Barclays 2004 Annual Report Download - page 92

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Business description
Barclays Global Investors
Barclays Global Investors (BGI) is one of the world’s largest asset
managers and a leading global provider of investment management
products and services.
BGI offers structured investment strategies such as indexing, global
asset allocation and risk controlled active products, including hedge
funds. BGI also provides related investment services such as securities
lending, cash management and portfolio transition services. In
addition, BGI is the global product leader in Exchange Traded Funds
(iShares), with over 100 funds for institutions and individuals trading
in ten global markets. BGI’s investment philosophy is founded on
managing all dimensions of performance with a consistent focus on
controlling risk, return and cost.
Head Office Functions and Other Operations
Head office functions comprise all the Group’s central costs, including
the following areas that fall within Central Support: Executive
Management, Finance, Treasury, Marketing, Communications, Human
Resources, Strategy and Planning, Internal Audit, Legal, Corporate
Secretariat, Tax, Compliance and Risk. Costs incurred wholly on behalf
of the business units are recharged to them.
Transition Businesses comprise discontinued South American and
Middle Eastern corporate banking businesses and other centrally
managed Transition Businesses. These non-core relationships are
managed separately with the objective of maximising the recovery
from the assets concerned.
Central items include internal fees charged by Barclays Capital for
structured capital markets activities, income from the management of
the Group’s operational premises, property related services and other
central items including activities which support the operating business.
Competition and Outlook
The Barclays Group operates in a number of highly competitive
environments. Competitors include other banks, brokerage firms,
investment banking companies, credit card companies, mortgage
companies, leasing companies, and a variety of other financial services
and advisory companies.
The UK market remains highly competitive and innovative.
Competition comes both from incumbent players and new market
entrants. The landscape is expected to remain highly competitive in all
our businesses. Barclays remains at the forefront of market innovation
to introduce new propositions to the market, and we are confident
that the Group’s portfolio of businesses, combined with a focus on
improving franchise health and the continued application of value-
based management principles, will stand the Group in good stead
to meet the challenges ahead.
The recent growth in the UK economy may weaken in the short term,
driven by a cooling in the consumer market in response to a more
subdued housing market and also by a weaker international economy.
The US economy is expected to be more subdued, partly because of oil
price strength but also because of the need to resolve imbalances in
the economy, in particular the federal and current account deficits.
This may have important implications for growth, interest rates and
exchange rates around the world, and particularly for Continental
Europe, where growth has been dependent on exports.
The financial services industry has undergone consolidation in recent
years, as companies involved in a broad range of financial services
have merged, and this is expected to continue. This consolidation
could result in competition becoming more intense, as firms continue
to compete with companies that may be larger, better capitalised or
have stronger local presences in certain geographies.
Supervision and Regulation
Barclays is an international financial services group involved primarily
in Banking, Investment Banking and Asset Management, and has
operations in some 60 countries. The Group’s operations, including its
overseas offices subsidiary and associated undertakings, are subject to
rules and regulations, including reserve and reporting requirements
and conduct of business requirements imposed by the relevant central
banks and regulatory authorities.
In the UK, the Financial Services Authority (FSA) is the independent
body responsible for the regulation of deposit taking, life insurance
and investment business. From 31st October 2004, the FSA assumed
responsibility for the regulation of mortgage lending, sales and
administration and from 14th January 2005, for the sale and
administration of general insurance contracts. The FSA was established
by the Government and it exercises statutory powers under the
Financial Services and Markets Act 2000 (FSMA).
Barclays Bank PLC is authorised by the FSA to carry on a range of
regulated activities within the UK and is subject to consolidated
supervision. In its role as supervisor, the FSA is seeking to ensure
the safety and soundness of financial institutions with the aim of
strengthening, but not guaranteeing, the protection of customers.
The FSA’s continuing supervision of financial institutions authorised
by it is conducted through a variety of regulatory tools, including
the collection of information from statistical and prudential returns,
reports obtained from skilled persons, visits to firms and regular
meetings with management to discuss issues such as performance,
risk management and strategy.
Under the FSA’s risk-based approach to supervision, the starting
point for the FSA’s supervision of all financial institutions is based
on a systematic analysis of the risk profile for each authorised firm.
The FSA has adopted a homogeneous risk, processes and resourcing
model in its approach to its supervisory responsibilities (known as the
ARROW model) and the results of the risk assessment are used by the
FSA to develop a risk mitigation programme for a firm. The FSA also
promulgates requirements that banks and other financial institutions
are required to meet on matters such as capital adequacy (see Capital
ratios on pages 114 and 115), limits on large exposures to individual
entities and groups of closely connected entities, and liquidity.
Banks, insurance companies and other financial institutions in the UK
are subject to a single financial services compensation scheme (the
Financial Services Compensation Scheme) where an authorised firm
is unable or is likely to be unable to meet claims made against it due
to its financial circumstances. Different levels of compensation are
available to eligible claimants depending upon whether the protected
claim is in relation to a deposit, a contract of insurance or protected
investment business. The manager of the Scheme is able to make an
offer of compensation or, in respect of insurance contracts, offer to
continue cover or provide assistance to an insurance undertaking to