Barclays 2015 Annual Report Download - page 305

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28 Contingent liabilities and commitments
Accounting for contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where
the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet but
are disclosed unless the outflow of economic resources is remote.
The following table summarises the nominal amount of contingent liabilities and commitments which are not classified as on-balance sheet:
2015
£m
2014
£m
Guarantees and letters of credit pledged as collateral security 16,065 14,547
Performance guarantees, acceptances and endorsements 4,556 6,777
Contingent liabilities 20,621 21,324
Documentary credits and other short-term trade related transactions 845 1,091
Forward starting reverse repurchase agreementsa 93 13,856
Standby facilities, credit lines and other commitments 281,369 276,315
The Financial Services Compensation Scheme
The Financial Compensation Scheme (the FSCS) is the UK government-backed compensation scheme for customers of authorised institutions that
are unable to pay claims. It provides compensation to depositors in the event that UK licensed deposit-taking institutions are unable to meet their
claims. The FSCS raises levies on UK licensed deposit-taking institutions to meet such claims based on their share of UK deposits on 31 December of
the specified years preceding the scheme year (which runs from 1 April to 31 March).
Compensation has previously been paid out by the FSCS, funded by loan facilities totalling approximately £18bn provided by HM Treasury to FSCS in
support of FSCS’s obligations to the depositors of banks declared in default. The interest rate chargeable on the loan and levied to the industry is
subject to a floor equal to the higher of HM Treasury’s own cost of borrowing (typically 2024 UK Gilt yield), and GBP LIBOR with 12-month maturity
plus a spread. The FSCS recovered £1bn capital shortfall in respect of the legacy facility from industry in three instalments across 2013, 2014 and
2015. A separate shortfall in respect of Dunfermline Building Society was levied on the industry in both 2014 and 2015. The FSCS liability for the
interest and capital levy for 2015-2016 was recognised and paid in 2015. Barclays has included an accrual of £56m in other liabilities as at
31 December 2015 (2014: £88m) in respect of the Barclays’ portion of the Interest Levy. Capital Levies for 2015/16 were recognised in 2015 and
settled in the same year.
Further details on contingent liabilities relating to legal and competition and regulatory matters can be found in Note 29.
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 and Civil Action
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 UK Serious Fraud
Office (SFO), the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) are also investigating these agreements.
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.
Note
a Forward starting reverse repurchase agreements were previously disclosed as loan commitments. Following the business designation of reverse repurchase and repurchase agreements
at fair value through profit and loss, new forward starting reverse repurchase agreements are within the scope of IAS 39 and are recognised as derivatives on the balance sheet.
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