Pillar 3 Disclosure

Charles Stanley & Co. Limited and Charles Stanley Group PLC ("the Group") - As at 31 March 2011

This is the Pillar 3 disclosure made in accordance with the UK Financial Services Authority ("FSA") Prudential Sourcebook for Banks, Building Societies and Investment Firms ("BIPRU") which is required to be made on an annual basis. The disclosures are subject to external verification only to the extent that they have been made in the Group's Financial Statements for the year ended 31 March 2011.

Additional information on the Group's Risk Management not required under Pillar 3 can be found in the Charles Stanley Group PLC financial statements.

Basis of consolidation
All companies included in the Group for statutory consolidated accounting purposes are included in prudential calculations. The Group does not use special purpose vehicles.

Definitions of assets and capital differ between the regulated capital adequacy rules of the FSA and the statutory accounting balance sheet standards. In these Pillar 3 Disclosures we use the definitions set out in the FSA rules.

Application of CRD disclosures
The disclosures are made on a fully consolidated basis for the Group, including the regulated subsidiaries Charles Stanley & Co. Ltd, EBS Management PLC, Garrison Investment Analysis Limited and Griffiths and Armour (Financial Services) Limited.

Capital Resources
Tier 1 Capital
The overwhelming majority of the Group's Tier 1 capital comprises ordinary shares, which may have been issued at a premium, and retained earnings. Intangible assets are deducted in full in accordance with FSA requirements.

£'000
Ordinary shares 11,265
Share premium 2,491
Retained earnings 67,027
Less: Intangible assets (34,126)

46,657

Retained earnings includes an adjustment for the Group's defined pension benefit liability in accordance with FSA requirements.

Tier 2 Capital
Tier 2 capital comprises the Group's revaluation reserves, which arise principally from the revaluation of Available For Sale financial assets. No deductions are made to Tier 2 Capital.

£'000
Other Reserves 1,463

Risk Management Objectives and Policies
As the parent company of firms that are authorised by the Financial Services Authority to conduct investment business, Charles Stanley Group PLC is required by the EU Capital Requirements Directive to make public disclosure of its risk management objectives and policies in accordance with the requirements of Pillar 3 of the Directive and the internal capital adequacy assessment process ("ICAAP") prescribed by the FSA..

The Group has a clearly defined operational strategy, which is

• To maintain a highly trained workforce which is flexible in operational terms to deal with varying levels of income; and
• Recognising also the necessity to retain strong cash reserves to tide us over any downturns.

The Group is operated managerially through the medium of a number of committees. Standing apart from the Group's operational activities is its Audit Committee, which reports directly to the Group board and which has independent statutory responsibilities to the shareholders of the Group. The Audit Committee comprises two Group directors (excluding the chairman and the finance director), the head of legal services for the Group, and an independent external chairman who, as a chartered accountant, is appropriately qualified. It meets quarterly. Its Terms of Reference are set out at the end of this disclosure, and these include responsibility for monitoring and reviewing the Group's internal audit function and considering reports from internal audit on internal controls and risk management.

The Group has the following oversight committees.

• Compliance
• Corporate Social Responsibility
• Finance
• Human Resources
• Marketing
• Operations
• Projects Control
• Treasury Committee
• Risk and Regulatory Review Group

The Board has overall responsibility for the Group's system of internal controls, the objectives of which are the safeguarding of the Group's assets, the maintenance of proper accounting records and the availability of reliable financial information for use within the business and for publication. This system of internal controls is also designed to provide reasonable, albeit not absolute, assurance against material misstatement and to prevent and detect fraud and other irregularities.

The Board regularly reviews the effectiveness of the Group's internal control system. There is an ongoing process for identifying, evaluating and managing significant risks which was in place throughout the year. This process meets the Turnbull Guidance.

The Group's system of internal controls includes appropriate levels of authorisation and segregation of duties. Financial reports are presented to the Board monthly detailing the results, variances against forecast and other performance data.

The Group has an internal audit department and an audit plan. The results of these audits are reported to the Audit Committee at the quarterly meetings. The suitability and effectiveness of the Group's internal controls and risk management are discussed, together with the ongoing monitoring of compliance, financial and operational controls and risk management. This information is reported to the Group Board which is able to conclude, with reasonable assurance, that the appropriate internal control systems have been maintained throughout the year.

Risk categories and definitions
Operational risk
Operational risk is defined as the risk of loss arising from inadequate or failed internal processes, people and systems or from external events. The Group is aware that operational risk can never be eliminated, but seeks to minimise the probability and impact of operational events.

The Group's business areas manage this risk through applicable controls and loss mitigation techniques, including use of insurance. These activities include a balance of policies, procedures and internal controls to ensure compliance with laws and regulations. Further assurance is provided by the Group's internal audit and compliance departments.

The operational risk policy incorporates a review of the Group's risk matrix by the risk and regulatory review group. The Group is implementing a risk and control assessment by the finance department through discussion with Directors and relevant branch managers. This scores risk events as to probability and impact as well as evaluating the design and performance of controls that have been put in place to mitigate that risk. The results of the assessment will be included within the existing risk matrix framework.

The Group is subject to the Fixed Overhead Requirement for calculation of its Pillar 1 Capital Resource Requirements. For the year ended 31 March 2011 the amount required to be held by the Group to meet the Fixed Overhead Requirement was £11,637,000. The Group considers this to be an acceptable alternative calculation for operational risk.

Credit risk
This represents the risk of loss through default by a counterparty. The most significant risk to the Group is that a client or market counterparty will fail to settle a trade. In relation to its retail business the Group does not consider that, given the breadth of its client list and the volume of their trades, there is a risk of client default that would be material in the context of the overall business. Moreover credit exposures to clients are monitored by the compliance committee, and the Group has an effective credit control department to recover any monies or stock owed through default.

Wholesale and institutional trades are conducted on the basis of "delivery versus payment", which minimises the risk of exposure to more substantial trading positions. This does not however eliminate risk entirely in the combination of circumstances in which the counterparty fails and the value of stock awaiting settlement against payment has changed adversely. To guard against this the Group sets exposure levels for various counterparties and monitors these. A residual maturity analysis of "delivery versus payment" transactions would not be meaningful and is therefore not deemed appropriate for the Group's activities.