Principles of Risk Management

Risk management aims to identify threats that may affect the implementation of the Group’s strategy or jeopardise the achievement of the capital adequacy or profitability targets. The objective of risk management is to minimise the probability of unexpected monetary losses and realisation of reputational risk. The parent company`s Board of Directors has confirmed the company’s risk management policy and supervises risk management.

The organisational structure is flat, and each employee has one of the company’s partners as his or her superior. Thus, risk management is the responsibility of each employee, and each employee must understand the risks related to his or her duties and try to minimise them.

Together with other compliance officers, the Group’s General Counsel ensures that the Group operates in compliance with legislation and official regulations. The Group has a risk management function which prepares matters related to risk management and reports them to the parent company’s Board of Directors. The Board provides risk management guidelines in internal instructions upon request by the Group’s risk management function. Compliance with the instructions is monitored through inspections carried out according to the relevant rules and regulations.

The Group’s business is not deliberately exposed to market, credit or counterparty risks. Instead, the company’s operations in its key business areas (investment banking and private equity funds) are fee-based. The company also has a low risk exposure when investing its own assets.

The following sections describe the main risks of investment service companies from the viewpoint of the ICECAPITAL Group.

Credit Risk

Realisation of a credit risk means that a counterparty has failed to fulfil its contractual financial obligations. The Group’s counterparties include partners and customers who purchase its services. The impact of credit risk on the company’s own assets is minor as the Group’s customers are solvent and have a well-established position.

Market Risks

Market risks arise from fluctuations in the equity, fixed-income, real estate and currency markets and their impact on the Group’s results. The impact on the ICECAPITAL Group is fairly minor due to the investment policy applied by the company. The company’s assets have been invested with moderation and a long-term investment span.

Liquidity Risk

Liquidity risk refers to a situation in which the company’s cash and cash equivalents are insufficient and no additional financing is available. The ICECAPITAL Group is highly solvent. In practice, the bulk of the Group’s assets is held in bank deposits and in liquid shares. Moreover, since the Group has relatively steady and predictable cash outflows, it can prepare well for its liquidity needs. Consequently, liquidity does not constitute one of the Group’s main risks.

Operational Risks and Reputational Risk

If they materialise, operational risks cause damage as a result of inadequate or incorrect routines, processes or conduct, or through unexpected external events. Operational risks also include legal risks, such as invalidity of contracts already signed and damage caused by incomplete documentation or violation of laws or official regulations. The Group’s expenses from operational risks have been low to date.

Operational risks are monitored continuously, and the actual risks are reported. The business units are responsible for managing the operational risks of their own area. The results of the self-assessment of operational risks carried out by the units are used as a basis when trying to prevent operational risks. Efforts are made to reduce the risks observed by developing internal instructions and processes, training personnel and auditing operations. In addition, the ICECAPITAL Group has insurance to cover damage caused by mistakes, misconduct and criminal activity. Contingency planning keeps the Group prepared for any major interference in operations.

One of the most significant types of damage caused by operational risks could be reputational risk concerning the Group. Operating in the financial markets requires the absolute trust of customers and partners, and the realisation of reputational risk could have a detrimental effect on the Group’s business. In order to avoid this risk, ICECAPITAL monitors and follows legislation concerning its operations and good market practice and strives to continuously develop its procedures.

Strategic Risk and Business Risk

Strategic risks and business risks arise from competition, internal pressures or market forces which result in unexpected fluctuations in volumes, margins and costs, thus affecting the volatility of earnings and the achievement of long-term business goals. They may also arise from opting for a wrong strategy, from mismanagement and inadequate monitoring or from slow reaction to changes in the operating environment.

The Group forms an opinion about new products and services, even if future demand for them is uncertain. One of ICECAPITAL’s core competencies is predicting the future needs of investors and companies before others do. To minimise the risk, all significant strategic decisions and investments are made only after comprehensive surveys and risk assessments.

International Risks

The ICECAPITAL Group’s international risks are related to the ICECAPITAL Nordic Secondary Fund S.C.A., SICAR fund established in 2010. Although external investors in the funds accept the risk of losses with the hope of future profits, the occurrence of significant losses would have a detrimental impact on the company’s reputation.

The amount of assets tied up in ICECAPITAL Securities (Sweden) AB, which provides Corporate Finance advisory services in Sweden, is reasonable in view of the Group´s solvency and will not jeopardise the continuity of operations.

Capital Adequacy

According to the Capital Requirements Regulation (Regulation [EU] No. 575/2013), the requirements for own funds must be met as follows: CET1 capital must account for at least 4.5%, T1 capital for at least 6% and total capital for at least 8 % of the total risk exposure amount. On December 2018, ICECAPITAL Securities Ltd´s total capital accounted for 196.0 per cent of the total risk exposure amount.

ICECAPITAL has drawn up an equity plan in accordance with the capital adequacy regulations, which describes the risk-based capital needs, sufficiency of capital and solvency. The Group aims to maintain a capital adequacy ratio at least 1.5 times that required.