Barclays 2012 Annual Report Download - page 192

Supervision and regulation
Supervision of the Group
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. These apply to business operations and affect
financial returns and include reserve and reporting requirements and
prudential and conduct of business regulations. These requirements
are set 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
of or derived from EU legislation.
In the UK, until 31 March 2013, the Financial Services Authority (FSA)
remains the independent body responsible for the regulation and
supervision of deposit taking, life insurance, home mortgages, general
insurance and investment business.
Following the passage of the Financial Services Act 2012, the Bank
of England will have responsibility for monitoring the financial system
as a whole and the system of regulation in the UK will be reorganised.
From 1 April 2013, the regulation and supervision of the Group will be
divided between the Prudential Regulation Authority (PRA) – which is
established as a subsidiary of the Bank of England – and the Financial
Conduct Authority (FCA). In addition, the Financial Policy Committee
(FPC) of the Bank of England will have significant influence on the
prudential requirements that may be imposed on the banking system.
It is also intended that it will have a number of macro-prudential tools
at its disposal that may be used to vary the prudential requirements
to which the Group is subject, including the power to vary the counter-
cyclical capital buffer and to vary sectoral capital requirements. Further
details on the reform of regulation in the UK can be found below.
The Financial Services and Markets Act 2000 (FSMA) as amended
remains the principal statute under which financial institutions are
regulated in the UK. Barclays Bank PLC is authorised under the FSMA
to carry on a range of regulated activities within the UK and is subject
to consolidated prudential supervision by the FSA and, from 1 April, by
the PRA. 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. This will remain the case under the PRA.
Firms are subject to a rolling programme of continuous intensive and
intrusive engagement on prudential and conduct matters. 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. From 1 April 2013,
the regulation and supervision of conduct matters will be assumed
by the FCA.
The Banking Act 2009 (the Banking Act) provides a regime to allow the
Bank of England (or, in certain circumstances, HM Treasury) to resolve
failing banks in the UK, in consultation with the FSA and HM Treasury
as appropriate. Under the Banking Act, these authorities are given
powers, including (a) the power to make share transfer orders pursuant
to which all or some of the securities issued by a UK bank may be
transferred to a commercial purchaser or the UK government; and (b)
the power to transfer all or some of the property, rights and liabilities
of a UK bank to a commercial 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. From 1 April 2013, certain of these powers will be extended
to companies within the same group as a UK bank. The Banking Act
also gives the authorities powers to override events of default or
termination rights that might be invoked as a result of the exercise
of the resolution powers. 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, its holding
company and its group undertakings for reasonable consideration, in
order to enable any transferee or successor bank to operate effectively.
There is also power for HM 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 UK
regulator 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 HM 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.
In addition to establishing the FPC, PRA and FCA, the Financial Services
Act 2012 among other things, clarifies responsibilities between HM
Treasury and the Bank of England in the event of a financial crisis by
giving the Chancellor of the Exchequer powers to direct the Bank of
England where public funds are at risk and there is a serious threat to
financial stability; it establishes the objectives and accountabilities of
the new regulatory bodies; amends the Threshold Conditions for
authorisation; and gives the new bodies additional powers, including
powers of direction over the unregulated parent undertakings (such as
Barclays PLC) where this is necessary to ensure effective consolidated
supervision of the Group; and a power for the FCA to make temporary
product intervention rules for a maximum period of six months, if
necessary without consultation. The Act also gives the FCA the power
to set rules in relation to the setting of benchmarks and creates a
new criminal offence relating to the making of a false or misleading
statement, or the creation of a false or misleading impression, in
connection with the setting of a benchmark.
All disclosures in this section (pages 190-195) are unaudited
barclays.com/annualreport190 I Barclays PLC Annual Report 2012
Risk review
Supervision and regulation