Barclays 2015 Annual Report Download - page 216

214 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Risk review
Regulation in the US
In the US, Barclays PLC, Barclays Bank PLC and their US subsidiaries are
subject to a comprehensive regulatory framework involving numerous
statutes, rules and regulations, including the International Banking Act of
1978, the Bank Holding Company Act of 1956 (BHC Act), the USA
PATRIOT Act of 2001 and the DFA. This legislation regulates the activities
of Barclays, including its US banking subsidiaries and the US branches of
Barclays Bank PLC, as well as imposing prudential restrictions, such as
limits on extensions of credit by Barclays Bank PLC’s US branches and
the US banking subsidiaries to a single borrower and to affiliates. The
New York and Florida branches of Barclays Bank PLC are subject to
extensive federal and state supervision and regulation by the Board of
Governors of the Federal Reserve System (FRB) and, as applicable, the
New York State Department of Financial Services and the Florida Office
of Financial Regulation. Barclays Bank Delaware, a Delaware chartered
commercial bank, is subject to supervision and regulation by the Federal
Deposit Insurance Corporation (FDIC), the Delaware Office of the State
Bank Commissioner and the Consumer Financial Protection Bureau
(CFPB). The deposits of Barclays Bank Delaware are insured by the FDIC.
The licensing authority of each US branch of Barclays Bank PLC has the
authority, in certain circumstances, to take possession of the business
and property of Barclays Bank PLC located in the state of the office it
licenses or to revoke or suspend such licence. Such circumstances
generally include violations of law, unsafe business practices and
insolvency.
Barclays PLC and Barclays Bank PLC are bank holding companies
registered with the FRB, which exercises umbrella supervisory authority
over Barclays’ US operations. Barclays is required to implement by July
2016 a US intermediate holding company (IHC) which will hold
substantially all of Barclays’ US subsidiaries and assets (including
Barclays Capital Inc. and Barclays Bank Delaware, other than Barclays’ US
branches and certain other assets and subsidiaries). This IHC will also be
a US bank holding company and generally regulated as such under the
BHC Act. As part of this supervision, the IHC will also generally be
subject to substantially similar enhanced prudential supervision
requirements as US bank holding companies of similar size, including: (i)
regulatory capital requirements and leverage limits; (ii) mandatory stress
testing of capital levels , and submission of a capital plan; (iii)
supervisory approval of capital distributions by the IHC to Barclays Bank
PLC; (iv) additional substantive liquidity requirements, including
requirements to conduct monthly internal liquidity stress tests for the
IHC (and also, separately, for Barclays Bank PLC’s US branch network),
and to maintain a 30-day buffer of highly liquid assets; (v) other liquidity
risk management requirements, including compliance with liquidity risk
management standards established by the FRB, and maintenance of an
independent function to review and evaluate regularly the adequacy and
effectiveness of the liquidity risk management practices of Barclays’
combined US operations; and (vi) overall risk management
requirements, including a US risk committee and a US chief risk officer.
The IHC will also be subject to TLAC requirements pursuant to proposed
regulations issued by the Federal Reserve in the fall of 2015. Barclays is
well advanced in its plans to transfer the relevant US subsidiaries and
assets into a newly incorporated IHC, and to implement the related DFA
and other requirements, to meet the prescribed deadlines.
Barclays PLC and Barclays Bank PLC have each elected to be treated as a
financial holding company under the BHC Act. Financial holding
companies may generally engage in a broader range of financial and
related activities, including underwriting and dealing in all types of
securities, than are permitted to registered bank holding companies that
do not maintain financial holding company status. Financial holding
companies such as Barclays PLC and Barclays Bank PLC are required to
meet or exceed certain regulatory capital ratios and other requirements
to be considered ‘well capitalised’ and be deemed to be ‘well managed’
in order to maintain their status as such. Once established, Barclays’ IHC
would also need to meet similar requirements for FHC purposes.
Barclays Bank Delaware is also required to meet certain capital ratio
requirements and be deemed to be ‘well managed’. In addition, Barclays
Bank Delaware must have at least a ‘satisfactory’ rating under the
Community Reinvestment Act of 1977 (CRA). Entities ceasing to meet
any of these requirements are allotted a period of time in which to
restore capital levels or the management or CRA rating. Should the
relevant Barclays entities fail to meet the above requirements, during the
allotted period of time they could be prohibited from engaging in new
types of financial activities or making certain types of acquisitions in the
US. If the capital level or rating is not restored, the Group may ultimately
be required by the FRB to cease certain activities in the US. More
generally, Barclays’ US activities and operations may be subject to other
requirements and restrictions by the FRB under its supervisory authority,
including with respect to safety and soundness.
Under the Federal Deposit Insurance Act, as amended by the DFA,
Barclays and the IHC (once established) are required to act as a source
of financial strength for Barclays Bank Delaware. This could, among
other things, require Barclays and/or the IHC to inject capital into
Barclays Bank Delaware if it fails to meet applicable regulatory capital
requirements.
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.
The enforcement of these regulations has been a major focus of US
government policy relating to financial institutions in recent years.
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.
Barclays’ US securities broker/dealer, investment advisory and
investment banking operations are also subject to ongoing supervision
and regulation by the Securities and Exchange Commission (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 commodity options-
related operations are subject to ongoing supervision and regulation by
the Commodity Futures Trading Commission (CFTC), the National
Futures Association and other SROs.
Barclays’ US credit card activities are subject to ongoing supervision and
regulation by the CFPB, which was established by the DFA. The statute
gave the CFPB the authority to examine and take enforcement action
against any US financial institution with over $10bn in total assets, such
as Barclays Bank Delaware, with respect to its compliance with federal
laws and regulations regarding the provision of consumer financial
services (including credit card and deposit services) and with respect to
‘unfair, deceptive or abusive acts and practices.’ One of the laws the
CFPB enforces is the Credit Card Accountability, Responsibility and
Disclosure Act of 2009 which prohibits certain pricing and marketing
practices for consumer credit card accounts.
Supervision and regulation