Internal Capital Adequacy and Risk Assessment – May 2022

Introduction

The Investment Firms Prudential Regime (“IFPR”) considers the harm a Financial Conduct Authority (“FCA”) investment firm can cause to others based on the activities that the firm carries out, and the amount of capital and liquid assets the FCA investment firm should hold so that, if a wind down is required, it can be carried out in an orderly manner.

Adequate financial resources, and adequate systems and controls, are necessary for the effective management of risks and to meet liabilities as they fall due.

Under IFPR, and the threshold conditions that classify relevant firms, Downing LLP (“Downing”) has been categorised as a small and non-interconnected firm (SNI).

Downing, as a MIFIDPRU investment firm, must at all times maintain own funds at least equal to its own funds requirement as determined by MIFIDPRU 4.3.3R.  Downing has calculated its fixed overheads requirement (FOR) in line with MIFIDPRU 4.5.2R to be greater than its permanent minimum capital requirement (£75,000).

Downing consider FOR as the relevant comparator for its ‘own funds’ calculation. The ‘Members Capital (Tier 1)’ own funds resource exceeds the fixed overhead requirement.

Risk management

The Partnership is accountable for all risks assumed in the business and responsible for the execution of appropriate risk management discipline within the framework of the policy and delegates authority set out by the Partnership. The Partnership has delegated this authority to the Risk Committee.

Senior Partners meet on a regular basis and discuss current projections for profitability, cash flow, regulatory capital management, business planning and risk management. They manage the Partnership’s risks though a framework of internal policies and processes with regard for relevant laws, standards, principles, and rules (including FCA principles and rules). This active management aims to minimise the firm’s exposure to loss events except where such risk exposure confers the opportunity to further the firm’s strategic goals and does not exceed the board’s risk appetite.

Heads of Department formally review their risks, controls, resources, and arrangements to attest their efficacy and adequacy quarterly. The ongoing assessments, strategic activities, and operational events, inform the enterprise risk committee with escalation to the senior partners executive committee.

Where material residual risks are identified the financial impact of these risks are quantified and feed into Downing’s business planning and capital management processes where they are considered when concluding on the adequacy of Downing’s regulatory capital.

Regulatory capital

The FCA classifies Code Staff as those staff whose activities could have a material impact on the firm’s risk profile.

The Partnership is required to disclose the aggregate remuneration of Code Staff.

‍For the year ending 31 May 2022 the annual remuneration was £4.5m.