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Pillar 3 Disclosures
2020
www.gkpro.com
P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]
1
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
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB
P : +44 (0) 20 7186 1212 www.gkpro.com [email protected]
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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.
GKFX Financial Services Ltd24th Floor, One Canada Square, Canary Wharf, E14 5AB