Barclays 2007 Annual Report Download - page 128

Supervision and regulation
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 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.
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 seeks 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.
The FSA adopts a risk-based approach to supervision. The starting point
for supervision of all financial institutions is 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, limits on large exposures to individual entities and groups of
closely connected entities, liquidity and rules of business conduct. Certain
of these requirements derive from EU directives as described below.
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 because of 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 and
certain types of claims are subject to maximum levels of compensation.
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
arrangements for compensating depositors and for dealing with failed
banks are currently subject to consultation by the UK Tripartite Authorities
– HM Treasury, the FSA and the Bank of England. The Government has
committed to presenting proposals for legislation to Parliament on these
matters in the course of 2008.
Outside the UK, the Group has operations (and main regulators) located in
continental Europe, in particular France, Germany, Spain, Switzerland,
Portugal and Italy (local central banks and other regulatory authorities);
Asia Pacific (various regulatory authorities including the Hong Kong
Monetary Authority, the Financial Services Agency of Japan, the Australian
Securities and Investments Commission , the Monetary Authority of
Singapore, the China Banking Regulatory Commission and the Reserve
Bank of India); Africa and the Middle East (various regulatory authorities
including the South African Reserve Bank and the Financial Services Board
and the regulatory authorities of the United Arab Emirates) and the United
States of America (the Board of Governors of the Federal Reserve System
(FRB), the Office of the Comptroller of the Currency (OCC) and the
Securities and Exchange Commission).
In Europe, the UK regulatory agenda is considerably shaped and
influenced by the directives emanating from the EU. A number of EU
directives have recently been implemented, for example the Capital
Requirements Directive and the Markets in Financial Instruments Directive
(‘MiFID’). These form part of the European Single Market programme, an
important feature of which is the framework for the regulation of
authorised firms. This framework, which continues to evolve, 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 (the FSA) and host regulators.
Barclays operations in South Africa, including Absa Group Limited, are
supervised and regulated by the South African Reserve Bank (SARB) and
the Financial Services Board (FSB). SARB oversees the banking industry
and follows a risk-based approach to supervision whilst the FSB oversees
the non-banking financial services industry and focuses on enhancing
consumer protection and regulating market conduct.
In the United States, Barclays PLC, Barclays Bank PLC, and certain US
subsidiaries and branches of the Bank are subject to a comprehensive
regulatory structure, involving numerous statutes, rules and regulations,
including the International Banking Act of 1978, the Bank Holding
Company Act of 1956, as amended, the Foreign Bank Supervision
Enhancement Act of 1991 and the USA PATRIOT Act of 2001. Such laws
and regulations impose limitations on the types of businesses, and the
ways in which they may be conducted, in the United States and on the
location and expansion of banking business there. The Bank’s branch
operations are subject to extensive federal and state supervision and
regulation by the FRB, the New York State Banking Department and the
OCC (in the case of Barclays Global Investors, NA); and the Delaware State
Banking Commissioner and the Federal Deposit Insurance Corporation (in
the case of Barclays Bank Delaware). The investment banking and asset
management operations are subject to ongoing supervision and
regulation by the Securities and Exchange Commission (SEC) as well as a
comprehensive scheme of regulation under the US federal securities laws,
as enforced by, for example, the Financial Industry Regulatory Authority
(FINRA) and the OCC.
Risk management
Supervision and regulation
126 Barclays PLC Annual Report 2007