Barclays 2010 Annual Report Download - page 143

Other EU developments include consideration of European arrangements
in respect of crisis management and the resolution of financial institutions.
The European Commission issued a discussion paper in January 2011,
and proposals for legislation are expected in 2011. These are likely to have
an impact on the rights of shareholders and creditors of failing institutions.
Proposals are also expected in relation to corporate governance, and to
amend the Markets in Financial Instruments Directive which will affect
many of the investment markets in which the Group operates and the
instruments in which it trades.
United Kingdom
The Government is reforming the structure of regulation to replace the
FSA and the tripartite system that also involved the Bank of England and
HM Treasury. It proposes that a Financial Policy Committee should be
established in the Bank of England with responsibility for the monitoring
and control of systemic risk, including the deployment of macro-prudential
tools of supervision. Responsibility for prudential regulation will pass to
a Prudential Regulation Authority to be established as a subsidiary of
the Bank of England, while a Financial Conduct Authority (FCA) will
be responsible for issues of business and market conduct and market
regulation. The FCA will also be the UK listing authority. These reforms
will require primary legislation to be passed by Parliament. This process
is not expected to be complete before late 2012. In anticipation of the
new regulatory structure, an interim Financial Policy Committee has been
created and the FSA will reorganise itself into separate Prudential and
Consumer and Markets business units on 4th April 2011. The Government
is also considering the creation of an Economic Crime Agency to deal with
serious financial crime.
On 16th June 2010, the Chancellor of the Exchequer announced the
creation of the Independent Commission on Banking (ICB). The ICB has
been asked to consider structural and related non-structural reforms to
the UK banking sector to promote financial stability and competition, and
to make recommendations to the Government by the end of September
2011. The ICB intends to publish an interim report in April, to be followed
by a further round of consultation. Although the ICB has yet to make
recommendations, and it is not possible to predict what the Government’s
disposition to any recommendations that are made will be, there is a
possibility that the Commission could recommend change to the structure
of UK banks.
The FSA continues to develop its more intrusive and assertive approach
to supervision and its policy of credible deterrence in relation to
enforcement that has seen significant growth in the size of regulatory
fines. In anticipation of international agreement, the FSA has established
and implemented capital and liquidity requirements that are substantially
increased from pre-crisis levels. The Retail Distribution Review and the
Mortgage Market Review will affect the economics of investment advice
and home finance provision respectively. The FSA has also launched a
consultation on its intention to adopt a more interventionist approach to
the design of financial products and to the governance processes around
the design of new products. The Government has stated that these
increasingly interventionist regulatory and supervisory policies will be
carried through into the FCA when it is established.
standards that are implied by Basel III. This additional loss absorbency
may take the form of some combination of capital surcharge, requirements
to hold contingent capital instruments and bail-in debt. Systemic banks
will be subject to enhanced supervision and a comprehensive crisis
management framework within supervisory colleges. The concept of
bail-in debt may, if pursued, affect the rights of senior unsecured creditors
subject to any bail-in in the event of a resolution of a failing bank. Further
proposals including the identification of G-SIFIs will be developed during
the first half of 2011. Barclays is likely to be considered a systemically
significant institution.
The FSB is also working on approaches to the resolution of systemically
significant institutions that will include the preparation of Recovery and
Resolution Plans, sometimes called ‘living wills’. Further detail is awaited
from the FSB and from national regulatory bodies including the FSA,
although the FSA has undertaken a pilot project with a group of large
UK banks including Barclays.
While the Basel Committee on Banking Supervision has largely completed
the process of setting new standards for capital and liquidity, a number
of workstreams remain active that will affect the Group. These include
a fundamental review of the trading book in addition to the enhanced
capital requirements for trading book exposures that were implemented
on 1st January 2011. The Basel Committee is also understood to be
examining a regime for large exposures.
European Union
The Basel Committee’s proposals will be implemented in the EU by
amendment to the Capital Requirements Directive (CRD). Formal
proposals to amend the CRD are expected in the summer of 2011 which
will help address some of the remaining uncertainties. In addition, other
amendments are being made to the EU framework of directives, including
to the Directive on Deposit Guarantee Schemes. This may affect the
amounts to which the Group may be liable to fund the compensation
of depositors of failed banks. The proposal also envisages that national
schemes should be pre-funded. This would be a significant change
for UK banks where levies are currently raised as needed after failure.
The financial impact on the Group is not yet clear.
Further amendments to EU regulatory requirements are likely as the EU
develops its response to the financial crisis, including the structure of the
regulatory system in the EU. On 1st January 2011, a number of new bodies
came into being, including a European Systemic Risk Board to monitor the
financial system and advise on macroprudential actions and a European
Banking Authority charged with the development of a single rulebook
for banks in the EU and with enhancing co-operation between national
supervisory authorities, especially in the context of the supervision of
banks that operate across borders within the EU. The European Banking
Authority will have the power to mediate between and override national
authorities under certain circumstances. National authorities, however,
remain responsible for the day-to-day supervision of financial institutions.
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