b'Strategic report Governance Financial statementsRisk Possible consequences MitigationMercia subsidiaries may cease toCertain Mercia subsidiaries are authorised andThe Group mitigates this risk by ensuring that it acts fairly at all times and with be authorised by the Financialregulated by the FCA as small authorised UKintegrity, honesty, skill and diligence in conducting its investment activities. The Conduct Authority (FCA). Alternative Investment Fund Managers (AIFM)Group regularly reviews the financial position of each Mercia subsidiary to ensure (Sub-threshold). that adequate financial resources are maintained in accordance with FCA rules. Should any of those subsidiaries cease to beThe Group also ensures that it employs the resources and procedures that are authorised and regulated by the FCA, they wouldnecessary for the proper performance of its business activities and seeks to comply no longer be authorised to act as the investmentwith all regulatory requirements applicable to the conduct of its business, so as to manager of the respective funds or VCTs beingpromote the best interests of the funds under management and fund investors. The managed.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 If that was to occur, Mercia would: (i) lose one oropen and transparent manner when submitting regular reporting, notifications and more of its revenue streams; (ii) be required todisclosures. The Groups compliance function is staffed by experienced and FCA-appoint a replacement UK AIFM; and (iii) lose oneapproved personnel. Mercia applies policies and procedures in compliance with or more of the principal sources of potential directFCA requirements across its regulated subsidiaries. It has implemented the initial investments for the Group. stages of the SMCR, ensuring that its senior staff are appropriately mapped to the new regime and that all staff understand their obligations to act with integrity.Mercia also has a whistle-blowing policy and reporting structure in place.No whistle-blowing reports have been made in the year.The United Kingdoms exit fromFuture European trade barriers, tariffs or borderTechnology is a sector that works without national barriers and will only increase in the European Union (Brexit) maycontrols may impact portfolio company growthimportance. Many of the Groups direct investments have a global target customer impact upon both the Group and itsprospects. base.portfolio companies, especially if noAdditional equity capital may be more difficult toThe Group focuses on technology sectors that do not have large capital needs. The trade deal is successfully negotiated. raise during periods of economic turbulence. Group therefore has sufficient funds under management and balance sheet capital Portfolio companies may find hiring and retainingto exercise investment and operational flexibility.non-UK resident, highly skilled staff more difficult. Only once the final outcome of the Brexit trade negotiations are known will the future employment and potential tariffs landscape become clearer. In the meantime, the Group continues to monitor United Kingdom Government announcements and will take relevant actions to respond to developments as appropriate and relevant.Breaches of the Groups digitalSuch security or infrastructure failures may resultThe Group reviews its infrastructure and cybersecurity processes with its security, through cyber attacksin the loss of data, misuse of sensitive information,outsourced IT provider on a regular basis and continues to invest in resources or a failure of the Groups digitalreputational damage and legal or regulatoryto enhance its cyber defences and improve network monitoring to minimise the infrastructure, could result in thebreaches. impact of any external security breach. The Group has implemented Office 365 this loss of commercially sensitive dataAttacks on portfolio companies could in additionyear to further enhance its ability to securely store and share documents.and/or create substantial businessresult in the loss of valuable intellectual property orBusiness continuity plans and disaster recovery contingencies are tested regularly disruption. be disruptive to business activities. and have proved to be effective to support remote working during the COVID-19 The incidence of cyber crimerelated lockdown.attempts and reports from portfolioThe Group continues to engage frequently with its external IT and cybersecurity companies has increased in the wakeconsultants to monitor and periodically test its cyber defences.of COVID-19.A proportion of the early-stage dealAlthough the Directors do not believe that suchChanges in tax legislation would affect the whole industry, so Mercia would not flow for Mercia derives from, and isinvestors choose investment via SEIS, EIS or VCTbe at a competitive disadvantage. Investors would make their decisions solely on financed via, the Groups SEIS andfunds solely for the tax relief available, such reliefscompanies track records, executive and investment team members reputations EIS funds, which include capitalare an element of their decision-making and if thoseand performance.raised from sophisticated investorsreliefs were to be withdrawn this could result in theMercia has established an award-winning reputation with a proven track record of seeking, inter alia, tax relief. Anysize of the funds and VCTs being reduced, or make itdelivering value to fund and VCT investors and would therefore be well placed to changes in legislation around SEISdifficult for Mercia to successfully launch one or morecontinue operating in any changed environment.and EIS tax relief could impact onsimilar future funds.Mercias ability to raise adequate funds to support all suitable investment opportunities.Any changes to VCT related tax reliefs could also impact the VCT portfolios access to future funding. Events after the balance sheet dateOther than the sale of The Native Antigen Company for up to 5.2million and the continuing completion of approved direct investments, there have been no other material events since the balance sheet date.ApprovalThe Strategic Report was approved by the Board of Directors and signed on its behalf by:Dr Mark PaytonChief Executive Officer13 July 2020Mercia Asset Management PLC 55Annual Report and Accounts 2020'