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TP ICAP Group PLC (TCAP)

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Friday 26 March, 2021

TP ICAP Group PLC

Annual Financial Report

RNS Number : 6873T
TP ICAP Group PLC
26 March 2021
 

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

[email protected]  

+44 (0) 7580 851104

 

For media enquiries please contact:

 

William Baldwin-Charles

Group Media Relations Director

[email protected]  

+44 (0) 7834 524 833

 

For investor enquiries please contact:

 

Al Alevizakos
Head of Investor Relations and FP&A
[email protected]

+44 (0) 7999 912 672

 

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