Barclays 2014 Annual Report Download - page 220

218 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Supervision and regulation
Risk review
Resolution of UK banking groups
The Banking Act 2009 (the Banking Act) provides a regime to allow the
Bank of England (or, in certain circumstances, HM Treasury) to resolve
failing banks in the UK, in consultation with the PRA and HM Treasury
as appropriate. Under the Banking Act the Bank of England is given
powers to: (i) make share transfer instruments pursuant to which all or
some of the securities issued by a UK bank may be transferred to a
commercial purchaser; and (ii) the power to transfer all or some of the
property, rights and liabilities of a UK bank to a commercial purchaser
or a ‘bridge bank’, which is a company wholly owned by the Bank of
England. In addition, under the Banking Act HM Treasury is given the
power to take a bank into temporary public ownership by making one
or more share transfer orders in which the transferee is a nominee of
HM Treasury or a company wholly owned by HM Treasury. A share
transfer instrument or 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. Certain of these powers also extend to
companies within the same group as a UK bank.
The Banking Act also gives the authorities powers to override events of
default or termination rights that might otherwise be invoked as a
result of the exercise of the resolution powers. The Banking Act powers
apply regardless of any contractual restrictions and compensation that
may be payable in the context of both share transfer orders and
property appropriation.
The resolution powers described above have recently been
supplemented with a ‘bail-in’ power introduced under the Banking
Reform Act. This power allows for the cancellation or modification of
one or more liabilities (with the exception of ‘excluded liabilities’).
Excluded liabilities include (amongst other things): deposits protected
under a deposit insurance scheme, secured liabilities (to the extent that
they are secured), client assets and assets with an original maturity of
less than seven days which are owed to a credit institution or
investment firm. The Bank of England’s new bail-in powers were
brought into force with effect from 1 January 2015. Measures specifying
the minimum amount of liabilities eligible for bail-in which a bank must
hold will come into effect in 2016. From 20 February 2015 UK banks
and their parents will be required to include in debt instruments, issued
by them under the law of a non-EEA country, terms under which the
relevant creditor recognises that the liability is subject to the exercise of
bail-in powers by the Bank of England. Similar terms will be required in
contracts governing other liabilities of UK banks and their parents if
those liabilities are governed by the law of a non-EEA country, are not
excluded liabilities under the Banking Act 2009 and are issued, entered
into or arise after 31 December 2015.
The Banking Act also gives the Bank of England the power to override,
vary, or impose contractual obligations between a UK bank, its holding
company and its group undertakings, in order to enable any transferee
or successor bank to operate effectively after any of the resolution tools
have been applied. There is also power for HM 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.
The Financial Services Act 2010, amongst other things, requires the UK
regulators to make rules about remuneration and to require regulated
firms to have a remuneration policy that is consistent with effective risk
management. The Banking Act also amended FSMA to allow the FCA
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.
The PRA has made rules that require authorised firms to draw up
recovery plans and resolution packs. Recovery plans are designed to
outline credible recovery actions that authorised firms could implement
in the event of severe stress in order to restore their business to a stable
and sustainable condition. The resolution pack contains detailed
information on the authorised firm in question which will be used to
develop resolution strategies for that firm, assess its current level of
resolvability against the strategy, and to inform work on identifying
barriers to the implementation of operational resolution plans.
In addition to establishing the FPC, PRA and FCA, the Financial Services
Act 2012 amongst other things clarifies responsibilities between
HM Treasury and the Bank of England in the event of a financial crisis
by giving the Chancellor of the Exchequer powers to direct the Bank of
England where public funds are at risk and there is a serious threat to
financial stability. The Financial Services Act 2012 also establishes the
objectives and accountabilities of the FPC, PRA and FCA; amends the
conditions which need to be met by a firm before it can be authorised;
gives the FPC, PRA and FCA additional powers, including powers of
direction over unregulated parent undertakings (such as Barclays PLC)
where this is necessary to ensure effective consolidated supervision of
the Group; and a power for the FCA to make temporary product
intervention rules for a maximum period of six months, if necessary
without consultation. The Financial Services Act 2013 also created a
new criminal offence relating to the making of a false or misleading
statement, or the creation of a false or misleading impression, in
connection with the setting of a benchmark.
Compensation schemes
Banks, insurance companies and other financial institutions in the UK
are subject to a single 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 by
its customers because of its financial circumstances. Most deposits
made with branches of Barclays Bank PLC within the EEA 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.
Influence of European legislation
Financial regulation in the UK is to a significant degree shaped and
influenced by EU legislation. This provides 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 and host regulators.
Regulation in Africa
Barclays’ operations in South Africa, including Barclays Africa Group
Limited, are supervised and regulated mainly by the South African
Reserve Bank (SARB), the Financial Services Board (SAFSB) as well as
the Department of Trade and Industry (DTI). The SARB oversees the
banking industry and follows a risk-based approach to supervision,
whilst the SAFSB oversees financial services such as insurance and
investment business and focuses on enhancing consumer protection
and regulating market conduct. The DTI regulates consumer credit
through the National Credit Act (NCA) 2005, as well as other aspects of
consumer protection not regulated under the jurisdiction of the SAFSB
through the Consumer Protection Act (CPA) 2008. It is intended that
regulatory responsibilities in South Africa will in future be divided
between the SARB which will be responsible for prudential regulation
and the SAFSB will be responsible for matters of market conduct. The
transition to ‘twin peaks’ regulation will commence in 2015. Barclays’
operations in other African countries are primarily supervised and
regulated by the central banks in the jurisdictions where Barclays has a
banking presence. In some African countries, the conduct of Barclays’
operations and the non-banking activities are also regulated by
financial market authorities.