Sterling Investment Management LIMITED (“Sterling”) is authorised and regulated by the UK Financial Conduct Authority (“FCA”) as an investment manager and as such is subject to the capital adequacy rules set out in the Financial Conduct Authority’s (“FCA”) BIPRU sourcebook. As a BIPRU firm Sterling is subject to rules set out in the third European Capital Adequacy Directive (“CRD III”) and is not required to follow the rules of the fourth European Capital Adequacy Directive (“CRD IV”).

The capital adequacy framework consists of three Pillars:

  • Pillar 1 sets out the minimum capital amount that meets the Firm’s credit, market and operational risk;

  • Pillar 2 requires the firm to assess whether its Pillar 1 capital is adequate to meet its risks and is subject to annual review by the FCA (the ICAAP as set out below); and

  • Pillar 3 requires disclosure of specified information about the underlying risk management controls, capital position, and remuneration. This document is Sterling’s Pillar 3 disclosure statement.

As required by the rules of the FCA Sterling has undertaken an ‘Internal Capital Adequacy Assessment Process’ (“ICAAP”). The ICAAP is reviewed annually or whenever there is a material change to the business, whichever is sooner. The ICAAP process considered the risks that Sterling is exposed to and the controls that exist to mitigate those risks. It further considered whether additional capital was required to meet the risks that Sterling faces including, as required by the FCA rules, the potential cost of closing Sterling down in the unlikely event that such action was necessary. Sterling’s Pillar 1 capital requirement is the higher of the base capital requirement of EUR 50,000, the sum of the credit risk and market risk requirements and the fixed overhead requirement. Currently the fixed overhead requirement is the highest of these three requirements. Sterling has assessed its capital requirement under Pillar 2 at £682,000.

Risk Management

Sterling is an asset manager and does not risk its own capital in the financial markets. Sterling does not have regulatory permission to take the proprietary trading risks and does not take such risks. Accordingly, the risks that Sterling faces are more Limited in scope than for other types of regulated firms. The risks and controls detailed below are, in accordance with the BIPRU rules, risks that Sterling faces in respect of its own activities. The risk management processes and controls for monies managed by Sterling are not part of these disclosures.


Sterling meets all its capital requirements.

Approach to risk

Sterling has identified and performed an assessment of the key risks that may impact its business.

Principal risks and uncertainties

Market risk

For the purposes of these disclosures, market risk is the risk value of, or income arising from, Sterling‘s assets and liabilities varying as a result of changes in the market price of financial assets, changes in exchange rates or changes in interest rates.

Credit risk

Credit risk refers to the potential risk that Sterling’s bankers or customers fail to meet their obligations as they fall due. Sterling has appropriate policies to monitor this exposure on an ongoing basis.

Liquidity risk

Sterling‘s liquidity policy is to maintain sufficient liquid resources to cover cash flow imbalances and fluctuations in fees received/receivable. Sterling maintains cash balances at its bankers to cover liquidity risk.

Operational risk

Operational risk is the risk of loss arising from failed or inadequate internal processes or systems, human error or other factors. The risk is managed by the members who have responsibility for putting in place appropriate controls for the business. Sterling documents the risks that it is exposed to and the compensating controls in its ICAAP.

Business risk

Business risk is the risk that Sterling may not be able to carry out its business plan and could therefore suffer losses if its income falls. This is a risk that all businesses face. The members continuously monitor income and expenditure levels and adjust their plans accordingly.

Concentration risk

Concentration risk is the risk that Sterling is overly dependent upon any one customer or any one group of connected customers either in terms of income dependency or in terms of credit risk. Sterling has a diversified income source and is not subject to concentration risk.

Pension obligation risk

Sterling has no defined benefit schemes and thus has no pension obligation risk.

Interest rate risk

Sterling is not exposed to interest rate risk.

Residual risk

Residual risk is any risk not covered by the specific risk categories outlined above.

The members do not consider that there are any residual risks that require the Company to maintain any additional capital.

The Decision-Making Process

Sterling has concluded that, on the basis of its size, the nature, scale and complexity of its legal structure and business and the nature of the risks that it takes on behalf of clients, it does not need to appoint a remuneration committee. Sterling believes that its Remuneration Policy appropriately addresses potential conflicts of interest and that Sterling’s authorised persons are not rewarded for taking inappropriate levels of risk. The policy is reviewed at least annually and will be amended, as and when required due to changes in regulation as well as Sterling’s own decision-making process.

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