Rugby Asset Management

The Capital Requirements Directive ('the Directive') of the European Union establishes a revised regulatory capital framework across Europe governing the amount and nature of capital credit institutions and investment firms must maintain. In the United Kingdom, the Directive has been implemented by the Financial Services Authority ('FSA') in its regulations through the General Prudential Sourcebook ('GENPRU') and the Prudential Sourcebook for Banks, Building Societies and Investment Firms ('BIPRU').

The FSA 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 FSA; and
• Pillar 3 requires disclosure of specified information about the underlying risk management controls and capital position.

The rules in BIPRU 11 set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 obligations.

We are permitted to omit required disclosures if we believe that the information is immaterial such that omission would be unlikely to change or influence the decision of a reader relying on that information.

In addition, we may omit required disclosures where we believe that the information is regarded as proprietary or confidential. In our view, proprietary information is that which, if it were shared, would undermine our competitive position. Information is considered to be confidential where there are obligations binding us to confidentiality with our customers, suppliers and counterparties.

We have made no omissions on the grounds that it is immaterial, proprietary or confidential.

Scope and application of the requirements
Rugby Asset Management Limited (‘RAM' or the ‘Company') is authorised and regulated by the Financial Services Authority. RAM carries out property investment, advisory and management activities for clients. RAM is a wholly owned subsidiary of Rugby Estates Plc, which is a public quoted company listed on the Alternative Investment Market. RAM is the only company in the Rugby Estates Plc Group which carries out any regulated activities and these disclosures relate to RAM only.

Risk management
RAM is governed by its directors ('the Board') who determine its business strategy and risk appetite. They are also responsible for establishing and maintaining the Company's governance arrangements along with designing and implementing a risk management framework that recognises the risks that the business faces.

The Board also determine how the risks which RAM's business faces may be mitigated and assess on an ongoing basis the arrangements to manage those risks. The Board meets on a regular basis to review current projections for profitability, cash flow, regulatory capital management, and business planning and risk management. The Board manages the Company's risks though a framework of policies and procedures having regard to relevant laws, standards, principles and rules. These policies and procedures form part of the risk identification and control policies and procedures of the larger Rugby Estates Plc Group and are updated as required.

The Board have identified that business, reputational, operational and credit risks are the main areas of risk to which the Company is exposed. The Board formally reviews the risks, controls and other risk mitigation arrangements and assesses their effectiveness on an annual basis. Where the Board identifies material risks the financial impact of these risks is considered as part of the Company's business planning and capital management and in considering whether the amount of regulatory capital is adequate.

Regulatory capital
Rugby Asset Management Limited is a company limited by shares and its capital arrangements are established in its Articles of Association. Its audited shareholders' funds as shown in its audited accounts as at 31st January 2009 were as follows:

The main features of the Group's capital resources as at 31 January 2009 for regulatory purposes are as follows:

RAM is a limited licence firm and as such the capital requirements are the greater of:

• Its base capital requirement of €125,000; or
• The sum of its market and credit risk requirements; or
• Its Fixed Overhead Requirement.

RAM is small with a simple operational infrastructure. Its balance sheet credit risk is from management fees receivable from the funds under its management and from bank deposits and other current asset investments. RAM follows the simplified standard approach to credit risk. Credit risk as at 31 January 2009 arose in respect of UK bank deposits of £1,134,000 and debtors based in the UK and Guernsey of £1,094,000. Assets and liabilities are all denominated in pounds sterling and RAM does not consider there to be any material exposure to market risk. RAM considers operational risk to be adequately covered by the Fixed Overhead Requirement.

Based on RAM's audited accounts for the year ending 31 January 2009, the formal capital requirement as at that date was the Fixed Overhead Requirement of £382,000. However, taking into account other risks, the Company's capital requirement was assessed by the Board as at 31 January 2009 at £500,000.