The Financial Conduct Authority (“FCA”), sourcebook for MiFID Investment Firms in the FCA Handbook (MiFIDPRU) sets out the detailed requirements that apply to Spectra (“firm(s)”). Chapter 8 within the handbook sets out public disclosure rules and guidance with which Spectra must comply.

Spectra FX Solutions LLP is classified under MiFIDPRU as a non-interconnected MiFIDPRU Investment Firm (Non-SNI MiFIDPRU Investment Firm). Therefore, the firm is required to disclose the following information:

• Risk Management objectives and policies (MiFIDPRU 8.2);
• Governance arrangements (MiFIDPRU 8.3)
• Own Funds (MiFIDPRU 8.4);
• Own Funds Requirements (MiFIDPRU 8.5);
• Remuneration policies and practices (MiFIDPRU 8.6)
• Investment Policy (MiFIDPRU 8.7)

Firms must publicly disclose the information on the date it publishes its annual financial statement. Additional disclosures can also occur if a significant change to the business model occurs, or a merger has occurred. The purpose of these disclosures is to stakeholders and market participants an insight into the firm’s culture and financial stability.

When making these disclosures firms must apply the following under MiFIDPRU 8.1.13:

• Information is easily accessible and free to obtain
• Clearly presented and easy to understand
• Is consistent with the presentation used for previous disclosures periods or otherwise allows readers to comparisons easily; and
• Highlights in a summary any significant changes to the information disclosed, when compared with previous disclosure periods.

Spectra will publish their annual disclosures on their company website under the designated disclosure page.

MiFIDPRU 8.2 expects firms to disclose risk management objectives and policies for the categories of risk in the following areas:

• Own funds requirements
• Concentration risk
• Liquidity

Spectra FX Solutions LLP (Spectra) is Limited Liability Partnership (OC325309) whose principal activity is that of a matched principal in Foreign Exchange. Spectra is an independent, global, broker-dealer offering execution and research services across Foreign Exchange products in the U.S., Europe, and Asia. Spectra provides a service to Professional Clients and Eligible Counterparties.

Spectra was founded in London as a private partnership in 2007 with locations in New York and London.

Spectra was authorized by the original Financial Services Authority (No.521446), in December 2010, and currently holds the following permissions:

• Advising on investments (except on pension transfers & pension opt outs)
• Advising on P2P agreements
• Agreeing to carry on a regulated activity
• Arranging deals in investments
• Dealing in investments as an agent
• Dealing in investments as a principal
• Making arrangements with a view to transactions in investments

The aim of the firm is to create a facility within the FX Market place that can provide more efficient execution to top tier buy side clients than the conventional bank/client execution model. The basis of the model is to aggregate bank and electronic liquidity in one centralized venue to access best pricing and significantly reduce execution slippage.

Spectra are required to maintain own funds that are at least equal to the calculated own funds requirement. This is determined by one of the following:

• Permanent Minimum Capital Requirement (PMR): This is determined by the FCA as the minimal level of funds firms must maintain at all times to operate. Based on Spectra’s MiFID investment services, activities, and permissions the PMR is calculated at £75,000;
• Fixed Overhead Requirement (FOR): This is amount equal to at least one quarter of Spectra’s fixed overheads for the previous year.
• K-Factor Requirement (KFR): KFR is calculated for the minimum amount of capital required for Spectra for the ongoing operations of the business. The K-Factor calculation that applies to Spectra is K-COH (client orders handled).

Spectra’s own funds requirement is calculated by the Fixed Overhead Requirement, due to being the highest of the three figures.

The potential harm associated with Spectra’s business strategy, based on the fixed own funds requirement is low. This is due to several factors including consistent and stable growth seen throughout the year and anticipated for the following year. Spectra has also ensured that own funds and the own funds requirement are closely reviewed and calculated on a regular basis and any changes are raised to the firms governing body. This approach should ensure that the appropriate levels of funds are maintain but also ensures that the relevant actions are considered, this could include an injection of funds into the firm, alongside informing the FCA.

The potential harm to Spectra’s business strategy associated to the concentration risk is low.

The top ten clients of the firm produce 50% of the firm’s revenue, with the top client 5 clients producing 42%. A loss to these clients would see an impact to the firm’s revenue, however, this would only serve to erode the firm’s profitability and thus reduce the remuneration to staff. Losing several top clients would result in the firm having to seek more clients or reduce overheads to remain viable in the longer term. As these all fall in the firm’s risk calculation of non-Impactful, no additional capital is required under the own fund’s threshold requirements. Although this is not classed as an impactful risk, we monitor concentration risk arising from our clients regularly.

The geographical concentration has also been considered as Spectra has a significant portfolio of clients based in the United States, this could cause significant harm to the firm if there were to be issues when dealing with US based clients. However, the trading relationship between the US and UK is good and the compliance team are constantly looking at regulatory changes which are on the horizon and if there were to be any changes in regulations for dealing with the US, then this would not happen overnight and Spectra would have prepared for this, therefore, this does not pose a risk to the firm, clients, or the wider market.

Spectra maintains sufficient liquidity to ensure to not be exposed to risks that its’ liabilities cannot meet. The potential harm to Spectra’s business strategy based on the basic liquid assets requirement is low. The financial position of the Firm is monitored by the Chief Financial Officer on a regular basis throughout each month.

As with regard to its own fund’s requirement, this is due to the consistent growth in the firm’s revenue over the past year and the anticipated further growth in the upcoming year too.

Due to the nature of the business, whereby the only test of liquidity is a lack of ability to meet the own funds requirement, the Contingency Funding Plan should never be utilized. The CFP is reviewed annually and is approved by the board. However, should Spectra be in requirement of further funds, this could be provided by the partners, or this would be provided by the liquid assets in the firm If this was not forthcoming, Spectra would have sufficient funds within the capital requirement to perform an orderly closure/wind-down.

The liquidity risk within Spectra would not pose a risk to the market as all positions are matched and given up.

Spectra has established a risk management process and risk committee in order to ensure that it has effective systems and controls in place to identify, monitor and manage risks arising in the business. The risk management process by the Compliance Department who report to the CFO, who is on the board and risk committee. Spectra’s Risk Committee is made up of the CEO and the CFO who are responsible for the risks within the firm and approve all risk-based policies including this document.

Risk appetite is an articulation of the risk Spectra is prepared to accept in pursuit of its strategy, duly set and monitored by the director and managers and integrated into its strategy and business plan. The director and managers of Spectra accept that risk is inherent in any business and the Board has determined that their appetite for risk is as follows:

Unacceptable: No appetite; action must be taken immediately to reduce the impact and/or likelihood of the risk occurring.

Tolerated: Appetite exists however must ensure that an action plan is devised to increase mitigation.

Acceptable: Appetite exists however, keep current action plan/mitigation under general review.

The Board’s overall appetite for risk is such that in total the capital resources required to cover these risks do not exceed the Fixed Overhead Requirement. The final decision on any new risk is determined by the partners and this includes new clients, products, trade limits. The risk appetite for the group sits in the low to medium impact and rare to unlikely section of the matrix.

When risks are identified they are captured on the Risk Register. The risks are identified by how much they will affect the firm and what event may cause a risk to the business. Each risk is assessed and will be reviewed on how it will affect Spectra, the firm’s clients, and any potential risks there could be too the market. The risk register is reviewed at least annually however, if certain risks come to light within the year, then the register will be added In order to be included in the ICARA they need to meet certain key criteria, agreed by the Board. Those risks that fall into the categories of being Possible or Likely and High or Critical will need to be factored into the ICARA.

Information on the risks the firm faces and how it manages them is gathered by the working party by reviewing company records, including financial statements and control documents. The management of the company are regularly updated with the financial position of the firm and are involved in the day-to-day running of the business. Monthly balance sheets and P&L is sent to the management as well as liquidity report.

Spectra is governed by the CEO, COO, Senior Partners, and the CFO, who are all attentive to developments in the market, compliance issues in the conduct of the business and the management of the financial risks associated in the running of this type of company. Due to this in-depth engagement by key stakeholders and the activities of the company, Spectra believes it has effective governance arrangements to help the firm to achieve its strategic objectives while also ensuring that the risks to the Firm, its stakeholders, and the wider market are identified, managed, and mitigated. Spectra’s Governing Body meets on a monthly basis and has the responsibility to approve and oversee the implementation of the firm’s strategic objectives, risk strategy and internal governance, oversee the process for disclosure and communications, ensures the integrity of the firm’s accounting and financial reporting systems, ensures compliance with the requirements of the regulatory system, assesses the adequacy of policies relating to the provision of services to clients, and has adequate access to information and documents needed to monitor management decision-making.

Spectra promote an inclusive working environment throughout the firm including the management body, in which diversity is recognized, valued, and encouraged. We acknowledge the multi-cultural and diverse nature of the UK workforce and society in general. We are committed to principles of fairness and mutual respect where everyone accepts the concept of individual responsibility. Everyone we employ has a role to play in the development of our organization. Nobody should feel excluded by their identity, background, or circumstances. We all have something positive to offer and we welcome the diversity of views and opinions inclusive organizations embrace.

As of 31 December 2023, Spectra maintained own funds of £750,000. The below tables are the prescribed templates within MiFIDPRU 8 Annex 1R and provides a breakdown of the Firm’s own funds:

According to the FCA in MIFIDPRU 4.3.1 a firm must always maintain own funds that are equal to its own fund’s requirements.

The own funds requirement is the minimum requirement of capital the firm is required to hold, taken as the higher of the PMR, KFR and FOR.

The below illustrates the core components of Spectra’s own funds requirements:

Spectra is also required to comply with overall financial adequacy rule (“OFAR”) set out within MiFIDPRU 7.4.7R. This is an obligation on Spectra to hold own funds and liquid assets which are adequate, both as to their amount and quality, to ensure that:

• The Firm is able to remain financially viable throughout the economic cycle, with the ability to address any material potential harm that may result from its ongoing activities; and
• The Firm’s business can be wound down in an orderly manner, minimizing harm to consumers or to other market participants.

Spectra has considered within the Liquid Asset Threshold requirement the effective management of prudential risk, processes, strategies, and systems which are proportionate to the nature, scale, and complexity of the firm’s activities. These have been assessed in relation to the activities of this firm and the risks to which they give rise.

A cash flow projection has been made and is regularly reviewed against the capital adequacy requirement. Any new business or expansion of the company would be a material change and the cash flow projections would be reviewed in the anticipation of the new developments.

Stress testing of the liquidity requirement is proportionate to Spectra. Due to the nature of the business, the liquidity in Spectra is regularly monitored against the actual requirement, forecast requirement and income. The requirement is relatively constant and the income, whilst fluctuating slightly, is not a significant short-term influencer to the liquidity of the company. The ultimate stress test is to see how long the company could survive, with the capital adequacy intact, with no income whatsoever.

As a MIFID Investment Firm, Spectra is within scope of MIFIDPRU Remuneration Code in the FCA Handbook SYSC 19G. The aim is to ensure Spectra has a risk-focused remuneration policy which is consistent with and promotes effective risk. Spectra is a non-small non-interconnected (“Non-SNI”) Firm and therefore is required to apply additional requirements within its remuneration policies and practices.  SYSC 19G.2.4 explains that a firms’ policies and procedures must be appropriate and proportionate to the nature, scale and complexity of the risks associated with the firm’s business model and activities. The contents of the policy will also depend on the size of the firm, the types of roles within the firm and the business it undertakes set out in SYSC 19.

Spectra’s remuneration policy, is based on the following principles that guide the compensation programs and consequent actions:

• Fairness and consistency with the responsibilities assigned and the capabilities demonstrated
• Alignment with the company strategies and with the defined objectives
• Competitiveness regarding practices and market trends
• Enhancement of merit and performance, in terms of results, behaviour and values acted
• Clear governance and compliance of regulatory framework

Spectra’s main policy is to offer competitive remuneration packages to all its employees. Market research (benchmarking) is conducted to enable the practices to be parallel in quality and value with the general conditions present within the market. No individual will be dependent on variable remuneration to an extent that that makes up their majority of their total remuneration.

The remuneration policy and related practices are determined with regards to common interests of partners, employees, and clients. Spectra’s remuneration policy consists of base salaries, as well as performance-based bonuses and benefits.

This policy is designed to attract, retain, and motivate staff at all levels, and is consistent with the objectives outlined in the business strategy through:

• An appropriate balance between variable and fixed component.
• A proper connection with the remuneration of individual performance and the company.

Fixed remuneration is determined by experience and aptitude for the role and reflects the staff members professional experience and organisational responsibilities as set out in their contract of employment with Spectra. This will be permanent, pre-determined, non-discretionary, non-revocable and not dependent on performance.

Variable remuneration is determined by contribution and performance within the last calendar year. It reflects the long-term performance of the staff member as well as performance against the staff member’s terms of employment

Spectra’s ratio between variable and fixed components of the total remuneration, has been established to ensure that the components are appropriately balanced and that the fixed component

represents a sufficiently high proportion of the total remuneration to enable the operation of a fully flexible policy on variable remuneration. This allows for the possibility of paying no variable remuneration component, which the firm would do in certain situations, such as where the firm’s profitability performance is particularly constrained, or where there is a risk that the firm may not be able to meet its capital or liquidity regulatory requirements.

The below table summarises the financial and non-financial criteria of performance used across the Firm in assessing the level of variable remuneration to be paid:

Spectra’s senior management fully acknowledges its responsibilities with respect to this remuneration policy, including its overriding responsibility to ensure that this policy complies with the requirements of the MIFIDPRU Remuneration Code. Senior Management along with Compliance will review this policy on an annual basis, this being sufficiently frequent given the risks faced by the firm.

Spectra considers the current arrangements to be proportionate, given:

(i) the low-risk nature of the firm’s business.
(ii) the small size of the firm and clear visibility of behaviour and contributions to the organisation that is available to the board; and
(iii) the transparency to the board of the process for determining remuneration and its outcome.

This policy will be reviewed by the Compliance Officer on an annual basis to determine whether it has been implemented correctly and in line with the firm’s business strategy, reflects the risk profile, long-term objectives other relevant goals of the firm and compliance with all relevant legal requirements.

Following this internal review, the results will be documented including findings and remediation actions.

A material risk taker is a staff member at a non-SNI MIFIDPRU investment firm whose professional activities have a material impact on the risk profile of the firm or of the assets that the firm manages.

On an annual basis Spectra will assess all partners and employees to determine whether they are material risk takers. The FCA’s expected roles along with internal assessment of roles and responsibilities will form the decision in determining if an individual is an MRT.

The remuneration MRT register will be updated as often as necessary by the Compliance Officer.

This register will document a breakdown of all remuneration an individual classified as an MRT for each performance year has received.

Spectra has identified Individuals will be a MRT if they fall in to one of the below categories:

• Management Body or Senior Management
• Managerial Responsibility for a material business unit for regulated activities
• Managerial Responsibility for control functions
• Managerial Responsibility for prevention of Money Laundering & Terrorist Financing
• Responsible for managing material risk within the firm
• Those that are responsible for managing information technology, information security, and/or outsourcing arrangements of critical or important functions

In total Spectra has five MRT’s, four Senior Management individuals and one within another MRT category.

Spectra is relying on the exemption defined under MiFIDPRU 8.6.8R(7) to not disclose the remuneration of its MRTs. This is to prevent the identification of individuals as an MRT. The purpose of this exemption is to avoid Spectra disclosing information:

1. That would enable a material risk taker to be identified; or
2. That could be associated with a particular material risk taker.

Under MiFIDPRU 8.7 (Investment Policy), a Firm must only disclose information on a company whose shares are admitted to trading on a regulated market, where the proportion of voting rights that the MIFIDPRU investment firm directly or indirectly hold in the company is greater than 5% of all voting rights attached to the shares issued by the company, and only in respect of shares in that company to which voting rights are attached.

The Firm does not engage in the trading of shares and therefore has no disclosures in relation to this requirement.