Barclays 2010 Annual Report Download - page 141

Risk management
Supervision and regulation
All disclosures in this section (pages 139 to 142) are unaudited
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) remains, pending the
reorganisation of the UK regulatory regime (see below), 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. This is supplemented with a rolling programme of continuous
engagement on prudential and conduct matters with high impact firms,
such as Barclays. 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.
The Financial Services Act 2010, among other things, requires the FSA to
make rules about remuneration and to require regulated firms to have a
remuneration policy that is consistent with both effective risk management
and the standards issued by the Financial Stability Board. The FSA is
mandated to make rules that require authorised firms (or a subset of
authorised firms) to draw up recovery and resolution plans and to consult
with the Treasury and the Bank of England on the adequacy of firms’
plans. This Act also allows the FSA to make rules requiring firms to operate
a collective consumer redress scheme to deal with cases of widespread
failure by regulated firms to meet regulatory requirements that may have
created consumer detriment.
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 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. Further details can be found in Note 25 (Contingent liabilities and
commitments) on page 226.
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)).
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 139
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