Barclays 2010 Annual Report Download - page 230

Notes to the financial statements
For the year ended 31st December 2010 continued
27 Competition and regulatory matters
This note highlights some of the key competition and regulatory challenges facing Barclays, many of which are beyond our control. The extent of the
impact of these matters on Barclays cannot always be predicted but may materially impact our businesses and earnings.
Regulatory Change
The scale of regulatory change remains challenging with a significant tightening of regulation and changes to regulatory structures globally, especially for
banks that are deemed to be of systemic importance. Concurrently, there is continuing political and regulatory scrutiny of the operation of the banking and
consumer credit industries which, in some cases, is leading to increased or changing regulation which is likely to have a significant effect on the industry.
In the UK, the FSA’s current responsibilities are to be reallocated between the Prudential Regulatory Authority (a subsidiary of the Bank of England) and a
new Consumer Protection and Markets Authority by the end of 2012. The Independent Commission on Banking has been charged by the UK
Government with reviewing the UK banking system. Its remit includes looking at reducing systemic risk, mitigating moral hazard, reducing the likelihood
and impact of bank failure and competition issues. Its findings and recommendations are expected by September 2011.
In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act contains far reaching regulatory reform although the full impact
will not be known until implementing rules are made by governmental authorities, a process which is currently ongoing.
Payment Protection Insurance (PPI)
PPI has been under scrutiny by the UK competition authorities and financial services regulators. The UK Competition Commission (CC) has undertaken an
in-depth enquiry into the PPI market which has resulted in the CC introducing a number of remedies including a prohibition on sale of PPI at the point of sale.
On 10th August 2010, the FSA issued a Policy Statement which amends the DISP (Dispute Resolution: Complaints) rules in the FSA Sourcebook for the
handling of such complaints. In October 2010 the British Bankers’ Association launched a judicial review of the FSA on the basis that the Policy
Statement applies incorrect standards for the management of PPI sales complaints, including retrospective application of rules with higher standards
than those that were in place at the time of sale. These proceedings are also against the Financial Services Ombudsman Service (FOS) which seeks to
implement the same standards for the resolution of complaints referred to it. The hearing took place in January 2011. There is currently no indication of
the timetable for judgment.
The final conclusion of the Judicial Review could result in a range of outcomes with the consequence that complaints relating to the sale of PPI fall to be
determined in different ways with varying financial impacts for customers and Barclays. These outcomes depend on the extent to which the Policy
Statement is upheld, whether the Court holds that the Policy Statement imposes requirements in addition to the DISP rules in force at the time of sale,
and the impact of such matters on banks’ complaints handling and remediation practices. It is therefore not practicable to provide a reliable estimate or
range of estimates of the potential financial impact of any Court decision on this matter.
Interchange
The Office of Fair Trading (OFT), as well as other competition authorities elsewhere in Europe, continues to carry out investigations into Visa and
MasterCard credit and debit interchange rates. These investigations may have an impact on the consumer credit industry as well as having the potential
for the imposition of fines. Timing of these cases is uncertain but outcomes may be known within the next 2-4 years.
Sanctions
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. Barclays conducted
an internal review of its conduct with respect to US Dollar payments involving countries, persons and entities subject to US economic sanctions and
reported the results of that review to various governmental authorities, including the US Department of Justice, the Manhattan District Attorney’s Office
and the US Department Of Treasury’s Office of Foreign Assets Control (together the US Authorities), which conducted investigations of the matter.
On 18th August 2010, Barclays announced that it had reached settlements with the US Authorities in relation to the investigation by those agencies
into compliance with US sanctions and US Dollar payment practices. In addition, an Order to Cease and Desist was issued upon consent by the Federal
Reserve Bank of New York and the New York State Banking Department. Barclays agreed to pay a total penalty of $298m and entered into Deferred
Prosecution Agreements covering a period of 24 months. Barclays fully briefed other relevant regulators on this settlement. The Deferred Prosecution
Agreements mean that no further action will be taken against Barclays by the US Authorities if, as is Barclays intention, for the duration of the defined
period Barclays meets the conditions set down in its agreements with the US Authorities. Barclays does not anticipate any further regulatory actions
relating to these issues.
28 Retirement benefit obligations
Pension schemes
The Group has in place a number of defined benefit and defined contribution schemes in the UK and overseas.
The UK Retirement Fund (UKRF) is the Group’s main scheme, representing 93% of the Group’s total retirement benefit obligations. The UKRF comprises
ten sections, the most significant of which are:
– Afterwork: combines a contributory cash balance element with a voluntary defined contribution element. The majority of new employees outside of
Barclays Capital since 1st October 2003 have been eligible to join Afterwork. In addition, the large majority of active members who joined the Group
between July 1997 and September 2003 were transferred to Afterwork in respect of future benefits accruing from 1st January 2004.
228 Barclays PLC Annual Report 2010www.barclays.com/annualreport10