Barclays 2008 Annual Report Download - page 151

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Business review
Barclays PLC Annual Report 2008 149
holding companies registered with the FRB. Each has elected to be treated
as a financial holding company under the BHC Act. Financial holding
companies may engage in a broader range of financial and related
activities than are permitted to banking organisations that do not maintain
financial holding company status, including underwriting and dealing in all
types of securities. To maintain the financial holding company status of
each of Barclays PLC, Barclays Bank PLC and Barclays Group US Inc.,
Barclays Bank PLC is required to meet or exceed certain capital ratios and
to be deemed to be ‘well managed’, and Barclays Bank Delaware and
Barclays Global Investors, NA must also meet certain capital requirements,
be deemed to be ‘well managed’ and must have at least a ‘satisfactory’
rating under the Community Reinvestment Act of 1977.
Barclays investment banking operations are subject to ongoing
supervision and regulation by the SEC, the Financial Industry Regulatory
Authority (FINRA) and other government agencies and self-regulatory
organisations as part of a comprehensive scheme of regulation of all
aspects of the securities business under the US federal securities laws.
Barclays subsidiaries in the US are also subject to regulation by
applicable federal and state regulators of their activities in the asset
management, investment advisory, mutual fund and mortgage lending
businesses. The US operations and subsidiaries of Barclays are subject to
extensive laws and regulations designed to combat money laundering and
terrorist financing and to enforce compliance with US economic sanctions.
Regulatory Developments
In the wake of the financial crisis there will be regulatory change that will
have a substantial impact on all financial institutions, including the Group.
The full extent of this impact is not yet clear. Programmes to reform the
global regulatory framework were agreed first by G8 Finance Ministers in
April 2008 and subsequently by G20 Heads of Government in November
2008. In the EU, Finance Ministers agreed a roadmap for regulatory reform
in May 2008. There is a substantial degree of commonality to these
programmes covering issues of capital and liquidity regulation, risk
management and accounting standards. These programmes will be
further developed and implemented in 2009.
In the UK, in response to the financial crisis, the Chairman of the FSA
has been requested by the Chancellor of the Exchequer to undertake a
review of banking regulation. The Chancellor has indicated that he will be
presenting a White Paper on the supervision of banking in spring 2009
with the expectation that proposals for legislation will be presented to
Parliament. He has also commissioned Sir David Walker to review the
corporate governance of the UK banking industry. The results of this
review are expected before the end of 2009. The FSA has re-examined its
regulatory requirements and processes, substantially increasing regulatory
capital requirements in October 2008. It has also been undertaking a
Supervisory Enhancement Programme that will increase both the
resources devoted to supervision and the intensity of supervision.
On 21st February 2009, the Banking Act 2009 came into force which
provides a permanent regime to allow the FSA, the UK Treasury and the
Bank of England (the ‘Tripartite Authorities’) to resolve failing banks in the
UK.The Banking Act aims to balance the need to protect depositors and
prevent systemic failure with the potentially adverse consequences that
using powers to deal with those events could have on private law rights,
and, as a consequence, wider markets and investor confidence.
These powers, which apply regardless of any contractual restrictions,
include (a) power to issue share transfer orders pursuant to which there
may be transferred to a commercial purchaser or Bank of England entity,
all or some of the securities issued by a bank. The share transfer order can
extend to a wide range of ‘securities’ including shares and bonds issued by
aUK Bank (including Barclays Bank PLC) or its holding company (Barclays
PLC) and warrants for such and (b) the power to transfer all or some of
the property, rights and liabilities of the UK bank to a purchaser or Bank
of England entity. In certain circumstances encumbrances and trusts can
be over-reached. Power also exists to override any default provisions in
transactions otherwise affected by these powers. Compensation may
be payable in the context of both share transfer orders and property
appropriation. In the case of share transfer orders any compensation
will be paid to the person who held the security immediately before
the transfer, who may not be the encumbrancer.
The Banking Act also vests power in the Bank of England to override,
vary or impose contractual obligations between a UK bank or its holding
company and its former group undertakings (as defined in the Banking
Act), for reasonable consideration, in order to enable any transferee or
successor bank of the UK bank to operate effectively. There is also power
for the Treasury to amend the law (save for a provision made by or under
the Banking Act) by order for the purpose of enabling it to use the special
resolution regime powers effectively, potentially with retrospective effect.
The Banking Act also gives the Bank of England statutory responsibility
for financial stability in the UK and for the oversight of payment systems.
Amendments are being made to the EUframework of directives,
including to the Capital Requirements Directive and to the Directive on
Deposit Guarantee Schemes. Further amendments to EUregulatory
requirements are likely as the EUdevelops its response to the financial
crisis, including the structure of the regulatory system in Europe as
proposed in the report of a high-level Commission group published on
25 February 2009.
In the United States, as elsewhere, recent market disruptions and
economic conditions have led to numerous proposals for changes and
significant increases in the regulation of the financial services industry.
However, given the current environment and status of such proposals,
it is difficult to determine the nature and form of any regulation that
may arise in the United States from any such proposals.