Wahed Invest Ltd

Pillar 3 Disclosure 2021

Background

The European Union’s Capital Requirements Directive (“CRD”) came into effect on 1 January 2007 and introduced a set of regulatory capital adequacy standards and associated supervisory framework across the European Union. Within the United Kingdom, this is governed by the Financial Conduct Authority (“FCA”) in its regulations through the General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Banks, Building Societies and Investment firms (“BIPRU”).

The CRD framework consists of a three “Pillar” approach:

Pillar 1 establishes minimum capital requirements, defines eligible capital instruments, and prescribes rules for calculating risk weighted assets;

Pillar 2 requires banks and investment firms to have an Internal Capital Adequacy Assessment Process (“ICAAP”) and requires that regulatory supervisors evaluate each firm’s overall risk profile as well as its risk management and internal control processes; and

Pillar 3 encourages market discipline through a prescribed set of disclosure requirements which allow market participants to assess the risk and capital profiles of banks and investment firms.

The requirements for Pillar 3 disclosures are detailed in the FCA Handbook of Rules and Guidance under BIPRU 11.

Disclosure Policy

The information within the scope of Pillar 3 will be published on an annual basis on the Firm’s website, www.wahedinvest.com. Disclosure will be based on the position as at the Accounting Reference Date (31st December) and be published as soon as practicable after the year end and updated once the signed financial statements are available. The information included within the Pillar 3 disclosure will not be audited by Wahed’s external auditors and does not constitute any form of financial statement. The Firm is permitted to omit information deemed immaterial. Materiality is based on the criterion that omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions. Accordingly, where the Firm considers an item to be immaterial, it has not been disclosed. The Firm is also permitted to omit one or more of the required disclosures where it regards that information as proprietary or confidential. Proprietary information may include information on products or systems which, if shared with competitors, would render a firm’s investments therein less valuable, or which if shared with the public would undermine its competitive position. Information is regarded as confidential if there are obligations to customers or other counterparty relationships binding the firm to confidentiality. Where information is omitted for either of these reasons, this is stated in the relevant section of the disclosure, along with the reason for the disclosure. These Pillar 3 Disclosures will be reviewed on an annual basis as a minimum, the disclosures will be published as soon as practical following the finalisation of the firm’s Internal Capital Adequacy Assessment Process (ICAAP) and its annual accounts. All figures contained in this disclosure are based on our Board approved ICAAP report of January 2021.

Risk Management Wahed is governed by its Executive Directors and has established a UK Advisory Board (UKAB) who determine its business strategy and risk appetite. They are also responsible for establishing and maintaining the governance arrangements along with designing and implementing a risk management framework that recognises the risks that our business faces. The UKAB also determine how the business risks may be mitigated and continually assess the arrangements to manage those risks. The UKAB meet on a regular basis and discuss current projections for profitability, cash flow, regulatory capital management, and business planning and risk management. They manage Wahed’s risks though a framework of policy and procedures having regard to relevant laws, standards, principles and rules (including principles and rules of the FCA) with the aim to operate a defined and transparent risk management framework. These policies and procedures are updated as required.

Areas of risk to which Wahed are exposed include Credit Risk & Counterparty Risk, Operational Risk, Concentration Risk, Liquidity Risk, Business and Strategic Risk. Credit Risk & Counterparty Risk

Wahed does not extend credit to its clients. Revenue is gained from annual management fees received from clients based on a percentage of assets under management. These charges are made directly to the clients’ portfolios therefore the credit risk relating to this income is negligible. Credit risk is the risk regarding the counterparty where Wahed UK place the firm’s client funds. Wahed UK’s Bank is Barclays Bank who has a Moody’s Long-Term credit rating of Baa3 and as such is deemed as a rare probability risk of failure, and a low impact as the firm’s funds would be segregated and the funds would be able to be easily moved to another bank. As such this risk has not been quantified as impactful in the ICAAP. The firm follows the simplified standard approach to credit risk and the firm’s assessment of capital requirements includes an assessment of credit risk. Counterparty Risk is defined, primarily as the risk of default by the firm who would be the financial party to the Wahed UK funds. Initially, at least, the funds and investments will be held at WealthKernel Ltd. This would impact Wahed UK by losing the firm’s client balances. This is a newly established provider of these services and the risk table considers these issues under the headings: Institutional Client/Counterparty Characteristics, Credit Risk and Settlement Risk. Due to the nature of the business, whereby, Wahed UK execute the management of the funds using counterparties these risk evaluations determine the probability to the firm as being unlikely or rare with an impact of low. The impact would arise solely from the default of the counterparty, which, due to the calibre of the institutions where the funds will be held, is deemed unlikely. As such, this risk has not been quantified as impactful within the ICAAP.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal, tax and financial crime risks, but excludes reputational, business and strategic risk. The risk table analysis considers these issues under the headings: Conflicts of Interest, Litigation/Legal Risk for client/broker, Strategic Risk, Accepting Customers, People Risk, Business Continuity Planning Risk, Operational Risk and IT Risk. The risk table analysis gives a probability of these risks as rare with an impact of low for the Conflicts of Interest, Strategic Risk, Accepting Clients, Business Continuity Planning, Operational Risk, People Risk and IT Systems and rare and high for the Legal Risks. As these all fall in the risk register of Non – Impactful, no additional capital is deemed required under the Pillar 2 rule.

Concentration Risk

Concentration risk is that associated with the firm’s exposure to sectoral, geographic, liability and asset concentrations. A firm must have written policies and procedures so that they can address and control any such risk to counterparties. 100% of the firm’s business is conducted through one type of business, that of Shari’ah portfolio management and income is resultant upon Assets under Management and returns. Should the portfolios return less than expected by the clients they could look to close their account; however, we do not believe this will have a material impact as the target market requirements are that the money they invest must be in line with their faith. Therefore, as they are limited other Shari’ah compliant solutions in the market place it is expected that clients will

keep their funds invested. This risk has been reflected in the concentration risk, institutional product/market characteristics and retail product characteristics. In the risk matrix these risks have all been designated as Non – Impactful, no additional capital is deemed required under the Pillar 2 rule.

Liquidity Risk

Liquidity risk is defined as the firm, although solvent, being unable to meet the firm’s financial requirements as they fall due. Wahed is operating regulated activities from a very low-cost base, with experienced staff and proven business model, which should be able to relatively quickly make the firm profitable. Wahed UK also have a liquidity plan, detailed below, which confirms that if the firm were to encounter any short-term liquidity issues, the Parent firm, would inject capital into the firm. The risk table has assigned a rare probability and low impact to this risk so no additional Pillar 2 funding is therefore required.

Business and Strategic Risk This is the risk associated with the fluctuating business cycles and economic conditions over a period of time and, if these business or economic conditions deteriorate over time, the ability of the firm to carry out its business plan and strategy or raise new capital in unfavourable conditions. The firm has a relatively low fixed overhead requirement combined with experience and contacts, which should enable the firm to commence profitable operation virtually immediately. Should further capital be required to assist the firm over the foundation phase, the owners would be prepared to inject further capital, although this is perceived as unlikely in the foreseeable future, therefore no additional capital is required under the Pillar 2 rule.

Disclosure Policy Scope of Application

Wahed Invest Ltd (“Wahed”) is authorised and regulated by the Financial Conduct Authority (the “FCA”) Firm Reference Number 833225 and provides discretionary investment management services. It is a BIPRU 50k Limited Licence Firm for capital adequacy purposes and is not required to prepare consolidated reporting for prudential purposes.

Capital Resources

As at 31 December 2020 the firm’s capital position was as follows: Pillar 1 Capital Requirement Core Equity Tier 1 Capital - £161,927

Pillar 1 In accordance with the FCA handbook GENPRU 2.1.45R, which provides the calculation of variable capital requirement for a BIPRU firm, our capital requirement has been determined as being our fixed overhead requirement and not the sum of our credit risk capital requirement and our market risk capital requirement. As at 31st December 2020, under Pillar 1, Wahed’s minimum regulatory capital requirement is equal to the Fixed Overheads requirement of £135,459. Pillar 2 The capital required under Pillar 2 is the sum of the capital required under Pillar 1 plus any additional capital required to be maintained against risks not adequately covered by Pillar 1 capital.

Wahed’s overall approach to assessing the adequacy of its internal capital is set out in its ICAAP. The ICAAP involves consideration of a range of risks we face and determines the level of capital needed to cover such risks. The level of capital required to cover identified risks is a function of their impact and probability and risk mitigation controls in place. Wahed’s Pillar 2 capital requirement, which is our own assessment of the minimum amount of capital that we believe is adequate against the risks identified, has been assessed as lower than our Pillar 1 requirement. There is a surplus of reserves above the capital resource requirement deemed necessary to cover the risks identified. Stress and scenario tests performed during the ICAAP support management’s view that adequate capital is held by the firm under Pillar 2.

Compliance with BIPRU 3, BIPRU 4, BIPRU 7 and the overall Pillar 2 rule BIPRU 3 (Standardised Credit Risk)

Wahed has adopted the standardised approach to the calculation of the credit risk capital component of the Capital Resources Requirement (BIPRU 3, Standardised credit risk), being 8% of the total of its risk weighted exposure amounts for exposures falling into BIPRU 3.1.6R (exposures on a firm’s non-trading book that have not been deducted from the firm’s capital resources under GENPRU 2.2). The firm does not run a trading book.

BIPRU 4 (The IRB Approach)

BIPRU 4 is not applicable to the Firm as the Internal Ratings Based approach has not been adopted in the calculation of Credit Risk.

BIPRU 7 (Market Risk)

Foreign Exchange Risk is defined as the loss arising from fluctuations in foreign exchange rates. Wahed UK has no foreign currency accounts and the income will be in GBP, the currency of the costs of the firm. This is covered in the risk table as part of the liquidity risk due to the risk of a lack of liquidity if income and exposure were in two different currencies. The risk table has assigned a rare probability and low impact to this risk so no additional Pillar 2 funding is therefore required.

Overall Pillar 2 Rule

In accordance with Pillar 2, the Firm undertakes an annual ICAAP review in order to identify specific risks and any applicable mitigating actions and controls, with additional capital being assigned to material residual risks. There were no additional capital requirements assessed under the Firm’s ICAAP (January 2021). The total capital requirement is therefore £135,459.

Remuneration Disclosure

As a BIPRU limited licence firm, Wahed is within scope of the FCA’s Remuneration Code (the “Code”), which governs the application of remuneration policies and practices within the firm in order to promote sound and effective risk management. Whilst appreciating the contribution that can be made by a remuneration committee, Wahed considers that such a body would not be proportionate to the size and complexity of the business. The role of setting remuneration is undertaken instead by Wahed’s governing body. Remuneration for Code Staff consists of fixed (‘salary’) and variable (‘bonus’) components. Salary is set in line with market rates in order to retain and if necessary, attract appropriately skilled staff. Bonus awards are performance related, taking into consideration both success in meeting individual targets, and the overall results of the firm, especially the accrual of successrelated fee income. Individual targets will not relate solely to financial criteria, but will also look at compliance with regulatory obligations, and adherence to effective risk management over both the short- and long-term time horizon. As awards will reflect the financial performance of the firm as a whole, based on profits rather than revenue or turnover, variable remuneration may be contracted where subdued or negative financial performance occurs in the time period in question. Wahed will not ordinarily make any variable remuneration awards should the firm make a loss. In exceptional circumstances where such payments may need to be considered to reward outstanding individual performance, the governing body in conjunction with the Chief Compliance Officer will consider and document whether such an award would be consistent with the underlying principles of the Remuneration Code. The FCA rules require certain firms to disclose aggregate information on remuneration in respect of its Remuneration Code Staff broken down by business area, senior management and other Code Staff, including “material risk takers”. The firm has identified 2 Code Staff in total for the year ending 2020. Aggregate Quantitative Information on Remuneration We are subject to data protection legislation when disclosing remuneration information. Such legislation prohibits disclosing information that will result in individual information being easily identifiable due to such a small number of Staff. Remuneration disclosures will therefore be made on a limited basis in terms of any publicly or Company-wide circulation. However, all necessary information will be made available to a regulatory authority on request.

Wahed Invest Ltd | Pillar 3 Disclosure

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