Barclays 2014 Annual Report Download - page 124

122 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
Risk review
f) Recovery and resolution planning
There continues to be a strong regulatory focus on resolvability from
international and UK regulators. The Group made its first formal
Recovery and Resolution Plan (RRP) submissions to the UK and US
regulators in mid-2012 and has continued to work with the relevant
authorities to identify and address impediments to resolvability.
In the UK, RRP work is now considered part of continuing supervision.
Removal of barriers to resolution will be considered as part of the PRA’s
supervisory strategy for each firm, and the PRA can require firms to
make significant changes in order to enhance resolvability.
In the US, Barclays is one of several systemically important banks (as
one of the so-called “first wave filers”) required to file resolution plans
with the Federal Reserve and the FDIC under provisions of the
Dodd-Frank Act. The regulators provided feedback in August 2014 with
respect to the 2013 resolution plans submitted by first wave filers. This
feedback required such filers to make substantive improvements to
their plans for filing in 2015 or face potential punitive actions which, in
extremis, could lead to forced divestitures or reductions in operational
footprints in the US. Barclays is working with its regulators to address
these issues and will file its revised plan in June 2015. It is uncertain
when or in what form US regulators will review and assess Barclays’ US
resolution plan filing.
In South Africa, the South African Treasury and the South Africa
Reserve Bank are considering material new legislation and regulation to
adopt a resolution and depositor guarantee scheme in alignment with
FSB principles. BAGL and Absa Bank will be subject to these schemes
as they are adopted. It is not clear what shape these schemes will take
or when they will be adopted, but current proposals for a funded
deposit insurance scheme and for operational continuity could result in
material new expense impacts for the BAGL group.
Whilst the Group believes that it is making good progress in reducing
impediments to resolution, should the relevant authorities ultimately
decide that the Group or any significant subsidiary is not resolvable, the
impact of such structural changes (whether in connection with RRP or
other structural reform initiatives) could impact capital, liquidity and
leverage ratios, as well as the overall profitability of the Group, for
example via duplicated infrastructure costs, lost cross-rate revenues
and additional funding costs.
Conduct risk
Any inappropriate judgements or actions taken by the Group, in the
execution of business activities or otherwise, may adversely impact
the Group or its employees. In addition, any such actions may have a
detrimental impact on the Group’s customers, clients or
counterparties.
Such judgements or actions may negatively impact the Group in a
number of ways including, for example, negative publicity and
consequent erosion of reputation, loss of revenue, imposition of fines,
litigation, higher scrutiny and/or intervention from regulators,
regulatory or legislative action, loss of existing or potential client
business, criminal and civil penalties and other damages, reduced
workforce morale, and difficulties in recruiting and retaining talent. The
Group may self-identify incidents of inappropriate judgement which
might include non-compliance with regulatory requirements where
consumers have suffered detriment leading to remediation of affected
customers.
There are a number of areas where the Group has sustained financial
and reputational damage from previous periods and where the
consequences continued in 2014 and are likely to have further adverse
effects in 2015 and possibly beyond. Further details on current
regulatory investigations are provided in Note 29 Legal, Competition
and Regulatory Matters.
As a global financial services firm, the Group is subject to the risks
associated with money laundering, terrorist financing, bribery and
corruption and economic sanctions and may be adversely impacted if it
does not adequately mitigate the risk that its employees or third parties
facilitate or that its products and services may be used to facilitate
financial crime activities.
Furthermore, the Group’s brand may be adversely impacted from any
association, action or inaction which is perceived by stakeholders to be
inappropriate or unethical and not in keeping with the Group’s stated
purpose and values.
Failure to appropriately manage these risks and the potential negative
impact to the Group’s reputation may reduce, directly or indirectly, the
attractiveness of the Group to stakeholders, including customers and
clients. Furthermore, such a failure may undermine market integrity
and result in detriment to the Group’s clients, customers,
counterparties or employees leading to remediation of affected
customers by the Group.