Barclays 2015 Annual Report Download - page 304

302 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Notes to the financial statements
Accruals, provisions, contingent liabilities and legal proceedings
27 Provisions continued
Undrawn contractually committed facilities and guarantees
Provisions are made if it is probable that a facility will be drawn and the resulting asset is expected to have a realisable value that is less than the
amount advanced.
Customer redress
Customer redress provisions comprise the estimated cost of making redress payments to customers, clients and counterparties for losses or
damages associated with inappropriate judgement in the execution of our business activities. Provisions for other customer redress include £282m
(2014: nil) in respect of Packaged Bank Accounts and £290m (2014: nil) in respect of historic pricing practices associated with certain Foreign
Exchange transactions for certain customers between 2005 and 2012, and smaller provisions across the retail and corporate businesses which are
likely to be utilised within the next 12 months.
Sundry provisions
This category includes provisions that do not fit into any of the other categories, such as fraud losses and dilapidation provisions.
Legal, competition and regulatory matters
The Group is engaged in various legal proceedings, both in the UK and a number of other overseas jurisdictions, including the US. For further
information in relation to legal proceedings and discussion of the associated uncertainties, please see Note 29 Legal, competition and regulatory
matters.
Critical accounting estimates and judgements
Payment Protection Insurance redress
As at 31 December 2015, Barclays had recognised cumulative provisions totalling £7.4bn (2014: £5.2bn) against the cost of Payment Protection
Insurance (PPI) redress and associated processing costs with utilisation of £5.3bn (2014: £4.2bn), leaving a residual provision of £2.1bn
(2014: £1.1bn).
Through to 31 December 2015, 1.6m (2014: 1.3m) customer initiated claimsa had been received and processed. The volume of claims received
during 2015 decreased 9%b from 2014. This rate of decline however was slower than previously expected, due to steady levels of claims from Claims
Management Companies (CMC) in particular.
During 2015 claims volumes continued to decline, but at a slower rate than had been projected at the start of the year based on historic experience.
As a result, management has revised upwards its estimate of future volumes and recognised additional provisions totalling £2.2bn during the year.
The provision estimate reflects an assessment of the proposals contained in a consultation published by the FCA on 26 November 2015 which, if
enacted, would impact on the timing and volume of future claims flow. This includes estimating the impact of a proposed 2018 complaint deadline
and guidance on the impact of a 2014 UK Supreme Court judgment (Plevin vs Paragon Personal Finance Limited). The potential impact of these
proposals is difficult to estimate and the outcome of the consultation is not yet known.
The provision is calculated using a number of key assumptions which continue to involve significant management judgement and modelling:
 customer initiated claim volumes – claims received but not yet processed plus an estimate of future claims initiated by customers where the
volume is anticipated to decline over time
 proactive response rate – volume of claims in response to proactive mailing
 uphold rate – the percentage of claims that are upheld as being valid upon review
 average claim redress – the expected average payment to customers for upheld claims based on the type and age of the policy/policies
 processing cost per claim – the cost to Barclays of assessing and processing each valid claim.
These assumptions remain subjective, in particular due to the uncertainty associated with future claims levels, which include complaints driven by
CMC activity.
The current provision represents Barclays’ revised best estimate of all future expected costs of PPI redress, however, it is possible the eventual
outcome may differ from the current estimate. If this were to be material, the provision will be increased or decreased accordingly.
The following table details by key assumption, actual data through to 31 December 2015, forecast assumptions used in the provision calculation and
a sensitivity analysis illustrating the impact on the provision if the future expected assumptions prove too high or too low.
Assumption
Cumulative
actual to
31.12.15
Future
expected
Sensitivity analysis
increase/decrease
in provision
Cumulative
actual to
31.12.14
Customer initiated claims received and processeda 1,570k 730kc50k = £103m 1,300k
Proactive mailing 680k 150k 50k = £16m 680k
Response rate to proactive mailing 28% 26% 1% = £2m 28%
Average uphold rate per claimc86%d88% 1% = £18m 79%
Average redress per valid claime£1,808 £1,810 £100 = £87m £1,740
Processing cost per claimf£300 £295 50k = £15m £294
Notes
a Total claims received to date, including those received via CMCs but excluding those for which no PPI policy exists and excluding responses to proactive mailing.
b Gross volumes received.
c Average uphold rate per claim excludes those for which no PPI policy exists.
d Change in average uphold rate mainly due to increased remediation in 2015.
e Average redress stated on a per policy basis and excludes remediation.
f Processing cost per claim on an upheld complaints basis, includes direct staff costs and associated overheads.