TP ICAP Group plc
LEI: 2138006YAA7IRVKKGE63
5 April 2022
TP ICAP Group plc 2021 Annual Report and Notice of 2022 Annual General Meeting
TP ICAP Group plc (the 'Company') announces that the following documents have now been published:
· Annual Report and Accounts of the Company for the year ended 31 December 2021 ('2021 Annual Report'); and
· circular to shareholders incorporating the Notice of the 2022 Annual General Meeting.
In compliance with Listing Rule 9.6.1, 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. These documents can also be viewed at or downloaded from our website at www.tpicap.com/investors.
The 2022 Annual General Meeting ('AGM') will take place at 2.15pm (BST) on Wednesday 11 May 2022 at the offices of Allen & Overy LLP, One Bishops Square, London, E1 6AD. If shareholders are either unable or disinclined to attend the AGM, shareholders should vote by appointing the chair of the meeting as their proxy by submitting the Form of Proxy online. Details of how to do this are included in the Notice of the 2022 AGM and on the Company's website at www.tpicap.com/investors.
In relation to COVID-19, the Board continues to monitor the Government's advice on meetings and congregations. Any changes to the AGM, including any change to the location of the AGM, will be communicated to shareholders before the meeting through our website at www.tpicap.com/investors, which shareholders are advised to check for updates, and, where appropriate, by RNS announcement.
The following disclosures comply with Disclosure and Transparency Rule 6.3.5. The Company's full year results announcement on 15 March 2022 contained a management report and condensed financial information derived from the 2021 Annual Report. A description of risks and uncertainties, details of related party transactions and the Directors' Responsibility Statement, extracted in full unedited text from the Company's 2021 Annual Report, are set out below. This information should be read in conjunction with, and not as a substitute for, reading the Company's 2021 Annual Report. Page numbers and notes in the following appendices refer to page numbers and notes in the Company's 2021 Annual Report.
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Appendix A: Principal Risks
The Board has conducted a robust assessment of the principal risks facing the Group, defined for the purposes of this Annual Report as those risks that could have a material impact on its business model,
future performance, solvency, liquidity or reputation.
The Board has considered a wide range of information as part of this assessment, including reports provided by the Group Risk function and senior management and the key findings from the Group's various risk identification and assessment processes described below.
The Group records all its identified risks within its Risk Register and periodically assesses the risk profile of each risk against the target residual risk profile defined in the Group's risk appetite framework.
The Group formally reviews and assesses its risk profile on a quarterly basis as part of the Group's Risk Committee governance cycle. In addition to the formal reviews noted above, the Group monitors its risk profile against risk appetite on an ongoing basis as part of its day-to-day business management and will update its risk framework outside of the formal review and assessment cycle where required to reflect any material changes to risk profile. This includes any changes to risk profile identified through the Group's change management framework.
The Group undertakes stress testing and scenario analyses to model its potential risk exposure at the more extreme 'stressed loss' levels of severity. The Group also conducts reverse stress tests to identify
those risk scenarios that could threaten the viability of the Group and evaluate its ability to withstand or recover from such scenarios.
Finally, the Group also 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. Each emerging risk is 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.
The Board has considered the findings of all of the above assessment types in identifying its principal risks which are set out in the table overleaf. The table includes an assessment of the impact of each risk by reference to the potential impact that each risk could have on the Group's business model, future performance, solvency or liquidity, or reputation. It should be noted that the impact stated for each risk is the potential impact in stressed conditions, net of any risk mitigation adopted by the Group, as opposed to the 'expected' impact at higher levels of probability.
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Rating |
Risk Impact |
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1 |
A risk that could fundamentally threaten the Group's business model, future performance, solvency, liquidity, or reputation. |
|
2 |
A risk that could significantly impact the Group's business model, future performance, solvency, liquidity, or reputation. |
|
3 |
A risk that could materially impact the Group's business model, future performance, solvency, liquidity, or reputation. |
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1. Strategic and Business Risk
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Risk
Adverse change to regulatory framework
Description
The risk of a fundamental change to the regulatory framework which has a material adverse impact on the Group's business and economic model.
Impact rating
1
Potential impact
|
> |
Reduction in broking activity |
|
> |
Reduced earnings and profitability |
|
> |
Increases in regulatory capital requirements |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Monitoring of regulatory developments |
|
> |
Involvement in consultation and rule setting processes |
Key risk indicator
|
> |
Status of regulatory change initiatives |
Link to our strategic priorities and legal obligations
|
> |
Electronification |
|
> |
Aggregation |
|
> |
Diversification |
|
|
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.
This would include any deterioration in the macroeconomic conditions arising from the current situation with Russia and Ukraine.
Impact rating
1
Potential impact
|
> |
Reduction in broking activity |
|
> |
Pressure on brokerage rates |
|
> |
Reduced earnings and profitability |
Change in risk exposure since 2020
Increase
Mitigation
|
> |
Defined business development strategy that seeks to maintain client, geographical and product diversification |
|
> |
Stress test process (which includes reverse stress tests) to assess the Group's ability to absorb significant reductions in business performance and any changes to business model or risk mitigations required |
Key risk indicator
|
> |
Trade volumes |
|
> |
Revenues by region |
|
> |
Operating profit |
|
> |
Stress test results |
Link to our strategic priorities and legal obligations
|
> > > |
Electronification Aggregation Diversification |
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Risk
Failure to respond to client requirements
Description
The risk that the Group fails to respond to evolving customer requirements, including the demand for enhanced electronic broking solutions for certain asset classes.
Impact rating
2
Potential impact
|
> |
Loss of market share |
|
> |
Reduced earnings and profitability |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Proactive engagement with clients through customer relationship management process |
|
> |
Clearly defined business development strategy which seeks to anticipate and respond to its clients' evolving requirements |
Key risk indicator
|
> |
Performance against strategy implementation plans |
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> |
New business initiatives |
|
> |
Results of client engagement surveys |
Link to our strategic priorities and legal obligations
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> |
Electronification |
|
> |
Aggregation |
|
> |
Diversification |
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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.
Impact rating
3
Potential impact
|
> |
Loss of market share |
|
> |
Reduction in broking activity |
|
> |
Reduced earnings and profitability |
Change in risk exposure since 2020
Decrease
Mitigation
|
> |
Scaling-up of EU trading subsidiary to act as the trading hub for EU-based business |
|
> |
Changes to operating model to maintain UK-EU liquidity |
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> |
Proactive engagement with European regulators and clients |
Key risk indicator
|
> |
Brexit revenue-at-risk |
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> |
Performance against Brexit response plans |
Link to our strategic priorities and legal obligations
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> |
Aggregation |
|
> |
Diversification |
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Risk
Global health pandemic
Description
The risk that the Group experiences a significant deterioration in business performance due to a global pandemic (such as COVID-19).
Impact rating
2
Potential impact
|
> |
Reduction in broking activity |
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> |
Loss of market share |
|
> |
Reduced earnings and profitability |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Incident and Crisis Management Framework
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> |
Enhanced remote working capability and protocols developed in response to COVID-19 |
Key risk indicator
|
> |
Trade volumes |
|
> |
Revenues by region |
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> |
Operating profit |
|
> |
Risk events due to remote working |
Related principal strategic objectives
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> |
Diversification |
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Risk
Integration of Liquidnet
Description
The Group is exposed to the risk that it fails to successfully integrate the acquired Liquidnet business
into the wider TP ICAP Group or that the Group fails to achieve the financial growth targets underpinning the transaction.
Impact rating
2
Potential impact
|
> |
Failure to achieve financial targets |
|
> |
Damage to reputation |
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> |
Increased volatility in share price |
|
> |
Reduced ability to access capital markets |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Integration managed through a formal programme management structure |
|
> |
Action taken to secure key personnel |
Key risk indicator
|
> |
Performance against Liquidnet integration plans |
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> |
Performance against financial targets |
Related principal strategic objectives
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> |
Electronification |
|
> |
Aggregation |
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> |
Diversification |
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2. Operational Risk
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Risk
Cyber-security and data protection
Description
The risk that the Group fails to adequately protect itself against cyber-attack or to adequately secure the data it holds, resulting in potential financial loss (including through cyber-enabled fraud), a loss of operability, or the potential loss of critical business or client data.
Impact rating
1
Potential impact
|
> |
Loss of revenue |
|
> > > > |
Remediation costs Damage to reputation Regulatory sanctions Payment of damages/compensation |
Change in risk exposure since 2020
Increase
Mitigation
|
> |
Ongoing monitoring and assessment of the cyber-threat landscape |
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> |
Appropriate framework of systems and controls to prevent, identify and contain cyber threats |
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Key risk indicator
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> > > |
Cyber-security events/losses Vulnerability testing and monitoring Data loss events |
Related principal strategic objectives
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> |
Electronification |
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> |
People, conduct and compliance |
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Risk
Legal, Compliance and Conduct Risk
Description
The Group operates in a highly regulated environment and is subject to the legal and regulatory frameworks of numerous jurisdictions.
Failure to comply with applicable legal and regulatory requirements could result in enforcement action being taken against the Group, including the incurring of significant fines.
Impact rating
2
Potential impact
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> |
Regulatory and legal enforcement action including censure, fines or loss of operating licence
|
|
> |
Severe damage to reputation |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Compliance function to oversee compliance with regulatory obligations
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> |
Compliance monitoring and surveillance activity |
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> > |
Compliance training programme to ensure that staff are aware of the regulatory requirements Adoption of compliance culture to engender high standards of employee conduct |
Key risk indicator
|
> |
Internal Compliance policy breaches |
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> |
Employee conduct metrics |
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> |
Regulatory breaches |
Related principal strategic objectives
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> |
People, conduct and compliance |
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Risk
Broking process
Description
The Group is exposed to operational risk at every stage of the broking process, from the execution and
arrangement of transactions (with the associated risk of loss arising through closing out error positions
or compensating clients) through to the clearing, settlement and invoicing of transactions.
Impact rating
3
Potential impact
|
> |
Financial Loss |
|
> |
Damage to the Group's reputation as a reliable market intermediary |
Change in risk exposure since 2020
No change
Mitigation
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> |
On-desk supervision of broking activity
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> |
Issuing of trade recaps and confirmations |
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> |
Order and position limits on electronic order books |
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> |
Ongoing monitoring to identify potential error trades and any clearing or settlement issues |
Key risk indicator
|
> |
Risk events |
|
> |
Settlement fails |
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> |
Margin calls |
Related principal strategic objectives
|
> |
Electronification |
|
> |
People, conduct and compliance |
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Risk
Infrastructure
Description
The Group is heavily reliant on the effective and resilient operation of a range of infrastructure components, including:
> A complex IT architecture;
> A range of office locations; and
> Key third-party suppliers and market infrastructure providers.
A failure of the Group's infrastructure could result in a material loss of business.
Impact rating
3
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 2020
No change
Mitigation
|
> |
Framework of systems and controls to minimise the risk of operational failure
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|
> |
Incident and Crisis Management Framework |
|
> |
Business continuity plans and capability |
Key risk indicator
|
> |
System outages |
|
> |
Stress test results |
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Related principal strategic objectives
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> |
Electronification |
|
> |
People, conduct and compliance |
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Risk
Human capital
Description
The Group operates in a highly competitive recruitment market and is exposed to the risk of losing key front office, support or control staff who are essential to the effective operation of the business.
Impact rating
3
Potential impact
|
> |
Increased staff turnover impacting the Group's ability to operate a profitable and resilient business |
Change in risk exposure since 2020
Increase
Mitigation
|
> |
Fixed term front office contracts with staggered renewal dates |
|
> |
Performance management process linked to remuneration |
|
> |
Introduction of new flexible working arrangement |
Key risk indicator
|
> |
Staff turnover rates |
|
> |
Loss of key personnel |
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Related principal strategic objectives
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> |
People, conduct and compliance |
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3. Financial Risk
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Risk
FX exposure
Description
The risk that the Group suffers loss as a result of a movement in FX rates, whether through transaction risk or translation risk.
Impact rating
3
Potential impact
|
> |
Financial loss which could, in extreme cases, impact the Group's solvency and liquidity |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Ongoing monitoring of Group's FX positions |
Key risk indicator
|
> |
FX translation exposure |
|
> |
FX transaction exposure |
Related principal strategic objectives
|
> |
Diversification |
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|
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 its requirement to fund matched principal trades which fail to settle on settlement date.
Impact rating
3
Potential impact
|
> |
Reduction in the Group's liquidity resources which could, in extreme cases, impact the Group's cash-flow |
Change in risk exposure since 2020
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 revolving credit facility ('RCF') |
|
> |
Diversification of funding sources |
|
> |
Overdraft facilities provided by primary settlement institutions |
Key risk indicator
|
> |
Margin call profile |
|
> |
Settlement fail - funding requirements |
|
> > |
Unplanned intra-Group funding calls RCF draw-down |
Related principal strategic objectives
|
> |
Diversification |
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Risk
Counterparty credit risk
Description
The counterparty credit risk arising from outstanding brokerage receivables, unsettled trades and cash deposits.
Impact rating
3
Potential impact
|
> |
Financial loss which could, in extreme cases, impact the Group's solvency and liquidity |
|
|
|
Change in risk exposure since 2020
No change
Mitigation
|
> |
Counterparty exposures managed against credit thresholds that are calibrated to reflect counterparty creditworthiness |
Key risk indicator
|
> |
Portfolio exposure |
|
> > |
Exposure concentration Aged debt |
Related principal strategic objectives
|
> |
Diversification |
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4. Emerging Risks
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Risk
Technology expertise
Description
The financial markets in which the Group operates will become increasingly based on complex technology and the use of sophisticated data and analytics. The Group's ability to retain its position as a leading market infrastructure provider will be dependent on its ability to develop and implement a technology strategy which keeps pace with technological enhancements and to attract the required data scientists and technology specialists in an increasingly competitive recruitment market.
Impact rating
2
Potential impact
|
> |
Reduction in broking activity |
|
> |
Reduced earnings and profitability |
Change in risk exposure since 2020
No change
Mitigation
|
> |
Ongoing review of the Group's strategy in the context of broader market developments and assessment of the IT expertise and resourcing required to deliver it |
Time to materialisation
5 to 10 years
Related principal strategic objectives
|
> |
Electronification |
|
> |
Aggregation |
|
> |
Diversification |
|
|
Risk
Climate change - transition to net zero
Description
The risk that the Group fails to address any adverse impact on its business arising from the transition to a net zero global economy.
Impact rating
3
Potential impact
|
> |
Reduction in broking activity |
|
> |
Reduced earnings and profitability |
Change in risk exposure since 2020
Increased
Mitigation
|
> |
Ongoing monitoring of the impact of net zero policies on client and broader market activity, to ensure that the Group can adjust its business strategy to respond effectively if required |
Time to materialisation
< 5 years
Related principal strategic objectives
|
> |
Diversification |
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|
Risk
Deglobalisation
Description
The risk that the global economy becomes increasingly fragmented (as per the UK's recent departure from the EU) resulting in increasing divergence in regulatory regimes and the associated fragmentation of liquidity in the financial markets.
Impact rating
3
Potential impact
|
> |
Reduction in broking activity |
|
> |
Reduced earnings and profitability |
|
|
|
Change in risk exposure since 2020
No change
Mitigation
|
> |
Ongoing horizon scanning to identify potential changes to the geopolitical landscape and associated changes to the regulatory frameworks governing financial markets |
Time to materialisation
< 5 years
Related principal strategic objectives
|
> |
Aggregation |
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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 2021, which also represent the value of transactions during the year. The total amounts owed to and from related parties at 31 December 2021 are set out below:
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|
Amounts owed by related parties |
Amounts owed to related parties |
||
|
|
2021 £m |
2020 £m |
2021 £m |
2020 £m |
|
Associates Joint ventures Loans from related parties |
5 - - |
5 - - |
- (2) (51) |
- (3) (28) |
In August 2020, the Group entered into a Yen 10 bn committed facility with the Tokyo Tanshi Co., Ltd, a related party, that matures in February 2024. The loan for related parties is conducted on an arm's length basis. At 31 December 2021, Yen 8 bn (£51m) of the facility was drawn.
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, £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 135 to 145.
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2021 £m |
2020 £m |
|
Short term benefits |
4 |
5 |
|
Social security costs |
1 |
1 |
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Total |
5 |
6 |
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Appendix C: Directors' Responsibility Statement
The Directors confirm that to the best of their knowledge that:
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> |
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 they face; and |
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> |
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:
Andrew Eames
Group Company Secretary
Phone: +44 (0) 20 7200 7000
Email: Andrew.Eames@tpicap.com
For media enquiries please contact:
Richard Newman
Group Head of Marketing and Communications
Direct: +44 (0) 7469 039 307
Email: richard.newman@tpicap.com
For investor enquiries please contact:
Dominic Lagan
Head of Investor Relations
Direct: +44 (0) 20 3933 3040
Email: dominic.lagan@tpicap.com
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