Barclays 2013 Annual Report Download - page 237

generally applicable minimum leverage capital requirement (which is
different than the Basel III international leverage ratio, including to
the extent that the generally applicable US leverage ratio does not
include off-balance sheet exposures) until 1 January 2018, and (iii)
the IHC will first be required to make the aforementioned capital plan
submission and be subject to the company-run and supervisory
capital stress testing requirements of the final rules in January 2018.
In addition, Barclays’ US IHC will also be separately subject to the
supplementary US version of the Basel III international minimum
leverage capital requirement starting in 2018 to the extent the IHC
has over $250bn of total consolidated assets or $10bn in total
non-US exposures. In light of the recent release of the final rules,
Barclays continues to evaluate their implications for Barclays.
Nevertheless, the Group currently believes that, in the aggregate, the
final rules (and, in particular, the leverage requirements in the final
rules that will ultimately become applicable to the IHC) are likely to
increase the operational costs and capital requirements and/or
require changes to the business mix of Barclays’ US operations,
which ultimately may have an adverse effect on the Group’s overall
result of operations.
Finally, the final rules did not implement the single counterparty
credit exposure limits or the early remediation framework that were
originally proposed in 2012. The FRB expects to implement such
provisions at a later date.
 Other enhanced prudential requirements: In addition to the
requirements that would be implemented under the above final rules
described under ‘Structural Reform’, the DFA and other US laws and
regulations also impose higher capital, liquidity and leverage
requirements on US banks and bank holding companies generally. As
discussed above, these requirements will also be generally applicable
to the IHC and Barclays US operations held by it.
 Restrictions on proprietary trading and fund-related activities: In
December 2013, the relevant US regulatory agencies, including the
FRB, the FDIC, the SEC and the CFTC, finalised the rules
implementing the requirements of Section 619 of the DFA – the
so-called ‘Volcker Rule’. The Volcker Rule, once fully effective, will
prohibit banking entities, including Barclays PLC, Barclays Bank PLC
and their various subsidiaries and affiliates from undertaking certain
‘proprietary trading’ (but will allow activities such as underwriting,
market making and risk-mitigation hedging) and will limit the
sponsorship of, and investment in, private equity funds (including
non-conforming real estate and credit funds) and hedge funds, in
each case broadly defined, by such entities. These restrictions are
subject to certain exceptions and exemptions, including those listed
above as well as exemptions applicable to transactions and
investments occurring solely outside of the United States. The rules
will require Barclays to develop an extensive compliance and
monitoring programme (both inside and outside of the United
States), subject to various executive officer attestation requirements,
addressing proprietary trading and covered fund activities, and it is
therefore expected that compliance costs will increase. The final rules
are highly complex and differ in certain significant respects from the
rules as proposed in October 2011. As such, their full impact will not
be known with certainty until market practices and structures
develop under them. Subject entities are generally required to be in
compliance by July 2015 (with certain provisions subject to possible
extensions).
 Resolution plans: The DFA requires bank holding companies with
total consolidated assets of $50bn or more to submit to the FRB and
the FDIC, and regularly update, a plan for ‘rapid and orderly’
resolution to be used if the company experiences material financial
distress or failure. Non-US banking organisations that are treated as
bank holding companies under US law, such as Barclays, are required
to submit such plans with respect to their US operations if they have
more than $50bn in US assets. As Barclays’ US assets exceed
$250bn, it submitted its most recent annual resolution plan as
required in October 2013.
 Regulation of derivatives markets: Among the changes mandated by
the DFA are that many types of derivatives now (or previously) traded
in the over-the counter markets be traded on an exchange or swap
execution facility and centrally cleared through a regulated clearing
house. In addition, many participants in these markets are required to
register with the CFTC as ‘swap dealers’ or ‘major swap participants’
and/or with the US SEC as ‘securities swap dealers’ or ‘major
securities swap dealers’ and be subject to CFTC and SEC regulation
and oversight. It is anticipated that additional participants in the
derivatives markets will be required to register in the future. Barclays
Bank PLC has registered as a swap dealer. Entities required to register
are subject to business conduct, recordkeeping and reporting
requirements and will be subject to capital and margin requirements.
The DFA also requires most standardised derivatives to be traded on
a regulated platform and cleared through a regulated clearing house.
In addition, the CFTC, pursuant to the DFA, has proposed rules on
position limits on derivatives on physical commodities. Once adopted
and implemented, these rules will limit the size of positions that can
be held by an entity, or a group of entities under common ownership
or control, in futures and over-the-counter derivatives, subject to
certain exemptions. These rules could restrict trading activity,
reducing trading opportunities and market liquidity and potentially
increasing the cost of hedging transactions and the volatility of the
relevant markets. It is also possible that registration, execution,
clearing and compliance requirements as well as other additional
regulations (certain of which still are not final), and the related
expenses and requirements, will increase the cost of and restrict
participation in the derivative markets, thereby increasing the costs of
engaging in hedging or other transactions and reducing liquidity and
the use of the derivative markets. Barclays Bank PLC and its
subsidiaries and affiliates may be exposed to these effects whether or
not these subsidiaries are required to register in the capacities
described. The new regulation of the derivative markets could
adversely affect the business of Barclays Bank PLC and its affiliates in
these markets and could make it more difficult and expensive to
conduct hedging and trading activities.
 Risk retention requirements for securitisations: The US federal
banking agencies are required by the DFA to develop rules whereby,
subject to certain exceptions, any sponsor of an asset-backed
security (ABS) transaction must retain, generally, not less than 5% of
the credit risk of any asset that the sponsor, through the issuance of
ABS, transfers, sells or conveys to a third party. This may impact the
participation by the Group’s US operations in such transactions.
 The Bureau of Consumer Financial Protection (CFPB): The CFPB is
empowered to regulate the credit card industry, including the terms
of credit card agreements with consumers, disclosures and fees.
Actions by the CFPB in this area are likely to impact the Group’s US
credit card business. The CFPB became operational in July 2011, and
has developed a model credit card disclosure form and is accepting
consumer credit card complaints. More broadly, the CFPB has the
authority to examine and take enforcement action against any US
bank with over $10bn in total assets, such as Barclays Bank Delaware,
with respect to its compliance with Federal laws regulating the
provision of consumer financial services and with respect to ‘unfair,
deceptive or abusive acts and practices.’ Since becoming operational,
the CFPB has initiated several high-profile public actions against
financial companies, including major credit card issuers. Settlements
of those actions have included monetary penalties, customer
remediation requirements and commitments to modify business
practices.
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