Barclays 2008 Annual Report Download - page 248

Notes to the accounts
For the year ended 31st December 2008
246 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
35Legal proceedings (continued)
Barclays is engaged in various other litigation proceedings both in the United Kingdom and a number of overseas jurisdictions, including the United
States, involving claims by and against it which arise in the ordinary course of business. Barclays does not expect the ultimate resolution of any of the
proceedings to which Barclays is party to have a significant adverse effect on the financial position of the Group and Barclays has not disclosed the
contingent liabilities associated with these claims either because they cannot reasonably be estimated or because such disclosure could be prejudicial to
the conduct of the claims.
36 Competition and regulatory matters
The scale of regulatory change remains challenging, arising in part from the implementation of some key European Union (EU) directives. Many changes
to financial services legislation and regulation have come into force in recent years and further changes will take place in the near future. Concurrently,
there is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the UK and elsewhere. The
nature and impact of future changes in policies and regulatory action are not predictable and beyond the Group’s control but could have an impact on the
Group’s businesses and earnings.
In September 2005, the Office of Fair Trading (OFT) received a super-complaint from the Citizens Advice Bureau relating to payment protection insurance
(PPI). As a result, the OFT commenced a market study on PPI in April 2006. In October 2006 the OFT announced the outcome of the market study and
the OFT referred the PPI market to the UK Competition Commission (CC) for an in-depth inquiry in February 2007. In June 2008, the CC published its
provisional findings. The CC published its final report into the PPI market on 29th January 2009. The CC’s conclusion is that the businesses which offer PPI
alongside credit face little or no competition when selling PPI to their credit customers. The CC has set out a package of measures which it considers will
introduce competition into the market (the ‘Remedies’). The Remedies, which are expected to be implemented (following consultation) in 2010, are: a
ban on sale of PPI at the point of sale; a prohibition on the sale of single premium PPI; mandatory personal PPI quotes to customers; annual statements for
all regular premium policies, including the back book (for example credit card and mortgage protection policies); measures to ensure that improved
information is available to customers; obliging providers to give information to the OFT to monitor the Remedies and to provide claims ratios to any person
on request. Barclays is reviewing the report and considering the next steps, including how this might affect the Group’s different products.
In October 2006, the FSA published the outcome of its broad industry thematic review of PPI sales practices in which it concluded that some firms fail to
treat customers fairly and that the FSA would strengthen its actions against such firms. Tackling poor PPI sales practices remains a priority for the FSA,
with their most recent update on their thematic work published in September 2008. Barclays voluntarily complied with the FSA’s request to cease selling
single premium PPI by the end of January 2009. There has been no enforcement action against Barclays in respect of its PPI products. The Group has
cooperated fully with these investigations into PPI and will continue to do so.
The OFT has carried out investigations into Visa and MasterCard credit card interchange rates. The decision by the OFT in the MasterCard interchange
case was set aside by the Competition Appeals Tribunal in June 2006. The OFT is progressing its investigations in the Visa interchange case and a second
MasterCard interchange case in parallel and both are ongoing. The outcome is not known but these investigations may have an impact on the consumer
credit industry in general and therefore on the Group’s business in this sector. In February 2007 the OFT announced that it was expanding its investigation
into interchange rates to include debit cards.
In September 2006, the OFT announced that it had decided to undertake a fact find on the application of its statement on credit card fees to current
account unauthorised overdraft fees. The fact find was completed in March 2007. On 29th March 2007, the OFT announced its decision to conduct a
formal investigation into the fairness of bank current account charges. The OFT initiated a market study into personal current accounts (PCAs) in the UK
on 26th April 2007. The study’s focus was PCAs but it also included an examination of other retail banking products, in particular savings accounts, credit
cards, personal loans and mortgages in order to take into account the competitive dynamics of UK retail banking. On 16th July 2008, the OFT published its
market study report, in which it concluded that certain features of the UK PCA market were not working well for consumers. The OFT reached the
provisional view that some form of regulatory intervention is necessary in the UK PCA market. On 16th July 2008, the OFT also announced a consultation
to seek views on the findings and possible measures to address the issues raised in its report. The consultation period closed on 31st October 2008. The
Group has participated fully in the market study process and will continue to do so.
US laws and regulations require compliance with US economic sanctions, administered by the Office of Foreign Assets Control, against designated foreign
countries, nationals and others. HM Treasury regulations similarly require compliance with sanctions adopted by the UK government. The Group has
been conducting an internal review of its conduct with respect to US Dollar payments involving countries, persons and entities subject to these sanctions
and has been reporting to governmental authorities about the results of that review. The Group received inquiries relating to these sanctions and certain
US Dollar payments processed by its New York branch from the New York County District Attorney’s Office and the US Department of Justice, which along
with other authorities, has been reported to be conducting investigations of sanctions compliance by non-US financial institutions. The Group has
responded to those inquiries and is cooperating with the regulators, the Department of Justice and the District Attorney’s Office in connection with their
investigations of Barclays conduct with respect to sanctions compliance. Barclays has also received a formal notice of investigation from the FSA, and has
been keeping the FSA informed of the progress of the US investigations and Barclays internal review. Barclays review is ongoing. It is currently not possible
to predict the ultimate resolution of the issues covered by Barclays review and the investigations, including the timing and potential financial impact of any
resolution, which could be substantial.
The Financial Services Compensation Scheme provides compensation to customers of financial institutions in the event that an institution is unable, or is
likely to be unable, to pay claims against it. During the year, a number of institutions, including Bradford & Bingley plc, Heritable Bank plc, Kaupthing Singer
& Friedlander Limited, Landsbanki ‘Icesave’, and London Scottish Bank plc, were declared in default by the FSA. In order to meet its obligations to the
depositors of these institutions, the FSCS has borrowed £19.7 billion from HM Treasury, which is on an interest only basis until September 2011.
These borrowings are anticipated to be repaid wholly or substantially from the realisation of the assets of the above named institutions. The FSCS raises
annual levies from the banking industry to meet its management expenses and compensation costs. Individual institutions make payments based on
their level of market participation (in the case of deposits, the proportion that their protected deposits represent of total market protected deposits) at
31st December each year. If an institution is a market participant on this date it is obligated to pay a levy. Barclays Bank PLC was a market participant at
31st December 2007 and 2008. The Group has accrued £101m for its share of levies that will be raised by the FSCS including the interest on the loan
from HM Treasury in respect of the levy years to 31st March 2010. The accrual includes estimates for the interest FSCS will pay on the loan and estimates
of Barclays market participation in the relevant periods. Interest will continue to accrue on the HM Treasury loan to the FSCS until September 2011 and will
form part of future FSCS management expenses levies. If the assets of the defaulting institutions are insufficient to repay the HM Treasury loan in 2011,
the FSCS will agree a schedule of repayments with HM Treasury, which will be recouped from the industry in the form of additional levies. At the date of
these financial statements, it is not possible to estimate whether there will ultimately be additional levies on the industry, the level of Barclays market
participation or other factors that may affect the amounts or timing of amounts that may ultimately become payable, nor the effect that such levies may
have upon operating results in any particular financial period.