Disclosures

Legal ground for disclosures

In accordance with paragraph 23 of Directive DI144-2014-14 of the Cyprus Securities and Exchange Commission for the Prudential Supervision of Investment Firms (hereinafter the “Directive”), Cyprus Investment Firms (hereinafter “CIFs”) that maintain a website shall explain there, how they comply with the requirements of paragraphs 18 (Country-by-country reporting), 19 (Public disclosure of return on assets), 20 (Remuneration policies), 21 (Variable elements of remuneration) and 22 (Remuneration committee) of this Directive and of sections 12 (Persons who effectively direct the business of a CIF) and 18A (Governance arrangements) of the Investment Services and Activities and Regulated Markets Laws of 2007.

This section contains information about the measures taken by Leon MFO Investments Limited (hereinafter “the Company”) to comply with the above provisions.

Country-by-country reporting

From 1 January 2015 Cypriot Investment Firms are required to disclose annually, specifying, by Member State and by third country in which it has an establishment, the following information on a consolidated basis for the financial year:

(a) name(s), nature of activities and geographical location
(b) turnover;
(c) number of employees on a full time equivalent basis;
(d) profit or loss before tax;
(e) tax on profit or loss;
(f) public subsidies received.

The information referred to here above shall be audited in accordance with the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009 and shall be published, where possible, as an annex to the annual financial statements or, where applicable, to the consolidated financial statements of the CIF concerned.

The above stated information is disclosed in the notes to the Financial Statements of the Company. The Company’s Report and Financial Statements can be made available upon request at leonmfo@leonmfo.com.

Public disclosure of return on assets

CIFs must disclose in their annual report among the key indicators their return on assets, calculated as their net profit divided by their total balance sheet.

The above stated information is disclosed in the notes to the Financial Statements. The Company’s Report and Financial Statements can be made available upon request at leonmfo@leonmfo.com.

Remuneration policies

When establishing and applying the total remuneration policies, inclusive of salaries and discretionary pension benefits, for categories of staff including:

  • senior management,
  • risk takers,
  • staff engaged in control functions,
  • any employee receiving total remuneration that takes them into the same remuneration bracket as senior management, and
  • risk takers, whose professional activities have a material impact on their risk profile

CIFs must comply with the following principles in a manner and to the extent that is appropriate to their size, internal organization and the nature, scope and complexity of their activities:

(a) the remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the CIF;

(b) the remuneration policy is in line with the business strategy, objectives, values and long-term interests of the CIF, and incorporates measures to avoid conflicts of interest;

(c) the CIF’s board of directors adopts and periodically reviews the general principles of the remuneration policy and is responsible for overseeing its implementation;

(d) the implementation of the remuneration policy is, at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the board of directors;

(e) staff engaged in control functions are independent from the business units they oversee, have appropriate authority, and are remunerated in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control;

(f) the remuneration of the senior officers in the risk management and compliance functions is directly overseen by the board of directors;

(g) the remuneration policy, taking into account national criteria on wage setting, makes a clear distinction between criteria for setting:

  1. basic fixed remuneration, which should primarily reflect relevant professional experience and organizational responsibility as set out in an employee’s job description as part of the terms of employment; and
  2. variable remuneration which should reflect a sustainable and risk adjusted performance as well as performance in excess of that required to fulfill the employee’s job description as part of the terms of employment.

The Company complies with all the requirements stated here above.

In order to enforce the discipline of reviewing the Company’s remuneration policy to ensure that it remains relevant, effective and relevant, and in compliance with the provisions of paragraph (c) above, the Company has committed to a process of reviewing the policy at least once per year. The policy is also reviewed and updated on an ad-hoc basis, either as a result of changes in the legislation or in practice.

In view of complying with the provisions of paragraph (d) above, the Company has mandated PwC Cyprus to perform a review, on an annual basis, of the implementation of the remuneration policy.

Variable elements of remuneration

For variable elements of remuneration, the following principles shall apply:

(a) where remuneration is performance related, the total amount of remuneration is based on a combination of the assessment of the performance of the individual and of the business unit concerned and of the overall results of the CIF and when assessing individual performance, financial and non-financial criteria are taken into account;

(b) the assessment of the performance is set in a multi-year framework in order to ensure that the assessment process is based on long-term performance and that the actual payment of performance-based components of remuneration is spread over a period which takes account of the underlying business cycle of the CIF and its business risks;

(c) the total variable remuneration does not limit the ability of the CIF to strengthen its capital base;

(d) guaranteed variable remuneration is not consistent with sound risk management or the pay-for-performance principle and shall not be a part of prospective remuneration plans;

(e) guaranteed variable remuneration is exceptional, occurs only when hiring new staff and where the CIF has a sound and strong capital base and is limited to the first year of employment;

(f) fixed and variable components of total remuneration are appropriately balanced and the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component;

(g) CIFs must set the appropriate ratios between the fixed and the variable component of the total remuneration, whereby the following principles shall apply:

    1. the variable component shall not exceed 100% of the fixed component of the total remuneration for each individual.
    2. Shareholders of the CIF may approve a higher maximum level of the ratio between the fixed and variable components of remuneration provided the overall level of the variable component shall not exceed 200% of the fixed component of the total remuneration for each individual.
    3. Any approval of a higher ratio in accordance with point (g)(ii) must be carried out in accordance with the following procedure:

    • the shareholders must act upon a detailed recommendation by the CIF giving the reasons for, and the scope of, an approval sought, including the number of staff affected, their functions and the expected impact on the requirement to maintain a sound capital base;
    • shareholders must act by a majority of at least 66% provided that at least 50% of the shares or equivalent ownership rights are represented or, failing that, must act by a majority of 75% of the ownership rights represented;
    • the CIF must notify all shareholders of the CIF, providing a reasonable notice period in advance, that an approval under the first subparagraph of this point will be sought;
    • the CIF must, without delay, inform the Commission of the recommendation to its shareholders, including the proposed higher maximum ratio and the reasons therefore and must be able to demonstrate to the Commission that the proposed higher ratio does not conflict with the CIF’s obligations under this Directive and under Regulation (EU) No 575/2013, having regard in particular to the CIF’s own funds obligations;
    • the CIF must, without delay, inform the Commission of the decisions taken by its shareholders, including any approved higher maximum ratio pursuant to point (g)(ii), and the Commission must use the information received to benchmark the practices of CIFs in that regard. The Commission shall provide the European Banking Authority (“EBA”) with that information and EBA shall publish it on an aggregate home Member State basis in a common reporting format;
    • staff who are directly concerned by the higher maximum levels of variable remuneration referred to in point (g)(ii) of this paragraph must not, where applicable, be allowed to exercise, directly or indirectly, any voting rights they may have as shareholders;
  1. CIFs may apply the discount rate to a maximum of 25% of total variable remuneration provided it is paid in instruments that are deferred for a period of not less than five years.

(h) payments relating to the early termination of a contract reflect performance achieved over time and do not reward failure or misconduct;

(i) remuneration packages relating to compensation or buy out from contracts in previous employment must align with the long-term interests of the CIF including retention, deferral, performance and claw back arrangements;

(j) the measurement of performance used to calculate variable remuneration components or pools of variable remuneration components includes an adjustment for all types of current and future risks and takes into account the cost of the capital and the liquidity required;

(k) the allocation of the variable remuneration components within the CIF must also take into account all types of current and future risks;

(l) a substantial portion, and in any event at least 50%, of any variable remuneration must consist of a balance of the following:

  1. shares or equivalent ownership interests, subject to the legal structure of the CIF concerned or share- linked instruments or equivalent non-cash instruments, in the case of a non-listed CIF;
  2. (where possible, other instruments within the meaning of Article 52 or 63 of Regulation (EU) No 575/2013 or other instruments which can be fully converted to Common Equity Tier 1 instruments or written down, that in each case adequately reflect the credit quality of the CIF as a going concern and are appropriate to be used for the purposes of variable remuneration.

The instruments referred to in this point must be subject to an appropriate retention policy designed to align incentives with the longer-term interests of the CIF. This point must be applied to both the portion of the variable remuneration component deferred in accordance with point (m) and the portion of the variable remuneration component not deferred;

(m) a substantial portion, and in any event at least 40%, of the variable remuneration component is deferred over a period which is not less than three to five years and is correctly aligned with the nature of the business, its risks and the activities of the member of staff in question.

Remuneration payable under deferral arrangements shall vest no faster than on a pro-rata basis. In the case of a variable remuneration component of a particularly high amount, at least 60% of the amount shall be deferred. The length of the deferral period shall be established in accordance with the business cycle, the nature of the business, its risks and the activities of the member of staff in question;

(n) the variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial situation of the CIF as a whole, and justified on the basis of the performance of the CIF, the business unit and the individual concerned.

Without prejudice to the general principles of national contract and labor law, the total variable remuneration shall generally be considerably contracted where subdued or negative financial performance of the CIF occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or claw back arrangements.

Up to 100% of the total variable remuneration shall be subject to malus or claw back arrangements. CIFs must set specific criteria for the application of malus and claw back. Such criteria shall in particular cover situations where the staff member:

  1. participated in or was responsible for conduct which resulted in significant losses to the CIF;
  2. failed to meet appropriate standards of fitness and propriety;

(o) the pension policy is in line with the business strategy, objectives, values and long-term interests of the CIF.

If the employee leaves the CIF before retirement, discretionary pension benefits shall be held by the CIF for a period of five years in the form of instruments referred to in point (l). Where an employee reaches retirement, discretionary pension benefits must be paid to the employee in the form of instruments referred to in point (l) subject to a five-year retention period;

(p) staff members are required to undertake not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements;

(q) variable remuneration is not paid through vehicles or methods that facilitate the non-compliance with this Directive or Regulation (EU) No 575/2013.

It is noted that the Board of Directors of the Company might not apply some of these remuneration principles on the basis of the proportionality principle and the Company being an insignificant CIF.

Remuneration committee

CIFs which are significant in terms of their size, internal organization and the nature, the scope and the complexity of their activities, must establish a remuneration committee.

The remuneration committee must be constituted in such a way as to enable it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity.

The remuneration committee must be responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk and risk management of the CIF concerned and which are to be taken by the board of directors.

The Chair and the members of the remuneration committee must be members of the board of directors who do not perform any executive function in the CIF concerned. If employee representation on the board of directors is provided for by Cyprus law, the remuneration committee shall include one or more employee representatives. When preparing such decisions, the remuneration committee shall take into account the long-term interests of shareholders, investors and other stakeholders in the CIF and the public interest.

The Company is not a “significant CIF” and therefore does not need to establish the remuneration committee.

Persons who effectively direct the business of a CIF

Members of the board of directors shall at all times be of sufficiently good repute and possess sufficient knowledge, skills and experience to perform their duties. The overall composition of the board of directors shall reflect an adequately broad range of experiences. Members of the board of directors shall fulfil the following requirements:

(a) All members of the board of directors shall commit sufficient time to perform their functions in the CIF.

(b) The number of directorships which may be held by a member of the board of directors at the same time shall take into account individual circumstances and the nature, scale and complexity of the CIF’s activities. Unless representing the Republic, members of the board of directors of a CIF that is significant in terms of its size, internal organization and the nature, the scope and the complexity of its activities shall not hold more than one of the following combinations of directorships at the same time:

  1. one executive directorship with two non-executive directorships;
  2. four non-executive directorships.

(c) For the purposes of subsection (b), the following shall count as a single directorship:

  1. executive or non-executive directorships held within the same group;
  2. executive or non-executive directorships held within:
    • institutions which are members of the same institutional protection scheme provided that the conditions set out in Article 113, paragraph (7) of Regulation (EU) No 575/2013 are fulfilled; or
    • undertakings (including non-financial entities) in which the CIF holds a qualifying holding.

(d) Directorships in organizations which do not pursue predominantly commercial objectives shall not count for the purposes of subsection (b).

(e) The Commission may allow members of the board of director to hold one additional non-executive directorship. The Commission shall regularly inform the EBA of such authorizations.

(f) The board of directors shall collectively possess adequate knowledge, skills and experience to be able to understand the CIF’s activities, including the principal risks.

(g) Each member of the board of directors shall act with honesty, integrity and independence of mind to effectively assess and challenge the decisions of the senior management where necessary and to effectively oversee and monitor the decision-making of the management.

(h) The CIF shall devote adequate human and financial resources to the induction and training of members of the board of directors.

The Company complies with all the requirements stated here above.

Governance arrangements

1.(a) The board of directors defines, oversees and is accountable for the implementation of the governance arrangements that ensure effective and prudent management of a CIF, including the segregation of duties in the organization and the prevention of conflicts of interest.

(b) The governance arrangements referred to here above, shall comply with the following principles:

    1. the board of directors must have the overall responsibility for the CIF and approve and oversee the implementation of the CIF’s strategic objectives, risk prevention strategy and internal governance,
    2. the board of directors must ensure the integrity of the accounting and financial reporting systems, including financial and operational controls and compliance with the law and relevant standards,
    3. the board of directors must oversee the process of disclosure and announcements,
    4. the board of directors must be responsible for providing effective supervision of senior management,
    5. the chairman of the board of directors of the CIF shall not exercise simultaneously the functions of a chief executive officer within the same CIF, unless justified by the CIF and approved by the Commission.

(c) The board of directors shall monitor and periodically assess the effectiveness of the CIF’s governance arrangements and shall take appropriate steps to address any deficiencies.

2.(a) A CIF which is significant in terms of its size, internal organization and the nature, scope and complexity of its activities, shall establish a nomination committee composed of members of the board of directors who do not perform any executive function in the CIF.

(b) The nomination committee shall:

(a) identify and recommend, for the approval of the board of directors or for approval of the general meeting, candidates to fill vacancies in the board of directors, evaluate the balance of knowledge, skills, diversity and experience of the board of directors and prepare a description of the roles and capabilities for a particular appointment, and assess the time commitment expected;

(b) decide on a target for the representation of the underrepresented gender in the board of directors and prepare a policy on how to increase the number of the underrepresented gender in the board of directors in order to meet that target. The target, policy and their implementation shall be made public in accordance with Article 435 paragraph 2, point c) of Regulation (EU) No 575/2013;

(c) assess periodically, and at least annually, the structure, size, composition and performance of the board of directors and make recommendations to the board of directors with regard to any changes;

(d) assess periodically, and at least annually the knowledge, skills and experience of members of the board of directors individually, and of the board of directors collectively, and report to the board of directors accordingly;

(e) periodically review the policy of the board of directors for selection and appointment of senior management and make recommendations to the board of directors;

(f) in performing its duties, take into consideration, to the extent possible and on an ongoing basis, the need to ensure that the board of directors’ decision making is not dominated by any one individual or a small group of individuals in a manner that is detrimental to the interests of the CIF as a whole;

(g) be able to use any forms of resources that it considers to be appropriate, including external advisors, and shall receive appropriate funding to that effect.

The Board of Directors of the Company complies in full with the duties and responsibilities assigned to it pursuant to paragraphs 1(a) and 1(c) here above, and observe in full the principles of paragraph 1(b). In this respect, the composition of the Board of Directors is of paramount significance. The executive directors of the Company are the CEO and the Head of Portfolio Management and Investment Advice Department, who are also the “four eye” persons responsible for the smooth and proper operations of the Company. Due to their position, the executive directors are capable of monitoring all regulatory developments in the field of corporate governance, and in this way, it is ensured that the Board is fully apprised of all recent developments and the need to introduce new processes or amend existing processes, if such a need arises.

When it comes to the effective supervision of senior management (paragraph 1(b)(iv)), the Board of Directors meets at frequent intervals and the agenda of the meetings is structured in such a way so that the Board of Directors, and especially the non-executive directors, are fully appraised of and are given the opportunity to approve or reject all important matters related to the operations and the strategy of the Company.

In relation to paragraph 2, due to the fact that the Company is not considered to be a “significant CIF”, it does not have to establish a nomination committee comprised of the Company’s non-executive directors.

Top 5 Execution Venues
Directive 2014/65/EU in financial instruments (MiFID II) requires investment firms who execute client orders to summarize and make public on an annual basis, for each class of financial instruments the top five execution venues in terms of trading volumes where they executed client orders in the preceding year and information on the quality of execution obtained.

This report summarizes the top five execution venues of financial instruments, that LEON MFO Investments Limited executed for clients in 2018.

Class of instrument: Equity and Equity funds
Notification if <1 average trade per business day Y (Y/N) # trades: 230
Top 5 venues by volume % of volume % of orders % of passive % aggressive % of directed
1. J.P. Morgan Private Bank 48% 36% 20% 80% 0%
2. EFG Bank (Luxemburg) S.A 25% 39% 20% 80% 0%
3. Bank Julius Baer & Co. Ltd 22% 15% 26% 74% 0%
4. UBS AG London Branch 2% 2% 0% 100% 0%
5. Deutsche Bank AG 1% 1% 0% 100% 0%
Class of instrument: Bond and Bond funds
Notification if <1 average trade per business day Y (Y/N) # trades: 283
Top 5 venues by volume % of volume % of orders % of passive % aggressive % of directed
1. Union Bancaire Privee UBP SA 30% 18% 32% 68% 0%
2. J.P. Morgan Private Bank 29% 38% 12% 88% 0%
3. UBS AG London Branch 17% 20% 0% 100% 0%
4. Bank Julius Baer & Co. Ltd 12% 13% 6% 94% 0%
5. Deutsche Bank AG 6% 2% 0% 100% 0%