Barclays 2014 Annual Report Download - page 308

306 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
29 Legal, competition and regulatory matters
Barclays PLC (BPLC), Barclays Bank PLC (BBPLC) and the Group face legal, competition and regulatory challenges, many of which are beyond our
control. The extent of the impact on BPLC, BBPLC and the Group of these matters cannot always be predicted but may materially impact our
operations, financial results, condition and prospects. Matters arising from a set of similar circumstances can give rise to either a contingent
liability or a provision, or both, depending on the relevant facts and circumstances. The Group has not disclosed an estimate of the potential
financial effect on the Group of contingent liabilities where it is not currently practicable to do so.
Investigations into certain agreements
The Financial Conduct Authority (FCA) has alleged that BPLC and BBPLC breached their disclosure obligations in connection with two advisory
services agreements entered into by BBPLC. The FCA has imposed a £50m fine. BPLC and BBPLC are contesting the findings. The United Kingdom
(UK) Serious Fraud Office (SFO) is also investigating these agreements. The US Department of Justice (DOJ) and US Securities and Exchange
Commission (SEC) are investigating whether the Group’s relationships with third parties who help it to win or retain business are compliant with
the US Foreign Corrupt Practices Act. BBPLC has been providing information to other regulators concerning certain of these relationships.
Background Information
The FCA has investigated certain agreements, including two advisory services agreements entered into by BBPLC with Qatar Holding LLC (Qatar
Holding) in June and October 2008 respectively, and whether these may have related to BPLC’s capital raisings in June and November 2008.
The FCA issued warning notices (Warning Notices) against BPLC and BBPLC in September 2013.
The existence of the advisory services agreement entered into in June 2008 was disclosed but the entry into the advisory services agreement in
October 2008 and the fees payable under both agreements, which amount to a total of £322m payable over a period of five years, were not
disclosed in the announcements or public documents relating to the capital raisings in June and November 2008. While the Warning Notices
consider that BPLC and BBPLC believed at the time that there should be at least some unspecified and undetermined value to be derived from the
agreements, they state that the primary purpose of the agreements was not to obtain advisory services but to make additional payments, which
would not be disclosed, for the Qatari participation in the capital raisings.
The Warning Notices conclude that BPLC and BBPLC were in breach of certain disclosure-related listing rules and BPLC was also in breach of
Listing Principle 3 (the requirement to act with integrity towards holders and potential holders of the Company’s shares). In this regard, the FCA
considers that BPLC and BBPLC acted recklessly. The financial penalty in the Warning Notices against the Group is £50m. BPLC and BBPLC
continue to contest the findings.
Other Investigations
The FCA has agreed that the FCA enforcement process be temporarily stayed pending progress in the SFO’s investigation into the agreements
referred to above, including the advisory services agreements, in respect of which the Group has received and has continued to respond to
requests for further information. The DOJ and SEC are investigating these same agreements and are also undertaking an investigation into
whether the Group’s relationships with third parties who assist BPLC to win or retain business are compliant with the US Foreign Corrupt Practices
Act. The US Federal Reserve has requested to be kept informed. One third-party relationship is also being investigated by another regulator.
Regulators in other jurisdictions have also been briefed on the investigations into the Group’s relationships with third parties.
Claimed Amounts/Financial Impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on the Group or what effect, if any, that they
might have upon the Group’s operating results, cash flows or financial position in any particular period.
Alternative Trading Systems and High-Frequency Trading
The SEC, the New York State Attorney General (NYAG) and regulators in certain other jurisdictions have been investigating a range of issues
associated with alternative trading systems (ATSs), including dark pools, and the activities of high-frequency traders. The Group has been
providing information to the relevant regulatory authorities in response to their enquiries. Various parties, including the NYAG, have filed
complaints against the Group and certain of its current and former officers in connection with ATS related activities. The Group continues to
defend itself against these actions.
Recent Developments
Civil complaints have been filed in the New York Federal Court on behalf of a putative class of plaintiffs against BPLC and others generally alleging
that the defendants violated the federal securities laws by participating in a scheme in which high-frequency trading firms were given
informational and other advantages so that they could manipulate the US securities market to the plaintiffs’ detriment.
In June 2014, the NYAG filed a complaint (Complaint) against BPLC and Barclays Capital Inc. (BCI) in the Supreme Court of the State of New York
(NY Supreme Court) alleging, amongst other things, that BPLC and BCI engaged in fraud and deceptive practices in connection with LX Liquidity
Cross, the Group’s SEC-registered ATS. Barclays filed a motion to dismiss the Complaint in July 2014. The NYAG filed an amended complaint
(Amended Complaint) on 3 February 2015 in response to Barclays’ motion to dismiss. On 13 February 2015, the NY Supreme Court granted in part
and denied in part Barclays’ motion to dismiss. Barclays will file a motion to dismiss any remaining claims asserted by the NYAG in the Amended
Complaint. Proceedings in this matter are continuing.
Barclays has also been named in a class action by an institutional investor client under California law based on allegations similar to those in the
Complaint. This California class action has been consolidated with the class action filed in the New York Federal Court described above.
Also, following the filing of the Complaint, Barclays was named in a shareholder securities class action along with its current and certain of its
former CEOs and CFOs on the basis that investors suffered damages when their investments in Barclays American Depository Receipts declined in
value as a result of the allegations in the Complaint. Barclays has filed a motion to dismiss the complaint.
It is possible that additional complaints relating to these or similar matters may be brought in the future against BPLC and/or its affiliates.
Claimed Amounts/Financial Impact
The complaints seek unspecified monetary damages and injunctive relief. It is not currently practicable to provide an estimate of the financial
impact of the matters in this section or what effect, if any, that these matters might have upon operating results, cash flows or the Group’s
financial position in any particular period.