Barclays 2015 Annual Report Download - page 217

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The DFA’s ultimate impact on the Group continues to remain uncertain
and some rules are not yet fully implemented. In addition, market
practices and structures may change in response to the requirements of
the DFA in ways that are difficult to predict but that could impact
Barclays business. Nonetheless, certain provisions of the DFA are
particularly likely to have a significant effect on the Group, including:
 Restrictions on proprietary trading and fund-related activities: The
so-called ‘Volcker Rule’ which was promulgated by the relevant US
regulatory agencies, including the FRB, the FDIC, the SEC, and the
CFTC, prohibits banking entities, including Barclays PLC, Barclays Bank
PLC and their various subsidiaries and affiliates, from undertaking
certain ‘proprietary trading’ activities 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 exemptions for underwriting,
market-making and risk-mitigating hedging activities as well as
exemptions applicable to transactions and investments occurring
solely outside of the US. As required by the rule, Barclays has
developed and implemented an extensive compliance and monitoring
programme (both inside and outside of the US) addressing
proprietary trading and covered fund activities. These efforts are
expected to continue as the FRB and the other relevant US regulatory
agencies further implement and monitor these requirements and
Barclays may incur additional costs in relation to such efforts. The
Volcker Rule is highly complex and its full impact will not be known
with certainty until market practices and structures further develop
under it. The prohibition on proprietary trading and the requirement to
develop an extensive compliance programme came into effect in July
2015. The FRB subsequently extended the compliance period through
July 2016 for investments in and relationships with covered funds that
were in place prior to 31 December 2013, and indicated that it intends
to further extend the compliance period through July 2017.
 Resolution plans: The DFA requires non-bank financial companies
supervised by the FRB, such as Barclays, and bank holding companies
with total consolidated assets of $50bn or more to submit annually to
the FRB, the FDIC, and the Financial Stability Oversight Council
(FSOC), a plan for a ‘the firm’s rapid and orderly’ resolution in the
event of material financial distress or failure. As required, Barclays
submitted its most recent annual US resolution plan to the US
regulators on 1 July 2015.
 Regulation of derivatives markets: Among the changes mandated by
the DFA is a requirement that many types of derivatives that used to
be traded in the over-the-counter markets be traded on an exchange
or swap execution facility and centrally cleared through a regulated
clearing house. The DFA also mandates that many swaps and
security-based swaps be reported and that certain of that information
be made available to the public on an anonymous basis. In addition,
certain participants in these markets are required to register with the
CFTC as ‘swap dealers’ or ‘major swap participants’ and/or, following
the compliance date for relevant SEC rules, with the SEC as ‘security-
based swap dealers’ or ‘major security-based swap participants’. Such
registrants would be subject to CFTC and SEC regulation and
oversight. SEC finalised the rules for security based swap dealers in
August 2015 with an effective date of October 2015. The SEC clarified
that registration timing is contingent upon the finalisation of rules
under Title VII of DFA in 2016 and no earlier than six months after
such date. Barclays Bank PLC has registered as a swap dealer. Entities
required to register are subject to business conduct and record-
keeping requirements and will be subject to capital and margin
requirements.
In this regard, US prudential regulators and the CFTC recently finalised
and issued their respective rules imposing initial and variation margin
requirements on transactions in uncleared swaps and security-based
swaps. Such requirements will become effective over a period of time
beginning in September, 2016. The margin requirements can be
expected to increase the costs of over-the-counter derivative
transactions and could adversely affect market liquidity.
These registration, execution, clearing, reporting and compliance
requirements could adversely affect the business of Barclays Bank PLC
and its affiliates, including by reducing market liquidity and increasing
the difficulty and cost of hedging and trading activities.
 CFPB and consumer protection regulations and enforcement: Since
its creation, the CFPB has issued a number of regulations aimed at
protecting consumers of financial products including credit card and
deposit customers. The CFPB has also 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.
 TLAC in the US: In 2015, the FRB also issued its own TLAC proposal
that, while generally following the FSB framework, contains a number
of provisions that are more restrictive. If ultimately adopted in its
current form, the US TLAC proposal would require the Barclays IHC,
subject to certain phase-in provisions between 2019 and 2022: (i) a
specified outstanding amount of eligible long term debt (LDT), (ii) a
specified outstanding amount of TLAC (consisting of common and
preferred equity regulatory capital plus LTD), and (iii) a specified
internal common equity buffer, in each case issued to a controlling
parent of the IHC. The US TLAC proposal also contains certain other
requirements, including that the LTD must be cancellable or
convertible into equity of the IHC upon the order to the FRB if the IHC
is in default or danger of default and certain other requirements are
met. If finally adopted by the FRB, these requirements may increase
the funding costs of the IHC.
Regulation in Africa
Barclays’ operations in South Africa, including Barclays Africa Group
Limited, are supervised and regulated mainly by the South African
Reserve Bank (SARB), the Financial Services Board (SAFSB) as well as
the Department of Trade and Industry (DTI). The SARB oversees the
banking industry and follows a risk-based approach to supervision, while
the SAFSB oversees financial services such as insurance and investment
business and focuses on enhancing consumer protection and regulating
market conduct. The DTI regulates consumer credit through the National
Credit Regulator, established under the National Credit Act (NCA) 2005,
as well as other aspects of consumer protection not regulated under the
jurisdiction of the SAFSB through the Consumer Protection Act (CPA)
2008. It is intended that regulatory responsibilities in South Africa will in
future be divided between the SARB which will be responsible for
prudential regulation and the SAFSB will be responsible for matters of
market conduct. The transition to ‘twin peaks’ regulation will commence
in 2016. Barclays’ operations in other African countries are primarily
supervised and regulated by the central banks in the jurisdictions where
Barclays has a banking presence. In some African countries, the conduct
of Barclays’ operations and the non-banking activities are also regulated
by Financial Market Authorities.
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