Barclays 2012 Annual Report Download - page 194

A major focus of US government policy relating to financial institutions
in recent years has been combating money laundering and terrorist
financing and enforcing compliance with US economic sanctions.
Regulations applicable to US operations of Barclays Bank PLC and its
subsidiaries impose obligations to maintain appropriate policies,
procedures and controls to detect, prevent and report money
laundering and terrorist financing and to ensure compliance with US
economic sanctions against designated foreign countries, nationals
and others. Failure of a financial institution to maintain and implement
adequate programmes to combat money laundering and terrorist
financing or to ensure economic sanction compliance could have
serious legal and reputational consequences for the institution. In
particular, on August 16, 2010, the United States filed in the United
States District Court for the District of Columbia a criminal information
against Barclays, which alleged violations of US sanctions laws. The
United States and Barclays simultaneously entered into a Deferred
Prosecution Agreement (DPA), pursuant to which the United States
agreed to defer prosecution for a period of two years, provided that
Barclays complied with various undertakings, including undertakings
relating to cooperation and remediation. The DPA provided that if
Barclays complied with those undertakings, the United States would
move to dismiss the information. On August 31, 2012, the United
States moved the Court to dismiss the information with prejudice on
the ground that Barclays had ‘fully cooperated with the United States,
complied with all of its obligations under the DPA, and not otherwise
violated the DPA.’ On November 30, 2012, the Court granted the
motion to dismiss.
Barclays US securities broker/dealer, investment advisory and
Investment banking operations are subject to ongoing supervision and
regulation by the SEC, the Financial Industry Regulatory Authority
(FINRA) and other government agencies and self-regulatory
organisations (SROs) as part of a comprehensive scheme of regulation
of all aspects of the securities and commodities business under the US
federal and state securities laws. Similarly, Barclays US commodity
futures and options-related operations are subject to ongoing
supervision and regulation by the CTFC, the National Futures
Association and other SROs.
The credit card-related activities of the Group in the US are subject to
the Credit Card Accountability, Responsibility and Disclosure Act of
2009 (Credit CARD Act) which was enacted by Congress in May 2009
to prohibit certain credit card pricing and marketing practices for
consumer credit card accounts. Among the numerous provisions are
those that prohibit increasing rates on existing balances and over limit
fees in most instances, restrict increasing fees and rates prospectively,
restrict what penalty fees can be assessed, regulate how payments are
to be allocated to different balances and how the billing process is to
work, and revises all communications to cardholders.
Regulatory developments
The regulatory change generated by the financial crisis is having and
will continue to have a substantial impact on all financial institutions,
including the Group. The full impact of this change remains unclear,
but will be significant. Regulatory change is being pursued at a number
of levels, globally notably through the G20, Financial Stability Board
(FSB) and Basel Committee on Banking Supervision (BCBS), regionally
through the European Union and nationally, especially in the UK and
US. Increased prudential requirements and changes to the definitions
of capital and liquid assets may affect the Group’s planned activities
and could increase costs and contribute to adverse impacts on the
Group’s earnings. Similarly, increased requirements in relation to capital
markets activities and to market conduct requirements may affect the
Group’s planned activities and could increase costs and thereby
contribute to adverse impacts on the Group’s earnings.
Global
The programme of reform of the global regulatory framework that was
agreed by G20 Heads of Government in April 2009 has continued to be
taken forward during 2012.
The FSB has been designated by the G20 as the body responsible for
co-ordinating the delivery of the global reform programme. It has
focused particularly on the risks posed by systemically important
financial institutions. In 2011, G20 Heads of Government adopted FSB
proposals to reform the regulation of globally systematically important
financial institutions (G-SIFIs). A key element of this programme is that
G-SIFIs should be capable of being resolved without recourse to
taxpayer support. Barclays has been designated a G-SIFI by the FSB.
G-SIFIs will be subject to:
 The FSB’s international standard for national resolution regimes, Key
Attributes of Effective Resolution Regimes for Financial Institutions.
Among other things, this seeks to give resolution authorities powers
to intervene in and resolve a financial institution that is no longer
viable, including through the transfers of business and creditor
financed recapitalisation (bail-in within resolution) that allocates
losses to shareholders and unsecured and uninsured creditors in
their order of seniority, at a regulator-determined point of non-
viability that may precede insolvency. The concept of bail-in may
affect the rights of senior unsecured creditors subject to any bail-in in
the event of a resolution of a failing bank;
 Requirements for resolvability assessments and for recovery and
resolution planning;
 Requirements for banks determined to be globally systemically
important to have additional loss absorption capacity above that
required by Basel 3 standards (see below). The surcharges rise in
increments from 1% to 2.5% of risk weighted assets (with an empty
bucket of 3.5% to discourage institutions from developing their
business in a way that heightens their systemic nature). This
additional buffer must be met with common equity;
 More intensive supervision, including through stronger supervisory
mandates, resources and powers, and higher supervisory
expectations for risk management functions, data aggregation
capabilities, risk governance and internal controls; and
 G-SIFIs are subject to enhanced supervision and a comprehensive
crisis management framework within supervisory colleges.
In its November 2012 list of G-SIFIs, the FSB placed Barclays in a bucket
that would require it to meet a 2% surcharge. The additional loss
absorbency requirements will apply to those banks identified in
November 2014 as globally systemically important and will be phased
in starting in January 2016, with full implementation by January 2019.
G-SIFIs must also meet the higher supervisory expectations for data
aggregation capabilities by January 2016. In October 2012, the FSB and
BCBS finalised a principles based framework for domestic systemically
important banks (D-SIBs). National authorities will begin to apply
requirements to banks identified as D-SIBs from January 2016 in line
with the phase in arrangements for G-SIFIs.
The FSB continues to pursue a number of work streams that will
affect the Group, its counterparties and the markets in which it
operates. These include policy work on shadow banking and on
enhanced disclosures.
barclays.com/annualreport192 I Barclays PLC Annual Report 2012
Risk review
Supervision and regulation continued