the BIPRU Remuneration Code.
Link between pay & performance
There is ostensibly a discretionary variable pay element to the Sparrows’ remuneration package.
Quantitative information on remuneration
The FCA rules require certain firms to disclose aggregate information on remuneration in respect of its BIPRU Remuneration Code staff broken down by business area, senior management and other Code staff, including “risk takers”.
Sparrows has only one business area – investment management & advice.
Sparrows has 4 Directors but no material “risk takers”. Director remuneration is agreed formally at Board meetings. The link between performance and pay is inevitable in a small firm, but Sparrows’ risk-averse strategy and robust risk management systems mitigate risks.
