MIFIDPRU External Disclosures 2023

December 31, 2023

1.        Introduction


1.1.     Overview

TFS-ICAP Limited ('TFS-ICAP') is a joint venture between Compagnie Financière Tradition ('CFT') Group, CME Group and Limited.

The firm is authorised and regulated in the UK by the Financial Conduct Authority ('FCA') to undertake certain regulated activities and meets the definition of a non-SNI MIFIDPRU investment firm. TFS-ICAP is also regulated in the United States by the Commodities Futures Trading Commission ('CFTC') on behalf of the National Futures Association ('NFA') as an introducing broker.

Tradition Management Services Limited ('TMS') provides TFS-ICAP with administrative support services. TMS recharges to TFS-ICAP any costs it incurs on its behalf. TMS is a subsidiary of CFT.

1.2.     Business Activities

TFS-ICAP is an intermediary in financial markets. The firm provides brokerage services on an arranging, and execution basis for currency options. Its customers are mainly commercial and investment banks.

TFS-ICAP also provides access to the Volbroker electronic broking system and operates the Tradition-NEX Currency Options organised trading facility ('OTF').

In addition to its brokerage services, TFS-ICAP provides market information to clients and data providers, including real-time price information.

TFS-ICAP does not perform any proprietary trading.

1.3.     Scope of Disclosures

The Investment Firms Prudential Regime ('IFPR') came into force from 1 January 2022 and is applicable to TFS-ICAP as a UK regulated entity. The IFPR requirements are incorporated into UK regulation in the MIFIDPRU sourcebook section of the FCA handbook.

MIFIDPRU 8 permits firms to aggregate remuneration information for senior management and other material risk takers, where splitting the information between those two categories would lead to the disclosure of information about one or two people. Where aggregation of the remuneration information would still lead to the disclosure of information about one or two people, firms are not required to report quantitative remuneration disclosures.

The firm's disclosures are not required to be independently audited, but where they include data also presented in the Annual Report and Financial Statements, this is independently audited. The disclosures have been reviewed and approved by senior management and the Board of Directors. In accordance with MIFIDPRU 8.1.13, the disclosures are available on the website.


2.        Governance Arrangements


2.1.     Internal Governance Arrangements

TFS-ICAP's Board is supported by two functional committees that meet monthly: the Management Committee and the Oversight Committee.

The Management Committee comprises representatives from senior management and independent non-executive Board members. Members of TMS are invited to attend as required. The committee considers matters relating to:

  • risk and controls;
  • capital and liquidity;
  • regulation and compliance; and
  • culture and conduct.

The Oversight Committee considers any matters relating to the support services provided to TFS-ICAP Ltd, including those provided by Tradition. It comprises independent non-executive Board members.

The Remuneration Committee comprises non-executive directors. Its role is to assist and make recommendations to the Board and provide oversight of remuneration policies, structures and practices of TFS-ICAP and to ensure that:

  • individuals are rewarded fairly and responsibly having regard to their role and performance; and
  • those policies, structures and practices, particularly in the context of performance related or variable remuneration, align with the Board's standards on governance and risk, its strategic objectives, customer and shareholder interests and applicable laws and regulations.

The firm does not have a dedicated Risk Committee. Risk is an agenda item at each Board meeting when the CRO presents a risk report with relevant management information.

2.2.     Board Governance and Control

The Board has created a governance and control framework that sets out the way in which the formal Board and Committee structure and approval systems operate. The framework covers policy, risk appetite, business performance, limits setting, delegation of levels of authority, capital management and assurance mechanisms.

The Board's governance and control framework is based upon the concept of internal lines of defence against risk. This arrangement aims to ensure that accountability for the management of risk is embedded in day-to-day management.

The Board's governance and control framework is based on the following lines of defence:

  • First line - process owners and the management functions which have primary responsibility for the assessment and monitoring of their own risks; and
  • Second line - support functions which provide the business with specialist support in analysing risks and monitoring controls.

The TFS-ICAP Board provides the following governance and oversight:

  • setting appropriate risk strategy and risk appetite;
  • promoting internal risk culture and risk awareness;
  • monitoring the implementation of the risk strategy by Risk;
  • ensuring the independence of control functions;
  • ensuring the independence of Internal Audit (assurance activity); and
  • verifying that independent control functions operate correctly.

Figure 1.  The number of external directorships held by each member of the TFS-ICAP management body

. Executive Directorships Non-Executive Directorships
Non-Executive Directors
Anthony Belchambers  - 1
Ian Chicken - 1
Scott Fitzpatrick - -
Simon Manwaring - 1
Jon Marchese - -
Ellen Miller - -
Paul Newman - -
Executive Directors
Tom Milligan - -
Larry Rosenshein - -


2.3.     Board Recruitment and Diversity

Recruitment of members of the management body follows FCA requirements, and a suitability assessment is completed. A multiple-stage interview and selection process is able to assess potential directors' aptitude, skills and experience and gauge the potential contribution to achieving the firm's strategic objectives.

TFS-ICAP is committed to a diverse and inclusive workplace and the Board is particularly mindful of the firm's responsibilities as a fair and just employer. Realising the potential of a diverse workforce is critical to business success. It enhances creativity, different approaches to problem solving and more effective team working.

3.        Risk Management Objectives and Policies


3.1.     Risk Management Overview

TFS-ICAP's Enterprise-Wide Risk Management Framework ('EWRMF') provides a high-level overview of the key processes related to risk management. It sets out how risk is managed across all identified risk categories. The EWRMF is formalised and supported by a suite of risk related policies and procedures. It comprises key processes related to risk management, including the approaches that are used for identification, assessment, quantification, escalation and reporting of risk.

The objectives of TFS-ICAP's EWRMF are to:

  • identify and assess the risks inherent within the firm's activities;
  • identify, implement, assess and monitor mitigation strategies in order to reduce the firm's risk exposure;
  • alert the Board of any substantive threats to its risk appetite;
  • identify, record and analyse risk events;
  • monitor key risks and report on their threat levels;
  • ensure that issues identified internally or by third parties are recorded, remediated, escalated and reported;
  • ensure the various components of the EWRMF are integrated and cohesive;
  • provide senior management with risk-related information in order to encourage risk-informed decision making;
  • embed a robust risk management culture within the firm; and
  • contribute to the risk-based quantification of regulatory capital and to the continuous improvement of the management of the firm's capital requirements.

3.2.     Risk Oversight

The Board has ultimate responsibility for risk oversight of the firm. It is supported by a risk governance structure, which is in place as part of the overall EWRMF. TFS-ICAP operates two lines of defence to ensure that its risks are appropriately managed and that there is due oversight of how the risks are being managed. The lines of defence are described further below.

The firm does not have an in-house internal audit function, which the Board considers to be appropriate, given the straight-forward nature, small scale and lack of complexity of TFS-ICAP's activities.

The First Line of Defence

The first line of defence consists of operations and business process owners across the firm who have primary responsibility for their Risk and Control Self-Assessment ('RCSA'). They act as risk owners with a responsibility to be proactive in reducing the likelihood and severity of incidents, including establishing appropriate risk controls and ensuring that when incidents occur they are recorded, reported and remediated where appropriate.

The day-to-day management of certain controls are delegated to a number of support functions, which support the first line of defence business and operational management.  These support functions include, but are not limited to:  Finance, IT, Legal, HR, Facilities, and Front Office Risk and Control ('FORC').

The Second Line of Defence

The second line of defence consists of the risk and control functions that establish overarching systems and processes to assess, monitor and minimise risks across the firm, overseeing the effectiveness of the first line risk management and control environment, and where necessary defining additional controls, mitigation or other risk management measures.  The second line is responsible for challenging and formally reviewing the effectiveness of the first line in managing the risks that it incurs and owns.

This role is primarily performed by the control functions and senior managers described below:

Risk Function

The Chief Risk Officer has a reporting line to the Board.  The Risk Function is responsible for the measurement, monitoring and reporting of risks within TFS-ICAP and for driving the development of risk management capability and the firm's EWRMF.

Compliance Function

The Compliance Officer has a reporting line to the Board.  The objective of compliance is to monitor adherence to all regulatory rules and requirements and to ensure that all regulatory issues are effectively monitored and managed.

Oversight of Outsourced Services

The majority of operational support is outsourced to TMS. The firm maintains responsibility and accountability for the services of the outsourced functions. It ensures it has appropriate and adequate management information to assist with monitoring of the individual services provided by the outsourced provider.

3.3.     Board Risk Appetite

The Board's approach to setting risk appetite and tolerances is set-out in the Risk Appetite Framework. Its risk appetite defines the type and level of risk that the Board is prepared to accept in pursuit of its strategic objectives and business strategy, taking into account the interests of its clients and shareholders, as well as regulatory requirements. Details of the measures, tolerances and qualitative statement that are the Board's assessment of its appetite are captured in the Risk Appetite Statement. The Board's appetite for principal risks is defined in terms of both quantitative measures and qualitative statements.

The Board calibrates risk appetite at least annually. It is documented in the Risk Appetite Framework which explains:

  • how risk appetite is being used to support strategy setting and business planning.
  • the link between TFS-ICAP Board level risk appetite and operational limits used to run the business; and
  • escalation procedures and corrective action in event that appetite is breached.

The Board requires the firm to hold sufficient capital resources to meet its requirements under the ICARA process. Capital that falls below the regulatory minimum (Own Funds Threshold Requirement) is outside the Board's risk appetite.

The Board requires the firm to hold sufficient liquidity resources that are realisable at appropriate intervals to meet the Liquid Assets Threshold Requirement plus an internal buffer at any point on a six-month forward forecast basis.

TFS-ICAP does not perform any proprietary trading and its risk profile is based on arranging options trades for clients, operating an OTF and providing data. It is exposed to operational risk of interruption to or inaccuracy or incompleteness in provision of these services. Its business strategy is based on delivering excellent client service and maintaining client trust. The Board adopts a conservative approach and sets low tolerance for risks that could materially impact the business strategy.

3.4.     Principal Risks and the Potential for Harm

The Board assesses principal risks and sources of potential harm that TFS-ICAP could cause through the conduct of its activities and changes to its business model. A central feature of the EWRMF that has specific importance for identification of principal risks is the RCSA process where management identify and assess the risks facing their business. The approach is documented in the RCSA Policy.

A principal risk, if it were to crystallise, may cause harm to the firm's clients, to markets, or to the firm itself. TFS-ICAP derives its principal risks from the RCSA results. Risks across TFS-ICAP are scored for inherent impact and net impact after mitigating controls. The Risk function confirms completeness of the firm's risk types from the RCSA and maps these to individual harms.

The Risk Function ensures that the principal risks are actively monitored through key risk indicators ('KRI') and that any identified control gaps have associated remedial action plans. Risk-based management information is reported through the firm's governance structure to promote timely and informed decision-making. The Board considers the principal risks within its risk profile quarterly.

Principal risks identified include:

Credit Risk

TFS-ICAP is exposed to two principal forms of credit risk:

  • Financial Counterparty: the firm holds funds with banks that could be at risk of recovery in the event the bank fails.
  • Debtors: clients may fail to pay their invoices for broking commission. TFS-ICAP's universe of core clients primarily comprises banks and financial institutions. TFS-ICAP has not experienced any significant credit losses.

Market Risk

TFS-ICAP is exposed to foreign currency risk that arises through its normal operating activities, which generate receivables and payables in foreign currencies. In addition to GBP, revenue is principally earned in EUR and USD and to a lesser degree in other currencies.

Operational Risk

TFS-ICAP may experience operational risk losses in its day-to-day business from errors, penalties and differences in broking activities.

Regulatory Risk

TFS-ICAP management is responsible for overall compliance with legal and regulatory requirements. The Compliance function has day-to-day responsibility for the regulatory risk framework and to ensure that regulatory risk is identified, assessed and managed.

Strategic/Business Risk

TFS-ICAP is exposed to risk arising from changes in its business environment, including the risk that it may not be able to carry out its business plans and its agreed strategy.

Liquidity Risk

Liquidity risk is the risk that TFS-ICAP is unable to meet its liabilities as they fall due, is unable to maintain access to effective and stable sources of funding, or that in order to meet liabilities it is obliged to sell assets at prices that lead to losses.

Balance sheet liquidity risk arises from changes in the profile of the firm's current assets and liabilities.  These may result from changes in foreign exchange rates, the rate at which receivables are collected or payables are settled, unexpected costs, or from changes in financing arrangements.

3.5.     Strategies to Manage Risk and Reduce Harm

Through its internal capital adequacy and risk assessment ('ICARA')  process the Board has identified potential harms to financial markets, to clients or to the firm itself and has determined an appropriate level of own funds to hold after assessing the effectiveness of mitigating systems and controls.

TFS-ICAP's governance structure ensures that capital and liquidity adequacy is at the forefront of the Board's and Senior Management's mind throughout the year.

4.        Own Funds

TFS-ICAP's 'share capital', 'share premium' and 'retained earnings' qualify as a Common Equity Tier 1 capital, meeting the conditions of loss absorbency laid out in Chapter 2 of Title I of Part Two of the UK CRR. TFS-ICAP has not issued capital defined as Alternative Tier 1 capital, and as a result, capital ratios Common Equity Tier 1, Tier 1 and total are identical.

TFS-ICAP has issued Tier 2 capital in the form of a subordinated loan from Ltd and TFI Holdings Ltd for a principal amount of £700,000 each. The loans meet the conditions in Chapter 4 of Title I of Part Two of the UK CRR. The amount of the loans do not exceed the limits for relative qualities of capital, and it qualifies for use as Tier 2 capital in full.

TFS-ICAP takes capital deductions in accordance with UK CRR Articles 36 and 66, and a prudent valuation adjustment in accordance with UK CRR Article 105. Deductions are taken for intangible assets and any tax charge relating to capital items.

At 31 December 2023 the total own funds of TFS-ICAP was as follows:

Figure 2.  Composition of TFS-ICAP regulatory own funds at 31 December 2023

Own funds

Own Funds 14,839 12,198
Tier 1 Capital 13,439 10,798
Common Equity Tier 1 Capital 13,439 10,798
Fully paid up capital instruments 20 20
Share premium 540 540
Retained earnings 12,897 10,255
Other reserves - -
(-) Total Deductions from Common Equity Tier 1 (18) (17)
CET1: Other capital elements, deductions and adjustments (18) (17)
Additional Tier 1 Capital - -
Tier 2 Capital 1,400 1,400
Fully paid up, directly issued capital instruments 1,400 1,400


Figure 3.  Reconciliation of regulatory own funds to the audited financial statements at 31 December 2023 

Balance sheet description
Regulatory Own Funds Audited Financial
Fully paid up capital instruments 20 20
Share premium 540 540
Retained Earnings 12,897 12,897
Less regulatory deductions
Prudent valuation adjustment 0 -
Intangible assets 1 -
Deferred tax 17 -
Common Equity Tier 1 Capital 13,439 13,457
Subordinated Debt 1,400 -
Total own funds/shareholders' funds 14,839 13,457


Figure 4.  Main features of own instruments issued by TFS-ICAP

Issuer TFS-ICAP Limited TFS-ICAP Limited
Public or private placement Private Private
Instrument type Ordinary shares Subordinated loan
Amount recognised in regulatory capital £560,000 £1.4 million
Nominal amount of instrument £19,607 £1.4 million
Issue price £1 £1.4 million
Accounting classification Shareholder's Equity Subordinated Loan
Original date of issuance June 2002 September 2020
Perpetual or dated Perpetual Dated
Maturity date None 15-Sep-30
Issuer call subject to prior supervisory approval No No
Optional call date, contingent call dates and redemption amount None None
Subsequent call dates None None
Fixed or floating dividend/coupon No Fixed rate interest
Coupon rate and any related index None 5.50%
Existence of a dividend stopper No Not applicable
Convertible or non-convertible Non-convertible Non-convertible
Write-down features No No


5.        Own Funds Requirements


5.1.     Own Funds Requirements

TFS-ICAP's own funds requirement is calculated in accordance with MIFIDPRU 4.3, and is the highest of its:

  • permanent minimum capital requirement under MIFIDPRU 4.4
  • fixed overheads requirement under MIFIDPRU 4.5
  • K-factor requirement under MIFIDPRU 4.6

Figure 5. TFS-ICAP own funds requirements

Own funds requirement
Permanent Minimum Requirement (PMR) 750 750
Fixed Overheads Requirement (FOR) 2,855 2,855
K Factor Requirement (KFR) 687 593
of which RtC 668 577
of which RtM 17 15
of which RtF 1 1
Own Funds Requirement 2,855 2,855


5.2.     Overall Financial Adequacy

TFS-ICAP is required to hold own funds and liquidity at all times that is adequate in their amount and quality to ensure:

  • 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.

TFS-ICAP performs its ICARA process to ensure the firm meets the overall financial adequacy rule ('OFAR'). The ICARA process is a key component of the firm's business planning and risk management processes. The embedded risk management, capital and liquidity adequacy assessment processes and a structured wind-down plan enable the Board to refine its understanding of the harms and risks associated with the business, confirm its risk appetite and assess, on an ongoing basis, the level of own funds required to safeguard the financial security of the firm and its stakeholders. The FCA has issued Individual Capital Guidance, requiring the firm to hold capital in excess of the own funds requirement: the maximum of 360% of the firm's own funds requirement, and £9.73 million.

TFS-ICAP has a formalised wind-down plan ('WDP'), the purpose of which is to confirm the firm has sufficient financial resources to undertake an orderly wind down of its operations in order to help reduce the risks of harm to clients and market participants. Wind-down planning identifies the steps and resources the firm needs to wind-down its business, and minimise the potential risk of harm to clients and the market.

6.        Remuneration Policy and Practices

TFS-ICAP applies the MIFIDPRU Remuneration Code.

Remuneration is a key driver of behaviour for all firms and individuals. Appropriate remuneration policies and practices help support prudential soundness and risk management in regulated environments. They also help ensure appropriate outcomes for customers and markets, and reduce the likelihood of harm.

6.1.     Approach to Remuneration

TFS-ICAP's remuneration policy sets out the policies, practices and procedures applicable to all TFS-ICAP employees. It is designed to discourage excessive risk taking behaviour and to ensure remuneration is consistent and commensurate to performance.

TFS-ICAP's Remuneration Committee is responsible for reviewing the operation and effectiveness of the firm's remuneration policy.

6.2.     Remuneration Governance

TFS-ICAP's Remuneration Committee comprises non-executive members of the Board. The Chair and committee members do not perform any executive function. Their own remuneration is fixed with no variable component.

The Committee is responsible for the preparation of remuneration decisions, which may have implications for the risk profile and risk management of TFS-ICAP. The Committee is also responsible for appointing internal auditors involved in remuneration reviews.

The Board reviews the Remuneration Policy annually to ensure it remains aligned to the firm's business strategy, risk appetite, and long-term interests, and maintains consistency with current legislation, including employment law and financial regulation.

6.3.     Remuneration of Material Risk Takers

The aim of Material Risk Taker identification is to recognise all those individuals whose professional activities can have a material impact on the risk profile of the firm.

TFS-ICAP has two UK Material Risk Takers, who are members of Senior Management.

Figure 6.  Total number of UK material risk takers

2023 UK Material Risk Takers         Senior Management Other Material Risk Takers Total Material Risk Takers
Total UK Material Risk Takers 2 0 2


6.4.     Components of Remuneration

The remuneration paid to TFS-ICAP employees comprises fixed salary, variable pay in the form of bonuses, non-contributory pension and benefits in kind.

All members of staff are subject to a performance review in connection with the setting and adjustment of remuneration. Performance is assessed by reference to appraisals; compliance with internal HR and Compliance policies and regulation and contractual performance clauses.

In addition, from time to time, an independent benchmarking exercise is carried out to ensure that the firm's compensation and benefits packages are appropriate and in line with industry peers'.

Fixed Compensation

Fixed remuneration principally reflects an employee's professional experience and organisational responsibility, and is permanent, pre-determined, nondiscretionary, non-revocable and not dependent on performance.

The fixed component of remuneration at TFS-ICAP may include: salary including holiday pay; fixed firm-specific allowance; parental leave pay or maternity pay; overtime; pension sacrifice and contribution; study costs; and other benefits, for example healthcare and gym

Variable Compensation

The variable component of TFS-ICAP's remuneration may include any of the following: broker commission; discretionary bonus; variable firm-specific award. TFS-ICAP does not pay discretionary pension benefits.

Variable remuneration is quantified for all eligible staff using a combination of financial and non-financial performance metrics, and based on multi-year results for the firm, business unit, and individual.

Discretionary - bonuses are allocated periodically by senior management depending on contractual provisions. Factors considered include the employee's ability, performance and conduct, their personal contribution (often within a team environment), the profitability of the employee's particular desk or business area (if applicable), and the overall profitability of the firm.

Formulaic - many broking staff receive variable remuneration pursuant to a contractually-specified formula.  Such formulae are devised pursuant to experience and market practice, and are the subject of regular review.

Management percentage - certain front office managers receive whole or part of their variable remuneration based on the profitability of the business area(s) for which they have responsibility. Calculations are based on net profits and paid out at the frequency of the broking staff in their business area(s). Senior management performance is also rewarded in the context of the strength or weakness of TFS-ICAP's performance in the relevant period and anticipated market conditions.

Post risk events including those related to conduct issues or business unit results may result in an adjustment of bonuses. To align reward and performance, a portion of variable remuneration paid in instruments is deferred at the point of award, subject to certain de minimis thresholds and categorisations, and is retained after vesting subject to terms.

Non-broking staff are employed and remunerated in TMS. Proportionate costs are recharged under the terms of the outsourced services contract between the firm and TMS.

TFS-ICAP made no guaranteed variable remuneration awards to UK material risk takers in 2023. TFS-ICAP made no severance awards to UK material risk takers in 2023.

Figure 7.  Aggregate fixed and variable remuneration awarded to UK staff in 2023

Total Remuneration 2023 2022
Fixed Remuneration £5,778 £5,832
Variable Remuneration £4,576 £4,030
Total Remuneration £10,354 £9,862


7.        Investment Policy

TFS-ICAP does not hold shares in any company that is admitted to trading on a regulated market.