Barclays 2011 Annual Report Download - page 158

Risk management
Supervision and regulation continued
G-SIFIs will need to meet the resolution planning requirements by the end
of 2012. The additional loss absorbency requirements will initially apply
to those banks identified in November 2014 as globally systemically
important. The loss absorbency requirements will be phased in starting in
January 2016 with full implementation by January 2019. G-SIFIs must also
meet the higher supervisory expectations for data aggregation capabilities
by January 2016.
The BCBS issued the final guidelines on Basel 3 capital and liquidity
standards in December 2010. It has continued to refine elements of this
package, notably in relation to counterparty credit risk where revisions
were made in July and November 2011. The requirements of Basel 3 will
be applicable from 1 January 2013 with a number of transitional provisions
that run to the end of 2018. An assessment of the likely impact of the
Basel 3 capital, leverage and liquidity requirements and the Group
response can be found on pages 23, 137-138 and 143.
The BCBS also maintains a number of active work streams that will affect
the Group. These include a fundamental review of the trading book whose
results are expected to be published in 2012. The BCBS is also understood
to be examining a regime for large exposures. These developments may
further increase the capital required by the Group to transact affected
business and/or affect the ability of the Group to undertake certain
transactions.
European Union
The EU has amended its regulatory structure as part of its response to the
financial crisis. On 1 January 2011, a number of new bodies came into
being, including the European Systemic Risk Board to monitor the financial
system and advise on macro-prudential actions and the European Banking
Authority charged with the development of a single rulebook for banks in
the EU and with enhancing co-operation between national supervisory
authorities, especially in the context of the supervision of banks that
operate across borders within the EU. The European Securities Markets
Authority has a similar role in relation to the capital markets and to banks
and other firms doing investment and capital markets business. The
European Banking Authority and the European Securities Markets
Authority each have the power to mediate between and override national
authorities under certain circumstances. National authorities, however,
remain responsible for the day-to-day supervision of financial institutions.
Basel 3 will be implemented in the EU by amendment to the Capital
Requirements Directive (CRD). Formal proposals to amend the CRD were
adopted by the European Commission in July 2011. These take the form
of a regulation and a directive which are currently going through the EU
legislative process. Much of the detailed implementation is expected to be
done through binding technical standards to be adopted by the European
Banking Authority, that are intended to ensure a harmonised application of
rules through the EU but which have yet to be developed. While there may
be some differences of detail between CRD 4 and Basel 3, the current
expectation is that the overall impact will be similar.
In addition, other amendments are being made to the EU framework
of directives, including to the Directive on Deposit Guarantee Schemes.
This may affect the amounts to which the Group may be liable to fund the
compensation of depositors of failed banks. The proposal also envisages
that national schemes should be pre-funded, with a fund to be raised over
a number of years. This would be a significant change for UK banks where
levies are currently raised as needed after failure. The proposals remain
under debate and the financial impact on the Group is not yet clear.
As anticipated, the European Commission has adopted proposals to
amend the Markets in Financial Instruments Directive. This will affect
many of the investment markets in which the Group operates and the
instruments in which it trades, and how it transacts with market
counterparties and other customers. These proposals are at a very early
stage of their consideration by the EU institutions and the overall impact
of them on the Group is not yet clear.
Other EU developments of note include consideration of European
arrangements in respect of crisis management and the resolution of
financial institutions. The European Commission issued a discussion paper
in January 2011 and proposals for legislation which were expected in 2011
are now expected later in 2012. These are likely to include provisions on
bail-in within resolution and other matters that may have an impact on the
rights of shareholders and creditors of failing institutions. The Commission
has also announced in November 2011 the creation of an expert group on
the structural aspects of the EU banking sector. The group was due to
start work in February 2012 and finish during the course of summer. Its
mandate will be to determine whether, in addition to ongoing regulatory
reforms, structural reforms of EU banks would strengthen financial
stability and improve efficiency and consumer protection, and if that
is the case make any relevant proposals as appropriate.
United Kingdom
The Government is reforming the structure of regulation to replace the
FSA and the tripartite system that also involved the Bank of England and
HM Treasury. This is intended to promote financial stability and to increase
the intensity of supervisory scrutiny of the financial sector, including the
Group. The Government has tabled a Bill that proposes that a Financial
Policy Committee should be established in the Bank of England with
responsibility for the monitoring and control of systemic risk, including
the deployment of macro-prudential tools of supervision, which, while still
to be determined, may include the imposition of additional capital and
liquidity buffers and interventions in the terms of transactions in particular
markets. Responsibility for prudential regulation will pass to a Prudential
Regulation Authority to be established as a subsidiary of the Bank of
England, while a Financial Conduct Authority (FCA), as a successor body
to the FSA, will be responsible for issues of business and market conduct
and market regulation. The FCA will also be the UK listing authority. This
process is not expected to be complete before early 2013. In anticipation of
the new regulatory structure, an interim Financial Policy Committee has
been created and the FSA reorganised itself into separate Prudential and
Consumer and Markets business units on 4 April 2011. In April 2012, the
two business units will begin to shadow the forthcoming regime and
operate as if they were the PRA and FCA to the extent permitted by
existing law.
156 Barclays PLC Annual Report 2011 www.barclays.com/annualreport