b'Mercia asset Management PLc55Annual Report and Accounts 2021risk Possible consequences MitigationMercia subsidiaries may ceaseCertain Mercia subsidiaries are authorisedThe Group mitigates this risk by ensuring that it always acts fairly and to be authorised by the Fca,and regulated by the FCA as small authorisedwith integrity, honesty, skill and diligence in conducting its investment resulting in them being UK Alternative Investment Fund Managersactivities. The Group regularly reviews the financial position of each unable to continue fund(AIFM) (Sub-threshold). Mercia subsidiary to ensure that adequate financial resources are management activities. Should any of those subsidiaries cease to bemaintained in accordance with FCA rules. The Group also maintains its authorised and regulated by the FCA, theyposition as regards the Alternative Investment Fund Managers Directive would no longer be authorised to act as the(AIFMD"), in respect of the quantum of funds under management and investment manager of the respective fundsis preparing to apply for full scope authorisation. The Board receives or VCTs being managed. Nor would Mercia beregular reports from the Groups Compliance Director as to regulatory able to tender for further mandates. developments and the possible impact on the Group, including any measures required to comply.In those circumstances, Mercia would: (i) loseThe Group also ensures that it employs the resources and procedures one or more of its revenue streams; (ii) bethat are necessary for the proper performance of its business activities required to appoint a replacement UK AIFM;and seeks to comply with all regulatory requirements applicable to the and (iii) lose one or more of the principalconduct of its business, to promote the best interests of the funds sources of potential direct investments forunder management and fund investors.the Group.The Group ensures that it communicates information to fund investors in a way which is fair, clear, timely and not misleading. It also communicates with the FCA in an open and transparent manner whenStrategic reportsubmitting regular reporting, notifications and disclosures.The Groups compliance function is staffed by experienced and FCA approved personnel. Mercia applies policies and procedures in compliance with FCA requirements across its regulated subsidiaries. Mercia also has a whistleblowing policy and reporting structure inGovernance Financial statementsplace. No whistleblowing reports have been received in the year.the risk of reputationalThe majority of our EIS/SEIS investors assetsThe appointment of an external custodian requires detailed due damage due to third-partyare held by an external custodian and suchdiligence from both a commercial and a regulatory perspective. This is custodian services not custodian services may be withdrawn underundertaken by the EIS team and overseen by the Chief Financial Officer being provided as required the contractual arrangements. There areand Group Compliance Director.or being withdrawn or our risks with all third-party suppliers and anCommercial terms are reviewed by the Groups in-house legaldue diligence on a third associated risk with sourcing an acceptablecounsel. Mercia Fund Management Limited, as fund manager forparty being inadequate. alternative, ensuring that the transfer isthe EIS/SEIS funds, is subject to full regulatory scrutiny and an annual completed appropriately to minimiseClient Assets audit, which is undertaken by external auditors who disruption to investors and reputational riskreview our arrangements.and with ensuring that our regulatory obligations for due diligence are adequatelyFollowing a decision by the Groups current custodian to discontinue undertaken and documented, prior to anyproviding its range of services, due diligence on potential replacement new appointments. candidates concluded that the custodian Mainspring Fund Services, would be an appropriate successor. Detailed planning for the changeover is now in hand.Communications with EIS/SEIS investors is also being undertaken to ensure minimum disruption during the changeover.the group now has c.764The loss of one or more of the contracts dueDedicated investment teams operate in respect of each asset class and million of FuM and derives theto poor performance or other irreconcilablein many cases, each fund mandate. Senior managers oversee both fund majority of its revenues underdifferences could have a material impact onperformance and client relationships. Detailed quarterly reports are fund management contractsthe trading performance of the Group andissued to fund limited partners.linked to each specific fund. reputationally, its future ability toInvestment committees provide a robust review of all proposed successfully tender for new contracts.investments and ensure that investments meet the mandate of the fund and that any conflicts are managed appropriately.The Groups compliance function monitors adherence to investment procedures through its internal audit reviews, which also monitor adherence to regulatory requirements.The Board oversees the Groups fund management operations, performance and client relations.'