Barclays 2004 Annual Report Download - page 45

Legal Risk
The Group is subject to comprehensive legal obligations in the UK, the
European Union, the US, the Asia-Pacific region and in the many other
countries around the world in which the Group operates. As a result,
the Group is exposed to many forms of legal risk, which may arise in
a number of ways. Primarily:
•Group business may not be conducted in accordance with
applicable laws;
•contractual obligations may either not be enforceable as intended
or may be enforced against the Group in an adverse way;
•the intellectual property of the Group (such as its trade names)
may not be adequately protected; and
•the Group may be liable for damages to third parties harmed by
the conduct of its business.
In addition, the Group faces risk where legal proceedings are brought
against it. Regardless of whether or not such claims have merit, the
outcome of legal proceedings is inherently uncertain and could result
in financial loss.
Although the Group has processes and controls around the
management of legal risk, failure to manage legal risks can impact
the Group adversely, both financially and reputationally.
Tax Risk
Tax risk is the risk associated with changes in, or errors in the
interpretation of, taxation rates or law. This could result in increased
charges or financial loss.
Although the Group devotes considerable resources to managing tax
risk, failure to manage this risk can impact the Group adversely.
Changes in Governmental Policy and Regulation
The Group’s businesses and earnings can be affected by the fiscal
or other policies and other actions of various regulatory authorities
of the UK, other European Union or foreign governments and
international agencies. The nature and impact of future changes in
such policies and regulatory action are not predictable and are beyond
the Group’s control.
There is continuing political and regulatory scrutiny of, and major
changes in, legislation and regulation of the consumer credit industry
in the UK and elsewhere. In the UK, these currently include a review of
store cards by the Competition Commission and investigations by the
Office of Fair Trading into interchange rates and default fees on credit
cards. The review and investigations are looking at the consumer
credit industry generally and the Group is co-operating with those
proceedings. Their outcome is unclear but may have an impact on
the consumer credit industry in general and therefore on the Group’s
business in this sector.
Other areas where changes could have an impact include inter alia:
•the monetary, interest rate and other policies of central banks and
regulatory authorities;
•general changes in government or regulatory policy that may
significantly influence investor decisions in particular markets
in which the Group operates;
•general changes in the regulatory requirements, for example,
prudential rules relating to the capital adequacy framework
(pages 113 to 115);
•changes in competition and pricing environments;
•changes in the financial reporting environment (see Conversion to
International Financial Reporting Standards in 2005 on pages 129
and 130);
•expropriation, nationalisation, confiscation of assets and changes
in legislation relating to foreign ownership; and
•other unfavourable political, military or diplomatic developments
producing social instability or legal uncertainty which in turn may
affect demand for the Group’s products and services.
Impact of Strategic Decisions taken by the Group
The Group devotes substantial management and planning resources
to the development of strategic plans for organic growth and
identification of possible acquisitions, supported by substantial
expenditure to generate growth in customer business. If these
strategic plans do not meet with success, the Group’s earnings could
grow more slowly or decline.
Competition
The UK and global financial services market remains highly
competitive and innovative competition comes both from incumbent
players and a steady stream of new market entrants. The landscape is
expected to remain highly competitive in all the Group’s businesses,
which could adversely affect the Group’s profitability.
Impact of External Factors on the Group and Peer Group
The Group’s primary performance goal is to achieve top quartile
TSR performance for 2004 to 2007 inclusive against a group of peer
financial institutions. This goal assumes that external factors will
impact all peer group entities similarly. The Group’s ability to
achieve the goal will be significantly impacted if the Group is
disproportionately impacted by negative external factors. Even if the
Group performs well, if others perform better or the market believes
others have performed better, we may not achieve our goal.
Barclays devotes considerable resources and expertise to managing
the risks to which it is exposed. Our risk management is described
in the following pages (pages 44-71). Please also refer to the
cautionary statement concerning forward-looking statements on
the inside of the front cover in conjunction with this section.
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Barclays PLC Annual Report 2004