Blueprint
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
February
23, 2017
Barclays PLC and
Barclays Bank PLC
(Names
of Registrants)
1 Churchill Place
London E14 5HP
England
(Address
of Principal Executive Offices)
Indicate
by check mark whether the registrant files or will file annual
reports
Under
cover of Form 20-F or Form 40-F.
Form
20-F x
Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No x
If
"Yes" is marked, indicate below the file number assigned to the
registrant
in
connection with Rule 12g3-2(b):
This
Report is a joint Report on Form 6-K filed by Barclays PLC and
Barclays
Bank
PLC. All of the issued ordinary share capital of Barclays Bank PLC
is
owned
by Barclays PLC.
This
Report comprises:
Information
given to The London Stock Exchange and furnished pursuant
to
General
Instruction B to the General Instructions to Form 6-K.
EXHIBIT
INDEX
Annual Financial Report dated 23 February
2017
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, each of
the registrants has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BARCLAYS
PLC
(Registrant)
Date:
February 23, 2017
By: /s/
Marie Smith
----------------------
Marie
Smith
Assistant
Secretary
BARCLAYS
BANK PLC
(Registrant)
Date: February
23, 2017
By: /s/
Marie Smith
----------------------
Marie
Smith
Assistant
Secretary
23
February 2017
Barclays PLC
Annual Report and Accounts 2016
UK Listing Authority submissions
In
compliance with Disclosure Guidance & Transparency Rule (DTR)
4.1, Barclays PLC announces that the following documents will today
be submitted to the National Storage Mechanism and will shortly be
available for inspection at:
www.Hemscott.com/nsm.do
●
Barclays PLC Annual Report 2016;
●
Barclays PLC Strategic Report 2016; and
●
Pillar 3 Report for 2016
These documents may also be accessed via Barclays PLC's website
at home.barclays/investorrelations
The
Barclays PLC Strategic Report 2016 (or the full Annual Report 2016
for those shareholders who have requested it) will be posted to
shareholders on Wednesday, 22 March 2017.
The
Annual Report 2016 confirms that Diane de Saint Victor and Steve
Thieke have decided not to stand for re-election at the 2017 Annual
General Meeting and will be retiring from the Boards of Barclays
PLC and Barclays Bank PLC with effect from the close of the Annual
General Meeting on 10 May 2017.
Additional information
The following information is extracted from the Barclays PLC Annual
Report 2016 (page references are to pages in the Annual Report) and
should be read in conjunction with Barclays PLC's Final Results
announcement issued on 23 February 2017. Both documents can
be found at home.barclays/investorrelations
and together constitute the
material required by DTR 6.3.5 to be communicated to the media in
unedited full text through a Regulatory Information Service.
This material is not a substitute for reading the Barclays PLC
Annual Report 2016 in full.
Risk Review
Material existing and emerging risks
Material existing and emerging risks to the Group's future
performance
This
section describes the material risks to which senior management pay
particular attention, which they believe could cause the future
results of the Group's operations, financial condition and
prospects to differ materially from current expectations. These
expectations include the ability to pay dividends, maintain
appropriate levels of capital and meet capital and leverage ratio
targets, and achieve stated commitments as outlined in the
Strategic Report. In addition, risks relating to the Group that are
not currently known, or that are currently deemed immaterial, may
individually or cumulatively have the potential to materially
affect the future results of the Group's operations, financial
condition and prospects.
Material risks and
their impact are described below in two sections: i) risks which
senior management believe are likely to affect more than one
Principal Risk; and ii) risks which senior management believe are
likely to impact a single Principal Risk. An emerging risk is a
risk that has the potential to have a significant detrimental
effect on the Group's performance, but currently the outcome and
the time horizon for the crystallisation of its possible impact is
more uncertain and more difficult to predict than for other risk
factors that are not identified as emerging risks. A revised ERMF
was approved by the Board in December 2016. This includes a revised
risk taxonomy comprising eight Principal Risks (Model Risk,
Reputation Risk and Legal Risk were not previously classified as
Principal Risks). Additional detail on ERMF and Principal Risks may
be found on page 146.
Additional detail
on the management of risks may be found in Barclays' Approach to
Managing Risk in the Barclays PLC 2016 Pillar 3
Report.
Material
existing and emerging risks potentially impacting more than one
Principal Risk
i)
Structural reform
The UK
Financial Services (Banking Reform) Act 2013 (the UK Banking Reform
Act) and associated secondary legislation and regulatory rules,
require all UK deposit-taking banks with over £25bn of
deposits (from individuals and small businesses) to separate
certain day-to-day banking activities (e.g. deposit-taking) offered
to retail and smaller business customers from other wholesale and
investment banking services.
Through
the creation of Barclays' ring-fenced bank, the Group will ensure
that core deposits placed within the European Economic Area (EEA)
are ring-fenced to meet the requirements of the legislation by
2019. The implementation of these changes involves a number of
risks which include:
●
The Group must restructure its intra-group and external capital,
funding and liquidity arrangements to
meet regulatory requirements and support business needs. The
changes will impact the
sources of funding available to the different entities, including
preventing the non ring-fenced
bank's access to certain categories of deposit funding.
These
changes may result in higher
funding costs.
●
The changes to the Group structure may negatively impact the
assessment made by credit rating
agencies and creditors. The risk profile and key risk drivers of
the ring-fenced bank and the non
ring-fenced bank will be specific to the activities and risk
profile of each entity. As a result
different Group entities are likely to be assessed differently
and
this may result in differences in
credit ratings. Changes to the credit assessment at the Group or
individual entity level, including
the potential for ratings downgrades and ratings differences across
entities, could impact access
and cost of certain sources of funding.
●
Implementation of ring-fencing introduces a number of execution
risks. Technology change could result in
outages or operational errors. Legal challenge to the ring-fence
transfer scheme may delay the
transfer of assets and liabilities to the ring-fenced bank. In
particular, the setup of the Group Service
Company as a separate legal entity servicing
both trading entities (i.e. ring- fenced bank and non
ring-fenced bank) will require a number of intra-group service
level agreements to be
established and agreed between the Group Service Company and the
trading entities and will
require the Group to set up a new approach to manage, fund and
deliver the activities that
will be provided by this entity.
Delayed delivery could increase reputational risk or
result
in regulatory non-compliance. Uncertain customer preference (for
placement in the ring fenced or
non ring-fenced bank) may result in changes to design and
implementation plans.
● At
the European level, structural reform regulation is still being
developed as highlighted by the European Union proposal issued in
November 2016 for Intermediate Holding Companies. The impact of
final rules on Barclays' businesses is still to be assessed once
European regulation is finalised. Final rules will need to be
considered alongside EU Referendum implications.
The implementation date for these proposals will depend on the date
on which any final legislation is agreed.
● There
is a risk that Barclays does not meet regulatory requirements
across the new structure. Failure to meet these requirements may have
an adverse impact on the Group's profitability, operating
flexibility, flexibility of deployment of capital and funding,
return on equity, ability to pay dividends,
credit ratings, and/or financial condition.
ii)
Business conditions, general economy and geopolitical issues
The
Group's performance could be adversely affected in relation to more
than one Principal Risk by a weak or deteriorating global economy
or political instability. These factors may also occur in one or
more of the Group's main countries of operation.
The
Group offers a broad range of services including to retail,
institutional and government customers, in a large number of
countries. The breadth of these operations means that deterioration
in the economic environment, or an increase in political
instability in countries where the Group is active, or in any other
systemically important economy, could adversely affect the Group's
performance and prospects.
For the
Group, a deterioration of conditions in its key markets could
affect performance in a number of ways including, for example: (i)
deteriorating business, consumer or investor confidence leading to
reduced levels of client activity, or indirectly, a material
adverse impact on GDP growth in significant markets and therefore
on Group performance; (ii) higher levels of default rates and
impairment; (iii) mark to market losses in trading portfolios
resulting from changes in factors such as credit ratings, share
prices and solvency of counterparties; and(iv) lower levels of
fixed asset investment and productivity growth
overall.
Global
growth is expected to remain modest in 2017, with low single digit
growth in advanced economies alongside a slowdown in emerging
markets. This moderate economic performance, lower commodity prices
and increased geopolitical tensions mean that the distribution of
risks to global economic activity continues to be biased to the
downside. Commodity prices, particularly oil prices, remain
depressed, but could fall further if growth in demand remains weak
or supply takes longer than expected to adjust. At the same time,
countries with high reliance on commodity-related earnings have
already experienced a tightening of financial conditions. A
sustained period of low prices risks triggering further financial
distress, default and contagion, for our customers, their suppliers
and local communities, and resulting losses for
Barclays.
Moreover, sentiment
towards emerging markets as a whole continues to be driven in large
part by developments in China, where there is significant concern
around the ability of authorities to manage growth whilst
transitioning towards services. A stronger than expected slowdown
could result if authorities fail to appropriately manage the end of
the investment and credit-led boom, while the consequences from a
faster slowdown would flow through both financial and trade
channels into other economies, and affect commodity
markets.
Whilst
tightening of monetary policy by the US Federal Reserve was not as
pronounced as expected during 2016, a moderate increase in activity
is expected during 2017, the increasing divergence of policies
between major advanced economies risks triggering further financial
market volatility. Changes to interest rate expectations could
ignite further volatility and US Dollar appreciation, particularly
if the US Federal Reserve were to increase interest rates faster
than markets currently expect. Emerging markets have already seen
growth slow following increased capital outflows, but growth may
slow further if tighter US interest rate policy drives further
reallocation of capital.
In
several countries, reversals of capital inflows, as well as fiscal
austerity, have already caused deterioration in political
stability. This could be exacerbated by a renewed rise in asset
price volatility or sustained pressure on government finances. In
addition, geopolitical tensions in some areas of the world,
including the Middle East and Eastern Europe are already acute, and
are at risk of further deterioration.
In the
US, the policy platform of the new administration is expected to be
clarified during the early part of 2017. There is the possibility
of significant changes in policy in sectors including trade,
healthcare and commodities which may have an impact on associated
Barclays' portfolios. Proposed policy changes (including tax-cuts
and significant infrastructure spending) are likely to result in
higher global growth, further reinforcing the move towards global
reflation. Political change may increase uncertainty as to
regulatory trends, both in the US and the EU.
In the
UK, the vote in favour of leaving the EU has given rise to
political uncertainty with attendant consequences for investment
and confidence. See vi) EU Referendum on page 139.
iii)
Change and execution risk
The
Group continues to drive changes to its functional capabilities and
operating environment in order to allow the business to exploit
emerging and digital technologies, and improve customer experience
whilst also embedding enhanced regulatory requirements, strategic
realignment, and business model changes. The complexity, increasing
pace, and volume of changes underway simultaneously mean there is
heightened execution risk and potential for change not being
delivered to plan.
Failure
to adequately manage this risk could result in extended outages and
disruption, financial loss, customer detriment, legal liability,
potential regulatory censure and reputational damage.
iv) Risks arising from regulation of the financial services industry The
financial services industry continues to be the focus of
significant regulatory change and scrutiny which may adversely
affect the Group's business, financial performance, capital and
risk management strategies. For further information on regulations
affecting the Group, including significant regulatory developments,
please see the section on Supervision and Regulation on page
229.
a) Regulatory change
The
Group, in common with much of the financial services industry,
remains subject to significant levels of regulatory change and
increasing scrutiny in many of the countries in which it operates
(including, in particular, the UK and the US). This has led to a
more intensive approach to supervision and oversight, increased
expectations and enhanced requirements. As a result, regulatory
risk will remain a focus for senior management and consume
significant levels of business resources. Furthermore, this more
intensive approach and the enhanced requirements, uncertainty and
extent of international regulatory coordination as enhanced
supervisory standards are developed and implemented may adversely
affect the Group's business, capital and risk management strategies
and/or may result in the Group deciding to modify its legal entity
structure, capital and funding structures and business mix, or to
exit certain business activities altogether or not to expand in
areas despite otherwise attractive potential.
b)
Changes in prudential requirements, including changes to CRD IV
The
Group's results and ability to conduct its business may be
negatively affected by changes or additions to supervisory and
prudential expectations, including in relation to any minimum
requirements for own funds and eligible liabilities, leverage or
liquidity requirements, applicable buffers and/or add-ons to such
minimum requirements and RWA calculation methodologies all as may
be set by international, EU or national authorities from time to
time (including, for example, through changes being proposed to the
CRD IV framework).
Changes
to or additional supervisory and prudential expectations, either
individually or in aggregate, may lead to unexpected enhanced
requirements in relation to the Group's capital, leverage,
liquidity and funding ratios or alter the way such ratios are
calculated. This may result in, amongst other things, a need for
further management actions to meet the changed requirements, such
as: increasing capital or liquidity resources, reducing leverage
and risk weighted assets; modifying legal entity structure
(including with regard to issuance and deployment of capital and
funding for the Group); changing the Group's business mix or
exiting other businesses; and/or undertaking other actions to
strengthen the Group's position. See Treasury and Capital Risk on
page 152 and Supervision and Regulation on page 229 for more
information.
c) Market infrastructure reforms
Financial market
infrastructure is subject to extensive and increasing regulation in
many of the Group's markets. The derivatives market has been the
subject of particular focus across the G20 countries, requiring the
clearing of standardised derivatives and the mandatory margining of
non-cleared derivatives. More broadly, the recast Markets in
Financial Instruments Directive in Europe (MiFID II) will
fundamentally change the framework for market infrastructure, the
Benchmarks Regulation will regulate the use of benchmarks in the
EU, and regulation governing Central Securities Depositories will
increase the requirements upon participants in the financial
markets.
It is
possible that these additional regulations, and the related
expenses and requirements, will increase the cost of and therefore
impact willingness of participation in the financial
markets.
d)
Recovery and resolution planning
In
recent years, there has been a strong regulatory focus on
'resolvability' from regulators globally, and Barclays continues to
work with the relevant authorities to identify and address
potential impediments to the Group's resolvability. As part of this
work, the Group is required to submit formal Recovery and
Resolution Plan (RRP) submissions to UK, US and South African
regulators describing Barclays' strategy for recovery and rapid and
orderly resolution. These submissions are evaluated by regulators
on the basis of both qualitative and quantitative metrics, the
specifics of which may become more rigorous over time.
Should
the relevant authorities in any jurisdiction ultimately determine
that a resolution plan were not credible or would not facilitate an
orderly resolution, Barclays or its subsidiaries could be made
subject to more stringent capital, leverage or liquidity
requirements,or restrictions on growth, activities or operations.
The potential structural changes that may be required to address
such a determination may negatively impact the financial or
competitive position or results of operations of the Group, as well
as increase the risk that the Group would be unable to maintain
appropriate prudential ratios or be restricted from making intra-
group or external capital contributions.
e) Stress testing
The
Group and certain of its members are subject to supervisory stress
testing exercises in a number of jurisdictions. These exercises
currently include the programmes of the BoE, the EBA, the FDIC, the
FRB and the SARB. These exercises are designed to assess the
resilience of banks to adverse economic or financial developments
and ensure that they have robust, forward-looking capital and
liquidity management processes that account for the risks
associated with their business profile. Assessment by regulators is
on both a quantitative and qualitative basis, the latter focusing
on the Group's or certain of its members' business model, data
provision, stress testing capability and internal management
processes and controls. The stress testing requirements to which
the Group and its members are subject are becoming increasingly
stringent, including in the US where the newly sub-consolidated
operations and the IHC will be stress-tested and examined under the
FRB's annual CCAR programme for the first time in 2017. Failure to
meet requirements of regulatory stress tests, or the failureby
regulators to approve the stress test results and capital plans of
the Group, could result in the Group being required to enhance its
capital position, limit capital distributions or position capital
in specific subsidiaries. For more information on stress testing,
please see Supervision and Regulation on page 229.
v)
Regulatory action in the event of a bank failure
As
described under 'Supervision of the Group, Regulation in the EU and
UK, Recovery and Resolution developments' on page 231, UK
resolution authorities have the right under certain circumstances
to intervene in the Group pursuant to the stabilisation and
resolution powers granted to them under the Banking Act and other
applicable legislation.
If any
of the powers conferred on the BoE were to be exercised, or there
were an increased risk of exercise, in respect of the Group or any
entity within the Group, this might result in a material adverse
effect on the rights or interests of shareholders and creditors
including holders of debt securities and could have a material
adverse effect on the market price of shares and other securities
issued by the Group. Such effects could include losses of
shareholdings or associated rights including, the dilution of
percentage ownership of the Group's share capital, and may result
in creditors, including debt holders, losing all or a part of the
value of their investment in the Group's issued
securities.
vi)
EU referendum
The UK
held a referendum on 23 June 2016 on whether it should remain a
member of the EU. This resulted in a vote in favour of leaving the
EU. The result of the referendum means that the long-term nature of
the UK's relationship with the EU is unclear and there is
uncertainty as to the nature and timing of any agreement with the
EU on the terms of exit. In the interim, there is a risk of
uncertainty for both the UK and the EU, which could adversely
affect the economy of the UK and the other economies in which we
operate. The potential risks associated with an exit from the EU
have been carefully considered by the Board and
include:
Market risk
●
Potential for continued market volatility (notably FX
and interest rates) given political
uncertainty which could affect the value of Trading
Book
positions.
Credit risk
●
Increased risk of a UK recession with lower growth, higher
unemployment and falling UK house
prices. This would likely negatively impact a number of
Barclays' portfolios,
notably: higher Loan to Value home loans, UK unsecured
lending including cards and
Commercial Real Estate exposures.
Operational risk
●
Changes to current EU "Passporting" rights: the UK's withdrawal
from the EU may result
in the loss of cross-border market access rights which would
require Barclays to make
alternative licensing arrangements in EU jurisdictions in
which Barclays continues
to operate.
●
Uncertainty over UK's future approach to EU freedom of movement
will impact Barclays'
access to the EU talent pool, decisions on hiring from the
EU of critical roles
and rights to work of current Barclays non-UK EU citizens
located
in the UK and UK citizens located in the EU.
Legal risk
●
The legal framework within which Barclays operates could change and
become more uncertain as the UK takes
steps to replace or repeal certain laws currently in force, which
are based on EU legislation and
regulation. Certainty of existing contracts, enforceability of
legal obligations and uncertainty around
the outcome of disputes may be affected
until
the impacts of the loss of the current
jurisdictional arrangements between UK and EU courts and the
universal enforceability of judgements across
the EU, are fully known (including the status of existing EU case
law).
Treasury and capital risk
●
Potential for credit spread widening and reduced investor appetite
for Barclays debt issuance,
which could negatively impact the cost of and/or access to
funding. Potential
for continued market volatility could affect interest rate risk
in the banking book,
as well as securities held by Barclays for liquidity
purposes.
●
Changes in the long-term outlook for UK interest rates might also
adversely affect UK Pension
IAS19 liabilities.
vii)
Impairment
The
introduction of the impairment requirements of IFRS 9 Financial
Instruments, due to be implemented on 1 January 2018, is expected
to result in higher impairment loss allowances that are recognised
earlier, on a more forward looking basis and on a broader scope of
financial instruments than is the case under IAS 39. Measurement
will involve increased complexity, judgement and is expected to have a material financial
impact and impairment charges will tend to be more volatile.
Unsecured products with longer expected lives, such as revolving
credit cards, are expected to be most impacted. The capital
treatment on the increased reserves is the subject of ongoing
discussion with regulators and across the industry, but there is
potential for significant adverse impact on regulatory capital
ratios. In addition, the move from incurred to expected credit
losses has the potential to impact the Group's performance under
stressed economic conditions or regulatory stress tests. For more
information please refer to Note 1 Significant Accounting Policies
on pages 284 to 289.
Barclays has a
jointly accountable risk and finance implementation and governance
programme with representation from all impacted departments. During
2016, work continued on the design and build of impairment models,
systems, processes, governance, controls and data collection and
continues to be refined during 2017. During 2017, there is a
planned parallel run which includes continued model, process and
output validation, testing, calibration and analysis.
There
will be three different layers of impairment committees. In
addition to the existing Group and Business level committees, Legal
Entity committees for Barclays UK and Barclays International will
also be in place. Committees will be chaired by the Chief Risk
Officer (CRO), with joint accountability by both CROs and Chief
Financial Officers (CFOs) for signing off the results. The new IFRS
9 impairment committee structure, with underlying key controls, is
expected to be in operation from Q2 2017. There will also be a
Scenarios ManagementCommittee to review and approve the scenario
process. The scope of review will include the scenarios and
scenario narratives, the core set of macroeconomic variables and
any management overlays. The Scenario Management Committee will
attest that the scenarios adequately account for the non- linearity
and asymmetry of the loss distribution. Reported results and key
messages will be communicated to the Board Audit Committee and Risk
Executive Committee, who will have oversight roles and provide
challenge of key assumptions, including the basis of the scenarios
adopted.
Material
existing and emerging risks by Principal Risk
Credit risk
The
risk of loss to the firm from the failure of clients, customers or
counterparties, including sovereigns, to fully honour their
obligations to the firm, including the whole and timely payment of
principal, interest, collateral and other receivables.
The
Group may suffer financial loss if any of its customers, clients or
market counterparties fails to fulfil their contractual obligations
to the Group. The Group may also suffer loss when the value of its
investment in the financial instruments of an entity falls as a
result of that entity's credit rating being downgraded. In
addition, the Group may incur significant unrealised gains or
losses due to changes in the Group's credit spreads or those of
third parties, as these changes affect the fair value of the
Group's derivative instruments, debt securities that the Group
holds or issues, and loans held at fair value
i) Deterioration in political and economic environment
The
Group's performance is at risk from deterioration in the political
and economic environment (see also 'Business conditions, general
economy and geopolitical issues' on page 137) which may result from
a number of uncertainties, including the following:
a) Specific regions
Adverse
impacts on customers' ability to service debt and may result in
result in higher impairment charges for the Group.
UK
Following the EU
referendum on 23 June 2016 (see EU Referendum on page 139), the UK
may experience a period of political and economic uncertainty
throughout the negotiation period during which exit options are
hard to fully and accurately predict. The initial impact has been
the depreciation of Sterling resultingin higher costs for companies
exposed to imports and a more favourable environment for exporters.
Rising domestic costs resulting from higher import prices may
impact household incomes and the affordability of consumer loans
and home loans. In turn this may affect businesses dependent on
consumers for revenue. There has also been a reduction in activity
in both commercial and residential real estate markets which has
the potential to impact value.
US
A
significant proportion of the Group's portfolio is located in the
US, including a major credit card portfolio and a range of
corporate and investment banking exposures. Stress in the US
economy, weakening GDP, rising unemployment and/or an increase in
interest rates could lead to increased levels of
impairment.
Emerging Markets
Slower
growth in China continues to affect a number of emerging economies,
particularly those with high fiscal deficits and those reliant on
short-term external financing and/or material reliance on commodity
exports. Their vulnerability has been further impacted by the fall,
and sustained volatility in oil prices, the strong US Dollar and
the winding down of quantitative easing policies by some central
banks. The impact on the Group may vary depending on the
vulnerabilities present in each country, but the impact may result
in increased impairment charges through sovereign defaults, or the
inability or unwillingness of clients and counterparties in that
country to meet their debt obligations.
South Africa
The
negative economic outlook in South Africa continues, with a
challenging domestic and external economic environment and ongoing
political uncertainty. Real GDP growth remains low resulting in
these domestic and global factors impacting credit quality across
our portfolios. In the retail sector, concerns remain over the
level of consumer indebtedness and affordability, particularly as
interest rates rise.
b) Interest rate rises, including as a result of slowing of monetary
stimulus, could impact consumer debt affordability and corporate
profitability
To the
extent that central banks increase interest rates in certain
developed markets, particularly in our main markets, the UK and the
US, they are expected to be small and gradual in scale during 2017,
albeit following differing timetables. Recent increases in interest
rates occurred in the US with a 0.25% rise in December 2015 and the
same rise in December 2016. Whilst further increases may support
Group income, future interest rate increases, if larger or more
frequent than expectations, could cause stress in the loan
portfolio and underwriting activity of the Group. This would be
particularly applicable to non- investment grade lending, leading
to the possibility of the Group incurring higher impairment. Higher
credit losses driving an increased impairment allowance would most
notably impact retail unsecured and secured portfolios as a result
of a reduction in recoverability and value of the Group's assets,
coupled with a decline in collateral values.
Interest rate
increases in developed markets may also negatively impact emerging
economies, as capital flows to mature markets to take advantage of
the higher returns and strengthening economic
fundamentals.
ii) Specific sectors
The
Group is subject to risks arising from changes in credit quality
and recovery rate of loans and advances due from borrowers and
counterparties in a specific portfolio. Any deterioration in credit
quality could lead to lower recoverability and higher impairment in
a specific sector. The following are areas of uncertainties to the
Group's portfolio which could have a material impact on
performance.
a) UK property
With UK
property representing a significant portion of the overall UK
Corporate and Retail credit exposure, the Group is at risk from a
fall in property prices in both the residential and commercial
sectors in the UK. Strong house price growth in London and the
South East of the UK, fuelled by foreign investment, strong
buy-to-let (BTL) demand and subdued housing supply, has resulted in
affordability metrics becoming stretched. Average house prices as
at the end of 2016 were more than 7.9 times average
earnings.
However, the recent
EU referendum has had a negative impact on home loan applications
due to the increased uncertainty in the UK housing market, with
ongoing concerns regarding the potential for falling house prices,
particularly in London and the South East. Further, a weakening
economy would impact the home loan portfolio as costs rise off the
back of higher interest rates and customers are impacted by
inflationary affordability pressures. Potential losses would likely
be most pronounced in the higher Loan to Value (LTV) segments as
falling house prices lead to higher impairment and negative capital
impact as loss given default (LGD) rates increase.
b) Natural resources
Despite
limited recovery in oil and commodities prices, the risk of losses
and increased impairment is more pronounced where leverage is
higher, or in sectors currently subject to strain, notably oil and
gas, mining and metals and commodities. Sustained oil price
depression from its recent high continues and is driven by ongoing
global excess supply. The positioning of these portfolios focuses
on investment grade customers or collateralised positions.
Continued stress in this market does have the potential to further
increase credit losses and impairment where a decline in the value
of oil impacts both customer revenue and the value of our
underlying collateral.
c) Large single name losses
The
Group has large individual exposures to single name counterparties.
The default of such counterparties could have a significant impact
on the carrying value of these assets. In addition, where such
counterparty risk has been mitigated by taking collateral, credit
risk may remain high if the collateral held cannot be realised, or
has to be liquidated at prices which are insufficient to recover
the full amount of the loan or derivative exposure. Any such
defaults could have a material adverse effect on the Group's
results due to, for example, increased credit losses and higher
impairment charges.
d) Leverage finance underwriting
The
Group takes on significant sub-investment grade underwriting
exposure, including single name risk, particularly in the US and
Europe. The Group is exposed to credit events and market volatility
during the underwriting period. Any adverse events during this
period may potentially result in loss for the Group or an increased
capital requirement should there be a need to hold the exposure for
an extended period.
Market risk
The risk of loss arising from potential adverse changes in the
value of the firm's assets and liabilities from fluctuation in
market variables including, but not limited to, interest rates,
foreign exchange, equity prices, commodity prices, credit spreads,
implied volatilities and asset correlations.
Increased
uncertainty across global markets from such factors as an
unexpected slowdown in global economic growth, sudden changes in
monetary policy, unexpected foreign exchange volatility, especially
if accompanied by a significant deterioration in the depth of
marketplace liquidity (emerging risk).
The
trading business model is focused on client facilitation in
wholesale financial markets, ranging from underwriting of debt and
equity on behalf of issuers, to acting as a market maker in
exchange-traded and over the counter products, to providing risk
management solutions.
The
Group's trading business is generally adversely exposed to a
prolonged period of elevated asset price volatility, particularly
if it negatively affects the depth of marketplace liquidity. Such a
scenario could impact the
Group's ability to execute client trades and may also result in
lower client flow-driven income and/or market-based losses on its
existing portfolio of market risks. These can include having to
absorb higher hedging costs from rebalancing risks that need to be
managed dynamically as market levels and their associated
volatilities change.
Treasury and capital risk
The
risk that the Group may not achieve its business plans because of
the availability of planned liquidity, a shortfall in capital or a
mismatch in the interest rate exposures of its assets and
liabilities.
The
Group may not be able to achieve its business plans due to: i)
being unable to maintain appropriate capital ratios; ii) being
unable to meet its obligations as they fall due; iii) rating agency
downgrades; iv) adverse changes in foreign exchange rates on
capital ratios; v) negative interest rates; and vi) adverse
movements in the pension fund.
i)
Inability to maintain appropriate prudential ratios
Should
the Group be unable to maintain or achieve appropriate capital
ratios this could lead to: an inability to support business
activity; a failure to meet regulatory capital requirements
including any additional capital add-ons or the requirements set
for regulatory stress tests; increased cost of funding due to
deterioration in investor appetite or credit ratings; restrictions
on distributions including the ability to meet dividend targets;
and/or the need to take additional measures to strengthen the
Group's capital or leverage position. While the requirements in CRD
IV are now in force in the UK, further changes to regulatory
capital requirements could occur, whether as a result of: (i)
further changes to EU legislation (for example, expected
implementation of Bank of International Settlements (BIS)
regulatory update recommendations through CRD V, etc); (ii)
relevant binding regulatory technical standards updates by the
European Banking Authority (EBA); (iii) changes to UK legislation;
(iv) changes to PRA rules; (v) additional capital requirements
through Financial Policy Committee (FPC) recommendations; or (vi)
changes to International Financial Reporting Standards (IFRS). Such
changes, either individually and/or in aggregate, may lead to
further unexpected additional requirements in relation to the
Group's regulatory capital. For example, during 2016, the European
Commission proposed substantial changes to the CRD IV framework
(including CRR) in line with internationally-agreed standards.
These include changes to the regulatory definition of trading
activity, standardised and advanced RWA calculation methodologies
for market risk and new standardised RWA rules for counterparty
credit risk. The proposal also includes phase-in arrangements for
the regulatory capital impact of IFRS9 and the ongoing interaction
of IFRS9 with the regulatory framework. The Basel Committee has
continued its post-crisis work on RWA and leverage reform. Further
standards are expected during the course of 2017 on RWAs for credit
risk and operational risk, limitations on the use of internal
models for RWA purposes and possible floors based on standardised
RWAs. The implementation timeframe for these changes is not yet
certain.
Additional
prudential requirements may also arise from other regulatory
reforms, including UK, EU and US proposals on bank structural
reform and current proposals for 'Minimum Requirement for own funds
and Eligible Liabilities (MREL) under the EU Bank Recovery and
Resolution Directive (BRRD). Included within these reforms are the
Bank of England's latest responses to consultation and statement of
policy on MREL requirements for UK banks which were published in
November 2016 and which remain subject to further
changes.
Many of
the expected regulatory proposals are still subject to
finalisation, with calibration and timing of implementation still
to be determined, and there is potential for the impacts to be
different from those originally expected when in final form.
Overall, it is likely that these changes in law and regulation will
have an impact on the Group as they are likely, when implemented,
to require changes to the legal entity structure of the Group and
how businesses are capitalised and funded. Any such increased
prudential requirements may also constrain the Group's planned
activities, require balance sheet reductions and could increase the
Group's costs, impact the Group's earnings and restrict the Group's
ability to pay dividends. Moreover, if combined with a period of
market dislocation or when there is significant competition for the
type of funding that the Group needs, it may be more difficult
and/or costly to increase the Group's capital
resources.
ii)
Inability to manage liquidity and funding risk effectively
Failure
to manage its liquidity and funding risk effectively may result in
the Group either not having sufficient financial resources to meet
its payment obligations as they fall due or, although solvent, only
being able to meet these obligations at excessive cost. This could
cause the Group to fail to meet regulatory liquidity standards, be
unable to support day-to-day banking activities, or no longer be a
going concern.
iii)
Credit rating changes and the impact on funding costs
A
credit rating assesses the creditworthiness of the Group, its
subsidiaries and branches, and is based on reviews of a broad range
of business and financial attributes including risk management
processes and procedures, capital strength, asset quality,
earnings, funding, liquidity, accounting and governance. Any
adverse event to one or more of these attributes may lead to a
downgrade, which in turn could result in contractual outflows to
meet contractual requirements on existing contracts. Furthermore,
outflows related to a multiple-notch credit rating downgrade are
included in the LRA stress scenarios and a portion of the liquidity
pool is held against this risk. There is a risk that any potential
downgrades could impact the Group's performance should borrowing
cost and liquidity change significantly versus expectations or the
credit spreads of the Group be negatively affected.
For
further information, please refer to Credit Ratings in the
Liquidity Risk Performance section on page 219.
iv) Adverse changes in foreign exchange rates on capital ratios
The
Group has capital resources, risk weighted assets and leverage
exposures denominated in foreign currencies. Changes in foreign
currency exchange rates may adversely impact the Sterling
equivalent value of these items. As a result, the Group's
regulatory capital ratios are sensitive to foreign currency
movements, and any failure to appropriately manage the Group's
balance sheet to take account of foreign currency movements could
result in an adverse impact on regulatory capital and leverage
ratios.
v)
Negative interest rates
A fall
in interest rates leading to an environment with negative nominal
interest rates would adversely impact Group profitability as retail
and corporate business income would decrease due to margin
compression. This is because the significant reduction in asset
income would not be offset by a reduction in cost in liabilities
due to the presence of a floor in our customer deposit and savings
rates which are typically set at positive level of
rates.
vi)
Adverse movements in the pension fund
Adverse
movements between pension assets and liabilities for defined
benefit pension schemes could contribute to a pension deficit. The
liabilities discount rate is a key driver and, in accordance with
International Financial Reporting Standards (IAS 19), is derived
from the yields of high quality corporate bonds (deemed to be those
with AA ratings) and consequently includes exposure to both
risk-free yields and credit spreads.Therefore, the Group's defined
benefits scheme valuation would be adversely affected by a
prolonged fall in the discount rate or a persistent low rate and/or
credit spread environment. Inflation is another significant risk
driver to the pension fund, as the liabilities are adversely
impacted by an increase in long-term inflation expectations.
However in the long term, inflation and rates risk tend to be
negatively correlated and therefore partially offset each
other.
Operational risk
The
risk of loss to the firm from inadequate or failed processes or
systems, human factors or due to external events (for example
fraud) where the root cause is not due to credit or market
risks.
The
Group is exposed to many types of operational risk. These include:
fraudulent and other internal and external criminal activities;
breakdowns in processes, controls or procedures (or their
inadequacy relative to the size and scope of the Group's business);
systems failures or an attempt by an external party to make a
service or supporting technological infrastructure unavailable to
its intended users, known as a denial of service attack; and the
risk of geopolitical cyber threat activity which destabilises or
destroys the Group's information technology, or critical
technological infrastructure the Group depends upon but does not
control. The Group is also subject to the risk of business
disruption arising from events wholly or partially beyond its
control, for example natural disasters, acts of terrorism,
epidemics and transport or utility failures, which may give rise to
losses or reductions in service to customers and/or economic loss
to the Group. All of these risks are also applicable where the
Group relies on outside suppliers or vendors to provide services to
it and its customers. The operational risks that the Group is
exposed to could change rapidly and there is no guarantee that the
Group's processes, controls, procedures and systems are sufficient
to address, or could adapt promptly to, such changing risks to
avoid the risk of loss.
i)
Cyber risk
The
risk posed by cyber attacks is growing, with financial institutions
being a primary target of increasingly capable cyber crime groups,
as demonstrated by sophisticated targeted attacks against global
payment networks throughout 2016. The increased maturity of online
marketplaces for criminal services and stolen data has reduced
barriers to entry for criminals perpetrating financial attacks
which carry high reward and low risk of law enforcement
prosecution.
The
cyber threat increases the inherent risk to the Group's data
(whether it is held by the Group or in its supply chain), to the
integrity of financial transactions of the Group, its clients,
counterparties and customers, and to the availability of the
Group's services. Failure to adequately manage this risk, and to
continually review and update processes, could result in increased
fraud losses, inability to perform critical economic functions,
customer detriment, potential regulatory censure and penalty, legal
liability and reputational damage.
ii)
Infrastructure and technology resilience
The
failure of the Group's and its suppliers' technology
infrastructures remain a material risk driver for the Group. The
increased use of technologies to support business strategy, and
customer and client demand, means any failures will be felt more
immediately and with greater impact.
Failure
to adequately manage resilience in our technologies, real-estate,
and business and suppliers' processes, may result in disruption to
normal service which could in turn result in significant customer
detriment, cost to reimburse losses incurred by our customers,
potential regulatory censure or penalty, and reputational
damage.
iii) Ability to hire and retain appropriately qualified employees
The
Group requires a diverse mix of highly skilled and qualified
colleagues to deliver its strategy and so is dependent on
attracting and retaining appropriately qualified and experienced
individuals. Barclays' ability to attract and retain such talent is
impacted by a range of external and internal factors.
External regulation
such as the introduction of the Individual Accountability Regime
and the required deferral and claw back provisions of our
compensation arrangements may make Barclays a less attractive
proposition relative to both our international competitors and
other industries. Similarly, the impact of the planned exit of the
UK from the EU could potentially have an impact on our ability to
hire and retain key employees.
Failure
to attract or prevent the departure of appropriately qualified
employees who are dedicated to overseeing and managing current and
future regulatory standards and expectations, or who have
the necessary skills
required to deliver the Group strategy, could negatively impact our
financial performance, control environment, level of employee
engagement and may result in disruption to service which could in
turn lead to customer detriment and reputational
damage.
iv)
Tax risk
The
Group is required to comply with the domestic and international tax
laws and practice of all countries in which it has business
operations. There is a risk that the Group could suffer losses due
to additional tax charges, other financial costs or reputational
damage as a result of failing to comply with such laws and practice
or by failing to manage its tax affairs in an appropriate manner.
The Group also faces emerging risks from domestic and international
tax developments. For example, the OECD's Base Erosion and Profit
Shifting ('BEPS') project, andthe implementation of its
recommendations into domestic law in countries around the world,
has the potential to significantly increase the compliance burden
on the Group, as well as to increase the incidence of double
taxation on the Group as a result of different countries adopting
different interpretations and approaches to the BEPS
recommendations.
v)
Critical accounting estimates and judgements
The
preparation of financial statements in accordance with IFRS
requires the use of estimates. It also requires management to
exercise judgement in applying relevant accounting policies. The
key areas involving a higher degree of judgement or complexity, or
areas where assumptions are significant to the consolidated and
individual financial statements include provisions for conduct and
legal, competition and regulatory matters, fair value of financial
instruments, credit impairment charges for amortised cost assets,
impairment and valuation of available for sale investments, and
accounting for pensions and post-retirements benefits. There is a
risk that if the judgement exercised, or the estimates or
assumptions used, subsequently turn out to be incorrect, this could
result in significant loss to the Group, beyond what was
anticipated or provided for.
As part
of the assets in the Non-Core business, the Group holds a UK
portfolio of generally longer-term loans to counterparties in
Education, Social Housing and Local Authorities (ESHLA) sectors,
which are measured on a fair value basis. The valuation of this
portfolio is subject to substantial uncertainty due to the
long-dated nature of the portfolios, the lack of a secondary market
in the relevant loans and unobservable loan spreads. As a result of
these factors, the Group may be required to revise the fair
valuesof these portfolios to reflect, among other things, changes
in valuation methodologies due to changes in industry valuation
practices and as further market evidence is obtained in connection
with the Non-Core asset run-off and exit process. For further
information refer to Note 18 Fair value of financial instruments of
the Group's consolidated financial statements.
The
further development of standards and interpretations under IFRS
could also significantly impact the financial results, condition
and prospects of the Group.
vi)
Outsourcing
The
Group depends on suppliers for the provision of many of our
services, though the Group continues to be accountable for risk
arising from the actions of such suppliers. Failure to monitor and
control our suppliers could potentially lead to client information,
or our critical infrastructures and services, not being adequately
protected.
The
dependency on suppliers and sub-contracting of outsourced services
introduces concentration risk where the failure of specific
suppliers could have an impact on our ability to continue to
provide services that are material to the Group.
Failure
to adequately manage outsourcing risk could result in increased
losses, inability to perform critical economic functions, customer
detriment, potential regulatory censure and penalty, legal
liability and reputational damage.
vii)
Data quality
The
quality of the data used in models across Barclays has a material
impact on the accuracy and completeness of our risk and financial
metrics. The evolution of complex modelling underpinning risk
decisions, forecasting and capital calculations, demands greater
precision in our data. Failure to manage data standards accordingly
may have a material adverse effect on the quality of our risk
management.
viii)
Operational precision and payments
The
risk of material errors in operational processes, including
payments, are exacerbated during the present period of significant
levels of structural and regulatory change, the evolving technology
landscape, and a transition to digital channel
capabilities.
Material
operational or payment errors could disadvantage our customers,
clients or counterparties and could result in regulatory censure
and penalties, legal liability and reputational
damage.
Model risk
The
risk of the potential adverse consequences from financial
assessments or decisions based on incorrect or misused model
outputs and reports.
Barclays
uses models to support a broad range of business and risk
management activities, including informing business decisions and
strategies, measuring and limiting risk, valuing exposures,
conducting stress testing, assessing capital adequacy, supporting
new business acceptance and risk/reward evaluation, managing client
assets, or meeting reporting requirements.
Models
are imperfect and incomplete representations of reality, and so
they may be subject to errors affecting the accuracy of their
outputs. Models may also be misused. Model errors or misuse may
result in the Group making inappropriate business decisions and
being subject to financial loss, regulatory risk, reputational risk
and/or inadequate capital reporting.
Conduct risk
The
risk of detriment to customers, clients, market integrity,
competition or Barclays from the inappropriate supply of financial
services, including instances of wilful or negligent
misconduct.
Barclays is
committed to ensuring that positive customer and client outcomes
and protecting market integrity are integral to the way the firm
operates. This includes taking reasonable steps to ensure our
culture and strategy are appropriately aligned to these objectives;
our products and services are reasonably designed and delivered to
meet the needs of our customers and clients, as well as maintaining
the fair and orderly operation of the markets in which we do
business.
Certain
other risks referenced herein may result in detriment to customers,
clients and market integrity if not managed effectively. These
include but are not limited to: cyber risk; infrastructure and
technology resilience; ability to hire and retain qualified people;
outsourcing; data quality; operational precision and payments;
regulatory change; structural reform; change and execution risk;
and the exit of the UK from the EU.
i)
Execution of strategic divestment in Non-Core businesses
As
Barclays executes strategic decisions to exit products, businesses
or countries, the firm must consider and mitigate any potential
detriment to customers, clients and market integrity. There is a
risk some customers and clients may have reduced market access and
a limited choice of alternative providers, or transitions to
alternate providers could cause disruptions. There is also a risk
the firm's strategic divestments may impact market liquidity or
result in adverse pricing movements. In connection with any country exits,
there is a risk that any ongoing cross-border activities into those
countries are not conducted in accordance with local laws and
regulations. The crystallisation of any of these risks could cause
detriment to customers, clients and market integrity, as well as
regulatory sanctions, financial loss and reputational
damage.
ii)
Product governance and sales practices
Effective product
governance, including design, approval and periodic review of
products, and appropriate controls over various internal and
third-party sales channels are critical to ensuring positive
outcomes for customers and clients. In particular, Barclays must
ensure that its remuneration practices and performance management
framework are designed to prevent conflicts of interest and
inappropriate sales incentives. Failure of product governance and
sales controls could result in the sale of products and services
that fail to meet the needs of, or are unsuitable for, customers
and clients, regulatory sanctions, financial loss and reputational
damage.
iii)
Trading controls and benchmark submissions
Maintaining
controls over trading activities and benchmark submissions is
critical to ensuring the trust of our customers, clients and other
market participants. These controls must be designed to ensure
compliance with all applicable regulatory requirements, as well as
to prevent market manipulation, unauthorised trading and
inadvertent errors. A failure of these controls could result in
detriment to customers and clients, disruptions to market
integrity, regulatory sanctions, financial loss and reputational
damage. The risk of failure could be enhanced by the changes
necessary to address various new regulations, including but not
limited to the Markets in Financial Instruments Directive
II.
iv)
Financial Crime
The
management of Financial Crime remains a key area of regulatory
focus. Delivering a robust control environment to ensure that the
Bank effectively manages the risks of Money Laundering, Terrorist
Financing, Sanctions and Bribery and Corruption protects the Bank,
its customers and its employees, as well as society at large, from
the negative effects of financial crime. Failure to maintain an
effective control environment may lead to regulatory sanctions,
financial loss and reputational damage.
v)
Data protection and privacy
The
proper handling of data and protection of data privacy is critical
to developing trust and sustaining long-term relationships with our
customers and clients. Inadequate protection of data (including
data held and managed by third party suppliers) could lead to
security compromise, data loss, financial loss and other potential
detriment to our customers and clients, as well as regulatory
sanctions, financial loss and reputational damage. The risk of
failure could be enhanced by the changes necessary to address
various new regulations, including but not limited to the EU Data
Protection Initiative.
vi)
Regulatory focus on culture and accountability
Various
regulators around the world have emphasised the importance of
culture and personal accountability in helping to ensure
appropriate conduct and drive positive outcomes for customers,
clients and markets integrity. Regulatory changes such as the new
UK Senior Managers Regime and Conduct Rules coming into effect in
2017, along with similar regulations in other jurisdictions, will
require Barclays to enhance its organisational and operational
governance to evidence its effective management of culture and
accountability. Failure to meet these new requirements and
expectations may lead to regulatory sanctions, financial loss and
reputational damage.
Reputation risk
The
risk that an action, transaction, investment or event will reduce
trust in the firm's integrity and competence by clients,
counterparties, investors, regulators, employees or the
public.
Climate change, human rights and support for the defence sector
Any one transaction, investment or event that, in
the perception of key stakeholders reduces their trust in the
firm's integrity and competence, may have the potential to give
rise to risk to Barclays reputation. Barclays' association with
sensitive sectors is often an area of
concern for stakeholders
and the following topics have been of particular
interest:
Fossil
fuels: As the Paris agreement on CO2 emissions comes into force,
banks are coming under increased pressure from civil society,
shareholders and potentially national governments regarding the
management and disclosure of their climate risks and opportunities,
including the activities of certain sections of their client
base;
Human
Trafficking: The UK Modern Slavery Act came into force in October
2015 and with the scrutiny of global business investments rising,
the risks of association with human rights violations are growing
within the banking sector, through the perceived indirect
involvement in human rights abuses committed by clients and
customers. Campaigners have been seeking to hold all parties in the
value chain to account for environmental and human rights
violations where they occur; and
Defence
Sector: Supporting the manufacture and export of military and riot
control goods and services continues to require significant review
internally in order to ensure compliance with all relevant
requirements and to avoid reputational damage.
Legal risk
The risk of loss or imposition of penalties,
damages or fines from the failure of the firm to meet its legal
obligations including regulatory or contractual
requirements.
Legal
disputes, regulatory investigations, fines and other sanctions
relating to conduct of business and breaches of legislation and/or
regulations may negatively affect the Group's results, reputation
and ability to conduct its business.
The
Group conducts diverse activities in a highly regulated global
market and therefore is exposed to the risk of fines and other
sanctions relating to the conduct of its business. In recent years
authorities have increasingly investigated past practices, pursued
alleged breaches and imposed heavy penalties on financial services
firms. This trend is expected to continue. A breach of applicable
legislation and/or regulations could result in the Group or its
staff being subject to criminal prosecution, regulatory censure,
fines and other sanctions in the jurisdictions in which it
operates, particularly in the UK and the US. Where clients,
customers or other third parties are harmed by the Group's conduct,
this may also give rise to legal proceedings, including class
actions. Other legal disputes may also arise between the Group and
third parties relating to matters such as breaches, enforcement of
legal rights or obligations arising under contracts, statutes or
common law. Adverse findings in any such matters may result in the
Group being liable to third parties seeking damages, or may result
in the Group's rights not being enforced as intended.
Details
of legal, competition and regulatory matters to which the Group is
currently exposed are set out in Note 29 legal, competition and
regulatory matters. In addition to matters specifically described
in Note 29, the Group is engaged in various other legal proceedings
in the UK and US and a number of other overseas jurisdictions which
arise in the ordinary course of business. The Group is also subject
to requests for information, investigations and other reviews by
regulators, governmental and other public bodies in connection with
business activities in which the Group is or has been engaged. The
Group is keeping all relevant agencies briefed as appropriate in
relation to these matters on an ongoing basis. In light of the
uncertainties involved in legal, competition and regulatory
matters, there can be no assurance that the outcome of a particular
matter or matters will not be material to the Group's results of
operations or cash flow for a particular period, depending on,
amongst other things, the amount of the loss resulting from the
matter(s) and the amount of income otherwise reported for the
period.
The
outcome of legal, competition and regulatory matters, both those to
which the Group is currently exposed and any others which may arise
in the future, is difficult to predict. However, in connection with
such matters the Group may incur significant expense, regardless of
the ultimate outcome, and any such matters could expose the Group
to any of the following: substantial monetary damages and/or fines;
remediation of affected customers and clients; other penalties and
injunctive relief; additional litigation; criminal prosecution in
certain circumstances; the loss of any existing agreed protection
from prosecution; regulatory restrictions on the Group's business
operations including the withdrawal of authorisations; increased
regulatory compliance requirements; suspension of operations;
public reprimands; loss of significant assets or business; a
negative effect on the Group's reputation; loss of investor
confidence and/or dismissal or resignation of key
individuals.
In
January 2017, Barclays PLC was sentenced to serve three years of
probation from the date of the sentencing order in accordance with
the terms of its May 2015 plea agreement with the DOJ. During the
term of probation Barclays PLC must, amongst other things, (i)
commit no crime whatsoever in violation of the federal laws of the
US, (ii) implement and continue to implement a compliance programme
designed to prevent and detect the conduct that gave rise to the
plea agreement and (iii) strengthen its compliance and internal
controls as required by relevant regulatory or enforcement
agencies.Potential consequences of breaching the plea agreement
include the imposition of additional terms and conditions on the
Group, an extension of the agreement, or the criminal prosecution
of Barclays PLC, which could, in turn, entail further financial
penalties and collateral consequences and have a material adverse
effect on the Group's business, operating results or financial
position.
There
is also a risk that the outcome of any legal, competition or
regulatory matters in which the Group is involved may give rise to
changes in law or regulation as part of a wider response by
relevant law makers and regulators. A decision in any matter,
either against the Group or another financial institution facing
similar claims, could lead to further claims against the
Group.
41 Related party transactions and Directors'
remuneration
Related party transactions
Parties
are considered to be related if one party has the ability to
control the other party or exercise significant influence over the
other party in making financial or operational decisions, or one
other party controls both. The definition includes subsidiaries,
associates, joint ventures and the Group's pension
schemes.
Subsidiaries
Transactions
between Barclays PLC and its subsidiaries also meet the definition
of related party transactions. Where these are eliminated on
consolidation, they are not disclosed in the Group Financial
Statements. Transactions between Barclays PLC and its subsidiary,
Barclays Bank PLC are fully disclosed in Barclays PLC's balance
sheet and income statement. A list of the Group's principal
subsidiaries is shown in Note 36.
Associates, joint ventures and other entities
The
Group provides banking services to its associates, joint ventures,
the Group pension funds (principally the UK Retirement Fund) and to
entities under common directorships, providing loans, overdrafts,
interest and non-interest bearing deposits and current accounts to
these entities as well as other services. Group companies also
provide investment management andcustodian services to the Group
pension schemes. The Group also provides banking services for unit
trusts and investment funds managed by Group companies, which are
not individually material. All of these transactions are conducted
on the same terms as third-party transactions. Summarised financial
information for the Group's investments in associates and joint
ventures is set out in Note 38.
Amounts
included in the Group's financial statements, in aggregate, by
category of related party entity are as follows:
|
|
Associates £m
|
Joint ventures
£m
|
Pension funds, unit trusts and investment
funds
£m
|
|
For the year ended and as at 31 December 2016
|
|
|
|
|
Income
|
(20)
|
7
|
4
|
|
Impairment
|
(13)
|
-
|
-
|
|
Total assets
|
72
|
2,244
|
-
|
|
Total liabilities
|
94
|
95
|
260
|
|
For the year ended and as at 31 December 2015
|
|
|
|
|
Income
|
(19)
|
40
|
4
|
|
Impairment
|
(4)
|
(2)
|
-
|
|
Total assets
|
36
|
1,578
|
-
|
|
Total liabilities
|
158
|
133
|
184
|
|
For the year ended and as at 31 December 2014
|
|
|
|
|
Income
|
(5)
|
9
|
4
|
|
Impairment
|
-
|
(1)
|
-
|
|
Total assets
|
130
|
1,558
|
-
|
|
Total liabilities
|
264
|
188
|
149
|
Guarantees,
pledges or commitments given in respect of these transactions in
the year were £940m (2015: £881m) predominantly relating
to joint ventures. No guarantees, pledges or commitments were
received in the year. Derivatives transacted on behalf of the
pensions funds, unit trusts and investment funds were £3m
(2015: £13m).
Key Management Personnel
The
Group's Key Management Personnel, and persons connected with them,
are also considered to be related parties for disclosure purposes.
Key Management Personnel are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of Barclays PLC (directly or indirectly)
and comprise the Directors of Barclays PLC and the Officers of the
Group, certain direct reports of the Group Chief Executive and the
heads of major business units and functions.
There
were no material related party transactions with entities under
common directorship where a Director or other member of Key
Management Personnel (or any connected person) is also a Director
or other member of Key Management Personnel (or any connected
person) of Barclays.
The
Group provides banking services to Directors and other Key
Management Personnel and persons connected to them. Transactions
during the year and the balances outstanding were as
follows:
Loans outstanding
|
|
2016
£m
|
2015
£m
|
|
As at 1 January
|
9.8
|
11.4
|
|
Loans issued during the year
|
0.6
|
1.1
|
|
Loan repayments during the year/change of key management
personnel
|
(1.2)
|
(2.7)
|
|
As at 31 December
|
9.2
|
9.8
|
No
allowances for impairment were recognised in respect of loans to
Directors or other members of Key Management Personnel (or any
connected person).
Deposits outstanding
|
|
2016
£m
|
2015
£m
|
|
As at 1 January
|
116.5
|
103.0
|
|
Deposits
received during the year
|
18.9
|
44.8
|
|
Deposits
repaid during the year/change of key management
personnel
|
(128.1)
|
(31.3)
|
|
As at 31 December
|
7.3
|
116.5
|
Total commitments outstanding
Total
commitments outstanding refers to the total of any undrawn amounts
on credit cards and/or overdraft facilities provided to Key
Management Personnel. Total commitments outstanding as at 31
December 2016 were £0.2m (2015: £0.5m).
All
loans to Directors and other Key Management Personnel (and persons
connected to them), (a) were made in the ordinary course of
business, (b) were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the same time
for comparable transactions with other persons and (c) did not
involve more than a normal risk of collectability or present other
unfavourable features.
Remuneration of Directors and other Key Management Personnel
Total
remuneration awarded to Directors and other Key Management
Personnel below represents the awards made to individuals that have
been approved by the Board Remuneration Committee as part of the
latest remuneration decisions, and is consistent with the approach
adopted for disclosures set out on pages 99 to 133. Costs
recognised in the income statement reflect the accounting charge
for the year and are included within operating expenses. The
difference between the values awarded and the recognised income
statement charge principally relates to the recognition of deferred
costs for prior year awards. Figures are provided for the period
that individuals met the definition of Directors and other Key
Management Personnel.
|
|
2016
£m
|
2015
£m
|
|
Salaries and other short-term benefits
|
31.9
|
31.3
|
|
Pension costs
|
0.2
|
0.3
|
|
Other long-term benefits
|
11.0
|
4.7
|
|
Share-based payments
|
21.9
|
11.0
|
|
Employer social security charges on emoluments
|
6.2
|
5.2
|
|
Costs recognised for accounting purposes
|
71.2
|
52.5
|
|
Employer social security charges on emoluments
|
(6.2)
|
(5.2)
|
|
Other long-term benefits - difference between awards granted and
costs recognised
|
(2.5)
|
2.5
|
|
Share-based payments - difference between awards granted and costs
recognised
|
(8.9)
|
(2.3)
|
|
Total remuneration awarded
|
53.6
|
47.5
|
Disclosure required by the Companies Act 2006
The
following information regarding Directors is presented in
accordance with the Companies Act 2006:
|
|
2016
£m
|
2015
£m
|
|
Aggregate emolumentsa
Amounts paid under LTIPsb
|
8.1
-
|
7.0
2.2
|
|
|
8.1
|
9.2
|
There
were no pension contributions paid to defined contribution schemes
on behalf of Directors (2015: £nil). There were no notional
pension contributions to defined contribution schemes.
As at
31 December 2016, there were no Directors accruing benefits under a
defined benefit scheme (2015: nil).
Notes
a
The aggregate emoluments include
amounts paid for the 2016 year.
In addition, a deferred share award
for 2016 will
be made to
James E Staley and Tushar Morzaria
which will only vest subject to meeting certain conditions. The total of the deferred share awards is £1.4m for 2016 (£0.7m for 2015).
b The figure of nil is shown for 2016 in "Amounts paid under LTIP's" because neither executive Director held an LTIP award that was released in 2016. The LTIP amount in the single
total figure table for executive Directors' 2016 remuneration in the Directors' Remuneration report relates to the award that is scheduled to be released in 2017 in respect of the
2014-2016 LTIP cycle.
Directors' and Officers' shareholdings and options
The
beneficial ownership of ordinary share capital of Barclays PLC by
all Directors and Officers of Barclays PLC (involving 24 persons)
at 31 December 2016 amounted to 11,464,580 (2015: 10,586,812)
ordinary shares of 25p each (0.07% of the ordinary share capital
outstanding).
At 31
December 2016, executive Directors and officers of Barclays PLC
(involving 13 persons) held options to purchase a total of 22,527
(2015: 17,206) Barclays PLC ordinary shares of 25p each at prices
ranging from 120p to 178p under Sharesave.
Advances and credit to Directors and guarantees on behalf of Directors
In
accordance with Section 413 of the Companies Act 2006, the total
amount of advances and credits made available in 2016 to persons
who served as Directors during the year was £0.2m (2015:
£0.3m). The total value of guarantees entered into on behalf
of Directors during 2016 was £nil
(2015:£nil).
Directors' responsibility statement
The
Directors have responsibility for ensuring that the Company and the
Group keep accounting records which disclose with reasonable
accuracy the financial position of the Company and the Group and
which enable them to ensure that the accounts comply with the
Companies Act 2006.
The
Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
The
Directors have a general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other
irregularities.
The
Directors, whose names and functions are set out on pages 51 and
52, confirm to the best of their knowledge that:
(a)
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
(b)
the management report, which is incorporated in the
Directors' Report on pages 49 to 94, includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
By
order of the Board
Claire
Davies
Company
Secretary
22
February 2017
Barclays
PLC
Registered
in England.
Company
No. 48839
- Ends -
For
further information, please contact:
|
Investor Relations
|
Media Relations
|
|
Kathryn
McLeland
|
Tom
Hoskin
|
|
+44 (0)
20 7116 4943
|
+44 (0)
20 7116 4755
|
About Barclays
Barclays is a major
global financial services provider engaged in retail banking,
credit cards, corporate and investment banking and wealth and
investment management, with an extensive presence in Europe, the
Americas, Africa and Asia.
With
over 300 years of history and expertise in banking, Barclays
operates in over 50 countries and employs over 132,000 people.
Barclays moves, lends, invests and protects money for 48 million
customers and clients worldwide.
For further information about Barclays, please
visit our website home.barclays
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This
document contains certain forward-looking statements within the
meaning of Section 21E of the US Securities Exchange Act of 1934,
as amended, and Section 27A of the US Securities Act of 1933, as
amended, with respect to the Group. Barclays cautions readers that
no forward-looking statement is a guarantee of future performance
and that actual results or other financial condition or performance
measures could differ materially from those contained in the
forward-looking statements. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements sometimes use words
such as 'may', 'will', 'seek', 'continue', 'aim', 'anticipate',
'target', 'projected', 'expect', 'estimate', 'intend', 'plan',
'goal', 'believe', 'achieve'or other words of similar meaning.
Examples of forward-looking statements include, among others,
statements or guidance regarding the Group's future financial
position, income growth, assets, impairment charges, provisions,
notable items, business strategy, structural reform, capital,
leverage and other regulatory ratios, payment of dividends
(including dividend pay-out ratios and expected payment
strategies), projected levels of growth in the banking and
financial markets, projected costs or savings, original and revised
commitments and targets in connection with the strategic cost
programme and the Group Strategy Update, rundown of assets and
businesses within Barclays Non-Core, sell down of the Group's
interest in Barclays Africa Group Limited, estimatesof capital
expenditures and plans and objectives for future operations,
projected employee numbers and other statements that are not
historical fact. By their nature, forward-looking statements
involve risk and uncertainty because they relate to future events
and circumstances. These may be affected by changes in legislation,
the development of standards and interpretations under
International Financial Reporting Standards, evolving practices
with regard to the interpretation and application of accounting and
regulatory standards, the outcome of current and future legal
proceedings and regulatory investigations, future levels of conduct
provisions, future levels of notable items, the policies and
actions of governmental and regulatory authorities, geopolitical
risks and the impact of competition. In addition, factors including
(but not limited to) the following may have an effect: capital,
leverage and other regulatory rules (including with regard to the
future structure of the Group) applicable to past, current and
future periods; UK, US, Africa, Eurozone and global macroeconomic
and business conditions; the effects of continued volatility in
credit markets; market related risks such as changes in interest
rates and foreign exchange rates; effects of changesin valuation of
credit market exposures; changes in valuation of issued securities;
volatility in capital markets; changes in credit ratings of any
entities within the Group or any securities issued by such
entities; the potential for one or more countries exiting the
Eurozone; the implications of the results of the 23 June 2016
referendum in the United Kingdom and the disruption that may result
in the UK and globally from the withdrawal of the United Kingdom
from the European Union; the implementation of the strategic cost
programme; and the success of future acquisitions, disposals and
other strategic transactions. A number of these influences and
factors are beyond the Group's control. As a result, the Group's
actual future results, dividend payments, and capital and leverage
ratios may differ materially from the plans, goals, expectations
and guidance set forth in the Group's forward-looking statements.
Additional risks and factors which may impact the Group's future
financial condition and performance are identified in our filings
with the SEC (including, without limitation, our annual report on
form 20-F for the fiscal year ended 31 December 2016), which are
available on the SEC's website at www.sec.gov.
Subject
to our obligations under the applicable laws and regulations of the
United Kingdom and the United States in relation to disclosure and
ongoing information, we undertake no obligation to update publicly
or revise any forward looking statements, whether as a result of
new information, future events or otherwise.