Barclays 2011 Annual Report Download - page 156

Risk management
Supervision and regulation
The Group’s operations, including its overseas offices, subsidiaries and
associates, are subject to a significant body of rules and regulations that
are a condition for authorisation to conduct banking and financial services
business. These apply to business operations and affect financial returns
and include reserve and reporting requirements and prudential and
conduct of business regulations. These requirements are set by the
relevant central banks and regulatory authorities that supervise the Group
in the jurisdictions in which it operates. The requirements reflect global
standards developed by, among others, the Basel Committee on Banking
Supervision and the International Organisation of Securities Commissions.
They also reflect requirements derived from EU directives.
In the UK, the Financial Services Authority (FSA) remains, pending the
reorganisation of the UK regulatory regime (see below), the independent
body responsible for the regulation and supervision of deposit taking, life
insurance, home mortgages, general insurance and investment business.
Barclays Bank PLC is authorised by the FSA under the Financial Services
and Markets Act 2000 to carry on a range of regulated activities within the
UK and is subject to consolidated supervision by the FSA. In its role as
supervisor, the FSA seeks to maintain the safety and soundness of
financial institutions with the aim of strengthening, but not guaranteeing,
the protection of customers and the financial system. The FSA’s continuing
supervision of financial institutions is conducted through a variety of
regulatory tools, including the collection of information from statistical and
prudential returns, reports obtained from skilled persons, visits to firms
and regular meetings with management to discuss issues such as
performance, risk management and strategy.
The starting point for supervision of all financial institutions is a systematic
analysis of the risk profile of each authorised firm. The FSA has adopted a
homogeneous risk, processes and resourcing model in its approach to its
supervisory responsibilities (known as the ARROW model) and the results
of the risk assessment are used by the FSA to develop a risk mitigation
programme for a firm. This is supplemented with a rolling programme of
continuous intensive and intrusive engagement on prudential and conduct
matters with high impact firms, such as Barclays. The FSA also
promulgates requirements that banks and other financial institutions are
required to meet on matters such as capital adequacy, limits on large
exposures to individual entities and groups of closely connected entities,
liquidity and rules of business conduct.
The Banking Act 2009 (the Banking Act) provides a regime to allow the
FSA, the UK Treasury and the Bank of England to resolve failing banks in
the UK. Under the Banking Act, these authorities are given powers,
including (a) the power to issue share transfer orders pursuant to which
all or some of the securities issued by a bank may be transferred to a
commercial purchaser or Bank of England entity and (b) the power to
transfer all or some of the property, rights and liabilities of the UK bank to
a purchaser or Bank of England entity. A share transfer order can extend to
a wide range of securities including shares and bonds issued by a UK bank
(including Barclays Bank PLC) or its holding company (Barclays PLC) and
warrants for such shares and bonds. The Banking Act powers apply
regardless of any contractual restrictions and compensation may be
payable in the context of both share transfer orders and property
appropriation.
The Banking Act also gives the Bank of England the power to override,
vary or impose contractual obligations between a UK bank or its holding
company and its former group undertakings for reasonable consideration,
in order to enable any transferee or successor bank of the UK bank to
operate effectively. There is also power for the Treasury to amend the law
(excluding provisions made by or under the Banking Act) for the purpose
of enabling it to use the regime powers effectively, potentially with
retrospective effect. In addition, the Banking Act gives the Bank of England
statutory responsibility for financial stability in the UK and for the oversight
of payment systems.
The Financial Services Act 2010, among other things, requires the FSA to
make rules about remuneration and to require regulated firms to have a
remuneration policy that is consistent with both effective risk
management and the standards issued by the Financial Stability Board.
The FSA is mandated to make rules that require authorised firms (or a
subset of authorised firms) to draw up recovery and resolution plans and
to consult with the Treasury and the Bank of England on the adequacy
of firms’ plans. This Act also allows the FSA to make rules requiring firms
to operate a collective consumer redress scheme to deal with cases of
widespread failure by regulated firms to meet regulatory requirements
that may have created consumer detriment.
Banks, insurance companies and other financial institutions in the UK are
subject to a single financial services compensation scheme (the Financial
Services Compensation Scheme – FSCS) which operates when an
authorised firm is unable or is likely to be unable to meet claims made
against it because of its financial circumstances. Most deposits made
with branches of Barclays Bank PLC within the European Economic Area
(EEA) which are denominated in Sterling or other currencies are covered
by the FSCS. Most claims made in respect of investment business will also
be protected claims if the business was carried on from the UK or from
a branch of the bank or investment firm in another EEA member state.
The FSCS is funded by levies on authorised UK firms such as Barclays
Bank PLC. In the event that the FSCS raises those funds more frequently
or significantly increases the levies to be paid by firms, the associated
costs to the Group may have a material impact on the Group’s results.
Further details can be found in Note 28 on page 245.
Outside the UK, the Group has operations (and main regulators) located in
continental Europe, in particular France, Germany, Spain, Switzerland,
Portugal and Italy (local central banks and other regulatory authorities);
Asia Pacific (various regulatory authorities including the Hong Kong
Monetary Authority, the Financial Services Agency of Japan, the Australian
Securities and Investments Commission, the Monetary Authority of
Singapore, the China Banking Regulatory Commission and the Reserve
Bank of India); Africa and the Middle East (various regulatory authorities
including the South African Reserve Bank) and the United States of
America (including the Board of Governors of the Federal Reserve System
(FRB), the Office of the Comptroller of the Currency (OCC), the Securities
and Exchange Commission (SEC) and the Commodity Futures Trading
Commission (CFTC).
Regulation in the UK is considerably shaped and influenced by EU
directives and regulations. These provide the structure of the European
Single Market, an important feature of which is the framework for the
regulation of authorised firms. This framework is designed to enable a
credit institution or investment firm authorised in one EU member state
to conduct banking or investment business through the establishment of
branches or by the provision of services on a cross-border basis in other
member states without the need for local authorisation. Barclays
operations in Europe are authorised and regulated by a combination
of both home (the FSA) and host regulators.
All disclosures in this section (pages 154 to 158) are unaudited
154 Barclays PLC Annual Report 2011 www.barclays.com/annualreport