Barclays 2014 Annual Report Download - page 307

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27 Provisions continued
Interest Rate Hedging Product Redress
In 2012, a number of UK banks, including Barclays, agreed with the FSA that they would conduct a review and redress exercise in respect of
interest rate hedging products sold on or after 1 December 2001 to retail clients or private customers categorised as being ‘non-sophisticated’.
Barclays has raised cumulative provisions totalling £1,500m for the related costs. As at 31 December 2014, £1,129m of this cumulative provision
had been utilised for redress and administrative costs and £160m released, leaving a residual provision of £211m. During 2014 the utilisation for
redress and administrative costs was £798m. £160m was released in Q314 as the review is now substantially complete with redress outcomes,
approved by the skilled person, communicated to nearly all of the non-sophisticated customers covered by the review. Approximately 85% of the
customers covered by the review have now been paid all redress due or are not due redress.
The Group expects the remaining provision of £211m at 31 December 2014 to be sufficient to cover the cost of completing redress. The timing of
remaining payments will depend on customer acceptances and response times but the Group expects to have substantially completed redress
payments during 2015.
No provision has been recognised in relation to claims from customers categorised as sophisticated, which are not covered by the redress
exercise, or incremental consequential loss claims (over and above 8% per annum simple interest and an allowance for tax rate differentials) from
customers categorised as non-sophisticated. As at 31 December 2014, no significant incremental consequential loss claims from customers
categorised as non-sophisticated had been agreed. These items will be monitored and future provisions will be recognised to the extent an
obligation resulting in a probable outflow is identified.
Legal, competition and regulatory matters
The Group is engaged in various legal proceedings, both in the UK and a number of other overseas jurisdictions, including the US. For further
information in relation to legal proceedings and discussion of the associated uncertainties please see Note 29 Legal, competition and regulatory
matters.
28 Contingent liabilities and commitments
Accounting for contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where
the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet
but are disclosed unless the outflow of economic resources is remote.
The following table summarises the nominal principal amount of contingent liabilities and commitments which are not recorded on balance sheet:
2014
£m
2013
£m
Guarantees and letters of credit pledged as collateral security 14,547 15,226
Performance guarantees, acceptances and endorsements 6,777 5,958
Contingent liabilities 21,324 21,184
Documentary credits and other short-term trade related transactions 1,091 780
Forward starting reverse repurchase agreements 13,856 19,936
Standby facilities, credit lines and other commitments 276,315 254,855
The Financial Services Compensation Scheme
The Financial Compensation Scheme (the FSCS) is the UK’s Government-backed compensation scheme for customers of authorised institutions
that are unable to pay claims. It provides compensation to depositors in the event that UK licensed deposit-taking institutions are unable to meet
their claims. The FSCS raises levies on UK licensed deposit taking institutions to meet such claims based on their share of UK deposits on
31 December of the year preceding the scheme year (which runs from 1 April to 31 March).
Compensation has previously been paid out by the FSCS, funded by loan facilities totalling approximately £18bn provided by HM Treasury to FSCS
in support of FSCS’s obligations to the depositors of banks declared in default. The interest rate chargeable on the loan and levied to the industry
is subject to a floor equal to the HM Treasury’s own cost of borrowing, based on the relevant gilt rate (FSCS advises financial institutions to apply
the 2024 UK Gilt rate published by the Debt Management Office to the Bradford & Bingley portion of the loan). The majority of the facility is
expected to be recovered, with the exception of an estimated shortfall of £1bn, which the FSCS is recovering by levying the industry in three
instalments across 2013, 2014 and 2015. In 2014, the Accounting Standard Board issued IFRIC 21 ‘Levies’, which clarified that the obligating event
which gives rise to the liability to be the start of the FSCS scheme year (1 April), i.e. 1 April 2015 for the 2015/16 scheme year. As a result the
liability at December 2014 has been reduced. The FSCS liability for 2015/16 is to be recognised in 2015. Barclays has recognised an accrual of
£88m as at 31 December 2014 in other liabilities (2013: £148m) in respect of the Barclays portion of the total levies raised by the FSCS.
Further details on contingent liabilities relating to legal and competition and regulatory matters can be found in Note 29.
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