UK IFPR Disclosure

1. Introduction and Context

The Investment Firms Prudential Regime (IFPR) is the FCA’s prudential regime for MiFID investment firms which aims to streamline and simplify the prudential requirements for UK investment firms. IFPR applies to Hidden Road Partners CIV UK Ltd (or the “Firm” of “HRPUK”) as an authorized investment firm and a registered AMLD5 firm, regulated by the FCA. 

The public disclosure requirements of IFPR are set out in MIFIDPRU 8, replacing the previous Pillar 3 requirements under the Capital Requirements Regulation. This disclosure is in respect of the accounting year ended 31 December 2023. HRPUK is classified as a non-SNI firm under MIFIDPRU 1.2.1.

HRPUK is required to disclosure the following information:

• Risk Management objectives and policies (MIFIDPRU 8.2)
• Governance arrangements (MIFIDPRU 8.3)
• Own funds (MIFIDPRU 8.4)
• Own funds requirements (MIFIDPRU 8.5)
• Remuneration Policy and practices (MIFIDPRU 8.6)

1.1. Business Summary

HRPUK is a private limited liability company incorporated under the laws of England and Wales. HRPUK is one of a number of credit intermediation vehicles within the HRP Group (collectively “HRP CIVs”) which are intended to be counterparty facing and offer various products, depending on their regulatory status and counterparty demand, to institutional counterparties. None of the HRP CIVs service retail clients.

HRPUK offers prime brokerage (“PB”) services to counterparties (ECP and per se professional clients only) with respect to the following types of asset classes:

• Foreign exchange (“FX”) – HRPUK’s FXPB offering
• Digital assets – HRPUK’s Digital PB offering
• Synthetics – HRPUK’s Route 28 offering (swaps specific)

 
The above business lines remain within the risk appetite of the Firm as approved by the Board. 

Outside of its FSMA/MIFID services and activities, HRPUK has an Australian Foreign Services licence (“AFSL”) which has been granted by the Australian Securities and Investments Commission (the “ASIC”). HRPUK is also registered as a foreign company in Australia. This AFSL license and foreign company registration permit Hidden Road staff to provide HRP UK products to Australian professional clients.

2. Governance

2.1. Overview of Governance Arrangements

2.1.1. The Board

Strategic and operational decision-making responsibility at HRPUK ultimately rests with the Board. The Firm is headed by an effective Board, which meets formally on a calendar quarterly basis, and which directs and controls the Firm. The Board will also have the flexibility to hold ad hoc meetings, should the need arise to discuss matters of strategic importance on a more frequent basis. All such meetings will have written agendas and minutes to ensure a true record of events.  

The Board operates in accordance with its Terms of Reference, which addresses the Board’s responsibilities, membership, quorum, notice and frequency of meetings and attendees.   

HRPUK’s Board comprises two Executive members. The Board is supported by the CCO and MLRO as well as the UK Head of Risk, who give updates at the quarterly board meetings.

HRPUK is part of the Hidden Road Group Risk and Compliance and AML/CFT Committee, the Coin Assessment Committee, the Business Continuity Planning Committee and the HRP Group Investment Committee.

It is not proportionate or required for HRPUK to have a policy promoting diversity on the management body. However, this is an area that the Firm and the wider HRP Group pay close attention to. This is reflected in the fact that the composition of both the Board and the material risk takers (“MRTs”) of the Firm is 50% female.

2.1.2. Directorships

None of the directors have held office in executive or non-executive functions outside of the HRP Group throughout the financial year ending 31 December 2023.

3. Risk Management

The Firm has implemented an Enterprise Risk Management Program (“ERMP”) to achieve the following:-  

• To mitigate risk to a level that any losses sustained remain within HRPUK’s overall quantified risk appetite;  
• Not to pose a material risk to the Firm’s ability to continue trading; and  
• To meet its prudential supervisory obligations in respect of the Overall Financial Adequacy Rule.  

HRPUK’s ERMP is based on the HRP Group Enterprise Risk Management Program which provides a systematic process for understanding, evaluating, and responding to risks across the entire organisation.

The ERMP defines HRPUK’s risk strategy which consists of three pillars:

1. Cultivation of a risk-aware culture that empowers each member of staff to contribute to the identification, assessment, mitigation and reporting of risk;
2. Embedding effective and efficient risk management frameworks to effectively manage the risks faced by the Firm in order to achieve its objectives and business growth.
3. Establishment of a clear governance structure that enables HRPUK’s Board to set the Firm’s risk appetite and receive regular reporting and assurance from risk owners or the Risk and Compliance teams that the Firm’s residual risk is within the determined risk appetite.

The ERMP follows the HRP Group Risk Taxonomy and identifies HRPUK risk owners, who are responsible for ensuring that the Group risk management framework for each risk appropriately incorporates HRPUK’s requirements and constraints. 

The Board takes an active role in the risk management process at HRPUK and is responsible for the finalisation of, and ultimately compliance with, the risk management strategy at the Firm. The UK Head of Risk has overall responsibility for the oversight of risk within the Firm. The Firm recognises that risk management processes are evolutionary and should be subject to ongoing review and modification.   

Certain of the support and control function infrastructures will be outsourced to a limited number of individuals based outside of the UK who will be working within the broader HRP business. There are also control and policy documents which form part of the risk management framework. These include but are not limited to:

• Regular management information

• Risk appetite statements
• Risk Control Self Assessments (“RCSA”)
• Wind down plan
• ICARA
• Annual MLRO report
• Annual CCO report

3.1. Composition of Own Funds

3.2. Reconciliation to audited financial information

1. Reconciliation to audited financial information

HRP UK’s Audited Financial Statements are reported in US Dollars.  The information shown above has been translated at the year-end FX rate of 1.2747.

3.3 Main features of the firm’s own funds instruments

The table below provides information on the CET 1, AT1 and Tier 2 instruments issued by the Firm.

4. Own Funds Requirement

4.1. Overall Financial Adequacy

The overall financial adequacy rule (“OFAR”) requires the Firm, at all times, to maintain overall financial resources, (both in capital and liquid assets), which are adequate, both in amount and quality to ensure that:

• it is able to remain financially viable throughout the economic cycle, with the ability to address any material potential harm that may result from its ongoing activities; and
• its business can be wound down in an orderly manner, minimising harm to consumers or to other market participants.

HRPUK assesses its compliance with the OFAR through its ICARA process. The ICARA is updated annually and on an event-driven basis. 

When reviewing the ICARA, the Board satisfies itself that the Firm has sufficient financial resources available to meet the OFAR as at the date of review and on a 3 year-end forward looking basis based on the Firm’s current business model and strategy.

ICARA and capital adequacy are a standing agenda item at HRPUK’s board meetings.

HRPUK’s Board has delegated responsibility for the maintenance of the ICARA to the UK Head of Risk as a current document, reflecting internal arrangements, and to present material changes to the Board at least annually.  

It is the responsibility of the Board to review, consider, challenge, agree and sign off the fundamental arrangements documented in the ICARA. The Board maintains ultimate responsibility for the ICARA and the business undertaken by HRPUK giving rise to the risks set out in the ICARA.  

4.2. Key risks and the associated risk management approach

The following section covers risk management objectives and policies for HRPUK’s relevant risks as set out in MIFIDPRU sections 4, 5 and 6. The Firm is exposed to counterparty credit risk (K-TCD), operational risk (K-DTF), concentration risk (K-CON), market risk (K-NPR) and liquidity risk.

• Counterparty credit risk – is primarily incurred through the extension of leverage to clients. The Firm effectively controls this by employing a conservative margin model and continuous monitoring;
• Operational risk – is inherent to the provision of financial services. The Firm effectively controls this by employing highly automated processes, clear policies and procedures including a dedicated incident management process;
• Concentration risk – is primarily incurred through exposure to group affiliates, this is closely monitored and controlled in line with the MIFIDPRU requirements;
• Market risk – is very low, as the Firm operates as a matched principal broker. Any residual risk derives from foreign currency bank account balances, which are monitored closely; and
• Liquidity risk – is very low as the Firm’s balance sheet is highly liquid, significantly beyond the requirements of MIFIDPRU 6.

5. Remuneration

5.1. Qualitative Disclosure

HRPUK has in place a remuneration policy statement (“RPS”) appropriate to the nature, scale and complexity of the risks and activities of the Firm. This is in compliance with the MIFIDPRU Remuneration Code. It is appropriate for the Board to carry out the functions of a remuneration committee for HRPUK. The Board has overall responsibility for overseeing the implementation of the RPS but control functions and business units also support the development of the RPS. 

MRTs are identified through qualitative criteria based on their roles and responsibilities in line with the criteria in SYSC 19G.5.4. This includes members of senior management and those responsible for managing a material risk within the Firm.

HRPUK offers fixed pay to all staff in an amount based on criteria such as the level of education, the degree of seniority, the level of expertise and skills required, the constraints and job experience and the relevant business sector. 

All staff of HRPUK are also eligible to variable remuneration in the form of a discretionary cash bonus. The value of the annual bonus awarded by HRPUK will be based on the performances of each relevant staff member, the business units that each staff member is part of, and the global consolidated firm return on capital. The value of the bonus pool also has regard to HRPUK’s capital adequacy process. More specifically, the factors that will be assessed to determine the level of variable remuneration are:

1.  profit levels and growth:
   
   1.  in the Hidden Road Partners Group;
   2. in HRPUK; and
   3. in the employee’s business unit;

in all cases taking into account relevant risk parameters,

2. measures relating to building and maintaining positive customer relationships and outcomes;
3. performance in line with Firm strategy or values, for example by displaying leadership, teamwork or creativity;
4. adherence to the Firm’s risk management and compliance policies;
5. measures to avoid conflicts of interest;
6. achieving targets specified by HRP relating to:

• 1. environmental, social and governance factors; and
  2. diversity and inclusion.

These factors will be assessed across a number of years and the payment of this performance-based remuneration will take account of HRPUK’s business cycles and risks. HRPUK ensures that its remuneration policies are in line with its business strategy, objectives, values and long-term interests through a determined distribution policy for staff, management and shareholders which is aimed to reward each member while ensuring HRPUK’s financial stability, and bonuses are not paid from capital. 

All variable remuneration will be subject to in-year adjustments, clawback and malus, where relevant and appropriate, for a minimum period of 3 years, for all MRTs. The specific circumstances under which clawback or malus will apply will rely on specific criteria and be determined on an individual basis but in all cases, HRPUK will be able to reduce an MRT’s variable remuneration by 100%. Generally, malus or clawback will apply where an MRT participated in, or was responsible for, conduct which resulted in significant losses to HRPUK and/or failed to meet appropriate standards of fitness and propriety.

The effect of these provisions is to allow for sufficient time for risks to HRPUK to crystallise, and for subsequent adjustment to variable remuneration to be made.

It is not HRPUK’s policy to make severance payments to employees on early termination of their contract, however payment may be made for their statutory minimum notice period entitlements.

5.2. Quantitative Disclosures

HRPUK has aggregated quantitative remuneration information in respect of its four MRTs and senior management as splitting the information between these two categories would lead to the disclosure of information about one or two people (MIFIDPRU 8.6.8(7)(a)).

No MRTs (including senior managers) received guaranteed variable remuneration. There were no severance payments to MRTs (including senior managers) in the year ended 31 December 2023.

Disclosures in the annual report and accounts reflect a proportion of salaries that are recharged to the Firm each month. All employees supporting the Firm were employed by Hidden Road Partners LP and Hidden Road Partners UK LLP.