Pillar 3 Disclosures 2020 28 - cdn.gkpro.com

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Pillar 3 Disclosures

2020

www.gkpro.com

http://www.gkpro.com/


mailto:[email protected]




P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]

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Table of Contents

1. Background ........................................................................................................................................................................... 2

1.1. Introduction ................................................................................................................................................................ 2

1.2. Frequency & Scope of Disclosure ...................................................................................................................... 2

2. Risk Management and Corporate Governance Framework .............................................................................. 4

2.1. Corporate Governance ........................................................................................................................................... 4

2.2. The Board .................................................................................................................................................................... 4

2.3. Executive Committees ............................................................................................................................................ 5

2.3.1. Executive Committee .................................................................................................................................... 5

2.3.2. Audit, Risk and Compliance Committee ............................................................................................... 5

2.3.3. Remuneration Committee .......................................................................................................................... 5

2.4. Adequacy of Risk Management Arrangements ........................................................................................... 6

2.5. Risk Appetite Statement ........................................................................................................................................ 6

3. Principle Risks to the Business ...................................................................................................................................... 7

3.1. Credit Risk ................................................................................................................................................................... 7

3.2. Market Risk ................................................................................................................................................................. 7

3.3. Operational Risk ....................................................................................................................................................... 7

3.4. Liquidity Risk .............................................................................................................................................................. 8

4. Capital Resources & Requirements ............................................................................................................................. 9

4.1. Capitalisation of the Firm ...................................................................................................................................... 9

4.2. Internal Capital Adequacy Assessment Process (ICAAP) .......................................................................... 9

5. Remuneration ................................................................................................................................................................... 11

5.1. Decision Making Process ................................................................................................................................... 11

5.2. Code Staff Criteria & Identification ................................................................................................................ 11

5.3. Link between Pay & Performance .................................................................................................................. 11

5.4. Code Staff Remuneration Cost ........................................................................................................................ 11

6. Further Information ........................................................................................................................................................ 12

GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB




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1. Background

1.1. Introduction

GKFX Financial Services Limited (‘the Company’, ‘GKFX’) has its headquarters in London, with

operational branch in Turkey. The Company owns a 90% stake in the subsidiary entity, Delta Kapital

GmbH, incorporated in Germany. It additionally holds a 10% stake in the Maltese incorporated

AKFX Financial Services Ltd, authorised and regulated by the MFSA. The Company reports on a solo

basis for regulatory purposes.

The Company is authorised and regulated by the Financial Conduct Authority (‘FCA’) as an IFPRU

full scope investment firm. The Company gained regulatory approval in February 2010, with

Register number 501320.

This Pillar 3 disclosure is prepared in accordance with the EU’s Capital Requirements Directive

(CRD), now The Capital Requirements (Amendments) (EU Exit) Regulations 2019 as implemented by

the FCA in the UK.

The Pillar 3 disclosure rules are set out in Articles 431 – 455 of the Capital Requirements Regulation

(‘CRR’)(EU) No 575/2013) and amending Regulation (EU) No 648/2012.

The FCA framework consists of three Pillars:

• Pillar 1 sets out the minimum capital requirements for the Company’s credit, market and

operational risk (Own funds requirement “OFR”)

• Pillar 2 requires the Company to assess the risk factors specific to its business and assess

whether its Pillar 1 capital is adequate to meet its risks. The FCA has implemented this by

way of the Individual Capital Adequacy Assessment Process (ICAAP), augmented by the

FCA’s Supervisory Review and Evaluation Process (SREP) which is a review of the Company’s

ICAAP

• Pillar 3 requires public disclosure of specified information relating to the Company’s risk

management policies & procedures for managing risk, its capital position and

remuneration.

The Company have not elected to make any omissions from the disclosures on the grounds that

the information is immaterial, proprietary or confidential, as would be provided for under Article

432 of the aforementioned CRR.

Quantitative disclosures are made as at 31 December 2020.

1.2. Frequency & Scope of Disclosure

The disclosures in this document are made in respect of the Company which provides financial

spread betting and contract for difference (“CFD”) trading products.

In accordance with Article 433 of the CRR, Pillar 3 disclosures are made on an annual basis as a

supplement to the GKFX Financial Services Ltd annual report and financial statements, although the





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Company pays attention to the need to publish some or all disclosures more frequently should a

material change in the business require this.

The disclosures are published on the firm’s website: https://www.gkpro.com/legal-documents

The disclosures have not been audited and do not form part of the annual audited financial

statements of the Company and should not be relied upon in making any judgment on the

financial position of the Company.




https://www.gkpro.com/legal-documents


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2. Risk Management and Corporate Governance Framework

2.1. Corporate Governance

The Management and shareholders of the Company agree and understand that a strong control

environment is necessary to ensure a solid foundation for a high-performing organisation which

can respond to a changing external environment and fosters stakeholder confidence. The Board in

collaboration with the shareholders have therefore implemented a governance structure which

seeks to institute decision making and control pathways suitable for a firm of the nature and scale

of GKFX. This structure is laid out in Figure 1 below. This structure and practical application is

reviewed regularly by the Board for it’s effectiveness and amended where regulatory

responsibilities or the needs of the business have evolved.

Figure 1: Corporate Governance Structure

2.2. The Board

The Board is responsible for the overall running of the Company. Directors who held office during

the financial year to December 2020 are as follows:

Marcus Scarlett Chairman (Independent Non-Executive)





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Simon Bird Independent Non-Executive

Iain Rogers Chief Executive Officer

The Board has a minimum of one meeting quarterly, with additional Board meetings convened as

required by the business. Meetings are minuted and the Board has a schedule of regular and

standing agenda items.

Board effectiveness is the responsibility of the Chairman, whilst the CEO is responsible for the

implementation of the Board approved strategy with support from the Senior Management. The

Non-Executive directors are deemed sufficiently independent from the business to bring challenge

and diversity of thought to the boardroom.

2.3. Executive Committees

The Board is supported by three executive committees, namely the Executive (Management)

Committee, Risk & Audit Committee and Remuneration Committee. These committees are

considered independent to management and include non-executive directors where appropriate.

2.3.1. Executive Committee

The Executive Committee (“ExCo”) comprises the executive members of the Board together with

heads of department, although additional staff may also be invited to present on items where they

have a particular expertise. The role of the Committee is to oversee the activities of the firm on a

day-to-day basis, including project-based tasks and business as usual. The Committee aims to

meet monthly.

The Client Money Committee is incorporated within the ExCo, forming a key part of the firm’s CASS

oversight arrangements, ensuring that relevant policies and procedures are effectively

implemented and executed to comply with legal and regulatory requirements, and that risks are

mitigated to the degree required by the Board & ARC.

2.3.2. Audit, Risk and Compliance Committee

The Audit, Risk & Compliance Committee (“ARC”) comprises at least three members to include no

less than two non-executive Board members, The Chief Financial Officer and Head of Compliance.

Additional individuals may be invited to attend meetings of the committee to present on items

pertaining to their particular areas of expertise. The Committee aims to meet quarterly, with

additional meetings convened as required by the business.

The ARC has oversight of the Company’s internal control systems as well as the integrity of the

financial statements with a mandate to provide recommendations to the Board as it feels

appropriate. It also owns the Company’s risk appetite, tolerance and assessment process, including

the ICAAP.

2.3.3. Remuneration Committee





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The Remuneration Committee (‘RemCo’) comprises three members: two non-executive Board

members with a shareholder representative. The Committee aims to meet semi-annually and

focusses on the remuneration of senior management as well as retention and incentive structures.

2.4. Adequacy of Risk Management Arrangements

Overall responsibility for risk rests with the Board of Directors, which sets priorities for risk

management through the establishment of functional structures, governance processes and

monitoring and reporting processes. The Board recognises that risk will be present as a result of

the activities that the firm undertakes and has taken steps to establish a Risk Management

Framework to ensure that individual risks are identified, measured and mitigated on a robust basis,

and in line with the firm’s risk appetite.

2.5. Risk Appetite Statement

Risk appetite is an articulation of the risk the Company is prepared to accept in pursuit of its

strategy, duly set and monitored by the board and managers and integrated into its strategy and

business plan. The board and managers of GKFX accept that risk is inherent in any business and the

Board has determined acceptable levels of risk.

The Company’s aim is not to eliminate risk completely but to understand and manage it to

acceptable levels, balancing the risks taken against the rewards of being in business. The Company

sets its risk appetite by considering the material risks in the business and then evaluating the level

of acceptable risk and related measurements. Any risk exceeding the risk appetite will be reported

to the Board along with the action plans to bring the risk back within tolerance. For those key risks

which cannot be controlled the residual financial risk is quantified and included in the ICAAP Pillar

2 assessment, meaning that additional capital may be held against it.

The Board has determined the Firm’s appetite and tolerance for risk across a broad spectrum of risk

areas. It has expressed its tolerance for each risk as a summary narrative and has where

appropriate set metric limits for the control of that risk. Principle risks to the business and the

control and mitigation of such are discussed in the following section.





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3. Principle Risks to the Business

The Company’s Risk Management groups risk into broad categories which can then be assessed as

to their impact according to the risk tolerance of the firm as defined in the risk appetite statement.

Key risks to the business have been identified and assessed through the risk register and where

mitigation is not available by the provision of capital via the ICAAP. A summary of the Board’s key

risk assessments are provided here.

3.1. Credit Risk

Credit Risk is the risk that a counterparty will fail to pay monies due to the Company. GKFX’s credit

risk is primarily attributable to the risk of a client or counterparty (including a custodian) failing to

fulfil contractual obligations, including settlement, resulting in financial loss for GKFX.

Credit risk is mitigated through the rigorous assessment of all new clients, counterparties and

banks. Exposure to the failure of clients is limited through the use of a combination of prudent

margining, systematic auto-closure of under margined positions and 24-hour opening. GKFX uses

real-time systems that ensure that each client has enough funds in their accounts to support all

open positions and any proposed new transactions requested.

Mitigation of counterparty credit risk is achieved by monitoring concentration levels to

counterparties and the Risk team reporting these internally to the ARC, as well as monitoring the

credit ratings of GKFX’s market counterparties.

3.2. Market Risk

Market risk is the vulnerability of the Company to movements in the value of financial instruments

held either by itself, or by its clients. GKFX is exposed to a small amount of direct market risk as it

trades as principal against certain client transactions. Market risk generally represents exposure

from the trading activity of its customers and the net open positions that they generate for the

Company, and the risk of loss that may result from the potential change in the value of a financial

instrument due to changes in market risk factors such as price movements, interest rate changes,

and foreign exchange rate fluctuations.

For the bulk of client trading activity, the Company’s infrastructure is arranged in such a way that

trades are fully matched, and where an order cannot be fully matched it will not be executed.

Therefore risk limits on market positions are well within the firm’s capacity and appetite for loss.

3.3. Operational Risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes,

people and systems, or from external events. As such, operational risk spans a wide and diverse

range of potential risks, including: loss of key staff; IT system failures; loss of data;

telecommunications failures; loss of power supply; failure or disruption of a critical business

process; disaster occurrences, natural or otherwise.





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GKFX operates under a corporate governance structure with appropriate systems and controls,

procedures and policies to mitigate its operational risk. GKFX has implemented policies and

procedures to evaluate and manage its exposure to operational risk. This includes a strong level of

systems and controls within the Company and an awareness at the Board level that controls and

mitigations must be reviewed regularly. In accordance with IFPRU 2.2.33R, GKFX has contingencies

and a Business Continuity Plan to ensure that in the case of a severe business disruption, it can

operate on an ongoing basis and that any losses are limited.

3.4. Liquidity Risk

This is the risk that a firm, although solvent, either does not have available sufficient financial

resources to enable it to meet its obligations as they fall due or can secure such resources only at

excessive cost. The firm assesses its liquidity position on a live ongoing basis to ensure that it is

always able to meet its short-term obligations and reduce liquidity risk to an acceptable residual

level.

Although the firm is not an ILAS BIPRU firm, the Board recognises that Liquidity risk is inherent in

the principal trading model even where client (wholesale and professional only) funds are held

under title transfer and available to support the activity. The firm additionally uses margin waiver

credit to attract and maintain client relationships and this generates additional Liquidity risk for the

firm, the Board reflects liquidity impacts directly in its appetite metrics for margin waiver credit.

The Board of GKFX is satisfied that it meets its requirements, and that it has sufficient immediately

available liquidity within the Company to meet its liabilities, including on an intra-day basis should

all clients close their open trading positions and withdraw their funds on that day. There is also a

contingency funding plan as part of the liquidity risk framework, which is designed to aid senior

management to assess and prioritise actions in a liquidity stress scenario.





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4. Capital Resources & Requirements

4.1. Capitalisation of the Firm

The Company has an obligation in accordance with its regulatory permissions governing its overall

financial resources to remain capitalised and liquid. GKFX has adopted the standardised approach

for credit risk, mark-to-market method for counterparty risk, and the basic indicator approach for

operational risk all as defined in the relevant CRR articles. These requirements are added to the

Market Risk Capital Requirement (MRCR) in order to calculate the Basel III Pillar 1 minimum capital

requirement under the CRD IV.

Common Equity Tier 1 Capital comprises share capital and retained earnings. A deduction is made

from Common Equity Tier 1 capital in respect of intangible assets and deferred tax assets. The firm

has no Tier 2 Capital. The Board are comfortable the firm is sufficiently capitalised.

31 December

2020

31 December

2019

£’000 £’000

Ordinary Share Capital 40,808 40,808

Reserves (24,393) (21,576)

Tier 1 Capital 16,415 19,232

Operational Risk

Requirement

445 1,376

Market Risk Requirement 1,139 1,339

Credit Risk Requirement 2,499 3,118

Total Pillar 1 Requirement 4,083 5,832

Capital Surplus 12,332 13,398

Tier 1 Capital Ratio 32.2% 26.4%

Figure 2: Summary of Capital Resources

4.2. Internal Capital Adequacy Assessment Process (ICAAP)

The ICAAP formally records the assessment as to whether a firm's capital and liquidity resources are

sufficient to cover the risks identified in the Risk Management Framework. The Company

undertakes an internal assessment of capital requirements annually or more frequently, if required

by material changes in the business using the ICAAP document.

The ICAAP process considers all the risks faced by the firm, the likely impact on the business if they

were to occur, how these risks can be mitigated and the amount of capital it is prudent to hold

against them. The aggregate of these Pillar 2 risk allocations is then compared against the Pillar 1

requirement on a Pillar 1 plus basis, and the higher of Pillar 1 or Pillar 2 is used for each risk.





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The ICAAP is reviewed periodically by the FCA, who set the Individual Capital Guidance (“ICG”)

capital requirements for the Company as part of its Supervisory Review and Evaluation Process

(“SREP”). The ICG gives guidance on the amount and quality of capital resources that the FCA

believes the firm should hold under the overall financial adequacy rule.





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5. Remuneration

5.1. Decision Making Process

This disclosure is made in accordance with Article 450 of the CRR. GKFX has established a

remuneration policy in accordance with the FCA’s Remuneration Code, which is the responsibility

of the Board. The aim of the remuneration policy and governance framework is to establish,

implement and maintain remuneration policies, procedures, governance and practices that are in

line with the business strategy, and which promote sound and effective risk management.

5.2. Code Staff Criteria & Identification

The Company classifies those staff whose professional activities have a material impact on its risk

profile as Code Staff in line with the FCA’s Remuneration Code. The firm classified 4 individuals as

Code Staff during the year ended 31st December 2020 with 4 individuals identified as code staff as

at 31st December 2019.

5.3. Link between Pay & Performance

Remuneration is determined at least annually. In determining remuneration, the Board considers

both individual and Company performance. The RemCo met once in 2020, in December.

5.4. Code Staff Remuneration Cost

The aggregate remuneration paid to the firm’s Code Staff during the financial year ending on 31

December 2020 was £502k. Remuneration comprised base salary, bonuses, pension contributions

and benefits in kind. There are no Code Staff in commission-linked sales schemes. There are no

minimum pay increase and no contractual bonuses for current Code Staff.





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6. Further Information

Should you require any further information, please contact:

Nelson Ejoh [email protected]

+44 (0)207 186 1244

Certain statements in this Pillar 3 Disclosures document are forward looking. Although we believe

that the expectations reflected in these statements are reasonable, we give no assurance that these

expectations will prove to be an accurate reflection of actual results.

Because these statements involve risks and uncertainties, actual results may differ materially from

those expressed or implied by these statements.




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