Rothschild & Co: 2020 - Rapport Pillar 3 (en anglais uniquement)

Rothschild & Co

Pillar 3 Disclosure

As at 31 December 2020

One group organised around

3 businesses

• Global Advisory
• Wealth and Asset Management
• Merchant Banking

3,587 employees

1. locations

1. countries

Rothschild & Co | Pillar 3 Disclosure | December 2020

Contents

1.	Scope	2
2.	Risk management	3
3.	Prudential ratios	5
4.	Regulatory capital	6
5.	Risk weighted assets and capital requirements	7
6.	Credit risk	8
7.	Market risk	12
8.	Operational risk	13
9.	Capital buffer requirements	14
10.	Asset encumbrance	15
11.	Remuneration policy	16
Appendix A - Leverage ratio	18
Appendix B - Capital instruments	20
Appendix C - Own funds	22
Appendix D - Non-performing exposures	23

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1.  Scope

Introduction

This document is published to provide information about the compliance of Rothschild & Co SCA (the "Company" or "Rothschild & Co") with the public disclosure rules set out in the Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 relating to minimum capital requirements (known as "Pillar 3" requirements in the Basel 3 Accord) and its European transposition by the Capital Requirement Regulation ("CRR"). Rothschild & Co is registered in the list of financial holding companies supervised by the French Prudential Control Authority (Autorité de Contrôle Prudentiel et de Résolution or "ACPR").

The Pillar 3 disclosure requirements complement the minimum capital requirements ("Pillar 1") and the supervisory review process ("Pillar 2"), and aim to encourage market discipline by allowing market participants to assess key pieces of information on the risk exposures and the risk assessment processes of Rothschild & Co.

This document is available on Rothschild & Co's website

(www.rothschildandco.com) along with the Rothschild & Co 2020 Annual Report.

Verification

These disclosures agreed by the Company's Manager (Gérant), Rothschild & Co Gestion SAS (the "Manager") on behalf of Rothschild

• Co, have been circulated to the Audit Committee and the Supervisory Board by report of the Audit Committee at their March 2021 meetings. Unless otherwise indicated, information contained within this document has not been subject to external audit. The Pillar 3 disclosures have been prepared purely for the purpose of explaining the basis on which the Rothschild & Co Group has prepared and disclosed certain capital requirements and information about the management of certain risks, and for no other purpose. They do not constitute any form of financial statement and must not be relied upon in making any judgement on the financial position of the Rothschild & Co Group.

Basis of disclosure

These risk disclosures are made in respect of Rothschild & Co and its subsidiary undertakings (together, "the Group" or "the Rothschild & Co Group").

The following regulated banking entities are fully consolidated in Rothschild & Co's accounts:

-- Rothschild & Co Bank AG ("R&CoBZ") incorporated in Switzerland and supervised by the Swiss Financial Market Supervisory Authority ("FINMA");

-- Rothschild & Co Bank International Limited ("R&CoBI") incorporated in Guernsey and supervised by the Guernsey Financial Services Commission ("GFSC");

-- Rothschild Martin Maurel SCS ("RMM"), incorporated in France and supervised by the ACPR; and

-- Rothschild Martin Maurel Monaco ("RMMM") incorporated in Monaco and supervised by the ACPR.

As at 31 December 2020, the regulatory consolidation scope is identical to the statutory consolidation scope.

Unless otherwise indicated, financial information presented in this document is as at 31 December 2020. As there is a significant overlap between the information disclosure requirements for Pillar 3 and information already disclosed in the Rothschild & Co 2020 Annual Report, this document should be read in conjunction with that report. The Rothschild & Co Group organisation presented in this document is consistent with the governance arrangements described within the Rothschild & Co 2020 Annual Report.

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2.  Risk management

Overview

The guiding philosophy of risk management in the Group is for the management to adopt a prudent and conservative approach to the taking and management of risk. The maintenance of the Group's reputation is a fundamental driver of risk appetite and of risk management. The protection of reputation guides the type of clients and businesses with which the Group will involve itself.

The nature and method of monitoring and reporting varies according to the risk type. Most risks are monitored regularly, with management information being provided to relevant committees on a weekly, monthly or quarterly basis. Where appropriate to the risk type, the level of risk faced by the Group is also managed through a series of sensitivity and stress tests.

The identification, measurement and control of risk are integral to the management of Rothschild & Co's businesses. Risk policies and procedures are regularly updated to meet changing business requirements and to comply with best practice.

Structure and risk governance

The Company's Manager, Rothschild & Co Gestion SAS, is the sole legal representative of Rothschild & Co, responsible in particular for establishing adequate, sound and appropriate risk management processes in line with all legal and regulatory requirements.

The decision-making process of the Company's Manager relies on its Management Board (Conseil de Gérance), a collective body chaired by the Executive Chairman of the Company's Manager and composed of three Managing Partners, which aims to assist the Executive Chairman in fulfilling the duties of the Manager acting on the Company's behalf.

The oversight management and supervision of the Group are the responsibility of the Company's Manager, notwithstanding other Group companies' local requirements, including in particular: Group strategy and management, capital management, and risk management and control (including Group policies). The Managing Partners of

the Company's Manager sit at the Rothschild & Co Group Executive Committee ("GEC"). The GEC is co-chaired by two Managing Partners and acts as the senior executive committee of Rothschild & Co.

Internal control governance within the Group is effected through Rothschild & Co, and onwards to the senior executive management committees for each of the Group's businesses and the Boards of the principal operating entities. The Group internal control system is supervised on a consolidated basis by the Supervisory Board, assisted by its specialised committees. Rothschild & Co ensures, for the Company and the entities within the Group on a consolidated basis, the effective determination of the direction of the business and determines the regulatory capital; it has direct oversight of all Group entities in respect of internal control matters and considers all major strategic and other risk matters affecting all parts of the Group.

The GEC proposes strategic orientations to the Manager and assists the Manager in overseeing the implementation of the strategy across the Group and the operational management of the Group to ensure the proper and effective functioning of Group governance structures.

It notably reviews matters relevant to Group risk management and internal control, including operating policies and procedures, the Group's risk appetite and the management of risk. The GEC is supported by several sub-committees, including:

-- the Group Assets and Liabilities Committee ("Group ALCO") reports to the GEC and is responsible for ensuring that the Group has prudent funding and liquidity strategies for the efficient management and deployment of capital resources within regulatory constraints, and for the oversight of the management of the Group's other financial strategies and policies, including some credit decisions;

-- the Group Operating Committee is responsible for developing and coordinating to best effect the cross-divisional operations of the various businesses and support functions, by improving the efficiency of all the Group's operations and ensuring better coordination

and harmonisation of operational matters across the businesses. It is also responsible for the oversight of operational risk policies, including compliance and information security risk policies.

The Supervisory Board of Rothschild & Co is supported by four committees:

-- the Audit Committee is a specialised committee of the Supervisory Board responsible, in particular, for reviewing the process for drawing up the financial information, reviewing the statutory audit of Rothschild & Co's annual accounts and consolidated accounts, reviewing the independence of Rothschild & Co's statutory auditors, supervising and reviewing the Group's internal audit arrangements, and the effectiveness of the Group's internal control systems;

-- the Risk Committee is a specialised committee of the Supervisory Board responsible, in particular, for reviewing the material risks of the Group and the Group's broad policy guidelines relating to risk management, particularly the limits that reflect the risk appetite presented to the Supervisory Board, and examining the effectiveness of the risk management policies put in place. These policies make up the structure underpinning the Group's approach to managing specific categories of risk as articulated in the Group Risk Framework;

-- the Remuneration and Nomination Committee is a specialised committee of the Supervisory Board responsible in particular for setting the principles and parameters of the remuneration policies for the Group and determining the nature and scale of short and long-term incentive performance arrangements that encourages enhanced performance and reward individuals in a "risk based" manner for their contribution to the success of the Group in the light of an assessment of the Group's financial situation and future prospects (see Section 11); and

-- the Corporate Responsibility Committee is a specialised committee of the Supervisory Board responsible in particular for reviewing policies in place and objectives set by the Group in the Corporate Responsibility area and reviewing the Corporate Responsibility report of Rothschild & Co.

Risk Management Framework

The Group has adopted a risk governance model that is applied across the Group and requires that all of the Group's businesses and functions establish processes for identifying, evaluating and managing the key risks faced by the Group. It is based on the concept of "three lines of defence".

In the first instance, the Company's Manager sets the Group's risk appetite, approves the strategy for managing risk and is responsible for the Group's system of internal control. The three lines of defence model then distinguishes between functions owning and managing risks, functions overseeing risks and functions providing independent assurance.

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