Compagnie Financiere Tradition : Pillar 3 Disclosures Document 2021

Tradition UK Holdings Limited

PILLAR 3 DISCLOSURES - 2021

1 INTRODUCTION

1.1 Background

The Investment Firms Prudential Regime ("IFPR") came into force from 1 January 2022 and is applicable to Tradition UK Holdings Limited ("TUH") and its subsidiaries that that are UK regulated entities (see 2.1 below for the entities in scope). The IFPR requirements have been incorporated into UK regulation in the MIFIDPRU sourcebook section of the FCA handbook. According to MIFIDPRU 8 a firm's accounting reference date sets the date for reporting and, per MIFIDPRU TP 12 transitional arrangements, the first date that the TUH UK regulated entities will report under IFPR will be 31 December 2022. For 31 December 2021 year end the TUH UK regulated entities will continue to report under the Capital Requirements Regulation ("CRR") and Capital Requirements Directive ("CRD"), together referred to as "CRD IV".

The regulatory framework established by CRD IV consists of three Pillars:

1. Pillar 1 sets out the minimum capital required to meet a firm's credit, market and operational risk;
2. Pillar 2 requires a firm to establish an Internal Capital Adequacy Assessment Process ("ICAAP") to establish whether its Pillar 1 capital requirement is sufficient to cover all the risks faced by the firm, and if not, to calculate the additional capital required. The ICAAP is then subject to review by the
   Financial Conduct Authority ("FCA"), through the Supervisory Review and Evaluation Process ("SREP"); and
3. Pillar 3 requires a firm to disclose specific information concerning its risk management policies and procedures, and its regulatory capital adequacy position.

Articles 431 to 455 of Capital Requirements Regulation ("CRR") set out the specific Pillar 3 disclosure requirements and the purpose of this document is to enable TUH's UK incorporated, FCA regulated subsidiaries to meet these requirements.

1.2 Disclosure Policy

In accordance with CRR Article 431(3), TUH has adopted a formal disclosure policy to comply with the disclosure requirements and has policies for assessing the appropriateness of the disclosures, including their verification and frequency.

Under CRR Article 432(1), a group may omit one or more of the required disclosures if the information is not material, that is that the information would not be likely to change or influence the decision of a user relying on that information for the purposes of making an economic decision.

Under CRR Article 432(2), a group may omit one of more of the required disclosures if they would require the disclosure of any information regarded as proprietary or confidential that is information which would, respectively, undermine a competitive position or breach an obligation of confidence between a group and its customers.

In accordance with CRR Article 433 and 434, TUH will publish this disclosure at least annually on the Tradition.com website.

2 RISK MANAGMENT

2.1 TUH - Management and Control

TUH is currently composed of the following UK incorporated, FCA authorised and regulated entities (referred to herein as "TUH UK regulated entities"):

:

• Tradition (UK) Limited ("TUK")
• Tradition Financial Services Ltd ("TFS")
• TFS Derivatives Limited ("TFD")
• Tradition London Clearing Limited ("TLC")

Additionally, Tradition UK Holdings Limited has a subsidiary in Spain that is regulated by the CNMV:

• TFS España Sociedad de Valores S.A.U.

TUH entities are provided with administrative support services by a UK incorporated sister company, Tradition Management Services Limited ("TMS"). Costs incurred by TMS are recharged to the appropriate TUH entity.

All TUH entities are subsidiaries or affiliates, via different intermediate holding companies of Compagnie Financiere Tradition ("CFT"), which is the holding company of all the 'Tradition' businesses and is listed on the Swiss stock exchange. CFT itself is a subsidiary of Viel et Compagnie SA, a company listed on Euronext Paris, which is a subsidiary of Viel et Compagnie Finance SE.

TUH 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 governance and controls structure for TUH is based on the following three lines of defence:

• First line - process owners and the management functions which have primary responsibility for the assessment and monitoring of their own risks;
• Second line - support functions which provide the business with specialist support in analysing risks and monitoring controls; and
• Third line - independent assurance, in particular oversight, review and validation by Internal Audit.

The boards of directors of the TUH UK regulated entities operate as a harmonised board and so are referred to as "the TUH Board" herein.

The TUH 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 the Audit and Risk Committee;
• Ensuring the independence of the control functions such as Compliance and Risk Management;
• Ensuring the independence of Internal Audit (assurance activity); and
• Verifying that independent control functions operate correctly.

Recruitment policy for the selection of members of the Board follows FCA requirements (outlined in the FCA's Senior Management Arrangements, Systems and Controls section of its rule-book) and a suitability assessment is completed. A multiple-stage interview and selection process, in accordance with TUH's equal opportunities policy, is conducted to ensure that the Board is able to assess a potential director's aptitude, skills and experience and gauge the potential contribution to achieving TUH's strategic objectives.

The directors of TUH and of the TUH UK entities' boards as at 31 December 2021 were as follows ("Y" indicates a directorship of the entity):

The TUH Board has provided delegated authority to Michael Anderson, as CEO, who chairs a weekly Executive Committee consisting of senior members of the Executive Management. The Executive Committee is supported by two functional committees: i) the Risk, Capital, Liquidity, Regulatory and Controls Committee and ii) the Conduct Committee.

The TUH Board is supported by the Audit Committee and the Risk Committee, each a sub-committee that shares information with the CFT Group Audit Committee. Both Committees met four times in 2021 (meeting jointly during 2021 and as separate committees from 1 January 2022, as required by IFPR).

Audit Committee responsibilities include the following:

• monitoring the integrity of and approving TUH entities' financial statements; and
• overseeing the internal audit function, ensuring that an appropriate internal audit plan is established and that recommendations are complied with, in a timely manner.

Risk Committee responsibilities include the following:

• reviewing and assessing the Enterprise-wide Risk Management Framework (including risk appetite, RCSA and key risk indicators);
• providing independent assurance to TUH Board on the effectiveness of systems, controls, policies and procedures; and
• reviewing and assessing the adequacy of the business continuity arrangements.

Risk information and escalation of issues flow from the functional committees to the Risk Committee and onto the Board.

Additionally, the Remuneration, Appointments and Allocation Committee is a sub-committee of the TUH Board met on five occasions in 2021. From 1 January 2022, as required by IFPR as separate, a TUH Remuneration Committee has been established to review the operation and effectiveness of TUH remuneration policy.

2.2 TUH - Governance and Control Framework

The governance framework is based upon the concept of three internal lines of defence against risk. This concept aims to ensure that accountability for the management of risk is embedded in day-to-day management.

The First Line of Defence

The first line of defence consists of operations and business process owners across London entities 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 organisation, 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 dual reporting line into the Chief Control Officer and to the Audit and Risk Committee. The Chief Risk Officer is responsible for the measurement, monitoring and reporting of risks within TUH and for driving the development of risk management capability and the enterprise-wide risk management framework.

Compliance Function - The London Head of Compliance has a dual reporting line to the Chief Control Officer and TUH 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.

The Third Line of Defence

The third line of defence consists of the internal audit function, which is responsible for providing independent review and assurance of the effectiveness of the systems and controls established by the first and second lines. As a third line of defence, the Internal Audit function provides assurance to the Executive Committee, the Audit Committee and TUH Board on the adequacy of the internal controls, risk management and governance processes, in particular when these are affected by material changes to the Group's risk environment.

The internal audit function for London is outsourced to PwC. On an annual basis, Internal Audit prepares an audit programme. The programme is developed working closely with the local and Group control functions, and the external auditors. The programme is approved by the Audit Committee. Internal Audit provides regular update reports to the Audit Committee focusing on key findings and their resolution.

2.3 Risk Management

The objectives of enterprise-wide risk management for TUH are:

• To identify and assess the risks posed to TUH entities and their branches;
• To identify, implement, assess and monitor mitigation strategies in order to reduce TUH entities' gross risk exposure;
• To alert TUH Board of any substantive threats to its risk appetite;
• To identify, record and analyse risk events;
• To monitor key risks and report on their threat levels;

• To ensure that issues identified internally or by third parties are recorded, remediated, escalated and reported;
• To ensure the various components of the Enterprise-wide Risk Management Framework are integrated and cohesive (including the frameworks for Operational Risk Management and Liquidity Risk Management);
• To provide senior management with risk-related information in order to encourage risk-informed decision making;
• To embed a robust risk management culture within TUH entities; and
• To contribute to the risk-based quantification of regulatory capital and to the continuous improvement of the management of the capital requirements.

2.4 Risk Categorisation and Profile

Risk categories of relevance for TUH include:

i.Credit Risk (including default, settlement and concentration risk)

TUH utilises a centralised credit team managed by CFT Lausanne which has responsibility for assessing, challenging and setting credit ratings and trading limits for the matched principal/cleared broking trading businesses. Daily limit and breach reports are created for monitoring and enforcement purposes. The CFT Credit Function ensures that credit exposures are monitored and that appropriate management information is provided to management.

TUH is exposed to settlement risk in its matched principal/cleared broking businesses if a client defaults on one of the legs of the trade. All transactions are managed on a Delivery Versus Payment ("DVP") basis. A trade is deemed to be completed when both sides of a deal are settled, which is once payment is made and securities are delivered. TUH is therefore exposed to settlement risk between trade date and settlement date when at least one side of a transaction remains unsettled beyond the agreed settlement period. Unsettled trades are marked to market and closely monitored. The relevant TUH settlement department will liaise with counterparties to ensure that unsettled trades are resolved as quickly as possible; monitoring will take into account counterparty rating, underlying liquidity class, mark to market and capital requirement; ultimately, where justified, buy-ins will be triggered e.g. in case of technical default or counterparty insolvency.

In rare circumstances, when transactions arranged by TUH between two clients are not completed as arranged, due to a difference or error, TUH may be left with a naked long or short position that needs to be closed out in the market. As these are error related they are deemed to fall under Operational Risk. To manage this risk, it is company policy to close any positions as quickly as possible at the next available price.

TUH's Finance function assesses and manages the cash held with banks and the commission receivables from customers in order to assess and monitor overdue receivables. Where recovery of all or part of amounts due is in doubt, Finance is responsible for establishing provisions so that balance sheet values fairly reflect potential credit losses. TUH's Finance function has an agreed methodology that is used and is aligned with applicable accounting and regulatory requirements. Oversight of the provision process is undertaken through the Credit Control Committee.

TUH has an inherent concentration risk within its debtor profile. The exposure to concentration risk is managed through monitoring overdue client debtor balances and taking action via the Credit Control Committee.

TUH has not experienced any significant credit losses. The universe of core clients of TUH is primarily comprised of banks and financial institutions.

ii.Market Risk

TUH 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. Foreign currency risk is analysed and managed by the Finance