Barclays 2012 Annual Report Download - page 115

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
Key competition and regulatory matters affecting Barclays during 2012
and which are ongoing are described in Competition and Regulatory
Matters Note 30. A description of the associated risks for each is set
out below:
 Interchange investigations: The key risks arising from the
investigations into Visa and MasterCard credit and debit interchange
rates comprise the potential for fines imposed by competition
authorities, follow on litigation and proposals for new legislation. It is
not currently possible to predict the likelihood or impact of these
risks;
 London Interbank Offered Rates (LIBOR) investigations: The risks
associated with investigations by various authorities into submissions
made by Barclays and other panel members to the bodies that set
various interbank offered rates include: the potential for further
financial penalties imposed by governmental authorities in addition
to those assessed in 2012; the pending and potential additional civil
litigation; damage to Barclays reputation; the potential for criminal
prosecution should Barclays violate the terms of its non-prosecution
agreement with the Department of Justice, Criminal Division Fraud
Section; and potential further regulatory enforcement action should
Barclays fail to comply with the Cease and Desist Order entered
against it by the Commodity Futures Trading Commission(CFTC);
 Interest Rate Hedging Products: The provision of £850m that
Barclays has made in 2012 for future redress to customers
categorised as non-sophisticated has been based on the best
currently available information (see Note 27 to the financial
statements for further details), however there is a risk that the
provision may need to be increased to the extent that experience is
not in line with management estimates. Barclays is managing this
risk by keeping the provision level under ongoing review. In addition,
customers could initiate civil litigation against Barclays in connection
with the sale of interest rate hedging products;
 Federal Energy Regulatory Commission (FERC) investigation: Barclays
may be required to pay a civil penalty and profit disgorgement plus
interest, and could incur damage to its reputation, if it is found to
have violated the FERC’s Anti-Manipulation Rule in connection with
Barclays power trading in the western US with respect to the period
from late 2006 to 2008, although Barclays intends to defend this
matter vigorously; and
 Other Regulatory investigations: These relate to investigations by the
FSA and Serious Fraud Office in connection with certain commercial
agreements between Barclays and Qatari interests and whether these
may have related to Barclays capital raisings in June and November
2008 and an investigation by the US Department of Justice and US
Securities and Exchange Commission into whether the Group’s
relationships with third parties who assist Barclays to win or retain
business are compliant with the US Foreign Corrupt Practices Act.
The risk of these investigations is that one or more of the relevant
authorities will conclude that Barclays and/or one or more of its
current or former senior employees has been involved in some form
of wrongdoing. It is not possible to foresee the outcome or impact of
such findings other than that a fine or a number of fines would be
possible. Barclays is cooperating fully with the investigations.
(ii) 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 which are currently subject to significant changes.
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. Non-compliance may also lead to costs relating to
investigations and remediation of affected customers. The latter may
exceed the direct costs of regulatory enforcement actions. In addition,
reputational damage may lead to a reduction in franchise value.
Regulatory change
The banking industry continues to be subject to unprecedented levels
of regulatory change and scrutiny in many of the countries in which
the Group operates. This has led to a more intensive approach to
supervision and oversight, increased expectations and enhanced
requirements, including capital and liquidity requirements (for example
relating to Basel 3 and CRD IV), resolvability and the clearing of
over-the-counter (OTC) derivatives. As a result, regulatory risk will
continue to focus senior management attention and consume
significant levels of business resource. Furthermore, uncertainty and
the extent of international regulatory coordination as enhanced
supervisory standards are developed and implemented may adversely
affect our ability to engage in effective business, capital and risk
management planning.
Structural reform
A number of regulators are currently proposing or considering
legislation that could have a significant impact on the structure of the
financial services industry. Key developments or potential
developments of particular relevance to Barclays are:
 The UK Financial Services (Banking Reform) Bill;
 The EU High Level Expert Group Review (the Liikanen Review); and
 Federal Reserve proposals to implement section165 of the Dodd-
Frank Act for foreign banks.
See Regulatory Developments in the section on Supervision and
Regulation (page 192) for further information on these proposed
reforms.
These regulations could result in changes to the structure of Barclays,
and an increase in the amount of loss-absorbing capital issued by
Barclays, which may have an adverse impact on profitability, return on
equity and/or financial condition. It is not yet possible to predict the
detail of secondary legislation or regulatory rulemaking or the ultimate
consequences to the Group.
barclays.com/annualreport Barclays PLC Annual Report 2012 I 113