Barclays 2009 Annual Report Download - page 86

84 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Risk management
Risk factors
continued
During periods of market dislocation the Group’s ability to manage
liquidity requirements may be impacted by a reduction in the availability
of wholesale term funding as well as an increase in the cost of raising
wholesale funds. Asset sales, balance sheet reductions and the increasing
costs of raising funding may have a material effect on the earnings of
the Group.
In illiquid markets, the Group may decide to hold assets rather than
securitising, syndicating or disposing of them. This could affect the Group’s
ability to originate new loans or support other customer transactions as
both capital and liquidity are consumed by existing or legacy assets.
The FSA issued its policy document on ‘strengthening liquidity
standards’ on 5th October 2009 detailing the requirements for liquidity
governance to be in place by 1st December 2009, and the quantitative
requirements for liquidity buffers, which will be in place from 1st June 2010,
although with an extended transition period of several years to meet the
expected standards.
In addition, the Basel Committee on Banking Supervision released a
consultative document ‘International framework for liquidity risk
measurement, standards and monitoring’ in December 2009. This included
two new key liquidity metrics. A liquidity coverage ratio aimed at ensuring
banks have sufficient unencumbered high quality assets to meet cash
outflows in an acute short-term stress and a net stable funding ratio to
promote longer-term structural funding of bank’s balance sheet and capital
market activities.
The Group’s liquidity risk management and measurement
methodologies are detailed in the ‘Liquidity Risk Management’ section
on page 130 and the ‘Liquidity Risk’ note to the financial statements on
page 287.
Operations risk
Operations risk is the risk of losses from inadequate or failed internal
processes and systems, caused by human error or external events.
Operations risk has a broad scope and for that reason, the Group’s Risk
Control Frameworks are defined at a more granular level within the overall
Operations Principal Risk. These risks are transaction operations, new
product development, premises, external suppliers, payments process and
the management of information, data quality and records.
Financial crime risk
Financial crime risk is the risk that the Group suffers losses as a result of
internal and external fraud or intentional damage, loss or harm to people,
premises or moveable assets.
Technology risk
Technology is a key business enabler and requires an appropriate level of
control to ensure that the most significant technology risks are effectively
managed. Such risks include the non-availability of IT systems, inadequate
design and testing of new and changed IT solutions and inadequate IT
system security. Data privacy issues are covered under Regulatory Risk
and external supplier issues relating to technology are covered under
Operations Risk.
People risk
People risk arises from failures of the Group to manage its key risks as an
employer, including lack of appropriate people resource, failure to manage
performance and reward, unauthorised or inappropriate employee activity
and failure to comply with employment related requirements.
Regulatory risk
Regulatory risk arises from a failure or inability to comply fully with the laws,
regulations or codes applicable specifically to the financial services industry.
Non-compliance could lead to fines, public reprimands, damage to
reputation, increased prudential requirements, enforced suspension of
operations or, in extreme cases, withdrawal of authorisations to operate.
In addition, the Group’s businesses and earnings can be affected by the
fiscal or other policies and other actions of various governmental and
regulatory authorities in the United Kingdom, the European Union (‘EU’), the
United States, South Africa and elsewhere. All these are subject to change,
particularly in an environment where recent developments in the global
markets have led to an increase in the involvement of various governmental
and regulatory authorities in the financial sector and in the operations of
financial institutions. In particular, governmental and regulatory authorities
in the United Kingdom, the United States and elsewhere are implementing
measures to increase regulatory control in their respective banking sectors,
including by imposing enhanced capital and liquidity requirements. Any
future regulatory changes may potentially restrict the Group’s operations,
mandate certain lending activity and impose other compliance costs.
Areas where changes could have an impact include:
– the monetary, interest rate and other policies of central banks and
regulatory authorities;
– general changes in government or regulatory policy that may
significantly influence investor decisions, in particular markets in which
the Group operates;
– general changes in regulatory requirements, for example, prudential
rules relating to the capital adequacy framework and rules designed to
promote financial stability and increase depositor protection;
– changes in competition and pricing environments;
– further developments in the financial reporting environment;
– differentiation amongst financial institutions by governments with
respect to the extension of guarantees to customer deposits and the
terms attaching to those guarantees; and
– implementation of, or costs related to, local customer or depositor
compensation or reimbursement schemes.
Further details of specific matters that impact the Group are included in the
Supervision and Regulation section on page 145 and Note 36 to the financial
statements on page 248.