REG - TP ICAP Group PLC TP ICAP Limited - Annual Financial Report
26 March 2021
2020 Annual Report and Notice of 2021 Annual General Meeting
TP ICAP Group plc (the 'Company') announces that the following documents have now been published:
· the Annual Report and Accounts of TP ICAP Limited (formerly TP ICAP plc) and TP ICAP Group plc for the period ended 31 December 2020 (the "Group Accounts"); and
· the circular to shareholders incorporating the Notice of the 2021 Annual General Meeting.
Both documents can be viewed at or downloaded from our website at www.tpicap.com/investors.
Copies of both of these documents will be available as soon as practicable for inspection via the National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Given the ongoing COVID-19 related restrictions on movement and gatherings, we have again this year arranged to hold a hybrid AGM enabling shareholders to attend the meeting by electronic means. This will allow shareholders to hear from Directors, to ask questions and to vote in real time at the meeting.
The following disclosures comply with Disclosure and Transparency Rule 6.3.5. The full year results announcement released on 9 March 2021 contained a management report and condensed financial information derived from the Group Accounts. A description of risks and uncertainties, details of related party transactions and the Directors' Responsibility Statement, extracted in full unedited text from the Group Accounts, are set out below. This information should be read in conjunction with, and not as a substitute for, reading the Group Accounts. Page numbers and notes in the following appendices refer to page numbers and notes in the Group Accounts.
Appendix A: Principal Risks
The Board has conducted a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity, and reputation.
This assessment has been informed by a wide range of information, including reports provided by the Group Risk function and senior management, as well as key findings from the Group's various risk
assessment processes.
The Group formally reviews its risk profile on a bi-annual basis in light of its current business profile and potential changes arising from its business strategy and records these risks within the Group's
Risk Register.
The Group then formally assesses the risk profile of these risks through the Group's Risk Self-Assessment ('RSA') process against the target residual risk profile defined in the Group's risk appetite framework, by reference to both probability and severity.
The Group also undertakes stress testing and scenario analyses to enhance its understanding of its risk profile. This includes the conducting of reverse stress tests to identify those risks which could render the Group's business model unviable in an extreme scenario.
In addition to the formal reviews noted above, the Group assesses its risk profile on an ongoing basis and will update its Risk Register and risk ratings outside of the formal assessment cycle, where required to reflect any material changes. This includes any changes to risk profile identified through the Group's ongoing risk monitoring and reporting processes, as well as any new risks identified through the Group's change management framework.
The Group formally reviews its emerging risk profile as part of the risk identification and assessment process. An emerging risk, for these purposes, is defined as any new type of risk that may pose a material threat to the Group in the future and which the Group should monitor so that it is in a position to actively manage the risk if, and when, it becomes a more immediate threat to the Group.
Emerging risks are recorded in the Group's Emerging Risk Register, along with an assessment of its potential impact and an estimate of the timeframe within which it is likely to materialise.
1. Strategic and Business Risk
Risk
Adverse change to regulatory framework
Description
The Group is exposed to the risk of a fundamental change to the regulatory framework which has a material adverse impact on its business and economic model.
Potential impact
>
Reduction in broking activity
>
Reduced earnings and profitability
>
Increases in regulatory capital requirements
Change in risk exposure since 2019
No change
Mitigation
>
Monitoring of regulatory developments
>
Involvement in consultation and rule setting processes
Key risk indicator
>
Status of regulatory change initiatives
Related principal strategic objectives
>
Electronification
>
Liquidity aggregation
>
>
Diversification
People, conduct and compliance
Risk
Deterioration in the commercial environment
Description
The risk that due to adverse macro-economic conditions or geopolitical developments, market activity is suppressed leading to reduced trading volumes.
Potential impact
>
Reduction in broking activity
>
Pressure on brokerage rates
>
Reduced earnings and profitability
Change in risk exposure since 2019
Increased
Mitigation
>
Defined business strategy that seeks to maintain client, geographical and product diversification
Key risk indicator
>
Operating profit
>
Revenues by region
>
Trade volumes
>
Revenue forecast
>
Stress testing scenario outcomes
Related principal strategic objectives
>
>
>
Electronification
Liquidity aggregation
Diversification
Risk
Failure to respond to client requirements
Description
The risk that the Group fails to respond to rapidly changing customer requirements, including the demand for enhanced electronic broking solutions for certain asset classes.
Potential impact
>
Loss of market share
>
Reduced earnings and profitability
Change in risk exposure since 2019
No change
Mitigation
>
Proactive engagement with clients through customer relationship management process
>
Clearly defined business development strategy which continues to enhance the Group's service offering
Key risk indicator
>
Operating profit
>
Trade volumes
>
Revenues by region
>
New business initiatives
>
Client satisfaction surveys
Related principal strategic objectives
>
>
>
Electronification
Liquidity aggregation
Diversification
Risk
The impact of Brexit
Description
The risk that Brexit leads to a deterioration in the commercial environment and consequential reduction in trading volumes.
The risk that the operating model implemented by the Group to comply with the loss of EU passporting rights results in a fragmentation of liquidity between UK and EU liquidity pools.
Potential impact
>
Reduction in broking activity
>
Loss of market share
>
Reduced earnings and profitability
Change in risk exposure since 2019
Increased
Mitigation
>
Incorporation of a new EU subsidiary to hold EU-based business
>
Changes to operating model to maintain UK-EU liquidity and regulatory compliance
>
Proactive engagement with European regulators and clients
Key risk indicator
>
Brexit revenue-at-risk
>
Brexit plan tracking
Related principal strategic objectives
>
Liquidity aggregation
>
People, conduct and compliance
Risk
Impact of Covid-19
Description
The risk that the Group experiences a significant deterioration in business performance due to the
impact of Covid-19 on the broader global economy.
The Group is also aware of the potentially elevated operational risk arising from remote working arrangements, including: (a) Enhanced risk of operational failure, which may be exacerbated by heightened levels of market volatility; and (b) Increased conduct risk arising from remote supervision.
Potential impact
>
>
>
Reduction in broking activity
Loss of market share
Reduced earnings and profitability
Change in risk exposure since 2019
Increased
Mitigation
>
Consideration of potential Covid-19 impact in business planning and strategy process
>
Adoption of remote working protocols
Key risk indicator
>
>
>
Revenues by region
Trade volumes
Risk events
Related principal strategic objectives
>
People, conduct and compliance
Risk
Acquisition of Liquidnet
Description
The Group is exposed to execution risk in relation to the Liquidnet transaction. This includes the risk that it fails to successfully integrate the acquired business into the wider TP ICAP Group or that it fails to achieve the financial targets associated with the transaction.
Potential impact
>
>
Failure to achieve future financial targets
Damage to reputation
Change in risk exposure since 2019
New risk
Mitigation
>
Integration managed through a formal programme management structure, overseen by a sub-committee of the TP ICAP plc board.
>
Action taken to secure key personnel
Key risk indicator
>
>
Performance against programme milestones
Performance against financial targets
Related principal strategic objectives
>
>
>
Electronification
Liquidity aggregation
Diversification
2. Operational Risk
Risk
Operational failure
Description
The Group is exposed to operational risk in nearly every facet of its role as an interdealer broker,
including from its dependence on:
> the accurate execution of a large number of processes, including those required to execute, clear and settle trades; and
>a complex IT infrastructure.
Potential impact
>
Financial loss which could, in extreme cases, impact the Group's solvency and liquidity
>
Damage to the Group's reputation as a reliable market intermediary
Change in risk exposure since 2019
No change
Mitigation
>
Appropriate framework of systems and controls to minimise the risk of operational failure
>
Incident and crisis management process
>
>
Business continuity plans and capability
Reverse stress test process to identify key risks that could undermine the Group's viability
Key risk indicator
>
Risk events
>
Execution failure
>
>
>
Settlement fails
Margin calls
System outages
Related principal strategic objectives
>
>
Electronification
People, conduct and compliance
Risk
Cyber-security and data protection
Description
The risk that the Group fails to adequately protect itself against cyber-attack and/or to adequately secure the data it holds, resulting in loss of operability as well as potential loss of critical business or client data.
Potential impact
>
Loss of revenue
>
>
>
>
Remediation costs
Damage to reputation
Regulatory sanctions
Payment of damages/compensation
Change in risk exposure since 2019
No change
Mitigation
>
Ongoing monitoring and assessment of the cyber-threat landscape
>
Appropriate framework of systems and controls to prevent, identify and contain cyber threats
Key risk indicator
>
>
>
Cyber-security events/losses
Vulnerability monitoring
Data loss events
Related principal strategic objectives
>
Electronification
Risk
Unlicensed use of proprietary data
Description
The risk that the Group fails to protect unauthorised dissemination of Group's proprietary data leading to loss of potential revenue streams.
Potential impact
>
Failure to achieve future revenue growth targets due to non-contractual use of our market information
>
Damage to reputation
Change in risk exposure since 2019
No change
Mitigation
>
Ongoing audit of licenses
>
Appropriate legal remedies incorporated within licence agreements
Key risk indicator
>
Completion of data audit plan
>
Data audit findings
Related principal strategic objectives
>
Diversification
Risk
Breach of legal and regulatory requirements
Description
The Group operates in a highly regulated environment and is subject to the laws and regulatory frameworks of numerous jurisdictions.
Failure to comply with applicable legal and regulatory requirements could result in enforcement action being taken.
Potential impact
>
Regulatory and legal enforcement action including censure, fines or loss of operating licence
>
Severe damage to reputation
Change in risk exposure since 2019
No change
Mitigation
>
Compliance function to oversee compliance with regulatory obligations
>
Compliance monitoring and surveillance activity
>
Comprehensive compliance training programme to ensure that staff are aware of regulatory requirements
>
Maintenance of compliance culture which fosters high standards of employee conduct
Key risk indicator
>
Internal Compliance policy breaches
>
Regulatory breaches
>
Employee conduct metrics
Related principal strategic objectives
>
People, conduct and compliance
3. Financial Risk
Risk
Counterparty credit risk
Description
The Group is exposed to counterparty credit risk arising from outstanding brokerage receivables, unsettled trades and cash deposits.
Potential impact
>
Financial loss which could, in extreme cases, impact the Group's solvency and liquidity
Change in risk exposure since 2019
No change
Mitigation
>
Counterparty exposures managed against thresholds calibrated to reflect counterparty creditworthiness
>
Exposure monitoring and reporting by independent credit risk function
Key risk indicator
>
Portfolio exposure
>
>
Client exposure
Aged debt
Related principal strategic objectives
>
Diversification
Risk
FX exposure
Description
There is a risk that the Group suffers loss as a result of a movement in FX rates whether through transaction risk or translation risk.
Potential impact
>
Financial loss which could, in extreme cases, impact the Group's solvency and liquidity
Change in risk exposure since 2019
No change
Mitigation
>
Ongoing monitoring of Group's FX positions
Key risk indicator
>
FX translation exposure
>
FX transaction exposure
Related principal strategic objectives
>
Diversification
Risk
Liquidity risk
Description
The Group is exposed to potential margin calls from clearing houses and correspondent clearers. The Group also faces liquidity risk through being required to fund matched principal trades which fail to settle on settlement date.
Potential impact
>
Reduction in the Group's liquidity resources which could, in extreme cases, impact the Group's liquidity
Change in risk exposure since 2019
No change
Mitigation
>
>
>
Margin call and trade funding profile monitored against defined limits
Group maintains liquidity resources in each operating centre to provide immediate access to funds
Committed £270m and JPY 10bn (c.£71m) revolving credit facilities ('RCF')
Key risk indicator
>
Margin call profile
>
Settlement fail - funding requirements
>
>
Unplanned intra-Group funding calls
RCF draw-down
Related principal strategic objectives
>
Diversification
Appendix B: Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.
The total amounts owed to and from associates and joint ventures at 31 December 2020, which also represent the value of transactions during the year, are set out below:
Amounts owed by related parties
Amounts owed to related parties
2020
£m
2019
£m
2020
£m
2019
£m
Associates
Joint Ventures
Loans from related parties
5
-
-
3
-
-
-
(3)
(28)
-
(3)
-
In August 2020, the Group entered into a 10 billion Yen (£71 million) committed facility with the Tokyo Tanshi Co., Ltd, a related party, that matures in February 2023. The loan for related parties is conducted on an arm's length basis. At 31 December 2020, £28m of the facility was drawn down.
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
During the year, less than £1m of interest was paid on loans from related parties.
Directors
Costs in respect of the Directors who were the key management personnel of the Group during the year are set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the individual Directors is provided in the audited part of the Report on Directors' Remuneration on pages 87 to 93.
2020
£m
2019
£m
Short term benefits
5
6
Social security costs
1
1
6
7
Appendix C: Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge that:
>
the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
>
the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces; and
>
the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
ENDS
Enquiries:
Richard Cordeschi
Group Company Secretary
+44 (0) 7580 851104
For media enquiries please contact:
William Baldwin-Charles
Group Media Relations Director
William.Baldwin-Charles@tpicap.com
+44 (0) 7834 524 833
For investor enquiries please contact:
Al Alevizakos
Head of Investor Relations and FP&A
Alevizos.Alevizakos@tpicap.com+44 (0) 7999 912 672
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