Barclays 2012 Annual Report Download - page 197

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The IHC would be subject to a number of separate supervisory,
prudential and early-remediation requirements, including (i) capital
requirements and leverage limits; (ii) mandatory stress testing of
capital levels by the FRB and submission of a capital plan to the FRB;
(iii) limitations on capital distributions by the IHC to its parent
company, unless such distributions are part of such a capital plan
that has been submitted to and approved by the FRB; (iv) substantive
liquidity requirements, including requirements to conduct monthly
internal liquidity stress tests for the IHC and for Barclays Bank PLC’s
US branch network, separately, and to maintain a 30-day buffer of
highly liquid assets; (v) liquidity risk management requirements,
including compliance with liquidity risk management standards
established by the FRB and maintenance of an independent review
function to review and evaluate regularly the adequacy and
effectiveness of the liquidity risk management practices of Barclays
combined US operations; (vi) overall risk management requirements,
including creation of a US risk committee (or use of Barclays
enterprise-wide risk committee for this function, provided it meets
certain requirements) and the hiring of a US chief risk officer, and (vii)
stringent concentration and credit exposure limits.
The proposals envisage that the above requirements would take
effect on 1 July 2015. If adopted in their current form, the proposed
rules have the potential to increase the absolute and regulatory costs
of Barclays US operations significantly. The proposals are subject to a
public comment period, and the FRB has posed a number of
questions regarding how to implement the proposed rules. As a
result of this process, the FRB may modify its proposals, which could
result in changes to the requirements and the ultimate effect of the
proposed rules. It, therefore, is not possible to determine with
certainty what effect the proposed rules (or the final rules adopted by
the FRB) may have on Barclays or its US operations;
 Other enhanced prudential requirements: In addition to the
requirements that would be implemented under the above proposals,
and separate and apart from Basel 3, the DFA also imposes higher
capital, liquidity and leverage requirements on US banks and bank
holding companies generally.
 Restrictions on proprietary trading and fund-related activities: The
so-called ‘Volcker Rule’, will, once effective, significantly restrict the
ability of US bank holding companies and their affiliates, and the
US branches of foreign banks, to conduct proprietary trading in
securities and derivatives as well as certain activities related to hedge
funds and private equity funds. In October 2011, US regulators
proposed rules to implement the Volcker Rule. Those rules have not
yet been finalised. The proposed rules are highly complex and many
aspects remain unclear, including the exemption from the proprietary
trading and fund-related activity prohibitions for activities conducted
by non-US organisations ‘solely outside the United States.’ The
agencies appeared to construe this exemption very narrowly in the
proposed rules. Analysis continues of the proposals, but it is clear
that compliance with them would entail significant effort by the
Group. Although the Volcker Rule is likely to impose significant
additional compliance and operational costs on the Group, the full
impact will not be known with certainty until the rules have been
finalised. Whilst the Group has identified that its private equity fund,
hedge fund and trading operations may be affected by the Volcker
Rule, until the final regulations are adopted, the impact on the
Group’s ability to engage in these activities continues to remain
uncertain. As such, it cannot currently be determined whether the
restrictions will have a material effect on the Group. While the
statutory Volcker Rule provisions officially took effect in July 2012,
Barclays has until the end of the conformance period, currently set
for July 2014 (subject to possible extensions), in order to conform its
activities to the requirements of the rule;
 Resolution plans: The DFA requires bank holding companies with
total consolidated assets of $50bn or more to submit to the FRB and
the FDIC, and regularly update, a plan for ‘rapid and orderly’
resolution to be used if the company experiences material financial
distress or failure. Non-US banking organisations that are treated as
bank holding companies under US law, such as Barclays, are required
to submit such plans with respect to their US operations if they have
more than $50bn in US assets. As Barclays US assets exceed $250bn,
it submitted a resolution plan as required by 1 July 2012;
 Regulation of derivatives markets: Among the changes mandated by
the DFA are that many types of derivatives now traded in the
over-the-counter markets be traded on an exchange or swap
execution facility and centrally cleared through a regulated clearing
house. In addition, many participants in these markets will be
required to register with the CFTC as ‘swap dealers’ or ‘major swap
participants’ and/or with the US SEC as ‘securities swap dealers’ or
‘major securities swap dealers’ and be subject to CFTC and SEC
regulation and oversight. Barclays Bank PLC has registered as a swap
dealer. Entities required to register will also be subject to business
conduct, capital, margin, recordkeeping and reporting requirements.
The DFA also requires most standardised derivatives to be traded on
a regulated platform and cleared through a regulated clearing house.
In addition, the CFTC, pursuant to the DFA, has adopted rules on
position limits on derivatives on physical commodities. These rules
have been overturned by a US District Court and the case is now on
appeal. However, it is expected that these rules will be adopted in
some form in the future. It is also possible that other additional
regulations (many of which still are not final), and the related
expenses and requirements, will increase the cost of and restrict
participation in the derivative markets, thereby increasing the costs of
engaging in hedging or other transactions and reducing liquidity and
the use of the derivative markets. Barclays Bank PLC and its
subsidiaries and affiliates may be exposed to these effects whether or
not they are required to register in the capacities described. The new
regulation of the derivative markets could adversely affect the
business of Barclays Bank PLC and its affiliates in these markets and
could make it more difficult and expensive to conduct hedging and
trading activities. The DFA also contains a ‘derivatives push-out’
requirement that, as early as July 2013, could prevent the Group from
conducting certain swaps-related activities in the US branches of
Barclays Bank PLC;
 Risk retention requirements for securitisations: The US federal
banking agencies are required by the DFA to develop rules whereby,
subject to certain exceptions, any sponsor of an asset-backed
security (ABS) transaction must retain, generally, not less than five
percent of the credit risk of any asset that the sponsor, through the
issuance of ABS, transfers, sells or conveys to a third party. This may
impact the participation by the Group’s US operations in such
transactions; and
 The Bureau of Consumer Financial Protection (CFPB): The CFPB is
empowered to regulate the credit card industry, including the terms
of credit card agreements with consumers, disclosures, and fees.
Actions by the CFPB in this area are likely to impact the Group’s US
credit card business. The CFPB became operational in July 2011, and
has developed a model credit card disclosure form and is accepting
consumer credit card complaints. More broadly, the CFPB has the
authority to examine and take enforcement action against any US
bank with over $10bn in total assets, such as Barclays Bank Delaware,
with respect to its compliance with Federal laws regulating the
provision of consumer financial services and with respect to ‘unfair,
deceptive or abusive acts and practices’. Since becoming operational,
the CFPB has initiated several high-profile public actions against
financial companies, including major credit card issuers. Settlements
of those actions have included monetary penalties, customer
remediation requirements and commitments to modify business
practices.
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