b'48 Mercia Asset Management PLC Annual Report & Accounts 2022Principal risks and uncertainties continuedRisk Possible consequences MitigationMercia subsidiaries mayCertain Mercia subsidiaries areThe Group mitigates this risk by ensuring that it cease to be authorised byauthorised and regulated by the FCAalways acts fairly and with integrity, honesty, skill and the FCA, resulting in themas small authorised UK Alternativediligence in conducting its investment activities. The being unable to continueInvestment Fund Managers (AIFM)Group regularly reviews the financial position of each fund management(Sub-threshold). Mercia subsidiary to ensure that adequate financial activities. Should any of those subsidiariesresources are maintained in accordance with FCA rules. cease to be authorised andThe Group also maintains its position, as regulated by regulated by the FCA, they wouldthe Alternative Investment Fund Managers Directive no longer be authorised to act as(AIFMD), in respect of the quantum of FuM. The Board the investment manager of thereceives regular reports from the Groups Compliance respective funds or VCTs beingDirector as to regulatory developments and the possible managed. Nor would Mercia be ableimpact on the Group, including any measures requiredto tender for further mandates. to comply.In those circumstances, MerciaThe Group also ensures that it employs the resources would: (i) lose one or more of itsand procedures that are necessary for the proper revenue streams; (ii) be requiredperformance of its business activities and seeks to to appoint a replacement UK AIFM;comply with all regulatory requirements applicable to the and (iii) lose one or more of theconduct of its business, to promote the best interests of principal sources of potential directthe FuM and fund investors.investments for 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 when submitting 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 in place. No whistleblowing reports have been received in the year.The risk of reputationalThe majority of our EIS/SEISThe appointment of our new external custodian, damage due to third- investors assets are held by anMainspring Fund Services, required detailed due party custodian servicesexternal custodian and suchdiligence from both a commercial and a regulatory not being providedcustodian services may beperspective. This was undertaken by the EIS team as required, or beingwithdrawn under the contractualand overseen by the Chief Financial Officer and Group withdrawn or our duearrangements. There are risks withCompliance Director.diligence on a third partyall third-party suppliers and anCommercial terms were reviewed by the Groups in-being inadequate. associated risk with sourcing anhouse General Counsel. Mercia Fund Management Ltd, acceptable alternative, ensuringas fund manager for the EIS/SEIS funds, is subject to full that the transfer is completedregulatory scrutiny and an annual Client Assets audit, appropriately to minimisewhich is undertaken by external auditors who review our disruption to investors andarrangements.reputational risk, and with ensuring that our regulatory obligationsWe undertake an annual due diligence exercise, including for due diligence are adequatelya site visit, to maintain effective oversight over the undertaken and documented, priorcustodian, in addition to regular two-way contact to any new appointments. between key team members.'