Barclays 2005 Annual Report Download - page 103

Barclays PLC
Annual Report 2005 101
3.2
International Retail and Commercial Banking – Absa
Absa Group Limited is one of South Africa’s largest financial services
organisations serving personal, commercial and corporate customers
predominantly in South Africa. Absa serves retail customers through a
variety of distribution channels and offers a full range of banking
services, including basic bank accounts, mortgages, instalment finance,
credit cards, bancassurance products and wealth management services;
for commercial and large corporate customers Absa offers customised
business solutions. As at 31st December 2005, Barclays owned 56.6%
of Absa Group Limited’s ordinary shares and has voting control.
Head office functions and other operations
Head office functions and other operations comprise:
•Head office and central support functions
•discontinued businesses in transition
•consolidation adjustments
Head office and central support functions comprise the following
areas: Executive Management, Finance, Treasury, Corporate Affairs,
Human Resources, Strategy and Planning, Internal Audit, Legal,
Corporate Secretariat, Property, Tax, Compliance and Risk. Costs
incurred wholly on behalf of the businesses are recharged to them.
Discontinued businesses in transition principally relate to Middle
Eastern corporate banking businesses and airline leasing activities.
These businesses are centrally managed with the objective of
maximising recovery from the assets.
Consolidation adjustments largely reflect the elimination of inter
segment transactions.
Competition and Outlook
The Barclays Group operates in a number of highly competitive
business environments and competes with a wide range of financial
services companies, from banks to leasing companies.
In all business areas, competition from both incumbent players and
new market entrants continues to increase, and the landscape will
remain highly competitive. Across businesses and geographies, the
pace of consolidation in the financial services industry has also
increased in recent years, and this is likely to continue to accelerate.
This consolidation could result in even more intense competition, as
larger, better-capitalised firms, with stronger local presence in specific
geographies, emerge.
Present in more than 60 countries, the Barclays Group also operates in
a number of highly competitive geographic environments, including
the UK, Continental Europe, the US, sub-Saharan Africa and the Asia-
Pacific region.
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, subsidiaries and associates, 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,
home mortgages, general insurance and investment business. 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 page 126), 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
allow it to continue insurance business in accordance with the rules of
the Scheme. Most deposits made with branches of Barclays Bank PLC
within the European Economic Area (EEA) which are denominated in
Sterling or other EEA currencies (including the euro) are covered by the
Scheme. Most claims made in respect of designated 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 Scheme establishes the maximum
amounts of compensation payable in respect of protected claims: for
eligible protected deposit claims, this is £31,700 (100% of the first
£2,000 and 90% of the next £33,000) and for protected investment
business, this is £48,000 (100% of the first £30,000 and 90% of the
next £20,000). There is no maximum limit for protected insurance
claims. The first £2,000 of a valid claim is paid in full together with
90% of the remaining loss.
Outside the UK, the Group has operations (and main regulators)
located in continental Europe, in particular France, Germany,
Spain, Portugal and Italy (local central banks and other regulatory
authorities); Asia Pacific (various regulatory authorities including the
Hong Kong Monetary Authority, the Japanese FSA and the Monetary
Authority of Singapore); Africa, where the Group’s operations are
headquartered in Johannesburg, South Africa (The South African
Reserve Bank and the Financial Services Board (FSB)) and the United
States of America (the Board of Governors of the Federal Reserve
System (FRB) and the Securities and Exchange Commission).