Barclays 2009 Annual Report Download - page 147

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 145
Risk management
Supervision and regulation
The Group’s operations, including its overseas offices, subsidiaries and
associates, are subject to a significant body of rules and regulations that
are a condition for authorisation to conduct banking and financial services
business, constrain business operations and affect financial returns.
These include reserve and reporting requirements and conduct of business
regulations. These requirements are imposed by the relevant central banks
and regulatory authorities that supervise the Group in the jurisdictions in
which it operates. The requirements reflect global standards developed
by, among others, the Basel Committee on Banking Supervision and the
International Organisation of Securities Commissions. They also reflect
requirements derived from EU directives.
In the UK, the Financial Services Authority (FSA) is the independent
body responsible for the regulation and supervision of deposit taking, life
insurance, home mortgages, general insurance and investment business.
Barclays Bank PLC is authorised by the FSA under the Financial Services
and Markets Act 2000 to carry on a range of regulated activities within
the UK and is subject to consolidated supervision by the FSA. In its role as
supervisor, the FSA seeks to maintain the safety and soundness of financial
institutions with the aim of strengthening, but not guaranteeing, the
protection of customers and the financial system. The FSA’s continuing
supervision of financial institutions 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.
The Banking Act 2009 (the Banking Act) provides a permanent regime
to allow the FSA, the UK Treasury and the Bank of England to resolve failing
banks in the UK. Under the Banking Act, these authorities are given powers,
including (a) the power to issue share transfer orders pursuant to which
all or some of the securities issued by a bank may be transferred to a
commercial purchaser or Bank of England entity 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. A share transfer order can extend to a wide range
of securities including shares and bonds issued by a UK bank (including
Barclays Bank PLC) or its holding company (Barclays PLC) and warrants
for such shares and bonds. The Banking Act powers apply regardless of any
contractual restrictions and compensation may be payable in the context
of both share transfer orders and property appropriation.
The Banking Act also gives the Bank of England the power to override,
vary or impose contractual obligations between a UK bank or its holding
company and its former group undertakings 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 (excluding
provisions made by or under the Banking Act) for the purpose of enabling it
to use the regime powers effectively, potentially with retrospective effect. In
addition, the Banking Act gives the Bank of England statutory responsibility
for financial stability in the UK and for the oversight of payment systems.
Banks, insurance companies and other financial institutions in the UK
are subject to a single financial services compensation scheme (the Financial
Services Compensation Scheme – FSCS) where an authorised firm is unable
or is likely to be unable to meet claims made against it because of its
financial circumstances. 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
FSCS. Most claims made in respect of 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 FSCS is
funded by levies on authorised UK firms such as Barclays Bank PLC. In the
event that the FSCS raises funds, raises those funds more frequently or
significantly increases the levies to be paid by firms, the associated costs to
the Group may have a material impact on the Group’s results and financial
condition. Further details can be found in the ‘Competition and Regulatory
Matters’ note to the financial statements on page 248.
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
(including 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 (SEC)).
In Europe, the UK regulatory agenda is considerably shaped and
influenced by the directives emanating from the EU. 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 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 Barclays US
banking subsidiaries 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
(BHC Act), the Foreign Bank Supervision Enhancement Act of 1991, the
Financial Services Modernization Act of 1999 and the USA PATRIOT Act of
2001. Such laws impose restrictions on the activities of Barclays, including
its US banking subsidiaries and the Bank’s US branches, as well as prudential
restrictions, such as limits on extensions of credit by the Bank’s US branches
and the US banking subsidiaries to affiliates. The Bank’s New York and
Florida branches are subject to extensive federal and state supervision and
regulation by the FRB and the New York and Florida banking supervisors.
Barclays Bank PLC also operates a federal agency in California that is licensed
by and subject to regulation and examination by the OCC. Barclays Bank
Delaware, a Delaware-chartered commercial bank, is subject to supervision
and regulation by the Delaware banking supervisor and the Federal Deposit
Insurance Corporation (FDIC). Only the deposits of Barclays Bank Delaware
are insured by the FDIC.
Barclays PLC, Barclays Bank PLC and Barclays Group US Inc. are bank
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 registered bank holding companies 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’. Barclays Bank Delaware 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.