Creating
opportunities
to rise
Barclays PLC
Annual Report
2018
Our common Purpose is
‘Creating opportunities to
rise’. We are a company of
opportunity makers working
together to help people
rise – customers, clients,
colleagues and society.
For further information and a fuller understanding
of the results and the state of affairs of the Group,
please refer to the full Barclays PLC Annual Report
2018 suite of documents available at
home.barclays.com/annualreport
Barclays PLC Strategic Report 2018
An overview of our 2018 performance, a focus on our
strategic direction, and a review of the businesses
underpinning our strategy.
Barclays PLC Annual Report 2018
A detailed review of Barclays 2018 performance with
disclosures that provide useful insight and go beyond
reporting requirements.
Barclays PLC Country Snapshot 2018
An overview of our tax contribution country by country
as well as our broader approach to tax, including our UK
tax strategy.
Barclays PLC Environmental Social
Governance (ESG) Report 2018
Our ESG strategic priorities and performance, reported
against a range of quantitative and qualitative indicators.
Barclays PLC Pillar 3 Disclosures 2018
A summary of our risk profile, its interaction with the
Group’s risk appetite, and risk management.
Barclays PLC Annual Report was approved by the Board of Directors on 20 February 2019 and signed on its
behalf by the Chairman.
Details on how to obtain a copy of the full Barclays PLC Annual Report 2018 can be found in the Shareholder
information section at the back of this report.
Report of the Auditor
The Auditor’s report on the full accounts for the year ended 31 December 2018 was unqualified, and their
statement under section 496 (whether the Strategic Report and the Directors’ report are consistent with the
accounts) of the Companies Act 2006 was unqualified.
Approach to non-financial performance reporting
We note the requirements under the provisions of the Companies Act 2006, relating to the preparation of the
Strategic Report which have been amended by the Companies, Partnerships and Groups (Accounts and
Non-Financial Reporting) Regulations 2016, which implements EU Directive 2014/95/EU (on non-financial
and diversity information). As a result of these changes, we have integrated the information required for a
Non-Financial Information Statement into the Strategic Report, thereby promoting cohesive reporting of
non-financial matters.
Notes, Non-IFRS performance measures and forward looking statements
Barclays management believes that the non-IFRS performance measures included in this document provide
valuable information to the readers of the financial statements. This document also 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. For
further details on Notes, non-IFRS performance measures, and forward-looking statements used within this
document, please see inside back cover.
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What’s inside this report
Strategic Report pages 2 to 46
Our leadership team discusses the
year and the future for Barclays
Chairman’s letter
Page 02
Chief Executive’s review
Page 05
A solid foundation for the future
We are delivering on our strategy
Operating environment
A constantly evolving operating environment
Page 08
Our structure, strategy and how
we measure our performance
Purpose and values
We are a company of
opportunity makers
Page 10
Strategy
Playing to our
strengths
Page 12
Business model
Working together
to help people rise
Page 14
Stakeholder
engagement
Engaging stakeholders for
feedback and direction
Page 16
Risk
management
Structure and governance
overseeing risk
Page 28
Key performance
indicators
Measuring performance
Page 18
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An update on our businesses
Barclays UK
Page 30
Barclays International
Page 34
Operating model, market opportunities,
and how we deliver on our strength as
a UK consumer and business bank
Operating model, market opportunities,
and how we deliver on our strength as
a global wholesale and consumer bank
Personal Banking
Barclaycard Consumer UK
Business Banking
Page 32
Page 32
Page 33
Corporate and Investment Bank
Consumer, Cards and Payments
Page 36
Page 37
Barclays Execution Services
Operating model and how we provide efficiencies and innovation for the Group
Page 38
Governance compliance
Compliance with
The UK Corporate
Governance Code 2016
Viability statement
Non-financial information
statement
Page 40
Page 42
Page 44
Governance
Governance contents
Directors’ report
People
Remuneration report
Risk review
Risk review contents
Risk management
Material existing and emerging risks
Principal Risk management
Risk performance
Supervision and regulation
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149
215
Financial review
223
Financial review contents
Key performance indicators
224
Consolidated summary income statement 226
Income statement commentary
227
Consolidated summary balance sheet 228
229
Balance sheet commentary
230
Analysis of results by business
240
Margins and balances
241
Non-IFRS performance measures
Financial statements
Financial statements contents
Consolidated financial statements
Notes to the financial statements
247
256
264
Shareholder information
Key dates, Annual General Meeting,
Dividends, useful contact details,
managing your shares online and
how to obtain alternative formats of
shareholder documents
360
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Barclays PLC Annual Report 2018 01
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Chairman’s letter
A solid foundation for the future
John McFarlane
Chairman
The Chairman presents a review
of the year and the key events and
impacts on our business.
Dear Fellow Shareholders
I am pleased to report that Barclays is in
a very different place than it has been since
the global financial crisis, and with the
significant restructuring done, we can now
for the first time in the recent past look
forward to enhancing shareholder returns
and distributions.
We have made significant progress,
particularly in the past few years:
■■ we resolved a substantial portion of our
major legacy matters putting behind us
issues that have to date cost us over
£17 billion
■■ we exited the bulk of our non-core and
sub-performing assets at a cost of over
£12 billion.
We implemented all elements of structural
reform requirements:
■■ created a new ring-fenced UK bank from
scratch, ahead of competitors and time,
that is operating strongly
■■ established a service company that is
delivering operational and financial
efficiencies, creating the capacity to
reinvest in the core businesses, as well
as being in a position to provide essential
services in the event of a failure of the bank
■■ finalised the arrangements for an
intermediate holding company in the US
■■ set up arrangements in the EU and
a transfer process, such that we are one
of the most prepared banks for Brexit
■■ reflected advanced corporate governance
in the major subsidiary banks with new
governance arrangements including the
introduction of separate boards of directors.
We have also developed a strong values-based
culture that enables us to serve our customers,
to make a significant contribution to society,
to reward shareholders and to protect
ourselves from the reputational damage
associated with poor industry conduct.
Against a backdrop of very substantial
increases in regulatory capital requirements,
over time we have built up sufficient capital
and financial strength enabling us to achieve
our target capital ratio of c.13% of risk-
weighted assets, prudently surpassing our
mandatory distribution restriction hurdle, and
we are in a position to endure severe future
economic stress and yet be in a position to
extend credit to our customers in that event.
Some commentators imply because we are
at that level but below other more domestic
competitors, our capital is inadequate.
However, we do not agree. The aim is to have
the right amount of capital to balance safety
and returns, rather than the maximum
amount possible.
02 Barclays PLC Annual Report 2018
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While digital technology has radically changed
people’s lives and has brought untold benefits,
unfortunately, it has also brought cybercrime.
Not only are criminals after information, they
are after money, and can and will steal it
where and whenever they choose, whether
we are awake or asleep. They are harnessing
this new digital reality, in which they can reach
out across the globe, anonymously, and
virtually risk-free. They are smart, highly
innovative and persistent. The rewards are
enormous and the risks to them low. This
issue is a real and present danger, not only
to our current way of life, but also to society
as a whole.
At Barclays, we have made defending against
cybercrime one of our most important and
most urgent priorities. Accordingly, we are
investing heavily to protect our customers,
our systems, our bank and society. This is
a decision not only worth making, but one
where there really is no choice in assuring
the long-term future of the company.
Moreover, and finally, our major businesses
are now positioned for success and on a path
to deliver healthy and sustainable returns for
shareholders. The return to profit in the year
has also enabled us to increase the return of
capital to shareholders, including increasing
our dividend to its previous level.
Turning to the year itself, Group statutory
profit before tax was £3.5bn, down 1% on
the prior year (after absorbing litigation and
conduct losses in the year of £2.2bn) yielding
a return on tangible equity of 3.6%, up 7.2%
on the prior year. Earnings per share showed
a better picture at 9.4p, up from a 10.3p loss
in 2017. The improved result benefited from a
significant reduction in impairment as a result
of prudent management of credit risk, as well
as the benefit from improved macroeconomic
forecasts during the year.
The conduct losses were a major factor in
reducing our tangible net asset value per
share (TNAV) from 276p to 262p in the year.
The significant reduction to today’s level in
part reflects the gruelling effect of the global
financial crisis. I believe, and we have seen it
in the quarterly progression since Q1 2018,
that period of decline is now over, and we
should over time see TNAV rising, which is
an important foundation for the share price
and progressive dividends.
Excluding litigation and conduct items,
profit before tax was £5.7bn, up 20% on the
previous year and yielded a return on tangible
equity of 8.5%, just shy of our target levels for
2019 and 2020. Earnings per share was 21.9p,
up from a 3.5p loss in the prior year.
Introducing your Chairman-designate
I have been lucky enough to enjoy
36 years at Rothschild, working with
many wonderful colleagues and clients,
and particularly honoured to lead the
firm for a decade or so.
I now look forward to joining another
great institution and to working closely
with its executive management team,
led by Jes Staley, and my fellow
non-executive Directors.
I am totally committed to helping
Barclays and its people continue to
develop and progress.
Nigel Higgins
Chairman-designate
Succeeding John McFarlane,
who has done such a sterling
job during a period of great
change at Barclays, is a
huge honour.
These results demonstrate a good level
of progress and provide a solid foundation
for the future.
On the same basis, our businesses generally
showed progress and advanced performance
in the year.
Barclays International (which includes
our Corporate and Investment Bank and
Consumer Cards and Payments) grew its
profits before tax 10% to £3.9bn and achieved
a return on tangible equity of 8.7%. The
Corporate and Investment Bank was the major
contributor to profit growth, up 15% on the
prior year at £2.7bn, and with an improved
return on tangible equity of 7.1%. Consumer
Cards and Payments achieved profits before
tax of £1.2bn, with a strong return on
tangible equity of 17.3%.
Barclays UK continues to be a major
contributor to the Group with profits before
tax of £2.4bn and with a strong return on
tangible equity of 16.7%.
However, as we all know, in banking
the journey is never done. The economic
environment remains uncertain and issues
will emerge, but we feel secure that we will
be able to deal with these as they arise.
In particular, we are well prepared for Brexit
and the transfer of businesses into the EU,
as and when this is required.
Shareholders may now be aware that
funds managed by Sherborne, controlling
approximately 5.5% of your company’s share
capital, have proposed that Edward Bramson,
of Sherborne, be appointed to your Board.
Sherborne’s views and intentions in doing so
are not fully clear to us. We continue to meet
and correspond with Sherborne and Mr
Bramson, and give due consideration to the
issues they raise. As such, we do not believe
that a board seat is needed for Sherborne to
contribute its views. Your Directors believe
that good governance requires a cohesive
board that can properly represent the interests
of all shareholders, and not just a small
proportion of them.
The Board remains confident in our
strategy, the fruits of which are reflected in
our improved operating results. We believe
it is important to avoid a further period of
significant disruption, from which we have
only this year freed ourselves, so that the
Board and management can focus on
executing the strategy and on our plans to
improve performance beyond current levels.
As a result, your Board is recommending
that shareholders vote against the
Sherborne resolution.
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Barclays PLC Annual Report 2018 03
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Chairman’s letter
A solid foundation for the future
The Corporate and Investment Bank is an
important contributor to the economy, has
increased its market position globally and
particularly in the US and Europe, positioning
itself as a leading player in the world’s deepest
capital pools at a time when capital markets
are playing an increasingly important role in
supporting the growth of our corporate and
institutional clients.
Barclays UK is strongly positioned in both
Cards and in Retail banking, and our US cards
business is now larger than our UK equivalent
with attractive prospects for growth.
The Group has also invested appropriately in
digitisation to position us to take advantage
of the technical revolution, as well as defending
ourselves from new Fintech competitors.
This new financial and operational foundation
and improved business productivity and
performance should serve us well in the
coming years and should enable share price
recovery from recent discounted levels.
And finally, since this is my last letter to you as
Chairman, it has been a great privilege for me
to have served this great company and you as
shareholders, and I thank you for allowing me
to do so. I will of course continue to serve you
until I finally step down.
I commend my proposed successor, Nigel
Higgins to you. The Board has made an
excellent choice and I have every confidence
that Nigel will be a superb steward of the
Board and the Company.
John McFarlane
Chairman
I might also mention our position on energy
finance and climate change, as it is now a
major consideration for boards. It is a priority
for us to contribute to society’s initiatives
in limiting the impact of climate change.
In doing so, we must recognise that for
some time to come, renewable sources
alone cannot meet global demand for energy.
Hence, our position has three areas of focus:
■■ financing the growth of green and renewable
energy sources and proactively supporting
the development of businesses aiming to
solve the world’s environmental challenges
■■ taking a responsible and sustainable
approach to the financing of essential
sources of energy today that are more
carbon intensive, or those with higher
environmental impact, and
■■ reducing the carbon footprint of our
own operations and supply chain.
The world is in transition, and Barclays’
approach reflects this. It requires a balance
between advancing tomorrow’s energy
technologies and reducing our current
exposure to carbon-intensive energy sources
such as thermal coal, recognising current
reliance on traditional energy sources is
necessary until such time as new methods
can replace them fully.
We share the desire to accelerate the
transition to a green future, and will
therefore work constructively with all of
our stakeholders to find the right balance.
Shareholders can read more about our
approach on page 23 of the Strategic
Report and in the Environmental, Social
and Governance (ESG) Report.
If we pause to reflect on the period since the
crisis, it has indeed been a tough few years for
the Group. What we have achieved could not
have been done without the leadership of our
Chief Executive Jes Staley and his senior team.
I would therefore like to thank the Board,
our management and all our staff for the
enormous efforts they have made to make
Barclays a better place.
You will be aware I plan to retire from the
Group at the upcoming AGM. I’m satisfied
that I will leave a company that is capable
and prepared for the future, in particular to
be able to deliver sustainably stronger returns
to shareholders than have been seen for
many years.
04 Barclays PLC Annual Report 2018
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Chief Executive’s review
We are delivering on our strategy
James E. Staley
Group Chief Executive
“The fundamental strength of our Group rests
on a diversified, though connected, portfolio of
interests – and Barclays today is very well
diversified by geography, by product segment,
and by currency.”
2018 represented a very significant period
for Barclays.
In the course of the year, having resolved
major legacy issues and reduced the drag
from low returning businesses, we started
to see the true earnings potential of this bank,
as the strategy we have implemented began
to deliver.
This was evident in the strongly improved
performance across the Group compared
to 2017.
Excluding litigation and conduct, profit before
tax was up 20% – an outcome driven in part
by lower impairment as a result of prudent
management of credit risk, as well as the
benefit from improved macroeconomic
forecasts during the year.
Our Group return on tangible equity, was
8.5% for the full year – close to our 2019
financial target of greater than 9%. Achieving
our return on tangible equity targets of greater
than 9% in 2019 and greater than 10% in
2020 will remain our overriding priority.
BX, our service company, has driven greater
efficiency through the business and allowed
us to bring costs down to within our guidance
range of £13.6-13.9 billion, while creating
capacity for investment. We have the ability
to flex that investment to support our return
on tangible equity targets if the environment
requires us to do so.
Excluding litigation and conduct, our earnings
per share for the full year were 21.9p.
What these key performance measures
demonstrate is that our strategy is working,
and momentum is building in Barclays.
As we began the year, we had all but reached
the end of the huge restructuring of the
business which we commissioned with
our strategy in March of 2016:
■■ we had completed the run-down of our
Non-Core Unit, eliminating over £90bn of
Risk Weighted Assets – predominantly in
our Corporate & Investment Bank – closing
operations in a dozen countries, and selling
some 20 businesses which were no longer
strategically important to Barclays
■■ we had sold down our interest in Barclays
Africa to a level allowing regulatory
deconsolidation, which was formally
granted in July of 2018
■■ we had completed our work on structural
reform, creating our Intermediate Holding
Company in the USA, and standing up our
ring-fenced bank in the UK – the successful
execution of which in April was the result
of an extraordinary effort by colleagues
across the bank, and one of the biggest
technological shifts ever carried out in
financial services; and
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Barclays PLC Annual Report 2018 05
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Chief Executive’s review
We are delivering on our strategy
■■ we had created our Service Company,
Barclays Execution Services, or ‘BX’, as
a state-of-the-art operating platform
on which to run and build our business
going forward.
We were able to resolve major outstanding
legacy conduct issues for the bank in 2018:
■■ reaching a settlement with the US
Department of Justice in relation to
Residential Mortgage Backed Securities
■■ having the UK SFO charges against the
bank relating to our 2008 capital raisings
dismissed; and
■■ providing further for the completion
of PPI redress.
We have also implemented our contingency
plan to ensure we can continue to seamlessly
service our clients across Europe following
a UK withdrawal from the EU.
This transformation – as with any major
corporate restructuring – cost a substantial
amount of money to effect, and absorbed
enormous amounts of colleague time and
management focus. But the effort and
investment was worth it to remove major
drags on the operational effectiveness and
profitability of Barclays, and to create the
model we laid out in our strategy – a
transatlantic consumer and wholesale bank,
with global reach – which is now starting to
generate attractive and sustainable returns
for our shareholders.
The fundamental strength of our Group rests
on a diversified, though connected, portfolio
of businesses - and Barclays is well diversified
by geography, by product and by currency
between our consumer and wholesale
businesses.
We have a great position in UK retail and
business banking, serving 23 million
customers and a million small businesses
in a market where we have roots going back
328 years. We have an enviable position in fast
growing international cards and payments in
the UK, US, and Europe. And we are a strong
and profitable global player in corporate and
investment banking, anchored in the world’s
deepest and most sophisticated capital
markets of London and New York.
Our diversified model is not only designed to
be well balanced and produce consistent and
attractive returns through the economic cycle,
it is also a more robust model for any modern
financial services business. A decade after the
financial crisis I am very confident that
Barclays today would be well prepared to
weather major shocks in the future.
Of course one area where performance
progress has unfortunately not been reflected
is in our share price, which remains
disappointingly low. In common with all
European banks, we have been hit very hard
in this regard by macroeconomic issues which
have weighed heavily on investor sentiment.
Notwithstanding that, I have repeatedly said
that a management team cannot rest while
the share price trades below book value, and it
is a priority for us to drive a recovery.
Improved returns to shareholders will certainly
help in that endeavour. In 2018, based on our
strong capital position, the restoration of the
dividend to 6.5p, and the redemption of
expensive preference shares dating from the
financial crisis, saw us return around £1.8bn
of capital. That is progress, but not yet
sufficient.
As we generate excess capital going forward we
intend to return a greater proportion of those
earnings to shareholders by way of dividends
and other distributions including buybacks, and
I am optimistic for our prospects to do more in
2019 and beyond.
There are three principal reasons for that
optimism.
First, the opportunity to further digitise our
consumer businesses in the UK, the US, and
in Germany is significant. For example, today
we have 11 million digitally active customers,
with over six million users of our award-
winning mobile banking app in the UK, and
the quality of engagement with customers
on digital platforms such as these is
impressive. On average, a Barclays customer
visits a branch once every six weeks. Contrast
that with the statistics for Barclays Mobile
Banking, where customers typically go into
the app every single day. Our relationships
with these customers are consequently much
stronger, and we are better able to help them
with their financial needs. Of course as we
expand our offering in this area we have a
close eye on the security and resilience of
systems.
Second, the importance of capital markets
as a source of funding for corporates and
investment is growing, continuing the shift
in recent years away from reliance on bank
balance sheets. In the past decade bank
lending to corporates has declined by 14%
relative to GDP. At the same time there has
been a surge in capital market issuance, with
global Debt Capital Markets up by 75% in the
past decade - and we are a top 4 player in
Debt Capital Markets. Since the financial crisis,
growth in the bond market in Europe has
replaced 90% of the decline in bank lending.
These trends will continue and, as the only
non-US investment bank operating at scale in
both London and New York, we are well
placed to participate in the opportunity this
represents. Competing in the top tier of global
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investment banking, enabled by our size
and commitment across asset classes, is
important to Barclays’ future returns – and we
demonstrably do compete. For example,
in our Markets business in 2018 we saw
revenue growth on a US dollar basis.
Third, we are today investing in multiple
growth opportunities – principally in
technology development – across the Group.
The efficiencies driven by BX, our service
company, have been instrumental in creating
the capacity to do so, while continuing
to control our costs. Such meaningful
investments in growth opportunities
were simply not a viable option during
the many years of reshaping this company.
As our strategy continues to work, the
principal calls on our future earnings
should now be returns to shareholders
and investment in growing the business –
rather than litigation and conduct charges,
restructuring costs, and capital accumulation.
That shift is very welcome.
I remain hugely proud of the continuing
positive impact which Barclays has in the
communities in which we operate around
the world. From our major citizenship
programmes such as LifeSkills, Connect
with Work, and Unreasonable Impact, to the
individual, local, social and charitable efforts
of colleagues and teams around the world.
This work says much about the culture of
Barclays today – driven by a deep commitment
to help customers, clients, and wider society,
to rise and succeed. I am grateful for the effort
and commitment Barclays’ people exhibit
every day.
06 Barclays PLC Annual Report 2018
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Finally, I want to pay tribute to the
contribution of our retiring Chairman,
John McFarlane, to the development of
Barclays over these past four years.
John took on the Chairmanship of the
Group during a period of tumultuous change
for financial services, and for this bank in
particular. Barclays, and I personally, have
been fortunate to benefit from his wisdom,
his challenge, his courage to make tough calls,
and his steadfast leadership during that time.
It is due in no small part to John that we find
ourselves in such a positive position today,
with our turnaround complete, and confident
in our prospects. On behalf of colleagues
across the bank, I would like to thank John
for his stewardship, and to wish him and his
family well following his retirement in May.
James E. Staley
Group Chief Executive
Delivering for our wider stakeholders is integral to our success
We are responding to global challenges like
climate change and global energy demand
by evaluating our financing of carbon
intensive energy sources, while proactively
supporting the development of green
financial products and services. We are
contributing to inclusive prosperity by
enhancing the skills and meaningful
employment opportunities of people
in our local communities. And we are
investing in innovation from our best
asset – our colleagues – to test and scale
new business opportunities that tackle
social and environmental challenges.
We are responding to global
challenges, supporting the
development of green financial
products and services, and
contributing to inclusive
prosperity.
The Environmental Social Governance
(ESG) Report provides additional
information on key non-financial topics
and forms part of the Barclays PLC Annual
Report suite.
See Barclays PLC ESG Report 2018 available at
home.barclays/annualreport
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Barclays PLC Annual Report 2018 07
Operating environment
A constantly evolving operating environment
Barclays is a transatlantic consumer and wholesale bank, anchored in our
two home markets of the UK and US, therefore impacted by a wide range of
macroeconomic, political, regulatory and accounting, technological and social
developments. The evolving operating environment presents opportunities
and risks which we continue to monitor and evaluate to ensure that we
appropriately adapt our strategy and its delivery.
Economic growth
The global economy continued to expand
in 2018, at an estimated rate of 3.7%a.
However, there have been noticeable regional
differences. US expansion accelerated through
higher consumer spending as tax cuts
boosted disposable income. On the other
hand, growth in Japan, Eurozone and the
UK slowed amid political and economic
disruption. Significant concerns remain
around the sustainability of the sovereign
debt level in Italy. Emerging markets diverged
due to higher interest rates in the US, volatile
oil price and escalating trade tensions.
Central banks continued tightening monetary
conditions, notably, the Federal Reserve
and Bank of England increased their policy
rate and the European Central Bank (ECB)
announced the end of its quantitative easing
programme. Labour markets have tightened,
putting upward pressure on inflation,
indicating potential further monetary
tightening.
Barclays’ business mix spans multiple
geographies and client types – we believe
a diversified portfolio lowers volatility and
enhances stability in a macro environment
such as ours today. As a result, we believe
in Barclays’ ability to generate solid returns
through economic cycles, even when some
areas perform less well than others.
Political risks
Global political uncertainty continued to
manifest itself in 2018. Conflicts remained
unresolved in some areas of the world, such
as Asia, the Middle East and Eastern Europe.
In addition, rising trade tensions across the
globe are starting to have a negative impact
on economic activity, consumer confidence
and general financial conditions. The
possibility of an escalating trade conflict
between the US and China would likely
have significant and wide-ranging economic
and political consequences. Separately,
Brexit continues to give rise to significant
uncertainty across the socio-economic
environment in Europe.
Note
a IMF estimate, January 2019.
The uncertain political environment may
impact market dynamics and sentiment
– however, we believe in Barclays’ ability
to adapt to changes for the benefit of
customers, clients and broader stakeholders.
Regulations
From 1 January 2019, the largest UK banks
were required to have separated core retail
banking operations from investment banking
and international banking activities to comply
with the Financial Services (Banking Reform)
Act 2013. These banks have had to restructure
their activities and operations on a scale
rarely seen before to comply with the
new legislation. These changes have had
implications for almost all stakeholders, with
banks particularly focused on minimising
disruption for clients and customers.
On 1 April 2018, Barclays’ UK banking
business, largely comprising of Personal
Banking, Barclaycard Consumer UK and
Business Banking, was transferred from
Barclays Bank PLC (BBPLC) to Barclays Bank
UK PLC under the single ring-fencing transfer
scheme. The corresponding products and
services including current and savings
accounts, consumer lending, credit cards,
investment products and services, and
business banking solutions, were also
transferred.
Separately, as a consequence of the likely
departure of the UK from the European Union
(EU), financial services firms that previously
accessed European markets through the
UK, will need to establish new legal entities
in Europe to ensure business continuity
and minimise disruption to clients. Banks in
particular are having to implement significant
changes that include but are not limited to;
the transfer, or recruitment, of colleagues into
the EU; building infrastructure; transfer of
balance sheet; and trades.
To help manage the risks related to Brexit,
Barclays is expanding its existing banking
subsidiary in the EU, Barclays Bank Ireland PLC
(BBI). BBI will become a wholly owned
subsidiary of BBPLC, through which we will be
able to continue to serve our European clients
globally and our global clients in Europe. We
currently already have branches of BBPLC in
key European jurisdictions, which will become
branches of BBI as part of our response to the
UK exiting the EU. We continue to work closely
with our regulators in the UK and Europe to
ensure we will be able to support our clients in
Europe, and globally, from the moment the UK
leaves the EU. However, execution risks remain
for the industry as a whole, including but not
limited to balance sheet and trade transfers,
client readiness and operational resiliency.
The revised Payments Services Directive
(PSD2) and Open Banking went live in early
2018. These initiatives require banks to
share more customer information, subject to
customer consent, with regulated third parties
than ever before. Such regulatory changes
are designed to bolster innovation and market
competition. This poses challenges to the
traditional banking business model, however,
opportunities exist for banks that develop new
products and services to customers, improve
customer journeys, and extend beyond
traditional financial products.
The EU General Data Protection Regulation
(GDPR) came into effect in May 2018. The
GDPR aims primarily to give individuals
control over their personal data and to
simplify the regulatory environment for
international business by unifying the
regulation within the EU. In today’s modern
economy, data is becoming increasingly
important and banks are emerging as key
custodians of customers’ and clients’ data.
Barclays has a history of innovation spanning
three industrial revolutions. We want to lead
the change, being technological, regulatory,
or customer driven, rather than simply
responding to it. We are committed to
providing a market leading digital offering
to our customers and clients by making
customer journeys simpler and more intuitive
and offering and building digital platforms
that benefit the whole society and economy.
See page 131 of this report for further
information on material and emerging risks
08 Barclays PLC Annual Report 2018
home.barclays/annualreport
Our preparations for the departure of the UK from the EU
2016
June
Begin evaluation of business model
options post-Brexit
2017
February
October
Launch of formal programme to
address Brexit contingency planning
Submission of draft Licence Extension
Application to the ECB and the Central
Bank of Ireland
2018
October
December
Licence extension approval for
Barclays Bank Ireland attained from
the Central Bank of Ireland
Migration of Germany Branch
Opened new office space in Dublin
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January
Court order received to enable use
of Part VII transfer scheme
February
March
Migration of Spain and Sweden Branches
Euro payments technology transferred
over from London to Frankfurt
Corporate Bank client migrations begin
Italy, Portugal, France, Netherlands
branch migrations
Investment Banking, Markets and
private banking: Onboarding to Barclays
Bank Ireland and start of
position migrations
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Barclays PLC Annual Report 2018 09
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Purpose and values
We are a company of opportunity makers
Our common Purpose is ‘Creating opportunities to rise’.
Because when our customers, clients, colleagues and society
rise, Barclays rises too. We measure and reward our people, not
just on commercial results, but on how they live our Values and
bring them to life every day.
Our Purpose and Values are central to Barclays.
They drive everything we say and do. They
are fundamental to the relationships we build
with our colleagues, customers, clients and
stakeholders and have been part of our DNA for
over 328 years. They reflect our entrepreneurial
spirit; our relentless quest for better; and our
commitment to putting people first. Single-
minded application of our Purpose and Values,
across all of our activities, continues to build the
bank, providing the fundamentals upon which
to build further success.
In April 2018, we completed one of the most
complex restructurings ever undertaken by a
bank. We now look to the future and have a
renewed focus on growth and returns. The ring
fencing undertaken is a necessary regulatory
requirement, but in all the ways that make us
Barclays, we remain one. We’re united by a
common set of Values and a single guiding
Purpose, detailed here, along with the other
elements that help us play our part in building
a clear, creative and compelling Barclays.
Our Purpose
In today’s world, a bank needs to
demonstrate, both internally and externally,
the honest and authentic way it goes about
its business, and the value it brings to its
stakeholders. Purpose-driven organisations
have higher levels of employee satisfaction,
higher levels of business performance, and
a higher level of societal impact.
We want to see Barclays playing a key role in
restoring the professionalism of banking and
want this bank to be respected and admired
for the strength of its character; for our ability
to foster trust between Barclays and its
customers, clients and society.
Our Purpose also needs to reflect our
entrepreneurial spirit; our drive to leave things
better; our customer and client centricity; and
our commitments to colleagues and to society
at large.
In the process of researching the new Purpose,
we interviewed colleagues and found that a new
Purpose would be welcomed in order to reflect
our strategy and a renewed sense of optimism.
Colleagues said the statement should re-
emphasise and build on the strength of existing
values, and it should focus on what business we
are in, and the impact we make. Our new
Purpose therefore reflects this.
Our Purpose
Creating opportunities to rise
We are a company of opportunity makers, working together to
help people rise – customers, clients, colleagues and society
Our Values
Our values underpin our business and govern everything we do
Respect
We respect and value
those we work with
and the contribution
they make
Integrity
We act fairly,
ethically and openly
in all we do
Service
We put our
customers and
clients at the centre
of what we do
Excellence
We use our energy,
skills and resources
to deliver the best
sustainable results
Stewardship
We’re passionate
about leaving things
better than we
found them
Our Group strategy
To build on our strength as a transatlantic consumer and wholesale bank,
anchored in our two home markets of the UK and US, with global reach
Measuring success
Our performance measurement approach reflects the way
in which management monitors the performance of the Group,
allows for a holistic assessment and sets out our progress
towards the strategic goals of the organisation
10 Barclays PLC Annual Report 2018
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Our culture and people
The culture of Barclays is formed by
its people and the choices they make.
Fostering the right environment so that our
people can flourish is critical to our success
and to our values-based culture. The tone
from the top has been clear throughout
2018, including through the launch of
the Purpose, colleague forums specifically
focused on colleague initiatives that are
making Barclays a great place to work
and the inaugural CEO Rise Awards
which recognised the outstanding
work our colleagues did in 2018.
We are proud of the progress we have made
to promote respect, diversity and excellence
in the workplace, and we see this progress
reflected in our employee opinion survey
results. The engagement of our colleagues
has improved by four percentage points
since 2016 (when we last asked all
colleagues to take part in the survey
at the same time) to 79% in 2018 and we
were especially pleased to see that 92% of
colleagues agreed that Barclays is focused
on achieving good customer and client
outcomes (up 9% points since 2016). In
addition, 91% of colleagues said they felt
they can be themselves at work, and when
asked to describe the culture of Barclays,
the top ten words selected by colleagues
have all remained positive. Eighty-six per
cent of our colleagues agree that it’s safe
to speak up, which is encouraging. To
continue to encourage a culture which
supports speaking up, the Group Executive
Committee announced the creation of a
centralised team and a new intranet site
which sets out clearly how to raise a
concern when things don’t seem right.
We have continued to run key programmes
and initiatives across the organisation that
we know support our colleagues and help
them to achieve excellent performance.
These include Dynamic Working,
sponsorship and development
programmes, mental health and well-being
awareness, and upgrading our technology
and infrastructure. We are building the next
generation workplace and we have had
some great successes this year including
the launch of our world-class Whippany
campus and announcing our intention to
build further campuses in Glasgow and
India, which provide our colleagues the
tools that they need to deliver outstanding
service, and help us to attract and retain
the very best talent in the global market.
We are starting to build new skill sets across
the firm, such as advanced analytics, digital
and data and becoming more experimental,
so we can be at the forefront of innovation.
From the trading floors to our branches,
the way that we hire, train, develop and
retain our colleagues, and the day-to-day
decisions that they make, are intrinsic
to embedding our culture and in turn,
delivering the best for our customers,
clients and local communities. For further
details on the wide range of colleague
and diversity initiatives that support
our ambition to be the most accessible,
inclusive and sought after employer, please
refer to the People section on pages 93
to 98.
Our Values
Our five Values (as shown in the chart
opposite), hold us to account and guide us
to behave in the right way. They have always
underpinned our Purpose and will continue to
do so. Because ‘Creating opportunities to rise’
must never come at the cost of what is right.
It will always be grounded in the deep-rooted
Values of our organisation – Respect, Integrity,
Service, Excellence and Stewardship.
The Barclays Code of Conduct – ‘The Barclays
Way’ – outlines the Values and Behaviours
which govern our way of working across our
business globally. It constitutes a reference
point covering all aspects of our working
relationships, specifically with other Barclays
employees, customers and clients, governments
and regulators, business partners, suppliers,
competitors and the broader community.
The objective is to define the way we think,
work and act at Barclays to ensure we
deliver against our Purpose of ‘Creating
opportunities to rise’.
We want to see Barclays playing
a key role in restoring the
professionalism of banking and
want this bank to be respected
and admired for the strength of
its character; for our ability to
foster trust between Barclays
and its customers, clients
and society.
The Barclays Way is aligned to the Code
of Professional Conduct, published by the
Chartered Banker Professional Standards
Board, which sets out the ethical and
professional attitudes and behaviours
expected of bankers. Barclays subscribes
to this code and is committed to ensuring
the broad principles into our business
continue to apply.
You can learn more online at:
home.barclays/about-barclays/
barclays-values
home.barclays/annualreport
Barclays PLC Annual Report 2018 11
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Strategy
Playing to our strengths
As a leading, diversified, transatlantic bank with global reach, our
goal is to support our stakeholders via a commercially successful
business that generates long-term sustainable returns.
Building on our strong foundations
Our strategy is to build on our strength as a
transatlantic consumer and wholesale bank,
anchored in our two home markets of the
UK and US, with global reach. Our two clearly
defined divisions, Barclays UK and Barclays
International, provide diversification to our
business model. We believe that combining
consumer and wholesale businesses, as well
as accessing geographic diversification,
provides real advantages to both the Group
and our investors and helps contribute to the
delivery of more consistent and sustainable
returns through the business cycle. The
diversification should help to reduce volatility
of income and earnings, generate higher
returns through the cycle and improve
the resilience of the Group as a whole.
approach to citizenship and sustainability
that is integrated with our core business. By
focusing on our core products and services,
and our relationships, we can make the
greatest positive impact.
You can read more about our approach within
our performance metrics on pages 18 to 27.
Completion of the restructuring
In 2018, we successfully concluded our
restructuring which saw us run-down the
Non-Core, sell-down Barclays Africa, complete
the Structural Reform Programme and create
BX. These combined actions have significantly
contributed to the simplification of the Group,
helping to reduce drag on Group profitability
and laying the foundations for Barclays to
drive sustainable returns in its businesses.
Consistent with the objective of delivering
long-term sustainable value for our
stakeholders, we continue to pursue an
Delivering the Barclays of the future
Our focus is now on building the Barclays
of the future, operating principally through
Barclays UK, Barclays International and
supported by BX. We remain fully committed
to our model as a diversified bank and will
remain a well-diversified financial institution
providing excellent products and services to
our customers and clients, underpinned by
world class operations. We believe we are
well positioned to deliver future growth
and appropriate returns for shareholders.
We will remain a well-diversified
financial institution providing
excellent products and services
to our customers and clients.
We continue to invest in our technological and
digital capabilities, particularly in Barclays UK
where we already have a strong digital
proposition, Barclays Mobile Banking. We are
using technology to deliver more meaningful
customer relationships by transforming the
way we interact with customers, leverage
data analytics and utilise the opportunities
presented by Open Banking. Delivering a
truly customer-centric model is at the heart
of Barclays UK’s strategy.
Barclays International will continue to focus
on markets and services where we have a
competitive advantage, allocating capital
where we see the ability to generate the most
attractive risk-adjusted returns and investing
where we see an opportunity to expand our
market share. We see technology as a
significant enabler across the investment
banking business, particularly in Markets
business lines, and will continue to invest
appropriately, alongside recruiting the best
talent as we build the Barclays of the future.
12 Barclays PLC Annual Report 2018
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Strategic opportunities
Leveraging our geographic and business
diversification, we see a significant
opportunity to develop our payments
capabilities across the Group. We aim to
leverage our extensive experience and
expertise developed through our leadership
position in the UK to grow our market share
in the US. In the Business to Business (B2B)
space, we will continue to invest in our
commercial payments capabilities, in order to
meet the evolving needs of our customers, by
leveraging innovative solutions and our data
assets. On the consumer side, we are growing
our mobile payment solutions in the UK. In
the US, we see continued opportunity to build
on our position as a Top 10 credit card issuer
by receivables, as our targeted partnership
model drives continued growth. Furthermore,
we are investing in our US consumer banking
proposition, where we have a growing,
own-brand digital banking offering.
Our strategy is enhanced by the launch of
BX. BX changes the way Barclays operates,
enabling the delivery of world class services
through a more standardised global operating
model. We believe this will enable us to extract
cross-Group cost synergies through scale,
simpler processes, enhanced controls, a better
co-ordinated service provision and more
effective management of investment in our
technology and processes. Cost transparency
is expected to improve as well by applying
a price-quantity approach, that transfers
increasing cost ownership to the business.
BX is a key component of Barclays’
operating model.
We remain focused on conduct, regulations
and delivering enhanced controls
We aspire to be one of the world’s most
respected and well-regarded banks. We have
worked hard to resolve outstanding legacy
issues, while continuing to strengthen our
control environment. We put our customers
and clients at the heart of everything we do
and seek to strengthen the trust of our
customers, clients and wider society.
Barclays mobile app
Our customers increasingly engage with
Barclays using a smartphone and we see
that our app, BMB, has become a vital part
of their financial life.
6.2 million customers use the Barclays app
to manage their finances, c.700k more than
last year, of which 5 million log into the app
every week. On average each customer
typically logs in every day and spends 21
minutes on the app per month. In addition
to the 1.5 million customers who use the
Barclaycard app, last year our customers
logged in a total of 2 billion times.
3.6 million payments and 3 million transfers
are made through the app every week, and
we complete 155k personal loan fulfilments
a year providing convenience and simplicity
for our customers. In 2018 we embedded
the ability to open up savings accounts
which led to 200k customers opening an
account via the Barclays app.
The app supports our customers through
their life moments, for example, buying a
home starts with helping customers save
for a deposit, not just when they need a
mortgage. We also help customers with
relevant offers and services to help them
move in and settle down in their new home.
We will continue to evolve the Barclays app
around the theme of being a one-stop-shop
for all the money management needs our
customers have. We intend to do so
through our investments in cutting edge
technology and data capabilities. Just a few
of the recent examples include; current
account aggregation; transaction
categorisation; the ability to turn off
spending in merchant categories including
gambling and premium rate phone
numbers; and the functionality in the app to
freeze cards if customers believe it to be lost
or stolen.
Current account aggregation was one of
the first of many innovations made possible
by Open Banking. We were the first UK bank
to launch this feature in our app in
September 2018. Our customers can see
current accounts from other UK high street
banks safely and securely. We are planning
to expand this functionality by adding more
banks, aggregating other types of accounts
like savings accounts and credit cards, and
introducing the ability to initiate payments
from accounts held with other providers
from within the Barclays app.
A key need for our customers is the ability
to understand and manage their spending.
Customers will soon be able to undertake
further analysis of spending by category,
view the top merchants they spend the
most money with, and get meaningful
insights on their spending. This will further
enable our customers to make informed
decisions on how they manage their
finances.
We also intend to bring innovation from the
Fintech community around the world.
Working with start-ups coming through the
Barclays RISE accelerator as well as with
other Fintech partners, we continue to
gather customer feedback on innovative
features through our Launchpad app. One
such recent example is our partnership with
Bink, bringing to life payment card linked
loyalty.
We will continue to listen to our customers
to make the Barclays app the best money
management experience in the UK.
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Barclays PLC Annual Report 2018 13
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Business model
Working together to help people rise
Our business model enables us to leverage resource and
relationships to produce long-term sustainable outputs for
our stakeholders. These outputs provide combined value
for our stakeholders, helping people to rise.
We believe our diversified business model
through business line, geography and
customer, helps enhance our resilience
to changes in the external environment,
and captures the benefits of diversification
through the efficient delivery of cross-group
synergies and funding.
Barclays operates via two clearly defined
divisions – Barclays UK and Barclays
International, supported by BX.
Barclays UK is a personal and business
banking franchise with true scale, built
around our customers’ needs with innovation
at its core. It comprises our UK retail banking
operations, our UK consumer credit cards
business, our UK-based wealth offering,
and banking for smaller businesses.
Barclays International is a diversified
transatlantic business comprising our corporate
banking franchise, which is market leading in
the UK with strong international growth
opportunities, our top-tier investment bank,
a strong and growing US and international
cards business, our international wealth
offering, and leading payments capability
through both corporate banking and the
Barclaycard merchant acquiring expertise.
Barclays International has scale in wholesale
banking and consumer lending, strength in
our key markets, excellent growth potential,
and good balance in its revenue streams,
delivering further resilience and diversification.
BX provides state of the art, simple,
efficient, innovative and secure operation
and technology services which deliver
customer and shareholder value. BX achieves
this by building world-wide connectivity,
standardising services, creating synergies
and cost efficiencies, fostering innovation,
leveraging technology Group-wide and
ensuring resilience and security. It also builds
trust through ensuring resilience and security,
whilst creating capacity for investment.
For further information on our divisions, see:
Barclays UK see pages 30 to 33
Barclays International see pages 34 to 37
Barclays Execution Services see pages 38 to 39
Resource and relationships
Resource and Relationships
B arclays
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We draw on the following to support
our activities and deliver value to our
stakeholders:
■■ the strength and reputation of our brand
– serving customers and clients for over
328 years
■■ a strong, well-funded and diversified
balance sheet
■■ customer and client trust and depth
of relationships
■■ our geographic focus: firmly anchored
in the two financial centres of London
and New York, with global reach
We aim to provide superior services to
help customers and clients create, grow
and protect wealth in a sustainable way:
Barclays’ customers and clients include:
individuals, small and medium-sized
businesses, large corporates and multi-
national companies; financial institutions
and banks; institutional investors, funds,
sovereign institutions and governments.
We offer:
■■ a safe place to save, invest and manage
cash and payments
■■ funding for purchases and growth
■■ a track record of successfully innovating
■■ management of business and
for customers and clients
financial risks
■■ the skills and expertise of our people
and our shared values which inform
the way we work and how we act.
■■ financial and business support
■■ innovative digital and technology
capabilities.
14 Barclays PLC Annual Report 2018
home.barclays/annualreport
Outputs
Value created
Financial
Non-financial
Financial
■■ Group Return on Tangible Equity (RoTE) of greater than 9%
in 2019 and greater than 10% in 2020, excluding litigation
and conduct, and based on a CET1 ratio of c.13%.
■■ CET1 ratio of c.13%.
■■ Group costs, excluding litigation and conduct, of £13.6–£13.9bn
in 2019, and a target cost: income ratio below 60% over time.
Non-financial
■■ Building trust with our customers and clients.
■■ Successfully innovating and developing products.
■■ Providing accessible products and services.
■■ Fostering a diverse and inclusive workforce.
■■ Motivating engaged and enabled colleagues.
■■ Enabling a positive conduct and a values-based environment.
■■ Making decisions and doing business that provides our
stakeholders with access to a prosperous future.
■■ Proactively manage the environmental and societal impacts
of our business.
Company
■■ We support our stakeholders via a
commercially successful business that
generates long-term sustainable returns.
■■ We work together with regulators to help
reduce risk in the industry and provide
a more sustainable banking landscape
over the long term.
Customers and clients
■■ We offer superior service through a broad
range of products to enable customers and
clients to achieve their goals, and engaging
with customers and clients in the way the
want to engage with us.
■■ We develop strong relationships with
customers and clients built on trust.
Colleagues
■■ We help our people have challenging
and fulfilling careers in a values-driven
organisation.
■■ We help our colleagues develop themselves
and empower them to work in a way that
suits their lives and supports our business.
Citizenship
■■ We deliver financing solutions in social and
environmental sectors, and enable access
to financial and digital empowerment for
individuals and companies.
■■ We help provide employment and growth
in the economies in which we operate.
■■ We engage with governments and society
to address societal issues and needs.
See pages 44 to 46 for our non-financial information statement
See pages 18 to 27 this report for further insights
home.barclays/annualreport
Barclays PLC Annual Report 2018 15
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Stakeholder engagement
Engaging stakeholders for feedback and direction
Barclays aims to create value for all of our stakeholders, balanced across both the
short and the long term. We engage with our stakeholders to better inform them of
our activities to create mutually supportive opportunities and outcomes for them.
At Barclays, stakeholder engagement is key
to ensure responsible balanced decisions
are made. We provide opportunity for
engagement through the year via different
forums and channels to help shape the
direction of our business, aligned to
stakeholders needs and expectations.
Through engagement, we aim to build trust
and confidence, promote participation and
influence, identify and promote robust risk
management, and ultimately make decisions
with shared benefits for our stakeholders.
By having an open and frequent dialogue
across stakeholders, we have developed
a clearer understanding of stakeholder
requirements and ambitions and how
we can best address these needs.
Our performance measures build
on our stakeholder engagement
Our performance measurement framework
builds on our stakeholder engagement to
align Barclays performance to their ambitions.
We reflect a balance of key financial
performance metrics and broader strategic
non-financial measures which focus on the
impact we have on our customers and clients,
colleagues, and the benefit we bring to society
via our citizenship activity. These measures are
underpinned by how we behave towards all
our stakeholders, through our conduct and
our culture.
To assess our performance we use a number
of sources including dashboards of our
performance metrics and measures, regular
management reporting and external measures
to provide a balanced review of performance
during the year, while additionally monitoring
for emerging trends.
Performance against our financial metrics and
strategic non-financial performance measures
is directly linked to executive remuneration,
and influences incentive outcomes for
Barclays’ employees more broadly. This
approach supports us in our work to deliver
positive outcomes for all our stakeholders.
Please refer to the Remuneration report
on pages 99 to 126 for further information.
The following pages detail the performance
of the Group for 2018.
See pages 18 to 27 of this report
for further insights
What is our ambition for our stakeholders?
How did we engage them?
What were the key topics raised?
How did we respond?
Company
Achieving our targets is consistent with our aim of generating
long-term sustainable returns for the shareholders:
■■ Group return on tangible equity* >9% in 2019 >10% in 2020
■■ CET1 ratio at c.13%
■■ Group cost guidance of £13.6–£13.9bn in 2019†.
Targeting cost:income ratio below 60% over time
* Excluding litigation and conduct, and based on a CET1 ratio of c.13%
† Excluding litigation and conduct
Customers and clients
■■ Building trust with our customers and clients,
such that they are happy to recommend us to others.
■■ Successfully innovating and developing products and
services that meet their needs.
■■ Offering suitable products and services in an accessible way,
ensuring excellent customer and client experience.
Colleagues
Promoting and maintaining:
■■ a diverse and inclusive workforce in which colleagues
of all backgrounds are treated equally and have the
opportunity to be successful and achieve their potential
■■ engaged and enabled colleagues
■■ a positive conduct and values-based environment.
Citizenship
■■ Making decisions and doing business that provides
our clients, customers, shareholders, colleagues and the
communities which we serve with access to a prosperous
and sustainable future.
■■ Proactively managing the environmental and societal
impacts of our business.
We engaged with our shareholders and stakeholders
Discussions included, but were not limited to:
■■ We placed greater emphasis on regular new and
at our AGM in May 2018, with the Board providing
a review of the performance of the Group,
and providing opportunity for interaction
and shareholder voting on resolutions.
We held conference calls or webcasts for our
quarterly results briefings and an in-person
presentation for our 2017 full year results in February
2018, all hosted by the Group Chief Executive and
base.
Group Finance Director.
We have an open and regular engagement with our
regulators, ensuring clarity and transparency, and
sharing views and expectations of Barclays.
■■ improved operating performance of the
Group in the first year post-restructuring
■■ continued digitisation of the bank
■■ ongoing investment in technology
■■ value being created by Barclays Execution Services
businesses.
in improving the mix and efficiency of our cost
Investors also discussed topics including the
strategy, prudent risk management and steps taken
to mitigate the potential impact from the uncertainty
surrounding Brexit, as well as climate change and
ESG factors.
existing shareholder engagement with a broader
range of divisional management presenting to
investors, deepening understanding of Barclays’
investment case, and promoting greater
awareness and understanding of our operating
■■ We published our Environment and Climate
Change Statement to clarify our position and
commitment to supporting the transition
to less carbon intensive sources of energy.
■■ These actions help promote dialogue on
longer-term strategic developments in addition
to recent financial performance of the Group.
Our front-line colleagues are integral in engaging
■■ Innovation to meet our customer’s rapidly
■■ We will look to improve customer experience by;
with our customers and clients, and we gain
evolving needs and expectations. As competition
accelerating automation; building value and image
invaluable insight to how our customers feel about
intensifies, with new FinTech and challengers
perceptions; and delivering strong customer
our service and what we could do better.
By continually monitoring customer feedback, we
aim to understand what features customers really
challenge.
entering the market, the pace of change is faster
than ever and we continue to invest to meet this
outcomes to grow relationships.
■■ Accessibility – new services were launched
including: the ability for deaf customers to contact
want and need, as well as any frustration they may
■■ The complaints we receive help us identify areas
us by telephone with the assistance of a
be feeling, which we can work to either develop or
rectify.
In developing our propositions, we look to take a
in our business which need to be improved.
Including processes and services we deliver,
through to the underlying policies.
customer-centric approach and put customers and
■■ For our business banking clients, managing cash
clients at the heart of the process to understand
flow and raising capital for growth are two key
what they really need and would value and build our
challenges they face, especially for those without
products and services accordingly.
premises to offer for a secured loan.
third-party interpreter, online support page for
people experiencing mental health concerns,
and a wide-range of considerations for older
customers including fraud and scams awareness
and accessible banking services.
During the year, we engaged with our people
■■ The ability to work flexibly continues to be key
■■ Continued focus on dynamic working: We
through a number of forums and channels, to gather
to unlocking colleague engagement (colleague
thoughts, opinions and feedback on how we are
engagement of those who work dynamically is
published a white paper on Dynamic Working to
help other organisations understand the benefits.
doing, with the opportunity to ask questions directly
up four percentage points on overall engagement
to our senior leadership teams. These include the
score in 2018).
annual Employee Opinion Survey supported by
quarterly ‘pulse checks’, local colleague forums,
town halls, and ‘skip-level’ meetings where senior
leaders meet with small groups of employees not in
their direct management. More recently we have
seen an uptake in reverse mentoring sessions with
senior leaders being mentored by more junior
colleagues.
■■ Scores on enablement, e.g. tools to do the job
have been historically low and continue to be a
key area of focus. However, there has been an
improvement year on year, highlighting that our
continued investment is having an impact.
■■ Reducing under-investment and duplication:
We have invested in hardware and software
collaboration tools designed to make it easier
and more efficient for colleagues to work.
■■ We have focused on mental health through our
Be Well campaign to launch new training for all
colleagues and a launch of a film of senior leaders
discussing their experiences of mental health to
support with tackling the stigma and support our
colleagues with managing stress in the workplace.
We engage in a continual dialogue with non-
governmental organisations (NGOs) and other
interest groups, to improve our understanding of
emerging and existing environmental and societal
topics. We regularly engaged with our stakeholders
through participation in forums and round tables and
joined industry, sector and specific topic debates. We
explored citizenship and sustainability agendas,
where collaboration and joint action are needed.
We continue to engage with these stakeholder
groups on an ongoing basis through Barclays’
Sustainability and Citizenship teams.
■■ Green finance and supporting clients through
the transition to a low carbon economy.
We responded on key topics in 2018 through
a number of communications and business
■■ Responsible financing for companies in sensitive
developments including:
■■ continuing to grow our suite of green products
■■ Societal impacts and work in the communities
■■ releasing statements on coal, World Heritage
energy sectors.
in which we operate.
■■ Accessibility of our products and services to all
demographics, and treating customers fairly.
Sites and Ramsar Wetlands, and a comprehensive
Energy and Climate Change Statement (which
replaced and strengthened the Coal Statement
published previously)
■■ maintaining ongoing dialogue with NGOs and civil
society regarding financing extractive industries
■■ enhancing transparency around our transition
journey to a low carbon economy, and the support
we provide to clients.
16 Barclays PLC Annual Report 2018
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What is our ambition for our stakeholders?
How did we engage them?
What were the key topics raised?
How did we respond?
We engaged with our shareholders and stakeholders
at our AGM in May 2018, with the Board providing
a review of the performance of the Group,
and providing opportunity for interaction
and shareholder voting on resolutions.
We held conference calls or webcasts for our
quarterly results briefings and an in-person
presentation for our 2017 full year results in February
2018, all hosted by the Group Chief Executive and
Group Finance Director.
We have an open and regular engagement with our
regulators, ensuring clarity and transparency, and
sharing views and expectations of Barclays.
Discussions included, but were not limited to:
■■ improved operating performance of the
Group in the first year post-restructuring
■■ continued digitisation of the bank
■■ ongoing investment in technology
■■ value being created by Barclays Execution Services
in improving the mix and efficiency of our cost
base.
Investors also discussed topics including the
strategy, prudent risk management and steps taken
to mitigate the potential impact from the uncertainty
surrounding Brexit, as well as climate change and
ESG factors.
■■ We placed greater emphasis on regular new and
existing shareholder engagement with a broader
range of divisional management presenting to
investors, deepening understanding of Barclays’
investment case, and promoting greater
awareness and understanding of our operating
businesses.
■■ We published our Environment and Climate
Change Statement to clarify our position and
commitment to supporting the transition
to less carbon intensive sources of energy.
■■ These actions help promote dialogue on
longer-term strategic developments in addition
to recent financial performance of the Group.
Our front-line colleagues are integral in engaging
with our customers and clients, and we gain
invaluable insight to how our customers feel about
our service and what we could do better.
By continually monitoring customer feedback, we
aim to understand what features customers really
want and need, as well as any frustration they may
be feeling, which we can work to either develop or
rectify.
In developing our propositions, we look to take a
customer-centric approach and put customers and
clients at the heart of the process to understand
what they really need and would value and build our
products and services accordingly.
■■ Innovation to meet our customer’s rapidly
■■ We will look to improve customer experience by;
evolving needs and expectations. As competition
intensifies, with new FinTech and challengers
entering the market, the pace of change is faster
than ever and we continue to invest to meet this
challenge.
■■ The complaints we receive help us identify areas
in our business which need to be improved.
Including processes and services we deliver,
through to the underlying policies.
■■ For our business banking clients, managing cash
flow and raising capital for growth are two key
challenges they face, especially for those without
premises to offer for a secured loan.
accelerating automation; building value and image
perceptions; and delivering strong customer
outcomes to grow relationships.
■■ Accessibility – new services were launched
including: the ability for deaf customers to contact
us by telephone with the assistance of a
third-party interpreter, online support page for
people experiencing mental health concerns,
and a wide-range of considerations for older
customers including fraud and scams awareness
and accessible banking services.
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During the year, we engaged with our people
through a number of forums and channels, to gather
thoughts, opinions and feedback on how we are
doing, with the opportunity to ask questions directly
to our senior leadership teams. These include the
annual Employee Opinion Survey supported by
quarterly ‘pulse checks’, local colleague forums,
town halls, and ‘skip-level’ meetings where senior
leaders meet with small groups of employees not in
their direct management. More recently we have
seen an uptake in reverse mentoring sessions with
senior leaders being mentored by more junior
colleagues.
■■ The ability to work flexibly continues to be key
to unlocking colleague engagement (colleague
engagement of those who work dynamically is
up four percentage points on overall engagement
score in 2018).
■■ Scores on enablement, e.g. tools to do the job
have been historically low and continue to be a
key area of focus. However, there has been an
improvement year on year, highlighting that our
continued investment is having an impact.
We engage in a continual dialogue with non-
governmental organisations (NGOs) and other
interest groups, to improve our understanding of
emerging and existing environmental and societal
topics. We regularly engaged with our stakeholders
through participation in forums and round tables and
joined industry, sector and specific topic debates. We
explored citizenship and sustainability agendas,
where collaboration and joint action are needed.
We continue to engage with these stakeholder
groups on an ongoing basis through Barclays’
Sustainability and Citizenship teams.
■■ Green finance and supporting clients through
the transition to a low carbon economy.
■■ Responsible financing for companies in sensitive
energy sectors.
■■ Societal impacts and work in the communities
in which we operate.
■■ Accessibility of our products and services to all
demographics, and treating customers fairly.
■■ Continued focus on dynamic working: We
published a white paper on Dynamic Working to
help other organisations understand the benefits.
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■■ Reducing under-investment and duplication:
We have invested in hardware and software
collaboration tools designed to make it easier
and more efficient for colleagues to work.
■■ We have focused on mental health through our
Be Well campaign to launch new training for all
colleagues and a launch of a film of senior leaders
discussing their experiences of mental health to
support with tackling the stigma and support our
colleagues with managing stress in the workplace.
We responded on key topics in 2018 through
a number of communications and business
developments including:
■■ continuing to grow our suite of green products
■■ releasing statements on coal, World Heritage
Sites and Ramsar Wetlands, and a comprehensive
Energy and Climate Change Statement (which
replaced and strengthened the Coal Statement
published previously)
■■ maintaining ongoing dialogue with NGOs and civil
society regarding financing extractive industries
■■ enhancing transparency around our transition
journey to a low carbon economy, and the support
we provide to clients.
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Barclays PLC Annual Report 2018 17
Company
Achieving our targets is consistent with our aim of generating
long-term sustainable returns for the shareholders:
■■ Group return on tangible equity* >9% in 2019 >10% in 2020
■■ CET1 ratio at c.13%
■■ Group cost guidance of £13.6–£13.9bn in 2019†.
Targeting cost:income ratio below 60% over time
* Excluding litigation and conduct, and based on a CET1 ratio of c.13%
† Excluding litigation and conduct
Customers and clients
■■ Building trust with our customers and clients,
such that they are happy to recommend us to others.
■■ Successfully innovating and developing products and
services that meet their needs.
■■ Offering suitable products and services in an accessible way,
ensuring excellent customer and client experience.
Colleagues
Promoting and maintaining:
■■ a diverse and inclusive workforce in which colleagues
of all backgrounds are treated equally and have the
opportunity to be successful and achieve their potential
■■ engaged and enabled colleagues
■■ a positive conduct and values-based environment.
Citizenship
■■ Making decisions and doing business that provides
our clients, customers, shareholders, colleagues and the
communities which we serve with access to a prosperous
and sustainable future.
■■ Proactively managing the environmental and societal
impacts of our business.
Key performance indicators
Measuring performance
Our performance measurement framework undertakes a holistic assessment
and sets out our progress towards the strategic goals of the organisation.
Our framework is focused on achieving positive and sustainable outcomes
for our diverse group of stakeholders.
Company
Key outcomes - we will look to achieve:
How we are doing
■■ Our financial targets, consistent with our
Group Return on Tangible Equity*
aim of generating long-term sustainable
(RoTE)
returns for the shareholders of Barclays PLC.
8.5%
How we measure success
We disclosed progress against our financial
2017 (1.2)%
targets quarterly:
■■ Group RoTE >9% in 2019 and >10% in 2020
CET1
■■ CET1 ratio c.13%
13.2%
■■ Group operating expenses, excluding
2017 13.3%
litigation and conduct, of £13.6–13.9bn in
2019, and to have a target cost: income
Cost: income ratio
ratio below 60% over time.
77%
2017 73%
Operating expenses†
£13.9bn
2017 £14.2bn
How we are doing
Group RoTE
RoTE for the Group, excluding litigation and
conduct, was 8.5%. Based on a CET1 ratio
of 13% this would have been 8.3%.
CET1
The Group’s CET1 ratio continued to be at the
end-state target of c.13%. The ratio decreased
to 13.2% (2017: 13.3%), as CET1 capital
decreased to £41.1bn and RWAs remained
broadly stable at £311.9bn, as underlying
profit generation of £4.2bn was more than
offset by £2.1bn of litigation and conduct
charges, as the bank resolved legacy matters,
£1.7bn for ordinary dividends and AT1
coupons paid and foreseen, and £1.0bn from
the redemption of capital instruments.
Operating expenses and cost: income ratio
Group operating expenses were £13.9bn† in
line with 2018 guidance, while Total operating
expenses were £16.2bn (2017: £15.5bn),
including litigation and conduct, and a charge
of £140m in relation to the equalisation of
Guaranteed Minimum Pensions (GMP).
The Group cost: income ratio including
litigation and conduct increased to 77%
(2017: 73%) due to stable income and a 5%
increase in total operating expenses, which
included litigation and conduct charges for an
RMBS settlement and PPI provisions.
For further information on the financial
performance of the Group, please see page
224.
RoTE measures our ability to generate
acceptable returns for shareholders. It is
calculated as profit after tax attributable
to ordinary shareholders, including an
adjustment for the tax credit recorded
in reserves in respect of other equity
instruments, as a proportion of average
shareholders’ equity excluding non-controlling
interests and other equity instruments
adjusted for the deduction of intangible
assets and goodwill.
This measure indicates the return generated
by the management of the business based on
shareholders’ tangible equity. Achieving a
target RoTE demonstrates the organisation’s
ability to execute its strategy and align
management’s interests with the
shareholders’. RoTE lies at the heart of the
Group’s capital allocation and performance
management process.
The CET1 ratio is a measure of the capital
strength and resilience of Barclays. The
Group’s capital management objective is
to maximise shareholder value by prudently
managing the level and mix of its capital.
This is to ensure the Group and all of its
subsidiaries are appropriately capitalised
relative to their minimum regulatory and
stressed capital requirements, and to support
the Group’s risk appetite, growth, and
strategic options while seeking to maintain
a robust credit proposition for the Group
and its subsidiaries.
The ratio expresses Barclays’ capital as a
percentage of risk weighted assets (RWAs), as
defined by the PRA, in the context of Capital
Requirements Directive IV (CRD IV) – an EU
directive prescribing capital adequacy and
liquidity requirements, and is part of the
regulatory framework governing how banks
and depository institutions are supervised.
Barclays views operating expenses as a key
strategic area for banks; those which actively
manage costs and control them effectively
will gain a strong competitive advantage.
The cost:income ratio measures operating
expenses as a percentage of total income
and is used to assess the productivity of
the business operations.
* Excluding litigation and conduct
† Excluding litigation and conduct and Guaranteed
Minimum Pensions (GMP) charges
18 Barclays PLC Annual Report 2018
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Customers
and Clients
How we are doing
Barclays Net Promoter Score® (NPS)
+17
2017 +14
Lending to UK businesses
c.£63bn
2017 c.66bn
Barclays UK complaints including PPI
down 1% YoY
2017 down 7% YoY
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Key outcomes we will look to
achieve include:
■■ building trust with our customers and
clients, such that they are happy to
recommend us to others
■■ successfully innovating and developing
products and services that meet their needs
■■ offering suitable products and services in an
accessible way, ensuring excellent customer
and client experience.
How we measure success
Measures used in our evaluation include,
but are not limited to:
■■ Net Promoter Score® (NPS)*
■■ client rankings and market sharesa
■■ complaints performance
■■ lending volumes provided to customers
and clients
■■ digital engagement
■■ conduct indicators.
How we are doing
Areas of encouragement
Net Promoter Scores (NPS)b
The net promoter metrics across our brands
are a view of how willing customers are to
recommend our products and services to
others, indicating how satisfied they are with
their overall experience with us. Barclays
Relationship NPS increased to +17 (2017: +14)
due to continued investment into our
customer experience, value propositions and
consumer campaigns that not only strengthen
our brand but work to improve the financial
and security awareness of our customers.
Barclaycard UK relationship NPS stayed flat
over the year, closing at +9 at year-end (2017:
+9). The Relationship NPS of the US Consumer
Bank increased further to +38 (2017: +36)
supported by our customer centric culture
and improvements in our products and digital
experience.
Client rankings and market sharesc
The Banking franchise maintained its sixth
place ranking by fee share (2017: sixth) in our
UK and US home markets across M&A, equity
and debt capital markets, and retained its top 3
position in the UK (Dealogic).
Our Markets franchise delivered strong
results, maintaining its fourth place ranking
in Global Fixed Income market share
(Greenwich Associates).
Ninety-five per cent of our largest UK corporate
clients considered the service they receive from
Barclays to be good, very good or excellent,
up from 88% in 2017 (Charterhouse).
Lending volumes provided to
customers and clientsd
Barclays continued to be an important provider
of financial services to UK businesses. We
provided around £63bn of lending, down 6%
on 2017, as we continued to exert high levels of
discipline in capital allocation decisions as part
of our returns agenda, strengthening the
long-term sustainability of the business for all
our stakeholders.
Notes
a All Markets ranks and shares: Coalition, FY18 Preliminary Competitor Analysis based on the Coalition Index and Barclays’ internal business structure
b NPS measures customer experience and facilitates benchmarking. It is widely used in banking and other industries and utilises a mixed-methodology to ensure full
representativeness of financial behaviours across the UK population. The basis of Barclays Relationship NPS has been a 12-month rolling average to minimise data fluctuations.
Source: UK: GfK FRS, 12 months ending December 2018. Adults interviewed: 8,765 Barclays main Current Account holders (Barclays Relationship NPS), and 4,741 Barclays main
Credit Card holders (Barclaycard UK Relationship NPS); US: Satmetrix, average of two semi-annual results
c Charterhouse Research based on 683 interviews (173 Barclays £25m+) with companies turning over between £25m and £1bn carried out in year end 2018. Survey data is
weighted by turnover and region to be representative of the total market in Great Britain. % Responses – Excellent, Very Good and Good.
d Best Lender for Buy to Let (Moneywise), Best lender for Remortgage (Moneywise), Best Lender for Large loans (Moneywise), Best National Bank (Mortgage Strategy Gazette),
Best Intermediary Lender (Mortgage Strategy Gazette), Best Overall Lender (Mortgage Strategy Gazette), Best Buy to Let Lender (Mortgage Strategy Gazette), Mortgage Lender of
the Year (Mortgage Introducer), Best Offset Mortgage Lender (What Mortgage), Best remortgage lender (Personal Finance)
* ®Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix
Systems, Inc.
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Barclays PLC Annual Report 2018 19
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Key performance indicators
Measuring performance
A vibrant small and medium-sized enterprises
(SMEs) sector is a vital ingredient for a healthy
market economy. Barclays UK provided new
lending of £2.8bn to SMEs, 3% more than last
year and completed over 110,000 mortgages
for customers, worth over £23bn, up 1.5%
year-on-year. Our Mortgage business won
10 awards in 2018, confirming our continued
focus on customer experience.
Digital engagement
In the era of constant technological
development, it is crucial for us to provide
a market leading digital offering and digitally
engage with our customers. By the end of
2018, around 10.8m customers and clients
in the UK were using our digital services on a
regular basis, 6% more than in 2017 with our
Barclays Mobile Banking (BMB) user base
increasing from 5.5m to nearly 6.2m.
In 2018, 69% of the US Consumer Bank
customers are now digitally active (vs. 66%
in 2017), and 57% now receive paperless
statements. Our strategy and customer
centricity is encouraged by the prestigious
third place in J.D. Power’s 2018 Credit Card
Satisfaction Survey. To maintain and improve
this position, we continue to work on building
our single, integrated native app to provide
our customers an effortless experience.
The app will allow customers to apply for
products, manage their accounts, and track
rewards earned all in one convenient place.
In the Open Banking environment, we are
committed to serve a new type of client:
developers. Through our API Exchange, we
received more than 8.4m calls or requests
to our open APIsa in 2018.
BMB is the most used mobile banking app in
the UK (source: eBenchmarkers) and was the
first core banking app from a major UK high
street bank to enable account aggregation
through Open Banking technology. This
means that customers can now view their
balances and transactions from other banks in
BMB without having to share their online or
mobile banking credentials. Further to this, we
also improved the functionality of our app
throughout 2018 to better help our customers
manage their money, with a temporary
card-freeze feature for misplaced debit cards,
a calendar view of regular payments and the
ability to open an Everyday Saver account
entirely in BMB. This has proved particularly
popular, with over 60% of Everyday Saver
accounts being opened digitally this year.
We will continue to add great new features
to BMB in the near future, including spend
categorisation and financial insights.
Areas of continued focus
Complaints performance
In Barclays UK, we continue to focus on
customer experience by transforming
customer journeys. Our underlying complaint
volumes reduced 9% year-on-year. However,
we have seen an increase of 2% in PPI
complaints. Total Barclays UK complaint
volumes (including PPI) were down 1%
year-on-year. Barclays International complaint
volumes have shown a small increase (2%)
year on year. The level of complaints we
receive remains too high and reducing them
further will continue to be a key priority for
us in 2019
Conduct indicators
Barclays has operated at the overall set
tolerance for Conduct risk throughout 2018.
The tolerance is assessed by the business
through key indicators which are aggregated
and provide an overall rating which is reported
to the Board Reputation Committee as part of
the Conduct Dashboard. We remain focused
on the continuous improvement being made
to manage Conduct risk effectively, with an
emphasis on enhancing governance and
management information to facilitate the
identification of risks at earlier stages. For
further information on the management and
performance of Conduct risk, please refer to
the Risk review section on pages 146 and 212.
Note
a Open APIs are publicly available application programming interfaces that provide developers programmatic access to our products and services and use them in third-party
applications. For example, a bookshop can integrate Barclays’ payment initiation API into its web shop. After selecting the desired book, the customer is directed to her bank to
authorise the payment without using a card or sharing any details with the bookshop. We make our open APIs available on the Barclays API Exchange website.
20 Barclays PLC Annual Report 2018
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Colleagues
How we are doing
Sustainable engagement
of colleagues
79%
2017 78%, 2016 75%
Women in senior leadership roles
24%
2017 23%
“I would recommend Barclays
as a good place to work”
86%
2017 82%
Key outcomes we will look to
achieve include:
Promoting and maintaining:
■■ a diverse and inclusive workforce in which
employees of all backgrounds are treated
equally and have the opportunity to be
successful and achieve their potential
■■ engaged and enabled colleagues
■■ a positive conduct and values-based culture.
How we measure success
Measures used in our evaluation include,
but are not limited to:
■■ diversity and inclusion statistics
■■ employee sustainable engagement
survey scores
■■ conduct and culture measures.
How we are doing
Areas of encouragement
A diverse and inclusive workforce
We continue to focus heavily on our culture,
and in particular how we provide the right
environment for all of our colleagues to feel
able to bring their whole selves to work. We
were delighted that 91% of our employees
who responded in our Your View employee
opinion survey agreed that we had made real
progress again this year.
We were also proud to be recognised through
a number of external awards in 2018:
■■ The Times Top 50 Employers for Women
2018
■■ Stonewall Top Global Employer for LGBT
employees, 2018
■■ Working Families UK Best for Embedded
flexibility for Dynamic Working, 2018
■■ UK Top 10 employer for Working Families,
2018
■■ Department of Work and Pensions Disability
Confident Leader, 2017 to 2020
■■ Business in the Community Best Employer
for Race 2018.
Engaged and enabled colleagues
An engaged workforce is critical to the
success and delivery of our strategy. We
continue to measure this with our annual
Employee Opinion Survey, Your View, using
the outputs to help shape our human capital
agenda and areas of executive focus across all
of our businesses and functions supported by
small ‘pulse check’ surveys each quarter.
This year, our overall sustainable engagement
increased to 79%, up four points from 2016,
when we last had our all colleague survey. Our
scores around Energise and Engage were also
up five and four points on 2016 to 83% and
88%, respectively, which is above Financial
Services Companies norms and our Enable
score was up five percentage points to 65%.
A positive conduct and value-based culture
We have continued to make good progress
on embedding our culture measurement
framework and are now working with our
businesses to develop further metrics to track
and monitor performance on a more granular
level which will be implemented in 2019.
We saw a notable increase on the question,
‘Is it safe to speak up at Barclays’, which went
from 77% to 86%. Other key highlights which
also demonstrate the continued embedding of
the Values of Respect and Stewardship
include: “Barclays is focused on achieving
good customer and client outcomes” (92%
favourable, 2016: 83%); “I would recommend
Barclays as a good place to work” (83%
favourable, 2016: 76%); and “I can be myself
at work” (91% favourable. A new question
for 2018).
Areas of continued focus
A diverse and inclusive workforce
Gender diversity, particularly at senior
leadership levels within the organisation
remains our focus. At the end of 2012 the
percentage of women in our senior leadership
roles (Managing Directors and Directors) was
20% and we set ourselves a target to reach
26% by the end of 2018. The 2018 year-end
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Key performance indicators
Measuring performance
position was 24% at the Barclays Group level
(2017: 23%), the 2% gap can be attributed to
the divestment of our Africa business. Our
2021 target is to reach 28% women in our
senior leadership roles with each of our
businesses developing local actions to help
reach this Group-wide target.
We report progress on the women in senior
leadership target annually to HM Treasury
as part of our commitment to the Women
in Finance Charter. We have committed to the
Hampton-Alexander recommended targets
of 33% female representation on the Board of
Directors by 2020 year-end, and 33% female
representation across the Group Executive
Committee and direct reports by 2020
year-end. We are currently at 27% (2017:
21%), and 28% (2017: 26%), respectively.
This year, we have again increased our
activities to support the development of our
senior female leadership population and we
expanded our Encore! Programme to attract
more women returners. At our graduate level,
the percentage of female hires in 2018 was
37% across the Barclays Group (2017: 40%).
Under the Companies Act 2006, Barclays is
required to report on the gender breakdown
of our employees and ‘senior managers’. Of
our global workforce of 83,500 (47,500 male,
36,000 female), 555 were senior managers
(401 male, 154 female), which include Officers
of the Group, certain direct reports of the
Chief Executive, heads of major business
units, certain senior Managing Directors,
and directors on the boards of undertakings
of the Group, but exclude individuals who sit
as Directors on the Board of the Company.
The definition of senior managers within
this disclosure has a narrower scope than
the Managing Director and Director female
representation data provided above.
Engaged and enabled colleagues
Our score on the Enable pillar, which
measures how Barclays is helping colleagues
to meet challenges and overcome obstacles,
has been on an upward trend since 2016. Yet
it remains our biggest opportunity to improve,
and we are not yet where we want to be.
An area of continued opportunity is enabling
our colleagues through enhanced technology
and collaboration tools.
A positive conduct and value-based culture
We will maintain our focus to embed
meaningful tracking of our culture with the
revised culture dashboards. We will continue
to target efforts in our action plans to address
the key opportunities for improvement, such
as an obstacle-free working environment that
allows colleagues to do their jobs well.
Citizenship
How we are doing
Access to financing
£27.3bn
2017 £31.7bn
People helped to improve skill sets
through employability partnerships
2.4m
2017 2.1m
Global carbon emissions reduction
38%
2017 26.1%
Key outcomes we will look to
achieve include:
■■ making decisions and doing business in
a way that provides our clients, customers,
shareholders, colleagues and the
communities we serve with access to
a sustainable and prosperous future.
■■ proactively managing the environmental
and societal impacts of our business.
How we measure success
Measures used in our evaluation include,
but are not limited to:
■■ delivery against the Shared Growth
Ambition
■■ colleague engagement in citizenship
activities
■■ external benchmarks and surveys.
How we are doing
Areas of encouragement
Delivery against the Shared Growth Ambition
We met or exceeded five out of six internal
objectives on the annual Shared Growth
Ambition metrics. Performance was ahead of
target against our annual internal milestones
for the three focus areas of ‘Access to
financing’, ‘Access to digital and financial
empowerment’ and ‘Access to employment’.
We also met or exceeded our 2018 annual
targets for The Barclays Way training and
carbon emissions reduction. Supplier payment
on time was below target due to a change in
systems, which impacted performance
during the year.
Access to financing
We have continued to build our capability to
deliver financing solutions across a range of
social and environmental sectors including
renewable energy, education, healthcare and
development finance institutions. Our financing
volume is tracked and screened using Barclays
Impact Eligibility Framework, developed in
collaboration with Sustainalytics a global
provider of ESG and corporate governance,
research, ratings and analytics. In 2018 Barclays
facilitated £27.3bn in financing for specific
social and environmental sectors across our
business (2017: £31.7bn). The reduction from
prior year reflects market conditions, including
the impact of changes in U.S. tax law which
caused certain qualifying clients to accelerate
new debt issuance from 2018 into 2017.
Underlying environmental financing increased
11% to £5.3bn, driven by a range of capital
markets transactions and a growing volume
from our dedicated green product portfolio.
We expanded our green product portfolio,
including the launch of the first Green
Mortgage for retail customers by a mainstream
UK institution, added Green Trade Finance to
our Corporate Banking green product set, and
structured several innovative transactions such
as the first Sustainability-linked Revolving
Credit Facility for a US borrower.
We also deepened client engagement on
these issues and hosted Barclays’ inaugural
Green Frontiers conference with a keynote
presentation from former US Vice President Al
Gore. We continue to engage with industry
groups and policymakers on enhancing
sustainable finance flows and providing a
supportive policy framework.
22 Barclays PLC Annual Report 2018
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carbon emissions by 38% (2017: 26.1%) and
exceeding our target of 30% reduction by
2018 against the 2015 baseline.
We achieved 82.1% (2017: 89%) on-time
payment by value to our suppliers, falling
short of our public commitment of 85% for
the first time. This metric was affected by a
change in systems which impacted
performance during the year.
Colleague engagement in citizenship activities
Our colleagues are central to the success of
our citizenship strategy and in driving our
societal impact. Beyond the financial services
we provide, our colleagues support the local
communities in which we operate through
volunteering, matched fundraising and payroll
giving. We provide the opportunity to engage
via our Barclays programmes such as LifeSkills
and Digital Eagles among others, but similarly
support other charitable activities in which
our colleagues participate. We have active
internal Environmental, Green Banking and
Social Innovation networks. We celebrate
our colleague engagement and participation
through our 21st annual Citizenship Awards,
which saw almost 1,500 employees
nominated. 87% of colleagues who responded
to the annual Your View employee survey
are proud of Barclays’ contribution to the
community and society, above the global
Financial Services Companies norm.
Areas of continued focus
Banks play a key role in connecting the
providers and users of capital. Barclays
recognises this role in serving society, and
our success as a business has always been
inextricably linked to the progress of the
people and businesses that we serve.
As society’s expectations of businesses
continue to evolve, we aim to stay ahead
of those expectations. It is by focusing on
our core products and services, and our
relationships, that we can make the
greatest positive impact.
So as we move forward into 2019, our
citizenship and sustainability work will evolve
to align with our new Purpose, and will go
further towards improving the positive social
environmental impact of the business we do
every day.
Access to financial and digital empowerment
We continue to focus on empowering
customers and providing dedicated products,
tools and training to help enhance access to
financial services, manage digital security and
improve financial health. We helped support
around 260,000 people in 2018 (2017: 205,000)
through initiatives such as Barclaycard Initial for
those with a limited credit history; our Digital
Eagles network, comprised of specially trained
Barclays employees working to provide free
technology support to both customers and
non-customers alike. See the Barclays UK
performance overview on pages 30 to 33 for
further information on the support we provide
to financially vulnerable customers, disabled
people and older customer groups, and tools to
enhance financial health and tackle fraud.
Access to employment
Barclays is committed to helping people gain
access to the skills they need to secure
meaningful employment, connecting job
seekers and employers, and supporting
entrepreneurs to scale their businesses to
create new jobs. We helped improve the skills
of over 2.4 million people in 2018 (2017:
2.1 million), driven by a range of employability
partnerships around the world, our global
Connect with Work programme and our
LifeSkills programme in the UK.
We held programmes for the third year of the
‘Unreasonable Impact’ programme, created in
partnership with the Unreasonable Group,
focused on scaling innovative ventures that
solve environmental and societal problems and
grow to create new jobs. More than 90 ventures
have participated to date in programmes across
the UK and Europe, US and Asia.
Our programmes received a number of
awards. Barclays was named on the Fortune
2018 Change the World List for the first time
for positive social impact connected to core
business strategy. Additional awards include
the Business in the Community (BITC)
Outstanding Employment Award for our
Connect with Work programme, and the
Corporate Engagement Award for Best
Environmental or Sustainable Programme and
Better Society Innovation Award, both for
Unreasonable Impact.
Proactively managing the environmental
and societal impacts of our business
We released statements in April 2018 on our
approach to the coal sector and Ramsar
Wetlands and World Heritage Sites. This was
followed by a more comprehensive statement
on our approach to energy and climate
change in January 2019 (which strengthened
and replaced our Coal Statement), and which
includes a wider range of sensitive energy
sectors. See the box on page 25 for more
information.
We published an updated Statement on
Modern Slavery which includes additional
information on the work our financial crime
teams are doing in partnership with law
enforcement agencies to identify suspicious
activity and support our customers. The
statement is available on our website
home.barclays/citizenship/our-approach/
human-rights.html
We continued to manage our operational
environmental impacts, reducing global
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Key performance indicators
Measuring performance
Capital and products
We will continue to develop opportunities
to achieve positive outcomes through the
products and services we provide across
the diverse consumer and wholesale client
segments we serve:
■■ We will facilitate £150bn of social and
environmental financing by 2025, including
funding for sectors such as renewable
energy, clean technology, education,
affordable housing and national and
supranational development institutions.
■■ We remain committed to the green bond
market as an investor and after meeting
our £2bn target, we now aim to double our
green bond investment to £4bn over time.
Skills and employability
■■ We will scale our partnerships with leading
community organisations to address critical
skills development and employability
opportunities: we aim to upskill ten million
people to support all generations across the
UK through LifeSkills by 2022
■■ we will also use our networks to help
provide pathways to employment using
a demand-driven approach. We will help
place 250,000 people into work through
our Connect with Work partnerships across
the UK, US and Asia by 2022.
Economic growth
Barclays has been part of the fabric of the UK
for over 328 years. In addition to our role in
the UK as a leading employer and provider of
financial services across all segments of the
economy, we will also pursue targeted local
economic growth initiatives working in
partnership with stakeholders:
■■ we will support business growth across the
UK through dedicated regional and industry
focused growth funds
■■ we will work with partners to identify
the opportunities to Build Thriving Local
Economies and run pilot schemes in four
different local economies around the UK
by 2022.
Sustainable innovation
We recognise the role of innovation in solving
some of society’s major challenges and the
part Barclays can play in supporting new ideas
to flourish and entrepreneurs and ventures to
grow and thrive:
■■ we will support innovative business models
and help to mentor over 250 high impact
businesses solving social and environmental
challenges through our Unreasonable
Impact accelerator by 2022
■■ we will continue to support Barclays’
Social Innovation Facility (SIF) to enable
colleagues to develop new products and
services that allow Barclays to generate
both commercial and social value.
Environmental stewardship
Banks have an important role to play in
ensuring the world’s energy needs are met
while helping to limit the threat that climate
change poses to people and to the natural
environment. We are focused on three areas
of activity at Barclays:
■■ financing the growth of renewable energy
sources and proactively supporting the
development of businesses aiming to solve
the world’s environmental challenges
■■ taking a responsible and sustainable
approach to the necessary financing of
sources of energy that are more carbon
intensive or those with higher
environmental impact; and
■■ reducing the carbon footprint of our own
operations and supply chain throughout the
world. We will reduce operational scope 1 and
2 emissions by 80% by 2025 and commit
to RE100 – the world’s most influential
companies committed to 100% renewable
power – to procure 100% of global operational
energy needs from renewable sources by
2030, with an interim target of 90% by 2025.
Contributing to global initiatives
We will continue to engage with industry
groups and policymakers on enhancing
sustainable finance flows and providing a
supportive policy framework. This includes
supporting the Task Force on Climate-related
Financial Disclosures, the IIF Sustainable
Finance Group and a range of Green Finance
initiatives with the UK Government and the
Corporation of London.
Barclays is one of the 28 founding banks of
the Principles for Responsible Banking under
the United Nations Environment Programme
– Finance Initiative (UNEP FI). We support the
finalisation of the Principles and will work to
implement them over time. We support the
creation of national green finance strategies,
which specifically aim to support the
mobilisation of finance towards the low-
carbon economy.
External ESG ratings and surveys
Barclays is evaluated on ESG factors by a wide
range of external agencies. Currently there is
significant variance between methodologies,
with relatively opaque scoring models and
limited consistency in the underlying data
used at present. We believe it is important
that these agencies, working with companies,
investors and other market participants,
continue to enhance consistency and
transparency to support increasingly robust
ESG data and ratings in the future.
Across a set of ESG Ratings, our performance
was broadly stable year-on-year with
methodology changes the primary drivers of
scoring. The FTSE4Good ESG Ratingc was flat
at 4.3/5 (2017: 4.3/5 with an 81st percentile
ranking against the global banks sector.
Barclays was rated BBB by MSCI ESG Ratings
(2017: BBB) and scored 60 points in
Sustainalytics ESG Ratingse (2017: 61 points).
We saw a decline in our RobecoSAMf scores
due to changes in methodology, down by 4
points to 75 points (2017: 79 points), against
a sector average of 54 points. Institutional
Shareholder Servicesg (ISS) released new
environmental and social quality scores to
assess corporate disclosures. On a 1-10 scale
where 1 is highest, Barclays was rated as
‘1’ for social reporting and ‘2’ for
environmental reporting. Barclays was rated
as A- in the 2018 CDP climate disclosure
survey, up from B in 2017.
Enhancing disclosures
We recognise that markets and stakeholders
need clear, relevant and consistent
information and will continue to focus
on enhancing disclosures, particularly on
climate change, and across wider ESG factors,
including the recommendations from the Task
Force on Climate-related Financial Disclosures
(TCFD). We have enhanced our TCFD aligned
disclosures in 2018 and set out a high-level
implementation plan. See pages 26 to 27 for
further information.
Barclays publishes an annual Environmental
Social Governance (ESG) Report as part of the
Annual Report suite of documents. We have
provided additional detail on material ESG
themes in the 2018 Report available at
home.barclays/annualreport
Barclays PLC ESG Report 2018 is available at
home.barclays/annualreport
Notes
a Eligible environmental and social transactions and relevant products are tracked through a use of proceeds framework. Further detail is available in the ESG Report and online
at home.barclays/citizenship.
b Unique participants measures colleague involvement in eligible volunteering, matched fundraising, regular giving initiatives. Data sourced from internal reporting systems
including several manual sources and includes employee self-reported activity.
c Source: FTSE Russell.
d Source: MSCI ESG Inc.
e Source: Sustainalytics Inc.
f Source: RobecoSAM.
g Source: Institutional Shareholder Services.
24 Barclays PLC Annual Report 2018
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Because of the nature of the business
activities and the associated social and
environmental impacts and risks, Barclays
will apply further sector specific EDD and,
in some cases restrictions, to the following
sensitive energy sources:
■■ Coal
■■ Arctic Oil and Gas
■■ Oil Sands
Barclays external statements can be found
in the Statements section of home.
barclays/citizenship with further detail in
the Barclays PLC ESG Report 2018
Our approach to sensitive energy sectors
Barclays is committed to a considered
approach to energy and mining clients in
sectors with higher carbon-related
exposures or emissions from extraction or
consumption, or those which may have an
impact in certain sensitive environments or
on communities. We conduct Enhanced Due
Diligence (EDD) on a case-by-case basis on
clients in these sensitive energy sectors, and
will consider the following factors as a
minimum:
■■ The client’s approach to health and safety
of the workforce and local communities;
and,
■■ The client’s transparent corporate
governance and oversight of climate
change issues and associated corporate
risks, including disclosure against
principles such as the Financial Stability
Board (FSB) Taskforce on Climate-related
Financial Disclosures (TCFD).
■■ The client’s adherence to the Equator
Principles (if a project finance or credit
transaction is deemed to be in scope) and
relevant International Finance Corporation
(IFC) performance standards;
■■ The client’s adherence to local and
national environmental regulation and
standards and industry best practice;
■■ The client’s management and
implementation of procedures which
minimise direct environmental impacts in
the context of their operations;
■■ The client’s responsible public and
stakeholder engagement with impacted
local communities and indigenous people;
In order to assist and enhance the EDD
process, we operate a training programme
for credit teams.
External technical input may be obtained
to assist the business in reviewing and
assessing whether certain client activities
meet our internal EDD criteria, or where
there is uncertainty as to whether a certain
activity is within scope of our EDD criteria.
Barclays will continue to align its
approach to sensitive energy sectors
with developments in government and
public policy.
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Barclays PLC Annual Report 2018 25
Key performance indicators
Measuring performance
Task Force on Climate-related Financial Disclosures (TCFD)
Barclays is a member of the Financial Stability
Board’s Task Force on Climate-related
Financial Disclosures (TCFD) and signed the
Statement of Support for the TCFD
Recommendations, which were published
in June 2017. This disclosure outlines the
progress Barclays has made to date in
adopting these voluntary recommendations,
and presents our plan on how we will achieve
alignment to the recommendations by
February 2021.
The TCFD recommendations aim to improve
the disclosure of information to allow
investors, regulators and other stakeholders
to better assess and manage the risks and
opportunities resulting from climate change.
We rely on appropriate disclosures from
clients to inform our own climate-related
sector risk management. Clear understanding
and analysis of potential financial risks and
opportunities in short, medium and longer-
term horizons is still at an early stage. We
anticipate that disclosures will continue to
develop over time, supported by improved
analytical tools, data and market practice.
This will support Barclays as a user of
climate disclosures across industry sectors
and subsequently to inform our own
disclosures as a preparer.
We provide summary disclosures in the
Strategic Report with additional detail,
including results of pilot scenario analysis
and wider activity in 2018, in the ESG Report.
Governance
Barclays Group Executive Committee is
responsible for managing the overall delivery
of environmental and social matters, which
includes climate-related risks and
opportunities. On behalf of the Board, the
Board Reputation Committee (RepCo) reviews
and approves Barclays’ overall approach to
environmental and social issues, including
the approach taken on climate change.
The TCFD Implementation Forum, a senior
forum set up in 2017 to provide oversight
and drive implementation of the TCFD
recommendations met three times in 2018.
The Forum has representation from across
the bank, including: Group CEO Office; Green
Banking; Strategy; Compliance; Corporate
Relations, including Sustainability and
Reputation Risk; Credit Risk; Investor
Relations and business teams from Barclays
International and Barclays UK.
26 Barclays PLC Annual Report 2018
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Metrics and targets
As disclosures develop, we would expect
further dialogue over time between banks,
corporates, investors and other market
participants on appropriate, decision-useful
and robust metrics to assess material financial
risks and opportunities. Areas of focus
include, among others, clarity over detailed
definitions of carbon-related assets building
on the TCFD high-level guidance;
standardised methods for the calculation
and presentation of credit exposure to
carbon-related assets; definitions for
climate-related and green financing
across product categories; and suitable
risk management metrics.
■■ Financing: Barclays facilitated £5.3bn
in environmental financing in 2018 (2017:
£4.82bn) which includes green bonds and
loans for renewable energy and low-carbon
technology.
■■ Treasury Green Bond Investment: Barclays
remains committed to the green bond
market as an investor and has continued to
expand our green bond portfolio to £2.27bn
in 2018 (2017: £1.56bn), meeting our target
of £2bn. We now aim to double our
investment to £4bn over time.
■■ Operations: In 2018 we set a science-based
reduction target for scope one and two
greenhouse gas emissions of 80% by
2025; this is in line with the level of
decarbonisation required to keep global
temperature increases well below
two degrees.
Strategy
Barclays has been integrating the
management of climate-related risks and
opportunities for a number of years, advising
on, and developing green products. The
Barclays Energy and Climate Change
Statement focuses on financing the growth
of renewable energy sources, taking a
responsible and sustainable approach to the
necessary financing required, and reducing
the carbon footprint of our own operations
and supply chain.
Increasing funding needs for the energy
transition and climate resilient infrastructure
will continue to provide opportunities to
mobilise capital, advise clients and develop
dedicated products. We continued to build
our platform for green and sustainable
finance. See page 25 for more information.
Taking an exploratory approach in 2018,
Barclays assessed credit risk (and opportunity)
alongside 15 other banks as part of the United
Nations Environment Programme Finance
Initiative (UNEP FI) pilot project on both
transition and physical risks. This was our
first iteration of how scenario-based climate-
related transition and physical risks could
potentially be integrated into the credit risk
process. Testing of transition risk was
undertaken in Electric Utilities and Oil and Gas
(sub-set Exploration and Production) up to
2030 and 2040; and physical risk in the UK
Mortgage Portfolio up to 2020 and 2040. The
pilot testing of these scenarios proved a useful
exercise, and also indicated the current
challenges with data and applying climate
scenario methods over long-term time
horizons.
Risk management
Through the TCFD implementation
programme, Barclays is taking steps to
identify the relative significance of climate-
related risks as they relate to the Principal
Risks within the Barclays Enterprise Risk
Management Framework (ERMF).
Environmental risk is recognised as a credit
risk issue and Barclays has a dedicated
Environmental Risk Management team, within
the central Credit Risk Management function.
An addition in 2018, resulting from both TCFD
implementation and the UNEP FI pilot
learnings, was to include the impacts of
climate change in both the Environmental
Risk Standard and the Client Assessment
Standard. See page 134 for information on
environmental risk management within credit
risk and the Pillar 3 disclosures available at
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Barclays PLC Annual Report 2018 27
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Risk management
Structure and governance overseeing risk
Barclays is exposed to internal and external risks as part
of our ongoing activities. These risks are managed as
part of our business model.
Enterprise Risk Management Framework
At Barclays, risks are identified and overseen
through the Enterprise Risk Management
Framework (ERMF), which supports the business
in its aim to embed effective risk management
and a strong risk management culture.
The ERMF specifies the Principal Risks of
Barclays and the approach to managing them.
The management of risk is
embedded into each level of the
business, with all colleagues
being responsible for identifying
and controlling risk.
Risk Appetite
Risk Appetite defines the level of risk we are
willing to take across the different risk types,
taking into consideration varying levels of
financial and operational stress. Risk Appetite is
key for our decision making process, including
ongoing business planning, new product
approvals and business change initiatives.
In recent years we have taken significant
steps to de-risk our business, setting us
up for sustainable growth in the future.
The management of risk is embedded into
each level of the business, with all colleagues
being responsible for identifying and
controlling risks.
Monitoring the risk profile
Together with a strong governance process,
using Business and Group level Risk
Committees as well as Board level forums,
the Board receives regular information in
respect of the risk profile of the Group, and
has ultimate responsibility for Risk Appetite
and capital plans.
We believe that our structure and governance
will assist us in managing risk in the changing
economic, political and market environments.
Three Lines of Defence
The First Line of Defence is comprised of the
revenue generating and client facing areas,
along with all associated support functions,
including Finance, Treasury, Human Resources
and Operations and Technology. The First Line
identifies the risks, and sets the policies,
standards and controls, within the criteria set
by the Second Line of Defence.
The Second Line of Defence is made up of Risk
and Compliance and oversees the First Line by
setting the limits, rules and constraints on their
operation, consistent with the Risk Appetite.
The Third Line of Defence is comprised of
Internal Audit, providing independent assurance
to the Board and Executive Committee.
Although the Legal function does not sit in any
of the three lines, it works to support them all
and plays a key role in overseeing Legal Risk
throughout the bank. The Legal function is
also subject to oversight from the Risk and
Compliance functions with respect to the
management of operational and conduct risks.
28 Barclays PLC Annual Report 2018
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Principal risk management
Risks are classified into Principal risks, as below
How risks are managed
Financial principal risks
Credit risk
Market 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 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.
Credit risk teams identify, evaluate, sanction, limit and
monitor various forms of credit exposure, individually
and in aggregate.
A range of complementary approaches to identify and
evaluate market risk are used to capture exposure to
market risk. These are measured, controlled and
monitored by market risk specialists.
Treasury and
Capital risk
Liquidity risk:
The risk that the firm is unable to meet its contractual or
contingent obligations or that it does not have the
appropriate amount, tenor and composition of funding
and liquidity to support its assets.
Treasury and capital risk is identified and managed
by specialists in Capital Planning, Liquidity, Asset and
Liability Management and Market Risk. A range of
approaches are used appropriate to the risk, such as:
limits; plan monitoring; and stress testing.
Capital risk:
The risk that the firm has an insufficient level or
composition of capital to support its normal business
activities and to meet its regulatory capital requirements
under normal operating environments or stressed
conditions (both actual and as defined for internal
planning or regulatory testing purposes). This includes
the risk from the firm’s pension plans.
Interest rate risk in the Banking Book:
The risk that the firm is exposed to capital or income
volatility because of a mismatch between the interest
rate exposures of its (non-traded) assets and liabilities.
Non-financial principal risks
Operational risk
Model risk
Reputation risk
Conduct risk
Legal risk
The risk of loss to the firm from inadequate or failed
processes or systems, human factors or due to external
events (e.g. fraud or cybercrime) where the root cause is
not due to credit or market risks.
The risk of the potential adverse consequences from
financial assessments or decisions based on incorrect or
misused model outputs and reports.
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.
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.
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.
The Group assesses its operational risk and control
environment across its businesses and functions with a
view to maintaining an acceptable level of residual risk.
Models are evaluated for approval prior to
implementation, and on an ongoing basis.
Reputation risk is managed by maintaining a controlled
culture within the Group, with the objective of acting with
integrity, enabling strong and trusted relationships to be
built with customers and clients, colleagues and broader
society.
The Compliance function sets the minimum standards
required, and provide oversight to monitor that these risks
are effectively managed and escalated where appropriate.
The Legal function supports colleagues in identifying
and limiting legal risks.
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Barclays PLC Annual Report 2018 29
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Barclays UK
Leaders in innovation
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Barclays UK
operating model
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Value cre a t
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Ashok Vaswani
CEO, Barclays UK
With 24 million customers and clients and
25,000 colleagues, Barclays UK’s strategy
is about building long-term, meaningful
relationships with our customers. This is
achieved through colleagues, empowered by
technology, passionate about the customer,
delivering perfect and personalised
experiences to help customers move
forward with confidence every day.
Customers and clients
■■ Individuals
■■ Small and medium-sized enterprises
Products and services
■■ Personal banking services
■■ Credit cards and transactional lending
■■ Mortgages and secured lending
■■ Investment products and services
■■ Business banking solutions
Value creation
■■ To our customers and clients – building
meaningful relationships, providing
relevant and personalised financial
solutions
■■ To society – helping communities
move forward
■■ To shareholders – providing
sustainable, diversified returns and
prudent balance growth
Contribution to Barclays
£7.4bn
Income
£2.4bn*
Profit before tax
16.7%*
RoTE
56%*
Cost: income ratio
£75.2bn
Risk weighted assets
* Excluding litigation and conduct.
30 Barclays PLC Annual Report 2018
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Overview
Barclays UK is a personal and business banking
franchise, comprised largely of our Personal
Banking, Barclaycard Consumer UK and
Business Banking businesses.
Our Personal Banking business includes
Community and Premier banking, as well as
Savings, Investments & Wealth Management,
which offer financial solutions to help
customers move forward with confidence.
Barclaycard Consumer UK is a leading credit
card provider, offering flexible borrowing and
payment solutions, while delivering a leading
customer experience. Business Banking serves
a spectrum of clients, from high growth
start-ups to small and medium-sized
enterprises who need specialist advice,
products and services.
This year, we officially established Barclays
Bank UK PLC, which forms part of Barclays
PLC Group, being the first bank in the UK to
become legally ring-fenced. This was a huge
undertaking and brings with it a new phase
in Barclays’ history.
Strategy
Our strategy is centred on building long-term,
meaningful relationships with our customers.
This is achieved through colleagues,
empowered by technology, passionate
about the customer, delivering perfect and
personalised experiences to help customers
move forward with confidence every day.
The Barclays Purpose is Creating opportunities
to rise. In Barclays UK we express this as
#letsgoforward – helping people move
forward and do the things they want to do,
with confidence, every day.
Market and operating environment
The current political and economic environment
poses a number of challenges through the
impact on our customers of continuing
uncertainty, modest economic growth and
volatile exchange rates, while ongoing low
interest rates constrain overall profitability.
Against this backdrop, competition, customer
behaviour and regulatory expectations continue
to evolve rapidly, requiring a high degree of
business change. Barclays UK, however,
continues to deliver solid financial
performance, with a Return on Tangible Equity
of 16.7% (excluding litigation and conduct),
underpinned by strong capital and liquidity
positions with a conservative LDR of 96%.
This has been achieved through the delivery
of customer-centric solutions and franchise-
led deposit growth, matched by low risk,
high-quality secured asset growth while
maintaining a stable net interest margin.
Risks to the operating model
The uncertainty around Brexit has been a
challenge throughout 2018 and remains so,
impacting both customer confidence and the
market environment. We closely monitor the
environment in which we operate and
key indicators within our business, while
proactively planning for numerous potential
outcomes, in order to minimise the risks
associated with the UK’s withdrawal from the
European Union. We remain conservative in
our outlook, supported by our strong risk
management framework and oversight.
The threats of organised crime and cyberattacks
remain key risks to our operating model and
we continue to invest to ensure the
operational resilience and reliability of our
technological infrastructure, while simplifying
our technological estate in order to remain
agile and drive technological advancement
for the benefit of our customers.
We remain focused on reducing the volume
of operational incidents through continued
investment in our technology and controls.
The volume of operational incidents caused by
technology are becoming less frequent across
Barclays year-on-year, with a 13% reduction in
the last 12 months. Where incidents do occur,
we are resolutely focused on minimising any
impact on customers.
There have been a number of significant
regulatory developments around retail banking
business models and pricing in 2018 that have
the potential to impact our business models
going forward, while potential new market
entrants, such as Fintechs and established
large technology companies, threaten to take
market share.
As the deadline for PPI enquiries approaches,
we continue to monitor responses and
resource appropriately for an increase in the
lead up to the cliams deadline date, in order to
ensure the right outcomes for our customers.
Key highlights of the year
Throughout 2018, we have continued to
demonstrate our position as leaders in
innovation, providing customers with
solutions to better serve their financial needs.
Through automation and digitisation, over
half of the products we delivered in 2018
were taken out digitally and 90% of our
service transactions are now completed
in a self-service fashion by our customers.
We have continued to develop the capabilities
of our mobile banking app, Barclays Mobile
Banking (BMB) to allow our customers to
manage their finances more easily and
effectively, with BMB becoming the most used
banking app in the UK (eBenchmarkers). We
now have around 10.8 million digitally active,
around five million of whom are digital only.
We are proud to be the first major UK high
street bank to allow customers to aggregate
their other current accounts into our mobile
banking app through Open Banking API
technology, meaning that customers do not
have to share their online banking log-in
credentials with us in order to do this. We
Building Thriving
Local Economies
In September, we launched our first
Building Thriving Local Economies pilot in
Bury, Greater Manchester. Through this
we aim to bring together people, teachers,
business groups and political leaders
across our communities to identify
growth opportunities and understand the
barriers that prevent local communities
in the UK from moving forward. We
understand that every community has
different characteristics and
circumstances, so following our pilot in
Bury, we will create a further three pilots
in different types of communities across
the UK, including a rural community, a
coastal community and a smaller town.
will continue to harness the opportunities that
Open Banking provides in order to deliver new
and exciting applications for our customers in
the future.
By focusing our efforts on improving the
end-to-end journeys for our customers,
we have again reduced the number of
complaints we receive. Despite this, the level
of complaints we receive remains too high
and reducing them further will continue to
be a key priority for us in 2019.
This year has seen further progress in ensuring
we continue to properly support older, disabled
or potentially vulnerable customers. A number
of new services were launched including: the
ability for deaf customers to contact us by
telephone with the assistance of a third-party
interpreter; an online support page for people
experiencing mental health concerns; and a
wide-range of considerations for older
customers including fraud and scams
awareness and accessible banking services.
We are investing in personalised ways to
support customers who are showing that they
may be experiencing early stages of financial
stress. Enabled by a new sophisticated data
engine, we have developed a suite of tailored
contacts to direct customers towards tools
and information that could help them improve
their financial health.
We have already helped over 6.7 million young
people develop the core, transferable skills
they need for the world of work through our
LifeSkills programme and we have committed
to upskill another 10 million people over the
next five years to support all generations,
across the whole of the UK.
Ashok Vaswani
CEO, Barclays UK
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Leaders in innovation
Personal Banking
Our Community and Premier Banking
team develop transparent and innovative
solutions for our customers. We help
customers move forward by putting them
at the heart of everything we do,
connecting the different aspects of their
lives to their financial lives, at the time
that suits them. This ranges from
opening their first bank account to
completing a mortgage on their
dream home.
Savings, Investments & Wealth
Management serves a spectrum of
clients – from those who manage their
own investments, requiring an execution
service, to those who require a dedicated
and holistic service through our Wealth
Management division.
Community and Premier Banking
Throughout the year, we have helped our
Community and Premier customers go
forward through a range of both new
products and propositions as well as
enhancements to existing ones.
We have made a range of enhancements to
BMB in order to help our customers manage
their finances more effectively. As well as being
able to view current accounts from other
banks, we continue to give customers more
control of their financial lives. Misplaced
debit cards can now be temporarily frozen
through BMB, preventing any cash machine
withdrawals and online or in-store debit
card purchases. We have also implemented
a calendar view feature showing regular
payments scheduled for the month ahead to
assist in better financial planning, as well as an
improved view of transaction details, including
a map view, so our customers can identify
with whom they have spent their money
more quickly and easily.
We continued to reward customers who
chose to bank with us, launching two
switching campaigns in 2018 based on
our Blue Rewards proposition. Our first
campaign offered double rewards for a year
for switching, followed by a subsequent
campaign offering double Rewards for
Community and triple Rewards for Premier
customers for switching to a Barclays Current
Account through the Current Account Switch
Service. 1.4 million customers now benefit
from Blue Rewards, including Cashback,
representing a 51% year-on-year increase.
In 2018, we helped over 110,000 customers
take out a mortgage or further borrowing on
their property, 22,000 of whom were first-time
buyers. We continue to help our customers on
their home-buying journey with 1.5% growth
in gross lending year-on-year.
Demonstrating our commitment to Barclays
Group’s green finance agenda, we were the
first major UK bank to offer a Green Mortgage
product. The Barclays Green Home Mortgage
rewards customers with lower rates on certain
deals when purchasing new energy efficient
homes and builds upon Barclays green
product offering.
Savings, Investments and
Wealth Management
In 2018, we brought our Savings proposition
together with our Wealth and Investments
business, so that we can seek to offer our
customers and clients a flawless experience,
whatever stage they are at in their savings
and investments journey.
We launched our Flexible Monthly Income
Bond, which enables customers to deposit
a lump sum for a three-year term and then
drawdown the capital on a monthly basis to
supplement their income. This is a unique and
innovative product designed for customers
in the retirement segment, with the launch
linked to National Pension Awareness Day.
Customers who want instant access to their
savings can now open an Everyday Saver
account entirely through BMB. We have seen
a huge customer response to this with over
60% of Everyday Saver accounts opened
digitally in 2018.
In our Wealth Management business we
continued our focus on growth throughout
2018, with a number of new hires and
continued strong levels of new client
acquisition. However, challenging market
conditions have resulted in overall assets
under management falling year on year.
Investment will continue to be made to
improve the client experience and productivity
of our Wealth Managers during 2019.
After a difficult start to the year, with issues
relating to the migration of customers to our
digital investing proposition, Smart Investor,
we have worked to enhance the platform in
2018 – for example customers can now sign
up to Smart Investor via BMB. However, there
remains work to do in 2019 to turn the
platform into a leading digital investments
offering. To this end, we have a confirmed
2019 delivery roadmap, based on client
feedback, that will see significant upgrades
to the platform throughout the year.
Barclaycard Consumer UK
Barclaycard Consumer UK is a leading
credit card provider, providing flexible
borrowing and payment solutions to
around 10 million customers in the UK.
We help people move forward, by helping
them to borrow and pay in the way that
suits them. We are a responsible lender,
providing credit based on credit history,
ability to afford credit and our risk
appetite, while seeking to deliver a
leading customer experience.
In 2018, we have looked at further ways
to meet the needs of our customers.
At Barclaycard Consumer UK, we inspire
confidence by making sure everything we do
is secure, reliable and useful to our customers
and clients, like giving our customers 24/7
fraud protection to keep their money safe
and equipping customers with the knowledge
to protect themselves from fraud. Our Fraud
Fighter campaign highlights that fraud is
not always so easy to spot and encourages
customers to use our Fraud Fighter Tool.
We continued working to better understand
the needs of different customer circumstances
and help put the customer in control. We
launched a credit build tool that offers tips
and advice to help customers build their credit
score. We helped customers move forward
this year with our first ever product upgrade
from Initial to Platinum for qualifying price
promise customers – we upgraded customers
who kept their accounts in order for
12 months to help them further build their
credit score and go forward to do the things
they want to do, with confidence, every day.
32 Barclays PLC Annual Report 2018
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Island dream becomes
reality thanks to funding
from Barclays
Laura Pitchford from North Wales has
secured funding from Barclays to take
ownership of a community coffee shop
on the Isle of Mull that she has visited
since childhood. The business loan
enabled her to purchase the business
which includes tearooms and self-
catering accommodation, a centre
point in the local community.
Laura and her family have been repeat
visitors there for 15 years and while
visiting last summer, Laura asked the
owner if she ever planned on selling. Just
six months later, the call came offering
Laura the chance to make her island
dream a reality.
Laura approached her local Barclays
Relationship Manager to support her
ambitions, “Running my own business
is something I’ve wanted to do for some
time” said Laura. “I’m really excited about
the future and looking forward to
adapting to the island way of life. Thanks
to the support from Barclays, the dream
I’ve had for years has become a reality.”
A Barclays spokesperson said: “At
Barclays we’re passionate about helping
Scotland’s business owners at every
stage of their journey. We were able to
offer Laura a local relationship manager,
who understood her ambitions and
helped her to take ownership of the
business. With Barclays’ backing, Laura’s
island plans have now become a reality.”
We are also committed to ensuring more
transparency with our customers, not just
in the ways that we communicate with them,
but by simplifying the ways that our products
work. Over the last year, we have waived
interest charges on purchases that are paid
in full if a card also has a promotional balance.
Under this new scheme, cardholders that
make new purchases during the billing cycle
and pay them off in full by their payment due
date will no longer pay any interest on those
transactions, thus removing the need for
customers to use separate cards for their
spending and balance transfers.
We continue to challenge ourselves to think
differently and create a model that lowers
complaints and provides better customer
experience while delivering sustainable
returns. Customers want relevant,
personalised payment and borrowing options,
coupled with perfect digital-driven
experiences and they want those experiences
to come to them, in the digital channels they
choose, at the moment that’s right for them.
In a first for any of Barclays UK’s retail banking
products, customers can now acquire a
Barclaycard credit card on an external
Open Banking Mobile app.
Barclays was the first major UK
bank to offer a Green Mortgage
product. The Barclays Green
Home Mortgage rewards
customers with lower rates on
certain deals when purchasing
new energy efficient homes and
builds upon Barclays green
product offering.
Business Banking
Business Banking offers products,
services and specialist advice to over one
million clients in the UK, ranging from
start-ups to mid-sized businesses, to
help them achieve their goals.
Business Banking provides support to clients
across the UK at all stages of their business
cycle through a relationship-based and
digitally-driven service.
Our UK-wide network of experts has helped
thousands of businesses get started and grow,
with access to specialist industry insights
across key segments such as Agriculture and
Real Estate. We also support a legacy portfolio
of Education, Social Housing and Local
Authorities (ESHLA) clients. Although new
lending to ESHLA clients is met through
Barclays International, Barclays UK continues
to support ESHLA clients, for example, by
agreeing a number of mergers within social
housing, which gives clients the capacity to
continue building more new homes to
address UK housing needs.
Innovation is an integral part of our strategy
for growth and continues to be at the
forefront of our services. In 2018, we
announced a number of key partnerships
with Fintech businesses, such as our
industry-leading collaboration with PayPal,
enhancing customers’ digital payments,
saving SMEs time and putting them in control,
with access to marketing, inventory and other
valuable data all in one place. We collaborated
with MarketInvoice, Europe’s largest online
invoice financing platform, providing small
businesses with access to invoice financing
products and transforming the way SMEs
manage cash flow and accelerate growth.
We also launched £100,000 unsecured
lending limits for SMEs, doubling our
maximum limits for unsecured business
loans for eligible clients, making small
business lending faster, simpler and easier.
This adds to our existing unsecured lending
offering which allows qualifying SME clients to
access pre-assessed affordable lending up to
£25,000 via our mobile app and through
online banking, often receiving the cash
that same day.
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Barclays PLC Annual Report 2018 33
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Strengthening our diversified portfolio
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Value cre a t
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Tim Throsby
CEO, Barclays International
In 2018, Barclays International made good
progress on executing our strategy and
improving returns. Our progress gives us
confidence that by continuing to build our
businesses through targeted deployment of
financial resources and investments in talent
and technology, we can accelerate our growth
and achieve increased returns.
Customers and clients
■■ Consumers
■■ Corporates
■■ Financial institutions
■■ Governments
■■ High and ultra-high net
worth individuals and family offices
■■ Money managers and institutional
investors
Products and services
■■ Corporate banking
■■ Investment banking
■■ Non-UK consumer banking,
cards and lending
■■ Payments
■■ Securities sales, trading and research
■■ Wealth management
Value creation
■■ To our customers and clients – we
connect providers and users of capital
■■ To society – we facilitate sustainable
economic growth
■■ To shareholders – we deliver sustainable
returns from our diversified portfolio
of businesses
Contribution to Barclays
£14.0bn
Income
£3.9bn*
Profit before tax
8.7%*
RoTE
68%*
Cost: income ratio
£210.7bn
Risk weighted assets
* Excluding litigation and conduct.
34 Barclays PLC Annual Report 2018
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Overview
Barclays International consists of the Corporate
and Investment Bank (CIB) and Consumer,
Cards and Payments (CCP). With relentless
focus on delivering for customers and clients in
our UK and US home markets and around the
world, Barclays International’s diversified
business portfolio provides balance, resilience
and exciting growth opportunities. The division
has strong global market positions, and
continues to invest in people and technology in
order to deliver sustainably improved returns.
Strategy
Barclays International has a transatlantic
footprint anchored in the world’s deepest and
most sophisticated capital markets, London
and New York.
Barclays International offers clients and
customers a range of products and services
spanning retail banking and wealth
management, credit cards and payments, and
corporate and investment banking. The
diversified business model provides Barclays
shareholders with a mix of revenue streams
that benefit from the different stages of the
world’s economic cycles.
We are making strategic investments to seize
the clear growth prospects each business
presents. Similarly, we continue to build a great
culture where our strong conduct and rigorous
controls environment enable us to deliver the
right outcomes for all our stakeholders.
Market and operating environment
The markets in 2018 were characterised by US
economic outperformance, including further
labour market improvements and on-target
inflation rates. Against this backdrop, short-
term US interest rates increased further, ahead
of other core markets, and the US dollar
strengthened. While market volatility remained
generally low, isolated bouts of volatility resulted
in a more uneven equity performance. In the
UK, growth softened further amid heightened
uncertainty around Brexit developments,
reflected in a volatile and depreciating sterling.
Barclays has been working on plans with respect
to the UK’s departure from the EU in 2019. Our
plans are driven by an overriding commitment to
preserve seamless ongoing EU market access for
Barclays and our customers and clients. A key
element of our plans was to seek regulatory
authorisations from the Central Bank of Ireland
and the European Central Bank to expand the
operations of Barclays Bank Ireland PLC
(BBIPLC). Barclays has had a banking licence in
Ireland for almost 40 years. During 2018,
Barclays received the necessary authorisations,
scaled up our presence in Ireland, and began
the transfer of our European branches from
BBPLC to BBIPLC. We remain confident in our
ability to serve our customers and clients once
the UK’s withdrawal is complete.
Our US Intermediate Holding Company (IHC)
received positive feedback from the US Federal
Reserve on the IHC’s first-ever public stress
test submissions, indicating the strength of
the IHC’s capital position. The IHC, which we
established in 2016, is an umbrella holding
company for our US subsidiaries, including the
US broker-dealer that operates key investment
banking businesses and the entity that
operates Cards & Payments in the US.
Risks to the operating model
Geopolitical and macroeconomic uncertainty
in some markets remain a risk, while the
volume and reach of regulatory change
continues to require significant attention.
The potential impact of longer-term
uncertainty is a sustained low rate environment,
predominately impacting revenues and driving
cautious market activity. This was evident in
2018, and created a challenging operating
environment for corporate and investment
banking activities in particular.
As we accelerated our growth efforts in 2018,
we increased our focus on ensuring that new
revenue opportunities do not compromise our
prudent approach to risk, or our ability to
generate sustainable returns. Coupled with
our cost efficiency programmes, this balanced
approach is designed to deliver a more
attractive bottom line.
We have a conservative risk profile, and continue
to work to maintain the quality of our lending
book. The quality of our US credit card portfolios
has been consistent with the overall industry
and key competitors. After an increase in
delinquency rates in 2017, rates moderated for
both the industry and Barclays in 2018. Loss and
arrears rates are still below the long-term
average and below pre-recession levels, driven in
part by favourable US GDP growth and low
unemployment rates. We continue to monitor
overall growth in unsecured debt across the
industry, particularly relative to wage growth,
and during 2018 unsecured debt growth slowed
to 4.9%, compared with 6.7% in 2017.
We continue to invest to ensure our
infrastructure is resilient to cybercrime,
conducting comprehensive penetration testing,
supported by the deployment of a number of
best-in-class malware detection tools.
Investing in electronic
trading capabilities to
increase share in Markets
Upgrading our cross-asset electronic
trading platform, BARX, provided
significant fuel for our Markets business’
standout performance this year. For
example, the overhaul of our e-Rates
platform is driving a tenfold increase in
electronic trading of interest rate swaps
by our buyside clients. Our new Equities
platform, featuring industry-leading algo
capabilities, is generating significantly
higher volumes from our clients and very
positive feedback. The clients who
generate the highest returns do more
business with firms who deliver a
consistently strong market-making
offering across asset classes, so we are
committed to extending our BARX
investment in order to meet and exceed
those client expectations, and to drive
profitable growth in our franchise.
several experienced professionals to bring
complementary skills to our leadership team,
and made strategic appointments in areas where
we see opportunities for growth, including a
significant number of internal promotions.
To enable our people to deliver the best
outcomes for our customers and clients,
we focused our technology investment on
commercially impactful enhancements, and
this focus remains a hallmark of the division’s
strategy for the year ahead. Key initiatives
ranged from new data science and algorithmic
capabilities, to an enhanced digital experience
for our customers and clients.
We are already seeing results of investing in
our businesses. For example, our Equities
franchise delivered a standout performance
this year, with revenue growth outpacing
competitors. Similarly, we are seeing growth in
our newly launched US consumer loans
product, which complements our US cards
business.
Key highlights of the year
Barclays International delivered profit before
tax across all four quarters of 2018 –
demonstrating the increasing ability of our
diversified portfolio of businesses to deliver the
sustainable growth our shareholders expect.
During the year, we continued to contribute to
society, from launching a new housing
development fund to creating pathways to
employment, and from mentoring
entrepreneurs to structuring sustainability-
linked loans.
We continually evaluate our entire portfolio of
businesses for capital, leverage, risk assets
and funding across all jurisdictions and legal
entities. This helps us to further enhance both
our operational discipline and precision in our
capital allocation to deliver stronger returns.
Building on our progress is the mission of
every colleague in Barclays International.
We are confident in our ability to build on the
commercial focus we demonstrated in 2018,
and to deliver the right outcomes for all our
stakeholders.
Identifying the right talent to execute on our
ambitions remains fundamental to our growth
strategy. Over the course of the year, we hired
Tim Throsby
CEO, Barclays International
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Strengthening our diversified portfolio
Corporate and
Investment Bank
The Corporate and Investment Bank
comprises principally the Banking,
Corporate Banking and Markets businesses
which aid money managers, institutions,
governments and corporate clients in
managing their funding, financing, and
risk management needs.
Performance overview
Banking
Banking provides clients with long-term
strategic advice on mergers and acquisitions
(M&A), corporate finance and financial risk
management solutions, as well as equity
and debt capital raising services.
In 2018, across the industry, fees were down
approximately 4% globally, with some
products and regions down double digits.
Barclays’ global investment banking fee share
was 4.2%, consistent with our performance
in 2017.
In Europe and the Middle East, we ranked
fifth for all Banking products, our highest
ever full-year ranking. In the Americas, we
ranked sixth, and remain the highest-ranked
European investment bank. Our Asia Pacific
franchise continues to perform well.
Our performance was bolstered by a standout
year in M&A, where we attained our highest
global fee share in four years and ranked in
the top five in Americas M&A for the third
consecutive year. In Debt Underwriting we
ranked in the top four in global fee share
for the third consecutive year, driven by
a continued strong presence in both the
leveraged finance and investment grade
primary debt markets. Our Equity
Underwriting business performed well
in a very challenging market environment,
winning our highest ever ranking in
European rights offerings, and continued
to demonstrate momentum in initial public
offerings (IPOs), where we book-ran five of
the year’s 10 largest IPOs from the Americas,
Europe and the Middle East.
During 2018, our new Social Impact Banking
group structured the first sustainability-linked
loans in the US. More than 100 of our Banking
colleagues mentored entrepreneurs as part of
the third annual Unreasonable Impact
programme, the world’s first international
network of accelerators focused on scaling-up
entrepreneurial businesses that will help
employ thousands worldwide while solving
some of society’s most pressing challenges.
Barclays was the recipient of multiple industry
awards in 2018, including being named by
Euromoney as the UK’s Best Investment Bank
for the third consecutive year (and sixth time
in the last seven years), and as Western
Europe’s Best Bank for Financing. In addition,
Global Capital ranked Barclays as the Best
Corporate Broker in the UK for the third year
running, and IFR magazine named Barclays
its North America Asset-Backed Securitisation
House of the Year.
In the year ahead, we see opportunities to
improve further the performance of Banking
by investing in talent in key products and
sectors, and continuing to build on our
historical strength in debt underwriting.
Corporate Banking
Our Corporate Banking business provides
GBP and EUR working capital and transaction
banking services, including trade and
payments, for multinational corporates and
institutions, and UK large and medium size
corporate clients.
Our new Corporate Banking leadership is
focused on enhancing our offering. During
the year, we developed a new multi-country
digital banking platform, primarily supporting
Corporate and Investment Bank clients, which
was most recently rolled out in Ireland and
Germany. In Q3 2018, Corporate Banking and
the UK Government launched a £1bn housing
development fund to boost the delivery of
new housing in England, and also launched a
£300m ENABLE Guarantee cashback scheme
with the British Business Bank to boost asset
finance lending to SMEs.
Corporate Banking has also driven stronger
client relationships through innovative
programmes like Connect with Work, which
builds bridges between people who face
barriers to getting into work and businesses
that are recruiting but struggling
to find suitable candidates.
Through significant investments in our
technology, we are increasing the resiliency
and performance of our digital client
experience. These investments will continue
to be a focus for the year ahead, alongside
enhancing our competitive position in
the UK, and growing our transaction banking
revenues globally, expanding our European
cash management platform, and continuing
to enhance the commercial effectiveness of
our lending book.
Markets
Our Markets business provides a broad range
of clients with market insight, execution
services, and tailored risk management and
financing solutions across equities, credit,
rates and foreign exchange (FX) products.
We made good progress in 2018 on our
strategy to rebuild our franchise and
transform performance over the long term.
Supported by our investments in financial
resources, technology, and human capital,
our business this year increased market sharea
across each asset class and delivered five
consecutive quarters of outperformance vs.
our peers. In a year of challenging market
conditions, our Credit and Macro (Rates and
FX) businesses – which we report as FICC
(Fixed Income, Credit and Commodities) –
produced steady performances, driven by
revenue diversification in Credit and market
share gains in Macro. Revenue growth in
our Equities franchise outperformed our
competitors, driven by strong performances
in derivatives and equity financing. We also
made significant progress in building out our
Note
a All Markets ranks and shares: Coalition, FY18 Preliminary Competitor Analysis based on the Coalition Index and
Barclays’ internal business structure.
Enhancing the precision of
our capital allocation
With the goal of ensuring that our resources
are being deployed in a manner that will
drive improved shareholder returns, we are
embedding a rigorous approach to
quantitative and analytic capabilities and
balancing risk and return within our
businesses across Barclays International.
We are focused on driving efficiency in
funding and optimising the allocation of
our capital. In addition, we identify new
businesses to grow top line revenue.
Early success on this front includes the
Asset Finance business, which executed
two major mortgage acquisition and
securitisation transactions this year,
both valued over £4bn.
36 Barclays PLC Annual Report 2018
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electronic platform capabilities across all
asset classes, enabling best-in-class execution
for clients.
We continued to help clients navigate market
events and volatility, and maintained or
improved our position in a number of markets.
For example, Barclays was one of three banks
chosen to execute the first-ever bond issue
and the first-ever asset-backed commercial
paper transaction based on the new
Secured Overnight Financing Rate (SOFR).
Additionally, we are a top three ranked broker
by traded notional on the Tokyo Stock
Exchange (TSE), with over 100 trillion yen
traded for our clients in 2018, equating to
more than 10% market share.
The clients who generate the highest returns
for market-making businesses consistently
allocate the greatest and most profitable share
of their activity to full service markets
franchises. To better meet the needs of these
clients – typically the world’s largest money
managers – and therefore to improve returns,
in 2019 we plan to pursue targeted growth
and diversification opportunities. Our dialogue
with clients regarding these initiatives gives us
confidence that these investments will drive
the right commercial outcomes.
Research
Our Research team’s mission is to affect
clients’ decision-making through independent,
thought-leading, differentiated insights on
equity and debt, as well as on the macro
trends shaping the global economy.
To enhance our relevance to clients,
particularly after the implementation of
MiFID II, we continue to invest in our analysts
and the digital capabilities supporting their
work, as well as in best-in-class platforms to
disseminate their insights. The Research Data
Science Platform we are building will become
an increasingly important differentiator for us,
with state-of-the-art data infrastructure
operated by leading data scientists and
leveraging alternative data sets in innovative
ways. Partnerships with research aggregators
and new multimedia capabilities are helping
clients interact with us in the channels of their
choice, and report enhanced categorisation
is bringing our best content to a broader
audience.
The insights generated by our analysts
drive connectivity with clients across the
Investment Bank, with particularly strong
client engagement on cross-asset, cross-
regional perspectives, and our teams’ industry
rankings demonstrate their relevance in
helping clients understand the markets in
a challenging year.
Consumer, Cards
& Payments
Consumer, Cards and Payments includes
Cards & Payments and Private Bank &
Overseas Services. Cards & Payments
provides branded and co-branded
consumer credit cards, lending and
deposit accounts to our customers in the
US and Germany, and payment solutions
to our customers and clients in the UK.
Private Bank & Overseas Services
provides banking, credit and investment
services to retail, high net worth and
ultra-high net worth clients, family
offices, businesses, corporates and
fiduciaries internationally.
Performance overview
Cards & Payments
Our Cards & Payments business operates
across five business units: US Consumer Bank,
Barclaycard Payment Solutions, Barclays
Partner Finance, Barclaycard Commercial
Payments and Barclaycard Germany.
US Consumer Bank offers co-branded and
branded credit cards in the US, along with
consumer loans and online retail deposits.
Across all credit card products, US Consumer
Bank added over two million new accounts
in 2018 while growing our consumer retail
deposits to over US$14bn. We are among the
top-ten credit card issuers in the market by
total outstandings as at the end of 2018. Our
strong position in the travel and entertainment
industry continued with the launch of a new
Frontier Airlines co-brand credit card. Our
Uber Visa card and our JetBlue Plus Card
appeared in U.S. News & World Report’s list
of Best Travel Rewards Credit Cards. We also
maintained our number three position in the
2018 J.D. Power US Credit Card Satisfaction
Study. Driving continued strong growth in our
US Consumer Bank – across online consumer
banking and our partner cards franchise –
is a strategic priority for us in 2019.
Barclaycard Payment Solutions provides
merchant acquiring, payments integration and
acceptance, and payment gateway products
in the UK. In 2018, we processed over £250bn
in payments, making us one of the largest
payment acceptance providers in Europe.
During the year, we successfully migrated
over 100,000 clients from across our small
business and corporate client base onto our
new BankWORKS platform; clients now enjoy
better and more resilient service, including
new and improved statements and simplified
and flexible pricing.
Barclays Partner Finance provides point of
sale finance products to consumers in the
UK through a network of retailers and car
dealerships. In 2018, we grew our existing
partnerships, built relationships with new
clients, won a number of industry awards,
and retained our position as the market
leader in the UK retail market.
Barclaycard Commercial Payments provides
commercial cards and virtual payment
products in the UK. In 2018, we launched
the UK’s first co-branded trade credit card
partnership with Travis Perkins Group, and
strengthened our presence in the travel
industry by signing new partnerships with
Amadeus, Paxport and Voxel.
Barclaycard Germany is now over a quarter of
a century old and serves over 1.3 million credit
card, deposit and loan customers. We are the
leading issuer of revolving credit cards in the
country by outstanding balances. We also
have a growing instalment loans business as
well as an online deposit product. In 2018 we
launched a new Barclaycard Visa credit card,
and expanded our unique Equal Payment Plan
(EPP) offering by enabling credit card
customers to repay their credit card balance
in fixed instalments. Barclaycard Germany
continues to drive exceptional customer
satisfaction rankings (RNPS), with the
business ranking in the top two for both
cards and loans.
Barclays is also a leading provider of credit
cards and lending in Norway, Sweden and
Denmark via our EnterCard joint venture
with Swedbank.
Private Bank and Overseas Services
In the Private Bank we focus on bespoke
solutions, ranging from standard to
sophisticated, for our high net worth,
ultra-high net worth and family office clients.
Overseas services offers banking, investment
and credit products and services to local
residents and businesses based in Jersey,
Guernsey and the Isle of Man, and serves
non-UK based corporates and fiduciaries
who have UK banking, credit and investment
requirements. International Banking delivers
banking, savings, mortgages and investment
products to affluent international customers.
Private Bank and Overseas Services delivered
a strong performance during 2018. We
continued to enhance our client offering with
new products and services, which drove an
underlying increase in client balances. The
business delivered strong revenue growth
year on year, and a good return on equity.
We strive to build long-term value creation
with our clients. Central to our strategy
is continually enhancing our investment,
banking and credit propositions. We have
been developing differentiated capabilities in
discretionary portfolio management, foreign
exchange and real estate, and in bringing
investment opportunities from our world-class
Investment Bank.
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World-class service provider
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CEO, Barclays Execution Services
2018 is the second year of operations for BX
and we have gone from strength to strength.
Through our centres of excellence we are
delivering capacity to support investment
in our businesses and drive exceptional
customer service.
Value cre a t
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Customers and clients
■■ BUK and BI businesses –
and their customers and clients
Products and services
■■ Technology
■■ Operations
■■ Other functional services
Value creation
■■ To our customers and clients –
delivering high quality services
and an outstanding experience
■■ To society –
safety and continuity of services
to the financial system
■■ To shareholders –
generating efficiencies by
transforming the way we do business
Overview
BX is the Group-wide service company providing
technology, operations and functional services
to businesses across the Group.
The initial catalyst for the creation of BX was
the UK ring-fencing regulation and the need
to ensure operational continuity. However,
from day one, we have thought about BX
strategically as an organisation that can drive
productivity and capacity across Barclays. BX
has a central role in Barclays’ operating model
supporting the performance of both the BI
and the BUK businesses.
BX operates through centres of excellence
which group complimentary processes and
services together in order to offer consistency
and efficiency of delivery. It is an organisation
of scale and sophistication with nearly
two-thirds of colleagues within the BX
organisation.
38 Barclays PLC Annual Report 2018
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Strategy
The BX strategy is to be a world class provider of
simple, efficient, innovative and secure services,
which deliver customer and shareholder value.
We will achieve this by leveraging our centres
of excellence to drive operational excellence
and outstanding customer experience to
create competitive advantage.
We remain focused on eliminating inefficiencies
within the Group, creating capacity to enable
investment both in our core infrastructure and
in growth opportunities.
Bringing teams together creates opportunities
to identify and share best practices and foster
innovation. This delivers enhanced controls
and security resulting in a more resilient
organisation.
Market and operating environment
In an era of high paced development,
maintaining state of the art technology
for our customers and colleagues is critical.
Technology is a core enabler of our strategy
and BX partners with BI and BUK to ensure
that we continue to offer a market leading
digital offering; for example, supporting the
development of BUK’s mobile banking
application and developing enhanced
electronic trading capabilities for BI’s
Equities business.
Risks to the operating model
Robust management of operational risks have
never been more important in financial services
and Barclays is no exception. BX is at the
forefront of actively managing the Group’s
operational risks. Key focus areas for BX include
enhancing and maintaining the cyber defences
and technology resilience that is critical. The
threat of cybercrime remains a key risk and we
continue to invest in keeping our customers and
businesses safe. We have made major
investments in our cyber defences, including in
our global network of Security Joint Operation
Centres. These are state of the art integrated
facilities, providing 24/7 monitoring and
response capability enabling a Group-wide
collaborative response to threats and incidents
potentially impacting our colleagues, customers
and clients.
Technology resilience is at the heart of our
approach to operational resilience. The demands
of stakeholders including customers, markets
and regulators, have never been greater in
respect of this risk. We continue to invest to
ensure the operational resilience and reliability
of our technology infrastructure.
Key highlights of the year
Throughout 2018, we have delivered
outstanding customer service and kept
Barclays safe and secure.
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Engaging with financial technology companies
to drive innovation
Innovation plays a key role in solving Barclays’
challenges, identifying new revenue and
investment streams and building next-
generation products, services and platforms.
One way of bringing innovation into the
organisation is by harnessing the power
of FinTech companies.
Rise is home to the Barclays Accelerator,
powered by Techstars. Now in its fifth year,
this 13-week programme is designed to
tackle some of Barclays’ biggest challenges,
as well as shape and scale the next
generation of FinTech businesses. To date,
we’ve had over 140 companies graduate
from the programme. Their combined
valuation is estimated at £550m.
Known as the #homeoffintech, Rise, created
by Barclays, is a global community of the
world’s top innovators working together with
our colleagues, partners and clients, to create
the future of financial services. Rise operates
state-of-the-art workspaces in key cities
across the world, including London, New
York, Tel Aviv and Mumbai. Today, we have
over 250 Technology companies who are
based at Rise, along with a virtual community
of over 6,000 members.
In 2018, we successfully halved the
onboarding cycle time for our clients across
Corporate, Markets and Banking and 95% of
Corporate new-to-bank clients say they have
had a positive experience with their
onboarding manager.
Our investments in resilience and in our cyber
defences are enhancing the resilience of our
operations. In addition, we have made major
strides in moving our hosting solutions to the
Cloud and this will remain an area of focus
in 2019.
We have continued to develop our digital
capability and in 2018 we added over 15,000
clients onto our Corporate Banking iPortal
platform, covering more than 80% of the
customer base. In addition, we added more
cash management services to the platform
and launched the first mobile version.
This year, we launched ‘Rise Growth
Investments’, making up to £10 million of
investment capital available to each class of
ten companies coming through the Barclays
Accelerator. These funds would provide
financial support at a key growth stage for
FinTech companies working with us on
strategic opportunities, reflecting Barclays’
commitment to mutual growth and success.
In 2019, investment in iPortal will increase to
allow the addition of: digital onboarding and
servicing; improved user experience; extended
transaction banking capabilities; and API
accessibility to deliver a market leading
Corporate Banking platform. We have
developed strategic campus sites in
Whippany, Glasgow and Pune which
provide state of the art work spaces
for our colleagues.
Our focus on our customers and clients
remains relentless.
Paul Compton
CEO, Barclays Execution Services
home.barclays/annualreport
Barclays PLC Annual Report 2018 39
Governance compliance
Compliance with The UK Corporate Governance Code 2016
The UK Corporate Governance Code 2016 (The Code)
A snapshot of how Barclays complies with the requirements of The Code is set out below. For further information, see pages 83 to 88.
Leadership
The Barclays PLC Board of Directors (the Board)
is responsible for the overall leadership of the
Barclays Group, including establishing its
Purpose, Values and Strategy and satisfying
itself as to the alignment of Barclays’ culture to
its Purpose, Values and Strategy. In 2018, the
Board approved a new common Purpose for
the Barclays Group – Creating opportunities to
rise – which reflects Barclays’ entrepreneurial
spirit, relentless quest for better customer and
client centricity, and our commitments to
society at large and to our colleagues.
The Board is also responsible for ensuring
that management maintains a sound system
of audit, risk management, compliance and
internal control.
There is clear division of responsibilities
between the Chairman, who runs the Board,
and the Group Chief Executive, who manages
the Barclays Group on a day-to-day basis.
Individual roles on the Board and their
responsibilities are set out in Barclays’ Charter
of Expectations. Pursuant to the Charter of
Expectations, non-executive Directors provide
effective oversight, strategic guidance and
constructive challenge, help to develop
proposals on strategy and empower the
executive Directors to implement the strategy,
while holding the executive Directors to
account. The Senior Independent Director
provides a sounding board for the Chairman
and acts as an intermediary for the other
Directors when necessary.
Effectiveness
A majority of the Board – 12 of the 15
Directors – are independent non-executive
Directors and, as required by The Code, the
Chairman was independent on appointment.
In accordance with the recommendations of
The Code, the independence of Tim Breedon,
Reuben Jeffery III and Dambisa Moyo – all of
whom have served on the Board for more than
six years – was subjected to a more rigorous
review. The Board remains satisfied that the
lengths of their tenure have no impact on
their respective levels of independence or the
effectiveness of their contributions. Having
served on the Board for nine years, both
Reuben and Dambisa will be retiring from
the Board at this year’s AGM and will not,
therefore, be standing for re-election.
The composition of the principal Board
Committees meets the independence
criteria of The Code, and there is
appropriate cross-membership to
further promote effectiveness.
All appointments to the Board are based on
merit and objective criteria, in the context of
Barclays’ strategic direction and the diversity
of gender, social and ethnic backgrounds,
cognitive and personal strengths, as well as
skills, knowledge and experience required
for the Board to be effective. Appointments
are made following a formal, rigorous and
transparent process.
Diversity, particularly at Board and senior
leadership levels across the Barclays Group,
remains a key area of focus. The Barclays
Group recognises and embraces the benefits
of a diverse Board, and sees diversity at Board
level as an essential element in maintaining
a competitive advantage. The Nominations
Committee regularly reviews the composition
of the Board and the Board Committees. It
frequently considers a skills matrix for the
Board, which identifies the core competencies,
skills, diversity and experience required for the
Board to deliver its strategic aims and govern
the Barclays Group effectively. To the extent
that the Nominations Committee identifies
any gaps in the Board’s profile – which may
be a result of the forthcoming retirement
of a Director, or in response to changing
market needs – that information is used
to inform the search for a new Director or
Directors. For example, as at the date of this
report, there are four female Directors (27%)
against a target of having 33% female
representation on the Board by 2020, to which
we remain committed.
Potential new Directors are asked to disclose
their significant commitments, and to give
an indication of the time spent on those
commitments, on the basis that all Directors
are expected to allocate sufficient time to
their role on the Board in order to discharge
their responsibilities effectively. In 2018, the
attendance of Directors at scheduled Board
meetings was 100% and the attendance
of Directors at additional Board meetings
(which were often called on short notice)
was strong, at 95%.
All Directors are expected to
allocate sufficient time to their
role on the Board in order to
discharge their responsibilities
effectively. In 2018, the
attendance of Directors at
scheduled Board meetings
was 100%.
Directors are now obliged to obtain pre-
clearance prior to taking on any additional
commitments, including but not limited to
directorships, and to indicate in the clearance
request the likely time commitment involved.
For the year ended 31 December 2018, and as
at the date of this report, the Board is satisfied
that none of the Directors is over-committed.
Directors are subject to election or re-election
each year by shareholders at the AGM.
The effectiveness of the Board, the Board
Committees and the individual Directors has
been assessed in a process facilitated by an
independent third party. Further information
regarding the process for the review of the
Board, the Board Committees and the
individual Directors’ effectiveness can be
found in the Nominations Committee report
on page 68.
Accountability
The Board is responsible for setting Barclays’
risk appetite, that is, the level of risk it is
prepared to take in the context of achieving
Barclays’ strategic objectives.
Barclays’ Enterprise Risk Management
Framework (ERMF) is designed to identify and
set minimum requirements in respect of the
main risks to strategy execution. The key
elements of the Barclays Group’s system of
risk management and internal control are set
out in the risk frameworks relating to each of
our eight Principal Risks – Credit risk, Market
risk, Treasury and Capital risk, Operational
risk, Model risk, Reputation risk, Conduct risk
and Legal risk – and the Barclays Control
Framework, which details requirements for
the delivery of control responsibilities.
Frameworks, policies and standards applicable
to the Barclays Group under the ERMF also set
out the approaches to meet applicable legal
and regulatory requirements relating to
internal control and assurance.
40 Barclays PLC Annual Report 2018
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Regular reports are made to the Board
covering significant risks to the Barclays
Group. Key controls are assessed on a
regular basis for both design and operating
effectiveness. The Risk Committee and the
Reputation Committee examine reports
covering the Principal Risks as well as reports
on risk measurement methodologies and risk
appetite. The Audit Committee oversees the
control environment (and remediation of
related issues), and assesses the adequacy of
credit impairment. The Board reports on the
risks faced by the Barclays Group in the annual
viability statement on pages 42 and 43.
The Audit Committee, comprising
independent non-executive Directors,
oversees the effectiveness of Barclays’
internal and external auditors.
Remuneration
The Remuneration Committee, which comprises
independent non-executive Directors, sets the
overarching principles and parameters of
remuneration policy across the Barclays Group
and approves the remuneration arrangements
of the Chairman, the executive Directors,
other senior executives and certain Barclays
Group employees.
The Barclays Group’s remuneration
philosophy links remuneration to achieving
sustained high performance and creating
long-term value.
The remuneration structure for employees
is closely aligned with that for executive
Directors, the primary exceptions being
that the executive Directors participate in
the Barclays’ Long Term Incentive Plan and
receive part of their pay in Barclays PLC shares.
To ensure alignment with shareholder
interests, a significant proportion of the
potential remuneration of the executive
Directors is variable and is therefore
performance related. It is also subject to
deferral, additional holding periods, malus
and clawback.
Unvested deferred remuneration is subject to
malus. Clawback also applies to any variable
remuneration awarded to Material Risk Takers
after 1 January 2015.
The composition of the
principal Board Committees
meets the independence
criteria of The Code, and there
is appropriate cross-membership
to further promote effectiveness.
Relations with shareholders
The Board is committed to promoting
effective channels of communication with our
shareholders and upholding good corporate
governance as a means of building stronger
and more engaged relationships with them.
The Directors, in conjunction with the senior
executive team and Investor Relations,
participate in varied forms of engagement
with institutional investors, including investor
meetings, seminars and conferences across
many geographic locations, reflecting the
diverse nature of our equity and debt
institutional ownership. The Chairman and
Senior Independent Director, together with
other Board representatives and the Company
Secretary, hold investor meetings focused on
corporate governance matters. The Group
Chief Executive and Group Finance Director
also hold quarterly results briefings and
maintain a dialogue with investors.
We continue to communicate with our private
shareholders through shareholder mailings.
Shareholders can also choose to sign up to
Shareview so that they receive information
about Barclays PLC and their shareholding
directly by email.
The Board and the senior executive
team consider the AGM as a key date for
engagement with shareholders. A number
of Directors, including the Chairman, are
available for informal discussion either
before or after the meeting.
The Senior Independent Director is available
to shareholders if they have concerns that
have not been addressed through the
normal channels.
A revised version of The Code was published
in 2018, and came into effect for financial
years beginning on or after 1 January 2019
(The New Code). We will report against the
requirements of The New Code and The
Companies (Miscellaneous Reporting)
Regulations 2018, which were also published
last year and came into effect for our financial
year beginning on 1 January 2019, in our next
Annual Report.
Acknowledging the heightened focus
in The New Code on the need for boards
to understand the views of their key
stakeholders, and to report annually on
how their interests have been considered in
board discussions and decision-making, the
Board is reviewing its existing engagement
mechanisms with colleagues, shareholders
and other key stakeholders. For more details
of how we engage with our workforce, in
particular, please refer to the ‘Governance
reporting for 2019’ section on page 88.
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Barclays PLC Annual Report 2018 41
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Governance compliance
Viability statement
The UK Corporate Governance Code 2016 – Section (C.2.2)
The financial statements and accounts have been prepared on a going concern basis.
In addition, the UK Corporate Governance Code (2016) – Section (C.2.2) requires the Directors to make a statement in the Annual Report
regarding the viability of the Group, including explaining how they assessed the prospects of the Group, the period of time for which they
have made the assessment and why they consider that period to be appropriate.
Time horizon
In light of the analysis summarised below,
the Board has assessed the Group’s current
viability, and confirms that the Directors have
a reasonable expectation that the Group will
be able to continue in operation and meet its
liabilities as they fall due over the next three
years. This time frame is used in management’s
Working Capital and Viability Report (WCR),
prepared at February 2019. The availability
of the WCR gives management and the Board
sufficient visibility and confidence on the
future operating environment for this time
period. The three-year time frame has also
been chosen because:
■■ it is within the period covered by the
Group’s future projections of profitability,
cash flows, capital requirements and capital
resources
■■ it is also within the period over which
regulatory and internal stress testing is
carried out; and
■■ it is representative of the continued level
of regulatory change in the financial
services industry.
The Directors are satisfied that this period is
sufficient to enable a reasonable assessment
of viability to be made.
Considerations
In making their assessment the Board has:
■■ carried out a robust and detailed
assessments of the Group’s risk profile
and material existing and emerging risks.
Notable among these are risks which senior
management believe could cause the
Group’s future results of operations or
financial condition to differ materially from
current expectations or could adversely
impact the Group’s ability to maintain
minimum levels of regulatory capital,
liquidity, funding and the minimum
requirement for own funds and eligible
liabilities (‘MREL’) over the period of the
assessment
■■ reviewed how those risks are identified,
managed and controlled (further detail
provided on pages 137 to 148)
■■ considered the WCR which provides an
assessment of forecast CET1, leverage
ratio, Tier 1 and total capital ratios, as
well as the build-up of MREL up to 2022
■■ reviewed the Group’s liquidity and funding
profile, including forecasts of Barclays’
internal liquidity risk appetite (LRA) and
regulatory liquidity coverage ratios
■■ considered the Group’s viability under
specific internal and regulatory stress
scenarios
■■ considered the stability of the major
markets in which it operates, the risks
posed by the simplification of the business
model and regulatory changes
■■ considered scenarios which might affect
the operational resiliency of the Group
■■ reviewed the draft statutory accounts and
the in-depth disclosure of the financial
performance of the Group
■■ considered the Group’s medium-term plan
(MTP); and
■■ reviewed the legal, competition and
regulatory matters set out in Note 27 to the
financial statements on pages 315 to 322.
Assessment
Risks faced by the Group’s business,
including in respect of financial, conduct and
operational risk, are controlled and managed
within the Group in line with the Enterprise
Risk Management Framework. Executive
management set a Risk Appetite for the
Group, which is then approved by the Board.
Risk and Compliance set limits, within which
businesses are required to operate.
Management and the Board then oversee the
ongoing Risk Profile. Internal Audit provide
independent assurance to the Board and
Executive Committee over the effectiveness
of governance, risk management and control
over current and evolving risks.
A full set of material risks to which the
organisation is exposed can be found in the
Material existing and emerging risks on pages
131 to 136. Certain risks are additionally
identified as key themes and monitored
closely by the Board and Board Committees.
Certain particular risks to viability identified by
the Board are detailed below. These have been
chosen on the basis of their ability to impact
viability over the timeframe of the assessment
but in some instances the risks exist beyond
this timeframe.These particular risks include:
■■ The consequences from the UK’s
anticipated exit from the EU market and
Customs Union are unpredictable and
diverse and may impact over a prolonged
period. In particular, a significant
deterioration in the macro-economic
environment in the UK and Europe could
lead to increased credit rating downgrades
of the UK sovereign and the Barclays Group,
significantly increasing borrowing costs,
widening credit spreads and materially
adversely affect the Group’s interest
margins and liquidity position.
■■ legal proceedings, competition, regulatory
and conduct matters giving rise to the
potential risk of fines, loss of regulatory
licences and permissions and other
sanctions, as well as potential adverse
impacts on our reputation with clients
and customers and on investor confidence
and/or potentially resulting in impacts
on capital, liquidity and funding
■■ sudden shocks or geopolitical unrest in any
of the major economies in which the bank
operates which could impact credit ratings,
alter the behaviour of depositors and other
counterparties and affect the ability of the
firm to maintain appropriate capital and
liquidity ratios; and
■■ evolving operational risks (notably
cybersecurity, technology and resilience)
and the ability to respond to the new and
emergent technologies in a controlled
fashion.
As a diversified, transatlantic bank with global
reach, Barclays is impacted in the longer term
by a wide range of macroeconomic, political,
regulatory and accounting, technological and
social developments. The evolving operating
environment presents opportunities and risks
which we continue to evaluate and take steps
to appropriately adapt our strategy and its
delivery. Notably, the consequences of the
withdrawal of the UK from the European
Union and the associated economic and
operational risks have received significant
management attention, particularly, given
the greater uncertainty this is likely to cause
in 2019.
42 Barclays PLC Annual Report 2018
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Stress tests
The Board has also considered the Group’s
viability under specific internal and regulatory
stress scenarios.
The Board reviewed external regulatory stress
test results which are designed to assess
the resilience of banks to adverse economic
developments and confirm that we have
robust forward-looking planning processes for
the risks associated with our business profile.
In addition, the latest macroeconomic internal
stress test, conducted in Q4 2018, considered
the potential impacts of:
■■ a severe UK recession triggered by the
UK leaving the EU with no transitional
arrangements including falling property
prices which fail to recover over the forecast
horizon and rising unemployment
■■ significant weakness in the US economy
post 2019 as the stimulative effects of
tax reform fade
■■ a sudden shortage of credit in China
causing a global recession
■■ weakness in peripheral Europe driven by an
aggressive fiscal easing pledged by the
Italian Coalition Government. This weakness
is exacerbated by the global economic
slowdown in the US and China combined
with trade tensions; and
■■ a major technological outage in the firm.
All of which could result in, among other
things, a loss of income or increased
impairment. The stress test outcome for
macroeconomic tests shows our full financial
performance over the horizon of the scenario
and focuses on the CET1 capital ratio.
Legal proceedings, competition, regulatory
and remediation/redress conduct matters
ar so assessed as part of the stress testing
process. Capital risk appetite and LRA are
set at a level designed to enable the Group
to withstand various stress scenarios. As
part of this process, management also
identified actions, including cost reductions
and withdrawal from lines of business,
available to restore the Group to its desired
capital flightpath.
The Group-wide stress testing framework
also includes reverse stress testing techniques
which aim to identify and analyse the
circumstances under which the Group’s
business model would no longer be viable.
Examples include extreme macroeconomic
downturn scenarios, or specific idiosyncratic
events, covering operational risk (for example,
cyberattack), adverse outcomes in legal
proceedings, competition, regulatory and
conduct matters and capital/liquidity events.
We use an inventory of models, quantitative
procedures and judgement to support the
stress test calculations and projections. These
tools range from experienced management
judgement through to sophisticated financial
and behavioural models. The stress test
evaluation process produces both gross
impacts and the effect of mitigation including
management actions. This enables us to
understand, monitor and control the risks
identified. The stress testing process is
overseen by a governance structure from the
Board through executive business and risk
committees. Management believes that the
internal and external stress testing process
considers a wide range of severe but plausible
events. However, stress tests should not be
assumed to be an exhaustive assessment
of all possible hypothetical extreme or
remote scenarios.
These internal and external stress tests
informed the conclusions of the WCR. Based
on current forecasts, incorporating key known
regulatory changes to be enacted and having
considered possible stress scenarios, the
current liquidity and capital position of the
Group continues to support the Board’s
assessment of the Group’s viability.
For a statement as to our dividend policy
please see page 89.
The Board’s assessment of the Group’s
viability over the next three years is subject
to material existing and emerging risks
highlighted on pages 131 to 136.
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Barclays PLC Annual Report 2018 43
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Governance compliance
Non-financial information statement
Measurement and reporting of non-financial matters is
key to Barclays and we firmly believe that what is being
measured is being managed, hence, our continuous effort
at improving and refining our non-financial reporting.
Areas of the Non-financial information statement are reflected by way of reference to the
following locations:
Non-financial information
Section
Business model
Business model
Policies
Principal risks
Non-financial information statement
Risk review
Risk management
Risk performance
Key performance indicators Key performance indicators
Page
14
45
127
137
149
18
We have a range of policies and guidance
(available at home.barclays/citizenship/
our-reporting-and-policy-positions/ and shown
opposite) that support our key outcomes for
our customers and clients, colleagues and
citizenship activity. Performance against our
strategic non-financial performance measures,
as shown on pages 19 to 27, is one indicator of
the effectiveness and outcome of policies and
guidance. The due diligence carried out for each
policy is contained within each respective policy
documentation. Policies are reviewed annually
by the appropriate Board Committee, including
an assessment of the effectiveness of the Policy
with any recommendations for revisions made
to the Board for approval.
Extensive non-financial reporting can also be
found in our 2018 ESG Report at home.
barclays/citizenship
Each policy is available for downloading
from home.barclays/citizenship/
our-reporting-and-policy-positions
We use a variety of tools to track and
measure our strategic delivery and collect
both quantitative and qualitative information
to get the full picture of our performance. We
are also committed to maintaining a robust
internal and external assurance process for
our key metrics, ensuring that we have strong
controls and clear data management in place.
The Non-Financial Reporting requirements
contained in sections 414CA and 414CB of the
Companies Act 2006 are addressed within this
section by means of reference in order to
indicate which part of the strategic narrative
(within this document, or available online) the
respective requirements are embedded. We
have used references to avoid disrupting or
duplicating the narrative flow, in the spirit of
clear, concise and transparent reporting.
Non-financial information and the delivery of
non-financial benefits for our stakeholders is
integrated into the strategy of Barclays. Our
business model on page 14 encompasses the
non-financial value created for our stakeholders
from our resources and relationships of the
Group. This value creation is measured through
our performance measures.
The principal risks related to the non-financial
matters are shown alongside the financial
principal risks on page 28, along with
a description of their management,
Our non-financial performance measures
shown on pages 19 to 27 ensure we maintain
accountability and deliver for a wider range of
stakeholders. Delivery for our colleagues is
discussed in detail within the Colleague section
within our KPI framework, and the culture that
fosters this environment is discussed in further
detail on page 11, and within the People section
on pages 93 to 98. In respect of environmental
matters, we assess our performance through
our Citizenship lens, in addition to providing
granular level information in our 2018 ESG
Report. The report also discusses our position
in society, respect for human rights and
anti-corruption and anti-bribery matters
in more detail.
44 Barclays PLC Annual Report 2018
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Across Barclays, policies and statements of intent are in place to ensure consistent governance on a range of issues.
For the purposes of the Non-Financial Reporting requirements, these include, but are not limited to:
Non-financial interests
Environmental matters
Policy statement
Energy and Climate Change statement
World Heritage Site
and Ramsar Wetlands statement
Environmental risk
Employees
Policy statement
Board Diversity Policy
Code of Conduct
Health, safety and welfare
Equality and Diversity Charter
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Description
Our new Energy and Climate Change statement sets out our approach to energy sectors
with higher carbon-related exposures from extraction or consumption, and/or those with
an impact in certain sensitive environments, namely thermal coal, Arctic oil and gas, and oil
sands. The statement outlines the important role Barclays plays in ensuring that the world’s
energy needs are met, while helping to limit the threat that climate change poses to people
and to the natural environment.
We understand that certain industries, and in particular mining, oil and gas and power, can
have negative impacts on areas of high biodiversity value including UNESCO World Heritage
Sites and Ramsar Wetlands. We recognise that financing projects located in these areas can
impact on the outstanding universal value that they provide. Our World Heritage Site and
Ramsar Wetlands statement outlines our due diligence approach to preserving and
safeguarding these sites.
We have a strong commitment to managing the environmental risks associated with
commercial lending and recognise that a bank’s major environmental impacts tend to be
indirect, arising from the provision of financial services to business customers. We believe that
taking due account of our environmental impacts is not only the right thing to do, but also
makes good business sense.
Description
The Board Diversity Policy (‘the Policy’) sets out the approach to diversity on the Boards of
Directors of Barclays PLC.
The Barclays Code of Conduct outlines the Values and Behaviours which govern our way of
working across our business globally. It constitutes a reference point covering all aspects of
colleagues’ working relationships, specifically (but not exclusively) with other Barclays
employees, customers and clients, governments and regulators, business partners, suppliers,
competitors and the broader community.
Our commitment is to ensure the health, safety and welfare of our employees and to provide
and maintain safe working conditions. Effective management of health and safety will have a
positive effect on the services we provide. Good working environments will help our
employees to perform better in serving our customers, which in turn will create value for all
our stakeholders – customers, employees, shareholders and the communities that we serve.
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Barclays Equality and Diversity Charter governs the approach for employees of the Group.
A diverse employee-base will include and make good use of differences in the skills, regional
and industry experience, background, race, gender and other distinctions between employees,
with all appointments made on merit.
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Barclays PLC Annual Report 2018 45
Governance compliance
Non-financial information statement
Social matters
Policy statement
Donations
Tax
Sanctions
The defence industry
Human rights
Policy statement
Human rights
Modern slavery
Supply chain
Data protection
Description
Barclays works in partnership with non-profit organisations, including charities and NGOs, to
develop high-performing programmes and volunteering opportunities that harness the skills
and passion of Barclays’ employees. Barclays Citizenship has chosen to partner with a small
number of organisations, allowing us to have deeper relationships and ultimately enabling us
to have the greatest impact on the communities in which we operate. For this reason, we are
unable to provide funding to many of the individual requests we receive. Barclays does not
accept unsolicited donation requests.
Our Tax Principles are central to our approach to tax planning, for ourselves or on behalf
of our clients. Since their introduction in 2013 we believe our Tax Principles have been a
strong addition to the way we manage tax, ensuring that we take into account all of our
stakeholders when making decisions related to our tax affairs. The same applies to our Tax
Code of Conduct.
Sanctions are restrictions on activity with targeted countries, governments, entities,
individuals and industries that are imposed by bodies such as the United Nations (UN),
the European Union (EU), individual countries or groups of countries. The Barclays Group
Sanctions Policy is designed to ensure that the Group complies with applicable sanctions
laws in every jurisdiction in which it operates.
Barclays has a strong and long-standing commitment to managing the social and ethical
risks associated with lending and other types of financial services. We provide financial
services to the defence sector within a specific policy framework. Each proposal is assessed
on a case-by-case basis and legal compliance alone does not automatically guarantee our
support. The Barclays Statement on the Defence Sector outlines our approach and
appetite to Defence-related transactions and relationships.
Description
We operate in accordance with the Universal Declaration of Human Rights and take account
of other internationally accepted human rights standards. We also promote human rights
through our employment policies and practices, through our supply chain and through the
responsible use of our products and services.
Barclays recognises its responsibility to comply with all relevant legislation including the
UK Modern Slavery Act 2015. In accordance with the requirements of the Act, we release
an annual Barclays Group Statement on Modern Slavery. This includes work on combating
modern slavery in our operations, supply chain, and with clients and customers.
Our supply chain helps us deliver for all our customers, clients and colleagues. Our supply
base is diverse, including start-ups, small and medium-sized businesses, and businesses
owned, controlled and operated by under-represented segments of society as well as
multinational corporations. We recognise that these partnerships have significant direct
and indirect environmental and social impacts. We actively encourage our supplier partners
to meet Barclays’ requirements in order to meet our obligations to our stakeholders.
Across Barclays, the privacy and security of personal information is respected and protected.
Our Privacy Statement governs how we collect, handle, store, share, use and dispose of
information about people. We regard sound privacy practices as a key element of corporate
governance and accountability.
Anti-bribery and anti-corruption
Policy statement
Description
Bribery and corruption
Anti-money laundering and
counter-terrorist financing
We recognise that corruption can undermine the rule of law, democratic processes and basic
human freedoms, impoverishing states and distorting free trade and competition. Our statement
reflects the statutory requirements applicable in the UK as derived from the United Nations and
Organisation for Economic Co-operation and Development conventions on corruption.
Barclays Anti-Money Laundering Policy is designed to ensure that we comply with the
requirements and obligations set out in UK legislation, regulations, rules and industry guidance
for the financial services sector, including the need to have adequate systems and controls
in place to mitigate the risk of the bank being used to facilitate financial crime.
46 Barclays PLC Annual Report 2018
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Governance
This section sets out our corporate governance processes
and the role they play in supporting the delivery of our
strategy, including reports from the Chairman and each
of the Board Committee Chairs.
Directors’ report
How we comply with The UK Corporate Governance Code 2016
■■ Board of Directors
■■ Group Executive Committee
■■ Board report
■■ Board Audit Committee report
■■ Board Nominations Committee report
■■ Board Reputation Committee report
■■ Board Risk Committee report
Chairman’s introduction
Who we are
What we did in 2018
How we comply
Other statutory information
People
Remuneration report
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Barclays PLC Annual Report 2018 47
Governance: Directors’ report
How we comply with
The UK Corporate Governance Code 2016
The UK Corporate Governance Code 2016 (The Code)
The Code is not a rigid set of rules. It consists of principles (main and supporting) and provisions. The Listing Rules require companies to apply
the main principles and report to shareholders on how they have done so.
Page
Remuneration
Executive directors’ remuneration
should be designed to promote
the long-term success of the
company. Performance-related
elements should be transparent,
stretching and rigorously applied.
■■ Remuneration report
99
There should be a formal
and transparent procedure for
developing policy on executive
remuneration and for fixing
the remuneration packages of
individual directors. No director
should be involved in deciding
his or her own remuneration.
■■ Remuneration report
Relations with
shareholders
There should be a dialogue
with shareholders based on
the mutual understanding of
objectives. The board as a whole
has responsibility for ensuring
that a satisfactory dialogue
with shareholders takes place.
■■ Shareholder engagement
The board should use general
meetings to communicate with
investors and to encourage
their participation.
■■ Shareholder engagement
99
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You can find our disclosures as follows:
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Leadership
Every company should be headed
by an effective board which is
collectively responsible for the
long-term success of the company.
■■ Composition of the Board
■■ Board of Directors
There should be a clear division
of responsibilities at the head of
the company between the running
of the board and the executive
responsibility for the running of
the company’s business. No one
individual should have unfettered
powers of decision.
■■ Roles on the Board
83
The chairman is responsible
for leadership of the board and
ensuring its effectiveness on all
aspects of its role.
The board should be supplied in
a timely manner with information in
a form and of a quality appropriate
to enable it to discharge its duties.
■■ Information provided to the
Board
The board should undertake
a formal and rigorous annual
evaluation of its own performance
and that of its committees and
individual directors.
■■ Review of Board and Board
Committee effectiveness
All directors should be submitted
for re-election at regular
intervals, subject to continued
satisfactory performance.
■■ Composition of the Board
■■ Appointment and re-election
■■ Roles on the Board
83
of Directors
Accountability
The board should present a fair,
balanced and understandable
assessment of the company’s
position and prospects.
■■ Strategic report
■■ Risk management
■■ Viability statement
The board is responsible for
determining the nature and extent
of the principal risks it is willing
to take in achieving its strategic
objectives. The board should
maintain sound risk management
and internal control systems.
■■ Risk management and
internal control
The board should establish formal
and transparent arrangements
for considering how they should
apply the corporate reporting, risk
management and internal control
principles and for maintaining an
appropriate relationship with the
company’s auditors.
■■ Board Audit Committee report
■■ Accountability
58
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As part of their role as members
of a unitary board, non-executive
directors should constructively
challenge and help develop
proposals on strategy.
■■ Roles on the Board
Effectiveness
The board and its committees
should have the appropriate
balance of skills, experience,
independence and knowledge
of the company to enable them
to discharge their respective duties
and responsibilities effectively.
■■ Board of Directors
■■ Board diversity
There should be a formal, rigorous
and transparent procedure for the
appointment of new directors to
the board.
■■ Appointment and re-election
of Directors
All directors should be able to
allocate sufficient time to the
company to discharge their
responsibilities effectively.
■■ Board of Directors
■■ Attendance
■■ Time commitment
All directors should receive
induction on joining the board
and should regularly update and
refresh their skills and knowledge.
■■ Induction
■■ Training and development
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48 Barclays PLC Annual Report 2018
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Governance: Directors’ report
Chairman’s introduction
The Board believes that its role is to create and preserve value,
not just for shareholders but for all stakeholders and society
more widely.
Dear Fellow Shareholders
Our aim is to ensure that our governance is
fit for purpose, and in line with best practice
among FTSE100 companies. I remain firmly
of the view that the role of the Board is to
create long-term sustainable value for the
benefit of our shareholders and our wider
stakeholders. To achieve this, it is vital that
Barclays has a robust corporate governance
framework, which provides systems of checks
and controls to ensure accountability and
promotes sound decision-making. It is critical
that we have policies and practices in place
which ensure that each of the Board and the
Board Committees, and the wider Barclays
Group, operates effectively, a factor that
was at the forefront of our thinking when
undertaking structural reform. A key element
of structural reform was a review of the
governance processes across the Barclays
Group in order to ensure the effective operation
of each of the individual boards and their
respective committees, recognising that this
is vital to the development and execution
of the Barclays Group’s strategy.
Establishment of our ring-fenced bank,
and completion of structural reform
Following the financial crisis, the UK
government developed legislation to require
UK banks to separate their retail banking
activities from other activities within their
groups. The ring-fencing requirements,
which came into effect on 1 January 2019,
are intended to strengthen the UK financial
system by simplifying banking groups and
thus reducing the likelihood that customers
and clients – and the day-to-day services that
they rely upon – will be put at risk by a failure
in another part of the business or shocks
originating in global financial markets.
Barclays was the first UK bank to be granted
approval for its ring-fencing scheme, and the
establishment of our ring-fenced bank was
a significant event in our history. Barclays PLC
remains the parent company of the Barclays
Group. The Barclays Group is organised
into two clearly defined business divisions –
Barclays UK and Barclays International.
These are housed in two banking subsidiaries
– Barclays UK sits within Barclays Bank UK
PLC, and Barclays International sits within
Barclays Bank PLC – which operate alongside
Barclays Services Limited but, in accordance
with the requirements of ring-fencing
legislation, independently from one another.
Barclays Services Limited drives efficiencies
in delivering operational and technology
services across the Barclays Group. Each
of these subsidiaries has its own separately
constituted board, comprising of both
executive and non-executive directors, with
distinct responsibilities, which reflects the
different natures of the respective companies.
Barclays Bank UK PLC and Barclays Bank PLC
also have their own board committees.
Central to this new corporate structure
is a new corporate governance framework.
In the course of preparing for structural
reform it quickly became apparent that,
in order for the Board and the Barclays Group
to generate long-term sustainable value for
shareholders, we required a governance
framework that would provide the strong
foundation needed for the effective
management of the restructured Barclays
Group. The new governance framework
is therefore based on a number of core
principles. It makes clear that, although the
Barclays PLC Board is the ultimate decision-
making body for all board-level issues and
matters that are significant to Barclays PLC,
Barclays Bank UK PLC and Barclays Bank PLC,
the subsidiary boards cannot be required
to do or not do anything that conflicts with
their legal and regulatory duties and/or
responsibilities. Internal governance processes
have also been developed to ensure the
effective operation of the individual boards
and board committees in recognition of the
fact that this is key to the development and
execution of the Barclays Group’s strategy.
In particular, there are provisions dealing with
the escalation and resolution of any issues
that might arise. While the interaction of the
boards and board committees will inevitably
evolve over time, it is recognised that the
oversight, scrutiny and specialist input offered
by the subsidiaries can and should contribute
to promoting the success of Barclays for the
benefit of its shareholders as a whole.
Governance reforms
In developing the new governance framework,
the opportunity was taken to review our
existing governance arrangements against
the requirements of The UK Corporate
Governance Code 2018 (The New Code) and
The Companies (Miscellaneous Reporting)
Regulations 2018 (The Regulations). The New
Code and The Regulations, both of which
were published in 2018, represent a major
milestone in the UK government’s suite
of corporate governance reforms which aim
to build trust in business. They emphasise,
in particular, the importance of board
composition, culture, and the need for
boards to understand the views of their key
stakeholders and to report annually on how
their interests have been considered in board
discussions and decision-making. Barclays
PLC will report against the requirements
of The New Code and The Regulations
in its annual report for the year ending
31 December 2019.
Board composition
A number of changes were made to the
boards of Barclays PLC and the subsidiaries in
2018 to reflect the post-ring-fencing structure.
These included the appointment of Sir Gerry
Grimstone, who had been Deputy Chairman
and Senior Independent Director of Barclays
PLC and Barclays Bank PLC, as Chairman of
Barclays Bank PLC and the appointment of
Sir Ian Cheshire as Chairman of Barclays Bank
UK PLC. Both Sir Gerry and Sir Ian are
non-executive Directors of Barclays PLC.
Crawford Gillies succeeded Sir Gerry Grimstone
as Senior Independent Director of Barclays
PLC in April 2018. In that role, Crawford led
the process to appoint Nigel Higgins as my
successor. You can read more about the
recruitment and appointment of our new
Chairman in the ‘Governance in action’
section of the Nominations Committee
report on page 72.
In July 2018, Mary Anne Citrino joined Barclays
PLC as a non-executive Director. Mary Anne’s
experience of the financial services sector
brings additional knowledge and perspective
to the Board, and her appointment reflects
the ongoing work of the Nominations
Committee to ensure that we have the right
mix of individuals on the Board. You can read
more about the work of the Nominations
Committee on pages 68 to 72.
Mary Anne’s appointment also brings
female representation on the Board to 27%,
which is a positive step towards achieving
our diversity target of having 33% female
representation on the Board by 2020, to
which we remain committed.
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Barclays PLC Annual Report 2018 49
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Governance: Directors’ report
Chairman’s introduction
Board effectiveness
An effective Board is key to the establishment
and delivery of a company’s strategy and
we therefore continually seek to improve the
effectiveness of your Board. One of the ways
in which we have done this in 2018 is through
a Board effectiveness review facilitated by
Independent Board Evaluation, an independent,
external corporate governance consultancy.
We have, in recent years, commissioned
annually an external assessment of the
effectiveness of the Board, the Board
Committees and the Directors, notwithstanding
that the requirement is to do so only every
three years. More information on the 2018
effectiveness review, and our progress against
the findings of the 2017 effectiveness review,
can be found on page 86. We are also pleased
to report that, although not required by The
Code, the boards of Barclays Bank UK PLC and
Barclays Bank PLC have also elected to engage
Independent Board Evaluation in order to
review and enhance their effectiveness and
ensure that they are operating optimally.
We look forward to the unique perspective
those reviews will provide as to the interaction
of the boards and board committees of these
companies, and the fitness for purpose of
our new governance framework.
Looking ahead
The key areas of focus for 2019 will be
embedding the new corporate governance
framework, and enhancing our governance
practices such that we can ensure our
compliance with The New Code and The
Regulations. 2019 will also be a year for
us to learn from the practical application
of this governance framework and the related
processes in order to ensure that we have
a clear frame of reference in relation to
decision making, oversight and escalation,
and the delivery of functional support that
works for your Barclays Group and promotes
the long-term sustainable success of the
Barclays Group.
John McFarlane
Chairman
20 February 2019
Board composition
Balance of non-executive Directors:
executive Directors
Chairman
1
Executive Directors
2
Non-executive Directors
12
Gender balance
Female
4
Male
11
Length of tenure
(Chairman and non-executive Directors)
1
3
2
1 0-3 years
2 3-6 years
3 6-9 years
5
7
3
Industry experience
(Chairman and non-executive Directors)*
1 Financial Services
2 Political/regulatory experience
3 Current/recent Chair/CEO
4 Accountancy/auditing
5 Operations and Technology
6 Retail/marketing
13 (100%)
12 (92%)
5 (38%)
2 (15%)
2 (15%)
1 (8%)
International experience†
(Chairman and non-executive Directors)*
1 International (UK)
2 International (US)
3 International (Rest of the World)
10 (77%)
3 (23%)
3 (23%)
Notes
* Individual Directors may fall into one or more
categories.
† In relation to board experience based on the
location of the headquarters/registered office
of a company.
Purpose, values and culture
As an organisation, we have evolved on
nearly every level, in shape, size and ambition
and, as we look to the future, we need to
consider how we reflect the Barclays Group
as it is today, and how we want it to be seen
tomorrow. Our code of conduct, The Barclays
Way, provides a clear path towards achieving
a dynamic and positive culture within the
Barclays Group by outlining our common
purpose – Creating Opportunities to Rise –
and values, which govern our way of working.
The Board receives regular reports on
the alignment of Barclays’ culture with its
purpose, values and strategy as well as
qualitative and quantitative feedback on
matters of interest to colleagues through
the Culture Dashboard, which measures
and tracks our progress in embedding the
desired culture, and the results of the
Your View employee opinion surveys.
Personal accountability is central to our
culture and how we behave is instrumental
in our achieving the highest standards of
performance, adding value to our customers
and clients, and meeting our regulatory
obligations. The Board believes that its role
is to create and preserve value, not just for
shareholders but for all stakeholders and
society more widely. The impact of our
behaviour and business on customers and
clients, colleagues, wider society and the
environment is monitored by the Board with
support from the Reputation Committee,
which tracks key indicators across the areas
of culture, citizenship, conduct, and customer
and client satisfaction on an ongoing basis.
You can read more about the work of the
Reputation Committee on pages 73 to 76.
Stakeholder engagement
We recognise the importance of listening
to, and understanding the views of, our
stakeholders – including colleagues – such
that this information can be used to inform
the Board’s decision-making. The Directors
look to engage with stakeholders of the
Barclays Group throughout the year, and are
kept informed of shareholder views through
regular updates, with insights provided by the
Head of Investor Relations and our brokers.
Crawford Gillies, our Senior Independent
Director, is also available to meet with investors
and other stakeholders. You can read more
about our current stakeholder engagement
on pages 16 to 17.
A new regime for 2019
The New Code and The Regulations came
into effect on 1 January 2019, and apply to
reporting on financial years beginning on
or after that date. We will, therefore, report
against their requirements in Barclays PLC’s
next Annual Report. However, for a description
of how we comply with The UK Corporate
Governance Code 2016 (The Code) – and
certain enhancements already made to
our governance practices to reflect the
requirements of The New Code and The
Regulations – please refer to the ‘Governance
reporting for 2019’ section on page 88.
50 Barclays PLC Annual Report 2018
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Governance: Directors’ report
Who we are – Board of Directors
Board of Directors
Barclays understands the importance of having a Board with the right balance of skills,
experience and diversity, and the composition of the Board is regularly reviewed by the Board
Nominations Committee. The skills and experience of the current Directors and the value
they bring to the Barclays Board are highlighted below.
Mike Ashley
Non-executive
Appointed:
18 September 2013
Full biographies can be accessed online via home.barclays/investorrelations
John McFarlane
Chairman
Appointed:
1 January 2015
Tushar Morzaria
Group Finance
Director
Appointed:
15 October 2013
Relevant skills and experience
John is the Chair of Barclays PLC. He is a senior figure
in global banking and financial services circles having
spent 43 years in the sector, including time at Aviva,
The Royal Bank of Scotland, Standard Chartered and
CitiBank UK.
John was recently awarded the Freedom of the
City of London by Special Nomination for his
outstanding achievements in the field of banking.
John brings considerable leadership, Group oversight
and banking experience to the Board and his roles
outside Barclays are supportive of this.
Key current appointments
Chairman, TheCityUK; Member, Financial Services
Trade and Investment Board; Director, Old Oak
Holdings Limited; Supervisory Board Member,
Unibail-Rodamco Westfield S.E.; Cranfield School
of Management Advisory Board; Member, Institut
International d’Etudes Bancaires; Member, President’s
Committee Confederation of British Industry
Committees
Nominations (Chair)
Relevant skills and experience
Tushar is a chartered accountant with over
25 years of strategic financial management,
investment banking, operational and regulatory
relations experience.
He joined Barclays from JP Morgan, where he
held various senior roles including the CFO of its
Corporate & Investment Bank at the time of the
merger of the investment bank and the wholesale
treasury/security services business.
Key current appointments
Member, 100 Group Main Committee; Chair,
Sterling Risk Free Reference Rates Working Group
Committees
None
Crawford Gillies
Senior Independent
Director
Appointed:
1 May 2014
Jes Staley
Group Chief
Executive
Appointed:
1 December 2015
Relevant skills and experience
Jes has nearly four decades of extensive experience
in banking and financial services. He brings a wealth
of investment banking knowledge to the Board as
well as strong executive leadership.
He previously worked for more than 30 years at
JP Morgan where he initially trained as a commercial
banker, later advancing to the leadership of major
businesses involving equities, private banking and
asset management and ultimately heading the
company’s Global Investment Bank.
Key current appointments
Board member, Bank Policy Institute; Board member,
Institute of International Finance
Committees
None
Relevant skills and experience
Crawford has extensive business and management
experience at executive and board level spanning
over 30 years.
Beneficial to the Board and key to understanding
stakeholder needs, is his experience in international
and cross sector organisations, strong leadership
and strategic decision-making. Gained from his
former remuneration committee chairmanships at
Standard Life plc and MITIE Group PLC and other
current positions, Crawford brings to the Board
robust remuneration experience.
Key current appointments
Non-executive director, SSE plc; Chairman,
Edrington Group
Committees
Audit, Nominations, Remuneration (Chair)
Relevant skills and experience
Mike has deep knowledge of accounting, auditing
and associated regulatory issues, having previously
worked at KPMG for over 20 years.
Mike’s former roles as the lead engagement partner on
the audits of large financial services groups including
HSBC, Standard Chartered and the Bank of England,
as Head of Quality and Risk Management for KPMG
Europe LLP and as KPMG UK’s Ethics Partner enable the
Board to benefit from Mike’s expertise in management
of professional risks, quality control and understanding
of ethical issues. His current Board and Committee
positions outside of Barclays also support this.
Key current appointments
Member, Cabinet Office Board; Member, International
Ethics Standards Board for Accountants; Member,
ICAEW Ethics Standards Committee; Member,
Charity Commission
Committees
Audit (Chair), Nominations, Risk, Reputation
Tim Breedon CBE
Non-executive
Appointed:
1 November 2012
Relevant skills and experience
Tim has extensive financial services experience,
knowledge of risk management and UK and EU
regulation, as well as an understanding of key
investor issues and customer focus.
He had a distinguished career with Legal & General,
where, among other roles, he was the group
CEO until June 2012 and this experience enables
Tim to provide challenge, advice and support to
management on performance and decision-making.
Key current appointments
Chairman, Apax Global Alpha Limited; Chairman,
The Northview Group Limited
Committees
Audit, Nominations, Remuneration, Risk (Chair)
Sir Ian Cheshire
Non-executive
Appointed:
3 April 2017
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Sir Ian is a member of the Board and is also
Chair of Barclays Bank UK PLC.
He brings to the Board substantial business experience
particularly in the international retail sector from his
lengthy executive career at the Kingfisher Group, as
well as experience in sustainability and environmental
matters. Sir Ian holds strong credentials in leadership,
is involved with many charitable organisations, such
as The Prince of Wales’s Charitable Foundation and
is highly regarded by the Government for his work
with various Government departments.
Key current appointments
Chairman, Maisons du Monde; Chairman, Menhaden
plc; Lead non-executive director for the Government;
Trustee, Institute for Government
Committees
Nominations
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Barclays PLC Annual Report 2018 51
Governance: Directors’ report
Who we are – Board of Directors
Mary Anne Citrino
Non-executive
Appointed:
25 July 2018
Reuben Jeffery III
Non-executive
Appointed:
16 July 2009
Diane Schueneman
Non-executive
Appointed:
25 June 2015
Relevant skills and experience
Mary Anne is an experienced non-executive Director
with considerable financial services and investment
banking experience, following an executive career
spanning over 20 years with Morgan Stanley.
Her current other non-executive positions and
senior advisory role with Blackstone, coupled with
her previous board and senior management level
positions (with Dollar Tree Inc. Health Net, Inc, and
Blackstone Advisory Partners) contribute to the
wide-ranging global, strategic and advisory
experience she can provide to the Board.
Key current appointments
Non-executive director, HP Inc.; Non-executive
director, Ahold Delhaize N.V.; Non-executive director,
Alcoa Corporation
Committees
Risk
Relevant skills and experience
Reuben has extensive financial services experience,
particularly within investment banking and wealth
management, through his current positions and
former senior roles with Goldman Sachs, where
he led their European Financial Institutions Group.
He is also able to provide the Board with insight
and experience of the US political and regulatory
environment, gained from his Government roles in the
US, including as chairman of the Commodity Futures
Trading Commission and as an under Secretary of State.
Key current appointments
Vice Chairman, Rockefeller Capital Management;
Director, Financial Services Volunteer Corps; Director,
CQS Management Limited
Committees
Nominations, Risk
Relevant skills and experience
Diane is a member of the Board and also Chair
of Barclays Services Limited and a member of the
Board of Barclays US LLC.
She brings to Barclays a wealth of experience
in managing global, cross-discipline business
operations, client services and technology in the
financial services industry. Diane had an extensive
career at Merrill Lynch, holding a variety of senior
roles, including responsibility for banking, brokerage
services and technology provided to the company’s
retail and middle market clients.
Key current appointments
None
Committees
Audit, Risk
Mary Francis CBE
Non-executive
Appointed:
1 October 2016
Matthew Lester
Non-executive
Appointed:
1 September 2017
Mike Turner CBE
Non-executive
Appointed:
1 January 2018
Relevant skills and experience
Mary has extensive and diverse board-level
experience across a range of industries, which
has developed from her previous non-executive
directorships with Alliance & Leicester, Aviva, the
Bank of England, Centrica and Swiss Re Group,
her former executive positions and current roles.
She brings to the Board strong understanding of
the interaction between public and private sectors,
skills in strategic decision-making and reputation
management and promotes strong board
governance values.
Key current appointments
Non-executive director, Ensco PLC; Member of
Advisory Panel, The Institute of Business Ethics
Member, UK Takeover Appeal Board
Committees
Remuneration, Reputation (Chair)
Relevant skills and experience
Matthew contributes to the Board strong financial
management and regulatory experience, having
held a number of senior finance roles across a range
of business sectors, including financial services.
Most recently he was chief financial officer of
Royal Mail Group.
His financial expertise attained from past positions
and current non-executive roles enables Matthew
to analyse effectively complex reporting and risk
management processes and appropriately challenge
executive management.
Key current appointments
Non-executive director, Man Group plc;
Non-executive director, Capita plc
Committees
Audit, Risk
Sir Gerry
Grimstone
Non-executive
Appointed:
1 January 2016
Dambisa Moyo
Non-executive
Appointed:
1 May 2010
Relevant skills and experience
Mike has considerable business and board-level
experience gained from his lengthy career with
BAE Systems PLC where he was CEO as well as
his non-executive positions. He has a strong
commercial background and experience in
strategy and operational performance culture.
He brings significant leadership and strategic
oversight experience to the Board, particularly
from his current roles and previous chairmanship
of GKN Plc.
Key current appointments
Chairman, Babcock International Group PLC;
Member, UK Government’s Apprenticeship
Ambassadors Network
Committees
Reputation
Company Secretary
Stephen Shapiro
Appointed:
1 November 2017
Relevant skills and experience
Sir Gerry is a member of the Board and is also
Chair of Barclays Bank PLC.
He is highly respected in the banking industry and
brings to the Board investment banking, financial
services and commercial experience both at
non-executive director and chairman level. Sir Gerry
has global business experience across the UK, Asia,
the Middle East and the US as a result of his former
positions at Schroders and Standard Life Aberdeen
plc as well as his other current positions.
Key current appointments
Chairman, The City UK China Market Advisory
Group; Lead non-executive, Ministry of Defence;
Member, Financial Services Trade and Investment
Board; Public interest non-executive director,
Deloitte NWE LLP
Committees
Nominations
Relevant skills and experience
Dambisa is an international economist and
commentator on the global economy, with a PhD
in economics. She brings to Barclays a background
in financial services and a wide knowledge and
understanding of global economic, political and
social issues.
Her past non-executive directorships with Barrick
Gold Corporation, SABMiller plc and Seagate
Technology plc and current positions highlight her
strong board-level experience of companies with
complex global operations.
Key current appointments
Non-executive director, Chevron Corporation;
Non-executive director, 3M Company; Member
of Investment Committee, Oxford University
Endowment Fund
Committees
Remuneration, Reputation
Relevant skills and experience
Stephen was appointed Company Secretary in
November 2017 having previously served as the
Group Company Secretary and Deputy General
Counsel of SABMiller plc. Prior to this, he practised
law as a partner in a law firm in South Africa,
and subsequently in corporate law and M&A at
Hogan Lovells in the UK. Stephen has extensive
experience in corporate governance, legal, regulatory
and compliance matters. Stephen serves on the
Executive Committee of the GC100, the association
of General Counsel and Company Secretaries
working in FTSE 100 companies, and has previously
served as Chairman of the ICC UK’s Committee on
Anti-Corruption.
52 Barclays PLC Annual Report 2018
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Governance: Directors’ report
Who we are – Group Executive Committee
Group Executive Committee
Biographies for Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance
Director, who are members of the Group Executive Committee, which is chaired by Jes Staley,
can be found on page 51.
Paul Compton
Group Chief
Operating Officer
Tim Throsby
Chief Executive
Officer, Barclays
International
Bob Hoyt
Group General
Counsel
Ashok Vaswani
Chief Executive
Officer, Barclays UK
Laura Padovani
Group Chief
Compliance Officer
C S Venkatakrishnan
Group Chief
Risk Officer
Tristram Roberts
Group Human
Resources Director
Group Executive Committee meetings are
also attended on a regular basis by the
Chief Internal Auditor, the Company Secretary,
and an ex officio member drawn from
senior management.
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Barclays PLC Annual Report 2018 53
Governance: Directors’ report
What we did in 2018
Board report
The Barclays Board
The Barclays Group is organised into two
clearly defined business divisions – Barclays
UK and Barclays International. These are
housed in two banking subsidiaries – Barclays
UK sits within Barclays Bank UK PLC, and
Barclays International sits within Barclays
Bank PLC – which operate alongside Barclays
Services Limited but, in accordance with the
requirements of ring-fencing legislation,
independently from one another. Barclays
Services Limited drives efficiencies in delivering
operational and technology services across
the Barclays Group. Barclays PLC is the parent
company of the Barclays Group.
Each of the three subsidiaries has its own
separately constituted board, comprising
of both executive and non-executive directors,
with distinct commercial, legal and regulatory
responsibilities which reflect the different
natures of the respective entities. Barclays
Bank UK PLC and Barclays Bank PLC also
have their own board committees.
The Barclays PLC Board (the Board) is
responsible for the overall leadership of the
Barclays Group, including establishing its
purpose, values and strategy and satisfying
itself as to the alignment of Barclays’ culture
with its purpose, values and strategy. It is
also responsible for ensuring that management
maintains a sound system of audit, risk
management, compliance and internal control.
A sound system of internal control provides
assurance of effective and efficient operations,
internal financial controls and compliance
with law and regulation. In meeting this
responsibility, the Board considers what is
appropriate for the Barclays Group’s business
and reputation, the materiality of financial and
other risks and the relevant costs and benefits
of implementing controls. See page 86 for
further details on those systems of controls.
In collaboration with the respective boards
of Barclays Bank UK PLC and Barclays Bank
PLC, the Board has developed a governance
framework that seeks to provide the
strong foundation needed for the effective
management of the restructured Barclays
Group and thus generate long-term
sustainable returns for shareholders.
As stated above, the Board is the ultimate
decision-making body for all board-level
issues and matters that are significant to
Barclays PLC, Barclays Bank UK PLC and
Barclays Bank PLC because of their potential
strategic, financial, regulatory or reputational
implications or because of their potential
consequences for the Barclays Group as
a whole.
As noted in the Chairman’s introduction,
internal governance processes have been
developed to ensure the effective operation
of the individual boards and board committees
of each of Barclays PLC, Barclays Bank UK
PLC and Barclays Bank PLC respectively, in
recognition of the fact that this is key to the
development and execution of the Barclays
Group’s strategy. The Schedule of Matters
Reserved details the key decisions in respect
of which the Board has control. The Schedule
of Matters Reserved to the Board is reviewed
regularly to ensure that it remains relevant,
and was recently updated to reflect our
new corporate structure, evolving corporate
governance requirements, and industry
best practice. A summary of the matters
reserved to the Board can be found at
home.barclays/corporategovernance.
The Board Committees
The Board is empowered through its Articles
of Association to delegate all or any of its
powers, authorities and discretions to any
committee or committees as it thinks fit.
The principal Board Committees are the Board
Audit Committee, the Board Risk Committee,
the Board Reputation Committee, the Board
Nominations Committee and the Board
Remuneration Committee.
The Board Committees are responsible for
overseeing matters at the Barclays Group level
and their respective authorities extend to all
matters relating to their responsibilities for the
Barclays Group, save to the extent that the
matters relate solely to either Barclays Bank
UK PLC or Barclays Bank PLC, and/or their
respective subsidiaries, and fall solely within
the remit of the terms of reference of the
respective board committees of either Barclays
Bank UK PLC or Barclays Bank PLC in which
case the matter shall be dealt with by such
committee, within the parameters set by
the relevant Board Committee. The Board
Committees report to the Board.
The Board has defined the roles and objectives
of each of the Board Committees, and provided
specific levels of discretion within which they
can operate. In line with all Board Committees
in the Barclays Group, the Board Committees
must act in accordance with the remit of
their delegated authorities and their terms
of reference. The terms of reference are
reviewed annually, and were recently updated
to reflect our new corporate structure, evolving
corporate governance requirements, and
industry best practice. A copy of each Board
Committee’s terms of reference can be found
at home.barclays/corporategovernance.
You can read more about what the Board
and each of the Board Committees did during
2018 on the following pages.
Parent company
Barclays
PLC
Subsidiary companies
Barclays
Bank UK PLC
Barclays
Bank PLC
Barclays
Services Limited
Business divisions
Barclays
UK
Barclays
International
Barclays
Execution Services
54 Barclays PLC Annual Report 2018
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Board Governance Framework
Barclays PLC
Responsible for the overall leadership of the Barclays Group
Audit Committee
Risk Committee
Reputation Committee
Nominations Committee
Remuneration Committee
■■ Reviews accounting
policies and financial
reports
■■ Monitors the internal
control environment
■■ Considers the adequacy
and scope of the internal
and external audit
■■ Reviews and monitors
the Barclays Group’s
whistleblowing policies
■■ Monitors and recommends
financial and operational
risk appetite
■■ Monitors the financial
and operational risk
profile
■■ Reviews limits for types of
financial and operational
risk
■■ Oversees reporting
on Barclays’ culture
■■ Considers Barclays’
conduct and reputational
risk issues and exposures
■■ Reviews and approves
Barclays’ approach to
citizenship, environmental
and social matters
■■ Oversees Barclays’
approach to customer
and regulatory matters
■■ Reviews the composition
■■ Sets principles and
of the Board
■■ Recommends the
appointment of new
Directors
■■ Considers succession
plans for the Chairman
and Group Chief
Executive
■■ Oversees the annual
Board effectiveness
review
parameters of
remuneration for Barclays
■■ Considers and approves
remuneration for executive
Directors and senior
executives
■■ Oversees employee share
schemes
See page 60 for further
information
See page 77 for further
information
See page 73 for further
information
See page 68 for further
information
See page 125 for further
information
The Board’s key areas of focus
During 2018, the Board focused on the
matters outlined in the table below, in line
with the strategy of the Barclays Group and
the eight Principal Risks identified by our
Enterprise Risk Management Framework.
Board allocation of time* (%)
4
1
3
2
1 Strategy formulation and
implementation monitoring
2 Finance
(including capital and liquidity)
3 Governance and risk
(including regulatory issues)
4 Other
(including remuneration)
* Based on scheduled Board meetings
2018
2017
44
12
42
2
47
15
35
3
Strategy formulation and monitoring
Debated and provided input to management on the execution of the overall strategy of the Barclays Group, and reflected on that strategy with
longer-term views on what could be done to build on our strengths as a transatlantic consumer and wholesale bank, enhance financial resilience
and deliver consistent and stronger returns through the business cycle. The topics considered by the Board included:
■■ a continued focus on ways to enhance the Barclays Group’s returns
■■ potential growth opportunities for the Barclays Group in delivering sustainable enhanced returns through the cycle
■■ constraints and risks to strategy execution, including economic assumptions, expected regulatory requirements on capital and solvency ratios,
investor expectations, potential impacts for clients and customers, and the various approaches to the distribution of capital
■■ the allocation of capital
■■ areas of shareholder focus in relation to the overall strategy of the Barclays Group
■■ strategic approach to costs optimisation, including the use of Barclays Execution Services to deliver shared services to the Barclays Group.
Discussed regular updates from the Group Chief Executive on the progress being made against the 2018 execution priorities and capital targets
of the Barclays Group, received insights on stakeholder, employee and cultural matters (including results from employee opinion surveys), and
updates on items of focus for the Barclays Group Executive Committee.
Monitored the progress of the execution and implementation of the structural reform programme and approved matters in connection therewith
including capital reductions.
Assessed and debated the potential implications of the UK’s preparations to leave the EU following the EU Referendum result and received updates
on the preparations of the Barclays Group, including the expansion of our Irish legal entity, Barclays Bank Ireland, as well as updates from the
Chair of the Risk Committee.
Received ‘Deep Dive’ presentations from management on key areas of the Barclays Group’s business and lessons learned from specific events.
Finance (including capital and liquidity)
Debated, assessed and approved the Barclays Group’s Medium Term Plan for 2018-2020.
Regularly assessed financial performance of the Barclays Group and its main businesses through reports from the Group Finance Director.
Reviewed and approved Barclays’ financial results prior to publication, including approving full year and half year dividends.
Discussed market and investor reaction to Barclays’ strategic and financial results announcements, with insights provided by the Head of Investor
Relations and brokers.
Provided input, guidance and advice to senior management on the Barclays Group’s Medium Term Plan 2019-2021 and subsequently approved
the final plan.
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Barclays PLC Annual Report 2018 55
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Governance: Directors’ report
What we did in 2018
Board report
Governance and risk (including regulatory issues)
Debated and approved the 2018 risk appetite for the Barclays Group.
Discussed and received regular updates on stress testing.
Regularly assessed Barclays’ overall risk profile and emerging risk themes, hearing directly from the Chief Risk Officer and the Chair of the
Risk Committee.
Discussed and received regular updates directly from the Chief Controls Officer on the internal controls and framework of the Barclays Group
and monitored progress of:
■■ the Barclays Internal Control Enhancement Plan (the programme for remediation of identified risk and control issues)
■■ the Risk and Control Self Assessment process
■■ improvements to the operating model of the Controls Office.
Received reports on Barclays’ operational and technology capability, including in relation to the recruitment of a Chief Security Officer, the launch
of the Joint Operations Centre, and cyber security.
Approved the Barclays Group’s 2018 Recovery Plan and considered the US Resolution Plan. Both plans considered Barclays’ Preferred Resolution
Strategy, which is developed with the Bank of England and involves a single-point of entry resolution with bail-in at the Barclays PLC level.
Considered regular updates from the Group General Counsel on the legal and regulatory risks and issues facing the Barclays Group – refer to
Note 27 in the financial statements.
Met with representatives of Barclays’ UK and US regulators to enable the Board to hear first-hand about regulatory expectations and their specific
views on Barclays.
Received and considered regular updates on communications from Barclays’ UK and US regulators.
Considered matters relating to Board succession, including the recruitment and appointment of a new Chairman and approved appointments to
the Board and Board Committees.
Received and considered regular updates from the Chairs of the Board’s principal Board Committees on the matters discussed at Board Committee
meetings. You can read more about what each of the Board Committees did during 2018 on the following pages.
Received regular updates from the Chairs of Barclays Bank UK, Barclays Bank PLC and Barclays Services Limited.
Approved:
■■ the new corporate governance framework for the Barclays Group, which reflects the corporate structure post-structural reform and recent
corporate governance reforms
■■ the operating parameters within which Barclays Bank UK PLC and Barclays Bank PLC, and their respective groups, should run themselves in
compliance with relevant law and regulation.
Considered and discussed other corporate governance matters and regulatory matters, including the Senior Managers and Certification Regime
and the extension thereof.
Engaged with stakeholders through a number of mechanisms, including:
■■ meeting with institutional investors at seminars and conferences across many geographic locations, and meeting with private shareholders
at the AGM
■■ receiving updates on shareholder views through regular updates, with insights provided by the Head of Investor Relations and brokers
■■ monitoring the impact of our behaviour and business on customers and clients, colleagues and society with support from the Reputation
Committee, which tracks key indicators across the areas of culture, citizenship, conduct, and customer and client satisfaction,
and used the insights gained to inform the Board’s decision-making.
Monitored the impact of our behaviour and business on customers and clients, colleagues and society.
Received regular reports on the alignment of Barclays’ culture with its purpose, values and strategy as well as qualitative and quantitative feedback
on matters of interest to colleagues.
Received updates from the Reputation Committee on the publication of policy statements on Coal, World Heritage Sites and Ramsar Wetlands,
as well as Barclays Energy and Climate Change Statement, and discussed feedback received thereon.
Received training on whistleblowing and the Senior Managers and Certification Regime.
Considered the results of the 2017 Board effectiveness review and action plan and considered the process for and findings of the 2018 Board
effectiveness review. More information on the 2018 Board effectiveness review can be found on page 50.
Other (including remuneration)
Considered progress on Barclays’ talent and succession planning (and hosted receptions for key talent within the Barclays Group), and monitored
the overall diversity of the leadership pipeline to ensure that the broadest spectrum of leaders are being attracted to the Barclays Group.
Received updates on the Bank’s diversity and inclusion initiatives, including from the Chair of the Nominations Committee, and debated the key
business drivers for promoting diversity of gender, social and ethnic background, cognitive and personal strengths when making appointments
to the Board and succession planning.
Considered and approved the 2018 incentive funding pools for the Barclays Group and allocation among each business and function. Please refer
to the Remuneration report on pages 99 to for further details.
56 Barclays PLC Annual Report 2018
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Governance in action –
Cyber security and operational resilience
The way in which businesses operate
and consumers manage their lives is
fundamentally changing. At Barclays, our
customers undertake over six million digital
banking interactions every day through
online and mobile services. The impact of
digitisation on the financial services sector
has generally been a positive one, providing
consumers with the ability to engage
through their preferred channel, at a time
of their choosing, without having to visit
a physical branch. However, digitisation
has also resulted in instances of service
disruption. In a recent study on cyber and
technology resilience, the Financial Conduct
Authority (FCA) noted that cyberattacks
accounted for 18% of the operational
incidents reported to the FCA between
October 2017 and September 2018, and
that technology outages in the financial
services sector are becoming more frequent.
■■ The strengthening of controls and
governance relating to technology.
We have agreed standards and processes
in place to manage the risks of operating
and maintaining a complex technology
estate across the Barclays Group. We have
also reviewed our most critical banking
services, and the internal processes
that support them, in order to ensure
that appropriate levels of resilience are
designed and implemented for each
service, depending on its criticality, and
to identify and remove any single points
of failure. A senior Accountable Executive
has been assigned to each critical banking
service, with responsibility for ensuring
the resilience of that service and
undertaking regular testing.
We also monitor both internal and external
operational incidents as part of our formal
‘Lessons Learned’ and ‘Post Incident Review’
processes, as well as regularly using scenario
planning to further improve our activities
and plans in the event of an incident.
We believe that our approach is proving
successful – between 2016 and 2017,
operational incidents caused by technology
reduced by 15%; between 2017 and 2018,
operational incidents caused by technology
reduced by 13%. Nevertheless, incidents
do still occur and, when they do, we focus
on minimising the impact on customers.
This includes providing clear and timely
updates through different channels in order
to signpost customers to those services
that are unaffected.
Whilst the Board is actively engaged in
monitoring and overseeing cyber security
and operational resilience, the control
aspects of these issues are the responsibility
of the Audit Committee and the operational
risk issues are the responsibility of the Risk
Committee. You can read more about the
work of the Audit Committee and the Risk
Committee on pages 58 to 67 and pages 77
to 82 respectively.
The Board considers that cyber security
and operational resilience are critical issues
– disruptions that affect customers’ access
to their accounts, and their money, impact
confidence in the wider banking sector.
The Barclays Group is focused on reducing
the volume of operational incidents, and
is seeking to do this through:
■■ Continued investment in our IT
infrastructure. We operate a multi-channel
strategy, with the channels supported by
different technology systems to ensure
that we can continue to service our
customers in the event that one or more
channels encounters difficulties. There
are also, often, non-digital alternatives
available for use as back-up.
■■ The provision of around-the-clock
resilience and security. Nearly a quarter
of the Barclays Group’s global workforce
of 85,000 is dedicated to security and
technology. In order to enable our
customers to transact 24/7, we seek to
ensure around-the-clock resilience and
security. We have created a global network
of Joint Operation Centres with state-of-
the-art technology and highly trained
staff to enable ‘always on’ monitoring,
tracking, and handling of cyber threats
and technology issues.
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Barclays PLC Annual Report 2018 57
Governance: Directors’ report
What we did in 2018
Board Audit Committee report
Having overseen preparations for the implementation
of IFRS 9, the Committee was well placed to monitor the
impact of the new standard and ensure that such impact
was clearly communicated to shareholders.
Dear Fellow Shareholders
2018 was another year of challenge and
change for Barclays. One of the Committee’s
most significant activities was overseeing
Barclays’ transition from IAS 39 to the IFRS 9
Financial Instruments accounting standard,
in particular the introduction of a forward-
looking expected credit loss (ECL) model,
which is designed to recognise losses earlier.
Having overseen the Barclays Group’s
preparation for the implementation of IFRS 9
over the last few years, my Committee
colleagues and I were well placed to monitor
the impact of the new standard and ensure
that such impact was clearly communicated
to shareholders. To this end, and in line with
the Committee’s responsibility for ensuring
the integrity of Barclays’ published financial
information by debating and challenging the
critical judgements and estimates made by
management, we provided input on material
disclosures relating to IFRS 9. Please refer to
the report on the following pages for details
of all of the material matters considered by
the Committee in the last year.
On 1 April 2018, Barclays Bank UK PLC was
established thereby completing structural
reform. Having previously agreed the
allocation of responsibilities, the Committee
worked closely with the audit committees
of Barclays Bank UK PLC and Barclays Bank
PLC and with management to embed the
necessary information flows and reporting
in order to ensure that all three of the audit
committees can discharge their responsibilities
with the minimum amount of duplication.
More generally, the intention of the new
structure is that all of the Barclays Group
entities operate alongside one another, but
in accordance with the requirements of
ring-fencing legislation. With this in mind,
I held regular meetings with the chairs of the
Barclays Bank UK PLC and Barclays Bank PLC
audit committees and recently attended
meetings of each of their committees. In turn,
the chairs of those entities attended at least
one Committee meeting during 2018. I also
met frequently with members of senior
management, including the Group Finance
Director and Chief Internal Auditor, and
continued my engagement with Barclays’
regulators both in the UK and the US.
I reported regularly on the activities of the
Committee to the Board of Barclays PLC.
Ensuring continued focus on the
strengthening of Barclays’ control
environment remained a priority for the
Committee in 2018. I held regular meetings
with the Chief Internal Auditor and members
of her senior management team to ensure
that I was aware of current work programmes
and any emerging issues. I also agreed the
Chief Internal Auditor’s objectives, and the
outcomes of her performance assessment
and remuneration. Following the success
of previous networking events with Barclays
Internal Audit (BIA), Committee members
were once again given the opportunity
to meet with senior members of the BIA
management team on a less formal basis.
Having taken over the co-ordination of the
Risk and Control Self-Assessment (RCSA)
process in 2017, the Chief Controls Office has
developed a more detailed self-assessment
process which has assisted the business in
proactively identifying controls which require
remediation. We received regular updates
from the Chief Controls Office on those
controls and other issues. Following the
stand-up of the Barclays Bank UK PLC
and Barclays Bank PLC audit committees,
the focus of these updates was on issues
of significance to the Barclays Group, most
of which related to services supplied by
Barclays Execution Services.
The Committee continued to engage with
senior management regarding areas of control
weaknesses, and received presentations from
a number of different areas of the organisation
on the actions taken to address unsatisfactory
audit reports.
In assessing control issues for disclosure in
the Annual Report, the Committee applied
similar concepts to those used for assessing
internal financial controls for the purposes of
Sarbanes-Oxley. The conclusion we reached
is that there are no control issues that are
considered to be a material weakness and
which therefore merit specific disclosure.
I am proud to be Barclays’ Whistleblowers’
Champion. As Champion, I have specific
responsibility for overseeing the integrity,
independence and effectiveness of the
Barclays Group’s whistleblowing arrangements,
including the policies and procedures on
protecting against victimisation. In this
capacity, I am pleased to report that the
recommendations arising from the independent
review of the whistleblowing programme that
was commissioned by the Board in 2017 have
been implemented in full. This includes the
standing-up of a centralised team to review
and assess all concerns raised and,
as necessary, direct those concerns to an
appropriate team for investigation. The
FCA and the PRA concluded their regulatory
processes in relation to the investigation of
certain matters involving our whistleblowing
programme, and Barclays Bank PLC reached
a settlement with the New York State
Department of Financial Services in respect
of its investigation into the same matters.
Certain information relating to the
whistleblowing programme will be provided
to the FCA and the PRA for the years
2018-2020, and to the New York State
Department of Financial Services for the years
2017-2020.
Committee performance
The performance of the Committee was
assessed by Independent Board Evaluation,
an independent, external corporate
governance consultancy as part of the
annual effectiveness review of the Board
of Barclays PLC. The results show that the
Committee is operating effectively, and the
Board takes a high level of assurance from
the technical competence and diligence
of the Committee’s work. It is considered
well-constituted, with the right balance
of skills and experience. Last year’s review
commented on the need to manage a
demanding agenda efficiently so that time
is allocated to the most significant items
for discussion.
58 Barclays PLC Annual Report 2018
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The Committee sought to address this by
embedding the progress made by the Audit,
Reputation and Risk Committees in 2017 to
avoid duplication where there is an overlap
of responsibilities, and focusing on time
management in meetings such that discussions,
and presenters, are limited to the allocated
time. The results of this year’s review note
that there has been encouraging progress in
relation to focus on key issues, but that there
is still work to be done. The Committee
will continue to focus on this point in the
forthcoming year.
You can read more about the outcomes of
the review of Board, Board Committee and
individual Director effectiveness on page 71.
Looking ahead
In 2019, the Committee will continue to
monitor the impact of IFRS 9, and the new
IFRS 16 accounting standard pursuant to
which companies will be required to bring
most leases on-balance sheet from 1 January
2019. We will also further develop our
relationship with the audit committees of
Barclays Bank UK PLC and Barclays Bank PLC to
ensure that all three audit committees operate
effectively and in a streamlined manner.
Finally, Sally Clark, our current Chief Internal
Auditor, has decided to retire. I would like
to take this opportunity to thank her both
personally and on behalf of the Committee for
her support and dedication in the role over the
last five years. The Committee will be involved
in the process to appoint a successor, and
will be seeking to ensure that we appoint
a candidate who continues with her work
establishing BIA as a world-leading function.
Mike Ashley
Chair, Board Audit Committee
20 February 2019
Committee allocation of time (%)
6
1
2
3
5
4
1 Control issues
2 Business control
environment
3 Financial results
(including IFRS 9)
4 Internal audit matters
5 External audit matters
6 Other (including litigation,
governance and
compliance)
2018
8
2017
11
12
46*
14†
13
7
15
33
25
8
8
* The increased amount of time allocated to financial
results in 2018 reflects the role of the Committee
in monitoring the impact of the IFRS 9 Financial
Instruments accounting standard and ensuring
that such impact was clearly communicated
to shareholders, including providing input on
material disclosures.
† The reduced amount of time allocated to internal
audit matters in 2018 is reflective of the progress
made by Barclays Internal Audit in addressing
the Matters Requiring Attention identified by
the Federal Reserve Bank of New York, the issues
arising from the PRA’s horizontal review of the
function, and the recommendations made by
Deloitte following its independent review of
Barclays Internal Audit in 2017.
Committee composition and meetings
The Committee is composed solely of
independent non-executive Directors,
with membership designed to provide the
breadth of financial expertise and commercial
acumen it needs to fulfil its responsibilities.
Its members as a whole have recent and
relevant experience of the banking and
financial services sector, in addition to general
management and commercial experience,
and are financially literate. In particular,
Mike Ashley, who is the designated financial
expert on the Committee for the purposes
of the US Sarbanes-Oxley Act, is a former
audit partner who, during his executive career,
acted as lead engagement partner on the
audits of a number of large financial services
groups. Matthew Lester held a number of
senior finance roles across a range of business
sectors, including financial services, during
his executive career. You can find more details
of the experience of Committee members
in their biographies on pages 51 and 52.
During 2018, the Committee met nine times
and the chart above shows how it allocated
its time. Attendance by members at Committee
meetings is shown below. Committee meetings
were attended by representatives from
management, including the Group Chief
Executive, Group Finance Director,
Chief Internal Auditor, Chief Controls Officer,
Chief Risk Officer, Chief Operating Officer,
Group General Counsel and Head of
Compliance, as well as representatives from
the businesses and other functions. The lead
audit partner of KPMG (the Barclays Group’s
external auditor) attended all Committee
meetings in 2018 – from January to July this
was Guy Bainbridge; from August onwards
this was Michelle Hinchliffe. The Committee
held a number of separate private sessions
with each of the Chief Internal Auditor and
the lead audit partner, which were not
attended by management.
Member
Mike Ashley
Tim Breedon
Crawford Gillies
Matthew Lester
Diane Schueneman
Meetings attended/eligible to attend
9/9
9/9
9/9
9/9
9/9
Committee role and responsibilities
The Committee is responsible for:
■■ assessing the integrity of the Barclays Group’s
financial reporting and satisfying itself that
any significant financial judgements made
by management are sound
■■ evaluating the effectiveness of the Barclays
Group’s internal controls, including internal
financial controls
■■ scrutinising the activities and performance
of the internal and external auditors, including
monitoring their independence and objectivity
■■ overseeing the relationship with the
Barclays Group’s external auditor
■■ reviewing and monitoring the effectiveness
of the Barclays Group’s whistleblowing
policies and procedures
■■ overseeing significant legal and regulatory
investigations, including the proposed
litigation statement for inclusion in the
statutory accounts.
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The Committee’s work
The significant matters addressed by the
Committee during 2018, and in evaluating
the Annual Report and financial statements,
are described on the following pages.
Financial statement reporting issues
The Committee’s main responsibility in
relation to Barclays’ financial reporting is
to review with both management and the
external auditor the appropriateness of
Barclays’ financial statements, including
quarterly results announcements, half-year
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Barclays PLC Annual Report 2018 59
Governance: Directors’ report
What we did in 2018
Board Audit Committee report
and annual financial statements, and
supporting analyst presentations, with its
primary focus being on:
■■ assessing whether the Annual Report,
taken as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders to
assess Barclays’ position and performance,
business model and strategy
■■ material areas where significant judgements
have been made, along with any significant
assumptions or estimates, or where
significant issues have been discussed
with or challenged by the external auditor
■■ the quality and acceptability of accounting
policies and practices
■■ any correspondence from financial
reporting regulators in relation to Barclays’
financial reporting.
Accounting policies and practices
The Committee discussed reports from
management in relation to the identification
of critical accounting judgements and key
sources of estimation uncertainty, significant
accounting policies and the proposed
disclosure of these in the 2018 Annual Report.
Following discussions with both management
and the external auditor, the Committee
approved the critical accounting judgements,
significant accounting policies and disclosures,
which are set out in Note 1,
‘Significant accounting policies’, to the
consolidated financial statements.
Two new significant accounting standards
became effective from 1 January 2018, IFRS 9
Financial Instruments and IFRS 15 Revenue
from Contracts with Customers. Further
information regarding these changes can be
found in Note 1 to the consolidated financial
statements. During 2018, the Committee was
regularly updated on Barclays’ implementation
of IFRS 9, in particular in relation to the new
ECL model, which represented a fundamental
change in approach to impairment
The Committee discussed with management
the key technical decisions and interpretations
required, and Barclays’ approach to these.
Financial reporting regulators and Barclays
The Committee from time to time considers
comment letters and papers from external
bodies including the SEC and the Financial
Reporting Council (FRC). In that regard, the
Committee considered the following:
■■ the FRC’s Annual Review of Corporate
Governance and Reporting, which
summarised key characteristics of good
corporate reporting from the 2017/18
reporting year
■■ the FRC’s Year-End Advice Letter to Audit
Committee Chairs and Finance Directors,
which highlighted key developments for
the 2018/19 reporting year
■■ the FRC’s IFRS 9 Thematic Review, which
looked at disclosures in 2018 interim
accounts relating to the implementation
of IFRS 9.
The Committee sought to ensure that Barclays
took due account of the matters raised in
the letters and papers described above in its
external reporting, and sought to enhance and
clarify relevant disclosures, as appropriate.
From time to time, Barclays receives comment
letters from the SEC in relation to its review
of the Annual Report and other publicly filed
financial statements. Such comment letters
and Barclays’ responses are made publicly
available by the SEC on its website, sec.gov,
once it has closed each such review. Barclays
did not receive any such comment letters from
the SEC during 2018.
Significant judgements and estimates
The significant judgements and estimates
and actions taken by the Committee in
relation to the 2018 Annual Report and
financial statements are outlined below.
The significant judgements and estimates are
broadly comparable in nature to prior years.
Each of these matters was discussed with the
external auditor during the year and, where
appropriate, has been addressed in the
Auditor’s Report on page 248 to 255.
Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Fair, balanced and
understandable
reporting
(including country-by-
country reporting and
Pillar 3 reporting)
Barclays is required to ensure
that its external reporting is fair,
balanced and understandable.
The Committee undertakes an
assessment on behalf of the Board
in order to provide the Board with
assurance that it can make the
statement required by The UK
Corporate Governance Code 2016.
■■ Assessed through discussion
with and challenge of management,
including the Group Chief Executive
and Group Finance Director, whether
disclosures in the Annual Report and
other financial reports were fair,
balanced and understandable.
■■ Evaluated reports from Barclays PLC’s
Disclosure Committee on its assessment
of the content, accuracy and tone of
the disclosures.
■■ Established through reports from
management that there were no
indications of fraud relating to financial
reporting matters.
■■ Evaluated the outputs of Barclays’
internal control assessments and
Sarbanes-Oxley s404 internal
control process.
■■ Assessed disclosure controls
and procedures.
■■ Confirmed that management had
reported on and evidenced the basis
on which representations to the
external auditors were made.
Having evaluated all of the available
information and the assurances
provided by management, the
Committee concluded that the
processes underlying the preparation
of Barclays’ published financial
statements, including the 2018 Annual
Report and financial statements,
were appropriate in ensuring that
those statements were fair, balanced
and understandable.
In assessing Barclays’ financial results
statements over the course of 2018,
the Committee specifically addressed
and provided input to management
on the disclosure and presentation of:
■■ the impact of IFRS 9 on, among other
things, Barclays’ CET1 ratio, credit
risk disclosures in the Pillar 3 Report
and shareholders’ equity
■■ the Group Finance Director’s
presentations to analysts
■■ the level of segmental reporting.
The Committee recommended to the
Board that the 2018 Annual Report and
financial statements are fair, balanced
and understandable.
60 Barclays PLC Annual Report 2018
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Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Impairment
(refer to Note 7 to the
financial statements)
Barclays has implemented IFRS 9
by developing models to calculate
expected credit losses in a range
of economic scenarios. The key
areas of judgement include setting
modelling assumptions, developing
methodologies for the weighting
of economic scenarios, establishing
criteria to determine significant
deterioration in credit quality and
the application of management
adjustments to the model output.
■■ Assessed impairment experience against
forecast, and considered whether
impairment provisions were appropriate.
■■ Evaluated the impact of IFRS 9
on impairment.
■■ Monitored the Barclays Group’s ECLs,
model changes, scenario updates,
post-model adjustments, and volatility.
■■ Monitored SOX compliance in relation
to IFRS 9 controls and, specifically,
the ECL calculation.
Conduct provisions
(refer to Note 25 to the
financial statements)
Barclays makes certain
assumptions and estimates,
analysis of which underpins
provisions made for the costs
of customer redress, such as
for Payment Protection
Insurance (PPI).
■■ Regularly analysed the judgements and
estimates made with regard to Barclays’
provisioning for PPI claims, taking into
account forecasts and assumptions
made for PPI complaints and actual
claims experience for Barclays and
the industry as a whole, including
the volume of invalid PPI claims.
■■ Debated the impact on the future range
of provisions arising from (i) the August
2019 time-bar on claims, (ii) the PPI
marketing campaigns, and (iii) the fee
cap on the submission of PPI complaints
by claims management companies.
■■ Evaluated the adequacy of the PPI
provision, considering whether the
total provision is within the modelled
range of future outcomes, and whether
the external auditor agreed with
management’s analysis and approach.
■■ Monitored the position on provisions
for alternative PPI (card protection and
payment break plan insurance) and
considered whether further provisions
were required.
The Committee received a number
of deep dive presentations from the
Finance and Credit officers responsible
for the IFRS 9 implementation.
The Committee considered in detail
the key IFRS 9 assumptions relating
to staging criteria and the weighting
of economic scenarios.
The Committee reviewed model
adjustments and scenario updates
made by management to ensure that
impairment allowances were set at
appropriate and adequate levels.
In particular, the Committee reviewed
the basis of the adjustment of £150m
made to reflect current economic
uncertainty in the UK.
The Committee agreed that the
provision levels for impairment
were appropriate.
In light of the need for additional
disclosures to be made in relation
to IFRS 9, the Committee reviewed
management’s ‘dry run’ of the
year end IFRS 9 disclosures which
focused on those disclosures that were
either new or significantly impacted.
The Committee also reviewed the
final IFRS 9 disclosures which, whilst
understandably still evolving, the
Committee believed gave a good
explanation of the impacts.
Throughout the year, the Committee
and management continued to monitor
closely any changes in customer or
claims management companies’
behaviour in light of the FCA time-bar
and marketing campaign, and the
ongoing impact of the Plevin case.
Having reviewed the key factors
impacting the PPI provision, the PPI
provision was increased in Q1 2018.
Following this increase, the Committee
agreed with management’s assessment
that the current provision of £888m
was appropriate. The Committee noted
that this estimate remains subject to
significant uncertainty, in particular
regarding the level of valid customer
claims that may be received in the
period to August 2019. In this context,
the Committee was satisfied that
sensitivities to the key variables were
appropriately disclosed.
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Barclays PLC Annual Report 2018 61
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What we did in 2018
Board Audit Committee report
Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Legal, competition
and regulatory
provisions
(refer to Notes 25
and 27 to the financial
statements)
Long-term viability
(refer to the Viability
statement on pages 42
to 43)
Although a number of significant
legacy litigation issues were
resolved during 2018, Barclays
is engaged in various legal,
competition and regulatory
matters. The extent of the impact
on Barclays of these matters
cannot always be predicted,
but matters can give rise to
provisioning for contingent and
other liabilities depending on the
relevant facts and circumstances.
The level of provisioning is subject
to management judgement on
the basis of legal advice and is,
therefore, an area of focus for
the Committee.
The Directors are required to
make a statement in the Annual
Report as to the long-term viability
of Barclays. The Committee
provides advice to the Board
on the form and content of
the statement, including the
underlying assumptions.
■■ Evaluated advice on the status
of current legal, competition and
regulatory matters.
■■ Assessed management’s judgements
and estimates of the levels of provisions
to be taken and the adequacy of
those provisions, based on available
information and evidence.
■■ Considered the adequacy of disclosure,
recognising that any decision to set
provisions involves significant judgement.
The Committee discussed provisions
and utilisation. Having reviewed the
information available to determine
what was both probable and could
be reliably estimated, the Committee
agreed that the level of provision
at the year end was appropriate.
The Committee also considered that
the disclosures made provided the
appropriate information for investors
regarding the legal, competition and
regulatory matters being addressed
by the Barclays Group.
The Committee agreed that the
appropriate time frame for the viability
statement continued to be three years.
Taking into account the assessment
by the Risk Committee of stress testing
results and risk appetite, the Committee
agreed to recommend the viability
statement to the Board for approval.
■■ Evaluated at year end a report from
management setting out the view
of Barclays’ long-term viability based
on Barclays’ MTP. The report covered
forecasts for capital, liquidity and
leverage, and included forecast
performance against regulatory targets,
outcomes of the stress test of the
MTP and forecast capital and liquidity
performance against stress hurdle rates,
funding and liquidity forecasts as well
as an assessment of global risk themes
and the Barclays Group’s risk profile.
■■ Considered the viability statement
in conjunction with Barclays’ risk
statements and strategy/business
model disclosures.
■■ Addressed feedback from investors,
the FRC and other stakeholders on
viability statements in general.
Valuations
(refer to Notes 13
to 17 to the financial
statements)
Barclays exercises judgement in
the valuation and disclosure of
financial instruments, derivative
assets and certain portfolios,
particularly where quoted market
prices are not available.
Tax
(refer to Note 9 to the
financial statements)
Barclays is subject to taxation in
a number of jurisdictions globally
and makes judgements with
regard to provisioning for tax
at risk, and on the recognition
and measurement of deferred
tax assets.
■■ Evaluated reports from the Group
Financial Controller.
■■ Monitored the valuation methods
The Committee noted that there
were no new significant valuation
judgements during the year.
applied by management to significant
valuation items, including the Barclays
Group’s Education, Social, Housing and
Local Authority portfolio and a valuation
disparity with a third party in respect of
a specific long-dated derivative portfolio.
■■ Evaluated the appropriateness of tax
risk provisions to cover existing tax risk.
■■ Confirmed that the forecasts and
assumptions supporting the recognition
and valuation of deferred tax assets
was in line with Barclays’ Medium Term
Plan (MTP).
■■ Monitored the impact to Barclays of the
US framework for tax legislation, which
was enacted on 22 December 2017,
including the Base Erosion Anti-abuse
Tax (BEAT).
The Committee reviewed Barclays’
global tax risk and associated
provisions for the full year and noted
that gross tax risk increased slightly,
and the level of tax provisions
remained appropriate.
The Committee was pleased to note
that the Barclays Group was not
affected by BEAT in respect of 2018.
62 Barclays PLC Annual Report 2018
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Other significant matters
Apart from financial reporting matters, the
Committee has responsibility for oversight of
the effectiveness of Barclays’ internal controls,
the performance and effectiveness of BIA and
the performance, objectivity and
independence of the external auditor.
The most significant matters considered
during 2018 are described in the table below.
Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Internal control
Read more about
Barclays’ internal
control and risk
management
processes on page 86.
The effectiveness of the overall
control environment, including
the status of any material control
issues and the progress of specific
remediation plans.
■■ Evaluated and tracked the status of the
most material control issues identified
by management through regular reports
from the Chief Controls Officer, assessed
against the Controls Maturity Model.
■■ Evaluated the status of specific material
control issues (being data management,
compliance, cyber, credit risk, model risk,
resilience, technology and transaction
operations) and tracked the progress of
the associated remediation plans against
agreed time frames.
■■ Considered the second line of defence
role in the oversight of operational risk
controls, including financial controls
over operational risk.
■■ Evaluated reports on the internal control
environment from the external auditor.
■■ Evaluated quarterly updates on lessons
learned from Critical risk events, which
were tracked by the Chief Controls Office.
■■ Assessed reports on individual
businesses and functions on their
control environment, questioned the
heads of the relevant businesses or
functions on control concerns and
scrutinised any identified control
failures and closely monitored the
status of remediation plans or work
streams to enhance the respective
control environments.
■■ Received updates directly from senior
management, and scrutinised action
plans, in relation to remediation plans
following unsatisfactory audit findings.
■■ Received updates from management
on the Designated Market Activities
remediation plan, which addresses
Barclays’ regulatory commitments to
the Federal Reserve Bank of New York
(the Fed) and other US and UK regulators
in relation to sales and trading practices
across the FX, Rates and other Markets
related business areas.
■■ Scrutinised on a regular basis the COO
control environment through deep dives
and management updates, taking the
opportunity to directly challenge and
question functional leaders, including
the Chief Operating Officer, on the
progress of remediation plans.
The Committee welcomed the ongoing
transition to a ‘business as usual’
environment following the significant
volume of work that had been
undertaken as part of the Barclays
Internal Controls Enhancement
Programme, supported by the
RCSA process.
The Committee continued to use the
output from the RCSA process in its
review of the control environment,
and welcomed the introduction of
more granularity, which has provided
greater visibility on controls requiring
remediation and associated risks.
The Committee, together with the
Risk Committee, received a deep dive
presentation on this enhanced process
in the course of the year. The Committee
also received deep dives on control hot
spots, including operational resilience
and third party fraud.
The Committee monitored the
implementation of the Operational
Risk and Control System (ORAC)
and tracked the transition of all issue
reporting into that system. In addition,
the Committee continued to provide
feedback on the reporting of material
control issues.
The Committee received regular deep
dive control environment presentations.
These provided further detail of
management’s assessment of the
business unit control environment
and key areas of focus, including key
control hot spots for the businesses.
The Committee also received a number
of presentations from business heads
following unsatisfactory audit reports.
The Committee challenged the business
regarding their role in identifying
the control issues, and requested
confirmation from management
regarding the remediation programme
as well as the time frames and
accountability for delivery of that plan.
The Committee was pleased to
note continuing progress to address
control issues in accordance with
the agreed timescales.
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environment
The effectiveness of the control
environment in each individual
business, including the status
of any material control issues
and the progress of specific
remediation plans.
The effectiveness of the control
environment in the Chief
Operating Office (COO) and the
status and remediation of any
material control issues.
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Barclays PLC Annual Report 2018 63
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Board Audit Committee report
Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Raising concerns
The adequacy of the Barclays
Group’s arrangements to allow
employees to raise concerns
in confidence and anonymously
without fear of retaliation,
and the outcomes of any
substantiated cases.
■■ Monitored enhancements to the
whistleblowing programme following
the independent review that was
commissioned by the Board in 2017.
■■ Reviewed the examples of best
practice in the FCA’s Review of Firms’
Whistleblowing Arrangements.
■■ Monitored whistleblowing metrics,
including case load and case ageing.
■■ Monitored instances of retaliation
reports, and whether any instances
had been substantiated.
■■ Received a presentation from BIA
following its audit of the Investigations
and Whistleblowing team.
Internal audit
The performance of BIA and
delivery of the internal audit plan,
including scope of work performed,
the level of resources, and the
methodology and coverage of
the internal audit plan.
■■ Scrutinised and agreed internal audit
plans, methodology and deliverables
for 2018.
■■ Monitored BIA’s progress on delivery
against the Matters Requiring Attention
identified by the Fed, the issues arising
from the PRA’s horizontal review of the
function, and BIA’s response to feedback
received as part of the independent
external review commissioned by
the Committee.
■■ Monitored delivery of the agreed audit
plans, including assessing internal audit
resources and hiring levels, and any
impacts on the audit plan, and reviewing
the reasons for the postponement
of audits in greater depth.
■■ Debated audit risk appetite and
issue validation.
■■ Tracked the levels of unsatisfactory
audits, and monitored related
remediation plans.
■■ Approved the appointment of the Chief
Internal Auditor for Barclays Bank UK
PLC and Barclays Bank PLC respectively.
■■ Discussed BIA’s assessment of the
management control approach and
control environment in Barclays Bank
UK PLC, Barclays Bank PLC and
the functions.
■■ Evaluated the outcomes from BIA’s
annual self-assessment.
As Whistleblowing Champion, the
Chair of the Committee presented his
annual report on whistleblowing
matters to the Board.
The Committee continued to encourage
and support the provision of training
to colleagues and managers on
whistleblowing issues, and received
their own whistleblowing training.
The Committee was pleased to note
that the volume of cases remains
proportionate to Barclays’ size
and footprint.
The Committee was also pleased to
note that the recommendations arising
from the independent review of the
whistleblowing programme had
been implemented in full, and had
been subject to validation by the
Global Compliance Assurance team.
Following the enhancements made,
the Committee considered that the
whistleblowing programme generally
met with best practice as identified
by the FCA’s Review.
The Barclays PLC Environmental Social
Governance Report 2018 includes
further details regarding the Barclays
Group’s whistleblowing procedures and
controls.
The Committee received semi-annual
thematic control reports from BIA
and a quarterly operational report
during 2018.
The Committee observed that the
issues arising from unsatisfactory
audits indicated that there was still
work to do in embedding the required
level of control consciousness across
the Barclays Group and ensuring that
control exceptions were highlighted
clearly in management reporting.
The Committee welcomed the progress
made by BIA in addressing the Matters
Requiring Attention identified by the
Fed, the issues arising from the PRA’s
horizontal review of the function, and
the recommendations made as part
of the independent external review.
The Committee confirmed that it
was satisfied with the outcome of the
self-assessment of BIA performance,
which evidenced that the function
generally conforms to the standards
set by the Institute of Internal Auditors.
It further confirmed that it felt able to
rely on the work of BIA in discharging
its own responsibilities.
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Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
External audit
The work and performance
of KPMG.
■■ Met with key members of the KPMG
audit team to discuss the 2018 audit
plan and agree areas of focus.
■■ Assessed regular reports from KPMG
on the progress of the 2018 audit and
any material accounting and control
issues identified.
■■ Discussed KPMG’s feedback on
Barclays’ critical accounting estimates
and judgements.
■■ Discussed KPMG’s draft report on
certain control areas and the control
environment ahead of the 2018 year end.
■■ Discussed the approach to KPMG’s
annual report to the PRA which will
be issued following completion of the
2018 audit.
■■ Considered the draft SOX control report
and the draft audit opinion.
The Committee approved the audit
plan and the main areas of focus.
Separate audit partners were assigned
to lead the audits of Barclays Bank
UK PLC and Barclays Bank PLC and
the scope of the audit was, therefore,
necessarily revised to reflect a legal
entity view.
Read more about the Committee’s
role in assessing the performance,
effectiveness and independence of the
external auditor below. Further details
of the Committee’s consideration of
audit quality can be found in the
‘Governance in action’ section of this
report on page 67.
In addition, the Committee also covered the
following matters:
■■ tracked the progress of specific work
being done to enhance Barclays’ financial
crime controls, including the function’s
investigation capabilities, particularly
in relation to prevention and detection
activities. The Committee also assessed the
Group Money Laundering Officer’s annual
report, which was also presented to the
Barclays Bank UK PLC and Barclays Bank
PLC audit committees
■■ assessed the status of the programme
in place to ensure Barclays’ compliance
with client assets (CASS) regulatory
requirements, including approving the
annual client assets audit report and
discussing the potential impact of structural
reform on client assets
■■ evaluated the outcomes of the assessment
of the Committee’s performance and any
areas of Committee performance that
needed to be enhanced
■■ reviewed and updated its terms of
reference, recommending them to the
Board for approval.
External auditor
Following an external audit tender in 2015,
KPMG was appointed as the Barclays Group’s
statutory auditor. Michelle Hinchliffe of KPMG
is the Senior Statutory Auditor.
Assessing external auditor effectiveness,
objectivity and independence and
non-audit services
The Committee is responsible for assessing
the effectiveness, objectivity and independence
of KPMG. This responsibility was discharged
throughout the year at formal Committee
meetings, during private meetings with KPMG,
and through discussions with key executive
stakeholders. In addition to the matters noted
above, the Committee also:
■■ approved the terms of the audit
engagement letter and associated fees,
on behalf of the Board
■■ discussed and agreed revisions to the
Barclays Group policy on the Provision
of Services by the Group Statutory Auditor
and regularly analysed reports from
management on the non-audit services
provided to Barclays
■■ evaluated and approved revisions to the
Barclays Group policy on Employment of
Employees or Workers from the Statutory
Auditor and ensured compliance with
the policy by regularly assessing reports
from management detailing any
appointments made
■■ was briefed by KPMG on critical accounting
judgements and estimates and internal
controls over financial reporting
■■ assessed any potential threats to
independence that were self-identified
and reported by KPMG
■■ met with KPMG to discuss the issues
impacting KPMG as a firm, some of which
were the subject of significant adverse
press coverage
■■ reviewed the annual report on KPMG
issued by the FRC’s Audit Quality Review
(AQR) team
■■ received and discussed with the AQR team
the findings from their review of KPMG’s
2017 audit of the Barclays Group
■■ received a report from KPMG regarding
the draft findings from the review by the
Public Company Accounting Oversight
Board (PCAOB) of KPMG’s 2017 audit
of the Barclays Group.
The AQR team reviewed the main judgemental
areas of KPMG’s audit: the fair value of
financial instruments (including trading,
designated at fair value and derivative financial
instruments); the impairment of loans and
advances to customers; litigation provisions;
conduct provisions; and the IFRS 9 transition
disclosures. They identified improvements
that, in their view, were required in these areas
and in their discussion with the Committee
highlighted, in particular, their findings as
related to KPMG’s audit of the fair value of
derivatives. The Committee discussed both
the overall assessment of the review and the
areas for improvement in detail with KPMG,
and noted the actions they had taken as
regards the 2018 audit; the Committee also
challenged KPMG as to whether any of the
findings might be relevant to areas which had
not been subject to the AQR team’s review.
In addition, the Committee received a detailed
paper from KPMG outlining the work they
performed on the fair value of the derivatives
portfolio in 2017. The Committee believes
that KPMG has taken appropriate action as
regards its 2018 audit. Furthermore, having
understood the nature of the AQR team’s
findings and KPMG’s work, particularly as
regards to the fair value of the derivatives
portfolio, the Committee does not believe the
findings affected the overall audit conclusions
reached by KPMG in the 2017 audit.
The Committee received from KPMG a note
of the draft PCAOB findings and discussed
with KPMG both the findings and the
proposed improvements to the audit that
KPMG had implemented for the 2018 audit.
The Committee noted that whilst the scope
for the two reviews was not the same, the
PCAOB did also cover the fair value of financial
instruments and the impairment of loans and
advances to customers. As regards the
financial statement audit, the PCAOB raised
no comments on the impairment of loans
and only one comment on the valuation
of a minor part of the trading portfolio.
As regards the audit of financial controls
required by Sarbanes-Oxley, the PCAOB noted
that, in their view, KPMG had not performed
adequate assessments of certain management
review controls relating to loan impairment
and valuation models. In this respect, both
management and KPMG have been working
to ensure that such review controls are
documented at a sufficiently granular level
to meet audit and regulatory expectations.
Again, having considered in detail the
comments raised and KPMG’s response,
the Committee believes that KPMG has
taken appropriate action as regards the
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Barclays PLC Annual Report 2018 65
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Governance: Directors’ report
What we did in 2018
Board Audit Committee report
2018 audit and that the nature of the
comments received from the PCAOB do not
impact on the 2017 audit conclusions in
respect of either the audit of the financial
statements or internal financial controls.
■■ references to ABSA/Barclays Africa
Group Limited (BAGL), and its auditors
Ernst & Young, were removed to reflect
the full deconsolidation of BAGL from
a regulatory perspective
KPMG’s performance, independence and
objectivity during 2018 were also formally
assessed at the beginning of 2019 by way of
a questionnaire completed by key stakeholders
across the Barclays Group, including the chairs
of the Barclays Bank UK PLC and Barclays
Bank PLC audit committees. The questionnaire
was designed to evaluate KPMG’s audit
process and addressed matters such as the
quality of planning and communication,
technical knowledge, the level of scrutiny and
challenge applied and KPMG’s understanding
of the business. In addition, as in the prior
year, KPMG nominated a senior partner of the
audit team reporting to the Senior Statutory
Auditor to have specific responsibility for
ensuring audit quality. The Committee
therefore met with the partner concerned
without the Senior Statutory Auditor to
receive a report on his assessment of audit
quality, bearing in mind the comments
received from the AQR team and PCAOB
and the responses thereto.
Taking into account the results of all of
the above, the Committee considered that
KPMG maintained their independence and
objectivity, and that the audit process
was effective.
Non-audit services
In order to safeguard the Auditor’s
independence and objectivity, the Barclays
Group has in place a policy setting out the
circumstances in which the Auditor may be
engaged to provide services other than those
covered by the Barclays Group audit. The
Barclays Group Policy on the Provision of
Services by the Group Statutory Auditor
(the Policy) applies to all Barclays’ subsidiaries
and other material entities over which Barclays
has significant influence. The core principle
of the Policy is that non-audit services (other
than those legally required to be carried out by
the Barclays Group’s Auditor) should only be
performed by the Auditor in certain, controlled
circumstances. The Policy sets out those types
of services that are strictly prohibited and
those that are allowable in principle. Any
service types that do not fall within either
list are considered by the Committee Chair
on a case by case basis, supported by a risk
assessment provided by management.
The Policy is reviewed on an annual basis
to ensure that it is fit for purpose, and that it
reflects applicable rules and guidelines. This
year, following the completion of structural
reform, the following material amendments
were made to the Policy:
■■ the Policy was updated to reflect an FRC
staff guidance note entitled The Auditor’s
Provision of Restructuring Services to Public
Interest Entity Participants in Bank Lending
or Bond Funded Syndicates
■■ the £25,000 tax planning and tax advice
services threshold was removed from
allowable non-audit services, which means
that all such services now require approval.
Tax advice to expatriate employees and
training on the practice of tax law were
added to the prohibited non-audit
services listing.
The Policy was further updated at the
beginning of 2019 to align it with KPMG’s
update to its own internal policy on non-
audit services for FTSE 350 companies which
provides that the Auditor should only be
engaged to supply non-audit services where
those services are ‘closely related’ to the audit.
The above changes were approved at a
Barclays Group level by the Committee. This
is in accordance with European Union law
and FRC guidance, pursuant to which audit
committees of Public Interest Entities (such
as Barclays PLC) are required to approve
non-audit services provided by their auditors
to such entities, and subsidiary Public Interest
Entities in the UK – such as Barclays Bank UK
PLC and Barclays Bank PLC – can rely on the
approval of non-audit services by the ultimate
parent’s audit committee. It should be noted
that audit services, and the fee cap, will be
monitored by the relevant audit committee,
as appropriate.
Under the Policy the Committee has pre-
approved all allowable services for which
fees are less than £100,000. However, all
proposed work, regardless of the fees, must
be sponsored by a senior executive and
recorded on a centralised online system, with
a detailed explanation of the clear commercial
benefit arising from engaging the Auditor over
other potential service providers. The audit
firm engagement partner must also confirm
that the engagement has been approved in
accordance with the Auditor’s own internal
ethical standards and does not pose any
threat to the Auditor’s independence or
objectivity. All requests to engage the Auditor
are assessed by independent management
before work can commence. Requests for
allowable service types in respect of which the
fees are expected to meet or exceed the above
threshold must be approved by the Chair of
the Committee before work is permitted to
begin. Services where the fees are expected
to be £250,000 or higher must be approved
by the Committee as a whole. All expenses
and disbursements must be included in the
fees calculation.
During 2018, with the exception of one matter,
all engagements where expected fees met or
exceeded the above threshold were evaluated
by either the Committee Chair or the
Committee as a whole who, before confirming
any approval, assured themselves that there
was justifiable reason for engaging the Auditor
and that its independence and objectivity
would not be threatened. No requests to use
KPMG were declined by the Committee in
2018 (2017: none). On a quarterly basis, the
Committee scrutinised details of individually
approved and pre-approved services
undertaken by KPMG in order to satisfy itself
that they posed no risk to independence,
either in isolation or on an aggregated basis.
Two minor breaches of the Policy arose during
the reporting period. In both cases, KPMG
confirmed to the Committee that they did not
consider their position of independence had
been compromised. The Committee agreed
with this assessment and action was taken
to address the breaches and to ensure they
do not recur.
For the purposes of the Policy, the Committee
has determined that any pre-approved
service of a value of under £50,000 is to
be regarded as not material in terms of its
impact on Barclays’ financial statements and
has required the Group Financial Controller
to specifically review and confirm to the
Committee that any pre-approved service
with a value of £50,000-£100,000 may be
regarded as such. The Committee undertook
a review of pre-approved services at its
meeting in December 2018 and satisfied itself
that such pre-approved services were not
material in the context of their impact on
the financial statements.
The fees payable to KPMG for the year ended
31 December 2018 amounted to £51m, of
which £11m (2017: £10m) was payable in
respect of non-audit services. A breakdown
of the fees payable to the Auditor for statutory
audit and non-audit work can be found in
Note 40. Of the £11m of non-audit services
provided by KPMG during 2018, the significant
categories of engagement, i.e. services
where the fees amounted to more than
£500,000, included:
■■ audit-related services: services in
connection with CASS audits (while the
CASS audit fell within the Auditor’s scope
of services, the fees for such services did
not form part of the global fee arrangements
and therefore required separate Committee
approval pursuant to the Policy)
■■ other attest and assurance services:
ongoing attestation and assurance
services for treasury and capital markets
transactions to meet regulatory
requirements, including regular reporting
obligations and verification reports.
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As noted above, the Provision of Services
by the Group Statutory Auditor Policy was
updated to clarify that the Barclays Group
should only engage the Auditor to supply
non-audit services where those services are
‘closely related’ to the audit. Having reviewed
the non-audit services that have been
provided by KPMG since their appointment
as the Barclays Group’s external auditor
with effect from the financial year beginning
1 January 2017, we believe that this change
will have limited impact on the Barclays
Group. For example, all of the non-audit
services provided by KPMG in 2018 fall within
the new policy and would, therefore, have
been permissible. Of the £10m of non-audit
services provided by KPMG during 2017, KPMG
would have been prohibited from providing
services amounting to less than £300,000
pursuant to the new policy.
The Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and
Audit Committee Responsibilities) Order 2014
An external audit tender was conducted in
2015 and the decision was made to appoint
KPMG as Barclays’ external auditor with
effect from the 2017 financial year, with PwC
resigning as the Barclays Group’s external
auditor at the conclusion of the 2016 audit.
Barclays is in compliance with the requirements
of The Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and
Audit Committee Responsibilities) Order 2014,
which relates to the frequency and governance
of tenders for the appointment of the external
auditor and the setting of a policy on the
provision of non-audit services.
Provided that KPMG continue to maintain
their independence and objectivity, and the
Committee remains satisfied with their
performance, the Barclays Group has no
intention of appointing an alternative external
auditor before the end of the current required
period of 10 years.
Governance in action –
Audit quality
Although BIA, as the Barclays Group’s
internal auditor, and KPMG, as the Barclays
Group’s external auditor, have primary
responsibility for the quality of their
respective audits, the Committee plays
an important role in promoting and
supporting audit quality through its various
responsibilities (as detailed in its terms
of reference).
The Committee gains insight into the
activities of BIA, and its effectiveness, in
three ways. Firstly, BIA maintains a quality
assurance and improvement programme that
covers all aspects of BIA’s activity across the
Barclays Group and which is overseen by the
Committee. In the event that any issues are
identified in relation to BIA’s work for Barclays
Bank UK PLC and/or Barclays Bank PLC, such
issues will be reported to the relevant audit
committee. Secondly, the independent
Internal Audit Quality Assurance team
samples all of BIA’s work on an annual basis
and presents its findings to the Committee.
Thirdly, the Committee commissions an
external assessment of BIA at least once
every five years with the last such review
being undertaken during the second half
of 2017. To the extent that the Committee
is made aware of any development areas
or issues, it endeavours to monitor the
delivery of any remedial actions.
The Committee oversees the Group’s
relationship with its external auditor and is
responsible for reviewing the performance,
independence and objectivity of the external
auditor in order to decide whether to
recommend to the Barclays PLC Board
a proposal for shareholders to reappoint
the current external auditor. As part of that
review, which is organised at a Barclays
Group level, the views of the Barclays Bank
UK PLC and Barclays Bank PLC audit
committees are sought. In addition, this year,
the Committee met with the nominated
senior partner on the audit team who has
responsibility for ensuring audit quality
– without the Senior Statutory Auditor – in
order to receive a report on his assessment of
audit quality. KPMG provided the Committee
with a report regarding the draft findings
from the Public Company Accounting
Oversight Board’s review of KPMG’s 2017
audit of Barclays, and the findings of the
FRC’s Audit Quality Review (AQR) team
review of KPMG’s 2017 audit of Barclays were
also shared with the Committee. The AQR
team monitors the quality of the audit work
of statutory auditors and audit firms in the
UK that audit certain entities, including
banks such as Barclays. They conduct
reviews of individual audits, and focus on
the appropriateness of key audit judgements
made in reaching the audit opinion and the
sufficiency and appropriateness of the audit
evidence obtained; reviews of firm-wide
procedures are wide-ranging in nature and
include an assessment of how the culture
within firms impacts on audit quality.
The Committee believes that high quality
audit is the primary mechanism for
providing stakeholders with assurance that
the financial statements give a true and
fair view of their Company and, therefore,
promotes market confidence in the
Company’s financial reports. For these
reasons, the Committee continues to be
an advocate of high-quality audit and keeps
abreast of the debate as to whether audits,
and auditors, are fit for purpose by regularly
reviewing industry guidance from, for
example, the FRC and the International
Organization of Securities Commissions.
The Committee provided information
in response to the request from the
Competition & Markets Authority for its
review into competition in the UK audit
market – which will examine three main
areas: choice, resilience and incentives –
and we look forward to reviewing the
conclusions of that study.
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Barclays PLC Annual Report 2018 67
Governance: Directors’ report
What we did in 2018
Board Nominations Committee report
The Committee, alongside the Board, is very alive to the
benefits of diversity in order to avoid ‘group think’ and to
ensure that the Board and senior management team more
closely reflect the diversity of the communities they serve.
Dear Fellow Shareholders
2018 saw the establishment of our new
corporate structure, and the embedding of the
newly constituted Barclays Bank UK PLC and
Barclays Bank PLC boards comprising distinct
combinations of executive and non-executive
Directors. Throughout this period of change,
the Committee continued to consider regularly
the composition of, and succession plans for,
the Barclays PLC Board in order to ensure the
right balance of diversity, experience and skills
to provide the strategic oversight needed to
motivate colleagues and sustain our business
over the long term. In this respect, we were
pleased to appoint Mary Anne Citrino as
a non-executive Director in July 2018, the
Committee having followed its usual approach
of engaging an executive search firm and
conducting a rigorous search and selection
process. You can find out more about Mary
Anne’s background, experience and skills
in her biography on page 52. We also look
forward to welcoming Nigel Higgins, my
successor, as Chairman with effect from
the conclusion of the AGM on 2 May 2019.
Nigel’s appointment marks the culmination
of an intensive recruitment process led by
a sub-committee of the Board chaired by our
Senior Independent Director, Crawford Gillies,
and is made with the full approval and support
of the Nominations Committee. You can
read more about Nigel’s recruitment and
appointment in the ‘Governance in action’
section of the Board report on page 72.
On 19 March 2018, we announced various
Board changes to reflect the post-ring-fencing
structure:
■■ Sir Gerry Grimstone, who was Deputy
Chairman and Senior Independent Director
of Barclays PLC and Chair of the Barclays
PLC Reputation Committee, moved instead
to become Chairman of Barclays Bank PLC.
He remains a non-executive Director of
Barclays PLC
■■ Sir Ian Cheshire was appointed Chairman
of Barclays Bank UK PLC. He remains
a non-executive Director of Barclays PLC
■■ Crawford Gillies was appointed Senior
Independent Director of Barclays PLC
■■ Mary Francis was appointed Chair of
the Barclays PLC Reputation Committee.
Continuing on the theme of succession, one
of the Committee’s key considerations is the
processes for executive succession. During
the year, we closely monitored the status and
progress of the Barclays Talent and Succession
strategy – which is aimed at attracting and
retaining the best talent for the Barclays Group
– and provided management with guidance
and input on the strategy, as appropriate.
The Committee also reviewed diversity in the
talent pipeline and discussed ways in which
high-performing individuals within senior
management can be developed and nurtured
in order to strengthen our succession pipeline.
The Committee was encouraged by Barclays’
ever increasing commitment to diversity.
The Committee, alongside the Board, is very
alive to the benefits of diversity at Board level
and in senior management, both in terms of
gender, ethnicity and more broadly, in order
to avoid ‘group think’ and to ensure that the
Board and the senior management team more
closely reflect the diversity of the communities
that they serve. In light of the Hampton
Alexander and Parker Reviews, the Board
Diversity Policy and Committee terms of
reference were reviewed in order to ensure
that both documents reflect our commitment
to identifying, attracting, retaining and
promoting the best talent, irrespective of the
gender, ethnic background, religion or other
defining characteristic of any candidate. The
Board Diversity Policy and the Committee’s
terms of reference are available at
home.barclays/corporategovernance.
In July 2016, Barclays was proud to become
one of the first signatories to HM Treasury’s
Women in Finance Charter and remains
committed to its pledge to improve gender
diversity within the financial services sector.
Work has continued towards our target of
33% female representation on the Board by
2020, not least, with the appointment of Mary
Anne Citrino as a non-executive Director to
the Board. The Committee also reviewed the
Barclays Group’s progress towards building
a diverse and inclusive workforce, including
reviewing updates on progress made across
the Barclays Group against the five global
pillars of Barclays Diversity and Inclusion
strategy: gender, disability, LGBT, multicultural
and multigenerational. Find out more about
this in the People section on pages 93 to 98.
Committee performance
The performance of the Committee was
assessed by Independent Board Evaluation,
an independent, external corporate governance
consultancy as part of the annual effectiveness
review. The results confirm that the Committee
is performing effectively, and that the role and
responsibilities of the Committee are clear
and well understood. Last year’s review noted
that the Committee needed to be mindful
of ensuring that all non-executive Directors
received the same flow of information in
relation to decisions and discussions by the
Committee. The Committee sought to address
this through the delivery of updates by me,
as Chair of the Nominations Committee,
to the Board and outside of scheduled Board
meetings, to the extent appropriate. This
year’s review notes that this is something
that now needs to be further built upon.
More information on the 2018 review of Board,
Board Committee and individual Director
effectiveness, and progress made against
the findings of the 2017 review, can be found
on page 71 and 72.
Looking ahead
While it is always a difficult choice to retire
from a company as prestigious as Barclays,
I am delighted that the Board has appointed
Nigel Higgins to succeed me as Chairman.
I have every confidence that Nigel will be
a superb steward of both the Board and
the bank as Barclays continues to progress
following the substantial restructuring
of the past few years.
John McFarlane
Chair, Board Nominations Committee
20 February 2019
68 Barclays PLC Annual Report 2018
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Committee allocation of time (%)
5
1
4
2
3
1 Corporate governance
matters
2 Board and Board
Committee composition
3 Succession planning
and talent
4 Board effectiveness
5 Other
2018
2017
13
41
27
11
8
8
45
33
11
6
Committee composition and meetings
The Committee is composed solely of
independent non-executive Directors. The
members of the Committee are John McFarlane,
Mike Ashley, Tim Breedon, Sir Ian Cheshire,
Crawford Gillies, Sir Gerry Grimstone, and
Reuben Jeffery III. You can find more details
of the experience of Committee members
in their biographies on pages 51 and 52.
During 2018, the Committee met five times
and the chart shows how it allocated its time.
Attendance by members at Committee
meetings is shown below. Committee meetings
were attended for the relevant agenda items
by the Group Chief Executive, the Group
HR Director and the Group Head of Talent.
The Global Head of Diversity and Inclusion
also attended to the extent required.
Member
John McFarlane
Mike Ashley
Tim Breedon
Sir Ian Cheshire
Crawford Gillies
Sir Gerry Grimstone
Reuben Jeffery III
Meetings attended/eligible to attend
5/5
5/5
5/5
5/5
5/5
5/5
4/5
Committee role and responsibilities
The Committee is responsible for:
■■ supporting and advising the Board in
ensuring that it is comprised of individuals
who are best able to discharge the duties
and responsibilities of Directors
■■ evaluating the balance of skills, experience,
independence, knowledge and diversity,
on the Board
■■ ensuring that both appointments and
succession plans are based on merit and
objective criteria and, within this context,
promoting diversity of gender, social
and ethnic background, cognitive and
personal strengths
■■ agreeing the annual Board performance
evaluation process and considering
its effectiveness
■■ ensuring that the Board has appropriate
corporate governance standards and practices
in place and revising these in order to ensure
that they are consistent with best practice
■■ appointing Directors to, and removing
Directors from, the boards of certain
significant subsidiaries of the Barclays
Group (with the recommendation of the
relevant nominations committee, and the
approval of the relevant board, where
appropriate) and agreeing appropriate
policies and processes to apply to the
governance of those subsidiaries.
The Committee’s terms of reference are available
at home.barclays/corporategovernance
The Committee’s work
The significant matters addressed by the Committee during 2018 are described on the following pages.
Area of focus
Matter addressed
Role of the Committee
Conclusion/action taken
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The membership of the Board,
and the current and future
composition of the Board and
its Committees.
■■ Reviewed the Board skills matrix
and discussed the key skills and
experience needed on the Board
in the context of future strategic
direction and structural reform,
including any areas requiring
strengthening from a skills and
succession perspective.
■■ Identified the requirement
for additional non-executive
Directors with attributes including
investment banking experience,
retail banking experience and also
digital/technology experience.
■■ Continued the search for an
additional female non-executive
Director with the relevant skill set.
■■ Played an important role in the
search for the Chairman’s
successor.
■■ Reviewed the membership, size
and composition of the Board
Committees.
Board composition
of Barclays Bank
UK PLC and Barclays
Bank PLC in
preparation for the
legal entity stand
up on 1 April 2018
under the Structural
Reform Programme
The composition of the Barclays
Bank UK PLC and Barclays Bank
PLC boards.
■■ Finalised the establishment
of the boards of Barclays Bank
UK PLC and Barclays Bank PLC,
and discussed the suitability of
potential candidates identified
to join those boards.
The Committee prepared an appropriate
individual specification for an additional
non-executive Director and shared it with
executive search firm, Egon Zehnder. Egon
Zehnder was advised that, subject always
to applying rigorous, objective criteria, in
the context of Barclays’ strategic direction
and the diversity of gender, social and
ethnic backgrounds, cognitive and personal
strengths, there was a preference for female
candidates in light of the Board’s diversity
target of having 33% female representation
on the Board by 2020. Egon Zehnder
prepared a long-list of candidates (including
references and CVs), which was reviewed
by the Committee. A shortlist was prepared,
and the candidates were interviewed. Mary
Anne Citrino was identified as the preferred
candidate, and was appointed to the Board
on 25 July 2018.
The Committee continues its search for an
additional female non-executive Director –
preferably with banking experience and
digital/technology experience – to further
promote diversity of gender on the Board.
Any appointment made will be based on merit
and, as mentioned above, objective criteria.
The Committee finalised the appointments
to the boards of Barclays Bank UK PLC
and Barclays Bank PLC ahead of the
execution of structural reform. This
included the appointment of Chairs to these
Boards in Sir Ian Cheshire and Sir Gerry
Grimstone respectively, and taking the
opportunity to appoint a dedicated Senior
Independent Director within Barclays PLC
in Crawford Gillies.
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Barclays PLC Annual Report 2018 69
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Area of focus
Matter addressed
Role of the Committee
Conclusion/action taken
Executive
succession planning
and talent
management
Succession planning and
talent management at the
Barclays Group Executive
Committee level.
Diversity and
Inclusion
Ensuring Barclays attracts
and retains the best talent.
■■ Reviewed the progress being
made against Barclays’ Talent
and Succession strategy, including
monitoring diversity within the
talent pipeline.
■■ Discussed updates from the
Group HR Director on the Barclays
Group Executive Committee
succession plans, including
assessing emergency cover, the
existing talent pipeline and any
potential gaps.
■■ Considered individuals identified
as potential Barclays Group
Executive Committee successors
and discussed next steps for
their development.
■■ Assessed the succession plans
for the most critical business
unit and functional roles, and
discussed how to develop the
high-performing individuals
identified.
■■ Reviewed the Barclays Group’s
progress towards continuing
to build a diverse and inclusive
workforce.
The Committee reviewed the succession
pipeline of the Barclays Group Executive
Committee and their direct reports. The
Committee was encouraged that all Barclays
Group Executive Committee roles had at
least one female successor, and that 33%
of the total successors identified were
female. Barclays is committed to achieving
33% female representation among the
Barclays Group Executive Committee and
their direct reports by 2020, and as at
year-end 2018 we are reporting 28% female
representation among this population.
The Committee also discussed the
continued use of ex officio posts to both
the Barclays Group Executive Committee
and business executive committees to give
senior individuals more exposure to Barclays
Group matters. This serves to not only
broaden the scope of perspectives within
the relevant committee but also to develop
those individuals thus ensuring a healthy
pool of potential candidates in the
succession pipeline.
The Committee received regular updates
from the Global Head of Diversity and
Inclusion on progress made across the firm
against the five global pillars of Barclays
Diversity and Inclusion strategy: Gender,
Disability, LGBT, Multicultural and
Multigenerational. Whilst acknowledging
that there is more to do, the Committee
was pleased with the progress that had
been made.
Further detail on this progress can be found
above under ‘Board and Board Committee
Composition’ and in the People section on
pages 93 to 98.
In addition, the Committee also covered the
following matters:
■■ considered the results of, and agreed the
action plan in respect of, the 2017 Board
effectiveness review and the process for
the 2018 Board and Board Committee
effectiveness review
■■ monitored Directors’ conflicts of interests,
and Directors’ induction and training
■■ evaluated the outcomes of the assessment
of the Committee’s performance and any
areas of Committee performance that
needed to be enhanced
■■ reviewed the Committee’s terms of
reference, recommending them to the
Board for approval.
Appointment and re-election of Directors
Board and Board Committee composition
is a standing item for consideration at
each Committee meeting. This includes
the consideration of potential new non-
executive Director appointments, both in
respect of planned succession for known
retirements and as a result of the ongoing
review of the skills and experience needed
on the Board in order for it to continue to
operate effectively.
The Committee frequently considers a skills
matrix for the Board, which identifies the core
competencies, skills, diversity and experience
required for the Board to deliver its strategic
aims and govern the Barclays Group effectively.
Certain attributes identified in the skills matrix
have a target weighting attached to them and
these are regularly updated to reflect the
needs of the Barclays Group. The Committee
reviews the skills matrix when considering a
potential new appointment to the Board, as
well as reviewing the current and expected
Board and Board Committee composition.
This helps to determine a timeline for
proposed appointments to the Board.
To the extent that the Nominations
Committee identifies any gaps in the
Board’s profile – which may be a result
of the forthcoming retirement of a Director,
or in response to changing market needs –
that information is used to inform the search
for a new Director or Directors and the specific
skills that are required will be identified, for
example, an individual with international
experience, or recent history serving on a
particular board committee. The Charter of
Expectations contains the key competencies,
skills and experience expected of non-
executive Directors, and these, in addition
to other details such as expected time
commitment, will be included in an individual
specification. The Board and the Committee
remain mindful of the targets set by the
Hampton Alexander Review and the Parker
Review respectively for FTSE 100 companies
to have a minimum of 33% female
representation on their board by 2020 and
at least one ‘person of colour’ on their board
by 2021. The Committee considers CVs and
references for potential candidates. Any
candidates who are shortlisted will be
interviewed by members of the Committee
and, if applicable, key stakeholders and
Barclays’ regulators may be asked to provide
feedback on the proposed appointment.
The Board is updated on the progress of the
recruitment and interview process, and any
feedback from the interviews is provided
to the Board alongside a recommendation
for appointment.
During 2018, executive search firms Egon
Zehnder and Spencer Stuart were instructed
to assist with the search for a new female
non-executive Director and new Chairman,
respectively. Neither firm has any other
connection to Barclays, other than to provide
recruitment services. Open advertising for
Board positions was not used this year,
70 Barclays PLC Annual Report 2018
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as the Committee believes that targeted
recruitment is the optimal way of recruiting
for such positions. Both of the firms used for
non-executive Director recruitment have
signed up to the Voluntary Code of Conduct
for Executive Search Firms, which includes
measures designed to improve gender
diversity on boards.
In 2018, Barclays announced the appointment
of Mary Anne Citrino as a non-executive
Director with effect from 25 July 2018.
Mary Anne has extensive board-level
experience and brings strong commercial
acumen, together with investment banking
experience (see page 52 for details of
Mary Anne’s background, experience and
skills). In addition, Barclays announced the
appointment of Nigel Higgins as John
McFarlane’s successor. For more details
about Nigel’s recruitment and appointment,
please refer to the ‘Governance in action’
section on page 72.
The Directors in office at the end of 2018
were subject to an effectiveness review, as
described below, which considered, among
other things, what specific contribution they
made to the Company. Based on the results
of this review, the Board accepted the view
of the Committee that each Director proposed
for election or re-election continues to be
effective, and contributes to the Company’s
long-term sustainable success. Having served
on the Board for nine years, Reuben Jeffery III
and Dambisa Moyo will both retire from the
Board at this year’s AGM and will not,
therefore, be standing for re-election.
The Committee noted certain stakeholder
concerns with respect to the following
Directors’ proposed re-election at last
year’s AGM:
■■ Sir Ian Cheshire’s time commitments.
Since Sir Ian’s appointment in 2017, his
time commitments have not been an issue.
Sir Ian has been available as and when
required by the Barclays Group, and he
attended 100% of scheduled and additional
Board meetings in 2018 (some of which
were often called at short notice). He is
an effective Barclays PLC non-executive
Director. Subsequent to the year end,
Sir Ian’s role as Chairman of Debenhams Plc
came to an end.
■■ Crawford Gillies and the appointment of
our former auditor, PwC, as external adviser
to the Remuneration Committee. Prior to
the appointment of KPMG as the Barclays
Group’s external auditor on 31 March 2017
(formally approved at the 2017 AGM in
May 2017), PwC was the Barclays Group’s
external auditor. PwC was subsequently
appointed as the independent adviser to the
Remuneration Committee in October 2017,
following a robust tender process. The PwC
team providing advice to the Committee is
different to the past audit team, and the
Committee is satisfied that the advice
provided is independent and objective.
■■ Mike Ashley’s re-election as a non-executive
Director following the appointment of
KPMG as the Barclays Group’s Auditor.
The Committee confirms that although
Mike was Chair of the Audit Committee at
the relevant time, since he is a former KPMG
partner he had no involvement in the audit
tender process, the recommendation to the
Board nor the decision to appoint KPMG as
the Barclays Group’s Auditor. The audit
tender process was led by Tim Breedon.
■■ Tim Breedon has been a Director for over
six years and, accordingly, his independence
was subjected to a more rigorous review
pursuant to the recommendations of
The UK Corporate Governance Code 2016.
Having considered Tim’s interests outside
of the Barclays Group and other relationships
which could materially affect his ability
to exercise independent judgement, the
Committee concluded that there were no
circumstances which would impact upon
Tim’s ability to act in the best interests
of Barclays PLC. The Committee remains
satisfied that the length of Tim’s tenure
has no impact on his level of independence,
or the effectiveness of his contributions
In light of the recommendations set out
in The UK Corporate Governance Code 2018,
Barclays PLC introduced a new procedure,
with effect from 1 January 2019, requiring
all Directors to request pre-clearance prior
to taking on any additional commitments,
including but not limited to directorships, and
to indicate in the clearance request the likely
time commitment involved. The Company
Secretary maintains a record of each
Director’s commitments. This new procedure
will enable the Board to track individual
Directors’ commitments in order to satisfy
itself that no Director is over-committed.
With regard to new Director appointments,
all potential candidates are asked to disclose
their significant commitments, and to give
an indication of the time spent on those
commitments. This information is taken into
account by the Committee when considering
proposed appointments on the basis that all
Directors are expected to allocate sufficient
time to their role on the Board in order to
discharge their responsibilities effectively.
Review of Board, Board Committee and
individual Director effectiveness
Process
In recent years, the Board has assessed
its effectiveness, and that of the Board
Committees and the individual Directors,
annually in a process facilitated by an
independent third party. This has been driven
by the Board’s belief that an effective Board
is key to the delivery of a company’s strategy,
and that an objective, external perspective
helps to identify what is working well and
priorities for improvement, and promotes
open discussion, resulting in a more effective
Board. A full external review of the Barclays
PLC Board, Board Committees and individual
Directors was carried out during Q4 of 2018.
Independent Board Evaluation (IBE),
which is an independent, external corporate
governance consultancy with no other
connection to the Barclays Group, was once
again chosen to facilitate the effectiveness
review on the basis that it offered not only
the relevant skills but also prior knowledge
of the Board and thus the ability to provide
more insightful feedback. Consistent with
previous years, IBE carried out interviews
with the Directors to obtain feedback on the
effectiveness of the Board throughout 2018,
and also attended several Board and Board
Committee meetings. Although not required
by The Code, the boards of each of Barclays
Bank UK PLC and Barclays Bank PLC have also
elected to engage IBE to evaluate them, in
order to enhance their effectiveness and
ensure that they are operating optimally. This
will, ultimately, provide the Barclays Group
with a unique perspective as to the interaction
of the boards and board committees of these
companies, and the fitness for purpose of
our new governance framework.
IBE issued their final report to the Board
in December 2018 on the findings of the
effectiveness review. In addition, the Chairman
was provided with a report and feedback on
the performance of each of the Directors,
and the Senior Independent Director received
a report on the Chairman.
Following consideration of the findings
of the 2018 Board and Board Committee
effectiveness reviews, the Directors remain
satisfied that the Board and each of the Board
Committees are operating effectively.
2017 findings of the Board effectiveness
review and actions taken in 2018
Key findings of the 2017 Board effectiveness
review, which was also facilitated by IBE, were
that improving business performance would
need to be a particular focus for 2018 and
that structural reform – particularly the
need for clear accountability and delineated
responsibilities in the new structure between
the individual boards and board committees
– was regarded as a major challenge.
Following completion of structural reform,
and the resolution of a number of significant
legacy litigation and conduct matters, the
executive team has been able to apply even
greater focus to improving the performance
of the business in the course of 2018 and has
done so effectively. In relation to the second
finding, and as noted earlier, a review of the
governance processes across the Barclays
Group was undertaken in order to ensure the
effective operation of each of the boards and
the respective board committees. In order
to streamline governance processes, where
appropriate, and clarify relationships between
and among management and Barclays PLC,
as well as the individual boards and their
respective committees, the Board has agreed
a new set of governance operating procedures
and protocols which are detailed in a
‘Corporate Governance Operating Manual’
(the Manual). The Manual is intended to
promote efficient, effective and cohesive
governance across the respective boards and
board committees, and has been approved
and adopted and is in the process of being
further embedded.
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Barclays PLC Annual Report 2018 71
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What we did in 2018
Board Nominations Committee report
2018 Board effectiveness review
Feedback from the 2018 Board effectiveness
review, facilitated by IBE, included that the
execution of structural reform had gone well,
financial results were encouraging and legacy
issues were being resolved satisfactorily.
Board members commented that the
Board was well supported, and papers and
presentations had improved, and Directors
induction was strong. The review yielded
a number of recommendations, a high level
summary of which is set out below. The Board
intends to take action to address each of these
recommendations during the course of 2019.
Recommendations:
■■ The Board is large relative to peers and
the whole Board should be engaged
in considering how the Board might be
reduced in size to a more manageable level
whilst having careful regard to the Board
skills matrix and relevant role profiles,
to diversity and to succession planning.
■■ The Board should ensure that the
Company’s purpose and values are fully
aligned with its culture and that all
Directors lead by example and promote
the desired culture.
■■ Enhanced training for Board members
and senior executives on UK corporate
governance, in particular for those with
limited ‘UK plc’ experience, would be
helpful, as would refresher training sessions
and more opportunities for site visits.
■■ To enable the Board to spend more time
on longer-term and strategic issues, a short
set of annual objectives setting out what
the Board and Board Committees need to
achieve would help to bring further focus
on key issues in each forum, and will result
in papers and meetings being more effective
in terms of length and duration, respectively.
The 2018 Board effectiveness review
considered diversity when assessing the
effectiveness of the Board.
Board Committee effectiveness
The 2018 Board Committee effectiveness
review was carried out by IBE. It was noted
that this was the first review post-structural
reform. The process involved both interviews
with the Board Committee members and
completion of a questionnaire, following
which an effectiveness review report of
the findings was provided to the Board
Chairman and each Board Committee Chair.
The conclusion of the Board Committee
effectiveness review is that the Board
Committees are working effectively. You can
read more about the findings for each Board
Committee within each Board Committee
Chair’s letter.
Governance in action –
Recruiting and appointing a new Chairman
As a result of John McFarlane’s wish to serve
for a maximum of four years on the Barclays
PLC Board, and his anticipated retirement
in 2019, Barclays PLC needed to identify
and recruit a new Chairman. Whilst the
Nominations Committee would normally
lead the process for the identification
and recommendation of the Chairman’s
successor, given the importance of the role
of Chairman, the Board was keen to involve
all of the non-executive Directors in the
recruitment process, rather than just those
non-executive Directors who were members
of the Nominations Committee. The Board
asked the Senior Independent Director,
Crawford Gillies, to convene a group of
non-executive Directors – the Chairman’s
Appointment Oversight Committee
(CAOC) – to lead the search process for
the Chairman’s successor, and to identify
and recommend one or more candidates
for consideration by the Chairman’s
Appointment Committee (CAC). The CAOC,
led by Crawford, comprised Tim Breedon,
Mary Francis, and Reuben Jeffery III. The
CAC, also chaired by Crawford, comprised
all of the non-executive Directors, apart
from the Chairman himself. The CAC was
responsible for considering the candidate or
candidates nominated by the CAOC, and for
nominating and recommending a candidate
for consideration and approval in principle
by the Board, subject both to the relevant
candidate being approved by the PRA and
the FCA, and terms of appointment being
agreed between the candidate and
Barclays PLC.
reduced. The Nominations Committee and
the Board were both provided with regular
updates on the status of the search.
Recruitment
Following the initial interview process, Nigel
Higgins emerged as the preferred candidate
on the basis of: his extensive experience in,
and understanding of, banking and financial
services, gained through a 36-year career at
Rothschild; his strong track record in leading
and chairing a range of organisations, and
in acting as a strategic adviser to multiple
major corporations and Governments
internationally; and his wealth of experience
in the operation of a financial services
group, in building teams and culture on
an international scale, and in growing
businesses. He also demonstrated the strong
personal qualities and the understanding
of UK corporate governance required to be
Chairman of Barclays PLC, including the
stature, gravitas, resilience and willingness
to challenge management and the rest of
the Board, as and when required.
Having confirmed his interest in the role,
Nigel undertook a series of further
interviews and met with each of Crawford,
Tim, Mary, Reuben and the Group Chief
Executive. As part of the process, the
Remuneration Committee met to consider
and approve the financial terms of the
letter of appointment to be entered into by
Barclays PLC and Nigel. The Board held an
additional meeting to specifically discuss
the proposed appointment of Nigel as
Chairman, and to allow Directors to share
their feedback, and the feedback from
external references, on him. The Board
granted full authority to the Nominations
Committee to finalise and agree Nigel’s
terms of appointment, and to undertake any
further necessary actions required in respect
of his appointment. Ultimately, Nigel’s
appointment was approved by the Board and
announced on 2 November 2018. Nigel will
join the Board as a non-executive Director
of Barclays PLC on 1 March 2019 and
subject to his appointment by shareholders,
will succeed John McFarlane as Chairman
with effect from the conclusion of this
year’s AGM.
Process
It was agreed that the main candidate
attributes included excellent chairing skills,
sufficient financial services experience such
that the individual could ‘hit the ground
running’, international exposure, experience
of UK corporate governance, the ability
to think strategically, and willingness to
challenge management. With these skills
and attributes in mind, Spencer Stuart, an
external search consultant, was engaged
to support the search and selection process.
Search
Spencer Stuart conducted a rigorous
global search and identified 160 potential
candidates. Over time, and having sought
the views of the Directors – including
John McFarlane – on the preferred type
of candidate for the role, the long list was
72 Barclays PLC Annual Report 2018
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Governance: Directors’ report
What we did in 2018
Board Reputation Committee report
The Committee welcomed the launch of Barclays’ new
Purpose, which emphasises that our financial services play
an essential role in enabling individuals and businesses
to seize their opportunities.
Dear Fellow Shareholders
This is my first report to you as Chair of the
Board Reputation Committee. I took over from
Sir Gerry Grimstone on 1 April 2018, when he
was appointed Chair of Barclays Bank PLC.
I would like to thank Sir Gerry for all he did
during his two years as Chair of the Committee.
We welcomed Mike Turner to the Committee
on 11 January 2018.
The Committee supports the Board in
delivering its vision of Barclays’ Purpose,
Culture and Values, in reviewing the
management of conduct and reputation risk,
and in overseeing how Barclays meets its
corporate and societal obligations. We do
this through challenging the leaders of the
business at all levels, by examining data and
indicators, and through ‘deep dives’ into
specific areas of the bank.
In 2018 the Committee encouraged
management to ensure that its objectives for
culture and standards of conduct were clearly
understood and embedded in each part of the
bank. We welcomed the launch of Barclays’
new Purpose, which emphasises that our
financial services play an essential role in
enabling individuals and businesses to seize
their opportunities. The Purpose is underpinned
by the Values of the organisation: respect,
integrity, service, excellence and stewardship.
At each of our meetings we reviewed the
Culture Dashboard, which provides data
on how far the Values are embedded in the
organisation’s actual behaviours and actions.
The results showed a sustained and positive
trend. The annual survey by the Banking
Standards Board (BSB) of the culture in 26
member banks provides an important external
lens to complement our internal data. At our
December 2018 meeting we discussed the
results of their latest survey with Dame Colette
Bowe and Alison Cottrell, Chair and CEO of
the BSB. We were encouraged to hear that
colleagues described Barclays as innovative and
were positive about our initiatives to strengthen
well-being and gender diversity. The Committee
agreed with the BSB’s comments on areas of
focus – which were similar for Barclays’ peers
– including the need for sensitive management
of changes associated with new technology
and innovation, reducing organisation
bureaucracy and improving employee
working environments.
Oversight of conduct across the organisation
is an essential part of our work. Barclays has
a strong framework of conduct risk controls,
focused on preventing harm to customers
or markets, or any form of financial crime.
The Committee received regular reports on
compliance with this framework from the
Chief Compliance Officer and the heads of
the Financial Crime team, Human Resources,
Risk and Internal Audit. We reviewed at
each meeting data from the Conduct and
Complaints Dashboards and undertook
‘deep dives’ into actual or potential problem
areas. Despite disappointments, such as the
problems arising with the introduction of
our online investment service, Smart Investor,
we welcomed the evidence of strengthening
controls and positive trends in conduct
breaches and disciplinary cases across
the bank.
Following the successful introduction of
the dashboards over the past two years,
the Committee agreed that they should be
developed further so that cultural and conduct
indicators are brought more clearly together,
are well suited to each individual business
entity, and are sufficiently forward looking.
Barclays UK, Barclays International, and
Barclays Execution Services have all been
contributing to the review, and the revised
Culture and Conduct dashboards will be an
important underpin to our work in 2019.
As our shareholders will know, Barclays has
a strong and long-standing commitment
to managing the environmental and social
impacts of our business, recognising that
our success is closely linked to that of the
communities in which we live and work.
A recurring topic in our discussions has been
climate change and the challenges for
business in balancing the need to maintain
the supply of energy to support economic
growth and prosperity while also meeting
the goals of the Paris Accord. In 2018 we
challenged and discussed with management
Barclays’ approach to financing businesses
which operate in sectors that are sensitive
because of their relative carbon intensity or
local environmental impact. This has resulted
in the publication of a policy statement on our
approach to energy and climate change, as
well as statements on World Heritage Sites
and Ramsar Wetlands, all of which can be
found on our website. During 2018 the
Committee also encouraged management in
its drive to identify and control reputational
risk as clearly as it does conduct risk. We
approved a new reputation risk framework
in October 2018.
With important changes in the structure of
the Barclays Group in 2018, the Committee
reviewed the governance framework for
oversight of conduct and reputation across
the organisation. We were pleased that the
Group Chief Executive agreed to attend our
meetings regularly at my invitation, so that we
continue to focus on strong leadership of the
culture and conduct of the Group as a whole.
We have established effective relationships
with the boards and committees of Barclays
Bank UK PLC and Barclays Bank PLC. We
strengthened our interactions with the
Risk Committee: it was particularly valuable
to share the results of Strategic Risk
Assessments by the operational risk team,
with recommendations on improving the
product risk review and financial crime
control processes. We maintained our
close relationship with the Remuneration
Committee, since performance incentives
are integral to conduct and culture.
Committee performance
The performance of the Committee was
assessed by Independent Board Evaluation,
an independent, external corporate governance
consultancy as part of the annual effectiveness
review. The results confirm that the Committee
is operating effectively, and note that it is
thorough in its approach. Last year’s review
suggested that further consideration needed
to be given to the continued oversight of
Conduct and Reputation Risk matters
post-structural reform. This is something that
is being kept under review by the Committee,
and we are considering inviting more business
heads to present their views to the Committee
in addition to the presentations from function
heads we currently receive. You can read more
about the outcomes of the review of Board,
Board Committee and individual Director
effectiveness on page 71.
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What we did in 2018
Board Reputation Committee report
Looking ahead
Finally, I would like to record my thanks
to the Committee members, Group Chief
Compliance Officer, Laura Padovani, and wider
senior management for their continued hard
work. In 2019, the Committee looks forward
to continuing its support of the Board in
promoting its vision of Barclays’ Purpose,
Values, Culture and Behaviours and of
management in embedding the right Culture
and Conduct across the Barclays Group, and
driving down Conduct and Reputation Risk.
Mary Francis
Chair, Board Reputation Committee
20 February 2019
Committee allocation of time (%)
1
5
4
3
2
Committee composition and meetings
The Committee is composed solely of
independent non-executive Directors. The
members of the Committee are Mary Francis,
Mike Ashley, Dambisa Moyo, and Mike Turner.
Mike Turner joined the Board on 1 January
2018 and became a member of the Committee
with effect from 11 January 2018. Sir Gerry
Grimstone left the Committee on 1 April 2018
when he became Chair of Barclays Bank PLC.
You can find more details of the experience
of Committee members in their biographies
on pages 51 and 52.
The Committee held five scheduled meetings
during 2018 and the chart shows how it
allocated its time. Attendance by members
at Committee meetings is shown below.
Committee meetings were attended by
representatives from management, including
the Group Chief Executive, Group Chief
Compliance Officer, Chief Internal Auditor,
Group Chief Risk Officer, Group General
Counsel, Group Chief of Staff, Group HR
Director and the Group Head of Corporate
Relations, as well as representatives from
the businesses and other functions. The lead
audit partner of KPMG (the Barclays Group’s
external auditor) attended all Committee
meetings in 2018 – from January to July this
was Guy Bainbridge; from August onwards
this was Michelle Hinchliffe. Representatives
from the BSB also attended two meetings.
Committee role and responsibilities
The Committee is responsible for:
■■ supporting the Board in promoting its
collective vision of Barclays’ Purpose,
Values, Culture and Behaviours
■■ reviewing, on behalf of the Board,
the management of Conduct and
Reputation Risk
■■ overseeing Barclays’ conduct in relation
to its corporate and societal obligations,
including setting the guidance, direction
and policies for Barclays’ approach to
customer and regulatory matters and
Barclays’ Citizenship Strategy, including
advising the Board and management
on these matters
■■ safeguarding the independence of and
overseeing the performance of Barclays’
Compliance function, including the
performance of the Group Chief
Compliance Officer.
The Committee’s terms of reference are available
at home.barclays/corporategovernance
1 Conduct and
compliance
2 Culture
3 Reputation risk
4 Customer satisfaction
5 Citizenship
2018
2017
41
19
16
13
11
Member
Mary Francis
Mike Ashley
Sir Gerry Grimstone (to 1 April 2018)
Dambisa Moyo
Mike Turner
Meetings attended/eligible to attend*
5/5
5/5
2/2
5/5
5/5
36
20
14
14
16
* Including one combined meeting of the Risk
Committee and the Reputation Committee.
The Committee’s work
The significant matters addressed by the Committee during 2018 are described on the following pages.
Area of focus
Conduct risk
Reporting issue
Role of the Committee
Conclusion/action taken
Conducting robust reviews of
any current and emerging risks
arising from the inappropriate
provision of financial services
■■ Discussed updates from
management on conduct risk and
considered performance against
key conduct risk indicators, and
the status of initiatives in place
to address those risks and further
strengthen the culture of
the business.
■■ Requested and considered deep
dive analyses on conduct risk,
including on progress in
developing intelligence-led
initiatives to combat fraud.
■■ Received reports on internal
audit activities relating to
conduct, including details of any
unsatisfactory audit reports and
remediation steps identified.
■■ Received updates on the
implementation of the revised Code
of Conduct, The Barclays Way.
■■ Reviewed the Compliance
function’s annual compliance plan.
Management was engaged in thorough
discussion and challenge on the conduct
risk dashboard, and alignment with the
Culture Dashboard.
The Committee was particularly pleased
with the level of conduct risk insight
received from the use of data analytic
tools and from the deep dive sessions.
The Committee benefited from the
presentation of material conduct structured
scenario assessments, described in the
‘Governance in action’ section of this report
on page 76.
The Committee challenged management
to align analysis and control of conduct risk
with that of other Principal Risks, such as
Market and Credit Risk, and approved the
revised Conduct Risk Management
Framework and the 2019 Annual
Compliance Plan.
74 Barclays PLC Annual Report 2018
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Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Cultural progress
Reviewing management’s
progress in embedding
a values-based culture across
the organisation.
Reputation and
brand
Ensuring that Reputation risks
and issues are identified and
managed appropriately.
Following the Committee’s challenge to
improve the use of the Culture Dashboard,
it was satisfied with management’s progress
to evolve and align the culture dashboards
with the conduct dashboards
Through consideration of the Your View
results in each quarter, the Committee
was encouraged by the high colleague
engagement scores achieved throughout
2018 and especially in response to launch
of the new Purpose, and by improvements
made to the perception of colleagues’
working environments, and in reducing
bureaucracy. The Committee appreciated
management’s acknowledgement that
further improvement is still required in these
areas and of the need to continue to embed
and instil the desired culture Group-wide,
and was supportive of the work undertaken
by the Group Chief Executive to continue
to drive the desired culture across the
Barclays Group.
The Committee regularly discussed the
importance of an open and honest culture
in which colleagues feel able to speak up
and raise concerns.
The Committee achieved greater oversight
from enhanced Reputation risk reports, and
minutes of meetings of Risk Committees
of major subsidiaries.
The Committee held significant discussion
on and challenged management to,
enhance the Reputation Risk framework
to better align it to other Principal Risks
Frameworks, and approved the refreshed
Reputation Risk Management Framework.
■■ Debated culture dashboards
and the progress being made
to embed cultural change across
Barclays globally.
■■ Received regular updates on
colleague engagement metrics
and the results of employee
Your View surveys.
■■ Received reports on internal audit
activities relating to culture.
■■ Considered and discussed with
representatives of the Banking
Standards Board the results
of their 2017 and 2018 Annual
Reviews of Barclays and
received periodic updates from
management detailing follow
up against the 2017 key findings.
■■ Received information on
management’s initiatives to
improve colleague well-being
and resilience, including actively
encouraging employees to work
dynamically and bolstering the
supportive environment in which
colleagues feel able to talk about
the impacts of stress and mental
health concerns.
■■ Reviewed at each meeting
key significant and emerging
Reputation risks facing Barclays,
receiving specific information on
business action to address those
issues and the outcomes of
horizon scanning.
■■ Regularly evaluated the measures
being taken to understand external
perceptions of the Bank, including
2018 YouGov Reputation Research.
■■ Considered whether the process
for identifying, managing and
overseeing Reputation risk was
functioning effectively.
■■ Reviewed the refreshed Reputation
Risk Management Framework.
Customer
satisfaction
Ensuring fair outcomes for
customers by monitoring
complaints volumes, the
standard and quality of
complaints handling processes,
root cause analysis of
complaints, and other relevant
metrics.
■■ Received bi-annual updates
on complaints and challenged
the performance against
key indicators.
The Committee was pleased to see
a general downward trend (excluding PPI)
in the overall number of complaints
received by Barclays during 2018.
■■ Considered the quality of the
processes in place to address and
resolve customer complaints.
■■ Monitored trends in the
underlying causes of complaints
and considered forward looking
analysis to identify events
(both industry-wide and Barclays-
specific) which could influence the
volume and timings of complaints.
Management was challenged to make,
and made, steady progress in refining
and aligning complaints management and
reporting and the Committee noted that
and that further improvement was required.
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Barclays PLC Annual Report 2018 75
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Area of focus
Reporting issue
Role of the Committee
Conclusion/action taken
Environmental and
social matters,
including Citizenship
Monitoring progress against
Barclays’ Citizenship plan and
considering and approving the
approach to future Citizenship
strategy. Overseeing Barclays’
commitment to managing
its impact on broader society,
including conduct in relation
to corporate and societal
obligations.
■■ Received and considered the
bi-annual summary Citizenship
dashboards, assessing status
updates on the Shared Growth
Ambition as the plan drew to
an end.
■■ Reviewed Barclays’ ratings
and relative peer ranking in
external ESG benchmarks and
tracked external perceptions on
Citizenship through stakeholder
and media analysis.
■■ Reviewed updates at each meeting
on reputation risk considerations
of sensitive sector engagement.
The Committee was pleased with the
strong successes created by Shared Growth
Ambition (2016-2018) and it approved
management’s approach to evolving
Barclays’ Citizenship strategy for 2019, and
supported the extension of our community
investment initiatives (LifeSkills, Connect
with Work and Unreasonable Impact) and
ensuring that our public commitments
are clear.
The Committee recognised the need for
greater clarity in Barclays’ public social
and environmental commitments and
challenged management to assess and
improve communication on Barclays’
positioning. The Committee approved the
policy statements on Coal, World Heritage
Sites and Ramsar Wetlands, published in
April 2018 and the comprehensive Energy
and Climate Change Statement published
in January 2019.
You can read more about our approach
to ESG, Citizenship and our Shared
Growth Ambition on pages 22 to 25 of the
Strategic Report, with further detail in our
Environmental Social Governance report.
In addition, the Committee also covered the
following matters:
■■ received and reviewed minutes of Barclays
Bank UK PLC and Barclays Bank PLC Risk
Committee meetings
■■ received a report on management’s annual
review of the effectiveness of compliance
with the Volcker Rule (restrictions on
proprietary trading and certain fund
investments by banks operating in the US)
■■ received a report from management
on Barclays’ Swap Dealer Annual
Compliance Report
■■ evaluated the outcomes of the assessment
of the Committee’s performance and any
areas of Committee performance that
needed to be enhanced
■■ reviewed and updated its terms of
reference, recommending them to the
Board for approval.
You can read more about Barclays’ risk
management on pages 129 to 148, and in our
Pillar 3 Report, which is available online at
barclays.com/annualreport
Governance in action –
Structured Scenario Assessments
Structured Scenario Assessments (SSAs)
were developed by the Barclays Group
Operational Risk Team. They use scenario
analysis to explore the risks in extreme but
plausible situations. The results provide
the opportunity to understand, assess and
manage tail risk as well as contributing to
calculations of capital requirements and risk
tolerance across the Barclays Group. The
SSAs covering operational risk highlight that
instances of misconduct – especially arising
from mistreatment of customers and
markets, and financial crime – are among
the most significant tail risks facing most
banks today.
The Committee has had sight of all prescribed
scenario topics used in the SSAs, and it
requested presentations on a number of
those which are conduct-focused. At its
meetings in June, October, and December,
the Committee received presentations on:
■■ Operational Risk: Conduct Capital
Allocation.
■■ Retail Mis-selling.
■■ Financial Crime.
The Committee gained valuable insights
from these presentations on the drivers
of past cases of misconduct in the banking
sector, and ways of strengthening controls
to guard against extreme risks in the future,
for instance through enhanced product
review processes. It is very supportive of the
use of SSAs by the business, and the level
of technical insight of conduct-related risks
they bring to the Committee. They provide
an opportunity for the Committee to
independently challenge and explore the
topics, methodology and results. The
Committee will continue to receive
presentations on the material conduct-
related SSAs during 2019.
76 Barclays PLC Annual Report 2018
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Governance: Directors’ report
What we did in 2018
Board Risk Committee report
One of the key roles of the Committee is to review and
challenge the risk appetite of the bank: its ability to earn
an appropriate return while being able to withstand shocks.
Dear Fellow Shareholders
During 2018, the Committee continued to pay
careful attention to the potential impact of
macro-economic developments and market
volatility on the risk profile of the bank. As
in 2017, these issues remain challenging and
we continue to work with management to
position the bank conservatively to deal with
political and economic uncertainty. In particular,
the Committee has closely examined the
impact of uncertainty stemming from the
process of UK withdrawal from the European
Union (EU), as well as the broader global
political and economic landscape. In addition,
it has reviewed the operational risk profile
of the bank, and its resilience to internal and
external threats. Themes that the committee
evaluated in 2018 included UK corporate
and consumer credit risk, in particular in the
context of uncertainty created as a result of
the possibility of a disorderly UK withdrawal
from the EU – in this context the Committee
is also monitoring operational resilience in
relation to leaving the EU without reaching an
agreement, considering issues of operational
and broader business continuity. Other key
risks that the committee is monitoring with
potential for wider contagion include those
related to increased market volatility and the
impact of a Chinese slowdown, although
direct exposure to the latter is limited and of
high quality. The Committee also considered
updates on risk themes related to US
Consumer Credit and European peripheral and
redenomination risk, as well as operational
risks related to cyber security. These risks
are actively monitored and managed and the
Committee maintains regular oversight
of the risk profile and actions taken.
Credit risk management in 2018 was
particularly focused on maintenance of the
defensive positioning of our UK portfolios,
continuing the approach which has been
pursued since the UK Referendum on leaving
the EU in June 2016. Following a high profile
single-name corporate failure in 2017, the
Committee also received a detailed analysis
from management on ‘Tall Tree’ exposures
in the Corporate bank, both in the UK and US,
to understand the portfolio composition,
governance and approval processes, as well
as key risks and mitigants. The Committee
was satisfied that the portfolio was operating
satisfactorily within established limits but
encouraged management to maintain
a high level of vigilance. In addition, based
on concerns of a US economic slowdown
and wider global trade shocks affecting global
growth, the Committee also reviewed with
management the Barclays Group’s Leveraged
Finance portfolio exposure, which was split
between direct (portfolio holds) and indirect
(underwriting) risk. In terms of consumer
credit, debt levels had continued to rise
both in the UK and US. However, a steady
transition to a higher quality book together
with management’s conservative approach
to lending continued the good progress
of previous years to strengthen the Barclays
Group’s credit risk profile across the consumer
portfolio. This continued focus on book
quality is evidenced by a significant reduction
in impairment for the year.
In relation to risk-taking in the Investment
Bank, the Committee monitored the progress
across a number of initiatives, and noted that
growth had been appropriately controlled
in line with stated intentions, and adequate
controls through risk frameworks and
second-line oversight were in place.
During the year, the Committee continued
to monitor the progress being made by
management in the identification, assessment
and management of operational risk. An
essential component is improvement in the
Risk and Control Self-Assessments (RCSAs).
These are now derived from a process-based
approach which will enable management to
better identify and manage operational risks.
In addition, the Committee was pleased to see
progress in the implementation of Structured
Scenario Assessments (SSAs). These are
used to evaluate operational risk arising
from more extreme, but plausible situations.
The Committee was able to review outputs
from the SSAs related to Critical Application
Disruption and Large Scale Data Disruption,
both of which are key areas of Board and
regulatory focus in relation to operational
resilience.
The Committee also evaluated Barclays
approach to the management of cyber risk,
receiving a briefing on the current cyber threat
landscape and Barclays strategy and capability
for responding to the threat. This included
a detailed briefing on the build-out of
transformational improvements to Barclays
security programme. This work, which is
scheduled to complete by 2019, includes
a range of actions designed to enable
more accurate prediction of cyberattacks
and increase the speed of detection of
cyber events.
One of the key roles of the Committee is
to recommend to the Board the overall risk
appetite of the bank: its ability to earn an
appropriate return while being able to
withstand shocks in the market and economic
environment. In this context, as well as
reviewing internal stress tests, the Committee
monitors closely the assessment of Barclays
PLC’s performance under a variety of
regulatory stress tests including those
conducted by the US Federal Reserve (CCAR)
and the Bank of England (BoE) – in each case
meeting the appropriate minimum capital
requirments – and the biennial European
Banking Authority (EBA) stress test.
Given the high level of reliance on model
outputs in supporting our stress tests, the
Committee continued to evaluate progress
made in the improvement of model risk
management in the Barclays Group. While
recognising that there is further work to do,
the Committee is pleased that substantial
progress was made through 2018 as
evidenced by an increasingly stable model
inventory and further improvements in
documentation and control.
In late 2017, the Committee commissioned
an external third party assessment of the
Risk function, which was delivered in 2018.
The review concluded that the function
meets regulatory expectations, is meeting
or exceeding industry standards, evidences
effective and independent oversight with good
evidence of challenge, with strong stewardship
and technical competence. The Committee
encouraged management to develop action
plans to address the areas highlighted in the
assessment where evolution of regulatory
expectations or best practice will require focus
in 2019 and these plans will be monitored by
the Committee.
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Committee role and responsibilities
The Committee is responsible for:
■■ recommending to the Board the Barclays
Group’s risk appetite for financial,
operational and legal risk
■■ monitoring financial, operational and legal
risk appetite, including setting limits for
individual types of risk, e.g. credit, market
and funding risk
■■ monitoring the Barclays Group’s financial,
operational and legal risk profile
■■ commissioning, receiving and considering
reports on key financial operational and
legal risk issues
■■ providing input from a financial and
operational risk perspective to the
Remuneration Committee to assist in its
deliberations relating to incentive packages.
The Committee’s terms of reference are available
at home.barclays/corporategovernance
Governance: Directors’ report
What we did in 2018
Board Risk Committee report
Committee performance
The Committee’s performance during 2018
was assessed by Independent Board Evaluation,
an independent, external corporate governance
consultancy as part of the annual effectiveness
review. The results show that the Committee’s
work is regarded as clear, systematic and
thorough, and the Board takes assurance from
the quality of the Committee’s work. Last
year’s review highlighted the need to ensure
that the way in which the Committee works
with the Audit Committee and the Reputation
Committee continues to capture all significant
issues effectively while minimising any overlap.
To address this, the Committee sought to
ensure that it continued to work closely with
the other Board Committees during 2018
and the results of the review note good
co-ordination with the Audit Committee, in
particular. The results indicate that, in 2019,
it may be helpful to consider areas where
the work of the Committee could be further
streamlined in conjunction with the risk
committees of Barclays Bank UK PLC and
Barclays Bank PLC.
You can read more about the outcomes
of the review of Board, Board Committee and
individual Director effectiveness on page 71.
Looking ahead
In 2019, the Committee will continue to focus
on the impact of the external environment
on the risk profile of the bank, particularly
as the position in relation to the UK withdrawal
from the EU becomes clearer. Following the
feedback from the independent Board
evaluation, we will also consider opportunities
to optimise activities with the risk committees
of Barclays Bank UK PLC and Barclays Bank
PLC. Finally, the committee will continue to
evaluate progress made by the Risk function
in further developing its capabilities and impact.
Committee composition and meetings
The Committee is comprised solely of
independent non-executive Directors.
You can find more details of the experience
of Committee members in their biographies
on pages 51 and 52.
Committee allocation of time (%)
4
1
3
2
1 Risk profile/risk appetite
(including capital and
liquidity management)
2 Key risk issues
3 Internal control/risk
policies
4 Other (including
remuneration and
governance issues)
* Based on scheduled meetings
2018
2017
56
26
9
9
53
26
12
9
During 2018, the Committee met nine times,
and the chart above shows how it allocated
its time. Two of the meetings were held
at Barclays’ New York offices. Committee
meetings were attended by representatives
from management, including the Group
Chief Executive, Group Finance Director,
Group Chief Internal Auditor, Group Chief
Risk Officer, Group Treasurer and Group
General Counsel, as well as representatives
from the businesses and other representatives
from the Risk function. The lead audit partner
of KPMG (the Barclays Group’s external
auditor) attended all Committee meetings
in 2018 – from January to July this was
Guy Bainbridge; from August onwards this
was Michelle Hinchliffe.
Tim Breedon
Chair, Board Risk Committee
20 February 2019
Meetings attended/eligible to attend
9/9
9/9
Member
Tim Breedon
Mike Ashley
Mary Anne Citrino
(from 1 November 2018)
Reuben Jeffery III
Matthew Lester
Diane Schueneman
2/2
8/9
9/9
9/9
* Including one combined meeting of the Risk
Committee and the Reputation Committee.
78 Barclays PLC Annual Report 2018
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The Committee’s work
The significant matters addressed by the Committee during 2018 are described on the following pages.
Area of focus
Matter addressed
Role of the Committee
Conclusion/action taken
Risk appetite and
stress testing
i.e. the level of risk
the Barclays Group
chooses to take in
pursuit of its business
objectives, including
testing whether the
Barclays Group’s
financial position and
risk profile provide
sufficient resilience
to withstand the
impact of severe
economic stress.
The risk context to Medium
Term Plan (MTP), the financial
parameters and constraints
and mandate and scale limits for
specific business risk exposures;
the Barclays Group’s internal
stress testing exercises, including
scenario selection and financial
constraints, stress testing
themes and the results and
implications of stress tests,
including those run by the
Bank of England (BoE) and
the European Banking
Authority (EBA).
■■ To discuss and agree stress loss
and mandate and scale limits,
for Credit Risk, Market Risk and
Treasury and Capital risk.
The Committee reviewed proposed
enhancements to the Barclays Group’s
stress testing processes which are designed
to improve capabilities in this area.
■■ To evaluate the BoE annual cyclical
stress test results, and the results
of a stress test under the EBA
biennial stress test submission.
■■ Considered and approve internal
stress test themes and the
financial constraints and scenarios
for stress testing risk appetite for
the MTP.
■■ To consider the Federal Reserve
Board’s feedback of the US
Intermediary Holding Company’s
Comprehensive Capital Analysis
and Review (CCAR) following the
submission of the CCAR stress
test results.
The Committee reviewed and approved, for
recommendation to the Board, the financial
results of the MTP internal stress test
exercise on the basis that Barclays remained
within the Barclays Group’s Risk Appetite.
The Committee requested and received an
overview of the stress testing principles and
objectives which served to provide a helpful
framework for the review of the stress test
results submissions to the BoE and EBA.
The Committee approved the 2018 annual
stress test results for submission to the BoE,
including a range of strategic management
actions, in addition to the standard BAU
management actions designed to mitigate
risk impacts.
Similarly, the Committee approved the
results of the stress test under the biennial
EBA stress test submission.
Capital and funding
i.e. having sufficient
capital and financial
resources to meet
the Barclays
Group’s regulatory
requirements and its
obligations as they
fall due, to maintain
its credit rating, to
support growth and
strategic options.
The trajectory to achieving
required regulatory and
internal targets and capital
and leverage ratios.
■■ To review on a regular basis,
capital performance against plan,
tracking the capital trajectory, any
challenges and opportunities and
regulatory policy developments.
The Committee examined and supported
the forecast capital and funding trajectory
and the actions identified by management
to manage the Barclays Group’s
capital position.
■■ To assess on a regular basis
liquidity performance against both
internal and regulatory
requirements.
■■ To monitor capital and funding
requirements.
The Committee considered and approved
the Barclays Group capital adequacy
assessment together with the methodologies
and results of the reverse stress testing for
submission of the 2018 Internal Capital
Adequacy Assessment Process (ICAAP) as
well as the Barclays Group’s 2018 Individual
Liquidity Adequacy Assessment Process
(ILAAP). Approvals included, for the first
time, assessments for Barclays Bank PLC
and Barclays Bank UK PLC on an individual
basis, as required by the Regulator.
The Committee also considered and
discussed feedback from the Regulator
in relation to the ICAAP submission and
requested management to provide regular
updates on planned improvements to the
ICAAP process in response to the feedback.
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Barclays PLC Annual Report 2018 79
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What we did in 2018
Board Risk Committee report
Area of focus
Matter addressed
Role of the Committee
Conclusion/action taken
Political and
economic risk
i.e. the impact on
the Barclays Group’s
risk profile of political
and economic
developments and
macroeconomic
conditions.
The potential impact on the
Barclays Group’s risk profile of
geopolitical developments, as
well as continuing to monitor the
potential political and economic
impact of Brexit scenarios
Credit risk
i.e. the potential
for financial loss if
customers fail to fulfil
their contractual
obligations.
Conditions in the UK housing
market, particularly in London
and the South East; levels of
UK consumer indebtedness,
particularly in the context of
the risk of inflation and negative
real wage growth; and the
performance of the UK and US
Cards businesses, including
levels of impairment.
Operational risk
i.e. costs arising from
human factors,
inadequate processes
and systems or
external events.
The Barclays Group’s operational
risk capital requirements and any
material changes to the Barclays
Group’s operational risk profile
and performance of specific
operational risks against agreed
risk appetite.
■■ To review and discuss plans for
the impacts of Brexit under various
withdrawal scenarios.
■■ To consider trends in the UK and
US economies, including the
impact of rate rises.
■■ To assess the transmission effects
of a Chinese economic slowdown/
trade war metrics arising from its
influence on the world economy.
■■ To review exposures to Emerging
Markets as a result of volatility in
these markets arising from the
impact of global political and
economic events
■■ To assess conditions in the UK
property market and monitor
signs of stress.
■■ To monitor how management
was tracking and responding
to persistent rising levels of
consumer indebtedness,
particularly unsecured credit
in both the UK and US.
■■ To review Leveraged Finance
portfolios in order to assess these
were within risk appetite and
manageable limits.
■■ To review business development
activities in the Corporate and
Investment Bank.
■■ To track operational risk key
indicators.
■■ To consider specific areas of
operational risks, including fraud,
conduct risk, cyber risk, execution
risk, technology and data,
including the controls that had
been put in place for managing
and avoiding such risks.
■■ To review Barclays’ approach
to scenario analyses as a risk
management tool and assess
a range of Structured Scenario
Assessments which had been
created to support assessments
and management of tail risk within
the business, stress testing and
risk tolerance.
In relation to the potential risk impacts
of Brexit, considerations were escalated to
include operational resilience to the impact
risk of an exit with no agreement in place.
Other key material risk themes kept
under review by the Committee included
stress in US consumer credit and stress
in UK property.
A new theme of Italian peripheral and
redenomination risk was added as a key
risk theme.
The Committee directed management
to apply additional focus to monitoring
evidence of rising global leverage, credit
cycle and geopolitical risks.
The Committee reiterated to management
the need to ensure appropriate credit
selection and discipline when selecting
business, and the importance of consumer
profiling to achieve better risk selection.
The Committee encouraged management
to continue with its conservative approach
to UK lending and supported pre-emptive
measures to de-risk the UK Cards portfolio
to guard against any downturn in the
UK economy.
The Committee focused its attention on the
financial and capital impacts of operational
risk. In relation to cyber risk, the Committee
received an update on the transformational
improvements to Barclays’ security posture
and associated controls in this area and
endorsed management plans to remediate
and implement new controls designed
to enable more accurate prediction of
cyberattacks and increase speed of detection
of cyber events in order to minimise impact
on Barclays and client/customers. In relation
to Fraud and Transaction Operation risks,
the Committee requested and assessed
a report on Barclays’ fraud capabilities to
reduce losses in these areas.
The Committee approved the 2018
Operational Risk Tolerance Statement,
which proposed a higher tolerance of
operational risks, provided these have
a ‘Risk Reduction Plan’ based on approved
control improvements.
The Committee reviewed and approved
two ‘material outsourcing’ programmes
which supported the roll-out of Barclays
Cloud outsourcing.
80 Barclays PLC Annual Report 2018
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Area of focus
Matter addressed
Role of the Committee
Conclusion/action taken
Model risk
i.e. the risk of the
potential adverse
consequences from
financial assessments
or decisions based
on incorrect or
misused model
outputs and reports.
Model risk governance.
■■ To evaluate the appropriateness
of the Barclays’ Model Risk
Management framework,
and monitor progress on the
implementation of an enhanced
modelling framework, including
receiving updates on findings
in relation to specific modelling
processes.
Risk framework and
governance
The frameworks, policies
and talent and tools in place
to support effective risk
management and oversight.
Remuneration
The scope of any risk adjustments
to be taken into account by the
Board Remuneration Committee
when making remuneration
decisions for 2018.
■■ To track the progress of significant
risk management projects,
including progress on achieving
compliance with the Basel
Committee for Banking Supervision
(BCBS239) risk data aggregation
principles and reviewed the results
of the 2017 Risk and Control
Self-Assessment (RCSA) process
across the Barclays Group together
with an update on the approach
to the 2018 RCSA process.
■■ To assess risk management
matters raised by Barclays’
regulators and the actions being
taken by management to respond.
■■ To review the design of the
Barclays Group’s Enterprise Risk
Management Framework (ERMF).
■■ To debate the Risk function’s
view of performance, making
a recommendation to the Board
Remuneration Committee on the
financial and operational risk
factors to be taken into account
in remuneration decisions for 2018.
The Committee reviewed and approved
the Model Risk Framework and Tolerance
Statement.
The Committee maintained oversight of
Model risk and in particular monitored
planned improvements to Barclays’ Model
Risk Management framework and ongoing
upgrade plans. This included reviewing
and assessing Barclays’ material alignment
with the PRA Supervisory Statement on
stress test models. The Committee agreed
an approach towards other Large Model
Frameworks such as ICAAP, ILAAP and
stress testing and monitored progress
to ensure that the scope of Model Risk
Management (MRM) implementation
was expanded to bring into governance
non-modelled methods used in other
Large Model Frameworks. The Committee
urged management to focus on remediation
of models used in financial planning and
stress testing where these were currently
non-compliant with the regulator’s guidance.
In relation to progress with MRM
implementation, the Committee observed
progress with validation of Tier 1 (material)
models which had been documented under
new enhanced standards, as well as the
documentation of Tier 2 and Tier 3 models.
The Committee also maintained oversight
of the models used in the CCAR 2018
submission to ensure these were materially
brought into governance by management.
The substantive completion of this exercise
was believed to have been a significant
factor in the positive CCAR result.
The Committee assessed during the year
the Barclays Group’s risk management
capability in the form of an independent
assessment of the design and effectiveness
of the Risk function.
The Committee discussed and approved
an annual refresh of the Principal Risk
Frameworks under the remit of
the Committee.
The annual update to the ERMF was also
approved by the Committee.
The Committee discussed the report of
the Chief Risk Officer and considered the
proposal put forward in relation to the
impact of relevant risk factors in
determining 2018 remuneration.
Read more about Barclays’ risk management on pages 129 to 130 and in our Pillar 3 report, which is available online at home.barclays/annualreport
home.barclays/annualreport
Barclays PLC Annual Report 2018 81
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Governance: Directors’ report
What we did in 2018
Board Risk Committee report
In addition, the Committee also covered the
following matters in 2018:
■■ reviewed and assessed Barclays’ liquidity
pool investment portfolio from a perspective
of the limit framework defined by Risk
■■ considered and approved a large non-
investment grade transaction underwriting
commitment on the basis of exposure
within distribution activity limits
■■ considered detailed report of ‘Tall Trees’
exposure in Corporate lending and
Leveraged Finance portfolios
■■ considered detailed reports in relation
to growth opportunities in the Investment
Bank from a risk/activities perspective
■■ considered a report on the effectiveness
of the Committee and any areas of the
Committee’s performance that could
be improved
■■ reviewed and updated its terms of
reference, recommending them to the
Board for approval.
Read more about Barclays’ risk management
on pages 129 to 130 and in our Pillar 3
Report, which is available online at
barclays.com/annualreport
Governance in action –
Risk of the UK’s planned departure from the EU
A key focus of the committee in 2018 was
the continued oversight of management’s
actions to respond to the political and
economic uncertainty following the UK’s
decision to leave the EU, above and beyond
the Group’s intention to continue to serve
its customers in the EU through expansion
of its banking licence in Ireland. The
Committee’s oversight has evolved as the
final date for the UK exit from the EU comes
closer, and is summarised below:
■■ In addition, to provide increased focus on
issues of operational resilience associated
with a disorderly Brexit, a ‘war room’
was established by senior management
to identify those risks which were most
pertinent to continuity of business,
and the committee has reviewed and
discussed the key risks highlighted and
management’s risk mitigation approach.
The risks considered by the Committee
include operational, legal, people, liquidity
and capital related risks.
■■ Finally, as the UK parliamentary process
nears its conclusion, the Committee has
received updates from management
as to its monitoring of expected market
volatility with additional oversight
established to review and assess market
behaviour, risk exposure, and operational
impacts in the event of abnormal volatility
and transaction volumes.
■■ Throughout the year, management
continued to update the committee
on management of UK portfolio risks
consistent with the cautious approach
recommended in the light of political
and economic uncertainty. Relevant risk
themes were also monitored by the
committee in considering the evolution
of the risk profile, in particular those
related to UK consumer and corporate
risk, UK property price stress and the
UK retail sector.
■■ As the potential for a disorderly exit
from the EU increased, the Committee
encouraged management to further
intensify scrutiny over those sectors
of the economy most likely to be
adversely impacted and received reports
highlighting management actions to
proactively address these risks.
82 Barclays PLC Annual Report 2018
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Governance: Directors’ report
How we comply
The UK Corporate Governance Code 2016 (The Code)
As Barclays PLC is listed on the London Stock Exchange, we apply the main principles of The Code, as set out below. A revised version of The Code
was published in 2018, and came into effect for our financial year beginning on 1 January 2019 (The New Code). The New Code, together with
The Companies (Miscellaneous Reporting) Regulations 2018 (The Regulations) which was also published in 2018 and came into effect for our
financial year beginning on 1 January 2019, mark a major landmark in the UK government’s suite of corporate governance reforms which aim
to build trust in business. Barclays PLC will report against the requirements of The New Code and The Regulations in its next Annual Report.
Please refer to the ‘Governance reporting for 2019’ section on page 88 for a description of certain enhancements already made to our governance
practices to reflect the requirements of The New Code and The Regulations.
A copy of The Code, and The New Code, can be found at frc.org.uk. For the year ended 31 December 2018, and as at the date of this report,
we are pleased to confirm that we complied in full with the provisions of The Code.
The Charter of Expectations is reviewed
annually to ensure it remains relevant, and
was recently updated to reflect our new
corporate structure, the requirements
of The New Code and The Regulations,
and industry best practice. A copy of the
Charter of Expectations can be found at
home.barclays/corporategovernance.
Attendance
As members of the Board of Directors we
are expected to attend every Board meeting.
In 2018, we attended both scheduled and
additional Board meetings (which were often
called at short notice) and attendance was
very strong, as recorded in the table on the
following page. The Chairman met privately
with the non-executive Directors ahead of
each scheduled Board meeting and if, owing
to exceptional circumstances, a Director was
not able to attend a Board meeting he or she
ensured that their views were made known
to the Chairman in advance of the meeting.
The Board of Directors is
responsible for promoting
the highest standards of
corporate governance in
the Barclays Group
Roles on the Board
Executive and non-executive Directors share
the same duties and are subject to the same
constraints. However, in line with the principles
of The Code, a clear division of responsibilities
has been established. The Chairman is
responsible for leading and managing the
work of the Board, while responsibility for the
day-to-day management of Barclays has been
delegated to the Group Chief Executive. The
Group Chief Executive is supported in this role
by the Barclays Group Executive Committee.
Further information on membership of the
Barclays Group Executive Committee can be
found on page 53.
As a Board we have set out our expectations
of each Director in Barclays’ Charter of
Expectations. This includes role profiles and
the behaviours and competencies required
for each role on the Board, namely the
Chairman, Deputy Chairman (to the extent
one is required), Senior Independent Director,
non-executive Directors, executive Directors
and Committee Chairs. Pursuant to the
Charter of Expectations, non-executive
Directors provide effective oversight, strategic
guidance and constructive challenge, examine
proposals on strategy and empower the
executive Directors to implement the strategy
approved by the Board, whilst holding the
executive Directors to account. The Senior
Independent Director provides a sounding
board for the Chairman, acts as an intermediary
for the other Directors when necessary and is
available to shareholders if they have concerns
that have not been addressed through the
normal channels.
Disclosure Guidance and Transparency
Rules
By virtue of the information included in this
Governance section of the Annual Report
we comply with the corporate governance
statement requirements of the FCA’s
Disclosure Guidance and Transparency Rules.
Certain additional information that is required
to be disclosed pursuant to DTR7.2.6 can be
found on pages 89 to 92.
New York Stock Exchange (NYSE)
Barclays is permitted by NYSE rules to follow
UK corporate governance practices instead
of those applied in the US. However, any
significant variations must be explained in
Barclays PLC Form 20-F filing, which can be
accessed from the Securities and Exchange
Commission’s EDGAR database or on our
website, home.barclays.
Leadership
Role of the Board
As highlighted earlier in this report, the Board
of Directors is responsible for promoting the
highest standards of corporate governance
in the Barclays Group. We act in a way that
we consider promotes the success of Barclays
for the benefit of shareholders as a whole,
and are accountable to the shareholders for
creating and delivering sustainable value.
We are responsible for the overall leadership
of the Barclays Group, including establishing
its purpose, values and strategy, and satisfying
ourselves as to the alignment of Barclays’
culture to its purpose, values and strategy.
In 2018, the Board approved a new common
purpose for the Barclays Group – Creating
Opportunities to Rise – which reflects
Barclays’ entrepreneurial spirit, relentless
quest for better, customer and client centricity,
and our commitments to society at large and
to our colleagues.
The Board is also responsible for ensuring
that management maintains a sound system
of audit, risk management, compliance and
internal control.
For further information about the role of the
Board and its responsibilities, together with
the Board governance framework, please see
page 53 to 55.
home.barclays/annualreport
Barclays PLC Annual Report 2018 83
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Governance: Directors’ report
How we comply
Board attendance
Chairman
John McFarlane
Executive Directors
Tushar Morzaria
Jes Staley
Non-executive Directors
Mike Ashley
Tim Breedon CBE
Sir Ian Cheshire
Mary Anne Citrino
Mary Francis CBE
Crawford Gillies
Sir Gerry Grimstone
Reuben Jeffery III
Matthew Lester
Dambisa Moyo
Diane Schueneman
Mike Turner CBE
Secretary
Stephen Shapiro
Independent
On appointment*
Executive Director
Executive Director
Independent
Independent
Independent
Independent
Independent
Senior Independent Director
Independent
Independent
Independent
Independent
Independent
Independent
Scheduled
meetings
eligible
to attend
Scheduled
meetings
attended
%
attendance
Additional
meetings
eligible
to attend
Additional
meetings
attended
15
15
15
15
15
15
8
15
15
15
15
15
15
15
15
15
15
15
15
15
15
15
8
15
15
15
15
15
15
15
15
15
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
6
4
4
5
6
6
2
6
6
6
6
6
6
6
6
6
6
4
4
5
5
6
2
6
6
6
6
5
6
4
6
6
* As required by The Code, the Chairman was independent on appointment.
Board Committee cross-membership
The table below shows the number of cross-memberships of our non-executive Directors across our Board Committees.
Board
Audit
Committee
Board
Nominations
Committee
Board
Remuneration
Committee
Board
Reputation
Committee
Board Risk Committee
Board Reputation Committee
Board Remuneration Committee
Board Nominations Committee
3
1
2
3
1
2
3
1
1
2
Effectiveness
Composition of the Board
In line with the requirements of The Code,
a majority of the Board are independent
non-executive Directors. The Board currently
comprises a Chairman, who was independent
on appointment (as required by The Code),
two executive Directors and 12 non-executive
Directors. We consider the independence of
our non-executive Directors annually, using
the independence criteria set out in The
Code and by reviewing performance against
behaviours that we have identified as essential
in order to be considered independent. As part
of this process, the Board keeps under review
the length of tenure of all Directors, which
is a factor that is considered as part of
its deliberations when determining the
independence of our non-executive Directors.
In accordance with the recommendations of
The Code, the independence of Tim Breedon,
Reuben Jeffery III and Dambisa Moyo – all of
whom have served on the Board for more than
six years – was subjected to a more rigorous
review. The Board remains satisfied that the
lengths of their tenure have no impact on their
respective levels of independence or the
effectiveness of their contributions.
All appointments to the Board are based
on merit and objective criteria, in the context
of the strategy of the Barclays Group and
the diversity of gender, social and ethnic
backgrounds, cognitive and personal
strengths, as well as skills, knowledge and
experience required for the Board to be
effective. Appointments are made following
a formal, rigorous and transparent process.
Diversity across the Barclays Group, remains
a key area of focus. The Barclays Group
recognises and embraces the benefits of
a diverse Board, and sees diversity at Board
level as an essential element in maintaining
a competitive advantage. The Nominations
Committee regularly reviews the composition
of the Board and the Board Committees.
It frequently considers a skills matrix for the
Board, which identifies the core competencies,
skills, diversity and experience required for
the Board to deliver its strategic aims and
govern the Barclays Group effectively. Certain
attributes identified in the skills matrix have
a target weighting attached to them and these
are regularly updated to reflect the needs of
the Barclays Group. The size of the Board is
not fixed and may be revised from time to
time to reflect the changing needs of the
84 Barclays PLC Annual Report 2018
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business. The Committee reviews the skills
matrix when considering a potential new
appointment to the Board, as well as
reviewing the current and expected Board
and Board Committee composition. This
helps to determine a timeline for proposed
appointments to the Board.
To the extent that the Nominations Committee
identifies any gaps in the Board’s profile –
which may be a result of the forthcoming
retirement of a Director, or in response to
changing market needs – that information is
used to inform the search for a new Director
or Directors. For example, as at the date of
this report, there are four female Directors
(27%) against a target of having 33% female
representation on the Board by 2020, to which
we remain committed.
Directors are subject to election or re-election
each year by shareholders at the AGM. Having
served on the Board for nine years, Reuben
Jeffery III and Dambisa Moyo will both be
retiring from the Board at this year’s AGM and
will not, therefore, be standing for re-election.
In recent years, the Board has assessed
its effectiveness, and that of the Board
Committees and the individual Directors,
annually in a process facilitated by an
independent third party. This has been driven
by the Board’s belief that an effective Board
is key to the delivery of a company’s strategy.
A full external review of the effectiveness of
the Board, the Board Committees and the
individual Directors was assessed in Q4 of
2018 in a process facilitated by Independent
Board Evaluation, an independent, external
corporate governance consultancy. The review
assessed whether each of the Directors
continues to discharge their respective duties
and responsibilities effectively, and concluded
that they do. The results of the review were
considered when deciding whether individual
Directors would offer themselves for election
or re-election at the AGM. More information
on the 2018 Board effectiveness review, and
the Board’s progress against the findings of
the 2017 effectiveness review, can be found
on page 71.
Our biographies containing our relevant skills
and experience, Board Committee membership
and other principal appointments can be
found on pages 51 and 52. Details of changes
to the Board in 2018 and year to date are
disclosed on page 89.
The service contracts for the executive
Directors and the letters of appointment for
the Chairman and non-executive Directors are
available for inspection at our registered office.
Time commitment
All potential new Directors are asked to
disclose their significant commitments,
and to give an indication of the time spent
on those commitments. The Nominations
Committee will then take this into account
when considering a proposed appointment
on the basis that all Directors are expected
to allocate sufficient time to their role
on the Board in order to discharge their
responsibilities effectively. This includes
attending, and being well-prepared for, all
Board and Board Committee meetings, as well
as making time to understand the business,
meet with executives and regulators, and
complete ongoing training. As stated in
our Charter of Expectations, the time
commitment associated with their respective
roles is agreed with each non-executive
Director on an individual basis. All significant
new commitments require prior approval.
Set out below is the average expected time
commitment for the role of non-executive
Directors and the other non-executive
positions on the Board. For these additional
positions there is an expectation that, in
order to effectively fulfil extra responsibilities,
additional time commitment is required.
Time commitment
Role
Chairman
Senior
Independent
Director
Non-
executive
Director
Committee
Chairs
Expected time commitment
Equivalent to up to 80%
of a full time position
As required to fulfil the role
30 days per year (membership
of one Board Committee
included, increasing to
40 days a year if a member
of two Board Committees)
At least 60 days per year
(including non-executive
Director time commitment)
The Chairman must commit to expend
whatever time is necessary to fulfil his duties
and, while this is expected to be equivalent
to up to 80% of a full time position, the role
as Chairman of the Barclays Group, and
leadership of the Board, have priority over
other business commitments. In exceptional
circumstances, we are all expected to commit
significantly more time to our work on
the Board.
As mentioned above, Directors are now obliged
to obtain pre-clearance prior to taking on any
additional commitments, including but not
limited to directorships, and to indicate in the
clearance request the likely time commitment
involved. The Company Secretary maintains
a record of each Director’s commitments.
For the year ended 31 December 2018, and as
at the date of this report, the Board is satisfied
that none of the Directors is over-committed
and that each of the Directors allocates
sufficient time to his or her role in order to
discharge their responsibilities effectively.
Induction
On appointment to the Board, all Directors
receive a comprehensive induction which
is tailored to the new Director’s individual
requirements. The induction schedule is
designed to quickly provide the new Director
with an understanding of how the Barclays
Group works and the key issues that it
faces. The Company Secretary consults
the Chairman when designing an induction
schedule, giving consideration to the
particular needs of the new Director. When
a Director is joining a Board Committee,
the schedule includes an induction to the
operation of that committee.
On completion of the induction programme,
the Director should have sufficient knowledge
and understanding of the nature of the
business, and the opportunities and challenges
facing Barclays, to enable them to effectively
contribute to strategic discussions and
oversight of the Barclays Group.
Following her appointment in 2018, Mary
Anne Citrino received such an induction. She
met with the Company Secretary, the current
non-executive Directors and members of the
Barclays Group Executive Committee, and
certain other senior executives, as part of that
process. An extensive induction programme
for Nigel Higgins is underway.
Training and development
In order to continue to contribute effectively
to Board and Board Committee meetings,
Directors are regularly provided with the
opportunity to take part in ongoing training
and development and can also request
specific training that we may consider
necessary or useful. As part of our annual
performance review with the Chairman,
we discuss any particular development needs
that can be met through either formal training
or meeting with a particular senior executive.
In 2018, Directors received ongoing training in
relation to legal and regulatory developments
in the form of regular briefings. Topics
included whistleblowing and the Senior
Managers and Certification Regime.
Conflicts of interest
In accordance with the Companies Act 2006,
and the Articles of Association, the Board has
the authority to authorise conflicts of interest.
Directors are required to declare any potential
or actual conflicts of interest that could
interfere with their ability to act in the best
interests of the Barclays Group. The Company
Secretary maintains a conflicts register, which
is a record of actual and potential conflicts,
together with any Board authorisation of
the conflict. The authorisations are for an
indefinite period but are reviewed annually
by the Nominations Committee, which also
considers the effectiveness of the process
for authorising Directors’ conflicts of interest.
The Board retains the power to vary or
terminate the authorisation at any time.
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Governance: Directors’ report
How we comply
Information provided to the Board
The Role Profile for the Chairman, as set out
in our Charter of Expectations, confirms his
responsibility for ensuring that Board agendas
are primarily focused on strategy, performance
and key value creation issues and that
members of the Board receive accurate, timely
and high-quality information. In particular,
we require information about Barclays’
performance to enable us to take sound
decisions, monitor effectively and provide
advice to promote the success of the Company.
Working in collaboration with the Chairman,
the Company Secretary is responsible for
ensuring good governance and consults
Directors to ensure that the Board receives the
information it requires in order to be effective.
Throughout the year, both the executive
Directors and senior executives keep the
Board informed of key developments in the
business through regular reports and updates.
These are in addition to the presentations that
the Board and Board Committees receive as
part of their formal meetings. Directors are
able to seek independent and professional
advice at Barclays’ expense, if required, to
enable them to fulfil their obligations as
members of the Board.
Accountability
Internal governance processes have been
developed to ensure the effective operation
of the individual boards and board committees
of each of Barclays PLC, Barclays Bank UK PLC
and Barclays Bank PLC respectively, in
recognition of the fact that this is key to the
development and execution of the Barclays
Group’s strategy. Generally, there is one
set of rules for the Barclays Group; Barclays
Group-wide frameworks, policies and
standards are required to be adopted
throughout the Barclays Group unless local
laws or regulations (or the ring-fencing
obligations applicable to Barclays Bank UK
PLC) require otherwise, or the Barclays Group
Executive Committee decides otherwise in
a particular instance.
Risk management and internal control
The Directors are responsible for ensuring that
management maintains an effective system
of risk management and internal control and
for assessing its effectiveness. Such a system
is designed to identify, evaluate and manage,
rather than eliminate, the risk of failure to
achieve business objectives and can only
provide reasonable and not absolute assurance
against material misstatement or loss.
The Barclays Group is committed to operating
within a strong system of internal control
that enables business to be transacted and
risk taken without exposure to unacceptable
potential losses or reputational damage.
Barclays has an overarching framework that
sets out the approach of the Barclays Group
to internal governance, The Barclays Guide,
which establishes the mechanisms, principles
and processes by which management
implements the strategy set by the Board
to direct the organisation, through setting
the tone and expectations from the top,
delegating its authority, exercising oversight
and assessing compliance.
A key component of The Barclays Guide is
the Enterprise Risk Management Framework
(ERMF). The purpose of the ERMF is to
identify and set minimum requirements
in respect of the main risks to achieving the
strategic objectives of the Barclays Group.
The key elements of the Barclays Group’s
system of risk management and internal
control, which are aligned to the
recommendations of The Committee of
Sponsoring Organizations of the Treadway
Commission, Internal Control – Integrated
Framework (2013 COSO), are set out in the
risk frameworks relating to each of our eight
Principal Risks and the Barclays Control
Framework, which details requirements
for the delivery of control responsibilities.
Barclays Group-wide frameworks, policies
and standards enable Barclays to meet
regulators’ expectations relating to internal
control and assurance.
Effectiveness of internal controls
Key controls are assessed on a regular basis
for both design and operating effectiveness.
Issues arising out of business risk and control
assessments and other internal and external
sources are examined to identify pervasive
themes. Where appropriate, control issues
are reported to the Audit Committee. You
can read more about the work of the Audit
Committee on pages 58 to 67.
Risk management and internal
control framework
The ERMF is the risk management and
internal control framework for the Barclays
Group. There are eight Principal Risks under
the ERMF: Credit risk, Market risk, Treasury
and Capital risk, Operational risk, Model risk,
Reputation risk, Conduct risk and Legal risk.
The Audit Committee formally reviews the
risk management and internal control system,
including the ERMF, annually. Throughout
the year ended 31 December 2018 and to
date, the Barclays Group has operated
a system of internal control that provides
reasonable assurance of effective operations
covering all controls, including financial and
operational controls and compliance with
laws and regulations. Processes are in place
for identifying, evaluating and managing the
Principal Risks facing the Barclays Group
in accordance with the Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting published
by the FRC.
The review of the effectiveness of the risk
management and internal control system is
achieved through reviewing the effectiveness
of the frameworks, principles and processes
contained within The Barclays Guide, the
ERMF and the Barclays Control Framework.
Key considerations of the most recent
review were:
■■ The operation of Controls Committees
of the Barclays Group and the key legal
entities, businesses and functions in the
Barclays Group to monitor, review and
challenge the effective operation of key
risk management and control processes,
including the results of audits and
reviews undertaken by BIA (which include
assessments of the control environment
and management control approach) and
examinations and assessments undertaken
by our primary regulators, on an ongoing
basis. The remediation of issues identified
within the control environment is regularly
monitored by management and the
Audit Committee.
■■ Testing of the operation of executive
committees to provide assurance that the
committees are operating as per their Terms
of Reference and are effectively overseeing
the control environment and associated
risk management and internal control
processes, where appropriate.
■■ A review of the key governance processes
and principles which comprise The Barclays
Guide to confirm that the processes have
operated effectively.
Regular reports are made to the Board
covering significant risks to the Barclays
Group. The Risk Committee and the
Reputation Committee examine reports
covering the Principal Risks as well as reports
on risk measurement methodologies and risk
appetite. The Audit Committee oversees the
control environment (and remediation of
related issues), and assesses the adequacy
of credit impairment. Further details of risk
management procedures and potential risk
factors are given in the Risk review section
on pages 129 to 222.
Controls over financial reporting
A framework of disclosure controls and
procedures is in place to support the approval
of the financial statements of the Barclays
Group. Specific governance committees are
responsible for examining the financial reports
and disclosures to ensure that they have been
subject to adequate verification and comply
with applicable standards and legislation.
These committees report their conclusions
to the Audit Committee, which debates its
conclusions and provides further challenge.
Finally, the Board scrutinises and approves
results announcements and the Barclays PLC
annual report, and ensures that appropriate
disclosures have been made. This governance
process ensures that both management and
the Board are given sufficient opportunity to
debate and challenge the financial statements
of the Barclays Group and other significant
disclosures before they are made public.
86 Barclays PLC Annual Report 2018
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Management’s report on internal control
over financial reporting
Management is responsible for establishing
and maintaining adequate internal control
over financial reporting. Internal control over
financial reporting is a process designed under
the supervision of the principal executive and
principal financial officers to provide reasonable
assurance regarding the reliability of financial
reporting and the preparation of financial
statements for external reporting purposes
in accordance with International Financial
Reporting Standards (IFRS) as adopted by the
European Union and issued by the International
Accounting Standards Board. Internal control
over financial reporting includes policies and
procedures that pertain to the maintenance
of records that, in reasonable detail:
■■ Accurately and fairly reflect transactions
and dispositions of assets.
■■ Provide reasonable assurances that
transactions are recorded as necessary to
permit preparation of financial statements
in accordance with IFRS and that receipts
and expenditures are being made only
in accordance with authorisations of
management and the respective Directors.
■■ Provide reasonable assurance regarding
prevention or timely detection of
unauthorised acquisition, use or disposition
of assets that could have a material effect
on the financial statements.
Internal control systems, no matter how well
designed, have inherent limitations and may
not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness
to future periods are subject to the risk that
internal controls may become inadequate
because of changes in conditions, or that the
degree of compliance with the policies or
procedures may deteriorate.
Management has assessed the internal
control over financial reporting as of
31 December 2018. In making its assessment,
management utilised the criteria set out in
the 2013 COSO framework and concluded
that, based on its assessment, the internal
control over financial reporting was effective
as of 31 December 2018.
The system of internal financial and
operational controls is also subject to
regulatory oversight in the UK and overseas.
Further information on supervision by the
financial services regulators is provided
under Supervision and Regulation in the
Risk review section on pages 215 to 222.
Changes in internal control over financial
reporting
There have been no changes in the Barclays
Group’s internal control over financial
reporting which have materially affected or
are reasonably likely to materially affect the
Barclays Group’s internal control over financial
reporting during the year. The Barclays Group
adopted IFRS 9 on 1 January 2019 and has
updated and modified certain controls over
financial reporting as a result of the new
accounting standard, embedding them into
the existing control environment.
Remuneration
The Board has delegated responsibility
for the consideration and approval of the
remuneration arrangements of the Chairman,
executive Directors, other senior executives
and certain Barclays Group employees to the
Remuneration Committee. The Board as
a whole, with the non-executive Directors
abstaining, considers annually the fees paid
to non-executive Directors. Information on the
activities of the Remuneration Committee in
2018 can be found in the Remuneration report
on pages 99 to 126, which forms part of this
Governance section of the Annual Report.
Relations with shareholders
The Board recognises the importance
of listening to, and understanding the
views of, our shareholders such that this
information can be used to inform the
Board’s decision-making.
Shareholders
The Board is committed to promoting
effective channels of communication with
our shareholders and upholding good
corporate governance as a means of building
stronger and more engaged relationships with
them. Our comprehensive Investor Relations
engagement with the market helps us to
understand investor views about Barclays,
which are communicated regularly to the
Board. Our shareholder communication
guidelines, which underpin all investor
engagement, are available on our website
at home.barclays/investorrelations.
Institutional investors
In 2018, our Investor Relations engagement
with institutional investors took place
throughout the year, both following our
quarterly results as well as outside of the
reporting cycle. We increased our level of
engagement with shareholders year over
year, allowing the opportunity for existing
and potential new investors to engage with
Barclays regularly, promoting dialogue on
longer-term strategic developments as well
as on the recent financial performance of
the Barclays Group.
The Directors, in conjunction with the senior
executive team and Investor Relations,
participated in varied forms of engagement,
including investor meetings, seminars and
conferences across many geographic
locations, reflecting the diverse nature of
our equity and debt institutional ownership.
In 2018, we placed greater emphasis on
shareholder engagement with a broader
range of divisional management presenting
to investors, deepening understanding of
Barclays’ investment case, and promoting
greater awareness and understanding of
our operating businesses.
During 2018, discussions with investors
included, but were not limited to: the improved
operating performance of the Barclays Group
in the first nine months post-structural
reform; the continued digitisation of the
Bank and ongoing investment in technology
as well as the value being created by Barclays
Execution Services in improving the mix and
efficiency of our cost base. We discussed
how these actions have, collectively, created
the capacity for investment in growth
opportunities, helping drive long-term
sustainable returns for shareholders. Investors
also discussed topics including prudent risk
management and steps taken to mitigate
the potential impact from the uncertainty
surrounding Brexit, as well as ESG factors,
our corporate and investment bank strategy,
our valuation and capital levels.
Investor meetings focused on corporate
governance also took place throughout the
year, with the Chairman, Senior Independent
Director, other Board representatives and the
Company Secretary.
We held conference calls/webcasts for our
quarterly results briefings and an in-person
presentation for our 2017 full year results
in February 2018, all hosted by the Group
Chief Executive and Group Finance Director
who also maintain a dialogue with investors
throughout the year. In addition, the Group
Finance Director held a quarterly breakfast
briefing for sell-side analysts. For fixed income
investors, we held conference calls at our
full year and half year results hosted by the
Group Finance Director and Group Treasurer.
Following each event, a transcript of the
discussion was uploaded to our website.
The Investor Relations section of our website
is an important communication channel
that enables the effective distribution of
information to the market in a clear and
consistent manner. Executive management
presentations, speeches and, where possible,
webcast replays are uploaded to our website
on a timely basis.
Private shareholders
During 2018, we continued to communicate
with our private shareholders through our
shareholder mailings. Shareholders can also
choose to sign up to Shareview so that they
receive information about Barclays PLC and
their shareholding directly by email.
On a practical level, over 60,000 shareholders
did not cash their Shares Not Taken Up
(SNTU) cheque following the Rights Issue in
September 2013. In 2018, we continued the
tracing process to reunite these shareholders
with their SNTU monies and any unclaimed
dividends and by the end of the year, we had
returned approximately £65,000 to our
shareholders, in addition to approximately
£212,000 returned in 2017, £1.65m returned
in 2016 and £2.2m in 2015.
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Barclays PLC Annual Report 2018 87
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Governance: Directors’ report
How we comply
Each year we launch a Share Dealing Service
aimed at shareholders with relatively small
shareholdings for whom it might otherwise
be uneconomical to deal. One option open to
shareholders is to donate their sale proceeds
to ShareGift. As a result of this initiative,
£46,957 was donated in 2018, taking the
total donated since 2015 to over £345,000.
Our AGM
The Board and the senior executive team
continue to consider our AGM as a key date
for shareholder engagement. The AGM
provides us with our main opportunity to
engage with shareholders, particularly our
private shareholders, on the key issues facing
the Barclays Group and any questions they
may have. A number of Directors, including
the Chairman, are available for informal
discussion either before or after the meeting.
All resolutions proposed at the 2018 AGM,
which were considered on a poll, were passed
with votes ‘For’ ranging from 88.48% to
99.94% of the total votes cast.
The 2019 AGM will be held on Thursday
2 May 2019 at 11.00am at the QEII Centre
in London. The Notice of AGM can be found
in a separate document, which is sent out at
least 20 working days before the AGM and
also made available at home.barclays/agm.
Voting on the resolutions will again be by
poll and the results will be announced
via the Regulatory News Service and made
available on our website on the same day.
We encourage any shareholders who are
unable to attend on the day to vote in
advance of the meeting via home.barclays/
investorrelations/vote or through Shareview
(shareview.co.uk).
For further details on how we engaged with our
shareholders and other stakeholders in 2018,
please refer to page 16 of the Strategic Report.
Governance reporting for 2019
Having reviewed our existing governance
arrangements against the requirements
of The New Code and The Regulations,
and industry best practice, a number of
amendments to documentation and certain
enhancements to practices have already
been implemented. Changes to the Charter
of Expectations, the Board’s Schedule
of Matters Reserved, and each Board
Committee’s terms of reference have
been effected. Enhancements to practices,
including but not limited to the below,
either have been or will be implemented
during 2019 and we will report against
The New Code in our next Annual Report.
Board composition. As mentioned above,
Directors are now obliged to obtain pre-
clearance prior to taking on any additional
commitments, including but not limited to
directorships, and to indicate in the clearance
request the likely time commitment involved.
This will help to ensure that Directors allocate
sufficient time to their role on the Board and
discharge their responsibilities effectively.
Culture. Our code of conduct, The Barclays
Way, provides a clear path towards achieving
a dynamic and positive culture within the
Barclays Group, outlining our common
purpose – Creating Opportunities to Rise –
and values, which govern our way of
working. The Barclays Way, and Barclays’
Purpose and Values, will be reviewed by the
Board annually. The Board already receives
regular reports on the alignment of Barclays’
culture with its purpose, values and strategy,
but will also start receiving annual thematic
updates as to workforce policies and their
alignment with our purpose, values and
strategy. To the extent that the Board takes
any action with regard to culture during the
course of a year, this will be explained in the
relevant Annual Report.
Stakeholder engagement. From next year,
the annual report will include disclosures as
to how the Directors have discharged their
duty under section 172 of the Companies Act
2006 and how the interests of customers
and clients, colleagues, suppliers and other
stakeholders have informed the Board’s
decision-making.
The Barclays Group has a long-standing
commitment to the importance and value
of colleague engagement. It is colleagues
that drive our success. You can read more
about our commitment to colleagues in the
‘Our culture and people’ section on page 11.
As part of this long-standing commitment,
senior management developed an extensive
engagement matrix. Consequently, there are
a number of existing channels for engagement
with colleagues and for ensuring that the
Board is made aware of views expressed.
This engagement matrix with colleagues
includes multi-channel communications,
town halls and question and answer sessions,
country and site visits, ex officio committee
memberships, Your View surveys, focus
groups, mentoring programmes, talent
programmes, Diversity and Inclusion
programmes, the Well-being programme,
and workforce change engagement.
We have an established partnership approach
to industrial relations. In the UK, we have
a formal Partnership with Unite which has
been in place for over 18 years. In Europe,
we have a consultation forum (European
Works Council) known as the Barclays Group
European Forum. Through these partnerships,
and at individual country level with local
recognised trade unions and works councils,
we consult regularly on a wide range
of topics.
In 2018, an all-colleague Your View survey
was conducted. The effectiveness of our
existing colleague engagement mechanisms
was reflected in a 79% sustainable
engagement score. The results of the survey
were presented to senior management, and
used as one of a number of inputs to inform
overall colleague engagement and progress
with embedding our desired culture.
The Barclays Group has established
mechanisms in place to report to the Board.
In particular, the Board receives qualitative and
quantitative feedback on matters of interest
to colleagues through the Culture Dashboard,
which measures and tracks our progress in
embedding the desired culture, talent and
succession updates, Diversity and Inclusion
updates, periodic engagement updates
and the results of the Your View surveys
(including the survey conducted in 2018).
In addition to the Culture Dashboard and
Your View, we plan to introduce further
qualitative mechanisms – including the
establishment of regional focus groups,
and obtaining formal feedback on core topics
from Unite and the Barclays Group European
Forum – to enhance the information that
is already gathered.
In relation to understanding other
stakeholders’ views, the impact of our
behaviour and business on customers
and clients, colleagues and society is
monitored by the Board with support from
the Reputation Committee, which tracks
key indicators across the areas of culture,
citizenship, conduct, and customer and client
satisfaction on an ongoing basis. In 2018,
we built on conversations started at the
AGM to engage in a continual dialogue
with NGOs and other interest groups, to
improve our understanding of emerging and
existing environmental and societal topics.
Throughout the year, we regularly engaged
with these stakeholders through participation
in forums and round tables and joined
industry, sector and topic debates and this
will continue in 2019.
Remuneration. Following changes to
the Remuneration Committee’s terms
of reference, the Remuneration Committee
now has responsibility for reviewing
workforce remuneration and related policies,
ensuring the alignment of incentives and
rewards with culture, and ensuring that
these matters are taken into account when
considering and approving the remuneration
arrangements of the executive Directors.
It is proposed that the Remuneration
Committee report to the Board on these
matters in order to further support the
Board in satisfying its obligation to assess
and monitor culture. Next year’s Annual
Report will include an enhanced Directors’
remuneration report and a summary
of any discretion that has been exercised
in the award of Director remuneration.
88 Barclays PLC Annual Report 2018
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Governance: Directors’ report
Other statutory information
The Directors present their report together with the
audited accounts for the year ended 31 December 2018.
Other information that is relevant to the Directors’ report, and which is incorporated
by reference into this report, can be located as follows:
Employee involvement
Policy concerning the employment of disabled persons
Financial instruments
Hedge accounting policy
Remuneration policy, including details of the remuneration of each Director
and Directors’ interests in shares
Corporate governance report
Risk review
Viability statement
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Disclosures required pursuant to Listing Rule 9.8.4R can be found on the following pages:
Long-term incentive schemes
Waiver of Director emoluments
Allotment for cash of equity securities
Waiver of dividends
Section 414A of the Companies Act 2006
requires the Directors to present a Strategic
report in the Annual Report and Financial
Statements. The information can be found
on pages 2 to 39.
The Company has chosen, in accordance with
section 414C(11) of the Companies Act 2006,
and as noted in this Directors’ report, to
include certain matters in its Strategic report
that would otherwise be disclosed in this
Directors’ report.
An indication of likely future developments
may be found in the Strategic report.
The particulars of important events affecting
the Company since the financial year end can
be found in the Strategic report and Note 27,
Legal, competition and regulatory matters.
Profit and dividends
Statutory profit after tax for 2018 was
£2,372m (2017: loss £894m). The 2018 full
year dividend of 4.0p per share will be paid
on 5 April 2019 to shareholders whose names
are on the Register of Members at the close
of business on 1 March 2019. With the 2018
half year dividend totalling 2.5p per ordinary
share, paid in September 2018, the total
distribution for 2018 is 6.5p (2017: 3.0p) per
ordinary share. The half year and full year
dividends for 2018 amounted to £768m
(2017: £509m).
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Shareholders may have their dividends
reinvested in Barclays by joining the
Barclays PLC Scrip Dividend Programme
(the Programme). The Programme enables
shareholders, if they wish, to receive new
fully-paid ordinary shares in Barclays PLC
instead of a cash dividend, without incurring
dealing costs or stamp duty.
The nominee company of certain Barclays’
employee benefit trusts holding shares in
Barclays in connection with the operation
of the Company’s share plans has lodged
evergreen dividend waivers on shares held by
it that have not been allocated to employees.
The total amount of dividends waived during
the year ended 31 December 2018 was
£0.85m (2017: £0.68m).
Barclays understands the importance of
the ordinary dividend for our shareholders.
Barclays is therefore committed to maintaining
an appropriate balance between total cash
returns to shareholders, investing in the
business, and maintaining a strong capital
position. Going forward, Barclays intends
to pay an annual ordinary dividend that
takes into account these objectives, and
the medium-term earnings outlook of the
Barclays Group. It is also the Board’s intention
to supplement the ordinary dividends with
additional returns to shareholders as and
when appropriate.
The Board notes that in determining any
proposed distributions to shareholders,
the Board will consider the expectation
of servicing more senior securities.
Board of Directors
The names of the current Directors of Barclays
PLC, along with their biographical details, are set
out on pages 51 and 52 and are incorporated
into this report by reference. Changes to
Directors during the year are set out below.
Name
Mike Turner
Mary Anne
Citrino
Role
Non-executive
Director
Non-executive
Director
Effective date of
appointment/
resignation
Appointed
1 January 2018
Appointed
25 July 2018
Appointment and retirement of Directors
The appointment and retirement of Directors
is governed by the Company’s Articles of
Association (the Articles), The UK Corporate
Governance Code 2016 (The Code), the
Companies Act 2006 and related legislation.
The Articles may only be amended by a special
resolution of the shareholders. The Board has
the power to appoint additional Directors or
to fill a casual vacancy amongst the Directors.
Any such Director holds office only until the
next AGM and may offer himself/herself for
re-election. The Code recommends that all
Directors of FTSE 350 companies should be
subject to annual re-election. All Directors will
stand for election or re-election at the 2019
AGM with the exception of Reuben Jeffery III
and Dambisa Moyo who, having served on the
Board for nine years, will both be retiring from
the Board at this year’s AGM.
Directors’ indemnities
Qualifying third party indemnity provisions
(as defined by section 234 of the Companies
Act 2006) were in force during the course of
the financial year ended 31 December 2018 for
the benefit of the then Directors and, at the
date of this report, are in force for the benefit
of the Directors in relation to certain losses
and liabilities which they may incur (or have
incurred) in connection with their duties,
powers or office. In addition, the Company
maintains Directors’ & Officers’ Liability
Insurance which gives appropriate cover for
legal action brought against its Directors.
Qualifying pension scheme indemnity
provisions (as defined by section 235 of the
Companies Act 2006) were in force during
the course of the financial year ended
31 December 2018 for the benefit of the then
Directors, and at the date of this report are in
force for the benefit of Directors of Barclays
Pension Funds Trustees Limited as Trustee
of the Barclays Bank UK Retirement Fund.
The Directors of the Trustee are indemnified
against liability incurred in connection with
the Company’s activities as Trustee of the
Barclays Bank UK Retirement Fund.
Similarly, qualifying pension scheme
indemnities were in force during 2018 for
the benefit of Directors of Barclays Executive
Schemes Trustees Limited as Trustee of
Barclays Bank International Limited Zambia
Staff Pension Fund (1965), Barclays Capital
International Pension Scheme (No.1), and
Barclays PLC Funded Unapproved Retirement
Benefits Scheme. The Directors of the Trustee
are indemnified against liability incurred in
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Barclays PLC Annual Report 2018 89
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Other statutory information
connection with the Company’s activities as
Trustee of the schemes above.
Political donations
The Barclays Group did not give any money
for political purposes in the UK, the rest of the
EU or outside of the EU, nor did it make any
political donations to political parties or other
political organisations, or to any independent
election candidates, or incur any political
expenditure during the year.
In accordance with the US Federal
Election Campaign Act, Barclays provides
administrative support to a federal Political
Action Committee (PAC) in the US funded
by the voluntary political contributions of
eligible employees. The PAC is not controlled
by Barclays and all decisions regarding the
amounts and recipients of contributions are
directed by a steering committee comprising
employees eligible to contribute to the PAC.
Contributions to political organisations
reported by the PAC during the calendar
year 2018 totalled $140,000 (2017: $67,250).
Environment
Barclays focuses on addressing environmental
issues where we believe we have the greatest
potential to make a difference. We focus
on managing our own carbon footprint and
reducing our absolute carbon emissions;
developing products and services to help
enable the transition to a low-carbon
economy, and managing the risks of climate
change to our operations, clients, customers
and society at large.
We invest in improving the energy efficiency
of our operations and offset the emissions
remaining through the purchase of carbon
credits. We also have a long-standing
commitment to managing the environmental
and social risks associated with our lending
practices, which is embedded into our Credit
Risk processes. A governance structure is in
place to facilitate clear dialogue across the
business and with suppliers around issues
of potential environmental and social risk.
We have disclosed global greenhouse gas
emissions (GHG) that we are responsible
for as set out by the Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013. We provide fuller disclosure
on (i) financing solutions for the lower carbon
economy, (ii) environmental risk management
and (iii) management of our carbon and
environmental footprint in the Barclays
Environmental Social Governance (ESG)
Report available on our website at home.
barclays.com/citizenship. We have also
provided initial disclosures aligned with
the Task Force on Climate-related Financial
Disclosures in the Strategic report and
ESG report.
Global Greenhouse Gas Emissionsb
Total CO2e (tonnes)
Scope 1 CO2e emissions (tonnes)c
Scope 2 CO2e emissions (tonnes)d
Scope 3 CO2e emissions (tonnes)e
Intensity Ratio
Total Full Time Employees (FTE)
Total CO2e per FTE (tonnes)f
Scope 2 CO2e market based emissions (tonnes)d
Current
reporting
yeara
2018
Previous
reporting
year
2017
Previous
reporting
year
2016
Previous
reporting
year
2015
292,151 344,816 401,340 469,502
25,553
29,146
197,365 249,396 307,190 341,978
98,379
69,233
70,641
24,779
26,814
67,337
83,500
3.50
79,900 119,300
3.36
249,294 297,128 326,201
4.32
85,800
5.47
Notes
a The carbon reporting year for our GHG emissions is 1 October to 30 September. The carbon reporting year is not
fully aligned to the financial reporting year covered by the Directors’ report.
b The methodology used to calculate our GHG is the Greenhouse Gas Protocol (GHG). A Corporate Accounting
and Reporting Standard Revised Edition, defined by the World Resources Institute/World Business Council for
Sustainable Development (ERI/WBCSD). We have adopted the operational control approach on reporting
boundaries to define our reporting boundary. Where properties are covered by Barclays’ consolidated financial
statements but are leased to tenants, these emissions are not included in the Barclays Group GHG calculations.
Where Barclays is responsible for the utility costs, these emissions are included. We continuously review and update
our perfomrnce data based on updated carbon emmissions factors, improvements in data quality and updates to
estimates previously applied. For 2019 we have applied the latest DEFRA and IE emmission factors. Where our
performance has changed by more than 1% we have restated the balances and baseline. Emissions (tonnes CO2e)
previously reported for 2015, 2016 and 2017 are 479,934, 402,531 and 347,165 respectively.
On 1 June 2017, we completed the sale of a 33.7% stake in Barclays Africa Group Limited (BAGL) resulting in a
non-controlling position. In 2017, we restated our CHG emissions through the 2015 baseline to account for this and
BAGL emissions are not reported from 2015 onwards in order to ensure accurate tracking against our 30% carbon
reduction commitment. In addition, we have restated our Scope 3 emissions to remove erroneous air data which
was identified as part of 2018 reporting process.
c Scope 1 covers direct combustion of fuels and company owned vehicles (from the UK only, which is the most material
contributor). Fugitive emissions reported in Scope 1 cover emissions from the UK, Americas, Asia Pacific and Europe.
d Scope 2 covers emissions from electricity and steam purchased for own use. Market-based emissions have been
reported for 2018, 2017 and 2016 only.
e Scope 3 covers indirect emissions from business travel (global flights and ground transport from the UK, USA
and India. USA and India ground transport covers onwards car hire only which has been provided directly by the
supplier). Ground transportation data (excluding Scope 1 company cars) covers only countries where robust data
is available directly from the supplier.
f Intensity ratio calculations have been calculated using location-based emission factors only.
Research and development
In the ordinary course of business, the
Barclays Group develops new products and
services in each of its business divisions.
Share capital
Share capital structure
The Company has ordinary shares in issue.
The Company’s Articles also allow for the
issuance of sterling, US dollar, euro and yen
preference shares (together, preference
shares). No preference shares have been
issued as at 19 February 2019 (the latest
practicable date for inclusion in this report).
Ordinary shares therefore represent 100%
of the total issued share capital as at
31 December 2018 and as at 19 February 2019
(the latest practicable date for inclusion in this
report).
Details of the movement in ordinary share
capital during the year can be found in Note
29 on page 326.
Voting
Every member who is present in person or
represented at any general meeting of the
Company, and who is entitled to vote, has one
vote on a show of hands. Every proxy present
has one vote. The proxy will have one vote for
and one vote against a resolution if he/she
has been instructed to vote for or against the
resolution by different members or in one
direction by a member while another member
has permitted the proxy discretion as to how
to vote.
On a poll, every member who is present or
represented and who is entitled to vote has
one vote for every share held. In the case
of joint holders, only the vote of the senior
holder (as determined by order in the share
register) or his/her proxy may be counted.
If any sum payable remains unpaid in
relation to a member’s shareholding, that
member is not entitled to vote that share
or exercise any other right in relation to
a meeting of the Company unless the Board
otherwise determines.
If any member, or any other person appearing
to be interested in any of the Company’s
ordinary shares, is served with a notice under
section 793 of the Companies Act 2006
and does not supply the Company with the
information required in the notice, then the
Board, in its absolute discretion, may direct
that that member shall not be entitled to
attend or vote at any meeting of the Company.
The Board may further direct that if the shares
of the defaulting member represent 0.25%
or more of the issued shares of the relevant
class, that dividends or other monies payable
on those shares shall be retained by the
Company until the direction ceases to have
effect and that no transfer of those shares
shall be registered (other than certain
specified ‘excepted transfers’). A direction
ceases to have effect seven days after the
Company has received the information
requested, or when the Company is notified
that an excepted transfer of all of the relevant
shares to a third party has occurred, or as
the Board otherwise determines.
90 Barclays PLC Annual Report 2018
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Transfers
Ordinary shares may be held in either
certificated or uncertificated form. Certificated
ordinary shares may be transferred in writing
in any usual or other form approved by the
Company Secretary and executed by or
on behalf of the transferor. Transfers of
uncertificated ordinary shares must be made
in accordance with the Companies Act 2006
and CREST Regulations.
The Board is not bound to register a transfer
of partly-paid ordinary shares or fully-paid
shares in exceptional circumstances approved
by the FCA. The Board may also decline to
register an instrument of transfer of certificated
ordinary shares unless it is (i) duly stamped,
deposited at the prescribed place and
accompanied by the share certificate(s) and
such other evidence as reasonably required by
the Board to evidence right to transfer, (ii) it
is in respect of one class of shares only, and
(iii) it is in favour of a single transferee or not
more than four joint transferees (except in the
case of executors or trustees of a member).
In accordance with the provisions of Section
84 of the Small Business, Enterprise and
Employment Act 2015, preference shares may
only be issued in registered form. Preference
shares shall be transferred in writing in any
usual or other form approved by the Company
Secretary and executed by or on behalf of the
transferor. The Company’s registrar shall
register such transfers of preference shares by
making the appropriate entries in the register
of preference shares. Each preference share
shall confer, in the event of a winding up or
any return of capital by reduction of capital
(other than, unless otherwise provided by
their terms of issue, a redemption or purchase
by the Company of any of its issued shares,
or a reduction of share capital), the right
to receive out of the surplus assets of the
Company available for distribution amongst
the members and in priority to the holders
of the ordinary shares and any other shares
in the Company ranking junior to the relevant
series of preference shares and pari passu
with any other class of preference shares
(other than any class of shares then in issue
ranking in priority to the relevant series of
preference shares), repayment of the amount
paid up or treated as paid up in respect of
the nominal value of the preference share
together with any premium which was paid
or treated as paid when the preference share
was issued in addition to an amount equal to
accrued and unpaid dividends.
Variation of rights
The rights attached to any class of shares may
be varied either with the consent in writing
of the holders of at least 75% in nominal value
of the issued shares of that class, or with the
sanction of a special resolution passed at a
separate meeting of the holders of the shares
of that class. The rights of shares shall not
(unless expressly provided by the rights
attached to such shares) be deemed varied by
the creation of further shares ranking equally
with them or subsequent to them.
Limitations on foreign shareholders
There are no restrictions imposed by the
Articles of Association or (subject to the effect
of any economic sanctions that may be in
force from time to time) by current UK laws
which relate only to non-residents of the UK
and which limit the rights of such non-
residents to hold or (when entitled to do so)
vote the ordinary shares.
Exercisability of rights under an employee
share scheme
Employee Benefit Trusts (EBTs) operate in
connection with certain of the Barclays
Group’s Employee Share Plans (Plans). The
trustees of the EBTs may exercise all rights
attached to the shares in accordance with
their fiduciary duties other than as specifically
restricted in the relevant Plan governing
documents. The trustees of the EBTs have
informed the Company that their normal
policy is to abstain from voting in respect of
the Barclays shares held in trust. The trustees
of the Global Sharepurchase EBT and UK
Sharepurchase EBTs may vote in respect
of Barclays shares held in the EBTs, but only
as instructed by participants in those Plans
in respect of their partnership shares and
(when vested) matching and dividend shares.
The trustees will not otherwise vote in respect
of shares held in the Sharepurchase EBTs.
Special rights
There are no persons holding securities that
carry special rights with regard to the control
of the Company.
Major shareholders
Major shareholders do not have different
voting rights from those of other shareholders.
Information provided to the Company by
substantial shareholders pursuant to the FCA’s
Disclosure Guidance and Transparency Rules
are published via a Regulatory Information
Service and is available on the Company’s
website. As at 31 December 2018, the
Company had been notified under Rule 5
of the Disclosure Guidance and Transparency
Rules of the holdings of voting rights in its
shares set out below.
% of total
voting
rights
attaching
to issued
share
capitala
Nature of
holding
(direct or
indirect)
Number of
Barclays
shares
1,172,090,125
6.84 indirect
1,017,455,690
5.40
direct
1,018,388,143
5.94 indirect
923,787,634
5.39 indirect
514,068,594
3.00
direct
Person
interested
The Capital
Group
Companies
Incb
Qatar
Holding
LLCc
BlackRock,
Incd
Sherborne
Investorse
Norges
Bank
Notes
a The percentage of voting rights detailed above was
calculated at the time of the relevant disclosures made
in accordance with Rule 5 of the Disclosure Guidance
and Transparency Rules.
b The Capital Group Companies Inc (CG) holds its shares
via CG Management companies and funds. Part of the
CG holding is held as American Depositary Receipts.
On 14 February 2019, CG disclosed by way of a
Schedule 13G filed with the SEC, beneficial ownership
of 277,002,140 ordinary shares of the Company as
of 31 December 2018, representing 1.6% of that class
of shares.
c Qatar Holding LLC (QH) is wholly-owned by Qatar
Investment Authority.
d Total shown includes 8,879,783 contracts for
difference to which voting rights are attached. Part of
the holding is held as American Depositary Receipts.
On 4 February 2019, BlackRock, Inc. disclosed by way
of a Schedule 13G filed with the SEC beneficial
ownership of 1,119,810,169 ordinary shares of the
Company as of 31 December 2018, representing 6.5%
of that class of shares.
e We understand from disclosures that the Sherborne
Shares are held via three funds ultimately controlled
by Edward Bramson and Stephen Welker in their
capacity as managing directors of Sherborne Investors
Management GP, LLC (Sherborne Management GP)
and Sherborne Investors GP, LLC. Sherborne
Management GP is the general partner of Sherborne
Investors Management LP (Sherborne Investors) which
is the investment manager to two of the funds, Whistle
Investors LLC and Whistle Investors II LLC. Sherborne
Investors Management (Guernsey) LLC, the
investment manager to the third fund, SIGC, LP, is
wholly owned by Sherborne Investors. On 8 February
2019, Sherborne Investors disclosed by way of a
Schedule 13D filed with the SEC beneficial ownership
of 943,949,089 ordinary shares of the Company as of
29 January 2019, representing approximately 5.5% of
that class of shares. Such Schedule 13D also disclosed
Edward Bramson and Stephen Welker as the ultimate
deemed beneficial owners of the Sherborne Shares
and that 505,086,254 of such shares were purchased
through funded derivative transactions.
Between 31 December 2018 and 19 February
2019 (the latest practicable date for inclusion
in this report), the Company was notified that
Norges Bank now holds 509,562,903 Barclays
shares, representing 2.97% of the total voting
rights attached to the issued share capital
and that Sherborne now holds 943,949,089
Barclays shares, representing approximately
5.5% of the total voting rights attached to the
issued share capital.
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Barclays PLC Annual Report 2018 91
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Other statutory information
Powers of Directors to issue or buy back
the Company’s shares
The powers of the Directors are determined by
the Companies Act 2006 and the Company’s
Articles. The Directors are authorised to issue
and allot shares and to buy back shares subject
to annual shareholder approval at the AGM.
Such authorities were granted by shareholders
at the 2018 AGM. It will be proposed at the
2019 AGM that the Directors be granted new
authorities to allot and buy back shares.
Repurchase of shares
The Company did not repurchase any of its
ordinary shares during 2018 (2017: none).
As at 19 February 2019 (the latest practicable
date for inclusion in this report) the Company
had an unexpired authority to repurchase
ordinary shares up to a maximum of 1,706m
ordinary shares.
Distributable reserves
As at 31 December 2018, the distributable
reserves of Barclays PLC (the parent company)
were £5,282m.
Following announcement of its intention to
carry out a capital reorganisation to convert
the share premium account of Barclays PLC
into distributable reserves and subsequent
shareholder approval at the Annual General
Meeting on 1 May 2018, this was undertaken
by way of a court-approved capital reduction.
On 11 September 2018, the capital reduction
became effective following confirmation of
the High Court of Justice in England and Wales
that the share premium account had been
cancelled, with the balance of £17,873m being
credited to retained earnings.
On filing of the 2018 Annual Report, the
distributable reserves of Barclays PLC would
be £24,471m taking into consideration the
cancellation of share premium account and
other movements in reserves for the year.
Change of control
There are no significant agreements to which
the Company is a party that are affected by
a change of control of the Company following
a takeover bid. There are no agreements
between the Company and its Directors or
employees providing for compensation for
loss of office or employment that occurs
because of a takeover bid.
Going concern
The Barclays Group’s business activities,
financial position, capital, factors likely to
affect its future development and performance
and its objectives and policies in managing
the financial risks to which it is exposed are
discussed in the Strategic report and Risk
review and Risk management sections.
The Directors considered it appropriate to
prepare the financial statements on a going
concern basis.
In preparing each of the Barclays Group and
Parent company financial statements, the
Directors are required to:
■■ assess the Barclays Group and Parent
company’s ability to continue as a going
concern, disclosing, as applicable, matters
related to going concern; and
■■ use the going concern basis of accounting
unless they either intend to liquidate the
Barclays Group or the Parent company
or to cease operations, or have no realistic
alternative but to do so.
The Directors are also responsible for
preparing a Strategic report, Directors’ report,
Directors’ remuneration report and Corporate
governance statement in accordance with
applicable law and regulations.
The Directors are responsible for the
maintenance and integrity of the Annual
Report and financial statements as they
appear on 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 Barclays
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, on pages 5 to 39,
which is incorporated in the Directors’
report, 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
Stephen Shapiro
Company Secretary
20 February 2019
Registered in England.
Company No. 48839
Disclosure of information to the auditor
Each Director confirms that, so far as he/she
is aware, there is no relevant audit information
of which the Company’s auditors are unaware
and that each of the Directors has taken all
the steps that he/she ought to have taken as
a Director to make himself/herself aware of
any relevant audit information and to establish
that the Company’s auditors are aware of
that information. This confirmation is given
pursuant to section 418 of the Companies Act
2006 and should be interpreted in accordance
with and subject to those provisions.
Directors’ responsibilities
The following statement, which should be
read in conjunction with the Auditor’s report
set out on page 248 to 255, is made with
a view to distinguishing for shareholders the
respective responsibilities of the Directors and
of the auditors in relation to the accounts.
The Directors are required by the Companies
Act 2006 to prepare Group and Company
accounts for each financial year and, with
regards to Group accounts, in accordance
with Article 4 of the IAS Regulation. The
Directors have prepared Group and Company
accounts in accordance with IFRS as adopted
by the EU. Under the Companies Act 2006,
the Directors must not approve the accounts
unless they are satisfied that they give a true
and fair view of the state of affairs of the
Barclays Group and the Company and of their
profit or loss for that period.
The Directors consider that, in preparing the
financial statements the Barclays Group and
Company has used appropriate accounting
policies, supported by reasonable judgements
and estimates, and that all accounting
standards which they consider to be
applicable have been followed.
Having taken all the matters considered by
the Board and brought to the attention of
the Board during the year into account, the
Directors are satisfied that the Annual Report
and Financial Statements, taken as a whole,
are fair, balanced and understandable, and
provide the information necessary for
shareholders to assess the Barclays Group
and Company’s position and performance,
business model and strategy.
Directors are responsible for such internal
control as they determine is necessary to
enable the preparation of financial statements
that are free from material misstatement,
whether due to fraud or error.
Directors’ responsibility statement
The Directors have responsibility for ensuring
that the Company and the Barclays Group
keep accounting records which disclose
with reasonable accuracy the financial
position of the Company and the Barclays
Group and which enable them to ensure
that the accounts comply with the Companies
Act 2006.
92 Barclays PLC Annual Report 2018
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Governance: People
People
As highlighted in ‘Our culture and people’
on page 11, we continue to make progress
towards increasing the diversity of our
workforce underpinned by an inclusive
culture and engaged employees. This
section provides an overview of some
of the programmes, initiatives and ways
in which we are supporting our colleagues,
which in turn enables us to support our
customers, clients and the community.
Career opportunities
We aspire to be the most accessible, inclusive
and sought after employer. Attracting new
talent into the organisation remains key to our
success, demonstrated through the continued
growth of newer strategic locations and
world-class campuses (Glasgow, Whippany,
North West UK and Pune). Our Early Careers
programmes recruited 1,100 interns, 800
graduates, and over 530 apprenticeships in
2018. These varied entry points help provide
pathways for progression supported by
recognised qualifications and, in doing so,
help to create an internal talent pipeline.
The Encore! programme has run globally
in selected locations and has been a lever
to encourage talented women returners
to Barclays. All Encore! fellows are provided
with support sessions to assist with their
acclimatisation back into the workforce and
Barclays intends to broaden the programme
to continue to enhance our diversity, inclusion
and location strategies with more sites
offering the programme.
The Barclays Global Alumni Programme helps
colleagues to stay connected to Barclays and
to other alumni. Membership has grown to
over 7,000 since the programme launched in
2014 and we have a thriving, networked global
community with members receiving monthly
e-newsletters, invitations to events, updates
about career opportunities and access to
Barclays Insights as part of their membership.
Our ‘Able to Enable’ programme provides
a platform for candidates with disabilities,
allowing us to provide more tailored support
for them to enter the workforce through
our apprentice channels. Multigenerational
opportunities have also been opened through
our Bolder Apprentice Programme. More
broadly, we have policies and practices in
place to ensure that all recruitment decisions
are fair and candidate shortlists are diverse.
In Europe we held regular consultations with
our European Works Council (the Barclays
Group European Forum) on a wide range of
topics including transnational restructuring
proposals, in addition to local consultation
with in-country works councils. All colleagues
who are displaced as a result of restructuring
are offered career transition support. In 2018
c.900 colleagues were supported globally
(a take-up rate of over 80% of those impacted
by restructuring), with over 95% satisfied with
the career transition support provided.
Performance management
Effective performance management underpins
our values-based culture. To support our
success, colleagues align their objectives to
business and team goals, this is ‘what’ they
will deliver. Behavioural expectations are set
in the context of our values, this is ‘how’ they
will achieve their objectives. We encourage
connected performance conversations
throughout the year and we continue to run
our global recognition programme to recognise
the achievements of those who have
demonstrated our values in the workplace.
Colleagues are also encouraged to be
involved with the Company’s performance
by participating in our all-employee share
plans, which have been running successfully
for over 10 years.
Employee communications
Barclays regularly updates employees on the
financial and economic factors affecting the
Company’s performance and the delivery of
the strategy through Barclays Group CEO and
senior leader communications, line manager
briefing packs, infographics, videos, interviews
and talking points distributed to employees
every quarter in accordance with our financial
reporting calendar.
We also hold a variety of events for employees
so they can hear directly from the Group
Executive Committee and employees are
kept regularly informed about what is
happening in their area and across Barclays
through regular local engagement initiatives
and communications that allow for discussion
and build awareness and understanding.
Campaigns and colleague stories throughout
the year bring to life how we are living
Barclays’ Purpose, ‘Creating opportunities
to rise’ and Values: Respect, Integrity, Service,
Excellence and Stewardship on a daily basis,
providing ongoing evidence of how we are
supporting our colleagues, customers and
clients and the communities and societies
in which we work.
Once on board, we have created multiple tools
and resources for colleagues at all levels to
find internal career opportunities and for
managers to find and assess suitable internal
candidates. In 2018 37% of our roles were
filled by internal candidates.
Learning, development and talent
management
Advancements have been made in our
approach to learning throughout 2018,
with a focus on systems and processes as
well as content. This included launching new
digital channels and working in conjunction
with industry-leading partners to keep
improving and updating our skills based
learning solutions.
We remain focused on identifying talent based
on objective assessment. We develop our
successors and ensure that we have a strong
pipeline of internal talent with the potential to
step into critical roles in the future. Ex officio
positions on the Group Executive Committee
and across the business unit and functional
Executive Committees provided further
development and exposure for senior leaders
and allowed the leadership teams to work
closely with talented colleagues who have
brought new ideas and diverse perspectives
to the table.
Four Enterprise Leaders Summits across
London and New York provided 135 senior
leaders from Barclays International, Barclays
UK and Barclays Execution Services with
an opportunity to further broaden their
understanding of our business beyond their
business area and function and to develop
an enterprise mind-set.
This year we also hosted a Women Managing
Directors Forum for c.130 senior female
leaders from across the Bank who convened
in London in October 2018 to create an
engaged and mutually supportive global
community of senior female leaders at
Barclays and to inspire further actions to
accelerate gender diversity.
Industrial relations and workforce
Barclays places great importance on our
constructive approach to global employee
and industrial relations. During 2018 we
continued to work with Unite, our recognised
trade union in the UK and with nine other
unions and staff associations directly or
through works councils internationally. In
the UK, we consulted extensively with Unite
on a wide range of restructuring proposals
and in respect of changes to compensation
structures. Our shared aim where there
is restructuring – consistent with our
partnership approach to industrial relations –
is to minimise compulsory job losses wherever
possible. This is achieved through voluntary
redundancy and extensive redeployment
processes and arrangements.
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Be Well – Barclays well-being programme
Barclays global wellbeing programme
‘Be Well’ has focused on two key areas in
2018; a refreshed commitment to make
Barclays a ‘mental health confident’
organisation, further development of our
supportive culture and the implementation
of new global digital infrastructure as the
gateway to the programme.
The mental health confident agenda has
worked to address both the stigma that can
prevent open conversations about mental
health – building on Barclays ‘This is Me’
programme – while developing colleagues’
capability to understand, identify and take
appropriate action where others need help.
The global launch campaign involved a film
of senior leaders and Board members sharing
their personal reflections on mental health
issues and the important role that support
from colleagues can play in helping others.
The call to action to colleagues was to
become mental health confident themselves
by completing new online development
programmes on ‘mental health awareness’
and ‘mental health confident’. By year end
over 16,000 colleagues had completed
‘awareness’ and c.3,500 had completed
the ‘confident’ module.
85% of colleagues already feel that their line
manager takes a sincere interest in their
well-being according to the 2018 Your View
survey. To help translate this consistently into
practical action, a new guide ‘Leading our
supportive culture’ was launched in November
for managers, addressing key scenarios and
the range of supportive actions that they
can take.
The launch in November of a new global
Be Well portal and online health check has
provided access to all Barclays well-being
content and support in one place. The portal
incorporates an interactive health check tool
which targets content in the portal according
to colleagues’ identified health risks.
Diversity and inclusion
We aim to ensure that Barclays is a workplace
where everyone is valued as an individual and
feels welcomed, respected, supported and
able to be their authentic selves. Working in
an inclusive environment provides employees
with the opportunity to rise. Our global
Diversity & Inclusion (D&I) strategy
establishes objectives, initiatives and plans
across five core agendas: disability, gender,
LGBT+, multicultural, and multigenerational.
We are proud of the recognition we have
received this year for our diversity and
inclusion efforts, including:
■■ The Times Top 50 Employers for Women
2018
■■ Stonewall Top Global Employer for LGBT
employees, 2018
■■ Working Families UK Best for Embedded
flexibility for Dynamic Working, 2018
■■ UK Top 10 employer for Working Families,
2018
■■ Department of Work and Pensions Disability
Confident Leader, 2017 to 2020
■■ Business in the Community Best Employer
for Race 2018.
This year 91% of colleagues reported through
our Your View engagement survey that they
feel able to bring their whole selves to work
reflecting our progress in our diversity and
inclusion agenda.
To help ensure all employees at Barclays have
the support and environment to succeed,
we have seven employee diversity networks.
These networks provide a forum for
employees to raise awareness of various
challenges and initiatives, engage in
development opportunities and to build
relationships with colleagues across Barclays
and with external constituents in the
communities where we operate. Every network
is open to all employees who wish to support
the firm in accomplishing its diversity goals
and creating an inclusive culture.
Gender
Barclays remains focused on improving
gender diversity through a workplace
environment and culture that supports and
empowers women. We also have a keen
focus on the gender diversity of our senior
leadership and have established ambitions
on gender diversity from our Board of
Directors to our graduate population,
partnering with the Hampton Alexander
Review and HM Treasury Finance Charter
to encourage progress across the Financial
Services industry. Our commitment to
improving the gender diversity of the
leadership at Barclays is being supported
by an integrated talent management lead
approach which includes data monitoring,
sponsorship and development programmes
and our Win Gender Network, all intended to
enhance our ability to achieve our ambitions.
Internally we are committed to:
Leadership accountability
including gender diversity
targets and the introduction
of a gender task force
Focusing on a more inclusive
work environment to ensure
all colleagues have the
flexibility to achieve personal
and professional goals
Ensuring we are developing
leaders who are equipped to
meet the demands of a more
diverse workforce
Externally we are committed to:
Engaging men globally in
gender equality in partnership
with the United Nations
Providing enhanced
employment opportunities
and attracting diverse
candidates
Community impact
2020 Gender diversity commitments
■■ Board of Directors 33%
■■ Leadership 33% (Group ExCo and their direct reports)
Cultural change
■■ Dynamic Working
■■ Progressive parental policies
■■ Barclays’ Win Gender Network
Talent management
■■ Leadership succession planning
■■ Ex officio leadership roles
■■ Internal mobility
Leadership development
■■ Unconscious bias training
■■ Global Women in Leadership Conference
■■ Enterprise Leaders summits
UN HeForShe
■■ Global Impact Champion
Barclays role models
■■ External engagement of Barclays’ senior women
across Financial Services, IT and STEM
Creating new career opportunities
■■ Encore! Returnship Programme
■■ Expanded Apprenticeship Programme
■■ 50% female graduate hires
Strategic partnerships
■■ Women’s Business Council
■■ 30% Club
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At the end of 2018 the female representation
across our Board of Directors was 27%;
female representation among the Group
Executive Committee and their direct reports
was 28% and the percentage of female
Managing Directors and Directors stood at
24%. We first made a commitment in our
2013 Annual Report that we would aim
to increase the percentage of women at
Managing Director and Director levels from
21% to 26% by 2018.
That was a stretching goal, which acted
as a catalyst for significantly increased focus
on gender diversity at Barclays, including
important changes like dynamic working.
But the reality is, disappointingly, that we
missed the target despite our best efforts.
One of the principal reasons for us missing
this target was due to the divestment of the
Africa business which reduced our year-on-
year progress by 2 percentage points.
We do still believe, however, that targets
are an effective way to drive and track our
progress. They give us an unambiguous
measure of our success, and they make us
focus on what makes the biggest difference
most quickly. So we are setting ourselves
a target of 28% female Managing Directors
and Directors by the end of 2021.
The Performance Measurement Framework,
which is tied to senior management’s
compensation, ensures that we are managing
Barclays in the interests of all our stakeholders
– including employees. The 28% target will
be included as part of that framework and we
will hold each other accountable for it through
monthly business reviews at the Group
Executive Committee. Each of the Group
Executive Committee members will also have
their own actions, specific to the context in
which their business operates.
To better align how we report on the gender
diversity of our senior leadership population,
and to more closely align to the definition of
‘senior managers’ within the Companies Act,
the scope of the ‘senior manager’ population
within this disclosure has been revised this
year to reflect the Group Executive Committee
and their direct reports. This represents
a narrower scope than in previous years,
however in reporting on the Group Executive
Committee and their direct reports, this
disclosure is now fully aligned to Barclays
Hampton Alexander commitments.
Of our global workforce of 86,800 (47,900
male, 38,900 female), 81 were senior
managers (58 male, 23 female). The global
workforce of 86,800 represents the total
number of employees on a headcount basis,
which is a wider scope than the disclosures
provided above which are representative
of full time equivalent (FTE).
Barclays Gender Pay Gap results 2018
(UK only)
The Gender Pay Gap reflects the difference
between average male pay and average female
pay in an organisation, which is largely the
result of differences in seniority between male
and female employees.
It compares all employees and does not take
into account differences in the role performed,
individual expertise and experience, or other
factors which legitimately impact the way in
which different employees are paid.
Paying our employees fairly and equitably
relative to their role, skills, experience and
performance is central to our global reward
philosophy. We review our global reward
structures on an ongoing basis to ensure that
there is no unfair gender or other bias in how
colleagues are paid.
We are confident that men and women across
our organisation are paid equally for doing
the same job, unless there are clear business
reasons for different levels of pay such as level
of experience, specific skills and performance.
We have evolved our approach to reporting
for 2018 to also include the overall pay gap for
our UK employees combined, as opposed to
publishing only by legal employing entity. This
greater transparency enables us to more easily
compare ourselves with other organisations,
and track progress across Barclays as a whole.
We have still published entity-specific figures
to enable a full, detailed comparison with
previous years.
UK-wide Gender Pay Gap results 2018
The Ordinary Pay Gap represents the
difference in the average regular pay for male
and female employees. The bonus pay gap
represents the difference in the average bonus
pay for male and female employees. Also
reported is the proportion of males and the
proportion of females receiving a bonus, and
the proportion of males and females in each
pay quartile. Pay quartiles are prepared by
ordering the population by ordinary pay from
lowest to highest, and then dividing it into
four equal sub-populations (upper quartile,
upper middle quartile, lower middle quartile
and lower quartile) to show how the
distribution of males and females varies
according to each quartile.
We are also additionally publishing the Gender
Pay Gap for Barclays PLC, our group holding
company with approximately 90 employees.
While this falls below the mandatory reporting
threshold of 250 employees, we believe it is
important to include this to give the most
accurate picture of our overall position.
Legal entity Gender Pay Gap results 2018
Whilst we observe some small positive
changes, overall our Gender Pay Gap results
are similar to those for 2017. The average man
at Barclays is still more senior than the
average woman.
The proportion of men and women at each
of our corporate grades in 2018 is broadly the
same as for 2017. Our Gender Pay Gap results
will only change significantly when we see
significant changes in the shape of our
employee population. This will take time.
There are many drivers for the proportion
of men and women at each corporate grade.
For example, in our retail bank we have
historically, like others in the industry, attracted
many women to more junior roles in branches
that are both local and flexible, allowing our
employees to balance their work with other
commitments. In our corporate and investment
bank, where there are a greater number
of more senior roles, we have historically
attracted more men and we have struggled
to find and attract female applicants.
We have developed many initiatives over a
number of years, and although the changes in
population are very small year on year, looking
back over a longer period shows a positive
trend in terms of increasing female seniority.
UK-wide gender pay gap results 2018
(representing all UK employees of Barclays PLC, Barclays Bank PLC, Barclays Bank UK PLC and Barclays Services Limited)
Ordinary Pay Gap
Bonus Pay Gap
Receiving Bonus
Pay Quartiles
Median
Mean
Median
Mean
Female
Male
Female
UK-wide
42.9%
40.2%
43.1%
73.7%
93.5%
91.4%
Q4
29%
Q3
Q2
Q1
47%
64%
68%
Male
71%
53%
36%
32%
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Legal entity gender pay gap results 2018
Ordinary Pay Gap
Bonus Pay Gap
Receiving Bonus
Pay Quartiles
Median
Mean
Median
Mean
Female
Male
Female
Male
Barclays
Bank UK
PLC
Barclays
Bank PLC
Barclays
Services
Limited
Barclays
PLCa
14.9%
25.8%
43.7%
57.4%
94.8%
92.7%
44.1%
49.3%
71.4%
77.0%
93.1%
93.8%
27.5%
23.0%
23.0%
44.1%
91.1%
89.2%
23.9%
35.5%
9.4%
51.6%
95.2%
96.9%
Q4
Q3
Q2
Q1
44%
65%
67%
72%
Q4
19%
Q3
32%
Q2
Q1
52%
64%
Q4
29%
Q3
Q2
Q1
Q4
Q3
Q2
Q1
36%
48%
57%
25%
25%
20%
35%
56%
35%
33%
28%
81%
68%
48%
36%
71%
64%
52%
43%
75%
75%
80%
65%
Note
a Barclays PLC (c.90 employees) solo basis.
We are pleased to see that our initiatives are
beginning to work, but disappointed that
change has been so slow. It will take some
time to redress the historic imbalance we
observe at Barclays and in financial services.
We need to focus on how to increase the rate
of change. To do all that we can to achieve
this, in announcing our 2021 women in senior
leadership target set out above, the Group
CEO has become the accountable Group
Executive Committee member for gender with
support from the Group Executive Committee.
LGBT+ and Spectrum
Barclays has been helping UK society move
forward for 328 years – and supporting the
LGBT+ community is one of the ways we do
that. Barclays led the parade at the biggest-
ever Pride event in London as the headline
sponsor for the fifth year, with our message
‘Love goes the distance’. The theme celebrated
how far society and attitudes have moved
forward, yet keeps the focus on the unfinished
journey – that there’s more to overcome to
achieve full inclusion. Our message reached
over half a million people across multiple
communications channels and across the
UK over 2,000 Barclays colleagues participated
in 21 regional Pride events across the UK.
An inclusive culture that enables colleagues
to bring their whole selves to work is built on
having leadership participation and visible role
models. Now in its fourth year, our Spectrum
Allies campaign hosted a successful
recognition of International Day Against
Homophobia, Transphobia and Biphobia
(IDAHOBIT) globally with leaders pledging
to challenge homophobia, biphobia and
transphobia in the workplace and provide
support to LGBT+ colleagues. Independent
recognition reflects the progress we are
making and the impact of our strategy.
For the sixth consecutive year, Stonewall has
recognised Barclays as one of only 12 Top
Global Employers.
To further support our LGBT+ agenda, we have
instituted a new gender neutral title option
of Mx, available for a number of countries.
Mx can now be used by anyone who does
not want their title to denote their gender,
regardless of how they identify their gender.
Additionally, we are making our buildings
more inclusive as we have established gender
neutral toilet facilities in London, India, and
Whippany, and will continue this trend as part
of our location strategy.
Finally, we have expanded our health care
schemes to meet the needs of our colleagues
who identify as transgender. In the UK we
have expanded transgender specific health
care benefits into our private health
care scheme.
Disability and mental health
Supporting colleagues with disabilities and
mental health conditions to achieve their
goals is a key priority. As part of our role as
a Disability Confident Leader under the
UK Government’s Department of Work and
Pensions Disability Confident scheme, Barclays
has taken an active role in encouraging more
businesses to join the scheme, which now
exceeds 7,000. To mark International Day
of Persons with Disabilities we launched
a paper ‘Building disability and mental
health confidence’ which documents our
journey to becoming a more accessible and
inclusive business.
Our policies for hiring and selection, and in
the broad management of our teams, require
all employees at Barclays to give full and fair
consideration of disabled persons on the
basis of their skills and aptitudes. As part of
the Disability Confident scheme we actively
encourage applications from those with
a disability or health condition, and we
continually develop different recruitment
models to remove the barriers to work for
people of all abilities. Our Able to Enable
internship is just one example. We encourage
everyone who is either working with Barclays,
or considering doing so, to open up and
share information that will help us to provide
the support and adjustments, including
appropriate training, that they need to be able
to feel valued and fulfilled at work. Barclays’
policies are designed to provide training, career
development and promotion opportunities
for all, including employees with a disability
or health condition.
Reach, the disability and mental health
network
Reach, our disability and mental health
colleague network, supports colleagues with
disabilities, and physical and mental health
conditions, to develop and grow their careers
within Barclays. It has engaged colleagues
through a range of campaigns during
2018 including World Autism Week, Deaf
Awareness Week and World Sight Day.
96 Barclays PLC Annual Report 2018
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Multigenerational
Veterans – born prior to 1946
2018 – 0.02%
2017 – 0.02%
Baby Boomers – 1946–1964
2018
8%
2017
10%
Generation X – 1965–1978
2018
2017
28%
30%
Generation Y – 1979–1994
2018
2017
Generation Z – born after 1994
2018 – 6%
2017 – 4%
57%
56%
During International Women’s Day 2018 we
published a white paper on Dynamic Working
where we shared what we have learnt over
three years of our campaign execution. The
paper is aimed at helping other organisations
who are looking to embark on a similar
journey of cultural transformation. The
campaign was recognised externally at the
UK Working Families Best Practice Awards
2018 where Barclays won the award for the
Best for Embedded Flexibility.
Bridge: a new multigenerational network
In 2018, we launched ‘Bridge’ – a
multigenerational employee diversity network.
The network offers two forums – the already
successful ‘Emerge’ for colleagues who are
early in their career either with Barclays or
in financial services, and the ‘Midlife’ forum
for our more experienced colleagues. Both
forums offer development and collaboration
opportunities to their members.
Working Families network – our award-
winning network for parents and carers
Our Working Families Network offers a
supportive network for Barclays colleagues
who are parents, parents-to-be or carers,
and to help with the challenges of balancing
family, life and work. The network which
has more than 4,600 members runs regular
speaker events, webinars and seminars
for colleagues, as well as providing useful
information on working family-related topics.
The network also gets involved in helping
shape inclusive family-friendly policies. In Asia
Pacific, the representatives from the Working
Families Network collaborated with the Win
network, Spectrum, the LGBT+ networks and
HeForShe supporters towards an enhancement
of erstwhile paternity leave. To reflect our
inclusive approach, the leave has evolved to
a gender-neutral non-primary caregiver leave
entitlement. It has been tripled to six weeks
paid leave for colleagues in all Barclays entities
in China, Hong Kong, Japan and Singapore
and India.
The network was recognised as Best Family
Network in the Working Families’ Best Practice
Awards 2018 (UK) winning the Cityparents
Best Family Network this year. In the US, we’ve
been recognised by Working Mother Media
in their Diversity Best Practices Inclusion Index
as a top employer and as one of the Best
Companies for Women in India. Barclays was
also named as a Top 10 employers for Working
Families by the UK’s work-life balance charity
Working Families. The placings are based on
the highly competitive Working Families’
benchmarking survey, which examines all
aspects of workplace agility/flexibility and
how employers support the work-life balance
of all their staff.
Multicultural
During 2018, we celebrated The Embracing Us
campaign for the second year challenging
global stereotypes and mind-sets in relation to
nationality, faith, ethnicity, race and language.
The campaign saw positive colleague
participation during World Culture Day
celebrations in May. Colleagues were engaged
through multiple communications channels,
events, leadership forums and the launch of
the Barclays Culture Wizard, an online learning
platform designed to enhance your global
mind-set through courses, videos, articles,
quizzes, self-assessments and more. A number
of Barclays colleagues were also featured on
the EMpower 2018 Ethnic Minorities Leaders
List published in the Financial Times.
They have grown the number of colleague-led
mental health peer support groups both
within the UK and in the US. In July, they
launched a new global interactive version of
the Workplace Adjustment Passport to create
an even simpler way for colleagues to record
their adjustments and make for easier
conversations as they move through their
careers at Barclays. Through the Your View
survey 6% of respondents disclosed a
disability or mental health condition and the
number of colleagues registering as allies
through our Reach Purple Champions
initiative doubled during 2018 with over
1,600 colleagues registering.
Multigenerational
Our Multigenerational agenda aims to enable
Barclays to be an employer of choice across
generations and life stages by providing tools
and programmes that enable our colleagues
to balance their work lives with their personal
commitments, while providing them with
career development opportunities at each
life stage.
We are proud to have joined the Equality
and Human Rights Commission’s ‘Working
Forward’ campaign which aims to make
workplaces the best they can be for pregnant
women and new parents.
Both the 2017 and 2018 multigenerational
figures have been reported on the basis of
revised definitions of the multigenerational
groupings, in order to better align our
reporting to both internal and external
categorisations of generations within
the workplace.
Dynamic Working – helping shape the agile
culture for a technology-led workplace
We are committed to creating an inclusive
environment and supporting our colleagues
in managing their work and non-work
priorities through our pioneering campaign
Dynamic Working. This flagship campaign of
the Multigenerational agenda helps colleagues
to integrate their professional and personal
lives, whether they are millennials, ‘midlifers’,
dads, mums, colleagues with disabilities or
carers. In 2018, 63% of respondents reported
as working dynamically (through Your View,
our colleague engagement survey). Leading
the efforts are 2,100 colleagues who have
signed up as Dynamic Working champions.
Champions’ support in organising local
activities including Dynamic Working clinics
where managers have an opportunity to learn
more about how to ensure Dynamic Working
can work for them and for their teams.
Since the launch of the campaign in 2015,
more than 4,500 leaders have attended a
Dynamic Working clinic. In 2018, we held
55 clinics with more than 550 enrolments
across the clinics.
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18
Multicultural
% UK
2018
2017
% US
2018
2017
% Global
2018
2017
46
44
40
36
We are proud to be a signatory for the new
Race at Work Charter announced by the UK
Prime Minister in October 2018. The Charter,
developed jointly by the Government and
Business in the Community (BITC), sets
out a number of principles and actions that
businesses are asked to publicly commit to,
helping to tackle ‘ethnic disparities in the
workplace’. This Charter builds on the work
of the 2017 McGregor-Smith Review, ‘Race
in the workplace’. By being one of the first
organisations to sign up to the charter, we
are demonstrating our commitment to taking
practical steps to ensure our workplace is
tackling barriers that ethnic minorities
may face.
The chart above shows the percentage of
under-represented populations that make up
our global and regional populations. Under-
represented populations include Asian, Mixed,
Black, Hispanic/Latino, Native Hawaiian or
Other Pacific Islander and Native American
colleagues. To improve the accuracy of
reporting on under-represented populations,
colleagues with an undisclosed ethnicity
(22% of our global population) have been
excluded from all calculations, both for 2018
and retrospectively for 2017.
Barclays workforce strategy has driven the
year-on-year increase in our permanent
headcount, primarily within the Technology
function, where there has been a continued
focus on both reducing third party staff
and bringing intellectual property in-house
through permanent employment. In addition,
in some parts of the firm we have placed
additional focus on hiring specific skill sets
externally across our strategic hubs, in line
with our location strategy.
2018
49,900
3,200
10,600
19,800
–
83,500
2017
48,700
3,600
10,400
17,200
–
79,900
2016
46,400
4,700
9,700
15,700
42,800
119,300
Examples of Group-wide actions that are
key to unlocking colleague engagement and
embedding the desired culture include the
continued focus on our Dynamic Working
campaign. An area of continued opportunity
is embedding the value of Excellence, by
enabling our colleagues through enhanced
technology and collaboration tools. The
ongoing investment in our technology is
having an impact with colleague responses
to the question “My business has been
successful in eliminating obstacles to
efficiency” (59% favourable, up 23% points
on 2016) which is a sign that progress is
being made, albeit there is still more to do.
Note: The Your View comparisons are shown
as 2018 v 2016 because 2016 was the last
all‑employee survey. During 2017 we ran
quarterly surveys surveying 25% of our
population each quarter.
Permanent employees by region
United Kingdom
Continental Europe and Middle East
Americas
Asia Pacific
Africa
Total
Cultural change
Over the last three years we have focused
on developing and embedding a Culture
measurement framework, and in 2018
with the launch of our new Purpose, have
continued to evolve the framework so that
it generates useful insights for senior
management to take action on to drive
cultural change.
This year, the Culture Dashboard has
remained anchored in our Values; with
consistency in metrics maintained as far as
is practical whilst also addressing business
feedback regarding the flexibility to include
business specific metrics. Reporting continues
to the Board Reputation Committee, Group
Executive Committee and Business Unit and
Functional Executive Committees stimulating
discussion and debate.
Colleague engagement is a useful data point
contained in the Culture Dashboard and
one measure of how we are embedding
the desired culture. This year, we have seen
the engagement of colleagues improve
by 4% points since 2016 to 79% in 2018,
underscoring the continued efforts to make
Barclays a great place to work. Other key
highlights which also demonstrate the
continued embedding of the Values of
Respect and Stewardship include “Barclays
is focused on achieving good customer and
client outcomes” (92% favourable, up 9%
points on 2016); “I can be myself at work”
(91% favourable) and “I would recommend
Barclays as a good place to work” (83%
favourable, up 7% points on 2016).
98 Barclays PLC Annual Report 2018
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Governance: Remuneration report
Annual statement from the
Chairman of the Board Remuneration Committee
Our focus is on aligning pay with performance, while ensuring
we continue to attract and retain the employees critical to
delivering our strategy. Our Fair Pay Agenda is a key lens the
Committee applies when considering the appropriateness
of pay outcomes.
Contents
Annual statement
At a glance – Group performance and pay for 2018
Remuneration policy for all employees
Directors’ remuneration policy
Annual report on Directors’ remuneration
Remuneration
Committee members
Chairman
Crawford Gillies
Members
Tim Breedon
Mary Francis
Dambisa Moyo
Page
99
102
104
109
112
Dear Fellow Shareholders
As Chairman of the Board Remuneration
Committee, I am pleased to introduce the
Remuneration report for 2018.
I have been a member of the Committee since
May 2014 and Chairman since April 2015.
Through this period, I have observed an
increased focus in our discussions on many
of the important themes encapsulated within
Barclays’ Fair Pay Agenda. While each of the
concepts has evolved at Barclays over many
years, the way that they are strategically
incorporated within the overall agenda and
the prominence that this takes in the collective
thinking of the Committee has certainly
changed. It has become an increasingly
important lens through which we consider the
appropriateness of pay outcomes throughout
the Group. As a Committee we are proud
of the ongoing work in this area, and in
particular of the Fair Pay Report that we
publish this year to highlight some of the
achievements to date, while importantly
setting out our areas of focus for the future.
As well as fair pay, the Committee continues
to focus on rewarding sustainable performance
as one of the key elements of our remuneration
philosophy. Rewarding sustainable performance
means looking at performance through
multiple lenses throughout the business, to
ensure that we align how our staff are paid
with a holistic view of their performance.
2018 has also seen the Remuneration
Committees of two of our major subsidiary
entities (Barclays Bank UK PLC and Barclays
Bank PLC) become fully operational. The
Committee has valued the additional oversight
that both Committees bring, and the positive
interactions that have taken place with the
Barclays PLC Committee.
I would like to thank you for your strong
support of the implementation of the
remuneration policy at the last Annual
General Meeting (AGM), at which it received
almost 96% of shareholder votes in favour.
I have set out below a summary of our 2018
performance, the key decisions made on
remuneration and the areas of focus for 2019.
Performance and pay
2018 has been a year of positive strategic and
financial performance for the Group. Strong
progress towards our external financial targets
has been made, with profit before taxa (PBT)
up £953m (20%) from 2017 to £5,701m.
Group return on tangible equityb (RoTE) is
8.5%, up 2.9% points on prior year and on
track to achieve our targets for 2019 and
2020. Our Common Equity Tier 1 (CET1)
ratio is 13.2%, at the end-state target range
of c.13%.
It has also been another year of successful
execution against our strategy. This included
the stand-up of the UK ring-fenced bank, full
regulatory deconsolidation of Barclays Africa
Group Limited (BAGL), and the conclusion
of a number of significant legacy litigation
and conduct matters.
The Committee shares the disappointment
that this positive performance has not yet
translated into share price performance, as
macroeconomic factors continue to weigh
heavily on investor sentiment. In determining
the appropriate pay outcomes for 2018, we
have taken a balanced view of performance,
reflecting both the significant progress made
during the year and the foundations laid for
further and sustainable future improvements.
It is important for the Committee to recognise
these positive steps in performance, ensuring
that Barclays continues to be able to attract
and retain the talent needed to deliver our
strategy and returns to our shareholders.
The Committee has approved a Group
incentive pool of £1,649m, up 9% from 2017,
against a PBTa increase of 20%. This pool
change is the first increase in our incentive
pool since 2013. Since 2010, our incentive
pool is down 53%. This trend means that
in some areas of the Bank, pay is now
positioned behind our peers when adjusted
for performance. A small part of the increase
in the incentive pool is intended to ensure that
we continue to align pay with performance
and retain high performing talent in key
business areas.
Notes
a Excluding litigation and conduct.
b Excluding litigation and conduct. The prior year excludes litigation and conduct, Deferred Tax Asset remeasurement and the loss on the sale of 33.7% of BAGL’s issued share
capital and the impairment of Barclays’ holding in BAGL.
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Barclays PLC Annual Report 2018 99
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Governance: Remuneration report
Annual statement from the
Chairman of the Board Remuneration Committee
The increase also reflects some strategic
hiring into key areas as well as an increase
in permanent staff headcount, as we reduce
outsourcing and third party arrangements
in favour of building internal capability in
line with our technology strategy to deliver
ongoing cost efficiencies and retain
intellectual property for the Group.
The Committee reviews key compensation
ratios as part of its decision making on the
pool, for example the Group compensation
to net income ratioa, which continues to
improve, down year on year from 38.0%
to 36.6%. The ratio of Group staff costs to
incomea also reduced from 40.6% in 2017
to 40.2%, demonstrating the effectiveness
of the insourcing strategy in reducing overall
staff costs.
The total incentive pool incorporates
appropriate adjustments for risk and conduct
matters, reflecting the ongoing seriousness
with which the Committee views these issues.
Fair pay
We continue to be committed to fair pay,
ensuring that all our employees are
appropriately and fairly rewarded for their
contribution. The 2018 Fair Pay Report sets
out our progress against each of the five
themes of Barclays’ Fair Pay Agenda as
referenced in last year’s Remuneration report.
Our Gender Pay Gap reporting is included
within ‘equal opportunities to progress’, given
the underlying drivers of the pay gaps relate
to the distribution of male and female staff
within the organisation.
The Committee notes that the disclosed
Gender Pay Gaps, while down slightly, are
broadly consistent with the 2017 outcomes.
Through 2018, Barclays’ approaches have
been assessed against the ‘Evidence-based
actions’ list as published by the UK
Government Equalities Office and the
Behavioural Insights Team, which has been
very informative. While in many areas our
existing approaches are aligned with those
listed as effective actions, there is scope for
further improvement. The Fair Pay Report
sets out areas of focus to increase the rate
of change.
Additionally, as well as supporting the
Government’s consultation on Ethnicity Pay
Gap reporting, we have decided to include
our Ethnicity Pay Gap for the first time, ahead
of any mandatory reporting requirements.
This is intended to foster further positive
conversations in this space, as the Gender Pay
Gap reporting has done across our industry
and more broadly in society.
Some of the other highlights noted by the
Committee through 2018 have included the
ongoing work in ensuring that we treat our
lowest paid employees fairly through
initiatives such as increasing pension
contributions to our most junior populations
in the UK, to be followed by a review in other
locations during 2019.
We also make sure that employees are
appropriately represented in remuneration
decision-making. We listen to our employees
(as we do with other stakeholders) through
a number of different channels, both formally
and informally. Many of my fellow Committee
members at both the Group and subsidiary
levels have spent time with staff and listened
to their views and perspectives around
how they are paid. An example of a more
structured piece of employee engagement on
remuneration within Barclays UK is included
in the Fair Pay Report. It included conducting
a pulse survey of over 2,000 employees, as
well as 25 focus groups held across multiple
sites and business areas. The key themes
that emerged resonated with the Group
remuneration philosophy, including a desire
for greater simplicity and transparency. Work
is ongoing to respond to this feedback, which
will be communicated to our colleagues in
Barclays UK during 2019.
The Committee reviews pay proposals for
appropriateness across both businesses and
corporate grade structures, with pay for
executive Directors thereby set in the context
of business performance and pay for all
employees. Additionally, we disclose our
CEO pay ratios once again, following on
from our first disclosure last year. Ahead of
requirements from the UK Government, this
year we also include the UK employee upper
quartile and lower quartile reference points.
A high level summary of our Fair Pay Report
is included on page 107. Our full Fair Pay
Report can be found on home.barclays/
annualreport.
Key remuneration decisions for
executive Directors
In line with the current Directors’ Remuneration
Policy (DRP) approved by shareholders at
the 2017 AGM, the Committee considered
the executive Directors’ performance against
the financial and strategic non-financial
performance measures which had been set to
reflect company priorities for 2018. Separately,
performance against their personal objectives
was assessed on an individual basis.
Based on Jes Staley’s performance against the
performance measures set at the beginning
of the year, the Committee approved a 2018
bonus of £1,061,000 (48.3% of maximum)
of which 62% will be deferred. This incentive
outcome is slightly down from 2017, despite
the strong strategic progress and significant
improvement in financial performance over
the year. This is because of the very stretching
financial targets in the annual bonus plan set
by the Committee, which paid below target
despite 20% year on year PBTb growth.
The Committee’s deliberations on his 2018
personal performance have taken account
of financial delivery, in particular ensuring
that the Group is on track to deliver against
our 2019 and 2020 financial targets. The
Committee has also taken account of the
successful completion of the Structural
Reform programme, with the UK ring-fenced
bank fully operational and Barclays UK
adequately capitalised. The significant work
required to ensure that the Group is prepared
for Brexit has also been recognised, as
Barclays Bank Ireland is on track to be
operational in its expanded form from
29 March 2019. The Committee has also
noted the significant progress in strategic
non-financial performance across the Group,
in particular against our Citizenship agenda
and Colleague metrics as well as improvements
in key Customer and Client measures.
As previously announced, malus has
been applied to Jes Staley’s 2016 variable
compensation, reducing the awarded value
by £500,000.
Based on Tushar Morzaria’s performance
against the performance measures set at
the beginning of the year, the Committee
approved a 2018 bonus of £729,000 (49.3%
of maximum) of which 45% will be deferred.
Similar to the annual bonus outcome for Jes
Staley, this is slightly down on 2017 as a result
of very stretching financial targets in the
annual bonus plan. The Committee has taken
account of the instrumental role Tushar
Morzaria has played in delivering the 2018
financial outcomes, continuing to make
improvements in cost management, as well
as applying greater control and management
of the allocation and deployment of capital
across the Group. The Committee has also
noted his key role in the execution of the
Structural Reform programme. Tushar
Morzaria has exemplified our Values and
delivered favourable engagement scores
within the Finance function. Additionally,
he continues to demonstrate effective
management of key stakeholders, receiving
excellent feedback from the Board, regulators
and shareholders.
The Committee decided to make an award
under the 2019-2021 Long Term Incentive
Plan (LTIP) cycle to Jes Staley and Tushar
Morzaria with a face value at grant of 120%
of their respective Total fixed pay. This reflects
their strong performance in 2018, as well as
the importance that they are retained during
the coming years to continue to deliver
our strategy.
The Committee reflected on the
appropriateness of making a full LTIP
award for the 2019-2021 cycle, given the
decline in share price over the last year
Notes
a Basis aligned with disclosure in the Results Announcement.
b Excluding litigation and conduct.
100 Barclays PLC Annual Report 2018
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and considering key institutional investor
guidance. It concluded that this would be
appropriate, as macroeconomic uncertainties
have played a key part in the share price
reductions, reflected across our industry.
Additionally, the LTIP award has stretching
performance conditions attached and given
the long vesting periods (up to eight years),
shares will be released from this and other
LTIP awards across different economic cycles
at different share prices. Importantly, the
Committee also retains complete discretion to
reduce the number of vested shares should it
appear that the executive Directors will benefit
in a way not aligned with performance. The
Committee determined the outcomes of
the 2018 annual bonus and the LTIP award
alongside each other, ensuring that the
outcomes are appropriately balanced. This
was based on a full assessment of performance
across all of the relevant factors.
The performance measures for the LTIP have
been reviewed and continue to align with our
external key performance targets. RoTE and
cost: income ratio have been retained as the
key financial metrics, with the weightings
remaining unchanged at 50% and 20%
respectively. The RoTE measure remains
subject to a CET1 ratio underpin.
Both executive Directors’ Fixed Pay will be
unchanged for 2019 at £2,350,000 for Jes
Staley and £1,650,000 for Tushar Morzaria;
aligned with the DRP approved at the
2017 AGM.
Looking ahead
As a Committee, we will be reviewing the
DRP to ensure that future arrangements
are aligned with our strategy and meet any
new regulatory requirements. This will be
developed over the coming months and we
will engage constructively with shareholders
and regulators ahead of the 2020 AGM, where
we will be seeking shareholder approval.
The Committee has reviewed the updated UK
Corporate Governance Code, and is pleased
that Barclays remuneration policies align to its
requirements in many areas, including vesting
periods for deferred shares, the ability to apply
malus and clawback to awards made and
post-employment shareholding requirements.
While the Committee has for many years
reviewed remuneration policies and outcomes
for the broader workforce, this has now been
formalised within its Terms of Reference and
will continue to be considered throughout
2019 when making decisions for both the
executive Directors, other senior employees
and the wider workforce.
In finalising our plans ahead of the departure
of the UK from the EU, the Committee will
continue to work on the remuneration aspects
associated with the operationalisation of
Barclays Bank Ireland in its expanded form.
Finally, the Committee continues to focus on
our Fair Pay Agenda as thinking and best
practice in this important area evolves.
Remuneration report
We have provided an ‘At a glance’ summary
of 2018 performance and pay on the next
page. The annual report on Directors’
remuneration provides further details.
In line with UK regulations, we are seeking
shareholder approval at the 2019 AGM for the
Remuneration report. Further details can be
found in the 2019 AGM Notice of Meeting.
Crawford Gillies
Chairman, Board Remuneration Committee
20 February 2019
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Barclays PLC Annual Report 2018 101
Governance: Remuneration report
At a glance – Group performance and pay for 2018
Group performance and pay
Significant strategic progress was made in 2018 including:
■■ strong progress towards 2019 and 2020 financial targets
■■ successful stand-up of the UK ring-fenced bank
■■ full regulatory deconsolidation of BAGL
■■ year of strong strategic performance, including improvements in:
– Customer & Client measures such as Net Promoter Scores®
– Colleague measures such as improved engagement scores
– Citizenship measures including exceeding carbon emissions target
■■ pool increase of 9% aligns with stronger financial performance (PBTa up 20% and RoTEb up 2.9%pts) and significant strategic execution
■■ incentive pool has been materially repositioned since 2010 (2018 incentive pool outcome is down 53% on 2010).
Group profit before tax excluding
litigation and conduct
+20%
Group incentive pool
+9%
2018
2017
£4,748m
£5,701m
2018
2017
£1,649m
£1,506m
Group RoTE excluding
litigation and conduct and other material itemsb
Cost:income ratio excluding
litigation and conduct
+2.9%pts
-2%pts
2018
2017
5.6%
8.5%
2018
2017
Group compensation to net income ratioc
Group staff costs to income ratioc
-1.4%pts
-0.4%pts
Corporate and Investment Bank (CIB) front-office ratio also down 1.1%pts
(2018: 25.0%, 2017: 26.1%)
2018
2017
36.6%
38.0%
2018
2017
66%
68%
40.2%
40.6%
a Excluding litigation and conduct.
b Excluding litigation and conduct. The prior year excludes litigation and conduct, Deferred Tax Asset remeasurement and the loss on the sale of 33.7% of BAGL’s issued share
capital and the impairment of Barclays’ holding in BAGL.
c Basis aligned with disclosure in the Results Announcement. In future the ratio will be disclosed as ‘Group compensation to total income’ to fully align with the disclosure in
the Results Announcement. In this transitional year, both figures are provided: the Group compensation to total income ratio for 2018 is 34.1%, up slightly from 33.8% in 2017.
The slight increase is due to insourcing, as seen in the reduced ratio of Group staff costs to income shown above. CIB front-office to total income ratio is broadly flat at 25.6%.
102 Barclays PLC Annual Report 2018
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Executive Directors: performance outcomes
Annual bonus
2016-2018 Long Term Incentive Plan
Jes Staley
Tushar Morzaria
£1,061k 48.3%
of maximum
£729k 49.3%
of maximum
Tushar Morzaria
£851ka
39%
of maximum
0%
50%
100%
0%
50%
100%
0%
50%
100%
a By reference to Q4 2018
average share price
Performance measures (% weighting)
Financial (60%)
Profit before tax excluding material items (40%)
0%
50%
Cost:income ratio excluding material items (20%)
0%
50%
Strategic non-financial (20%)
0%
50%
Personal objectives (20%)
Jes Staley
0%
Tushar Morzaria
0%
50%
50%
Financial (70%)
RoTE excluding material items (25%)
0%
50%
CET1 ratio (25%)
0%
50%
Cost:income ratio excluding material items (20%)
0%
50%
Risk scorecard (15%)
0%
50%
Balanced scorecard (15%)
0%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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Executive Directors: remuneration outcomes
Fixed Pay
Pension and benefits
Annual bonus
LTIP
Jes Staley
2017a
2018a,b
Max
£3.87m
£3.86m
Tushar Morzaria
2017
2018
Max
£8.29m
£3.59m
£3.48m
£5.60m
a Jes Staley was not a participant in the 2015-2017 or 2016-2018 LTIP cycles; the LTIP figures for 2017 and 2018 are therefore zero for him.
b This outcome does not reflect the malus applied to Jes Staley’s 2016 variable compensation, which is required to be included in the 2018 single total figure table.
Executive Directors: share ownership
Jes Staley
Date of appointment: 1 December 2015
Tushar Morzaria
Date of appointment: 15 October 2013
Requirement
Actual
£5,492k
Requirement
£3,700k
£7,729k
Actual
£4,525k
Shareholding requirement policy:
■■ minimum of 200% of Total fixed pay (i.e. Fixed Pay plus Pension) within five years from date of appointment
■■ shareholding requirement for two years post termination of 100% of Total fixed pay (or pro rata thereof ) introduced from 2017.
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Barclays PLC Annual Report 2018 103
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Governance: Remuneration report
Remuneration policy for all employees
This section sets out Barclays’ remuneration policy for all employees, explaining the philosophy underlying the structure of remuneration
packages, and how this links remuneration to the achievement of sustained high performance and long-term value creation.
Remuneration philosophy
In October 2015, the Committee formally adopted a revised, simplified remuneration philosophy which articulates Barclays’ overarching
remuneration approach and is set out below.
Barclays’ remuneration philosophy
Attract and retain talent needed to deliver Barclays’ strategy
Align pay with investor interests
Reward sustainable performance
Support Barclays’ Values and culture
Align with risk appetite, risk exposure and conduct expectations
Be clear, transparent and as simple as possible
Long-term success depends on the talent of our employees.
This means attracting and retaining an appropriate range of talent
to deliver against our strategy, and paying the right amount for
that talent
Ensure employees’ interests are aligned with those of investors
(equity and debt holders), both in structure and the appropriate
balance of returns
Sustainable performance means making a positive contribution to
stakeholders, in both the short and longer term, playing a valuable
role in society
Results must be achieved in a manner consistent with our Values.
Our Values and culture should drive the way that business
is conducted
Designed to reward employees for achieving results in line with
the Bank’s risk appetite and conduct expectations
All employees and stakeholders should understand how we reward
our employees. Remuneration structures should be as simple as
possible so that everyone can understand how they work and the
behaviours they reward
Performance and remuneration
Barclays’ remuneration philosophy links remuneration to achieving sustained high performance and creating long-term value. Our remuneration
philosophy applies to all employees globally across Barclays and aims to reinforce our belief that effective performance management is critical
to enabling the delivery of our business strategy in line with our Values. Employees who adhere to the Barclays’ Values and contribute to Barclays’
success are rewarded accordingly.
This is achieved by basing performance assessment on clear standards of delivery and behaviour, and starts with employees aligning their
objectives (‘what’ they will deliver) to business and team goals in order to support the delivery of the business strategy and good client/customer
outcomes. Behavioural expectations (‘how’ people will achieve their objectives) are set in the context of our Values.
Performance is assessed against both financial and non-financial criteria. Other factors are also taken into consideration within the overall
performance assessment, including core job responsibilities, behaviours towards risk and control, colleague and stakeholder feedback as well
as input from the Risk and Compliance functions, where appropriate.
Through our approach to performance, the equal importance of both ‘what’ an individual has delivered as well as ‘how’ the individual has
achieved this is emphasised, encouraging balanced consideration of each dimension. Both of these elements are assessed and rated independently
of each other. There is no requirement to have an overall rating which allows for more robust and reflective conversations between managers and
team members on the individual components of performance.
A key part of the performance philosophy promotes ongoing quality dialogue throughout the year. This helps manage performance messages
effectively and allows for more timely recognition as well as appropriate coaching, feedback and support where needed.
By linking individual performance assessment to Barclays’ strategy and our Values and, in turn, to remuneration decisions, a clear alignment
between what we are striving to achieve, how we go about this, and ultimately, how we recognise this in individual financial terms is achieved.
104 Barclays PLC Annual Report 2018
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Risk, conduct and remuneration
Another key feature of our remuneration philosophy is the alignment of remuneration with our risk appetite and with the conduct expectations
of Barclays, our regulators and stakeholders. The Committee takes risk and conduct events very seriously and ensures that there are appropriate
adjustments to individual remuneration and, where necessary, the incentive pool.
The Remuneration Review Panel, which reports to the Committee, supports the Committee in this process. The Panel is chaired by the Group HR
Director and includes the Group Heads of Risk, Compliance, Legal and Internal Audit as well as the CEOs of Barclays UK and Barclays International.
It sets the policy and processes for assessing compensation adjustments for risk and conduct events.
We have robust processes for considering risk and conduct as part of individual performance management processes with outcomes reflected
in individual remuneration decisions. Line managers have primary accountability for ensuring that risk and conduct issues are considered when
assessing performance and making remuneration decisions. In addition, there is a secondary review by the control functions for individuals
involved in significant failures of risk management, conduct issues, regulatory actions or other major incidents which impact either the Group or
business to ensure these issues are also considered. When considering individual responsibility, a variety of factors are taken into account such as
whether an individual was directly responsible or whether the individual, by virtue of seniority, could be deemed indirectly responsible, including
staff who drive the Group’s culture and set its strategy.
Actions which may be taken where risk management and conduct falls below required standards include:
Adjustment
Current year annual bonuses are adjusted downwards where individuals are found to be responsible (either directly or indirectly)
in a risk or misconduct event.
Malus
Clawback
Deferred unvested bonuses from prior years are subject to malus provisions which enable the Committee to reduce the vesting
level of deferred bonuses (including to nil) at its discretion. Events which may lead the Committee to do this include, but are not
limited to, employee misconduct or a material failure of risk management.
Clawback applies to any variable remuneration awarded to a Material Risk Taker (MRT) on or after 1 January 2015 in respect of
years for which they are a MRT. Barclays may apply clawback if, at any time during the seven-year period from the date on which
variable remuneration is awarded to a MRT: (i) there is reasonable evidence of employee misbehaviour or material error, and/or
(ii) the firm or the business unit suffers a material failure of risk management, taking account of the individual’s proximity to and
responsibility for that incident.
Clawback may be extended to 10 years for PRA Senior Managers where there are outstanding internal or regulatory investigations
at the end of the seven-year clawback period.
In addition to reductions to individuals’ bonuses, the Committee considers and makes collective adjustments to the incentive pool for specific risk
and conduct events. For 2018, the impact of these collective adjustments, resulting from both the direct financial impact on performance and the
additional adjustments applied by the Committee, is a reduction of c.£290m.
We have also adjusted the incentive pool to take account of an assessment of a wide range of future risks including conduct, non-financial
factors that can support the delivery of a strong risk management, control and conduct culture and other factors including reputation, impact on
customers, markets and other stakeholders. The Committee was supported in its consideration of this adjustment by the Board Risk Committee
and the Board Reputation Committee.
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Barclays PLC Annual Report 2018 105
Governance: Remuneration report
Remuneration policy for all employees
Remuneration structure
The remuneration structure for employees is closely aligned with that for executive Directors, set out in detail in the DRP which can be found on
pages 108 to 120 of the 2016 Annual Report. The primary exception being that the executive Directors participate in the Barclays’ LTIP and receive
part of their Fixed Pay in Barclays PLC shares.
Employees receive salary, pension and other benefits and are eligible to be considered for an annual bonus. Employees in some customer-facing
businesses participate in formulaic incentive plans, including plans which have good customer outcomes as the primary performance measure.
The plans also recognise how results have been achieved in line with Barclays’ Values. Some senior employees also receive Role Based Pay (RBP).
Remuneration of MRTs is subject to the 2:1 maximum ratio of variable to fixed remuneration. A total of 1,590 (2017: 1,642 or 1,570 excluding
BAGL) individuals were MRTs in 2018. Capital requirements regulation (CRR) quantitative disclosures on MRTs are set out on pages 203 to 211
of Barclays PLC 2018 Pillar 3 Report.
The remuneration of employees engaged in control functions is determined independently from the business they support and within the
parameters of the incentive pool allocated to them by the Committee. Remuneration for control function employees is less weighted towards
variable remuneration as compared to front-office employees and variable remuneration is typically limited to one times fixed remuneration.
This leads to less volatility in overall control function remuneration as compared to front-office outcomes.
Fixed remuneration
Salary
Salaries reflect individuals’ skills and experience and are reviewed annually.
They are increased where justified by role change, increased responsibility or a change in the appropriate market rate. Salaries
may also be increased in line with local statutory requirements and in line with union and works council commitments.
Role Based
Pay (RBP)
A small number of senior employees receive a class of fixed pay called RBP to recognise the seniority, breadth and depth
of their role.
Pension and
benefits
The provision of a competitive package of benefits is important to attracting and retaining the talented staff needed to deliver
Barclays’ strategy. Employees have access to a range of country-specific company-funded benefits, including pension schemes,
healthcare, life assurance and Barclays’ share plans as well as other voluntary employee funded benefits. The cost of providing
these benefits is defined and controlled.
Variable remuneration
Annual bonus Annual bonuses incentivise and reward the achievement of Group, business and individual objectives, and reward employees
for demonstrating individual behaviours in line with Barclays’ Values.
The ability to recognise performance through variable remuneration enables the Group to control its cost base flexibly and to
react to events and market circumstances. Bonuses remain a key feature of remuneration practice in the highly competitive and
mobile market for talent in the financial services sector. The Committee is careful to control the proportion of variable to fixed
remuneration paid to individuals and also to ensure an appropriate amount is deferred to future years.
The typical deferral structures are:
For MRTs:
For non-MRTs:
Incentive award
< £500,000
£500,000 to £1,000,000
≥ £1,000,000
Amount deferred
40% of total award
60% of total award
60% up to £1,000,000
100% above £1,000,000
Incentive award
Up to £65,000
> £65,000
Amount deferred
0%
Graduated level of deferral
Deferred bonuses are generally delivered in equal portions as deferred cash and deferred shares subject to the rules of the
deferred cash and share plans (as amended from time to time) and continued service. Deferred bonuses are subject to either a 3,
5 or 7-year deferral period in line with regulatory requirements.
Where dividend equivalents cannot be delivered on deferred bonus shares, the number of deferred bonus shares awarded will be
calculated using a share price discounted to reflect the absence of dividend equivalents during the vesting period.
Share plans
Alignment of senior employees with shareholders is achieved through deferral of incentive pay. We also encourage wider
employee shareholding through the all-employee share plans. 98% of the global employee population is eligible to participate
(up from 86% in 2017).
106 Barclays PLC Annual Report 2018
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Fair Pay Agenda
The principles and policies that govern our approach to pay have evolved over many years. Through five broad themes, our Fair Pay Agenda brings
that approach together in one place; to explain clearly how we think about pay, and how it sits alongside the other support we provide to help our
people succeed both in and outside of work. We are committed to ensuring that pay is not only fair, but simple and transparent to all of our
stakeholders. We have published a standalone Fair Pay Report for the first time this year.
The following sets out some highlights. We encourage you to read the full Fair Pay Report, which can be found on home.barclays/annualreport.
1
Fair pay for the lowest paid
Pay for our lowest paid
employees is sufficient,
simple and transparent
Fair pay
2
Equal opportunities
to progress
Everyone has the
opportunity to progress
through the organisation
and earn more
5
Performance-linked pay
Pay for all employees
and executives is linked
to sustainable business
performance
4
Listening to employees
Employees are appropriately
represented in remuneration
decision making
3
Equal Pay
Pay decisions must not take
into account gender, age,
ethnicity, sexual orientation
or any other protected
characteristic
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1
Fair Pay for the lowest paid
Pay for our lowest-paid employees is sufficient, simple and transparent, appropriately rewarding all of our people for their work. It is important to
us that all of our employees feel fulfilled and can bring the best version of themselves to work, which means that they must be paid in a way that
supports a decent quality of living.
Barclays was the first major financial services institution to become an accredited UK living wage employer in 2013, with all UK employees and
those who provide services at our sites being paid at least the current National Living Wage (and London Living Wage in London), as set by the
Living Wage Foundation.
For our lower-paid employees, more of their remuneration is delivered in fixed pay, which means that their total compensation is less volatile and less at risk.
In difficult years, where budgets are most constrained, pay increases are focused on more junior populations.
Bonuses are a smaller part of the overall package for lower-paid employees but are available for people that really deliver for our customers and clients.
To begin to extend our living wage commitment beyond the UK, we will use the Fight for $15 as a reference point in the US. We have plans for
enhanced pension arrangements for our most junior employees in the UK, and are reviewing the pay structures for our branch and contact centre
staff.
2
Equal opportunities to progress
We believe that diverse organisations perform better, and that diverse perspectives across the leadership of our organisation lead to better
decisions. We are an equal opportunities employer. This means that we hire diverse people from all backgrounds, and that all of our employees
have the same opportunity to progress.
We have a number of initiatives in place to support employees in reaching their full potential, and in balancing their life commitments and their
work commitments. These are described in more detail in the People section on pages 93 to 98 and are intended to support all of our employees.
As part of our review of our progress in our Gender Pay Gap disclosure, we have tested our initiatives against best practice for closing Gender Pay
Gaps as set out by the Government Equalities Office and the Behavioural Insights Team, and are pleased that a number of initiatives in place
should be effective over the long term. This assessment can be reviewed in our Fair Pay Report.
We still have more to do, and continue to develop our Diversity and Inclusion programmes and initiatives as part of our key agendas on gender,
multicultural, LGBT+, disability & mental health and multigenerational.
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Barclays PLC Annual Report 2018 107
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Governance: Remuneration report
Remuneration policy for all employees
3 Equal pay
We take specific steps to ensure that employees are paid equally for doing the same job, which means ensuring they are rewarded fairly, with
regard to their specific role, responsibilities and the other factors that appropriately affect pay. We have formalised this commitment to Equal Pay
for the first time in our Fair Pay Report.
Our Equal Pay Commitment sets out the steps we take, including:
■■ being explicit with those who make pay decisions through clear guidance and training, that those decisions must reflect the individual’s role and
contribution
■■ requiring that pay decisions must not, directly or indirectly, take into account an individual’s gender, age, ethnicity, religion, sexual orientation,
marital status, pregnancy, maternity, shared parental, paternity or parental leave, veteran status, disability or any other protected characteristic
■■ subjecting our annual pay review to a rigorous check and challenge process internally
■■ working closely with Unite in the UK to evaluate the fairness of performance management and pay distribution concerning the union-
recognised population
■■ communicating more with our staff and other stakeholders about pay, and increasing the transparency of our Fair Pay Agenda
■■ continuing to look for opportunities to simplify our pay structures where appropriate.
We continue to develop our processes to manage Equal Pay, and to review pay outcomes for all of our employees.
4
Listening to employees
We make sure that employees are appropriately represented in remuneration decision-making.
It is important to us that there is engagement between employees and the Board on a broad range of issues, including remuneration. This helps
the Board to ensure that Barclays is run for the benefit of all stakeholders.
Management listens to employees through a wide range of different channels, and reports its views to the Board. This includes through senior
management dialogue with the Remuneration Committee and through the year-end performance and pay review processes.
In addition, several of our jurisdictions are covered by unions or works councils, with approximately 83% of the UK workforce being represented
by Unite, our recognised trade union in the UK.
We also report employee views to the Board through the annual employee opinion survey and a dedicated culture dashboard. Additionally, the
Board receives the CEO’s monthly Barclays PLC report which covers engagement and diversity.
5
Performance-linked pay
We ensure that both executive pay and employee pay are linked to sustainable business performance.
We reward sustainable performance. This means making a positive contribution to stakeholders, in both the short and longer term. To do this,
we review performance through financial and non-financial lenses, and assess individual performance both on ‘what’ is achieved and ‘how’ it
is achieved.
In line with our commitment to fair pay for the lowest paid, we ensure that employees at the most junior levels are not significantly exposed to
fluctuations in business performance. This helps to plan and manage income more effectively.
Our Fair Pay Report includes illustrations of our approaches to pay for individuals at different levels of the organisation. It shows that as employees
progress through the organisation and become more senior, a greater proportion of their remuneration is linked to individual and business
performance, and is therefore at risk. Pay at the most senior levels is most heavily weighted towards performance-related incentives. A significant
proportion of remuneration for senior employees is also delivered in deferred shares, ensuring longer-term alignment with Company performance.
The shares are deferred over 3, 5 or 7 years depending on level of pay and seniority.
108 Barclays PLC Annual Report 2018
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Governance: Remuneration report
Directors’ remuneration policy
This section sets out a summary of the Barclays’ forward-looking DRP and is provided for information only. The DRP was approved at the
2017 AGM held on 10 May 2017 and applies for three years from that date. The full DRP can be found on pages 108 to 120 of the 2016 Annual
Report or at home.barclays/annualreport.
Remuneration policy summary – executive Directors
Element and purpose
Operation
Fixed Pay
To reward skills and
experience appropriate for
the breadth and depth of
the role and to provide the
basis for a competitive
remuneration package
Fixed Pay is determined with reference to market practice and historical
market data (on which the Committee receives independent advice),
and reflects the individual’s experience and role.
Total compensation is benchmarked against comparable roles in banks.
50% of Fixed Pay is delivered in cash (paid monthly), and 50% is
delivered in shares. The shares are delivered quarterly and are subject
to a holding period with restrictions lifting over five years (20% each
year). As the executive Directors beneficially own the shares, they will
be entitled to any dividends paid on those shares. There are no
performance measures.
Malus and clawback provisions do not apply to Fixed Pay.
Pension
To enable executive
Directors to build long-term
retirement savings
Executive Directors receive an annual cash allowance in lieu
of participation in a pension arrangement.
For new hires, the pension allowance is limited to 10% of Fixed Pay.
Implementation in 2019
No change from 2018.
■■ Jes Staley: £2,350,000.
■■ Tushar Morzaria: £1,650,000.
These amounts are fixed and will
not change during the policy
period for these individuals.
No change from 2018.
■■ Jes Staley: £396,000
(Equivalent to 17% of Fixed Pay).
■■ Tushar Morzaria: £200,000
(Equivalent to 12% of Fixed Pay).
These amounts are fixed and will
not change during the policy
period for these individuals.
No change from 2018.
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Benefits
To provide a competitive
and cost effective benefits
package appropriate to the
role and location
Annual bonus
To reward delivery of short-
term financial targets set
each year, the individual
performance of the executive
Directors in achieving those
targets, and their contribution
to delivering Barclays’
strategic objectives
Delivery in part in shares
with a holding period
increases alignment with
shareholders. Deferred
bonuses encourage longer
term focus and retention
Executive Directors’ benefits provision includes, but is not restricted to,
private medical cover, annual health check, life and ill health income
protection, car cash allowance, and use of a Company vehicle and
driver when required for business purposes.
In addition to the above, if an executive Director were to relocate,
additional support would be provided for a defined and limited period
of time in line with Barclays’ general employee mobility policy. Barclays
will pay the tax on relocation costs but will not tax equalise and will
also not pay tax on any other employment income.
The maximum annual bonus opportunity is 80% of Total fixed pay.
For these purposes Total fixed pay is Fixed Pay plus Pension.
Details of performance measures
are set out on pages 120 to 121.
The performance measures include financial and non-financial
measures, including risk related measures and other personal
objectives. Financial measures will be at least 60% of the bonus
opportunity. The Committee has discretion to vary the measures and
their respective weighting within each category.
Annual bonuses are delivered as a combination of cash and shares,
a proportion of which may be deferred and/or subject to a holding
period. Deferral proportions and vesting profiles will be structured so
that, in combination with any LTIP award, the proportion of variable
pay that is deferred is no less than that required by regulations.
Shares issued are subject to
a holding period of one year
after vesting.
As dividend equivalents are not
permissible under regulations, the
number of shares to be awarded
will be calculated using a share
price discounted to reflect the
absence of dividend equivalents
during the vesting period.
Dividend equivalents are payable on vested deferred bonus shares.
If dividend equivalents are not permissible during the vesting period
under regulations, the number of shares to be awarded will be
determined using a share price discounted by reference to the expected
dividend yield.
A notional discount may be applied to deferred bonuses for the purposes
of calculating the 2:1 cap to the extent permitted by regulations.
Awards are subject to malus during the vesting period and clawback
for a period of seven years (10 years in specific circumstances) from
the date of award.
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Barclays PLC Annual Report 2018 109
Governance: Remuneration report
Directors’ remuneration policy
Element and purpose
Operation
Implementation in 2019
Annual bonus
continued
Long Term Incentive Plan
(LTIP) award
To reward execution of
Barclays’ strategy over a
multi-year period
Long-term performance
measurement, deferral and
holding periods encourage
a long-term view and align
executive Directors’ interests
with those of shareholders.
Malus and clawback
provisions discourage
excessive risk-taking and
inappropriate behaviours
Non-deferred cash components of any bonus are paid following
the performance year to which they relate, normally in March.
Non-deferred share bonuses are also awarded normally in March
and are subject to a holding period (after the payment of tax) in line
with regulations.
Deferred share bonuses are structured so that no deferred shares
vest faster than permitted by regulations. Any shares that vest are
subject to an additional holding period (after payment of tax) in line
with regulations.
The maximum annual LTIP award is 120% of Total fixed pay. For these
purposes Total fixed pay is Fixed Pay plus Pension.
Forward-looking performance measures will be based on financial
performance and other long-term strategic measures. Financial
measures will be at least 70% of the total opportunity. Straight-line
vesting applies between threshold and maximum for the financial
measures with no more than 25% vesting at threshold performance.
LTIP awards are structured so that when combined with the annual
bonus the proportion of variable pay that is deferred is no less than
that required by regulations.
The Committee has discretion to vary the measures year on year
and their respective weighting within each category. The Committee
also has discretion to amend targets, measures and the number of
awards in exceptional circumstances and to reduce the vesting of any
award, including to nil, if it deems that the outcome is not consistent
with performance.
Dividend equivalents are payable on vested deferred shares. If dividend
equivalents are not permissible during the vesting period under the
regulations, the number of shares to be awarded will be determined
using a share price discounted by reference to the expected
dividend yield.
A notional discount may be applied to LTIP awards for the purposes
of calculating the 2:1 cap to the extent permitted by regulations.
Awards are subject to malus during the vesting period and clawback
for a period of seven years (10 years in specific circumstances) from
the date of award.
No LTIP award vests before the third anniversary of grant and an award
vests no faster than permitted by regulations (currently in five equal
tranches with the first tranche vesting on or around the third anniversary
of grant and the last tranche vesting on or around the seventh
anniversary of the grant date). Any shares that vest are subject to an
additional holding period (after payment of tax) in line with regulations.
Details of performance measures
and targets for awards to be
made in 2019 (in respect of 2018)
are set out on page 119.
For awards to be made in respect
of 2019, the measures and targets
will be determined at the end of
2019 for the performance period
commencing on 1 January 2020.
On vesting, the award is subject
to a holding period of one year.
As dividend equivalents are not
permissible under regulations, the
number of shares to be awarded
will be calculated using a share
price discounted to reflect the
absence of dividend equivalents
during the vesting period.
Shareholding requirement
To further enhance the
alignment of shareholders’
and executive Directors’
interests in long-term value
creation
Executive Directors must build up a shareholding of 200% of Total fixed
pay (i.e. Fixed Pay plus Pension) within five years from the date of
appointment as executive Director.
Executive Directors must also continue to hold a shareholding of 100%
of Total fixed pay (or pro rata thereof ) for two years post-termination.
No change from 2018.
(Equivalent to 457% of Salary for
the Group Chief Executive under
the previous DRP.)
110 Barclays PLC Annual Report 2018
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Remuneration policy summary – non-executive Directors
Element and purpose
Operation
Fees
Reflect individual responsibilities
and membership of Board
Committees and are set to
attract non-executive Directors
who have relevant skills and
experience to oversee the
implementation of our strategy
Fees are set at a level which
reflects the role, responsibilities
and time commitment which are
expected from the Chairman and
non-executive Directors
Benefits
Expenses
The Chairman is paid an all-inclusive fee for all Board responsibilities.
The Chairman has a minimum time commitment equivalent to at least
80% of a full-time role. The other non-executive Directors receive
a basic Board fee, with additional fees payable where individuals serve
as a member or Chairman of a Committee of the Board.
Fees are reviewed each year by the Board as a whole. Other than in
exceptional circumstances, fees will not increase by more than 20%
above the current fee levels during this policy period (basic fees last
increased in 2011).
£30,000 (Chairman: £100,000) after tax and national insurance
contributions per annum of each non-executive Director’s basic fee
is used to purchase Barclays’ shares which are retained on the
non-executive Director’s behalf until they retire from the Board.
Some non-executive Directors may also receive fees as directors
of subsidiary companies of Barclays PLC.
The Chairman is provided with private medical cover subject to the
terms of the Barclays’ scheme rules from time to time, and is provided
with the use of a Company vehicle and driver when required for
business purposes.
Benefits which are minor in nature and do not exceed a cost of £500
may be provided to non-executive Directors in specific circumstances.
Implementation in 2019a
No change from 2018.
No change from 2018.
The Chairman and non-executive Directors are reimbursed for any
reasonable and appropriate expenses incurred for business reasons.
Any tax that arises on these reimbursed expenses is paid by Barclays.
No change from 2018.
Note
a Nigel Higgins joins the Board as a non-executive Director on 1 March 2019 and will assume the role of Chairman with effect from the conclusion of the Barclays AGM on 2 May
2019. Nigel Higgins will be appointed for an initial term of three years, subject to re-election by shareholders. Prior to expiry of the initial term Nigel Higgins may be invited to
serve a further three-year term. In accordance with the Directors’ remuneration policy, Nigel Higgins will be paid an annual fee of £80,000 for so long as he is a non-executive
Director, and an all-inclusive annual fee of £800,000 (the same rate as the current Chairman) with effect from his assuming the Chairman role and will be provided with private
medical cover and the use of a Company vehicle and driver when required for business purposes. While he is Chairman, Nigel Higgins will be required to use £100,000 per annum
of his fee after tax and national insurance contributions to purchase Barclays’ shares. Nigel Higgins will be expected to commit up to four days a week to the role and it will be his
principal working commitment. Nigel Higgins’ notice period shall be six months from the Company and six months from the Chairman.
Service contracts and letters of appointment
All executive Directors have a service contract whereas all non-executive Directors have a letter of appointment. Copies of the service contracts
and letters of appointment are available for inspection at the Company’s registered office. The effective dates of the current Directors’
appointments disclosed in their service contracts or letters of appointment are shown in the table below.
As stated in the letters of appointment, non-executive Directors are appointed for an initial term of three years and are subject to annual
re-election by shareholders. On expiry of the initial term and subject to the needs of the Board, non-executive Directors may be invited to serve
a further three years. Non-executive Directors appointed beyond six years will be at the discretion of the Board Nominations Committee.
All Directors are subject to annual re-election by shareholders.
Chairman
John McFarlane
Executive Directors
Jes Staley
Tushar Morzaria
Non-executive Directors
Mike Ashley
Tim Breedon
Sir Ian Cheshire
Mary Anne Citrino
Mary Francis
Crawford Gillies
Sir Gerry Grimstone
Reuben Jeffery III
Matthew Lester
Dambisa Moyo
Diane Schueneman
Mike Turner
Effective date of appointment
1 January 2015 (non-executive Director), 24 April 2015 (Chairman)
1 December 2015
15 October 2013
18 September 2013
1 November 2012
3 April 2017
25 July 2018
1 October 2016
1 May 2014
1 January 2016
16 July 2009
1 September 2017
1 May 2010
25 June 2015
1 January 2018
Note
a With effect from 1 April 2018, the Company issued all non-executive Directors with updated letters of appointment to address the change in corporate structure post-Structural
Reform. Where non-executive Directors have other appointments to Barclays’ subsidiaries additional letters of appointment have been issued as appropriate.
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Barclays PLC Annual Report 2018 111
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Governance: Remuneration report
Annual report on Directors’ remuneration
This section explains how our Directors’ remuneration policy was implemented during 2018.
Executive Directors
Executive Directors: Single total figure for 2018 remuneration (audited)
The following table shows a single total figure for 2018 remuneration in respect of qualifying service for each executive Director together with
comparative figures for 2017.
Fixed Pay
£000
Pension
£000
Taxable benefits
£000
Annual bonus
£000
LTIP
£000
Reduction of
unvested deferred
awards
£000
Total
£000
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Tushar Morzaria
2018
2,350
1,650
2017
2,350
1,614
2018
396
200
2017
396
200
2018
55
49
2017
62
44
2018
1,061
729
2017
1,065
747
2018
–
851a
2017
–
982b,c
2018
(500)d
–
2017
–
–
2018
3,362
3,479
2017
3,873
3,587
Notes
a No significant movement in share price between grant and vest (based on Q4 2018 average price), no discretion applied.
b The LTIP amount includes a reduction of c.£200k attributable to 17% share price depreciation between date of grant and vesting date; no discretion applied.
c LTIP and dividend equivalent figures for 2017 have been adjusted to reflect the share price on the date of vesting (211p) rather than the Q4 2017 average price.
d As previously announced, malus was applied to Jes Staley’s 2016 variable compensation.
Additional information in respect of each element of pay for the executive Directors (audited)
Fixed Pay
Fixed Pay is delivered 50% in cash and 50% in shares (subject to a five-year holding period lifting pro-rata).
Pension
Executive Directors are paid cash in lieu of pension contributions. The cash allowance in 2018 was £396,000 for Jes Staley and £200,000
for Tushar Morzaria. No other benefits were received by the executive Directors from any Barclays’ pension plan.
Taxable benefits
Taxable benefits include private medical cover, life and ill health income protection, tax advice, relocation, car allowance, the use of a Company
vehicle and driver when required for business purposes and other benefits that are considered minor in nature.
Annual bonus
Annual bonuses are typically awarded in Q1 following the financial year to which they relate. The Committee considered the executive Directors’
performance against the financial (60% weighting) and strategic non-financial (20% weighting) performance measures which had been set to
reflect company priorities for 2018. Performance against their individual personal objectives (20% weighting) was assessed on an individual basis.
Financial (60% weighting)
The approach taken to assessing financial performance against each of the financial measures was based on a straight-line outcome between
20% for threshold performance and 100% applicable to each measure for achievement of maximum performance. The PBT measure is also
subject to a CET1 underpin. The CET1 ratio reached a temporary low point in Q1 of 12.7%, driven primarily by the settlement of a historical
litigation and conduct case. As the CET1 recovered to 13.0% in Q2, the Committee determined to pay out the PBT measure fully in line with the
formulaic outcome.
The formulaic outcome against the financial measures set at the beginning of the year gave a total of 14.8% out of 60% being payable attributable
to those measures. A summary of the assessment is provided in the following table.
Financial performance measure
Profit before tax excluding material itemsa with CET1 ratio underpin
Cost: income ratio excluding material itemsa
Total Financial
Weighting
Threshold
20%
40% £5.00bn
20%
66.5%
60%
Maximum
100%
£6.50bn
62.0%
2018
Actual
£5.32bn
68.2%
2018
Outcome
14.8%
0%
14.8%
Note
a Material items consist of charges for PPI and settlement with regard to residential mortgage-backed securities (RMBS).
Strategic (20% weighting)
Progress in relation to each of the strategic measures, organised around three main categories, was assessed by the Committee. The Committee
used the following scale in relation to each measure: 0% to 1% firmly below performance expectations, 1.5% to 3% slightly below performance
expectations, 3.5% to 5.5% meeting or slightly exceeding performance expectations, and 6% to 7% clearly above performance expectations.
Based on this approach to assessing performance against the 2018 Performance Measurement Framework milestones, the Committee agreed
a 16.5% outcome out of a maximum of 20%. The assessment is provided in the following table.
112 Barclays PLC Annual Report 2018
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Category and key outcomes Measure
Customer and
Client:
Net Promoter
Scores® (NPS)
Building trust with
customers and
clients so they
are happy to
recommend us
Successfully
innovating and
developing products
and services that
meet their needs
Offering suitable
products and
services in an
accessible way,
ensuring excellent
customer and client
experience
Colleague:
A diverse and
inclusive workforce
in which employees
of all backgrounds
are treated equally
and have the
opportunity to be
successful and
achieve their
potential
Engaged and
enabled colleagues
A positive conduct
and values-based
culture
Client rankings
and market
shares
Complaints
performance
Lending
volumes
provided to
customers and
clients
Digital
engagement
Conduct
indicators
Diversity and
Inclusion
statistics
Employee
sustainable
engagement
survey scores
Conduct and
Culture
measures
Performance
■■ The NPS across our brands provide a view of how willing customers are to recommend
Outcome
5%
our products and services to others.
■■ Barclays UK relationship NPS has increased to +17 (2017: +14).
■■ Barclaycard UK relationship NPS stayed flat over the year closing at +9 at year-end
(2017: +9).
■■ The Relationship NPS of the US Consumer Bank increased further to +38 (2017: +36)
supported by our customer centric culture and improvements in our products and
digital experience.
■■ Our Markets franchise delivered strong performance as it increased market sharea in
each asset class, delivered five consecutive quarters of outperformance vs peers, and
maintained its 4th place ranking in Global Fixed Income market share (Greenwich).
Banking maintained its 6th rank by fee share in our UK and US home market and
retained top 3 position in the UK (Dealogic).
■■ 95% of largest UK corporate clients considered service to be good, very good or
excellent, up from 88% in 2017 (Charterhouse).
■■ Total Barclays UK complaint volumes (including PPI) down 1% from 2017. Underlying
UK complaint volumes reduced by 9% year-on-year excluding PPI. However, PPI
complaints were up 2%.
■■ We provided new lending of £2.8bn to SMEs in the UK, 3% more than last year, despite
overall volumes 6% down as we continued to exert high levels of discipline in capital
allocation to strengthen long-term sustainability.
■■ We also completed over 110,000 mortgage applications worth c£23bn (up 1.5% from
2017).
■■ Over 10.8m customers and clients in the UK were using our digital services on a regular
basis, 6% more than in 2017, with Barclays Mobile Banking user base up from 5.5m to
nearly 6.2m.
■■ 69% of US Consumer Bank customers now digitally active, up from 66% in 2017.
■■ Barclays Mobile Banking is the most used mobile banking app in UK (eBenchmarkers).
It was also the first core app from a major UK high street bank to enable account
aggregation through Open Banking technology.
■■ Conduct Risk has been effectively managed using Key Indicators reported to the Board
Reputation Committee as part of the Conduct Dashboard. Further information is
provided in the Risk Review section.
■■ In our Your View employee opinion survey, 91% of our employees agreed that we
5.5%
provide the right environment to bring their whole selves to work.
■■ We were also proud to be recognised through a number of external awards in 2018
including, The Times Top 50 Employers for Women, Stonewall Top Global Employer
for LGBT employees, Working Families UK Best for Embedded flexibility for Dynamic
Working, UK Top 10 employer for Working Families, Department of Work and Pensions
Disability Confident Leader, Business in the Community Best Employer for Race.
■■ Our gender diversity, particularly at senior leadership levels within the organisation,
remains a focus: the percentage of female Directors and Managing Directors has
improved to 24% (23% in 2017), but there is still progress to be made. We increased our
activities on the development of our senior female leadership population and expanded
our Encore! Programme to attract more female returners.
■■ Sustainable engagement scores increased to 79%, up 4 points from 2016 (last all
colleague survey).
■■ Our scores around Energise and Engage were also up 5 and 4 points to 83% and 88%
respectively, both above Financial Services Companies norms, and our Enable score was
up 5% to 65%.
■■ Encouragingly, our Values results have improved since Q4 2017. We saw a notable
increase on the question, ‘Is it safe to speak up at Barclays’, which went from 77%
to 86%.
■■ A similar increase is noted on the question ‘Barclays is focused on achieving good
customer and client outcomes’ (92% favourable, 2016: 83%).
Note
a All Markets ranks and shares: Coalition, FY18 Preliminary Competitor Analysis based on the Coalition Index and Barclays’ internal business structure.
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Governance: Remuneration report
Annual report on Directors’ remuneration
Category and key outcomes Measure
Citizenship:
Delivery against
our Shared
Growth
Ambition
Making decisions
and doing business
in a way that
provides our
clients, customers,
shareholders,
colleagues and
the communities
which we serve
with access to a
prosperous future
Proactively
managing the
environmental and
societal impacts
of our business
Proactively
managing
environmental
and societal
impacts
Colleague
engagement in
citizenship
activities
External
benchmarks
and surveys
Performance
■■ Target exceeded on our annual internal milestones for the focus area of ‘Access
Outcome
6%
to financing’.
■■ ‘Access to digital and financial empowerment’ also exceeded target.
■■ Target exceeded on our annual internal milestones for the focus area of ‘Access
to employment’.
■■ Volumes for selected social and environmental segments: facilitated £27.3bn in social
and environmental financing. We expanded our green product portfolio, including the
launch of the first Green Mortgage for retail customers by a mainstream UK institution.
■■ We helped support around 260,000 people with access to financial and digital
empowerment in 2018 (2017: 205,000).
■■ We helped improve the skills of over 2.4m people in 2018 (2017: 2.1m), driven by a range
of employability partnerships around the world.
■■ We exceeded target on carbon emissions: reduced emissions by 38% against the 2015
baseline (target 30%).
■■ We released statements on our approach to Ramsar Wetlands and World Heritage Sites,
as well as a comprehensive statement on energy and climate (which strengthened and
replaced our previous coal statement).
■■ On-time payment to our suppliers was 82%, falling short of our target of 85%.
Performance was in part impacted by a change in systems during the year.
■■ We celebrate our colleague engagement and participation through our annual
Citizenship Awards. 2018 was the 21st anniversary of the Awards, which saw almost
1,500 employees nominated.
■■ 87% of colleagues who responded to the annual Your View employee survey are proud
of Barclays’ contribution to the community and society, above the global Financial
Services Companies norm.
■■ Our performance was broadly stable across a set of ratings. Institutional Shareholder
Services (ISS) released new environmental and social quality scores to assess corporate
disclosures. On a 1-10 scale (‘1’ highest), Barclays was rated ‘1’ for social reporting and
‘2’ for environmental reporting.
■■ The FTSE4Good ESG rating remained flat at 4.3/5. Barclays was rated as A- in the 2018
Carbon Disclosure Project climate disclosure survey, up from B in 2017.
Further details on the Performance Measurement Framework can be found on pages 18 to 27.
Individual outcomes including assessment of personal objectives
Individual performance against each of the executive Directors’ personal objectives (20% weighting overall) was assessed by the Committee
(objectives as set out on page 109 of the 2017 Annual Report).
The below summarises their performance against the shared personal objectives.
16.5% out of 20%
Shared objectives for Jes Staley and Tushar Morzaria Outcomes
Deliver on 2018 financial goals such that
we remain on track to achieve our
returns targets
Seek opportunities for further cost
savings and optimise the capital
allocation within the Group
Complete the Structural Reform
programme successfully, ensuring the
UK ring-fenced bank is fully operational
Finalise the implementation plan for an
effective Brexit outcome
■■ Financial goals delivered and on track to achieve external returns targets in 2019 and 2020.
■■ Strong financial improvements in PBT and RoTE and maintenance of CET1 in end-state range.
2018 RoTE close to 2019 target of greater than 9%.
■■ 2018 cost target of £13.9bn achieved.
■■ Capital allocation optimised and deployed to key strategic areas.
■■ Structural Reform programme largely completed, including the stand-up of the ring-fenced bank
in the UK. This was completed in April and is recognised as one of the biggest technological shifts
carried out in financial services, requiring a huge coordinated effort from teams across the Bank.
■■ The Group is operationally prepared for the UK to leave the EU, with an extended licence for
Barclays Bank Ireland in place and the entity prepared to be fully operational by the end of
March 2019.
Continue to drive strategic initiatives to
enhance growth in shareholder value in
the medium term
■■ The Committee noted the strategic initiatives to improve returns to shareholders, both within the
businesses and also through our state-of-the-art operating platform, Barclays Execution Services.
■■ In 2018, based on strong capital position, the restoration of the dividend to 6.5p, and the
Manage risk and control effectively and
make continued progress in resolving
outstanding conduct matters
redemption of the expensive preference shares dating from the financial crisis, saw us deploy
around £1.8bn of capital. While this represents progress, we acknowledge that it is not yet
sufficient.
■■ Significant improvements in the control environment resulting from the wide-ranging Barclays
Improved Controls Enhancement Programme (BICEP) work.
■■ Major outstanding legacy conduct matters resolved, including reaching a reasonable settlement
with the US Department of Justice in relation to RMBS, and having the UK SFO charges relating
to the 2008 fundraising against the bank dismissed.
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In addition to the shared personal objectives described above, the below summarises Jes Staley’s performance against the objectives specific to him.
Jes Staley’s objectives
Continue to strengthen the Bank’s
cyber readiness, operational and
financial controls
Further improve customer and client
satisfaction, with a particular focus on
reducing the number of overall complaints
As part of the ongoing succession
planning for Group and Business Unit/
Functional Executive Committees,
continue the focus on improving the
percentage of women in senior
leader positions
Outcomes
■■ Significant progress to strengthen controls in relation to cyber readiness, operations and financial
reporting, including through the BICEP work.
■■ Cybersecurity enhanced with a second joint operation centre opened in Whippany, New Jersey to
enhance our ability to monitor and address incidents on a global basis.
■■ Both operational issues and risk events have reduced significantly during 2018.
■■ Jes Staley has been instrumental in upgrading key talent that has led to strong performance in
the Markets business which has increased market sharea in each asset class and delivered five
consecutive quarters of outperformance vs peers. Banking maintained its 6th rank in UK and US
and remained top 3 in UK.
■■ Similarly, within customer satisfaction, Barclays UK NPS increased to +17 from +14 in 2017.
■■ Jes Staley has driven a focus on customer outcomes across the bank with his senior executive teams,
reducing the number of overall complaints in Barclays UK (including PPI) 1% from 2017, while
underlying UK complaint volumes reduced by 9% year-on-year excluding PPI (PPI complaints were
up 2%).
■■ While the percentage of females in senior leadership positions is increasing slowly, Jes Staley has
personally taken accountability for trying to redress the historic gender imbalance at our most
senior levels.
■■ In 2018, key initiatives included the work of the Global Gender Task Force, responsible for the
Women’s Managing Director Forum, as well as the extension of the ex-officio role (a rotating position
on senior management committees providing opportunities for talented individuals to contribute)
from the Group Executive Committee down through the organisation.
■■ Jes Staley also personally launched a set of 2019 specific initiatives which are aiming to make the
biggest difference most quickly to the proportion of women in senior leadership positions.
Recognising his very strong performance against both his individual and shared personal objectives during 2018, the Committee judged that 17%
of a maximum of 20% attributable to personal objectives was appropriate.
The below summarises Tushar Morzaria’s performance against the objectives specific to him.
Tushar Morzaria’s objectives
Demonstrate effective management of
external relationships and reputation
Continue to strengthen team performance
(especially following the creation of the
Group Service Company), talent base and
employee engagement in Group Finance,
Tax and Treasury
Outcomes
■■ Feedback from the Board, regulators and investors continues to show that Tushar Morzaria
is extremely well respected internally and externally, and that the management of external
relationships and reputation of the Group remains strong.
■■ The performance of the Finance function has continued to strengthen, with a diverse and
experienced management team in place and good sustainable engagement scores.
The Committee also recognised Tushar Morzaria’s very strong performance (against both his individual and shared personal objectives) during
2018, and judged that 18% out of a maximum of 20% attributable to personal objectives was appropriate.
(i) Jes Staley
A summary of the assessment for Jes Staley is provided in the following table.
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Financial
Strategic
Personal objectives
Total
Final outcome approved by the Remuneration Committee
See table on page 112
See table on pages 113 to 114
Judgemental assessment
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2018 Outcome
14.8%
16.5%
17.0%
48.3%
48.3%
In aggregate, the performance assessment for Jes Staley resulted in an overall formulaic outcome of 48.3% of maximum bonus opportunity being
achieved. The Committee considered the outcome and noted that a 2018 annual bonus of £1,061,000 (of which 62% is deferred under the Share
Value Plan) is slightly down against his 2017 annual bonus outcome, and therefore is not reflective of the improved performance observed. The
Committee reflected on the disconnect between the positive financial and strategic performance across the Group and the relatively low outcomes
against the financial measures given the extremely stretching financial targets in the annual bonus plan. Based on a balanced assessment across
all of the relevant factors, including recognising share price performance (while not solely attributable to the executive Directors), the Committee
decided that the outcome would remain at £1,061,000.
(ii) Tushar Morzaria
A summary of the assessment for Tushar Morzaria is provided in the following table.
Performance measure
Financial
Strategic
Personal objectives
Total
Final outcome approved by the Remuneration Committee
See table on page 112
See table on pages 113 to 114
Judgemental assessment
Weighting
60%
20%
20%
100%
2018 Outcome
14.8%
16.5%
18.0%
49.3%
49.3%
Note
a All Markets ranks and shares: Coalition, FY18 Preliminary Competitor Analysis based on the Coalition Index and Barclays’ internal business structure.
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Governance: Remuneration report
Annual report on Directors’ remuneration
In aggregate, the performance assessment for Tushar Morzaria resulted in an overall formulaic outcome of 49.3% of maximum bonus opportunity
being achieved. The Committee considered the outcome and again noted that a 2018 annual bonus of £729,000 (of which 45% is deferred under
the Share Value Plan) was slightly down against his 2017 annual bonus outcome despite stronger Group performance (financial and non-
financial). Similar to the assessment for Jes Staley, it decided that the outcome would remain at £729,000.
In line with the DRP, and due to the regulations prohibiting dividend equivalents being paid on unvested deferred share awards, the number
of shares awarded to each executive Director under the Share Value Plan will be calculated using a share price at the date of award, discounted
to reflect the absence of dividend equivalents during the vesting period. The valuation will be aligned to IFRS 2, with the market expectations
of dividends during the deferral period being assessed by an independent adviser. These shares will vest in two equal tranches on the first and
second anniversary (subject to the rules of the Share Value Plan as amended from time to time). All shares (whether deferred or not) are subject
to a further one-year holding period from the point of release. 2018 bonuses are subject to clawback provisions and, additionally, unvested deferred
2018 bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil).
LTIP
The LTIP amount included in Tushar Morzaria’s 2018 single total figure is the value of the amount scheduled to be released in relation to the
LTIP award granted in 2016 in respect of the performance period 2016-2018 (by reference to Q4 2018 average share price). As Jes Staley was not
a participant in this cycle, the LTIP figure in the single figure table is zero for him. Release is dependent on, among other things, performance over
the period from 1 January 2016 to 31 December 2018 with straight-line vesting applied between the threshold and maximum points. The
performance achieved against the performance targets is as follows:
Performance measure
Average return
on tangible equity
(RoTE) excluding
material itemsa
CET1 ratio as at
31 December 2018
Cost: income ratio
excluding material
itemsa
Risk Scorecard
Weighting
25%
25%
20%
15%
Balanced Scorecard
15%
Maximum vesting
RoTE of 10.0%
Threshold
6.25% of award vests for RoTE of 7.5%
CET1 ratio must remain at or above an acceptable level for any of this element to vest.
The threshold will be reviewed and set annually based on market conditions and
regulatory requirements (11.3% in 2018).
6.25% of award vests for CET1 ratio of
11.6%
5% of award vests for average cost:
income ratio of 66%
Average cost: income ratio of 58%
CET1 ratio of 12.7%
Performance against the Risk Scorecard is assessed by the Committee, with input
from the Group Risk function, Board Risk Committee and Board Reputation Committee
as appropriate, to determine the percentage of the award that may vest between
0% and 15%. Since its introduction in 2016, the Risk Scorecard has been aligned by
the Committee to the annual incentive risk alignment framework reviewed with the
regulators. Following this alignment, the current framework measures performance
against three broad categories – Capital and Liquidity, Control Environment and
Conduct – using a combination of quantitative and qualitative metrics.
Performance against the Balanced Scorecard is assessed by the Committee to
determine the percentage of the award that may vest between 0% and 15%. Each
of the 5Cs in the Balanced Scorecard has equal weighting. Assessment was made
against the Balanced Scorecard targets established at the beginning of the
performance period.
Total
Final outcome approved by the Remuneration Committee
Actual
5.6%
% of award
vesting
0%
13.2%
70%
25%
0%
10%
4%
39%
39%
Note
a Material items include PPI, gain on disposal of Barclays’ share of Visa Europe Limited and own credit in 2016; PPI, losses relating to the sell down of BAGL and a one-off net charge
due to the remeasurement of US deferred tax assets in 2017; PPI and settlement with regard to RMBS in 2018.
A summary of the Committee’s assessment against the Risk Scorecard performance measure over the three year performance period is provided
below.
Category
Capital & Liquidity
Weighting
5%
Performance
■■ Stress test results showed improvement over the period. Although Barclays did not meet its
CET1 systemic reference points in 2016, no revised capital plans were required in light of the
steps already taken. In 2017, the Bank of England recognised that the increases in CET1 capital
and in Tier 1 leverage ratios over the year were sufficient for Barclays to meet the systemic
reference points in the test. Barclays passed the 2018 test.
■■ Group CET1% grew from 11.4% to 13.2% over the period, and remained comfortably above
Outcome
4%
the regulatory minimum throughout.
Controls
5%
■■ Our liquidity risk appetite measure and the Liquidity Coverage Ratio remained above targets.
■■ The Control Environment is monitored by senior management and the Board via various
3%
reports, dashboards and deep dives. Summary ratings are also used to track improvement
and remediation plans.
■■ These summary ratings improved over the period, notably following the completion of the
BICEP. This programme facilitated the resolution of the most material control issues, and
implemented a system of tracking and reporting risk events and controls issues against
a new Controls Maturity Model.
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Category
Conduct
Weighting
5%
Performance
■■ The Conduct category focuses on internal forward-looking tools:
– the Conduct dashboard showed a downward trend in conduct issues and complaints
alongside an upward trend in confidence with respect to speaking up about potential
conduct risks and issues, although a need for continued focus remains
– the occurrence of conduct breaches among senior leaders is referenced, in particular
as a leading cultural indicator reflecting ‘tone from the top’. The number of occurrences
remained negligible throughout the year.
Total
15%
Outcome
3%
10%
A summary of the Committee’s assessment against the Balanced Scorecard performance measures over the three year performance period
is provided below.
Category
Customer and Client
Weighting
3%
Performance
■■ While positive progress has been made, with Barclays UK relationship NPS up to +17 (2017:
Outcome
0%
+14; 2016: +10), the very ambitious target of ranking 1st against peers has not been achieved.
■■ Similarly, Client Franchise Rank performance was at 5th and 6th over the period, below the
plan target of top 3.
Colleague
3%
■■ Good progress has been made in colleague engagement, increasing from 75% in 2016 to 78%
1%
in 2017 and to 79% in 2018. However this fell below the very stretching plan target of
87%-91%.
■■ Continued improvement of +1% per year in the percentage of women in senior leadership
roles to 24% at the end of 2018. This falls below the plan target of 26% (calibrated including
the BAGL business). Had BAGL continued to have been included, the outcome would have
been c2% higher and the target would have been achieved.
Citizenship
3%
■■ The plan targets were exceeded on four measures (access to financing, financial and digital
2%
Conduct
Company
3%
3%
Total
15%
empowerment, access to employment and carbon emissions reduction).
■■ Barclays Way training was on-track.
■■ On-time payment to our suppliers exceeded targets for the first 2 years, but fell short in 2018
in part due to a change in systems which impacted performance during the year.
■■ Conduct Reputation, as measured by the YouGov survey, remained at 5.2-5.4 over the period
and below our plan target of 6.5.
■■ RoE and RoTE targets established to deliver greater than cost of equity in 2018. While there
has been positive trajectory towards the 2019 and 2020 external commitments, the time frame
was ambitious and returns are not yet at that level.
■■ Cost:income ratio plan target of below 60%. This has improved but there is still further
progress required to achieve a ratio below 60%.
■■ Significant strengthening in the CET1 ratio over the period, with the ratio now within
our end-state target range of c.13% and exceeding 100-150 basis points above the
regulatory minimum.
0%
1%
4%
The LTIP award is also subject to a discretionary underpin whereby the Committee must be satisfied with the underlying financial health of the
Group. The Committee was satisfied that this underpin was met, and accordingly determined that the award should be considered for release at
39% of the maximum number of shares under the total award. The shares are scheduled to be released in March 2019. After release, the shares
are subject to an additional two-year holding period.
(i) LTIP awards granted during 2017
The performance measures for the awards made under the 2017-2019 LTIP cycle are as follows:
Performance measure
Average return
on tangible equity
(RoTE) excluding
material items
CET1 ratio as at
31 December 2019
Cost: income ratio
excluding material
items
Risk Scorecard
Weighting
25%
25%
20%
15%
Maximum vesting
RoTE excluding material items of 9.5%
Threshold
6.25% of award vests for RoTE excluding material
items of 7.5%
CET1 ratio must remain at or above an acceptable level for any of this element to vest. The threshold will
be reviewed and set annually based on market conditions and regulatory requirements (11.7% on
31 December 2019).
6.25% of award vests for CET1 ratio 100 basis
points above the mandatory distribution restrictions
(MDR) hurdle (currently 11.7%)
5% of award vests for average cost:
income ratio of 63%
CET1 ratio 200 basis points above the MDR hurdle
Average cost: income ratio of 58%
The Risk Scorecard captures a range of risks and is aligned with the annual incentive risk alignment
framework reviewed with the regulators. The current framework measures performance against three broad
categories – Capital and Liquidity, Control Environment and Conduct – using a combination of quantitative
and qualitative metrics. The framework may be updated from time to time in line with the Group’s risk
strategy. Specific targets within each of the categories are deemed to be commercially sensitive.
Retrospective disclosure will be made in the 2019 Remuneration report.
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Barclays PLC Annual Report 2018 117
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Governance: Remuneration report
Annual report on Directors’ remuneration
Performance measure
Strategic non-financial 15%
Weighting
Threshold
The evaluation will focus on key performance measures from the Performance Measurement Framework,
with a detailed retrospective narrative on progress throughout the period against each category. Performance
against the strategic non-financial measures will be assessed by the Committee to determine the percentage
of the award that may vest between 0% and 15%. The measures are organised around three main categories:
Customer and Client, Colleague and Citizenship. Each of the three main categories has equal weighting.
Measures will likely include, but will not be limited to, the following:
Maximum vesting
■■ Customer and Client: NPS for consumer businesses, Client rankings and market shares for the Corporate
and Investment Bank, complaints performance and volume of lending provided to customers and clients
■■ Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable
engagement survey scores and conduct and culture measures
■■ Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities
and external benchmarks and surveys.
Straight-line vesting applies between the threshold and maximum points in respect of the financial measures.
The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.
(ii) LTIP awards granted during 2018
An award was made to Jes Staley and Tushar Morzaria on 8 March 2018 under the 2018-2020 LTIP at a share price of £1.7775, which has been
discounted to reflect the absence of dividend equivalents during the vesting period, in accordance with our DRP. This is the price used to calculate
the face value below.
Jes Staley
Tushar Morzaria
The performance measures for the 2018-2020 LTIP awards are as follows:
% of
Total fixed pay
120%
120%
Number of
shares
1,853,891
1,248,980
Face value
at grant
3,295,200
2,220,000
Performance
period
2018-2020
2018-2020
Performance measure
Average return on
tangible equity
(RoTE) excluding
material items
Weighting
50%
Threshold
10% of award vests for RoTE of 7.75%
(based on an assumed CET1 ratio of c.13%)
Vesting of this element will depend on CET1 levels during the performance period:
Maximum vesting
RoTE of 10.25%
Average cost: income
ratio excluding
material items
Risk Scorecard
20%
15%
Strategic non-
financial
15%
■■ if CET1 goes below the MDR hurdle (currently 11.7%) in any year of the period, no part of the RoTE
element will vest
■■ if CET1 goes below the MDR hurdle +150bps but remains above the hurdle during the period, the
Committee will exercise its discretion to determine what portion of the RoTE element should vest, based
on the causes of the CET1 reduction.
4% of award vests for average cost: income
ratio of 62.5%
Average cost: income ratio of 58%
The Risk Scorecard captures a range of risks and is aligned with the annual incentive risk alignment
framework reviewed with the regulators. The current framework measures performance against three broad
categories – Capital and Liquidity, Control Environment and Conduct – using a combination of quantitative
and qualitative metrics. The framework may be updated from time to time in line with the Group’s risk
strategy. Specific targets within each of the categories are deemed to be commercially sensitive. Retrospective
disclosure will be made in the 2020 Remuneration report, subject to commercial sensitivity no longer remaining.
The evaluation will focus on key performance measures from the Performance Measurement Framework,
with a detailed retrospective narrative on progress throughout the period against each category. Performance
against the strategic non-financial measures will be assessed by the Committee to determine the percentage
of the award that may vest between 0% and 15%. The measures are organised around three main categories:
Customer and Client, Colleague and Citizenship. Each of the three main categories has equal weighting.
Measures will likely include, but will not be limited to, the following:
■■ Customer and Client: NPS for consumer businesses, client rankings and market shares for the CIB,
complaints performance and volume of lending provided to customers and clients
■■ Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable
engagement survey scores and conduct and culture measures
■■ Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities
and external benchmarks and surveys.
Straight-line vesting applies between the threshold and maximum points in respect of the financial measures.
The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.
118 Barclays PLC Annual Report 2018
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LTIP awards to be granted during 2019
The Committee decided to make an award under the 2019-2021 LTIP cycle to Jes Staley and Tushar Morzaria (based on their performance in 2018)
with a face value at grant of 120% of their respective Total fixed pay at 31 December 2018.
The 2019-2021 LTIP award will be subject to the following forward-looking performance measures.
Performance measure
Average return on tangible
equity (RoTE) ex litigation
and conduct and other
material items
Weighting
50%
Threshold
10% of award vests for RoTE of 8.5%
(based on an assumed CET1 ratio of c.13%)
Vesting of this element will depend on CET1 levels during the performance period:
Maximum vesting
RoTE of 10.5%
2021 Cost: income ratio ex
litigation and conduct and
other material items
Risk Scorecard
20%
15%
Strategic non-financial
15%
■■ if CET1 goes below the MDR hurdle (currently 11.7%) in any year of the performance period, no part
of the RoTE element will vest
■■ if CET1 goes below the end-state target (c.13%) but remains above the hurdle during the year, the
Committee will exercise its discretion to determine what portion of the RoTE element should vest,
based on the causes of the CET1 reduction.
4% of award vests for cost: income ratio of 60%
Cost: income ratio of 58.5%
The Risk Scorecard captures a range of risks and is aligned with the annual incentive risk alignment
framework shared with the regulators. The current framework measures performance against three broad
categories – Capital and Liquidity, Control Environment and Conduct – using a combination of quantitative
and qualitative metrics. The framework may be updated from time to time in line with the Group’s risk
strategy. Specific targets within each of the categories are deemed to be commercially sensitive.
Retrospective disclosure will be made in the 2021 Remuneration report, subject to commercial sensitivity
no longer remaining.
The evaluation will focus on key performance measures from the Performance Measurement Framework,
with a detailed retrospective narrative on progress throughout the period against each category.
Performance against the strategic non-financial measures will be assessed by the Committee to determine
the percentage of the award that may vest between 0% and 15%. The measures are organised around
three main categories: Customer and Client, Colleague and Citizenship. Each of the three main categories
has equal weighting. Measures will likely include, but not be limited to, the following:
■■ Customer and Client: NPS for consumer businesses, Client rankings and market shares for the
Corporate and Investment Bank, complaints performance and volume of lending provided to customers
and clients
■■ Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee
sustainable engagement survey scores and conduct and culture measures
■■ Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship
activities and external benchmarks and surveys.
Matters for which the Committee has exercised discretion
As previously announced, malus was applied to Jes Staley’s 2016 variable compensation, reducing the awarded value by £500,000.
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Barclays PLC Annual Report 2018 119
Governance: Remuneration report
Annual report on Directors’ remuneration
Executive Directors: Statement of implementation of remuneration policy in 2019
The following chart provides an illustrative indication of how 2019 remuneration will be delivered to the executive Directors.
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Implementation in 2019
Fixed
Pay
Cash
Shares
Released in equal tranches over 5 years
Pension Cash in
lieu of
pension
Annual
bonus
LTIP*
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Holding
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Holding
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Shares
Holding
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Shares
Holding
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Shares
Holding
period
Shares
Holding
period
No change from 2018
■■ Jes Staley £2,350,000
■■ Tushar Morzaria £1,650,000
No change from 2018
■■ Jes Staley £396,000
■■ Tushar Morzaria £200,000
80% of Total fixed pay
120% of Total fixed pay
* This assumes an LTIP award made in 2020 in line with the current Policy.
2019 Annual bonus performance measures
Performance measures with appropriately stretching targets have been selected to cover a range of financial and non-financial goals that support
the key strategic objectives of the Company. The performance measures and weightings are shown below.
Financial
(60% weighting)
A performance target
range has been set for
each financial measure
Strategic non-financial
(20% weighting)
■■ Profit before tax excluding litigation and conduct and other material items (50% weighting).
Payout of this element will depend on the CET1 ratio during the performance year:
– if CET1 goes below the MDR hurdle (currently 11.7%) during the performance year, no part of the PBT element
will pay out
– if CET1 goes below the end-state target (c.13%) but remains above the hurdle during the year, the Committee
will exercise its discretion to determine what portion of the PBT element should pay out, based on the causes
of the CET1 reduction.
■■ Cost: income ratio excluding litigation and conduct and other material items (10% weighting).
The evaluation will focus on key performance measures from the Performance Measurement Framework, with
a detailed retrospective narrative on progress during the year against each category. Performance against the
strategic non-financial measures will be assessed by the Committee to determine the percentage of the award that
may vest between 0% and 20%. The measures are organised around three main categories: Customer and Client,
Colleague and Citizenship. Each of the three main categories has equal weighting. Measures will likely include, but
will not be limited to, the following:
■■ Customer and Client: NPS for consumer businesses, Client rankings and market shares for the Corporate
and Investment Bank, complaints performance and volume of lending provided to customers and clients
■■ Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable
engagement survey scores and conduct and culture measures
■■ Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities and
external benchmarks and surveys.
120 Barclays PLC Annual Report 2018
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Personal
(20% weighting)
The executive Directors have the following joint personal objectives for 2019:
■■ continue to deliver improving shareholder returns, whilst retaining the focus on delivering the 2019 and 2020
external targets and specifically profitability of the CIB.
■■ identify opportunities for further cost efficiencies, enabling reinvestment into strategic priorities
■■ leverage the new Barclays Execution Services platform to drive our technology agenda across both trading entities
to improve customer and client experience and enhance value
■■ respond to emerging Brexit decisions, managing risks appropriately for the Group, while continuing to support
our customers and clients in the UK.
In addition, individual personal objectives for 2019 are as follows:
Jes Staley
■■ oversee the effective management of the risk and controls agenda, including cyber risks
■■ further improve customer and client satisfaction, with continued focus on complaint reduction
■■ develop further a high performing culture in line with our Values, continuing to focus on employee engagement;
the talent pipeline for Group, Business and Functional Executive Committees with a particular emphasis on
improving the percentage of women in senior leadership roles
■■ effectively manage relationships with key external stakeholders and society more broadly.
Tushar Morzaria
■■ demonstrate effective management of external relationships, particularly regulators and investors
■■ oversee the effective management of the risk and controls agenda in Group Finance, Tax and Treasury
■■ progress finance transformation programme and drive benefits across Group Finance, Tax and Treasury
■■ continue to develop talent base, employee engagement and gender diversity in Group Finance, Tax and Treasury.
Illustrative scenarios for executive Directors’ remuneration
The charts below show the potential value of the current executive Directors’ 2019 total remuneration in three main scenarios: ‘Minimum’
(i.e. Fixed Pay, Pension and benefits), ‘Mid-point’ (i.e. Fixed Pay, Pension, benefits and 50% of the maximum variable pay that may be awarded)
and ‘Maximum’ (i.e. Fixed Pay, Pension, benefits and the maximum variable pay that may be awarded). For the purposes of these charts, the value
of benefits is based on an estimated annual value for 2019 regular contractual benefits. Additional ad hoc benefits may arise, for example, overseas
relocation of executive Directors, but will always be provided in line with the DRP.
A significant proportion of the potential remuneration of the executive Directors is variable and is therefore performance related. It is also subject to
deferral, additional holding periods, malus and clawback. Ahead of the new reporting requirements, we have provided an indication of the maximum
remuneration receivable, assuming share price appreciation of 50% on the LTIP.
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Total remuneration opportunity:
Group Chief Executive (£m)
Minimum
Total 2.80
42%
42%
16%
Mid-point
Total 5.55
21%
21%
8% 20%
30%
Maximum
14%
14%
5% 27%
Maximum with share price increase
12%
12%
4% 22%
40%
33%
Total remuneration opportunity:
Group Finance Director (£m)
Minimum Total 1.90
43%
43%
14%
Mid-point
Total 3.75
22% 22%
6% 20% 30%
Total 8.29
Maximum
Total 5.60
15% 15%
4% 26%
40%
Total 9.94
Maximum with share price increase
Total 6.71
17%
12% 12% 4% 22%
33%
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Bonus
Fixed shares
LTIP
Pension and benefits
Illustrative share price increase
Fixed cash
Bonus
Fixed shares
LTIP
Pension and benefits
Illustrative share price increase
Performance graph and table
The performance graph below illustrates the performance of Barclays over the financial years from 2009 to 2018 in terms of total shareholder
return compared with that of the companies comprising the FTSE 100 index. The index has been selected because it represents a cross-section
of leading UK companies.
Total shareholder return – rebased to 100 in 2008
Barclays PLC
FTSE 100 Index
250
180
127
174
144
2008
2009
2010
140
120
2011
183
155
210
183
193
185
182
178
Year ended 31 December
217
187
243
172
222
130
2012
2013
2014
2015
2016
2017
2018
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Barclays PLC Annual Report 2018 121
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Governance: Remuneration report
Annual report on Directors’ remuneration
The table below provides pay ratios of the Group Chief Executive’s total remuneration (as disclosed in the single total remuneration figure table) to
the remuneration of UK employees. The ratio varies from year to year primarily due to variations in the CEO total remuneration figures, e.g. where
there are changes in CEO, or variations in LTIP payouts (in some years, the Group Chief Executive may not be a participant in a vesting LTIP).
The ratio of CEO remuneration for each reference point (LQ, median and UQ) has decreased from 2016 (the first full year of service for the current
CEO) to 2018, primarily due to lower bonus outcomes for the CEO. The CEO was not a participant in any LTIP that vested during this period. Over
the same period, the figure for the LQ UK employee has risen 10%. It should be noted that these ratios may increase in 2019, as this will be the first
year an LTIP, in which the CEO is a participant reaches the end of its performance period and may therefore result in a vesting outcome for the CEO.
Year
Group Chief Executive
Single total remuneration
figure CEO
Annual bonus award
as a % of max
Long-term incentive plan
vesting as a % of max
2009
John
Varley
2010
John
Varley
2011
Bob
Diamond
2012a
Bob
Diamondb
Antony
Jenkinsc
2013
Antony
Jenkins
2014
Antony
Jenkins
2015a
Antony
Jenkinsc
John
McFarlaned
Jes
Staleye
2016
Jes
Staley
2017
Jes
Staley
2018
Jes
Staley
2,050
4,567 11,070f
1,892
529
1,602
5,467g
3,399
305
277
4,233
3,873
3,362i
0% 100%
80%
0%
0%
0%
57%
48%
N/A
N/A
60% 48.5% 48.3%
50%
16%
N/Ah
0%
N/Ah
N/Ah
30%
39%
N/Ah
N/Ah
N/Ah
N/Ah
N/Ah
UK employee LQ
106 x
232 x
552 x
UK employee median
75 x
165 x
391 x
UK employee UQ
40 x
87 x
206 x
118 x
84 x
44 x
77 x
254 x
54 x
28 x
175 x
92 x
183 x
126 x
66 x
195 x
173 x
141 x
137 x
119 x
70 x
61 x
96 x
51 x
Notes
a Where there was more than one Group Chief Executive in a year, the pay ratio references the sum of the Group Chief Executive single total figures for that year.
b Bob Diamond left the Board on 3 July 2012.
c Antony Jenkins became Group Chief Executive on 30 August 2012 and left the Board on 16 July 2015.
d John McFarlane was Executive Chairman from 17 July 2015 to 30 November 2015. His fees, which remained unchanged, have been pro-rated for his time in the position.
He was not eligible to receive a bonus or LTIP.
e Jes Staley became Group Chief Executive on 1 December 2015.
f This figure includes £5,745k tax equalisation as set out in the 2011 Remuneration report. Bob Diamond was tax equalised on tax above the UK rate where that could not be offset
by a double tax treaty.
g Antony Jenkins’ 2014 pay is higher than in earlier years since he declined a bonus in 2012 and 2013 and did not have LTIP vesting in those years.
h Not a participant in a long-term incentive award which vested in the period.
i As required, the single total remuneration figure includes an adjustment made to Jes Staley’s 2016 variable compensation in 2018. 2018 outcome excluding the malus adjustment
is £3,862k and the ratios would be LQ: 162x, Median: 110x, UQ: 58x
Percentage change in Group Chief Executive’s remuneration
The table below shows how the percentage change in the Group Chief Executive’s salary, benefits and bonus between 2017 and 2018 compared
with the percentage change in the average of each of those components of pay for UK based employees.
We have chosen UK based employees as the comparator group as it is the most representative for pay structure comparisons.
Group Chief Executive
Average based on UK employeesa
Note
a Certain populations were excluded to enable a meaningful like for like comparison.
Fixed Pay
0%
2%
Benefits
-11%
0%
Annual bonus
0%
10%
Total remuneration of the employees in the Barclays Group
The table below shows the number of employees in the Barclays Group as at 31 December 2017 and 2018 in bands by reference to total
remuneration. Total remuneration comprises salary, RBP, other allowances, bonus and the value at award of LTIP awards.
Total remuneration of the employees in the Barclays Group
Remuneration band
£0 to £25,000
£25,001 to £50,000
£50,001 to £100,000
£100,001 to £250,000
£250,001 to £500,000
£500,001 to £1,000,000
£1,000,001 to £2,000,000
£2,000,001 to £3,000,000
£3,000,001 to £4,000,000
£4,000,001 to £5,000,000
£5,000,001 to £6,000,000
Above £6,000,000
Number of employees
2018
31,846
25,770
18,478
10,804
2,197
916
306
82
19
6
11
6
2017
31,406
24,280
17,604
9,818
2,113
811
262
70
21
5
7
4
Barclays is a global business. Of those employees earning above £1m in total remuneration for 2018 in the table above, 56% are based in the US,
36% in the UK and 8% in the rest of the world.
122 Barclays PLC Annual Report 2018
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Relative importance of spend on pay
A year on year comparison of Group compensation costs and distributions to shareholders are shown below.
Group compensation costs (£m)
Dividends to shareholders (£m)
0
2018
2017
2,500
5,000
7,500
0
200
400
600
800
£7,346
£7,123
2018
2017
£768
£509
Total incentive awards granted – current year
Incentive awards granted
Bonus pool
Commissions and other incentives
Total incentive awards granted
Reconciliation of incentive awards granted to income statement charge:
Less: deferred bonuses granted but not charged in current year
Add: current year charges for deferred bonuses from previous years
Other
Income statement charge for performance costs
Proportion of bonus pool that is deferred
Barclays Group
Year ended
31.12.18
£m
Year ended
31.12.17
£m
% Change
1,582
67
1,649
(359)
299
(33)
1,556
33%
1,432
74
1,506
(302)
457
29
1,690
31%
(10)
(9)
(19)
35
8
Chairman and non-executive Directors
Remuneration for non-executive Directors reflects their responsibilities, time commitment and the level of fees paid to non-executive Directors
of comparable major UK companies.
Non-executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid
by Barclays. The Chairman is provided with private medical cover and the use of a Company vehicle and driver when required for business
purposes.
Chairman and non-executive Directors: Single total figure for 2018 fees (audited)
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John McFarlane
Non-executive Directors
Mike Ashley
Tim Breedon
Sir Ian Cheshirea
Mary Anne Citrinob
Mary Francisc
Crawford Gilliesd
Sir Gerry Grimstonee
Reuben Jeffery III
Matthew Lesterf
Dambisa Moyo
Diane Schuenemang
Mike Turnerh
Diane de Saint Victori
Steve Thiekej
Total
Fees
2018
£000
800
215
225
480
39
154
222
498
120
135
135
337
105
–
–
3,465
2017
£000
800
215
225
360
–
135
195
375
120
45
135
308
–
38
87
3,038
Benefits
2018
£000
2017
£000
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
Total
2018
£000
801
215
225
480
39
154
222
498
120
135
135
337
105
–
–
3,466
2017
£000
802
215
225
360
–
135
195
375
120
45
135
308
–
38
87
3,040
Notes
a Sir Ian Cheshire’s 2018 figure includes fees of £400,000 for his role as Chairman of Barclays Bank UK PLC.
b Mary Anne Citrino joined the Board as a non-executive Director with effect from 25 July 2018. Her fees are therefore pro-rated for the period of her appointment.
c Mary Francis succeeded Sir Gerry Grimstone as Chair of the Board Reputation Committee with effect from 1 April 2018.
d Crawford Gillies was appointed Senior Independent Director with effect from 1 April 2018 and the 2018 figures includes the pro-rated amount for the period of his appointment.
e Sir Gerry Grimstone was appointed Chairman of Barclays Bank PLC with effect from 1 April 2018 and subsequently stepped down as Deputy Chairman, Senior Independent
Director and Chair of the Board Reputation Committee. The 2018 figure reflects this and also includes fees of £400,000 for his role as Chairman of Barclays Bank PLC Board and
his previous appointment as Chairman of the BI Divisional Board for the period 1 January-31 March 2018.
f Matthew Lester joined the Board a non-executive Director with effect from 1 September 2017.
g Diane Schueneman was appointed Chair of Barclays Services Limited (the Group Service Company) with effect from 1 September 2017 and is a member of the Barclays US LLC
(the US Intermediate Holding Company) Board. The 2018 figure includes fees of £70,000 for her role on the Barclays Services Limited Board and $177k (£132k) for her role on the
Barclays US LLC Board.
h Mike Turner joined the Board as a non-executive Director with effect from 1 January 2018.
i Diane de Saint Victor retired from the Board with effect from 10 May 2017.
j Steve Thieke retired from the Board with effect from 10 May 2017.
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Barclays PLC Annual Report 2018 123
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Governance: Remuneration report
Annual report on Directors’ remuneration
Chairman and non-executive Directors: Statement of implementation of remuneration policy in 2019
2019 fees, subject to annual review in line with policy, for the Chairman and non-executive Directors are shown below.
Chairmana
Deputy Chairmanb
Board member
Additional responsibilities
Senior Independent Directorc
Chairman of Board Audit, Remuneration or Risk Committee
Chairman of Board Reputation Committee
Membership of Board Audit or Board Remuneration Committee
Membership of Board Reputation or Board Risk Committee
Membership of Board Nominations Committee
1 January 2019
£000
800
250
80
1 January 2018
£000
800
250
80
36
70
50
30
25
15
30
70
50
30
25
15
Notes
a The Chairman does not receive any other additional responsibilities fees in addition to the Chairman fees.
b Following the appointment of Sir Gerry Grimstone as Chairman of Barclays Bank PLC with effect from 1 April 2018, it was deemed not necessary to fill the position of Deputy
Chairman. However, the position remains available should Barclays consider it necessary and beneficial to the Company to appoint a Deputy Chairman in the future.
c The Board approved an increase to the Senior Independent Director fees effective 1 April 2018. The increase in fees was approved in line with the DRP and took account
of comparable market data and the Senior Independent Director role being performed independently of the Deputy Chairman role.
Payments to former Directors
Former Group Finance Director: Chris Lucas
In 2018, Chris Lucas continued to be eligible to receive life assurance cover, private medical cover and payments under the Executive Income
Protection Plan (EIPP). Full details of his eligibility under the EIPP were disclosed in the 2013 Directors’ Remuneration report (page 115 of the
2013 Annual Report). Chris Lucas did not receive any other payment or benefit in 2018.
Directors’ shareholdings and share interests
Executive Directors’ shareholdings and share interests (audited)
The chart below shows the value of Barclays’ shares held beneficially by Jes Staley and Tushar Morzaria as at 19 February 2019 that count towards
the shareholding requirement of, as a minimum, Barclays’ shares worth 200% of Total fixed pay (i.e. Fixed Pay plus Pension). The current executive
Directors have five years from their respective date of appointment to meet this requirement. At close of business on 19 February 2019, the market
value of Barclays’ ordinary shares was £1.59.
Jes Staley (£000)
Requirement
Actual
Tushar Morzaria (£000)
£5,492
Requirement
£3,700
£7,729
Actual
£4,525
Interests in Barclays PLC shares (audited)
The table below shows shares owned beneficially by all the Directors and shares over which executive Directors hold awards which are subject to
either deferral terms and/or performance measures. The shares shown below that are subject to performance measures are the maximum
number of shares that may be released.
Executive Directors
Jes Staleya
Tushar Morzaria
Chairman
John McFarlane
Non-executive Directors
Mike Ashley
Tim Breedon
Sir Ian Cheshire
Mary Anne Citrinob
Mary Francis
Crawford Gillies
Sir Gerry Grimstone
Reuben Jeffery III
Matthew Lester
Dambisa Moyo
Diane Schueneman
Mike Turnerc
Unvested
Subject to
performance
measures
Not subject to
performance
measures
Total as at
31 December 2018
(or date of retirement
from the Board, if earlier)
Total as at
19 February
2019
Owned outright
4,860,720
2,845,752
3,539,846
3,593,456
555,540
502,392
8,956,106
6,941,600
8,956,106
6,941,600
99,139
115,706
45,342
91,202
2,000
22,030
85,975
119,311
301,963
17,703
67,606
39,462
65,334
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99,139
99,139
115,706
45,342
91,202
2,000
22,030
85,975
119,311
301,963
17,703
67,606
39,462
65,334
115,706
45,342
91,202
2,000
22,030
85,975
119,311
301,963
17,703
67,606
39,462
65,334
Notes
a Jes Staley’s shareholding was reduced by 216,997 shares as a result of application of malus.
b Mary Anne Citrino joined the Board as a non-executive Director with effect from 25 July 2018.
c Mike Turner joined the Board as a non-executive Director with effect from 1 January 2018.
124 Barclays PLC Annual Report 2018
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Barclays Board Remuneration Committee
The Board Remuneration Committee is responsible for overseeing Barclays’ remuneration as described in more detail below.
Terms of Reference
The role of the Committee is to:
■■ set the overarching principles and parameters of remuneration policy across the Group
■■ consider and approve the remuneration arrangements of (i) the Chairman, (ii) the executive Directors, (iii) members of the Barclays Group
Executive Committee and any other senior executives specified by the Committee from time to time, and (iv) all other Group employees whose
total annual compensation exceeds an amount determined by the Committee from time to time (currently £2m)
■■ exercise oversight for remuneration issues.
The Committee considers the overarching objectives, principles and parameters of remuneration policy across the Group to ensure it is adopting
a coherent approach in respect of all employees. In discharging this responsibility the Committee seeks to ensure that the policy is transparent,
avoids complexity and assesses, among other things, the impact of pay arrangements in supporting the Group’s culture, values and strategy and
on all elements of risk management. The Committee also approves incentive pools for each of the Group, Barclays Bank PLC, Barclays Bank UK PLC
and operations and functions, periodically reviews at least annually all material matters of retirement benefit design and governance, and ensures
that the remuneration policy promotes the alignment of the long-term interests of shareholders and employees. The Committee and its members
work as necessary with other Board Committees, and is authorised to select and appoint its own advisers as required.
The Terms of Reference can be found at home.barclays/corporategovernance
Chairman and members
The Chairman and members of the Committee are as follows:
■■ Crawford Gillies, Committee member since 1 May 2014 and Chairman since 24 April 2015
■■ Tim Breedon, Committee member since 1 December 2012
■■ Mary Francis, Committee member since 1 November 2016
■■ Dambisa Moyo, Committee member since 1 September 2015.
All current members are considered independent by the Board.
Remuneration Committee attendance in 2018
Crawford Gillies
Tim Breedon
Mary Francis
Dambisa Moyo
Meetings attended/eligible to attend
5/5
5/5
5/5
4/5a
Note
a Dambisa Moyo was unable to attend one meeting due to a conflicting commitment, but her views and comments were made available to, and considered by the Committee.
The performance of the Committee is reviewed each year as part of the Board Effectiveness Review. The results of the review were positive and
concluded that the Committee is composed of the right level of experience and skills. Full details of the Board Effectiveness Review can be found
on page 71.
Advisers to the Remuneration Committee
PricewaterhouseCoopers (PwC) was appointed as the independent adviser to the Committee in October 2017. The Committee is satisfied that
the advice provided by PwC to the Committee is independent and objective. PwC is a signatory to the voluntary UK Code of Conduct for executive
remuneration consultants.
PwC was paid £85,500 (excluding VAT) for their advice to the Committee in 2018 relating to the executive Directors (either exclusively or along
with other employees within the Committee’s Terms of Reference). In addition to advising the Committee, PwC provided unrelated consulting
advice to the Group in respect of strategic advice on business, operational models and cost, corporate taxation, climate-related financial
disclosures, data strategy, technology consulting and internal audit.
Throughout 2018, Willis Towers Watson (WTW) continued to provide the Committee with market data on compensation when considering
incentive levels and remuneration packages. WTW were paid £65,000 (excluding VAT) in fees for their services. In addition to the services provided
to the Committee, WTW also provides pensions advice, advice on health and benefits provision, assistance and technology support for employee
surveys for the Group and pensions advice and administration services to the Barclays Bank UK Retirement Fund.
In the course of its deliberations, the Committee also considers the views of the Group Chief Executive, the Group Human Resources Director
and the Group Reward and Performance Director. The Group Finance Director and the Chief Risk Officer provide regular updates on Group and
business financial performance and risk profile respectively.
No Barclays’ employee or Director participates in discussions with, or decisions of, the Committee relating to his or her own remuneration.
No other advisers provided services to the Committee in the year.
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Barclays PLC Annual Report 2018 125
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Governance: Remuneration report
Annual report on Directors’ remuneration
Remuneration Committee activity in 2018
The following provides a summary of the Committee’s activity during 2018 and at the January and February 2019 meetings at which 2018
remuneration decisions were finalised.
Meeting
January 2018
Fixed and variable pay issues
■■ 2017 incentive funding proposals, including risk adjustments
Governance, risk and other mattersa
■■ Non-executive Directors’ fees for subsidiary boards
February 2018
■■ 2017 bonus proposals for senior executives
■■ Approved final 2017 incentive funding, including risk adjustments
■■ Approved proposals for executive Directors’ and senior executives’
2017 bonuses and 2018-2020 LTIP awards for executive Directors
■■ Group fixed pay budgets for 2018
■■ Approved executive Directors’ and senior executives’ 2018
Fixed Pay
■■ Approved executive Directors’ annual bonus performance
measures for 2018
■■ Approved 2017 Reward communications approach
■■ Review of Committee effectiveness
July 2018
■■ 2018 ex-ante risk adjustment methodology
■■ Barclays Fair Pay Agenda
■■ 2018 incentive funding framework
■■ Update on the establishment of subsidiary
Remuneration Committees
October 2018
■■ 2018 incentive funding projections, including risk adjustments
■■ Barclays Fair Pay Agenda
■■ Annual review of Group Chairman’s remuneration
■■ Update on Barclays UK remuneration approach
December 2018 ■■ Initial consideration on executive Directors’ and senior executives’
2018 bonuses and 2019 Fixed Pay
■■ Annual review of Committee activity, Terms of
Reference and Control Framework
■■ 2019 bonus approach for executive Directors
■■ Non-executive Directors’ fees for subsidiary boards
■■ 2019-2021 LTIP performance measures
■■ 2018 incentive funding proposals, including risk adjustments
January 2019
■■ Update on Barclays UK remuneration approach
■■ 2018 incentive funding proposals, including risk adjustments
February 2019
■■ 2018 bonus proposals for senior executives
■■ Approved final 2018 incentive funding, including risk adjustments
■■ Approved proposals for executive Directors’ and senior executives’
2018 bonuses and 2019-2021 LTIP awards for executive Directors
■■ Group fixed pay budgets for 2019
■■ Approved 2019 executive Directors’ annual bonus performance
measures
■■ Review of Board Remuneration Committee
Effectiveness
■■ Approved 2018 Reward communications approach
Note
a The Committee is also provided with updates at each scheduled meeting on: regulatory and stakeholder matters, Finance and Risk, Remuneration Review Panel meetings,
operation of the Committee’s Control Framework on hiring, retention and termination, headcount and employee attrition, and extant LTIP performance.
There were also two additional Remuneration Committee meetings during the course of 2018. The Committee met on 10 May 2018 to consider
the application of malus to Jes Staley’s 2016 variable compensation. On 26 October 2018 the Committee met in respect of remuneration
arrangements for the Group Chairman-designate.
Statement of shareholder voting at Annual General Meeting
The table below shows the voting result in respect of our remuneration report at the AGM held on 1 May 2018 and the last policy vote at the AGM
on 10 May 2017:
Advisory vote on the 2017 remuneration report
Binding vote on the Directors’ remuneration policy
For
% of votes cast
Number
95.96%
12,059,206,433
97.91%
12,062,616,141
Against
% of votes cast
Number
4.04%
507,845,058
2.09%
257,416,828
Withheld
Number
104,289,376
51,369,054
At the AGM held on 24 April 2014, shareholders of Barclays PLC voted 96.02% (10,364,453,159 votes) for the resolution in respect of a fixed to
variable remuneration ratio of 1:2 for ‘Remuneration Code Staff ’ (now known as MRTs). On 14 December 2017, the Board of Barclays PLC as
shareholder of Barclays Bank PLC approved the resolution that Barclays Bank PLC and any of its current and future subsidiaries be authorised to
apply a ratio of the fixed to variable components of total remuneration of their MRTs that exceeds 1:1, provided the ratio does not exceed 1:2.
On 15 November 2018, the Board of Barclays PLC as shareholder of Barclays Bank UK PLC approved an equivalent resolution in relation to MRTs
within Barclays Bank UK PLC and any of its subsidiaries.
126 Barclays PLC Annual Report 2018
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Risk review
Contents
The management of risk is a critical underpinning to the
execution of Barclays’ strategy. The material risks and
uncertainties the Barclays Group faces across its business
and portfolios are key areas of management focus.
Barclays’ risk disclosures are provided in the Annual Report and in the Barclays PLC Pillar 3 Report 2018.
Risk management
Overview of Barclays’ approach to risk
management. A detailed overview together
with more specific information on policies
that Barclays Group determines to be of
particular significance in the current
operating environment can be found in
Barclays PLC Pillar 3 Report 2018 or at
Barclays.com.
■■ Enterprise Risk Management Framework (ERMF)
■■ Principal risks
■■ Risk appetite for the principal risks
■■ Roles and responsibilities in the management of risk
■■ Frameworks, policies and standards
■■ Assurance
■■ Effectiveness of risk management arrangements
■■ Learning from our mistakes
■■ Barclays’ risk culture
■■ Barclays Group-wide risk management tools
■■ Risk management in the setting of strategy
Material existing and emerging risks
Insight into the level of risk across our
business and portfolios, the material
existing and emerging risks and
uncertainties we face and the key
areas of management focus.
■■ Material existing and emerging risks potentially impacting
more than one principal risk
■■ Credit risk
■■ Market risk
■■ Treasury and capital risk
■■ Operational risk
■■ Model risk
■■ Conduct risk
■■ Reputation risk
■■ Legal risk and legal, competition and regulatory matters
Principal risk management
Barclays’ approach to risk management
for each principal risk with focus on
organisation and structure and roles
and responsibilities.
Risk performance
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.
Market risk: The risk of a 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.
■■ Credit risk management
■■ Management of credit risk mitigation techniques and counterparty
credit risk
■■ Market risk management
■■ Management of securitisation exposures
■■ Treasury and capital risk management
■■ Operational risk management
■■ Model risk management
■■ Conduct risk management
■■ Reputation risk management
■■ Legal risk management
■■ Credit risk overview and summary of performance
■■ Maximum exposure and effects of netting, collateral and risk transfer
■■ Expected Credit Losses
■■ Movements in gross exposure and impairment allowance including
provisions for loan commitments and financial guarantees
■■ Management adjustments to models for impairment
■■ Measurement uncertainty and sensitivity analysis
■■ Analysis of the concentration of credit risk
■■ Barclays Group’s approach to management and representation
of credit quality
■■ Analysis of specific portfolios and asset types
■■ Forbearance
■■ Analysis of debt securities
■■ Analysis of derivatives
■■ Market risk overview and summary of performance
■■ Balance sheet view of trading and banking books
■■ Review of management measures
■■ Review of regulatory measures
Annual
Report
Pillar 3
Report
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n/a
n/a
n/a
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Barclays PLC Annual Report 2018 127
Risk review
Contents
Risk performance continued
Treasury and capital risk – Liquidity:
The risk that the firm is unable to meet its
contractual or contingent obligations or that
it does not have the appropriate amount,
tenor and composition of funding and
liquidity to support its assets.
Treasury and capital risk – Capital:
The risk that the firm has an insufficient
level or composition of capital to support
its normal business activities and to meet
its regulatory capital requirements under
normal operating environments or stressed
conditions (both actual and as defined for
internal planning or regulatory testing
purposes). This includes the risk from
the firm’s pension plans.
Treasury and capital risk – Interest rate risk
in the banking book: The risk that the firm
is exposed to capital or income volatility
because of a mismatch between the interest
rate exposures of its (non-traded) assets
and liabilities.
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.
Model risk: The risk of the potential
adverse consequences from financial
assessments or decisions based on incorrect
or misused model outputs and reports.
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.
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.
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.
Supervision and regulation
Barclays Group’s operations, including its
overseas offices, subsidiaries and associates,
are subject to a significant body of rules
and regulations.
Pillar 3 Report
Contains extensive information on risk
as well as capital management.
Risk and capital position review: Provides
a detailed breakdown of Barclays’ regulatory
capital adequacy and how this relates to
Barclays’ risk management.
■■ Liquidity risk overview and summary of performance
■■ Liquidity risk stress testing
■■ Liquidity pool
■■ Funding structure and funding relationships
■■ Encumbrance
■■ Credit ratings
■■ Contractual maturity of financial assets and liabilities
■■ Capital risk overview and summary of performance
■■ Regulatory minimum capital and leverage requirements
■■ Analysis of capital resources
■■ Analysis of risk weighted assets
■■ Analysis of leverage ratio and exposures
■■ Foreign exchange risk
■■ Pension risk review
■■ Minimum requirement for own funds and eligible liabilities
■■ Interest rate risk in the banking book overview and summary
of performance
■■ Net interest income sensitivity
■■ Analysis of equity sensitivity
■■ Volatility of the FVOCI portfolio in the liquidity pool
■■ Operational risk overview and summary of performance
■■ Operational risk profile
Annual
Report
Pillar 3
Report
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■■ Model risk overview and summary of performance
211
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■■ Conduct risk overview and summary of performance
212
n/a
■■ Reputation risk overview and summary of performance
213
n/a
■■ Legal risk overview and summary of performance
214
n/a
■■ Supervision of Barclays Group
■■ Global regulatory developments
■■ Financial regulatory framework
■■ Summary of risk and capital profile
■■ Notes on basis of preparation
■■ Scope of application of Basel rules
■■ Group capital resources, requirements, leverage and liquidity
■■ Analysis of credit risk
■■ Analysis of counterparty credit risk
■■ Analysis of market risk
■■ Analysis of securitisation exposures
■■ Analysis of operational risk
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128 Barclays PLC Annual Report 2018
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Risk review
Risk management
Barclays Group’s risk management strategy
Introduction
The activities of Barclays Group entail risk
taking, every day, throughout its business.
This section introduces these risks, and
outlines arrangements for identifying
and managing them. Barclays Group’s
approach to fostering a strong risk culture
is also described.
Enterprise Risk Management
Framework (ERMF)
The ERMF sets the strategic direction for risk
management by defining standards, objectives
and responsibilities for all areas of Barclays
Group. It supports senior management in
effective risk management and developing
a strong risk culture.
The ERMF sets out:
■■ principal risks faced by Barclays Group
■■ risk appetite requirements
■■ roles and responsibilities for risk
management
■■ Risk committee structure.
Principal risks
The ERMF identifies eight principal risks
(see table on page 29 of the Strategic Report)
and sets out associated responsibilities and
risk management standards.
Risk appetite for the
principal risks
Risk appetite is defined as the level of risk
which Barclays Group is prepared to accept
in the conduct of its activities.
Risk appetite is approved and disseminated
across legal entities and businesses, with
limits specified to control exposures and
activities that have material concentration
risk implications for Barclays Group.
Roles and responsibilities
in the management of risk
The Three Lines of Defence
All colleagues are responsible for
understanding and managing risks within
the context of their individual roles and
responsibilities, as set out below.
First Line of Defence
The First Line of Defence comprises all
employees engaged in the revenue generating
and client facing areas of Barclays Group and
all associated support functions, including
Finance, Treasury, Human Resources and
the Chief Operating Office (COO) function.
Employees in the First Line are responsible for:
■■ identifying the risks in their activities and
developing appropriate policies, standards
and controls
■■ operating within any and all limits which
the Risk and Compliance functions establish
over the exposures and activities of the
first line; and
■■ escalating risk events to senior managers
in Risk and Compliance.
Second Line of Defence
The Second Line of Defence comprises
employees of Risk and Compliance. The role
of the Second Line is to establish the limits,
rules and constraints under which First Line
activities shall be performed, consistent with
the risk appetite of Barclays Group, and to
monitor the performance of the First Line
against these limits and constraints. Note that
the First Line may also set limits for a number
of their activities related to operational risk.
These will remain subject to supervision by
the Second Line.
Third Line of Defence
The Third Line of Defence comprises
employees of Internal Audit. They provide
independent assurance to the Barclays Board
and Barclays Group Executive Management
over the effectiveness of governance, risk
management and control.
The Legal function does not sit in any of the
three lines, but supports them all. The Legal
function is, however, subject to oversight
from Risk and Compliance with respect to
operational and conduct risks.
Risk committees
Product/risk type committees consider
risk matters relevant to their business,
and escalate as required to the Group Risk
Committee (GRC), whose Chairman, in turn,
escalates to Barclays PLC Board Committees
and the Barclays PLC Board.
There are three Board-level forums which
oversee the application of the ERMF and
review and monitor risk across the
Barclays Group. These are: the Barclays PLC
Board Risk Committee, the Barclays PLC
Board Audit Committee, and the Barclays PLC
Board Reputation Committee. Additionally,
the Barclays PLC Board Remuneration
Committee oversees pay practices focusing
on aligning pay to sustainable performance.
Finally, the Barclays PLC Board receives
regular information on the risk profile of
Barclays Group, and has ultimate responsibility
for risk appetite and capital plans.
Board Committees
Barclays PLC Board
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Management Level
Committees/Forums
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Barclays Group
Remuneration
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Barclays Group
Product/Risk Type Committees
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Barclays PLC Annual Report 2018 129
Other risk culture drivers
In addition to values and conduct, we consider
the following determinants of risk culture:
■■ management and governance: this means
a consistent tone from the top and clear
responsibilities to enable risk identification
and challenge
■■ motivation and incentives: the right
behaviours are rewarded and modelled
■■ competence and effectiveness: this means
that colleagues are enabled to identify,
escalate and resolve risk and control matters
■■ integrity: colleagues are willing to meet
their risk management responsibilities,
and escalate issues on a timely basis.
Risk review
Risk management
Barclays Group’s risk management strategy
The Barclays PLC Board
One of the Board’s responsibilities is the
approval of risk appetite (refer to page 139
of the Barclays PLC Pillar 3 Report 2018
(unaudited)). The Barclays Group CRO
regularly presents a report to the Board
summarising developments in the risk
environment and performance trends in the
key portfolios. The Board is also responsible
for the ERMF.
Summaries of the relevant skills, experience
and background of the Directors of the Board
are presented in the Board of Directors section
on pages 51 to 52.
The Barclays PLC Board Risk
Committee (BRC)
The BRC monitors Barclays Group’s risk profile
against the agreed appetite. Where actual
performance differs from expectations, the
actions taken by management are reviewed
to ascertain that the BRC is comfortable with
them. After each meeting, the Chairman of
the BRC prepares a report for the next meeting
of the Board. All members are independent
Non-Executive Directors.
The BRC receives regular reports on risk
methodologies, the effectiveness of the
risk management framework, and Barclays
Group’s risk profile, including the material
issues affecting each business portfolio and
forward risk trends. The committee also
commissions in-depth analyses of significant
risk topics, which are presented by the
Barclays Group CRO or senior risk managers
in the businesses. The Chairman of the BRC
also sits on the BAC.
The Barclays PLC Board Audit
Committee (BAC)
The BAC receives regular reports on the
effectiveness of internal control systems,
quarterly reports on material control issues
of significance, and quarterly papers on
accounting judgements (including
impairment). It also receives a half-yearly
review of the adequacy of impairment
allowances, which it reviews relative to the
risk inherent in the portfolios, the business
environment and Barclays Group’s policies
and methodologies. The Chairman of the
BAC also sits on the BRC.
The Barclays PLC Board Reputation
Committee (RepCo)
The RepCo reviews management’s
recommendations on conduct and reputation
risk and the effectiveness of the processes by
which Barclays Group identifies and manages
these risks. It also reviews and monitors the
effectiveness of Barclays Group’s citizenship
strategy, including the management of
Barclays Group’s economic, social and
environmental contribution.
The Barclays PLC Board Remuneration
Committee (RemCo)
The RemCo receives a detailed report on risk
management performance and risk profile,
and proposals on ex-ante and ex-post risk
adjustments to variable remuneration.
These inputs are considered in the setting
of performance incentives.
The terms of reference and additional
details on membership and activities for
each of the principal Board Committees are
available from the Corporate Governance
section of Barclays Group’s website at:
home.barclays/about-barclays/
barclays-corporate-governance.html.
Barclays Group’s risk culture
Risk culture can be defined as the ‘norms,
attitudes and behaviours related to risk
awareness, risk taking and risk management’.
At Barclays Group this is reflected in how
colleagues identify, escalate and manage
risk matters.
Our Code of Conduct – the Barclays Way
Globally, all colleagues must attest to the
‘Barclays Way’, our Code of Conduct, and all
frameworks, policies and standards applicable
to their roles. The Code of Conduct outlines
the purpose and values which govern our
Barclays Way of working across our business
globally. It constitutes a reference point
covering the aspects of colleagues’ working
relationships, with other Barclays Group’s
employees, customers and clients,
governments and regulators, business
partners, suppliers, competitors and the
broader community.
Embedding of a values-based,
conduct culture
Conduct, culture and values remain a priority
of the Barclays Group Executive Committee
who receive regular, detailed information from
the business lines, and clearly communicate
their intentions and the Barclays Group’s
progress to all colleagues. The effectiveness
of the risk and control environment, for which
all colleagues are responsible, depends on
the continued embedment of strong values.
Colleagues must be willing to meet their risk
management responsibilities and escalate
issues on a timely basis. Refer to the Board
Reputation Committee report on page 73
for further details.
Induction programmes support new
colleagues in understanding how risk
management culture and practices support
how Barclays Group does business and the
link to Barclays Group’s values. The Leadership
Curriculum covers the building, sustaining and
supporting of a trustworthy organisation and
is offered to colleagues globally.
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Risk review
Material existing and emerging risks
Material existing and
emerging risks to Barclays
Group’s future performance
Material risks are those to which senior
management pay particular attention and
which could cause the delivery of Barclays
Group’s strategy, results of operations,
financial condition and/or prospects to differ
materially from current expectations.
Emerging risks are those which have largely
unknown components, the impact of which
could crystallise over a longer time horizon.
These could currently be considered
immaterial but over time may individually or
cumulatively affect Barclays Group’s strategy
and cause the same outcomes as material
risks. In addition, certain factors beyond
Barclays Group’s control, including escalation
of terrorism or global conflicts, natural
disasters and similar calamities, although not
detailed below, could have a similar impact
on Barclays Group.
The risks described below are material
existing and emerging risks which senior
management has identified with respect
to Barclays Group.
Material existing and
emerging risks potentially
impacting more than one
principal risk
i) Business conditions, general economy
and geopolitical issues
The Barclays Group business mix spreads
across multiple geographies and client types.
The breadth of these operations means that
deterioration in the economic environment,
or an increase in political instability in
countries where Barclays Group is active,
or in any systemically important economy,
could adversely affect Barclays Group’s
operating performance, financial condition
and prospects.
Although economic activity continued to
strengthen globally in 2018, a change in
global economic conditions and the reversal
of the improving trend may result in lower
client activity in Barclays Group, including
lower demand for borrowing from
creditworthy customers, and/or a reduction
in the value of related collateral and/or an
increase of Barclays Group’s default rates,
delinquencies, write-offs, and impairment
charges, which in turn could adversely affect
Barclays Group’s performance and prospects.
Deteriorating economic conditions could also
impact the ability of Barclays Group to raise
funding from external investors. In addition,
a shift in the forward looking consensus view
of economic conditions may materially impact
the models used to calculate expected credit
losses (ECL), where an increase in ECLs could
adversely affect Barclays Group’s profitability.
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 are at risk of further deterioration, thus
potentially increasing market uncertainties
and adverse global economic and market
conditions, which in turn could adversely
affect Barclays Group’s profitability in certain
geographical locations.
In the UK, the vote in favour of leaving the
European Union (EU), see ii) Process of UK
withdrawal from the European Union below,
has given rise to political uncertainty with
potential consequences for investment and
market confidence. The initial impact was a
depreciation of Sterling resulting in 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
mortgages, resulting in reduced business and,
thereby, negatively impacting Barclays Group’s
profitability. In turn this may affect businesses
dependent on consumers for revenue,
exacerbated by current pressures on
businesses dependent on discretionary
purchases. There has also been a reduction
in activity in both commercial and residential
real estate markets which has the potential
to impact the value of real estate assets
and adversely affect mortgage assets.
Furthermore, continued uncertainty in the
withdrawal process could have a detrimental
effect in the economic environment in
continental Europe, which may negatively
impact Barclays Group’s business in specific
Eurozone countries.
In the US, where the economy outperformed
other key markets in 2018, there is the
possibility of significant continued changes
in policy in sectors including trade, healthcare
and commodities which may have an impact
on associated Barclays Group portfolios.
A significant proportion of Barclays 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
and the associated exchange rate fluctuations,
heightened trade tensions, an unexpected rise
in unemployment and/or an increase in
interest rates could lead to increased levels
of impairment, resulting in a negative impact
on Barclays Group’s profitability.
As anticipated, most major central banks have
started tightening their monetary policies in
2018 and there remains a possibility that this
will continue. The risk of large capital flows
spawned by divergent or differently timed
policies remains, and this will continue to
provide financial market turbulence, in
particular in emerging market economies.
This may negatively impact Barclays Group’s
business in the affected regions, under both
profiles of credit and market risk.
In several countries, reversals of capital
inflows, as well as fiscal austerity, have already
caused deterioration in political stability.
Sentiment towards emerging markets as a
whole continues to be driven in large part by
developments in China, where there is some
concern around the ability of authorities
to manage growth while transitioning from
manufacturing towards services. Although
the Chinese government’s efforts to stably
increase the weight of domestic demand have
had some success, the pace of credit growth
remains a concern, given the high level of
leverage and despite regulatory action.
A stronger than expected slowdown could
result if authorities fail to appropriately
manage the end of the investment and
credit-led boom.
Deterioration in emerging markets could
affect Barclays Group if it results in higher
impairment charges for Barclays Group via
sovereign or counterparty defaults.
More broadly, a deterioration of conditions
in the key markets where Barclays Group
operates could affect performance in a
number of ways including, for example:
(i) deteriorating business, consumer or
investor confidence indirectly having a
material adverse impact on GDP growth in
significant markets and therefore on Barclays
Group’s performance; (ii) mark to market
losses in trading portfolios resulting from
changes in factors such as credit ratings,
share prices and solvency of counterparties;
(iii) reduced ability to obtain capital from
other financial institutions for Barclays Group’s
operations; and (iv) lower levels of fixed asset
investment and productivity growth overall.
ii) Process of UK withdrawal from
the European Union
The uncertainty around Brexit spanned the
whole of 2018, and intensified in the second
half of the year. The full impact of the
withdrawal may only be realised in years to
come, as the economy adjusts to the new
regime, but Barclays Group continues to
monitor the most relevant risks, including
those that may have a more immediate
impact, for its business.
■■ Market volatility, including in currencies
and interest rates, might increase which
could have an impact on the value of
Barclays Group’s trading book positions.
■■ Potential UK financial institutions’ credit
spread widening could lead to reduced
investor appetite for Barclays Group’s debt
securities; this could negatively impact the
cost of, and/or access to, funding. There is
potential for continued market and interest
rate volatility. This volatility could affect
underlying interest rate risk value of the
assets in the banking book and securities
held by Barclays Group for liquidity purposes.
■■ A credit rating agency downgrade applied
directly to Barclays Group, or indirectly as
a result of a credit rating agency downgrade
to the UK Government, could significantly
increase Barclays Group’s borrowing costs,
credit spreads and materially adversely
affect Barclays Group’s interest margins
and liquidity position.
■■ Changes in the long-term outlook for UK
interest rates may adversely affect pension
liabilities and the market value of
investments funding those liabilities.
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Risk review
Material existing and emerging risks
■■ 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
Group’s portfolios, notably: higher Loan
to Value mortgages, UK unsecured lending
including credit cards and commercial
real estate exposures.
■■ The implementation of trade and customs
barriers between the UK and EU could lead
to delays and increased costs in the passage
of goods for corporate banking customers.
This could negatively impact the levels of
customer defaults and business volumes
which may result in an increase in Barclays
Group’s impairment charges and a reduction
in revenues.
■■ Changes to current EU ‘Passporting’
rights may require further adjustment
to the current model for Barclays Group’s
cross-border banking operation which
could increase operational complexity
and/or costs.
■■ The ability to attract, or prevent the
departure of, qualified and skilled employees
may be impacted by the UK’s and the
EU’s future approach to the EU freedom
of movement and immigration from the
EU countries and this may impact Barclays
Group’s access to the EU talent pool.
■■ The legal framework within which Barclays
Group operates could change and become
more uncertain if the UK takes steps to
replace or repeal certain laws currently
in force, which are based on EU legislation
and regulation (including EU regulation of
the banking sector) following its withdrawal
from the EU. Certainty around the ability
to perform existing contracts, enforceability
of certain legal obligations and uncertainty
around the jurisdiction of the UK courts
may be affected until the impacts of the
loss of the current legal and regulatory
arrangements between the UK and EU
and the enforceability of UK judgements
across the EU are fully known.
■■ Should the UK lose automatic qualification
to be part of Single Euro Payments Area
there could be a resultant impact on the
efficiency of, and access to, European
payment systems. In addition, loss of
automatic qualification to the European
Economic Area (EEA) or access to Financial
Markets Infrastructure including exchanges,
central counterparties and payment services
could impact service provision for clients,
likely resulting in reduced market share
and revenue and increased operating costs
for Barclays Group.
■■ There are certain execution risks relating
to the transfer of Barclays Group’s European
businesses to Barclays Bank Ireland Group.
Technology change could result in outages
or operational errors leading to delays in the
transfer of assets and liabilities to Barclays
Bank Ireland Group, and delayed delivery
could lead to European clients losing access
to products and service and increased
reputational risk.
iii) Interest rate rises adversely impacting
credit conditions
To the extent that central banks increase
interest rates particularly in Barclays Group’s
main markets, in the UK and the US, there
could be an impact on consumer debt
affordability and corporate profitability.
While interest rate rises could positively
impact Barclays Group’s profitability, as retail
and corporate business income may increase
due to margin decompression, future interest
rate increases, if larger or more frequent
than expectations, could cause stress in the
lending portfolio and underwriting activity of
Barclays Group. Higher credit losses driving an
increased impairment allowance would most
notably impact retail unsecured portfolios
and wholesale non-investment grade lending.
Changes in interest rates could have an
adverse impact on the value of high quality
liquid assets which are part of the Barclays
Group Treasury function’s investment activity.
Consequently, this could create more volatility
than expected through Barclays Group’s
FVOCI reserves.
iv) Regulatory change agenda and impact
on business model
Barclays Group remains subject to ongoing
significant levels of regulatory change and
scrutiny in many of the countries in which it
operates (including, in particular, the UK and
the US). As a result, regulatory risk will remain
a focus for senior management and consume
significant levels of business resources.
Furthermore, a more intensive regulatory
approach and enhanced requirements
together with the uncertainty (particularly
in light of the UK’s withdrawal from the EU)
and potential lack of international regulatory
co-ordination as enhanced supervisory
standards are developed and implemented
may adversely affect Barclays Group’s
business, capital and risk management
strategies and/or may result in Barclays Group
deciding to modify its legal entity, capital and
funding structures and business mix, or to
exit certain business activities altogether
or not to expand in areas despite otherwise
attractive potential.
Barclays Bank UK Group was established on
1 April 2018 as the ring-fenced entity under
Barclays Group. The relevant rules required to
comply with the UK ring-fencing regime are
complex and will continue to entail significant
costs and operational and legal risks. There
may be a risk associated with the uncertainty
around interpretation, administration and
enforcement of the ring-fencing regime as
the regulatory requirements develop. This risk
is compounded by the potential for different
regulatory interpretation as standards are
developed, the impact of the UK’s withdrawal
from the EU and internal factors, such as
Barclays Group’s strategy. Failure to maintain
ongoing compliance, including from the
implementation of any new regulatory
requirements that may potentially be
enforced, could result in regulatory
censure or penalties for Barclays Group.
There are several other significant pieces
of legislation and areas of focus which will
require significant management attention,
cost and resource, including:
■■ Changes in prudential requirements
(including the risk reduction measures
package recently adopted in the EU to
amend the Capital Requirements Directive
(CRD IV) and the Bank Recovery and
Resolution Directive (BRRD)) may impact
minimum requirements for own funds
and eligible liabilities (MREL) (including
requirements for internal MREL), leverage,
liquidity or funding requirements, applicable
buffers and/or add-ons to such minimum
requirements and risk weighted assets
calculation methodologies all as may be set
by international, EU or national authorities.
Such or similar changes to prudential
requirements or additional supervisory and
prudential expectations, either individually
or in aggregate, may result in, among other
things, a need for further management
actions to meet the changed requirements,
such as: increasing capital, MREL or liquidity
resources, reducing leverage and risk
weighted assets; restricting distributions
on capital instruments; modifying the
terms of outstanding capital instruments;
modifying legal entity structure (including
with regard to issuance and deployment
of capital, MREL and funding); changing
Barclays Group’s business mix or exiting
other businesses; and/or undertaking
other actions to strengthen Barclays Group’s
position. (See Treasury and capital risk
on pages181 to 207 and Supervision
and regulation on pages 215 to 222 for
more information).
■■ The derivatives market has been the subject
of particular focus for regulators in recent
years across the G20 countries and beyond,
with regulations introduced which require
the reporting and clearing of standardised
over the counter (OTC) derivatives and the
mandatory margining of non-cleared OTC
derivatives. Other regulations applicable to
swap dealers, including those promulgated
by the US Commodity Futures Trading
Commission, have imposed significant costs
on Barclays Group’s derivatives business.
The increased regulation of swaps and
security-based swaps may also result in
other increases in costs for market
participants, as well as reduced liquidity
in the markets for such instruments,
which could cause further increases in
costs and volatility. These and any future
requirements, including the US SEC’s
regulations relating to security-based swaps
and the possibility of overlapping and/or
contradictory requirements imposed on
derivative transactions by regulators in
different jurisdictions, are expected to
continue to impact such business in the
same manner.
More broadly, compliance with the evolving
regulatory framework entails significant costs
for market participants and is having a
significant impact on certain markets in which
Barclays Group operates. The recast Markets
132 Barclays PLC Annual Report 2018
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in Financial Instruments Directive in Europe
(MiFID II), which came into force in January
2018, has fundamentally changed the
European regulatory framework entailing
significant operational changes for market
participants in a wide range of financial
instruments as well as changes in market
structures and practices. In addition, the EU
Benchmarks Regulation, which also came
into force in January 2018, regulates the use
of benchmarks in the EU. In particular, after
1 January 2020 certain Barclays Group entities
will not be permitted to use benchmarks
unless the relevant administrator is authorised,
registered or qualifies under a third-party
regime. This may necessitate adapting
processes and systems to transition to new
alternative benchmarks, which would be
a very time-consuming and costly process.
Separately, the transition to risk-free rates
as part of a wider benchmark reform is also
expected to be impactful to Barclays Group
in respect of the timing of the development
of a robust risk free rate market, an
unfavourable market reaction and/or
inconsistencies in the adoption of products
using the new risk free rates, and also in
respect of the costs and uncertainties involved
in managing and/or changing historical
products to reference risk free rates as a result
of the proposed discontinuation of certain
existing benchmarks.
■■ Barclays 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 and the FRB.
These exercises are designed to assess the
resilience of banks to adverse economic or
financial developments and enforce 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 Barclays 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 Barclays Group and its members are
subject are becoming increasingly stringent.
Failure to meet requirements of regulatory
stress tests, or the failure by regulators to
approve the stress test results and capital
plans of Barclays Group, could result in
Barclays Group being required to enhance
its capital position, limit capital distributions
or position additional capital in specific
subsidiaries. For more information on stress
testing, refer to Supervision and regulation
on page 218.
■■ The introduction and implementation of
both Payments Service Directive 2 (PSD2)
and the Open API standards and data
sharing remedy from the UK Competition
and Markets Authority following its Retail
Banking Market Investigation Order
(together ‘Open Banking’) from January
2018 with delivery across 2019 provides
third parties and banks with opportunities
to change and enhance the relationship
between a customer and their bank. It does
this by providing customers with the ability
to share their transactional data with
authorised third-party service providers
either for aggregation or payment services.
It is anticipated that both aggregation and
payment services will be offered by third
parties to Barclay Group’s customers and
Barclays Group itself has launched an
aggregation service. PSD2 will also introduce
new requirements to the authentication
process for a number of actions customers
take, including ecommerce transactions.
A failure to comply with Open Banking
requirements could expose Barclays Group
to regulatory sanction. Further, the data
sharing regime could mean that actions or
omissions by third-party service providers
could expose Barclays Group to potential
financial loss from third-party fraud, misuse
of customer data, litigation and reputational
detriment, amongst other things. The
changes to authentication may change the
fraud environment across the industry as
providers implement different approaches
to comply.
Material existing and
emerging risks impacting
individual principal risks
i) Credit risk
a) Impairment
The introduction of the impairment
requirements of IFRS 9 Financial Instruments,
implemented on 1 January 2018, results
in impairment loss allowances that are
recognised earlier, on a more forward looking
basis and on a broader scope of financial
instruments than has been the case under
IAS 39 and has had, and may continue to
have, a material impact on Barclays Group’s
financial condition.
Measurement involves increased complex
judgement and impairment charges will tend
to be more volatile, particularly under stressed
conditions. Unsecured products with longer
expected lives, such as revolving credit cards,
are the most impacted. Taking into account
the transitional regime, the capital treatment
on the increased reserves has the potential
to adversely impact regulatory capital ratios.
In addition, the move from incurred to
expected credit losses has the potential to
impact Barclays Group’s performance under
stressed economic conditions or regulatory
stress tests. For more information, refer to
Note 1 on pages 264 to 267.
b) Specific sectors and concentrations
Barclays 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 Barclays Group’s portfolio
which could have a material impact
on performance:
■■ UK retailers. Softening demand, rising costs
and a structural shift to online is fuelling
pressure on the UK High Street. Whilst we
have not seen any material impact, as the
UK retailer market repositions itself the
trend represents a potential risk in our UK
corporate portfolio.
■■ Consumer affordability has remained a
key area of focus for regulators, particularly
in unsecured lending, driven by the growth
in levels of borrowing. Macroeconomic
factors, such as rising unemployment,
that impact a customer’s ability to service
unsecured debt payments could lead to
increased arrears in unsecured products.
■■ UK real estate market. UK property
represents a significant portion of the
overall Barclays Group retail and corporate
credit exposure. In 2018, property price
growth across the UK continued, however,
this growth has slowed in London and the
South East where Barclays Group’s exposure
has high concentration. Barclays Group
is at risk of increased impairment from
a material fall in property prices due to
the depreciation in value of the underlying
loan security.
■■ Leverage finance underwriting. Barclays
Group takes on sub-investment grade
underwriting exposure, including single
name risk, particularly in the US and
Europe Barclays 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 Barclays Group, or an increased
capital requirement should there be a need
to hold the exposure for an extended period.
■■ Italian portfolio. Barclays Group is exposed
to a decline in the Italian economic
environment through a mortgage portfolio
in run-off and positions to wholesale
customers. The Italian economy tipped into
an official recession at the end of 2018 and
should the economy deteriorate further,
there could be a material adverse effect on
Barclays Group’s results including, but not
limited to, increased credit losses and higher
impairment charges.
Barclays Group also has large individual
exposures to single name counterparties,
both in its lending activities and in its financial
services and trading activities, including
transactions in derivatives and transactions
with brokers, central clearing houses, dealers,
other banks, mutual and hedge funds and
other institutional clients. 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 Barclays Group’s results
due to, for example, increased credit losses
and higher impairment charges.
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Risk review
Material existing and emerging risks
c) Environmental risk
Barclays Group is exposed to credit risks
arising from energy and climate change.
Indirect risks may be incurred as a result of
environmental issues impacting the credit
worthiness of the borrower resulting in higher
impairment. For further details on Barclays
Group’s approach to energy and climate
change, refer to page 26 of the TCFD section
of the Strategic Report and page 151 of the
Barclays PLC Pillar 3 Report (unaudited).
ii) Market risk
Market volatility
An uncertain outlook for the direction of
monetary policy, the US-China trade conflict,
slowing global growth and political concerns
in the US and Europe (including Brexit) are
some of the factors that could heighten
market risks for Barclays Group’s portfolios.
In addition, Barclays Group’s trading business
is generally 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
Barclays 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.
iii) Treasury and capital risk
Barclays Group may not be able to achieve its
business plans due to: a) inability to maintain
appropriate capital ratios; b) inability to meet
its obligations as they fall due; c) rating
agency downgrades; d) adverse changes
in foreign exchange rates on capital ratios;
e) adverse movements in the pension fund;
and f ) non-traded market risk/interest rate
risk in the banking book.
a) Inability to maintain prudential ratios
and other regulatory requirements
This could lead to Barclays Group’s 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 Barclays
Group’s capital or leverage position.
b) Inability to manage liquidity and funding
risk effectively
This may result in Barclays 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 Barclays Group to fail to meet regulatory
liquidity standards or be unable to support
day-to-day banking activities.
The stability of Barclays Group’s current
funding profile, in particular that part which
is based on accounts and deposits payable on
demand or at short notice, could be affected
by Barclays Group failing to preserve the
current level of customer and investor
confidence. Barclays Group also regularly
accesses the capital markets to provide
short-term and long-term funding to support
its operations. Several factors, including
adverse macroeconomic conditions, adverse
outcomes in legal, regulatory or conduct
matters and loss of confidence by investors,
counterparties and/or customers in Barclays
Group, can affect the ability of Barclays Group
to access the capital markets and/or the cost
and other terms upon which Barclays Group
is able to obtain market funding.
c) Credit rating changes and the impact
on funding costs
Any potential or actual credit rating agency
downgrades could significantly increase
Barclays Group’s borrowing costs, credit
spreads and materially adversely affect
Barclays Group’s interest margins and liquidity
position. Consequently, this may result in
reduced profitability for Barclays Group.
d) Adverse changes in FX rates impacting
capital ratios
Barclays 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, Barclays Group’s
regulatory capital ratios are sensitive to foreign
currency movements. Failure to appropriately
manage Barclays Group’s balance sheet to
take account of foreign currency movements
could result in an adverse impact on
regulatory capital and leverage ratios.
e) Adverse movements in the pension fund
Adverse movements in pension assets
and liabilities for defined benefit pension
schemes could result in deficits on a funding
and/or accounting basis. This could lead to
Barclays Group making substantial additional
contributions to its pension plans and/or a
deterioration in its capital position. Under
IAS 19 the liabilities discount rate is derived
from the yields of high quality corporate bonds.
Therefore, the valuation of Barclays Group’s
defined benefits schemes would be adversely
affected by a prolonged fall in the discount
rate due to 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.
f) Non-traded market risk/interest rate risk
in the banking book
A shortfall in the liquidity pool investment
return could increase Barclays Group’s cost
of funds and impact the capital ratios.
Barclays Group’s structural hedge programmes
for interest rate risk in the banking book rely
on behavioural assumptions, as a result,
the success of the hedging strategy is not
guaranteed. A potential mismatch in the
balance or duration of the hedge assumptions
could lead to earnings deterioration.
iv) Operational risk
a) Cyber threat
The frequency of cyberattacks continues to
grow and is a global threat which is inherent
across all industries, including the financial
sector and is a key area of focus for Barclays
Group. The financial sector remains a primary
target for cyber criminals. There is an
increasing level of sophistication in both
criminal and nation state hacking for the
purpose of stealing money, stealing,
destroying or manipulating data, including
customer data, and/or disrupting operations,
with threats arising from malicious emails,
distributed denial of service (DDoS) attacks,
payment system compromises, supply chain
and vulnerability exploitation. Other events
have a compounding impact on services
and customers, e.g. data breaches in social
networking sites, retail companies and
payments networks.
Failure to adequately manage this threat could
result in increased fraud losses, inability to
perform critical economic functions, customer
detriment, potential regulatory censure
or penalties, legal liability, reduction in
shareholder value and reputational damage.
b) Fraud
The level and nature of fraud threats
continues to evolve, particularly with the
increasing use of digital products and the
greater functionality available online.
Criminals continue to adapt their techniques
and are increasingly focused on targeting
customers and clients through ever more
sophisticated methods of social engineering.
External data breaches also provide criminals
with the opportunity to exploit the growing
levels of compromised data. These threats
could lead to customer detriment, loss of
business, regulatory censure, missed business
opportunity and reputational damage.
Recent changes in the regulatory landscape
will see increased levels of liability being taken
by Barclays Group as part of a voluntary code
in the UK to provide additional protection
to customers and clients who are victims
of Authorised Push Payment scams.
c) Operational resilience
The loss of or disruption to Barclays Group’s
business processing is a material inherent
risk theme within Barclays Group and across
the financial services industry, whether arising
through impacts on technology systems,
real estate services, personnel availability
or the support of major suppliers.
Failure to build resilience into business
processes or into the services of technology,
real estate or suppliers on which Barclays
Group’s business processes depend, may
result in significant customer detriment,
costs to reimburse losses incurred by our
customers, potential regulatory censure
or penalties, and reputational damage.
d) Supplier exposure
Barclays Group depends on suppliers,
including Barclays Services Limited, for the
provision of many of its services and the
development of technology. Even though
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Barclays Group depends on suppliers,
it continues to be accountable for risk
arising from the actions of such suppliers.
Failure to monitor and control Barclays
Group’s suppliers could potentially lead to
client information, or critical infrastructures
and services, not being adequately protected
or available when required. 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 Barclays Group.
Failure to adequately manage outsourcing risk
could result in increased losses, inability to
perform critical economic functions, customer
detriment, potential regulatory censure, legal
liability and reputational damage.
e) Processing error
As a large, complex bank, Barclays Group
faces the risk of material errors in operational
processes, including payments and client
transactions.
Material operational or payment errors could
disadvantage Barclays Group’s customers,
clients or counterparties and could result in
regulatory censure, legal liability, reputational
damage and financial loss for Barclays Group.
f) New and emergent technology
Technological advancements present
opportunities to develop new and innovative
ways of doing business across Barclays Group,
with new solutions being developed both
in-house and in association with third-party
companies. Introducing new forms of
technology, however, also has the potential
to increase inherent risk.
Failure to evaluate, actively manage and
closely monitor risk exposure during all
phases of business development could lead
to customer detriment, loss of business,
regulatory censure, missed business
opportunity and reputational damage.
g) Ability to hire and retain appropriately
qualified employees
As a regulated financial institution, Barclays
Group requires diversified and specialist skilled
colleagues. Barclays Group’s ability to attract,
develop and retain a diverse mix of talent is
key to the delivery of its core business activity
and strategy. This is impacted by a range of
external and internal factors, such as the UK’s
decision to leave the EU and the enhanced
individual accountability applicable to the
banking industry.
Failure to attract or prevent the departure
of appropriately qualified and skilled
employees could negatively impact our
financial performance, control environment
and level of employee engagement.
Additionally, this may result in disruption
to service which could in turn lead to
disenfranchising certain customer groups,
customer detriment and reputational damage.
h) Tax risk
Barclays Group is required to comply with
the domestic and international tax laws
and practice of all countries in which it has
business operations. The Tax Cuts and Jobs
Act has introduced substantial changes to
the US tax system, including the introduction
of a new tax, the Base Erosion Anti-Abuse Tax.
These changes have increased Barclays
Group’s tax compliance obligations and require
a number of system and process changes
which introduce additional operational risk.
In addition, increasing customer tax reporting
requirements around the world and the
digitisation of the administration of tax has
potential to increase Barclays Group’s tax
compliance obligations further. In light of the
above, there is a risk that Barclays 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, with much
of this risk attributable to the international
structure of Barclays Group.
i) 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 credit impairment charges
for amortised cost assets, taxes, fair value
of financial instruments, pensions and
post-retirement benefits, and provisions
including conduct and legal, competition
and regulatory matters. 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 Barclays Group, beyond what was
anticipated or provided for.
The further development of standards
and interpretations under IFRS could also
significantly impact the financial results,
condition and prospects of Barclays Group.
j) Data management and information
protection
Barclays Group holds and processes large
volumes of data, including personally
identifiable information, intellectual property,
and financial data. Failure to accurately
collect and maintain this data, protect it from
breaches of confidentiality and interference
with its availability exposes Barclays Group
to the risk of loss or unavailability of data
(including customer data covered under vi),
c) Data protection and privacy, below) or data
integrity issues. This could result in regulatory
censure, legal liability and reputational
damage, including the risk of substantial fines
under the General Data Protection Regulation
(GDPR), which strengthens the data
protection rights for customers and increases
the accountability of Barclays Group in its
management of that data.
k) Unauthorised or rogue trading
Unauthorised trading, such as a large
unhedged position, which arises through a
failure of preventative controls or deliberate
actions of the trader, may result in large
financial losses for Barclays Group, loss of
business, damage to investor confidence
and reputational damage.
l) Algorithmic trading
In some areas of the investment banking
business, trading algorithms are used to
price and risk manage client and principal
transactions. An algorithmic error could result
in increased market exposure and subsequent
financial losses for Barclays Group and
potential loss of business, damage to investor
confidence and reputational damage.
v) Model risk
Enhanced model risk management
requirements
Barclays Group relies on models to support
a broad range of business and risk
management activities, including informing
business decisions and strategies, measuring
and limiting risk, valuing exposures (including
the calculation of impairment), conducting
stress testing, assessing capital adequacy,
supporting new business acceptance and
risk and reward evaluation, managing client
assets, and meeting reporting requirements.
Models are, by their nature, imperfect and
incomplete representations of reality because
they rely on assumptions and inputs, and so
they may be subject to errors affecting the
accuracy of their outputs. For instance, the
quality of the data used in models across
Barclays Group has a material impact on the
accuracy and completeness of our risk and
financial metrics.
Models may also be misused. Model errors
or misuse may result in Barclays Group
making inappropriate business decisions
and being subject to financial loss, regulatory
risk, reputational risk and/or inadequate
capital reporting.
vi) Conduct risk
There is the risk of detriment to customers,
clients, market integrity, effective competition
or Barclays from the inappropriate supply of
financial services, including instances of wilful
or negligent misconduct. This risk could
manifest itself in a variety of ways:
a) Product governance and life cycle
Ineffective product governance, including
design, approval and review of products,
inappropriate controls over internal and
third-party sales channels and post-sales
services, such as complaints handling,
collections and recoveries, could lead to
poor customer outcomes, as well as
regulatory sanctions, financial loss and
reputational damage.
b) Financial crime
Barclays Group may be adversely affected if
it fails to effectively mitigate the risk that third
parties or its employees facilitate, or that its
products and services are used to facilitate
financial crime (money laundering, terrorist
financing and proliferation financing, breaches
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Barclays PLC Annual Report 2018 135
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of confidence by investors, counterparties,
clients and/or customers; risk of credit rating
agency downgrades; potential negative
impact on the availability and/or cost of
funding and liquidity; and/or dismissal or
resignation of key individuals. 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
Barclays Group’s results of operations or cash
flow for a particular period.
In January 2017, Barclays 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
Department of Justice (DOJ). During the term
of probation, Barclays Group must, among
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 Barclays Group, an extension of the
agreement, or the criminal prosecution of
Barclays Group, which could, in turn, entail
further financial penalties and collateral
consequences and have a material adverse
effect on Barclays 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 Barclays 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 Barclays Group or another financial
institution facing similar claims, could lead
to further claims against Barclays Group.
Risk review
Material existing and emerging risks
of economic and financial sanctions, bribery
and corruption, and the facilitation of tax
evasion). UK and US regulations concerning
financial institutions continue to focus on
combating financial crime. Failure to comply
may lead to enforcement action by Barclays
Group’s regulators together with severe
penalties, affecting Barclays Group’s
reputation and financial results.
c) Data protection and privacy
Proper handling of personal data is critical
to sustaining long-term relationships with
our customers and clients and to meeting
privacy laws and obligations. Failure to protect
personal data can lead to potential detriment
to our customers and clients, reputational
damage, regulatory sanctions and financial
loss, which under the GDPR may be
substantial (see iv (j) Data management
and information protection, above).
d) Regulatory focus on culture
and accountability
Regulators around the world continue to
emphasise the importance of culture and
personal accountability and the adoption and
enforcement of adequate internal reporting
and whistle-blowing procedures in helping
to promote appropriate conduct and drive
positive outcomes for customers, colleagues,
clients and markets. Failure to meet the
requirements and expectations of the UK
Senior Managers Regime, Certification Regime
and Conduct Rules may lead to regulatory
sanctions, both for the individuals and
Barclays Group.
vii) Reputation risk
Barclays Group’s association with sensitive
sectors and its impact on reputation
A risk arising in one business area can have
an adverse effect upon Barclays Group’s
overall reputation; any one transaction,
investment or event that, in the perception
of key stakeholders reduces their trust in
Barclays Group’s integrity and competence.
Barclays Group’s association with sensitive
topics and sectors is an area of concern
for stakeholders, including:
■■ disclosure of climate risks and
opportunities, including the activities
of certain sections of the client base,
which has become the subject of
increased scrutiny from regulators,
NGOs and other stakeholders
■■ the risks of association with human rights
violations through the perceived indirect
involvement in human rights abuses
committed by clients and customers
■■ the manufacture and export of military
and riot control goods and services by
clients and customers.
These associations have the potential to give
rise to reputation risk for Barclays Group
and may result in loss of business, regulatory
censure and missed business opportunity.
In addition to the above, Reputation risk has
the potential to arise from operational issues
or conduct matters which cause detriment to
customers, clients, market integrity, effective
competition or Barclays Group (see iv a)
Cyber threat, iv j) Data management and
information protection, and vi) Conduct
risk, above).
viii) Legal risk and legal, competition
and regulatory matters
Legal disputes, regulatory investigations,
fines and other sanctions relating to conduct
of business and breaches of legislation
and/or regulations may negatively affect
Barclays Group’s results, reputation and ability
to conduct its business.
Barclays Group conducts diverse activities
in a highly regulated global market and
therefore is exposed to the risk of fines and
other sanctions. Authorities have continued
to investigate past practices, pursued alleged
breaches and imposed heavy penalties on
financial services firms. A breach of applicable
legislation and/or regulations could result
in Barclays Group or its staff being subject
to criminal prosecution, regulatory censure,
fines and other sanctions in the jurisdictions
in which it operates. Where clients, customers
or other third parties are harmed by Barclays
Group’s conduct, this may also give rise to
legal proceedings, including class actions.
Other legal disputes may also arise between
Barclays 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
Barclays Group being liable to third parties,
or may result in Barclays Group’s rights not
being enforced as intended.
Details of legal, competition and regulatory
matters to which Barclays Group is currently
exposed are set out in Note 27. In addition
to matters specifically described in Note 27,
Barclays Group is engaged in various other
legal proceedings which arise in the ordinary
course of business. Barclays 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
Barclays Group is, or has been, engaged.
The outcome of legal, competition and
regulatory matters, both those to which
Barclays Group is currently exposed and
any others which may arise in the future,
is difficult to predict. In connection with
such matters Barclays Group may incur
significant expense, regardless of the ultimate
outcome, and any such matters could expose
Barclays Group to any of the following
outcomes: substantial monetary damages,
settlements and/or fines; remediation of
affected customers and clients; other penalties
and injunctive relief; additional litigation;
criminal prosecution; the loss of any existing
agreed protection from prosecution;
regulatory restrictions on Barclays 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 Barclays Group’s reputation; loss
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Risk review
Principal Risk management
Credit risk management
Credit risk (audited)
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.
Overview
The credit risk that Barclays Group faces arises
from wholesale and retail loans and advances
together with the counterparty credit risk
arising from derivative contracts with clients;
trading activities, including: debt securities,
settlement balances with market
counterparties, FVOCI assets and reverse
repurchase loans.
Credit risk management objectives are to:
■■ maintain a framework of controls to oversee
credit risk
■■ identify, assess and measure credit risk
clearly and accurately across Barclays Group
and within each separate business, from
the level of individual facilities up to the
total portfolio
■■ control and plan credit risk taking in line
with external stakeholder expectations
and avoiding undesirable concentrations
■■ monitor credit risk and adherence to
agreed controls.
Organisation and structure
Wholesale and retail portfolios are managed
separately to reflect the differing nature of
the assets; wholesale balances tend to be
larger and are managed on an individual basis,
while retail balances are greater in number
but lesser in value and are, therefore,
managed in aggregated segments.
The credit risk management teams in each
legal entity are accountable to the relevant
Legal Entity CRO, who reports to the Barclays
Group CRO.
Roles and responsibilities
The responsibilities of the credit risk
management teams in the businesses, the
sanctioning team and other shared services
include: sanctioning new credit agreements
(principally wholesale); setting strategies for
approval of transactions (principally retail);
setting risk appetite; monitoring risk against
limits and other parameters; maintaining
robust processes, data gathering, quality,
storage and reporting methods for effective
credit risk management; performing effective
turnaround and workout scenarios for
wholesale portfolios via dedicated restructuring
and recoveries teams; maintaining robust
collections and recovery processes/units for
retail portfolios; and development of credit
risk measurement models.
For wholesale portfolios, credit risk approval
is undertaken by experienced credit risk
professionals operating within a clearly
defined delegated authority framework, with
only the most senior credit officers assigned
the higher levels of delegated authority.
The largest credit exposures, which are
outside the Risk Sanctioning Unit or Risk
Distribution Committee authority, require the
support of a legal entity Senior Credit Officer.
For exposures in excess of the legal entity
Senior Credit Officer’s authority, approval
by Group Senior Credit Officer/Board Risk
Committee is also required. The Barclays
Group Credit Risk Committee, attended by
legal entity Senior Credit Officers, provides
a formal mechanism for the Barclays Group
Senior Credit Officer to exercise the highest
level of credit authority over the most material
Barclays Group single name exposures.
In the wholesale portfolios, credit risk
managers are organised in sanctioning teams
by geography, industry and/or product.
The role of the Central Risk function is
to provide Barclays Group-wide direction,
oversight and challenge of credit risk taking.
Central Risk sets the Credit Risk Control
Framework, which provides the structure
within which credit risk is managed,
together with supporting credit risk
policies and standards.
Governance and oversight
of expected credit losses
Barclays Group’s organisational structure
and internal governance processes oversee
the estimation of ECL across several areas,
including: i) setting requirements in policy,
including key assumptions and the
application of key judgements; ii) the design
and execution of models; and iii) review
of ECL results.
Organisation and structure
Barclays PLC Board Risk Committee
■■ Reviews and recommends Barclays Group’s risk appetite for wholesale and retail credit risk to Barclays PLC Board
■■ Reviews Barclays Group’s risk profile for wholesale and retail credit risk on behalf of the Barclays PLC Board
■■ Commissions, receives and considers reports on wholesale and retail credit risk issues
Barclays Group Risk Committee
■■ Reviews appetite for wholesale and retail credit risk and makes recommendations on the setting of limits to the Barclays PLC Board
■■ Monitors the risk profile for wholesale and retail credit risk
■■ Reviews and monitors the control environment for wholesale and retail credit risk
Business Risk Committees
■■ Oversee activities and manage information relating to business portfolios,
and identify actions needed to mitigate current and arising credit risks
Wholesale and Retail Credit Risk Management Committees
■■ Monitor the wholesale and retail credit risk profile against plan and agree
required actions
■■ Review and approve business mandate and scale limits and, where
■■ Review key wholesale and retail credit risk issues
relevant, provide recommendations for limits managed by wholesale and
retail risk committees
■■ Review relevant decisions made by, and material issues and topics raised
by, other forums and committees
■■ Review credit risk policies and framework
■■ Monitor risk appetite consumption – key credit portfolio (mandate and
scale) limits
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Barclays PLC Annual Report 2018 137
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Risk review
Principal Risk management
Credit risk management
i)
Impairment policy requirements are set
and reviewed regularly, at a minimum
annually, to maintain adherence to
accounting standards. Key judgements
inherent in policy, including the estimated
life of revolving credit facilities and the
quantitative criteria for assessing the
significant increase in credit risk (SICR),
are separately supported by analytical
study. In particular, the quantitative
thresholds used for assessing SICR are
subject to a number of internal validation
criteria, particularly in retail portfolios
where thresholds decrease as the
origination PD of each facility increases.
Key policy requirements are also typically
aligned to Barclays Group’s credit risk
management strategy and practices,
for example, wholesale customers that
are risk managed on an individual basis
are assessed for ECL on an individual
basis upon entering Stage 3; furthermore,
key internal risk management indicators
of high risk are used to set SICR policy,
for example, retail customers identified
as High Risk Management Accounts are
automatically deemed to have met the
SICR criteria.
ii) ECL is estimated in line with internal
policy requirements using models which
are validated by a qualified independent
party to the model development area,
the Independent Validation Unit (IVU),
before first use and at a minimum annually
thereafter. Each model is designated
an owner who is responsible for:
■■ Monitoring the performance of the
model, which includes comparing
predicted ECL versus flow into Stage 3
and coverage ratios; and
■■ Proposing post-model adjustments
(PMA) to address model weaknesses
or to account for situations where
known or expected risk factors and
information have not been considered
in the modelling process. Each PMA
above an absolute and relative threshold
is approved by the IVU for a set time
period (usually a maximum of six
months) together with a plan for
remediation. The most material PMAs
are also approved by the Barclays
Group’s Chief Risk Officer.
Models must also assess ECL across
a range of future economic conditions.
These economic scenarios are generated
via an independent model and ultimately
set by the Senior Scenario Review
Committee. Economic scenarios are
regenerated at a minimum annually, to
align with Barclays Group’s medium-term
planning exercise, but also if the external
consensus of the UK or US economy
materially worsen. The scenario probability
weights are also updated when scenarios
are regenerated and reviewed by the Senior
Scenario Committee. Each model used in
the estimation of ECL, including key inputs,
are governed by a series of internal
controls, which include the validation
of completeness and accuracy of data
in golden source systems, documented
data transformations and documented
lineage of data transfers between systems.
legal title to the leased asset and has the
right to repossess the asset on the default
of the borrower
■■ derivatives: Barclays Group also often
seeks to enter into a margin agreement
(e.g. Credit Support Annex) with
counterparties with which Barclays Group
has master netting agreements in place.
These annexes to master agreements
provide a mechanism for further reducing
credit risk, whereby collateral (margin)
is posted on a regular basis (typically daily)
to collateralise the mark to market exposure
of a derivative portfolio measured on a
net basis. Barclays Group may additionally
negotiate the receipt of an independent
amount further mitigating risk by
collateralising potential mark to market
exposure moves
■■ reverse repurchase agreements: collateral
typically comprises highly liquid securities
which have been legally transferred to
Barclays Group subject to an agreement
to return them for a fixed price
■■ financial guarantees and similar
off-balance sheet commitments:
cash collateral may be held against
these arrangements.
Risk transfer
A range of instruments including guarantees,
credit insurance, credit derivatives and
securitisation can be used to transfer credit
risk from one counterparty to another.
These mitigate credit risk in two main ways:
■■ if the risk is transferred to a counterparty
which is more creditworthy than the
original counterparty, then overall credit
risk is reduced
■■ where recourse to the first counterparty
remains, both counterparties must default
before a loss materialises. This is less likely
than the default of either counterparty
individually so credit risk is reduced.
Detailed policies are in place to appropriately
recognise and record credit risk mitigation.
For more information, refer to pages 160
to 162 in the Barclays PLC Pillar 3 Report
2018 (unaudited).
iii) The Barclays Group Impairment
Committee, formed of members from
both Finance and Risk, is responsible for
overseeing impairment policy and practice
across Barclays Group and will approve
impairment results. Reported results and
key messages are communicated to the
Barclays PLC Board Audit Committee,
which has an oversight role and provides
challenge of key assumptions, including
the basis of the scenarios adopted.
Credit risk mitigation
Barclays Group employs a range of techniques
and strategies to actively mitigate credit risks.
These can broadly be divided into three types:
■■ netting and set-off
■■ collateral
■■ risk transfer.
Netting and set-off
In most jurisdictions and within legal entities
in which Barclays Group operates, credit risk
exposures can be reduced by applying netting
and set-off. In exposure terms, this credit
risk mitigation technique has the largest
overall impact on net exposure to derivative
transactions, compared with other risk
mitigation techniques.
For derivative transactions, Barclays Group’s
normal practice is, on a legal entity basis,
to enter into standard master agreements
with counterparties (e.g. ISDAs). These master
agreements typically allow for netting of credit
risk exposure to a counterparty resulting from
derivative transactions against the obligations
to the counterparty in the event of default,
and so produce a lower net credit exposure.
These agreements may also reduce settlement
exposure (e.g. for foreign exchange
transactions) by allowing payments on the
same day in the same currency to be set-off
against one another.
Collateral
Barclays Group has the ability to call on
collateral in the event of default of the
counterparty, comprising:
■■ home loans: a fixed charge over residential
property in the form of houses, flats and
other dwellings. The value of collateral is
impacted by property market conditions
which drive demand and therefore value of
the property. Other regulatory interventions
on ability to repossess, longer period to
repossession and granting of forbearance
may also affect the collateral value
■■ wholesale lending: a fixed charge over
commercial property and other physical
assets, in various forms
■■ other retail lending: includes charges over
motor vehicle and other physical assets;
second lien charges over residential
property, which are subordinate to first
charges held either by Barclays Group or
another party; and finance lease receivables,
for which typically Barclays Group retains
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Management value at risk
■■ estimates the potential loss arising
from unfavourable market movements,
over one day for a given confidence level
■■ differs from the regulatory VaR used for
capital purposes in scope, confidence level
and horizon
■■ back testing is performed to evaluate that
the model is fit for purpose.
VaR is an estimate of the potential loss arising
from unfavourable market movements if the
current positions were to be held unchanged
for one business day. For internal market risk
management purposes, a historical simulation
methodology with a two-year equally
weighted historical period, at the 95%
confidence level is used for all trading books
and some banking books.
The management VaR model in some
instances may not appropriately measure
some market risk exposures, especially for
market moves that are not directly observable
via prices. Market risk managers are required
to identify risks which are not adequately
captured in VaR (‘risks not in VaR’ or ‘RNIVs’).
When reviewing VaR estimates, the following
considerations are taken into account:
■■ the historical simulation uses the most
recent two years of past data to generate
possible future market moves, but the past
may not be a good indicator of the future
■■ the one-day time horizon may not fully
capture the market risk of positions that
cannot be closed out or hedged within
one day
■■ VaR is based on positions as at close of
business and consequently, it is not an
appropriate measure for intra-day risk
arising from a position bought and sold
on the same day
■■ VaR does not indicate the potential loss
beyond the VaR confidence level.
Limits are applied at the total level as well
as by risk factor type, which are then
cascaded down to particular trading desks
and businesses by the market risk
management function.
Risk review
Principal Risk management
Market risk management
Market risk (audited)
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.
Overview
Market risk arises primarily as a result of client
facilitation in wholesale markets, involving
market making activities, risk management
solutions and execution of syndications.
Upon execution of a trade with a client,
Barclays Group will look to hedge against
the risk of the trade moving in an adverse
direction. Mismatches between client
transactions and hedges result in market
risk due to changes in asset prices, volatility
or correlations.
To meet the above objectives, a governance
structure is in place to manage these risks
consistent with the ERMF.
The Barclays PLC Board Risk Committee
recommends market risk appetite to the
Barclays PLC Board for their approval.
The Market Risk Principal Risk Lead (PR Lead)
is responsible for the Market Risk Control
Framework and, under delegated authority
from the Barclays Group CRO, agrees with the
business CROs a limit framework within the
context of the approved market risk appetite.
Organisation and structure
Market risk in the businesses resides primarily
in Barclays International and Barclays Group
Treasury. These businesses have the mandate
to assume market risk. Market risk oversight
and challenge is provided by business
committees and Barclays Group committees,
including the Market Risk Committee.
Roles and responsibilities
The objectives of market risk management
are to:
■■ identify, understand and control market
risk by robust measurement, limit setting,
reporting and oversight
■■ facilitate business growth within
a controlled and transparent risk
management framework
■■ control market risk in the businesses
according to the allocated appetite.
The Market Risk Committee approves and
makes recommendations concerning the
Barclays Group-wide market risk profile.
This includes overseeing the operation of
the Market Risk Framework and associated
standards and policies; reviewing market or
regulatory issues and limits and utilisation.
The committee is chaired by the PR Lead
and attendees include the business heads
of market risk and business aligned market
risk managers.
The head of each business is accountable
for all market risks associated with its
activities, while the head of the market risk
team covering each business is responsible
for implementing the risk control framework
for market risk.
For more information on market risk
management, refer to the Barclays PLC
Pillar 3 Report 2018 (unaudited).
Organisation and structure
Barclays PLC Board Risk Committee
■■ Reviews and recommends Barclays Group’s risk appetite for market risk to the Barclays PLC Board
■■ Reviews material events impacting market risk
Barclays Group Risk Committee
■■ Monitors risk profile with respect to financial risk appetite
■■ Debates and agrees actions on the financial risk profile and risk strategy across Barclays Group
■■ Considers issues escalated by risk type heads and business risk directors
Barclays Group Market Risk Committee
■■ Reviews market risk appetite proposals from the business
■■ Oversees the management of Barclays Group’s market risk profile
■■ Reviews arising market or regulatory issues
■■ Reviews state of the implementation of the risk frameworks in the businesses
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Risk review
Principal Risk management
Treasury and capital risk management
Treasury and capital risk
Liquidity risk: The risk that the firm is unable to meet its contractual or contingent obligations
or that it does not have the appropriate amount, tenor and composition of funding and
liquidity to support its assets.
Capital risk: The risk that the firm has an insufficient level or composition of capital to
support its normal business activities and to meet its regulatory capital requirements under
normal operating environments or stressed conditions (both actual and as defined for
internal planning or regulatory testing purposes). This includes the risk from the firm’s
pension plans.
Interest rate risk in the banking book: The risk that the firm is exposed to capital or income
volatility because of a mismatch between the interest rate exposures of its (non-traded)
assets and liabilities.
Overview
Barclays Group Treasury manages treasury
and capital risk exposure on a day-to-day
basis with the Treasury Committee acting as
the principal management body. To enforce
effective oversight and segregation of duties
and in line with the ERMF, the Treasury and
Capital Risk function is responsible for
oversight of key capital, liquidity, interest rate
risk in the banking book (IRRBB) and pension
risk management activities. The following
describes the structure and governance
associated with the risk types within the
Treasury and Capital Risk function.
Liquidity risk management
(audited)
Overview
The efficient management of liquidity is
essential to Barclays Group in retaining the
confidence of the financial markets and
maintaining the sustainability of the business.
There is a control framework in place for
managing liquidity risk and this is designed
to maintain liquidity resources that are
sufficient in amount and quality and funding
tenor profile that is adequate to meet the
liquidity risk appetite as expressed by the
Barclays PLC Board based on internal and
regulatory liquidity metrics.
This is achieved via a combination of policy
formation, review and governance, analysis,
stress testing, limit setting and monitoring.
Together, these meet internal and
regulatory requirements.
Roles and responsibilities
The Treasury and Capital Risk function
is responsible for the management and
governance of the liquidity risk mandate
defined by the Board and the production
of ILAAPs. Treasury has the primary
responsibility for managing liquidity risk
within the set risk appetite.
Barclays Group’s comprehensive control
framework for managing Barclays Group’s
liquidity risk is designed to deliver the
appropriate term and structure of funding,
consistent with the liquidity risk appetite
set by the Board.
The control framework incorporates a range
of ongoing business management tools to
monitor, limit and stress test Barclays Group’s
balance sheet and contingent liabilities and
the Recovery Plan. Limit setting and transfer
pricing are tools that are designed to control
the level of liquidity risk taken and drive the
appropriate mix of funds. Together, these
tools reduce the likelihood that a liquidity
stress event could lead to an inability to meet
Barclays Group’s obligations as they fall due.
The control framework is subject to internal
conformance testing and internal audit review.
The Board approves the Barclays Group
funding plan, internal stress tests and results
of regulatory stress tests, and the Barclays
Group recovery plan. The Treasury Committee
is responsible for monitoring and managing
liquidity risk in line with Barclays Group’s
funding management objectives, funding plan
and risk frameworks. The Treasury and Capital
Risk Committee monitors and reviews the
liquidity risk profile and control environment,
providing Second Line oversight of the
management of liquidity risk. The BRC reviews
the risk profile, and annually reviews risk
appetite and the impact of stress scenarios
on the Barclays Group funding plan/forecast
in order to agree Barclays Group’s projected
funding abilities.
Organisation and structure
Barclays PLC Board Risk Committee
■■ Reviews and recommends Barclays Group’s risk appetite for treasury and capital risk to the Barclays PLC Board
■■ Reviews material issues impacting treasury and capital risk
■■ Recommends the approval of ICAAP and ILAAP to the Barclays PLC Board
Barclays Group Risk Committee
■■ Reviews and recommends risk appetite to the Barclays PLC Board Risk Committee
■■ Escalates material issues impacting treasury and capital risk to the Barclays PLC Board Risk Committee
■■ Reviews and recommends the ICAAP and ILAAP to the Barclays PLC Board Risk Committee for approval
Barclays Group Treasury and Capital Risk Committee
■■ Manages treasury and capital risk appetite
■■ Monitors the treasury and capital risk profile
■■ Monitors the treasury and capital risk control environment
■■ Recommends risk appetite to the Barclays Group Risk Committee and Barclays PLC Board Risk Committee
■■ Escalates material issues impacting treasury and capital risk to the Barclays Group Risk Committee and Barclays PLC Board Risk Committee
140 Barclays PLC Annual Report 2018
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Barclays Group maintains a range of
management actions for use in a liquidity
stress, these are documented in the Barclays
Group Recovery Plan. Since the precise nature
of any stress event cannot be known in
advance, the actions are designed to be
flexible to the nature and severity of the stress
event and provide a menu of options that
can be drawn upon as required. The Barclays
Group Recovery Plan also contains more
severe recovery options to generate additional
liquidity in order to facilitate recovery in a
severe stress. Any stress event would be
regularly monitored and reviewed using key
management information by Treasury, Risk
and business representatives.
Capital risk management
(audited)
Overview
Capital risk is managed through ongoing
monitoring and management of the capital
position, regular stress testing and a robust
capital governance framework.
Roles and responsibilities
The management of capital risk is integral to
Barclays Group’s approach to financial stability
and sustainability management, and is
embedded in the way businesses and legal
entities operate.
Capital risk management is underpinned by
a control framework and policy. The capital
management strategy, outlined in Barclays
Group and legal entity capital plans, is
developed in alignment with the control
framework and policy for capital risk, and is
implemented consistently in order to deliver
on Barclays Group’s objectives.
The Board approves the Barclays Group capital
plan, internal stress tests and results of
regulatory stress tests, and the Barclays Group
recovery plan. The Barclays Group Treasury
Committee is responsible for monitoring and
managing capital risk in line with Barclays
Group’s capital management objectives,
capital plan and risk frameworks. The Barclays
Group Treasury and Capital Risk Committee
monitors and reviews the capital risk profile
and control environment, providing Second
Line oversight of the management of capital
risk. The Barclays PLC BRC reviews the risk
profile, and annually reviews risk appetite and
the impact of stress scenarios on the Barclays
Group capital plan/forecast in order to agree
Barclays Group’s projected capital adequacy.
Local management assures compliance
with an entity’s minimum regulatory capital
requirements by reporting to local Asset and
Liability Committees with oversight by Barclays
Group Treasury Committee, as required.
Treasury has the primary responsibility
for managing and monitoring capital and
reports to the Barclays Group Finance Director.
The Barclays Group Treasury and Capital Risk
function provides oversight of capital risk and
is an independent risk function that reports
to the Barclays Group CRO. Production of the
Barclays PLC ICAAP is the joint responsibility
of Barclays Group Risk and Barclays
Group Finance.
In 2018, Barclays complied with all regulatory
minimum capital requirements.
Pension risk
Barclays Group maintains a number of defined
benefit pension schemes for past and current
employees. The ability of the pension fund
to meet pension payments is maintained
through investments and contributions.
Pension risk arises because the estimated
market value of the pension fund assets might
decline; investment returns might reduce;
or the estimated value of the pension liabilities
might increase. Barclays Group monitors the
pension risks arising from its defined benefit
pension schemes and works with Trustees
to address shortfalls. In these circumstances
Barclays Group could be required or might
choose to make extra contributions to the
pension fund. Barclays Group’s main defined
benefit scheme was closed to new entrants
in 2012.
Organisation and structure
Primary objectives
Core practices
■■ Maintain adequate capital for Barclays Group and its legal entities to
■■ Meet minimum regulatory requirements in all jurisdictions.
withstand the impact of the risks that may arise under the normal and
stressed conditions.
■■ Maintain capital buffers over regulatory minimums.
■■ Perform Barclays Group-wide internal and regulatory stress tests.
■■ Develop contingency plans for severe and extreme stresses, which include
stress management actions and recovery actions.
■■ Maintain adequate capital to cover Barclays Group’s current and forecast
■■ Maintain capital ratios aligned with rating agency expectations.
business needs and associated risks in order to provide a viable and
sustainable business offering.
■■ Maintain a capital plan on a short-term and medium-term basis aligned
with Barclays Group’s strategic objectives, balancing capital generation
of the business with business growth and shareholder distributions.
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Risk review
Principal Risk management
Treasury and capital risk management
Interest rate risk in the
banking book management
Overview
Banking book operations generate non-traded
market risk, primarily through the mismatch
between the duration of assets and liabilities
and where interest rates on products reset
at different dates. As per Barclays Group’s
policy to remain within the defined risk
appetite, interest rate and FX risks residing
in the banking books of the businesses
are transferred to Treasury where they are
centrally managed. Currently these risks
are transferred to Treasury via funding
arrangements and interest rate or FX swaps.
However, the businesses remain susceptible
to non-traded market risk from seven
key sources:
■■ repricing/residual risk: the impact from
the mismatch between the run-off of
product balances and the associated
interest rate hedges or from unhedged
liquidity buffer investments
■■ structural risk: the change to the net
■■ recruitment risk: the potential loss in value
if the actual completion or drawdown
behaviour from customers deviates from the
expected behaviour, which may result in a
hedge or funding adjustment at a cost to
Barclays Group. This risk principally relates
to the completion timing around Barclays
Group’s fixed rate mortgage pipeline process
■■ margin compression risk: the effect of
internal or market forces on the Barclays
Group’s net margin where, for example,
in a low rate environment a fall in interest
rates may further decrease interest income
earned on the assets whereas funding costs
may not be reduced given the already
minimum level of interest rates
■■ lag risk: arises from the delay in repricing
customer rates for certain variable/
managed rate products, following an
underlying change to market interest rates.
This is typically driven by either regulatory
constraints around customer notification
on pricing changes, processing time for
Barclays Group’s notification systems or
contractual agreements within a product’s
terms and conditions
interest income on rolling structural hedge
replenishment due to adverse movements
in interest rates, assuming that the balance
sheet remains constant
■■ asset swap spread risk: the spread between
LIBORand sovereign bond yields that arises
from the management of the liquidity buffer
investments and its associated hedges.
■■ prepayment risk: the potential loss in value
if actual prepayment or early withdrawal
behaviour from customers deviates from
the expected or contractually agreed
behaviour, which may result in a hedge or
funding adjustment at a cost to Barclays
Group. Exposures are typically considered
(where appropriate) net of any applicable
offsetting early repayment charges. This risk
principally relates to early repayment of
fixed rate loans or withdrawal from fixed
rate savings products
Furthermore, liquidity pool investments are
generally subject to fair value through other
comprehensive income (FVOCI) accounting
rules, whereby changes in the fair value
of these assets impact capital via other
comprehensive income (OCI).
Roles and responsibilities
The non-traded market risk team provides
risk management oversight and monitoring
of all traded and non-traded market risk in
Treasury and customer banking books,
which specifically includes:
■■ interest rate risk assessment in the
customer banking books
■■ review and challenge the behavioural
assumptions used in hedging and
transfer pricing
■■ risk management of the liquidity buffer
investments and funding activities
■■ oversight of balance sheet hedging
■■ review of residual risk in the hedge
accounting solution and hedging of
net investments
■■ proposal and monitoring of risk limits
to manage traded and non-traded market
risk within the agreed risk appetite.
The Barclays Group Treasury Committee
is responsible for monitoring and managing
IRRBB risk in line with Barclays Group’s
management objectives and risk frameworks.
The Barclays Group Risk Committee monitors
and reviews the IRRBB risk profile and control
environment, providing Second Line oversight
of the management of IRRBB risk. The
Barclays Group Board Risk Committee reviews
the interest rate risk profile, including annual
review of the risk appetite and the impact of
stress scenarios on the interest rate risk of the
Barclays Group.
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Risk review
Principal Risk management
Operational risk management
Operational risk
The risk of loss to the firm from inadequate or failed processes, systems, human factors
or due to external events (for example, fraud) where the root cause is not due to credit
or market risks.
Overview
The management of operational risk has three
key objectives:
■■ deliver an operational risk capability owned
for operational risk regulatory capital
purposes with effect from 1 April 2018.
Barclays Group has conservatively elected
to retain its previous operational risk RWA
amount unchanged for 2018.
and used by business leaders which is
pragmatic, relevant, and enables business
leaders to make sound risk decisions over
the long term
■■ provide the frameworks and policies to
enable management to meet their risk
management responsibilities while the
second line of defence provides robust,
independent, and effective oversight
and challenge
■■ deliver a consistent and aggregated
measurement of operational risk that
will provide clear and relevant insights,
so that the right management actions
can be taken to keep the operational risk
profile consistent with Barclays Group’s
strategy, the stated risk tolerance and
stakeholder needs.
Following submission of an application to
the PRA relating to Barclays Group Advanced
Measurement Approach (AMA) permission,
Barclays Group received the PRA’s approval
to use the Standardised Approach (TSA)
Organisation and structure
Barclays PLC Board Risk Committee
■■ Approves operational risk framework
■■ Oversees operational risk capital
Barclays Group operates within a strong system
of internal controls that enables business to
be transacted and risk taken without exposing
Barclays Group to unacceptable potential
losses or reputational damages. Barclays
Group has an overarching Enterprise Risk
Management Framework (ERMF) that sets
out the approach to internal governance.
Organisation and structure
Operational risk comprises a number of
specific risk categories defined as follow:
■■ data management and information risk:
the risk that Barclays Group information
is not captured, retained, used or protected
in accordance with its value and legal and
regulatory requirements
■■ financial reporting risk: the risk of a
material misstatement or omission within
Barclays Group’s external financial reporting,
regulatory reporting or internal financial
management reporting
■■ fraud risk: the risk of financial loss when
an internal or external party acts dishonestly
with the intent to obtain an undue benefit,
cause a loss to, or to expose either Barclays
Group or its customers and clients to a
risk of loss
■■ payments process risk: the risk of
payments being processed inaccurately,
with delays or without appropriate
authentication and authorisation.
It includes payments processes from
initiation through to external settlement,
including any repairs or amendments
■■ people risk: the set of risks associated
with employing and managing people,
including compliance with regulations,
appropriate resourcing for requirements,
recruitment and development risks
(excluding health and safety related risk)
■■ premises risk: the risk of business
detriment or harm to people due to
premises and infrastructure issues
■■ physical security risk: the risk of business
detriment, financial loss or harm to people
as a result of any physical security incident
impacting Barclays Group or a Barclays
Group’s employee – relating to harm to
people, unauthorised access, intentional
damage to premises or theft or intentional
damage to moveable assets
■■ supplier risk: the risk that is introduced
to Barclays Group or a Barclays Group’s
entity as a consequence of obtaining
services or goods from another legal entity,
or entities, whether external or internal
as a result of inadequate selection,
inadequate management or inadequate
exit management
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■■ Oversees the operating effectiveness of the control environment
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■■ Recommends and monitors operational risk appetite and the residual
risk position, supported by feedback from the Barclays PLC Board Audit
Committee/Chief Controls Officer
■■ Gives feedback to the Barclays PLC Board Risk Committee where concerns
exist over the impact on residual risk through either the design
or operating effectiveness of the control environment
Barclays Group Risk Committee
■■ Reviews and recommends risk appetite and risk limit across operational
Barclays Group Controls Committee
■■ Oversees effectiveness of the control environment
risk to the Barclays PLC Board
■■ Monitors the Barclays Group risk profile and the utilisation of risk appetite
■■ Reviews appetite, limit usage and risk management within tolerance
agreed to the Barclays PLC Board
■■ Reviews deep dives of specific risks as requested
■■ Reviews the impact of any material acquisitions and disposals on the
risk profile
■■ Reviews remediation plans and actions taken, and agrees any further
actions required
■■ Escalates to Barclays PLC Board level
■■ Reviews and recommends the control framework
■■ Oversees control remediation activities
■■ Oversees the execution of the Operational Risk Management Framework
consistently across Barclays Group
■■ Oversees risk and internal control matters including significant issues
■■ Escalates to Barclays PLC Board level
Business Risk Committees
■■ Manage and oversee risk at the business unit/function level
Business Controls Committees
■■ Manage and oversee the control environment at the business/function level
■■ Escalate to Barclays Group level
■■ Escalate to Barclays Group level
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Risk review
Principal Risk management
Operational risk management
Roles and responsibilities
The prime responsibility for the management
of operational risk and the compliance with
control requirements rests with the legal
entities, business and functional units where
the risk arises. The operational risk profile and
control environment is reviewed by business
management through specific meetings which
cover these items. Legal entities, businesses
and functions are required to report their
operational risks on both a regular and an
event-driven basis. The reports include a
profile of the material risks that may threaten
the achievement of their objectives and the
effectiveness of key controls, operational risk
events and a review of scenarios.
The Barclays Group Head of Operational
Risk is responsible for establishing, owning
and maintaining an appropriate Barclays
Group-wide Operational Risk Management
Framework and for overseeing the portfolio
of operational risk across Barclays Group.
Operational Risk Management (ORM) acts
in a Second Line of Defence capacity, and is
responsible for defining and overseeing the
implementation of the framework and
monitoring Barclays Group’s operational risk
profile. ORM alerts management when risk
levels exceed acceptable tolerance in order
to drive timely decision making and actions
by the First Line of Defence. Operational risk
issues escalated from these meetings are
considered through the Second Line of
Defence review meetings. Depending on their
nature, the outputs of these meetings are
presented to the operational risk profile Forum,
the Barclays PLC Board Risk Committee or
the Barclays PLC Board Audit Committee.
Specific reports are prepared by Operational
Risk on a regular basis for the Barclays Group
Risk Committee, and the Barclays PLC Board
Risk Committee.
For further information on Barclays Group’s
Operational Risk Framework, refer to the
Operational Risk Framework section on pages
182 to 185 in the Barclays PLC Pillar 3 Report
2018 (unaudited).
■■ tax risk: the risk of unexpected tax cost in
relation to any tax for which Barclays Group
is liable, or of reputational damage on tax
matters with key stakeholders such as tax
authorities, regulators, shareholders or the
public. Tax cost includes tax, interest or
penalties levied by a taxing authority
■■ technology risk: the risk of dependency
on technological solutions and failure to
develop, deploy and maintain technology
solutions that are stable, reliable and
deliver business need
■■ transaction operations risk: the risk of
customer/client or Barclays Group detriment
due to unintentional error and/or failure
in the end-to-end process of initiation,
processing and fulfilment of an interaction
between a customer/client and Barclays
Group with an underlying financial
instrument (e.g. mortgage, derivative
product, trade product etc.) in consideration.
In addition to the above, operational risk
encompasses risks associated with prudential
regulation. This includes the risk of failing to:
adhere to prudential regulatory requirements,
including capital adequacy requirements;
provide regulatory submissions; or monitor
and manage adherence to new prudential
regulatory requirements.
These risks may result in financial and/or
non-financial impacts including legal/
regulatory breaches or reputational damage.
Barclays Group also recognises that there
are certain threats/risk drivers that are more
thematic and have the potential to impact
Barclays Group’s strategic objectives. These
are Enterprise Risk Themes which require an
overarching and integrated risk management
approach. Including:
■■ cyber: the potential loss or detriment
to Barclays caused by individuals or
groups (threat actors) with the capabilities
and intention to cause harm or to profit
from attacks committed via network
information systems against us,
our suppliers, or customers/clients
■■ data: aligned to the data strategy of
Barclays Group and encompassing data
risks to Barclays Group from multiple risk
categories, including data management,
data architecture, data security &
protection, data resilience, data retention
and data privacy
■■ execution: the risk of failing to deliver
and implement the agreed initiatives,
priorities and business outcomes required
to deliver Barclays Group’s strategy within
agreed timelines
■■ resilience: the risk of the organisation’s
ability to survive and prosper in its
commercial endeavours in the presence
of adverse events, shocks and chronic
or incremental changes.
144 Barclays PLC Annual Report 2018
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Risk review
Principal Risk management
Model risk management
Model risk
The risk of the potential adverse consequences from financial assessments or decisions
based on incorrect or misused model outputs and reports.
Overview
Barclays Group uses models to support a
broad range of activities, including informing
business decisions and strategies, measuring
and limiting risk, valuing exposures,
conducting stress testing, assessing capital
adequacy, managing client assets, and
meeting reporting requirements.
Since models are imperfect and incomplete
representations of reality, they may be subject
to errors affecting the accuracy of their output.
Model errors can result in inappropriate
business decisions being made, financial loss,
regulatory risk, reputational risk and/or
inadequate capital reporting. Models may also
be misused, for instance applied to products
that they were not intended for, or not
adjusted, where fundamental changes to their
environment would justify re-evaluating their
core assumptions. Errors and misuse are the
primary sources of model risk.
Robust model risk management is crucial
to assessing and managing model risk within
a defined risk appetite. Strong model risk
culture, appropriate technology environment,
and adequate focus on understanding
and resolving model limitations are
crucial components.
Organisation and structure
Barclays Group allocates substantial resources
to identify and record models and their usage,
document and monitor the performance
of models, validate models and adequately
address model limitations. Barclays Group
manages model risk as an enterprise level
risk similar to other principal risks.
Organisation and structure
Barclays Group has a dedicated Model Risk
Management (MRM) function that consists
of two main units: the Independent Validation
Unit (IVU), responsible for model validation
and approval, and Model Governance
and Controls (MGC), covering model risk
governance, controls and reporting, including
ownership of model risk policy and the
model inventory.
The model risk management framework
consists of the model risk policy and
standards. The policy prescribes group-wide,
end-to-end requirements for the identification,
measurement and management of model risk,
covering model documentation, development,
implementation, monitoring, annual review,
independent validation and approval, change
and reporting processes. The policy is
supported by global standards covering
model inventory, documentation, validation,
complexity and materiality, testing and
monitoring, overlays, risk appetite, as well
as vendor models and stress testing
challenger models.
Barclays Group is continuously enhancing
model risk management. The function reports
to the Barclays Group CRO and operates a
global framework. Implementation of best
practice standards is a central objective of
Barclays Group. Model risk reporting flows
to senior management as depicted below.
Roles and responsibilities
The key model risk management
activities include:
■■ correctly identifying models across all
relevant areas of Barclays Group, and
recording models in the Barclays Group
Models Database (GMD), the Barclays
Group-wide model inventory. The heads
of the relevant model ownership areas
annually attest to the completeness and
accuracy of the model inventory. MGC
undertakes regular conformance reviews
on the model inventory
■■ enforcing that every model has a model
owner who is accountable for the model.
The model owner must sign off models
prior to submission to IVU for validation.
The model owner works with the relevant
technical teams (model developers,
implementation, monitoring, data services,
regulatory) to maintain that the model
presented to IVU is and remains fit
for purpose
■■ overseeing that every model is subject
to validation and approval by IVU, prior
to being implemented and on a continual
basis. While all models are reviewed and
re-approved for continued use each year,
the validation frequency and the level of
review and challenge applied by IVU is
tailored to the materiality and complexity
of each model. Validation includes a review
of the model assumptions, conceptual
soundness, data, design, performance
testing, compliance with external
requirements if applicable, as well as
any limitations, proposed remediation
and overlays with supporting rationale.
Material model changes are subject to
prioritised validation and approval
■■ defining model risk appetite in terms of
risk tolerance, and qualitative metrics which
are used to track and report model risk
■■ maintaining specific standards that cover
model risk management activities relating
to stress testing challenger models, model
overlays, vendor models, and model
complexity and materiality.
Barclays PLC Board Risk Committee
■■ Reviews and recommends Barclays Group’s risk appetite for model risk to the Barclays PLC Board
■■ Reviews the effectiveness of the processes and policies by which Barclays Group identifies and manages model risk
■■ Assesses performance relative to model risk appetite
Barclays Group Risk Committee
■■ Reviews risk appetite across model risk
■■ Monitors the Barclays Group risk profile for model risk, including emerging risks, against expected trends, and the utilisation of risk appetite
Business Risk Committees
■■ Review critical updates on model risk e.g. updates on Barclays Group-wide remediation plans
■■ Review targeted updates on progress towards meeting regulatory deliverables
■■ Review identified policy breaches
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Barclays PLC Annual Report 2018 145
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Risk review
Principal Risk management
Conduct risk management
Conduct risk
The risk of detriment to customers, clients, market integrity, effective competition or
Barclays from the inappropriate supply of financial services, including instances of wilful
or negligent misconduct.
Overview
Barclays Group defines, manages and
mitigates conduct risk with the goal of
providing positive customer and client
outcomes, protecting market integrity and
promoting effective competition. This includes
taking reasonable steps to assure that
Barclays Group’s culture and strategy are
appropriately aligned to these goals; its
products and services are reasonably designed
and delivered to meet the needs of customers
and clients; promoting the fair and orderly
operation of the markets in which Barclays
Group does business; and that Barclays Group
does not commit or facilitate money
laundering, terrorist financing, bribery and
corruption or breaches of economic sanctions.
Product Life cycle, Culture and Strategy and
Financial Crime are the risk categories within
the Barclays Group definition of conduct risk.
Organisation and structure
The governance of conduct risk within
Barclays Group is fulfilled through
management committees and forums
operated by the First and Second Lines of
Defence with clear escalation and reporting
lines to the Board.
The Barclays Group Risk Committee is the
most senior executive body responsible for
reviewing and monitoring the effectiveness
of Barclays Group’s management of
conduct risk.
Roles and responsibilities
The Conduct Risk Management Framework
(CRMF) outlines how Barclays Group manages
and measures its conduct risk profile.
Senior managers have accountability for
managing conduct risk in their areas of
responsibility. This is expressed in their
Statements of Responsibilities. The primary
responsibility for managing conduct risk
and compliance with control requirements
sits with the business where the risk arises.
The First Line Business Control Committees
provide oversight of controls relating to
conduct risk.
The Barclays Group Chief Compliance Officer
is responsible for owning and maintaining
an appropriate Barclays Group-wide CRMF.
This includes defining and owning the relevant
conduct risk policies and oversight of the
implementation of controls to manage and
escalate the risk.
Businesses are required to report their
conduct risks on both a quarterly and an
event-driven basis to their respective trading
entity risk committees. The quarterly reports
detail conduct risks inherent within the
business strategy and include forward looking
horizon scanning analysis as well as backward
looking evidence-based indicators from both
internal and external sources.
The Barclays Bank Group and the Barclays
Bank UK Group Trading Entity Risk
Committees are the primary Second Line
governance forums for oversight of conduct
risk profile and implementation of the CRMF.
The responsibilities of the Business Unit Risk
Committees include approval of the conduct
risk tolerance and the business defined key
indicators. Additional responsibilities include
the identification and discussion of any
emerging conduct risks exposures which
have been identified.
Organisation and structure
Barclays PLC Board Reputation Committee
■■ Reviews the effectiveness of the processes by which Barclays Group
identifies and manages conduct risk, including annually reviewing the
effectiveness of the Barclays Group Conduct Risk Management Framework;
■■ Seeks to ensure fair customer outcomes by carrying out periodic reviews
of the Barclays Group’s implementation of policies on customers, clients
and counterparties, and by monitoring management reports on issues
such as compliant levels, customer satisfaction indicators, net promoter
scores and market share measures; and
■■ Reviews performance against conduct risk metrics.
Barclays Bank PLC and Barclays
Bank UK PLC Board Risk Committee
■■ Review the effectiveness of the processes by which the trading entities
identify and manage conduct risk, including annually reviewing the
effectiveness of the Barclays Group Conduct Risk Management Framework
as it applies to the trading entities;
■■ Seek to obtain fair customer outcomes by carrying out periodic reviews
of the respective trading entities’ implementation of policies on customers,
clients and counterparties, and by monitoring management reports
on issues such as compliant levels, customer satisfaction indicators,
net promoter scores and market share measures; and
■■ Review performance against conduct risk metrics.
Barclays Group Controls Committee
■■ Provides oversight and challenge of the
effectiveness of the Barclays Group control
environment in relation to conduct risk and
provides governance, oversight and supervision
of all elements of the Barclays Group Conduct
Risk Framework.
Barclays Group Risk Committee
■■ Reviews and monitors the effectiveness
of conduct risk management.
Barclays International and Barclays UK
Risk Committees
■■ Review and discuss the conduct risk profile
of Barclays Bank Group and Barclays Bank
UK Group, and the effectiveness of their
risk management, control and escalation.
146 Barclays PLC Annual Report 2018
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Risk review
Principal Risk management
Reputation risk management
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.
Overview
A reduction of trust in Barclays Group’s
integrity and competence may reduce
the attractiveness of Barclays Group to
stakeholders and could lead to negative
publicity, loss of revenue, regulatory or
legislative action, loss of existing and potential
client business, reduced workforce morale
and difficulties in recruiting talent. Ultimately
it may destroy shareholder value.
Organisation and structure
The Barclays Group Risk Committee is the
most senior executive body responsible for
reviewing and monitoring the effectiveness
of Barclays Group’s management of
reputation risk.
Roles and responsibilities
The Barclays Group Chief Compliance Officer
is accountable for developing a reputation risk
framework, policies and standards, including
limits against which data is monitored,
reported on and escalated, as required.
Reputation risk is by nature pervasive and
can be difficult to quantify, requiring more
subjective judgement than many other risks.
The Reputation Risk Framework sets out
what is required to manage reputation risk
effectively and consistently across Barclays
Group. During 2018, the framework was
updated to include a new reputation risk
policy and supporting standards.
The primary responsibility for identifying
and managing reputation risk and adherence
to the control requirements sits with the
business and support functions where the
risk arises.
Barclays Bank Group and Barclays Bank
UK Group are required to operate within
established reputation risk appetite and
their component businesses prepare reports
for their respective Risk and Board Risk
Committees highlighting their most significant
current and potential reputation risks and
issues and how they are being managed.
These reports are a key internal source of
information for the quarterly reputation risk
reports which are prepared for the Barclays
Group Risk Committee and Barclays PLC Board
Reputation Committee.
Organisation and structure
Barclays PLC Board Reputation Committee
■■ Reviews the effectiveness of the processes and policies by which Barclays Group identifies and manages reputation risk
■■ Considers and evaluates regular reports on Barclays Group’s reputation risk issues and exposures
■■ Considers whether significant business decisions will compromise Barclays Group’s ethical policies or core business beliefs and values
Barclays Group Risk Committee
■■ Reviews the monitoring processes utilised by Compliance and Corporate Relations to ensure they are proportionate given the level of risk identified in the businesses
■■ Reports reputation issues in accordance with Barclays Group’s Reputation Risk Framework for all material issues which may have the potential to incur
reputation risk for Barclays Group
Business Risk Committees
■■ Review and escalate reputation risks in accordance with Barclays Group’s Reputation Risk Framework.
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Barclays PLC Annual Report 2018 147
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to manage and minimise legal risk that may
arise in the context of their individual roles
and responsibilities. Employees are required
to be familiar with the LRMF and legal risk
policies and to know how to escalate actual
or potential legal risk issues.
Legal risk management is everyone’s
responsibility, as part of a risk culture aligned
to Barclays Group’s Values, promoting
transparency and timely escalation and
management of risks and issues, supported
by clearly defined roles and responsibilities
across the Three Lines of Defence.
The Legal Function does not sit in any of the
three lines of defence but supports them all.
The LRMF details the main activities the Legal
Function undertakes to support Barclays Group
in managing risk, including the identification
of issues and risks, coverage with appropriate
expertise and escalation. The LRMF, legal risk
policies and activities of the Legal Function
are designed so that Barclays Group receives
advice from appropriate legal professionals
in circumstances that are most likely to give
rise to legal risk.
The Group General Counsel, supported by
the Legal Executive Committee and the Global
Head of Legal Risk, Governance and Control,
is responsible for maintaining an appropriate
LRMF, developing non-financial legal risk
tolerances and for overseeing legal
risk management.
Risk review
Principal Risk management
Legal risk management
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.
Overview
Overall, Barclays Group has limited tolerance
for legal risk, however the multitude of laws
and regulations across the globe are highly
dynamic and their application to particular
circumstances is often unclear. This results
in a degree of legal risk. The Barclays
Group-wide Legal Risk Management
Framework (LRMF) comprises a number of
integrated components that allows Barclays
Group to identify, manage and measure its
legal risk profile, supported by legal risk
policies and associated standards aligned
to the following legal risks:
■■ contractual arrangements – failure to
engage Barclays Group’s Legal Function
in relation to contractual arrangements
■■ litigation management – litigation not
being managed by or with the support
of Barclays Group’s Legal Function
■■ intellectual property (IP) – failure to protect
Barclays Group’s IP assets or infringement
of third-party IP rights
■■ competition/anti-trust – failure to identify
and escalate competition/anti-trust issues
to Barclays Group’s Legal Function or
inappropriate interactions with
competition/anti-trust authorities
■■ use of law firms – inappropriate instruction
of external legal advisers
■■ contact with regulators – inappropriate
interactions with regulators or inappropriate
handling of confidential supervisory
information from regulatory or government
agencies
■■ legal engagement – failure to appropriately
engage Barclays Group’s Legal Function
in relation to key business decisions.
Organisation and structure
The Legal Executive Committee oversees,
monitors and challenges legal risk across
Barclays Group. The Barclays Group Risk
Committee is the most senior executive body
responsible for reviewing and monitoring
the effectiveness of risk management across
Barclays Group. Escalation paths from this
committee exist to the Barclays PLC Board
Risk Committee.
Roles and responsibilities
The LRMF requires Barclays Group’s
businesses and functions to integrate the
management of legal risk within their strategic
planning and business decision making
including managing adherence to minimum
control requirements. Barclays Group’s
businesses and functions are accountable
and have primary responsibility for identifying
legal risk in their area as well as responsibility
for adherence to minimum control
requirements and compliance with the
LRMF and legal risk policies.
All employees, regardless of their position,
business or function or location, must play
a part in Barclays Group’s legal risk
management. Employees are responsible for
understanding and taking reasonable steps
Organisation and structure
Barclays PLC Board Risk Committee
■■ Approves risk tolerances
■■ Reviews risk profile and material risk issues
■■ Commissions, receives and considers reports on key risk issues
Barclays Group Risk and Controls Committees
■■ Monitor risk profile with respect to non-financial risk tolerances
■■ Debate and agree actions on the non-financial risk profile and risk strategy across Barclays Group
Legal Executive Committee
■■ Oversees, monitors and challenges legal risk across Barclays Group
148 Barclays PLC Annual Report 2018
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Risk review
Risk performance
Credit risk
Summary of contents
Credit risk represents a significant risk and mainly
arises from exposure to wholesale and retail loans
and advances together with the counterparty
credit risk arising from derivative contracts
entered into with clients.
This section outlines the expected credit loss
allowances, the movements in allowances during
the period, material management adjustments
to model output and measurement uncertainty
and sensitivity analysis.
Barclays Group reviews and monitors
risk concentrations in a variety of ways.
This section outlines performance against
key concentration risks.
■■ Credit risk overview and summary of performance
■■ Maximum exposure and effects of netting, collateral and risk transfer
■■ Expected Credit Losses
– Loans and advances at amortised cost by stage
– Loans and advances at amortised cost by product
– Movement in gross exposure and impairment allowance including
provisions for loan commitments and financial guarantees
– Stage 2 decomposition
■■ Management adjustments to models for impairment
■■ Measurement uncertainty and sensitivity analysis
■■ Analysis of the concentration of credit risk
– Geographic concentrations
– Industry concentrations
■■ Approach to management and representation of credit quality
– Asset credit quality
– Debt securities
– Balance sheet credit quality
– Credit exposures by internal PD grade
Credit Risk monitors exposure performance
across a range of significant portfolios.
■■ Analysis of specific portfolios and asset types
– Secured home loans
– Credit cards, unsecured loans and other retail lending
■■ Forbearance
– Retail forbearance programmes
– Wholesale forbearance programmes
Barclays Group monitors exposures to assets
where there is a heightened likelihood of default
and assets where an actual default has occurred.
From time to time, suspension of certain aspects
of client credit agreements are agreed, generally
during temporary periods of financial difficulties
where Barclays Group is confident that the
client will be able to remedy the suspension.
This section outlines the current exposure
to assets with this treatment.
This section provides an analysis of credit risk
on debt securities and derivatives.
■■ Analysis of debt securities
■■ Analysis of derivatives
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Barclays PLC Annual Report 2018 149
Risk review
Risk performance
Credit 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.
All disclosures in this section (pages 149 to 175) are unaudited unless otherwise stated.
Key metrics
Reduction in impairment allowances of
£481m
Impairment allowances on loans and advances at amortised cost, including off-balance
sheet elements of the allowance, decreased by £481m to £7,041m (1 January 2018: £7,522m)
since the adoption of IFRS 9.
Overview
Credit risk represents a significant risk to
Barclays Group and mainly arises from
exposure to wholesale and retail loans and
advances together with the counterparty
credit risk arising from derivative contracts
entered into with clients.
IFRS 9 Financial Instruments is effective from
1 January 2018, introducing an expected credit
loss model using forward looking information
which replaces an incurred loss model. As a
result of the implementation of IFRS 9, the risk
appetite and risk management strategy has
not changed. The presentation of credit risk
within this risk performance section provides
additional disclosures under the new
standard. Further detail can be found in the
Financial statements section in Note 1
Significant accounting policies, Note 7 Credit
impairment charges and other provisions and
Note 42 Transition disclosures. Descriptions
of terminology can be found in the glossary,
available at home.barclays/annualreport.
Summary of performance
in the period
Credit impairment charges decreased 37%
to £1,468m primarily driven by single name
recoveries, updates to consensus-based
macroeconomic forecasts in the UK and US
during the year, the non-recurrence of single
name charges in 2017, portfolio adjustments
as IFRS 9 has continued to embed and the
impact of repositioning the US cards portfolio
towards a lower risk mix. This decrease was
partially offset by a £150m specific charge
for the impact of anticipated economic
uncertainty in the UK. The Barclays Group
loan loss rate was 44bps (2017: 57bps).
Refer to the credit risk management section
on pages 137 to 138 for details of governance,
policies and procedures.
Maximum exposure and
effects of netting, collateral
and risk transfer
Basis of preparation
The following tables present a reconciliation
between the maximum exposure and the
net exposure to credit risk, reflecting the
financial effects of risk mitigation reducing
the exposure.
For financial assets recognised on the balance
sheet, maximum exposure to credit risk
represents the balance sheet carrying value
after allowance for impairment. For off-
balance sheet guarantees, the maximum
exposure is the maximum amount that the
Barclays Group would have to pay if the
guarantees were to be called upon. For loan
and other credit related commitments, the
maximum exposure is the full amount of the
committed facilities.
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This and subsequent analyses of credit risk exclude other financial assets not subject to credit risk, mainly equity securities.
The Barclays Group mitigates the credit risk to which it is exposed through netting and set-off, collateral and risk transfer. Further detail on
the Barclays Group’s policies to each of these forms of credit enhancement is presented on pages 160 to 162 of the Barclays PLC Pillar 3 Report
2018 (unaudited).
Overview
As at 31 December 2018, the Barclays Group’s net exposure to credit risk, after taking into account credit risk mitigation, increased 2% to
£807.4bn. Overall, the extent to which the Barclays Group holds mitigation against its total exposure remains unchanged at 43% (2017: 43%).
Of the unmitigated on balance sheet exposure, a significant portion relates to cash held at central banks, cash collateral and settlement balances,
and debt securities issued by governments all of which are considered to be lower risk. Increases in trading portfolio assets and financial assets
at fair value through the income statement have driven the increase in the Barclays Group’s net exposure to credit risk. Trading portfolio liability
positions, which to a significant extent economically hedge trading portfolio assets but which are not held specifically for risk management
purposes, are excluded from the analysis. The credit quality of counterparties to derivatives, financial investments and wholesale loan assets are
predominantly investment grade and there are no significant changes from prior year. Further analysis on the credit quality of assets is presented
on pages 166 to 169.
Where collateral has been obtained in the event of default, the Barclays Group does not, ordinarily, use such assets for its own operations and they
are usually sold on a timely basis. The carrying value of assets held by the Barclays Group as at 31 December 2018, as a result of the enforcement
of collateral, was £6m (2017: £nil).
Maximum exposure and effects of netting, collateral and risk transfer (audited)
Maximum
exposure
£m
As at 31 December 2018
On-balance sheet:
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost:
Home loans
Credit cards, unsecured and other retail lending
Corporate loans
Total loans and advances at amortised cost
Of which credit-impaired (Stage 3):
Home loans
Credit cards, unsecured and other retail lending
Corporate loans
Total credit-impaired loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets:
Debt securities
Traded loans
Total trading portfolio assets
Financial assets at fair value through the income statement:
Loans and advances
Debt securities
Reverse repurchase agreements
Other financial assets
Total financial assets at fair value through the income statement
Derivative financial instruments
Financial assets at fair value through other comprehensive income
Other assets
Total on-balance sheet
177,069
77,222
150,284
56,431
119,691
326,406
2,125
1,249
1,762
5,136
2,308
57,283
7,234
64,517
Netting and
set-off
£m
Cash
collateral
£m
Non-cash
collateral
£m
Risk
transfer
£m
Net
exposure
£m
–
–
–
–
–
–
–
–
177,069
77,222
–
–
(7,550)
(7,550)
(295)
(725)
(65)
(1,085)
(149,679)
(5,608)
(41,042)
(196,329)
(132)
(451)
(4,454)
(5,037)
178
49,647
66,580
116,405
–
–
–
–
–
–
–
–
(3)
(6)
–
(9)
(17)
–
–
–
(2,083)
(232)
(895)
(3,210)
(2,261)
(451)
(154)
(605)
(31)
(38)
(17)
(86)
–
–
–
–
8
973
850
1,831
30
–
56,832
7,080
63,912
7,642
4,077
444
542
12,705
8,921
51,295
1,006
508,565
19,524
4,522
119,041
542
143,629
222,538
51,694
1,006
1,066,389
–
–
–
–
–
(172,001)
–
–
(179,551)
(11)
–
(2,996)
–
(3,007)
(31,402)
–
–
(35,511)
(11,782)
(445)
(115,601)
–
(127,828)
(5,502)
–
–
(332,525)
(89)
–
–
–
(89)
(4,712)
(399)
–
(10,237)
Off-balance sheet:
Contingent liabilities
Loan commitments
Total off-balance sheet
Total
20,303
324,223
344,526
–
–
–
(399)
(124)
(523)
(1,418)
(42,117)
(43,535)
(190)
(1,395)
(1,585)
18,296
280,587
298,883
1,410,915
(179,551)
(36,034)
(376,060)
(11,822)
807,448
Off-balance sheet exposures are shown gross of provisions of £271m (2017: £79m). See Note 26 for further details.
In addition to the above, Barclays Group holds forward starting reverse repos with notional contract amounts of £35.5bn (2017: £31.4bn).
The balances are fully collateralised.
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Barclays PLC Annual Report 2018 151
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Risk review
Risk performance
Credit risk
Maximum exposure and effects of netting, collateral and risk transfer (audited)
Maximum
exposure
£m
Netting and
set-off
£m
Cash
collateral
£m
Non-cash
collateral
£m
Risk
transfer
£m
Net
exposure
£m
As at 31 December 2017
On-balance sheet:
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost:
Home loans
Credit cards, unsecured and other retail lending
Corporate loans
Total loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets:
Debt securities
Traded loans
Total trading portfolio assets
Financial assets at fair value through the income statement:
Loans and advances
Debt securities
Reverse repurchase agreements
Other financial assets
Total financial assets at fair value through the income statement
Derivative financial instruments
Financial investments – debt securities
Other assets
Total on-balance sheet
Off-balance sheet:
Contingent liabilities
Loan commitments
Total off-balance sheet
Total
171,082
77,168
147,002
55,767
121,279
324,048
12,546
51,200
3,140
54,340
11,037
15
100,040
519
111,611
237,669
57,128
3,022
1,048,614
19,012
315,573
334,585
–
–
–
–
(6,617)
(6,617)
–
–
–
–
–
–
–
–
–
–
171,082
77,168
(158)
(241)
(230)
(629)
–
(146,554)
(3,995)
(46,402)
(196,951)
(12,226)
–
(16)
(4,378)
(4,394)
–
–
–
–
–
(128)
(128)
–
–
–
–
–
–
–
–
(184,265)
–
–
(190,882)
(440)
–
(426)
–
(866)
(33,092)
–
–
(34,587)
(5,497)
–
(99,428)
–
(104,925)
(6,170)
(463)
–
(320,863)
(344)
–
–
–
(344)
(5,885)
(853)
–
(11,476)
290
51,515
63,652
115,457
320
51,200
3,012
54,212
4,756
15
186
519
5,476
8,257
55,812
3,022
490,806
–
–
–
(318)
(73)
(391)
(1,482)
(31,069)
(32,551)
(228)
(1,757)
(1,985)
16,984
282,674
299,658
1,383,199
(190,882)
(34,978)
(353,414)
(13,461)
790,464
152 Barclays PLC Annual Report 2018
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Expected Credit Losses
Loans and advances at amortised cost by stage
The table below presents an analysis of loans and advances at amortised cost by gross exposure, impairment allowance, coverage ratio and
impairment charge by stage allocation and business segment as at 31 December 2018. Also included are off-balance sheet loan commitments
and financial guarantee contracts by gross exposure and impairment allowance and coverage ratio by stage allocation as at 31 December 2018.
Barclays does not hold any material purchased or originated credit impaired assets as at year-end.
Loans and advances at amortised cost by stage (audited)
Gross exposure
Impairment allowance
As at 31 December 2018
Barclays UK
Barclays International
Head Office
Total Barclays Group retail
Barclays UK
Barclays International
Head Office
Total Barclays Group wholesale
Total loans and advances at amortised cost
Off-balance sheet loan commitments and financial
guarantee contractsa
Totalb
Stage 1
£m
26,714
6,510
Stage 2
£m
134,911 25,279
4,634
636
168,135 30,549
4,144
8,754
–
113,091 12,898
43,447
281,226
22,824
87,344
2,923
Stage 3
£m
Total
£m
3,040 163,230
33,178
1,830
8,084
938
5,808 204,492
1,272 28,240
97,480
1,382
2,964
41
2,695 128,684
8,503 333,176
Stage 1
£m
183
352
9
544
16
128
–
144
688
Stage 2
£m
1,389
965
47
2,401
70
244
–
314
2,715
Stage 3
£m
1,152
1,315
306
2,773
117
439
38
594
3,367
362
Total
£m
Net
exposure
£m
2,724 160,506
2,632 30,546
7,722
5,718 198,774
203 28,037
811 96,669
2,926
38
1,052 127,632
6,770 326,406
309,989
22,126
591,215 65,573
684 332,799
9,187 665,975
99
787
150
2,865
22
3,389
271 332,528
7,041 658,934
As at 31 December 2018
Barclays UK
Barclays International
Head Office
Total Barclays Group retail
Barclays UK
Barclays International
Head Office
Total Barclays Group wholesale
Total loans and advances at amortised cost
Off-balance sheet loan commitments and financial
guarantee contractsa
Other financial assets subject to impairment
Total
Coverage ratio
Stage 2
%
5.5
20.8
7.4
7.9
1.7
2.8
–
2.4
6.2
0.7
4.4
Stage 3
%
37.9
71.9
32.6
47.7
9.2
31.8
92.7
22.0
39.6
3.2
36.9
Stage 1
%
0.1
1.3
0.1
0.3
0.1
0.1
–
0.1
0.2
–
0.1
Total
%
1.7
7.9
4.5
2.8
0.7
0.8
1.3
0.8
2.0
0.1
1.1
Loan impairment
charge and loan
loss rate
Loan
loss rate
bps
51
254
19
83
26
–
–
–
48
Loan
impair-
ment
charge
£m
830
844
15
1,689
74
(142)
(31)
(99)
1,590
(125)
3
1,468
Notes
a Excludes loan commitments and financial guarantees of £11.7bn carried at fair value.
b Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances, financial assets at fair value through other
comprehensive income and other assets. These have a total gross exposure of £129.9bn and impairment allowance of £12m (1 January 2018: £9m). This comprises £10m
ECL on £129.3bn Stage 1 assets and £2m on £0.6bn Stage 2 fair value through other comprehensive income assets.
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Barclays PLC Annual Report 2018 153
Risk review
Risk performance
Credit risk
Loans and advances at amortised cost by stage (audited)
As at 1 January 2018
Barclays UK
Barclays International
Head Office
Total Barclays Group retail
Barclays UK
Barclays International
Head Office
Total Barclays Group wholesale
Total loans and advances at amortised cost
Off-balance sheet loan commitments and financial
guarantee contractsa
Totalb
As at 1 January 2018
Barclays UK
Barclays International
Head Office
Total Barclays Group retail
Barclays UK
Barclays International
Head Office
Total Barclays Group wholesale
Total loans and advances at amortised cost
Off-balance sheet loan commitments and financial
guarantee contractsa
Total
Gross exposure
Stage 1
£m
129,837
22,427
6,498
158,762
22,835
75,331
8,689
106,855
265,617
Stage 2
£m
25,798
7,051
1,596
34,445
3,880
11,128
139
15,147
49,592
Stage 3
£m
Total
£m
3,152 158,787
30,944
1,466
9,046
952
5,570 198,777
27,807
1,092
88,804
2,345
8,902
74
3,511 125,513
9,081 324,290
Stage 1
£m
142
292
8
442
25
139
2
166
608
Impairment allowance
Stage 3
£m
1,142
1,080
294
2,516
114
694
58
866
3,382
Stage 2
£m
1,310
1,298
62
2,670
88
349
5
442
3,112
Total
£m
Net
exposure
£m
2,594 156,193
28,274
2,670
8,682
364
5,628 193,149
27,580
87,622
8,837
1,474 124,039
7,102 317,188
227
1,182
65
275,364
540,981
38,867
88,459
1,442 315,673
10,523 639,963
133
741
259
3,371
28
3,410
420 315,253
7,522 632,441
Stage 1
%
0.1
1.3
0.1
0.3
0.1
0.2
–
0.2
0.2
Coverage ratio
Stage 2
%
5.1
18.4
3.9
7.8
2.3
3.1
3.6
2.9
6.3
Stage 3
%
36.2
73.7
30.9
45.2
10.4
29.6
78.4
24.7
37.2
–
0.1
0.7
3.8
1.9
32.4
Total
%
1.6
8.6
4.0
2.8
0.8
1.3
0.7
1.2
2.2
0.1
1.2
Notes
a Excludes loan commitments and financial guarantees of £18.9bn carried at fair value.
b Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances, financial assets at fair value through
other comprehensive income and other assets. These have a total gross exposure of £128.1bn and impairment allowance of £9m.
154 Barclays PLC Annual Report 2018
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Loans and advances at amortised cost by product
The table below presents a breakdown of loans and advances at amortised cost and the impairment allowance with stage allocation
by asset classification.
Loans and advances at amortised cost by product (audited)
As at 31 December 2018
Gross exposure
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
Stage 1
£m
130,066
45,785
105,375
281,226
Not past due
£m
15,672
11,262
12,177
39,111
Impairment allowance
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
31
528
129
688
56
1,895
300
2,251
Net exposure
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
130,035
45,257
105,246
280,538
15,616
9,367
11,877
36,860
Coverage ratio
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
As at 1 January 2018
Gross exposure
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
Impairment allowance
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
Net exposure
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
Coverage ratio
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Total
%
–
1.2
0.1
0.2
£m
125,224
40,482
99,911
265,617
38
441
129
608
125,186
40,041
99,782
265,009
%
–
1.1
0.1
0.2
%
0.4
16.8
2.5
5.8
£m
17,108
13,562
14,534
45,204
77
2,086
444
2,607
17,031
11,476
14,090
42,597
%
0.5
15.4
3.1
5.8
Stage 2
<=30 days
past due
£m
1,672
530
360
2,562
>30 days
past due
£m
862
437
475
1,774
13
169
16
198
1,659
361
344
2,364
%
0.8
31.9
4.4
7.7
£m
1,612
702
407
2,721
10
203
22
235
1,602
499
385
2,486
%
0.6
28.9
5.4
8.6
13
240
13
266
849
197
462
1,508
%
1.5
54.9
2.7
15.0
£m
604
502
561
1,667
13
245
12
270
591
257
549
1,397
%
2.2
48.8
2.1
16.2
Total
£m
18,206
12,229
13,012
43,447
82
2,304
329
2,715
18,124
9,925
12,683
40,732
%
0.5
18.8
2.5
6.2
£m
19,324
14,766
15,502
49,592
100
2,534
478
3,112
19,224
12,232
15,024
46,480
%
0.5
17.2
3.1
6.3
Stage 3
£m
2,476
3,760
2,267
8,503
Total
£m
150,748
61,774
120,654
333,176
351
2,511
505
3,367
2,125
1,249
1,762
5,136
%
14.2
66.8
22.3
39.6
£m
2,425
3,544
3,112
9,081
326
2,291
765
3,382
2,099
1,253
2,347
5,699
%
13.4
64.6
24.6
37.2
464
5,343
963
6,770
150,284
56,431
119,691
326,406
%
0.3
8.6
0.8
2.0
£m
146,973
58,792
118,525
324,290
464
5,266
1,372
7,102
146,509
53,526
117,153
317,188
%
0.3
9.0
1.2
2.2
The overall coverage ratio reduced from 2.2% to 2.0% driven predominantly by the reduction of Stage 3 single name exposures within
Corporate loans.
The credit card, unsecured loans and other retail lending coverage ratio decreased to 8.6% from 9.0% due to the increase in Stage 1
balances which carry lower levels of ECL, with the Stage 2 increase including an adjustment for the anticipated UK economic uncertainty.
There are relatively low coverage ratios for Stage 3 Home loans and Corporate loans reflecting the secured nature of these exposures.
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Barclays PLC Annual Report 2018 155
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Risk review
Risk performance
Credit risk
Movement in gross exposures and impairment allowance including provisions for loan
commitments and financial guarantees (audited)
The following tables present a reconciliation of the opening to the closing balance of the exposure and impairment allowance. An explanation
of the terms 12-month ECL, lifetime ECL and credit-impaired is included on page 273.
Gross exposure for loans and advances at amortised cost (audited)
As at 1 January 2018
Net transfers between stages
Business activity in the year
– of which: Barclays UK
– of which: Barclays International
Net drawdowns and repayments
– of which: Barclays UK
– of which: Barclays International
Final repayments
– of which: Barclays UK
– of which: Barclays International
Disposals
Write-offs
As at 31 December 2018a
Impairment allowance on loans and advances at amortised cost (audited)
As at 1 January 2018
Net transfers between stages
Business activity in the year
Net remeasurement and movement due to exposure and risk parameter changes
UK economic uncertainty adjustment
Final repayments
Disposals
Write-offs
As at 31 December 2018a
Reconciliation of ECL movement to impairment charge/(release) for the period
ECL movement excluding assets derecognised due to disposals and write-offs
Net recoveries post write-offs
Exchange and other adjustments
Impairment release on loan commitments and financial guaranteesb
Impairment charge on other financial assetsa
Income statement charge/(release) for the period
Stage 1
£m
265,617
1,385
74,419
29,467
42,346
(13,140)
(10,269)
(1,305)
(41,946)
(11,728)
(29,421)
(5,109)
–
281,226
Stage 1
£m
608
798
223
(865)
–
(76)
–
–
688
Stage 2
£m
49,592
(3,602)
2,680
1,493
1,164
136
(980)
1,348
(5,359)
(1,753)
(3,520)
–
–
43,447
Stage 2
£m
3,112
(1,182)
173
638
150
(176)
–
–
2,715
Stage 3
£m
9,081
2,217
374
326
44
162
(322)
561
(1,071)
(478)
(549)
(369)
(1,891)
8,503
Stage 3
£m
3,382
384
95
1,918
–
(152)
(369)
(1,891)
3,367
Total
£m
324,290
–
77,473
31,286
43,554
(12,842)
(11,571)
604
(48,376)
(13,959)
(33,490)
(5,478)
(1,891)
333,176
Total
£m
7,102
–
491
1,691
150
(404)
(369)
(1,891)
6,770
1,928
(195)
(143)
(125)
3
1,468
Note
a Other financial assets subject to impairment not included in the table above include cash collateral and settlement balances, financial assets at fair value through other
comprehensive income and other assets. These have a total gross exposure of £129.9bn (1 January 2018: £128.1bn) and impairment allowance of £12m (1 January 2018: £9m).
This comprises £10m ECL on £129.3bn Stage 1 assets and £2m on £0.6bn Stage 2 fair value through other comprehensive income assets.
b Impairment release of £125m on loan commitments and financial guarantees represents a reduction in impairment allowance of £149m partially offset by exchange and other
adjustments of £24m.
Gross exposure on loans and advances at amortised cost has increased by £8.9bn in 2018 driven by Stage 1 increases due to:
■■ Growth in Barclays UK Home Loans portfolio of £4.6bn
■■ Increased lending in Portfolio Management, Equity derivatives and Equity financing in Barclays International of £6.6bn
■■ Balance sheet growth and currency exchange movements in US Cards of £2.5bn
■■ New securities for the liquidity asset buffer in the UK Service Company of £2.3bn and £1.0bn in Barclays International, offset by the disposal
of a long dated liquidity buffer portfolio of UK gilts totalling £5.1bn, reduction in Corporate lending of £2.5bn and continued repayments on
Italian Mortgages of £1.0bn.
Net transfers between stages represents the movements of positions from, for example, Stage 1 to Stage 2 following a Significant Increase in
Credit Risk (SICR) or to Stage 3 as positions move into default. Equally, improvement in credit quality will result in positions moving to lower
stages. These are the primary driver for the changes in impairment allowance and the income statement charge. The improvement in PDs and
macroeconomic variables during 2018 resulted in net exposures moving from Stage 2 into Stage 1. The transfers into Stage 3 was from defaulted
assets moving mainly from Stage 2.
Disposals includes the sale of a long dated liqudity buffer portfolio of UK gilts and debt sale activity. Write-offs represent the gross asset write
down during the period.
The impairment allowance decreased by £332m in the period. This is due to a net reduction in Barclays International predominantly from
write-offs and a positive impact of macroeconomic variables changes during the year, offset by a £150m charge in UK Cards and UK Corporate
loans from anticipated economic uncertainty in the UK. Credit quality across wholesale portfolios and underlying arrears rates in the retail portfolio
have been relatively stable over the period.
156 Barclays PLC Annual Report 2018
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Gross exposure for loan commitment and financial guarantees (audited)
As at 1 January 2018
Net transfers between stages
Business activity in the year
Net drawdowns and repayments
Final repayments
As at 31 December 2018
Provision on loan commitments and financial guarantees (audited)
As at 1 January 2018
Net transfers between stages
Business activity in the year
Net remeasurement and movement due to exposure and risk parameter changes
Final repayments
As at 31 December 2018
Stage 2 decomposition
Stage 2 decompositiona
As at 31 December 2018
Quantitative test
Qualitative test
30 dpd backstop
Total Stage 2
Stage 1
£m
275,364
13,521
65,404
(14,491)
(29,809)
309,989
Stage 2
£m
38,867
(13,552)
811
4,298
(8,298)
22,126
Stage 1
£m
133
42
18
(79)
(15)
99
Stage 2
£m
259
(43)
–
(22)
(44)
150
Stage 3
£m
1,442
31
–
(473)
(316)
684
Stage 3
£m
28
1
–
44
(51)
22
Total
£m
315,673
–
66,215
(10,666)
(38,423)
332,799
Total
£m
420
–
18
(57)
(110)
271
Net exposure
£m
28,159
12,023
550
40,732
Impairment
allowance
£m
2,506
183
26
2,715
Note
a Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding net exposure and ECL has been assigned
in order of categories presented.
Stage 2 exposures are predominantly identified using quantitative tests where the lifetime PD has deteriorated more than a pre-determined
amount since origination. This is augmented by inclusion of accounts meeting the designated high risk criteria (including watchlist) for the
portfolio under the qualitative test. A small number of other accounts (1% of impairment allowances and 1% of net exposure) are included in
Stage 2. These accounts are not otherwise identified by the quantitative or qualitative tests but are more than 30 days past due. The percentage
triggered by this backstop criteria is a measure of the effectiveness of the Stage 2 criteria in identifying deterioration prior to delinquency.
For further detail on the three criteria for determining a significant increase in credit risk required for Stage 2 classification, refer to Note 7
on page 273.
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Barclays PLC Annual Report 2018 157
Risk review
Risk performance
Credit risk
Management adjustments to models for impairment (audited)
Management adjustments to impairment models are applied in order to factor in certain conditions or changes in policy that are not fully
incorporated into the impairment models, or to reflect additional facts and circumstances at the period end. Management adjustments are
reviewed and incorporated into future model development where applicable.
Adjustments in portfolios that have total management adjustments to impairment allowance of greater than £10m are presented by product
below. Information as at 31 December 2018 is prepared on an IFRS 9 basis and information as at 31 December 2017 is prepared on an IAS 39 basis.
During 2018, models have continued to develop and a number of adjustments that were required on IFRS 9 adoption have been incorporated
in impairment modelling.
Management adjustments to models for impairmenta (audited)
As at 31 December
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Note
a Positive values relate to an increase in impairment allowance.
2018
2017
Management
adjustments
to impairment
allowances,
including
forbearance
£m
54
370
(7)
Management
adjustments
to impairment
allowances,
including
forbearance
£m
71
80
138
Proportion
of total
impairment
allowances
%
11.6
6.9
(0.7)
Proportion
of total
impairment
allowances
%
15.5
2.6
12.1
Home loans: Due to the high quality nature of the UK Home Loans portfolio, ECL estimates are low in all but the most severe scenarios.
An adjustment is held to maintain an appropriate level of ECL.
Credit cards, unsecured loans and other retail lending: Model related adjustments to maintain adequacy of Loss Given Default estimates and
retail staging criteria updates were applied during the year. This also includes a £100m ECL adjustment held in UK Cards for the anticipated impact
of economic uncertainty in the UK.
Corporate loans: Includes a £50m ECL adjustment held in Corporate Bank for the anticipated economic uncertainty in the UK, offset by a release
in the Investment Bank to reduce inappropriate ECL sensitivity to a macroeconomic variable.
158 Barclays PLC Annual Report 2018
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Measurement uncertainty and sensitivity analysis
The measurement of ECL involves increased complexity and judgement, including estimation of probabilities of default (PD), loss given default
(LGD), a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at default (EAD) and assessing
significant increases in credit risk. Impairment charges will tend to be more volatile than under IAS 39 and will be recognised earlier. Unsecured
products with longer expected lives, such as revolving credit cards, are the most impacted.
Barclays Group uses a five-scenario model to calculate ECL. An external consensus forecast is assembled from key sources, including HM
Treasury, Bloomberg and the Urban Land Institute, which forms the baseline scenario. In addition, two adverse scenarios (Downside 1 and
Downside 2) and two favourable scenarios (Upside 1 and Upside 2) are derived, with associated probability weightings. The adverse scenarios
are calibrated to a similar severity to internal stress tests, whilst also considering IFRS 9 specific sensitivities and non-linearity. Downside 2 is
benchmarked to the Bank of England’s annual cyclical scenarios and to the most severe scenario from Moody’s inventory, but is not designed to
be the same. The favourable scenarios are calibrated to be symmetric to the adverse scenarios, subject to a ceiling calibrated to relevant recent
favourable benchmark scenarios. The scenarios include six economic core variables, (GDP, unemployment and House Price Index (HPI) in both
the UK and US markets), and expanded variables using statistical models based on historical correlations. All five scenarios converge to a steady
state after eight years.
Scenario weights (audited)
The methodology for estimating probability weights for each of the scenarios involves a comparison of the distribution of key historic UK and
US macroeconomic variables against the forecast paths of the five scenarios. The methodology works such that the baseline (reflecting current
consensus outlook) has the highest weight and the weights of adverse and favourable scenarios depend on the deviation from the baseline;
the further from the baseline, the smaller the weight. The probability weights of the scenarios as of 31 December 2018 are shown below. A single
set of five scenarios is used across all portfolios and all five weights are normalised to equate to 100%. The same scenarios and weights that are
used in the estimation of expected credit losses are also used for Barclays internal planning purposes. The impacts across the portfolios are
different because of the sensitivities of each of the portfolios to specific macroeconomic variables, for example, mortgages are highly sensitive
to house prices and base rates, credit cards and unsecured consumer loans are highly sensitive to unemployment.
The table below shows the core macroeconomic variables for each scenario and the respective scenario weights.
Scenario probability weighting (audited)
As at 31 December 2018
Scenario probability weighting
Macroeconomic variables (audited)
As at 31 December 2018
UK GDPa
UK unemploymentb
UK HPIc
US GDPa
US unemploymentb
US HPIc
Upside 2
%
9
Upside 1
%
24
Baseline
%
41
Downside 1
%
23
Downside 2
%
3
Upside 2
%
4.5
3.4
46.4
4.8
3.0
36.9
Upside 1
%
3.1
3.9
32.6
3.7
3.4
30.2
Baseline
%
1.7
4.3
3.2
2.1
3.7
4.1
Downside 1
%
0.3
5.7
(0.5)
0.4
5.2
–
Downside 2
%
(4.1)
8.8
(32.1)
(3.3)
8.4
(17.4)
Notes
a Highest annual growth in Upside scenarios; 5-year average in Baseline; lowest annual growth in Downside scenarios.
b Lowest point in Upside scenarios; 5-year average in Baseline; highest point in Downside scenarios.
c 5-year cumulative growth in Upside scenarios; 5-year average in Baseline; cumulative fall (peak-to-trough) in Downside scenarios.
Over the year, the macroeconomic baseline variables improved in the US economic outlook, notably HPI. The UK macroeconomic baseline
variables improved slightly overall.
ECL under 100% weighted scenarios for key principal portfolios (audited)
The table on the next page shows the ECL for key principal portfolios assuming scenarios have been 100% weighted. Gross exposures are
allocated to a stage based on the individual scenario rather than through a probability-weighted approach as is required for Barclays reported
impairment allowances. As a result, it is not possible to back solve the weighted ECL from the individual scenarios as a balance may be assigned
to a different stage dependent on the scenario.
Material post-model adjustments have been excluded from the below analysis so that the scenario specific results are comparable. Management
adjustments of greater than £10m can be found on page 158.
The key principal portfolios included in the product split below account for circa 80% of total loans and advances at amortised cost and circa 80%
of total impairment allowance (including off-balance sheet loan commitments and financial guarantee contracts). Portfolios excluded are those
where the risk resides outside of the UK or the US; certain less material portfolios; and exposures where ECL estimation methods are based on
benchmark approaches or assigned proxy coverage ratios.
Balances allocated to Stage 3 do not change in any of the scenarios as the transition criteria relies only on observable evidence of default as at
31 December 2018 and not on macroeconomic scenarios.
The Downside 2 scenario represents a severe global recession with substantial falls in both UK and US GDP. Unemployment in both markets rises
towards 9% and there are substantial falls in asset prices including housing.
Under the Downside 2 scenario, balances move between stages as the economic environment weakens. This can be seen in the movement
of £19.0bn of gross exposure into Stage 2 between the Weighted and Downside 2 scenario. ECL increases in Stage 2 predominantly due to
unsecured portfolios as economic conditions deteriorate.
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Barclays PLC Annual Report 2018 159
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Risk review
Risk performance
Credit risk
As at 31 December 2018
Weighted
Upside 2
Upside 1
Baseline Downside 1 Downside 2
Scenarios
Stage 1 Gross Exposure (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Stage 1 ECL (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Stage 1 Coverage (%)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Stage 2 Gross Exposure (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Stage 2 ECL (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Stage 2 Coverage (%)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loans
Stage 3 Gross Exposure (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loansa
Stage 3 ECL (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loansa
Stage 3 Coverage (%)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loansa
Total ECL (£m)
Home loans
Credit cards, unsecured loans and other retail lending
Corporate loansa
115,573
30,494
80,835
116,814
32,104
81,346
116,402
31,082
81,180
115,924
30,536
80,941
114,858
29,846
80,517
109,305
24,884
73,715
1
355
175
–
1.2
0.2
–
304
161
–
0.9
0.2
–
343
163
–
1.1
0.2
–
351
162
–
1.1
0.2
17,455
10,943
11,377
7
2,013
323
16,214
9,334
10,866
1
1,569
277
16,627
10,355
11,031
1
1,779
290
17,105
10,902
11,271
3
1,969
302
–
18.4
2.8
–
16.8
2.5
–
17.2
2.6
–
18.1
2.7
1,104
2,999
1,165
6
2,200
333
0.5
73.4
28.6
14
4,568
831
1,104
2,999
n/a
3
2,154
n/a
0.3
71.8
n/a
4
4,027
n/a
1,104
2,999
n/a
4
2,174
n/a
0.4
72.5
n/a
5
4,296
n/a
1,104
2,999
1,165
5
2,199
323
0.5
73.3
27.7
8
4,519
787
1
365
203
–
1.2
0.3
18,170
11,591
11,694
7
2,331
397
–
20.1
3.4
1,104
2,999
n/a
7
2,234
n/a
0.7
74.5
n/a
15
4,930
n/a
9
388
242
–
1.6
0.3
23,724
16,553
18,496
172
4,366
813
0.7
26.4
4.4
1,104
2,999
n/a
27
2,297
n/a
2.4
76.6
n/a
208
7,051
n/a
Note
a Material corporate loan defaults are individually assessed across different recovery strategies which are impacted by the macroeconomic variables. As a result, only the Baseline
scenario is shown together with the weighted estimate which reflects alternative recovery paths.
For portfolios in scope, the total weighted ECL represents a 2% uplift from the Baseline ECL, largely driven by credit card losses which have more
linear loss profiles than home loans and corporate loan positions.
Home loans: Total ECL and coverage ratios remain steady across the Upside scenarios, Baseline and Downside 1 scenario. However, total ECL
increases significantly in the Downside 2 scenario to £208m, driven by a significant fall in HPI (32.1%) reflecting the non-linearity of the portfolio.
The average LTV of the home loans portfolio remains low and as such can withstand a Downside 1 scenario (0.5% fall in HPI) without a significant
increase in ECL. Total weighted ECL excludes a £54m model adjustment that is held to maintain appropriate level of ECL.
Credit cards, unsecured loans and other retail lending: Total weighted ECL of £4,568m represents a 1% increase over the Baseline ECL (£4,519m)
reflecting the range of economic scenarios used. Total ECL increases to £7,051m under Downside 2 scenario, mainly driven by Stage 2, where
coverage rates increase by 800bps to 26.4% from a weighted scenario approach (18.4%) and a £5,610m increase in gross exposure that meets
the SICR criteria and transition from Stage 1 to Stage 2. Total weighted ECL excludes model adjustments, including the £100m adjustment for
the anticipated economic uncertainty in the UK.
Corporate loans: Total weighted ECL of £831m represents a 6% increase over the Baseline ECL (£787m) reflecting the range of economic
scenarios used, with exposures in the Investment Bank particularly sensitive to Downside 2 scenario. Cases in Stage 3 are assessed on an
individual basis and cases where the Baseline ECL is greater than £10m are also assessed against a less favourable and a more favourable scenario,
based on alternative recovery outcomes in addition to macroeconomic scenarios. Total weighted ECL excludes model adjustments, including the
£50m adjustment for the anticipated economic uncertainty in the UK.
160 Barclays PLC Annual Report 2018
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Staging sensitivity (audited)
An increase of 1% (£3,332m) of total gross exposure into Stage 2 (from Stage 1), would result in an increase in ECL impairment allowance
of £200m based on applying the difference in Stage 2 and Stage 1 average impairment coverage ratios to the movement in gross exposure
(refer to Loans and advances at amortised cost by product on page 155).
ECL sensitivity analysis
The tables on pages 162 and 163 show the estimated ECL impact on key principal portfolios in the event that the UK/US consensus was instead
for i) positive growth (Upward scenario); and ii) a mild downturn (Downward scenario). These scenarios assume a moderate upturn and
downturn for the UK and the US respectively but with no contagion or headwinds in other economies.
The gross exposures in scope are aligned to those presented in the ECL under 100% weighted scenarios sensitivity analysis but based on portfolio
positions as at 30 September 2018 due to operational complexity in scenario regeneration. The portfolios included in the scenario remained
broadly stable during Q4 2018 and therefore the scenario results are considered representative of the year end position. Material post-model
adjustments have been excluded from the below analysis to allow the scenario specific results to be comparable. Further detail on management
adjustments to impairment allowances can be found on page 158.
Gross exposures allocated to Stage 3 do not change in any of the scenarios as the transition criteria relies only on observable evidence of default
and not on macroeconomic scenarios. For individual cases with ECL greater than £10m, three scenarios are assessed taking into account the
macroeconomic scenarios and alternative recovery strategies. For these specific cases, the less favourable scenario is assumed to occur in the
UK/US Downward scenario (and the more favourable scenario is assumed to occur in the UK/US Upward scenario) which is a conservative upper
estimate as certain recovery strategies are idiosyncratic in nature and independent of the macroeconomic economy. Changes to coverage ratios
are expressed against the exposures in scope of the sensitivity analysis and not the entire portfolio.
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Barclays PLC Annual Report 2018 161
Risk review
Risk performance
Credit risk
ECL sensitivity analysis to UK economic forecasts for key principal portfolios
The table below shows the estimated ECL impact on key principal portfolios for both a positive growth (Upward scenario) and a downturn
(Downward scenario) of UK consensus macroeconomic variables. The inputs for the Downward scenario have been modelled by replacing
the Baseline macroeconomic variables with the Downside 1 variables (with no changes to US and other non-UK macroeconomic variables,
as highlighted below). Similarly, the Upward scenario uses Upside 1 UK macroeconomic variables for the Baseline scenario. The Downside 2,
Downside 1, Upside 1 and Upside 2 macroeconomic variables are held constant but the probability weights have been re-calibrated.
Barclays impairment as at 31 December 2018 includes an adjustment of £150m representing a charge for the estimated impact of anticipated
economic uncertainty in the UK. This adjustment was estimated broadly on the output of the UK Downward scenario below.
Scenario probability weighting
UK Upward scenario
UK Downward scenario
Macroeconomic variables
As at 31 December 2018
UK Upward scenario
UK GDP
UK unemployment
UK HPI
US GDP
US unemployment
US HPI
UK Downward scenario
UK GDP
UK unemployment
UK HPI
US GDP
US unemployment
US HPI
Sensitivity to UK economic forecasts
Gross Exposure (£m)
Home loans
Credit cards, unsecured loans and other
retail lending
Corporate loans
ECL (£m)
Home loans
Credit cards, unsecured loans and other
retail lending
Corporate loans
Upside 2
%
18
8
Upside 1
%
33
18
Baseline
%
36
40
Downside 1
%
11
28
Downside 2
%
2
6
Upside 2
%
Upside 1
%
Baseline
%
Downside 1
%
Downside 2
%
4.5
3.4
46.4
4.8
3.0
36.9
4.5
3.4
46.4
4.8
3.0
36.9
3.1
3.9
32.6
3.7
3.4
30.2
3.1
3.9
32.6
3.7
3.4
30.2
3.1
3.9
32.6
2.1
3.7
4.1
0.3
5.7
(0.5)
2.1
3.7
4.1
0.3
5.7
(0.5)
0.4
5.2
–
0.3
5.7
(0.5)
0.4
5.2
–
(4.1)
8.8
(32.1)
(3.3)
8.4
(17.4)
(4.1)
8.8
(32.1)
(3.3)
8.4
(17.4)
Stage 1
Stage 2
Stage 3
Total
Δ UK
Upward
scenario
Δ UK
Downward
scenario
Δ UK
Upward
scenario
Δ UK
Downward
scenario
Δ UK
Upward
scenario
Δ UK
Downward
scenario
Δ UK
Upward
scenario
Δ UK
Downward
scenario
506
294
79
–
(4)
1
(889)
(506)
(252)
(13)
–
4
7
(294)
(79)
(3)
(102)
(4)
889
252
13
6
104
13
–
–
–
(1)
(15)
(46)
–
–
–
2
15
28
–
–
–
(4)
(121)
(49)
–
–
–
8
123
48
Home loans: Total ECL increases by £8m in the Downward scenario, driven by the increase in the probability weight attributed to the Downside 2
scenario. This represents a greater likelihood of the UK economy entering into a severe downturn than under the current consensus.
Credit cards, unsecured loans and other retail lending: Total ECL decreases by £121m in the Upward scenario driven by £294m of balance
migration as assets transition from Stage 2 to Stage 1 and lower coverage on Stage 2 assets driven by the more favourable consensus forecast.
Total ECL increases by £123m in the Downward scenario, mainly driven by the UK cards portfolio.
Corporate loans: Total ECL decreases by £49m in the Upward scenario predominately driven by more favourable recovery outcomes for large
single names in Stage 3. The Downward scenario results in total ECL impact of £48m, driven by higher coverage in Stage 2 and less favourable
recovery outcomes for large single names in Stage 3.
162 Barclays PLC Annual Report 2018
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ECL sensitivity analysis to US economic forecasts for key principal portfolios
The table below shows the estimated ECL impact on key principal portfolios for both a positive growth (Upward scenario) and a downturn
(Downward scenario) of US consensus macroeconomic variables. The inputs for the Downward scenario have been modelled by replacing
the Baseline macroeconomic variables with the Downside 1 variables (with no changes to UK and other non-US macroeconomic variables,
as highlighted below). Similarly, the Upward scenario uses Upside 1 US macroeconomic variables for the Baseline scenario. The Downside 2,
Downside 1, Upside 1 and Upside 2 macroeconomic variables are held constant but the probability weights have been re-calibrated.
Scenario probability weighting
US Upward scenario
US Downward scenario
Macroeconomic variables
As at 31 December 2018
US Upward scenario
UK GDP
UK unemployment
UK HPI
US GDP
US unemployment
US HPI
US Downward scenario
UK GDP
UK unemployment
UK HPI
US GDP
US unemployment
US HPI
Upside 2
%
18
5
Upside 1
%
33
14
Baseline
%
36
40
Downside 1
%
11
34
Downside 2
%
2
7
Upside 2
%
Upside 1
%
Baseline
%
Downside 1
%
Downside 2
%
4.5
3.4
46.4
4.8
3.0
36.9
4.5
3.4
46.4
4.8
3.0
36.9
3.1
3.9
32.6
3.7
3.4
30.2
3.1
3.9
32.6
3.7
3.4
30.2
1.7
4.3
3.2
3.7
3.4
30.2
1.7
4.3
3.2
0.4
5.2
–
0.3
5.7
(0.5)
0.4
5.2
–
0.3
5.7
(0.5)
0.4
5.2
–
(4.1)
8.8
(32.1)
(3.3)
8.4
(17.4)
(4.1)
8.8
(32.1)
(3.3)
8.4
(17.4)
Sensitivity to US economic forecasts
Gross Exposure (£m)
Credit cards, unsecured loans and other
retail lending
Corporate loans
ECL (£m)
Credit cards, unsecured loans and other
retail lending
Corporate loans
Stage 1
Stage 2
Stage 3
Total
Δ US
Upward
scenario
Δ US
Downward
scenario
Δ US
Upward
scenario
Δ US
Downward
scenario
Δ US
Upward
scenario
Δ US
Downward
scenario
Δ US
Upward
scenario
Δ US
Downward
scenario
214
83
(312)
(46)
(214)
(83)
(4)
(3)
6
10
(76)
(15)
312
46
144
34
–
–
(6)
(35)
–
–
7
54
–
–
–
–
(86)
(53)
157
98
Credit cards, unsecured loans and other retail lending: Total ECL decreases by £86m in Upward scenario driven by £214m of balance migration
as assets transition from Stage 2 to Stage 1 and lower coverage on Stage 2 assets driven by the more favourable consensus forecast. Total ECL
impact of £157m in Downward scenario, greater than the Upward scenario, driven by non-linearity effects and the relative severity of the
Downward scenario.
Corporate loans: Total ECL increases by £98m in the Downward scenario driven by a less favourable recovery outcome for one large single name
in Stage 3, where Barclays estimated additional losses of £39m in addition to the loss estimated under the Baseline scenario, and higher coverage
in Stage 2 assets driven by the less favourable consensus forecast. There is a greater impact on coverage ratios (Stage 2 in particular) than the UK
scenarios driven largely by the underlying portfolio quality, with the US portfolio possessing a higher proportion of unsecured leveraged lending.
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Barclays PLC Annual Report 2018 163
Risk review
Risk performance
Credit risk
Analysis of the concentration of credit risk
A concentration of credit risk exists when a number of counterparties are located in a common geographical region or are engaged in similar
activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions. Barclays Group implements limits on concentrations in order to mitigate the risk. The analyses of
credit risk concentrations presented below are based on the location of the counterparty or customer or the industry in which they are engaged.
Geographic concentrations
As at 31 December 2018, the geographic concentration of Barclays Group’s assets remained broadly consistent with 2017. Exposure is concentrated
in the UK 41% (2017: 42%), in the Americas 34% (2017: 33%) and Europe 21% (2017: 21%).
Credit risk concentrations by geography (audited)
As at 31 December 2018
On-balance sheet:
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets
Financial assets at fair value through the income statement
Derivative financial instruments
Financial assets at fair value through other comprehensive income
Other assets
Total on-balance sheet
Off-balance sheet:
Contingent liabilities
Loan commitments
Total off-balance sheet
Total
Credit risk concentrations by geography (audited)
As at 31 December 2017
On-balance sheet:
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets
Financial assets at fair value through the income statement
Derivative financial instruments
Financial investments – debt securities
Other assets
Total on-balance sheet
Off-balance sheet:
Contingent liabilities
Loan commitments
Total off-balance sheet
Total
United
Kingdom
£m
64,343
27,418
240,116
724
12,444
33,842
69,798
11,494
780
460,959
Europe
£m
Americas
£m
Africa and
Middle East
£m
Asia
£m
Total
£m
66,887
22,316
27,913
113
13,375
20,984
80,003
23,298
125
255,014
36,045
22,184
49,592
68
34,369
73,489
58,699
13,953
100
288,499
718
376
3,414
1,320
713
1,758
1,866
163
1
10,329
9,076
4,928
5,371
83
3,616
13,556
12,172
2,786
–
177,069
77,222
326,406
2,308
64,517
143,629
222,538
51,694
1,006
51,588 1,066,389
5,910
108,506
114,416
575,375
3,572
34,524
38,096
293,110
8,996
175,995
184,991
473,490
536
1,852
2,388
12,717
1,289
3,346
4,635
20,303
324,223
344,526
56,223 1,410,915
United
Kingdom
£m
53,068
23,852
240,102
203
10,603
33,922
81,656
17,470
1,579
462,455
Europe
£m
Americas
£m
Africa and
Middle East
£m
57,179
24,311
27,223
375
13,620
23,725
81,566
23,598
1,179
252,776
56,034
23,440
47,850
10,521
25,680
46,288
57,858
14,110
148
281,929
63
870
3,385
32
473
1,611
2,792
114
33
9,373
Asia
£m
Total
£m
4,738
4,695
5,488
1,415
3,964
6,065
13,797
1,836
83
171,082
77,168
324,048
12,546
54,340
111,611
237,669
57,128
3,022
42,081 1,048,614
7,603
105,912
113,515
575,970
3,039
36,084
39,123
291,899
6,708
168,003
174,711
456,640
529
1,608
2,137
11,510
19,012
1,133
315,573
3,966
5,099
334,585
47,180 1,383,199
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Industry concentrations
The concentration of Barclays Group’s assets by industry remained broadly consistent year on year. As at 31 December 2018, total assets
concentrated in banks and other financial institutions was 36% (2017: 36%), predominantly within derivative financial instruments. The proportion
of the overall balance concentrated in governments and central banks was 20% (2017: 20%), cards, unsecured loans and other personal lending
was 13% (2017: 13%) and in home loans remained stable at 11% (2017: 11%).
Credit risk concentrations by industry (audited)
Other
financial
insti-
tutions
£m
Manu-
facturing
£m
Con-
struction
and
property
£m
Govern-
ment and
central
bank
£m
Wholesale
and retail
distri-
bution and
leisure
£m
Energy
and
water
£m
Business
and other
services
£m
Cards,
unsecured
loans and
other
personal
lending
£m
Home
loans
£m
–
–
–
–
–
–
–
75
498
386
9,235
Total
£m
Other
£m
Banks
£m
– 177,069
9,478 18,653
17,341 48,398
8,775 23,565 12,764
As at 31 December
2018
On-balance sheet:
Cash and balances
at central banks
Cash collateral and
settlement balances
Loans and advances
at amortised cost
Reverse repurchase
agreements and other
similar secured lending
Trading portfolio assets
Financial assets at fair
value through the
income statement
Derivative financial
instruments
Financial assets at fair
value through other
51,694
200 36,973
comprehensive income
Other assets
1,006
–
Total on-balance sheet 198,545 256,896 15,488 35,681 282,365 12,926 13,533 28,232 150,689 55,298 16,736 1,066,389
38
897 34,968
19,716 150,284 55,298
123,769 80,376
30,374 96,378
2,308
64,517
12,135
580
–
2,892
–
3,481
–
3,825
–
4,202
–
1,202
2,250
426
1,368
3,500
865
9,550
136
–
326,406
222,538
143,629
177,069
11,609
77,222
10,749
5,515
2,791
2,390
5,987
2,004
5,331
1,993
8,914
2,742
2,178
349
486
405
223
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
717
32
13
37
–
–
–
–
–
–
–
–
–
4
Off-balance sheet:
Contingent liabilities
Loan commitments
Total off-balance sheet
Total
939
3,840
3,470
1,267 42,890 39,978
2,206 46,730 43,448
20,303
324,223
344,526
200,751 303,626 58,936 50,669 285,884 42,936 29,051 53,829 159,589 182,054 43,590 1,410,915
3,455
952
22,142
14,566
30,010 15,518 25,597
1,524
116
8,900 126,640 25,330
8,900 126,756 26,854
1,890
3,491
1,629 26,519
3,519
626
14,362
14,988
–
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Barclays PLC Annual Report 2018 165
Risk review
Risk performance
Credit risk
Credit risk concentrations by industry (audited)
Other
financial
insti-
tutions
£m
–
–
9,386
48,611
26,312
18,395
Banks
£m
As at 31 December
2017
On-balance sheet:
Cash and balances
at central banks
Cash collateral and
settlement balances
Loans and advances
at amortised cost
Reverse repurchase
agreements and other
similar secured lending
Trading portfolio assets
Financial assets at fair
value through the
income statement
Derivative financial
instruments
Financial investments
1,379
– debt securities
Other assets
701
Total on-balance sheet 199,865 258,297
4,844
10,672
10,145
2,300
7,241
4,682
126,248
78,506
21,468
87,272
Con-
struction
and
property
£m
Govern-
ment and
central
bank
£m
Manu-
facturing
£m
Wholesale
and retail
distri-
bution and
leisure
£m
Energy
and
water
£m
Business
and other
services
£m
Cards,
unsecured
loans and
other
personal
lending
£m
Home
loans
£m
Other
£m
Total
£m
–
– 171,082
–
–
–
124
233
8,219
585
75
577
–
–
–
–
–
171,082
349
77,168
9,125
23,473
9,097
5,519
12,375
19,906 147,002
54,205
7,648
324,048
–
3,311
153
807
307
26,030
–
3,900
–
598
1
3,324
–
128
38
4,666
4,812
2
3
2,083
2,383
2,103
5,811
8,179
576
2,972
28
–
–
–
–
–
–
888
12,546
54,340
5
111,611
2,125
237,669
–
–
14,981
– 44,827
21
–
31,435 270,206
103
–
18,288
–
–
13,627
674
–
–
–
29,537 147,158
–
–
54,205
–
–
57,128
3,022
11,015 1,048,614
Off-balance sheet:
Contingent liabilities
Loan commitments
Total off-balance sheet
Total
1,572
1,550
3,122
3,556
31,427
34,983
202,987 293,280
3,236
38,105
41,341
56,322
8
675
384
12,956
13,631
392
45,066 270,598
2,605
31,702
34,307
52,595
969
14,507
15,476
29,103
4
389
4,947
10,785 126,169
34,415
39,362
10,789 126,558
68,899 157,947 180,763
19,012
1,051
315,573
13,573
14,624
334,585
25,639 1,383,199
The approach to management and representation of credit quality
Asset credit quality
The credit quality distribution is based on the IFRS 9 12-month probability of default (PD) at the reporting date. Comparatives are based on the
regulatory capital point in time probability of default (PD).
The following internal measures are used to determine credit quality for loans:
Default Grade
1-3
4-5
6-8
9-11
12-14
15-19
20-21
22
Retail and Wholesale lending
Probability of default
0.0 to <0.05%
0.05 to <0.15%
0.15 to <0.30%
0.30 to <0.60%
0.60 to <2.15%
2.15 to <11.35%
11.35 to <100%
100%
Credit Quality
Description
Strong
Satisfactory
Higher Risk
Credit Impaired
For retail clients, a range of analytical tools is used to derive the probability of default of clients at inception and on an ongoing basis.
These credit quality descriptions can be summarised as follows:
Strong: there is a very high likelihood of the asset being recovered in full.
Satisfactory: while there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Barclays Group, the asset
may not be collateralised, or may relate to unsecured retail facilities. At the lower end of this grade there are customers that are being more
carefully monitored, for example, corporate customers which are indicating some evidence of deterioration, mortgages with a high loan to value,
and unsecured retail loans operating outside normal product guidelines.
Higher risk: there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency.
There may also be doubts over the value of collateral or security provided. However, the borrower or counterparty is continuing to make payments
when due and is expected to settle all outstanding amounts of principal and interest.
166 Barclays PLC Annual Report 2018
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Debt securities
For assets held at fair value, the carrying value on the balance sheet will include, among other things, the credit risk of the issuer. Most listed and
some unlisted securities are rated by external rating agencies. The Barclays Group mainly uses external credit ratings provided by Standard & Poor’s,
Fitch or Moody’s. Where such ratings are not available or are not current, the Barclays Group will use its own internal ratings for the securities.
Balance sheet credit quality
The following tables present the credit quality of Barclays Group assets exposed to credit risk.
Overview
As at 31 December 2018, the ratio of the Barclays Group’s on-balance sheet assets classified as strong (0.0 to <0.60%) remained stable at 86%
(2017: 87%) of total assets exposed to credit risk.
Further analysis of debt securities by issuer and issuer type and netting and collateral arrangements on derivative financial instruments is presented
on pages 174 and 175 respectively.
Balance sheet credit quality (audited)
As at 31 December 2018
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Home loans
Credit cards, unsecured and other
retail lending
Corporate loans
Total loans and advances at amortised cost
Reverse repurchase agreements and other
similar secured lending
Trading portfolio assets:
Debt securities
Traded loans
Total trading portfolio assets
Financial assets at fair value through
the income statement:
Loans and advances
Debt securities
Reverse repurchase agreements
Other financial assets
Total financial assets at fair value through
the income statement
Derivative financial instruments
Financial assets at fair value through other
comprehensive income
Other assets
Total on-balance sheet
0.0 to
<0.60%
£m
177,069
70,455
PD range
0.60 to
<11.35%
£m
–
6,763
11.35 to
100%
£m
–
4
Total
£m
177,069
77,222
0.0 to
<0.60%
%
100
91
PD range
0.60 to
<11.35%
%
–
9
11.35 to
100%
%
–
–
137,449
9,701
3,134
150,284
21,786
86,271
245,506
31,664
30,108
71,473
2,981
3,312
9,427
56,431
119,691
326,406
1,820
444
44
2,308
389
963
1,352
52
61
1,341
–
57,283
7,234
64,517
19,524
4,522
119,041
542
1,454
52
143,629
222,538
51,896
1,903
53,799
4,998
4,368
9,366
6,295
81
31,813
18
38,207
10,791
13,177
4,380
85,887
524
103,968
211,695
51,546
723
916,581
148
283
137,475
–
–
51,694
1,006
12,333 1,066,389
100
72
86
92
39
72
75
79
90
27
83
68
97
72
97
72
95
6
56
25
22
19
9
60
15
32
2
27
3
27
5
–
28
13
2
5
3
3
2
1
13
2
–
1
1
–
1
–
–
–
1
Total
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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Barclays PLC Annual Report 2018 167
Risk review
Risk performance
Credit risk
Balance sheet credit quality (audited)
As at 31 December 2017
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Home loans
Credit cards, unsecured and other
retail lendinga
Corporate loans
Total loans and advances at amortised cost
Reverse repurchase agreements and other
similar secured lending
Trading portfolio assets:
Debt securities
Traded loans
Total trading portfolio assets
Financial assets designated at fair value:
Loans and advances
Debt securities
Reverse repurchase agreements
Other financial assets
Total financial assets designated at fair value
Derivative financial instruments
Financial investments – debt securities
Other assets
Total on-balance sheet
0.0 to
<0.60%
£m
171,082
72,277
PD range
0.60 to
<11.35%
£m
–
4,619
11.35 to
100%
£m
–
272
Total
£m
171,082
77,168
0.0 to
<0.60%
%
100
94
PD range
0.60 to
<11.35%
%
–
6
11.35 to
100%
%
–
135,576
5,781
5,645
147,002
13,195
75,819
224,590
34,897
33,093
73,771
7,675
12,367
25,687
55,767
121,279
324,048
11,430
1,101
15
12,546
48,489
1,432
49,921
9,457
–
82,263
482
92,202
229,262
57,106
2,570
910,440
2,085
1,189
3,274
817
15
17,692
37
18,561
7,863
18
411
109,618
626
519
1,145
51,200
3,140
54,340
763
–
85
–
848
544
4
41
11,037
15
100,040
519
111,611
237,669
57,128
3,022
28,556 1,048,614
92
24
63
73
91
95
45
92
86
–
82
93
82
96
100
85
87
4
63
27
20
9
4
38
6
7
100
18
7
17
4
–
14
10
4
13
10
7
–
1
17
2
7
–
–
–
1
–
–
1
3
Total
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Note
a 2017 figures have been restated to more accurately reflect the credit quality distribution within credit cards, unsecured and retail lending.
168 Barclays PLC Annual Report 2018
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Credit exposures by internal PD grade
Credit risk profile by internal PD grade for loans and advances at amortised cost (audited)
Credit quality description
Strong
Satisfactory
Higher Risk
Credit Impaired
Total
Gross carrying amount
Stage 1
£m
PD range
%
Stage 2
£m
0.0 to <0.60% 232,163 13,556
0.60 to <11.35% 48,730 24,768
5,123
11.35 to <100%
–
100%
43,447
333
–
281,226
Stage 3
£m
Total
£m
– 245,719
– 73,498
5,456
–
8,503
8,503
8,503 333,176
Credit risk profile by internal PD grade for contingent liabilities (audited)a
Gross carrying amount
Total
Stage 3
£m
£m
– 15,443
4,505
–
277
–
74
74
74 20,299
Stage 1
£m
0.0 to <0.60% 15,000
0.60 to <11.35% 3,541
49
11.35 to <100%
–
100%
18,590
Credit quality description
Strong
Satisfactory
Higher Risk
Credit Impaired
Total
Stage 2
£m
443
964
228
–
1,635
PD range
%
Credit risk profile by internal PD grade for loan commitments (audited)a
Gross carrying amount
Stage 3
Total
£m
£m
– 211,951
95,947
–
3,992
–
610
610
610 312,500
Stage 1
£m
0.0 to <0.60% 206,511
0.60 to <11.35% 84,141
747
11.35 to <100%
–
100%
Stage 2
£m
5,440
11,806
3,245
–
291,399 20,491
Credit quality description
Strong
Satisfactory
Higher Risk
Credit Impaired
Total
PD range
%
Stage 1
£m
146
508
34
–
688
Allowance for ECL
Stage 3
Stage 2
£m
£m
–
67
–
1,517
1,131
–
3,367
–
3,367
2,715
Total
£m
Net
exposure
£m
213 245,506
2,025
71,473
1,165
4,291
5,136
3,367
6,770 326,406
ECL
coverage
%
0.1
2.8
21.4
39.6
2.0
Stage 1
£m
6
10
–
–
16
Stage 1
£m
21
59
3
–
83
Allowance for ECL
Stage 2
£m
3
14
10
–
27
Stage 3
£m
–
–
–
2
2
Allowance for ECL
Stage 2
£m
5
80
38
–
123
Stage 3
£m
–
–
–
20
20
Net
Total
exposure
£m
£m
9 15,434
4,481
267
72
45 20,254
24
10
2
ECL
coverage
%
0.1
0.5
3.6
2.7
0.2
Net
exposure
Total
£m
£m
26 211,925
139 95,808
3,951
590
226 312,274
41
20
ECL
coverage
%
–
0.1
1.0
3.3
0.1
Note
a Excludes loan commitments and financial guarantees of £11.7bn carried at fair value.
Stage 1 higher risk assets, presented gross of associated collateral held, are of weaker credit quality but have not significantly deteriorated
since origination. Examples would include leveraged corporate loans or non-prime credit cards.
IFRS 9 Stage 1 and Stage 2 classification is not dependent solely on the absolute probability of default but on elements that determine a
Significant Increase in Credit Risk (see Note 7 on page 273), including relative movement in probability of default since initial recognition.
There is therefore no direct relationship between credit quality and IFRS 9 stage classification.
Analysis of specific portfolios and asset types
This section provides an analysis of principal portfolios and businesses, in particular, home loans, credit cards, unsecured loans and other
retail lending.
Secured home loans
The UK home loans portfolio comprises first lien home loans and accounts for 91% (2017: 90%) of Barclays Group’s total home loan balances.
Home loans principal portfolios
As at 31 December
Gross loans and advances (£m)
30-day arrears rate, excluding recovery book (%)
90-day arrears rate, excluding recovery book (%)
Annualised gross charge-off rates – 180 days past due (%)
Recovery book proportion of outstanding balances (%)
Recovery book impairment coverage ratio (%)
Barclays UK
2018
136,517
0.4
0.1
0.3
0.2
7.1
2017
132,132
0.4
0.1
0.2
0.3
11.2
Despite the proposed UK withdrawal from the European Union creating large levels of uncertainty in the housing market and competitor pricing
putting pressure on new flow, portfolio stock has increased year on year. However, delinquencies remain very low and stable and recovery stock
has reduced. Recovery book coverage rate reduced to 7.1% (2017: 11.2%) reflecting the new impairment methodology following the transition
to IFRS 9.
Within the UK home loans portfolio:
■■ Owner-occupied interest-only home loans comprised 26% (2017: 28%) of total balances. The average balance weighted LTV on these loans
decreased to 38.8% (2017: 39.7%). The 90-day arrears rate excluding recovery book remained steady at 0.3% (2017: 0.3%)
■■ Buy to Let (BTL) home loans comprised 12% (2017: 11%) of total balances. The average balance weighted LTV increased to 55.4%
(2017: 53.7%) driven by the volume of new business written. Whilst the average balance weighted LTV of new business remained stable during
2018, it is higher than for the existing book and increased the total book average figure as a result. This increase was partially offset by increases
in house prices applied during the second half of the year with positive movements in HPI reported. The BTL 90-day arrears rate excluding
recovery book remained steady at 0.1% (2017: 0.1%).
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Barclays PLC Annual Report 2018 169
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Risk review
Risk performance
Credit risk
Home loans principal portfolios – distribution of balances by LTVa
As at 31 December 2018
Barclays UK
<=75%
>75% and <=90%
>90% and <=100%
>100%
Distribution
of
impairment
allowance
%
Distribution
of balances
%
90.6
8.6
0.7
0.1
50.9
22.1
7.7
19.3
Coverage
ratio
%
–
0.1
0.5
10.8
Note
a Portfolio mark to market based on the most updated valuation including recovery book balances. Updated valuations reflect the application of the latest HPI available
as at 31 December 2018.
Home loans principal portfolios – average LTV
As at 31 December
Overall portfolio LTV (%):
Balance weighted
Valuation weighted
>100% LTVs:
Balances (£m)
Mark to market collateral (£m)
Average LTV: balance weighted (%)
Average LTV: valuation weighted (%)
Balances in recovery book (%)
Barclays UK
2018
48.9
35.8
147
130
134.0
119.1
5.5
2017
47.6
35.2
215
188
127.7
118.6
5.9
The reduction in home loans that have LTV >100% to £147m (2017: £215m) was driven by increases in HPI through the second half of the year.
Home loans principal portfolios – new lending
As at 31 December
New bookings (£m)
New home loan proportion above 90% LTV (%)
Average LTV on new home loans: balance weighted (%)
Average LTV on new home loans: valuation weighted (%)
Barclays UK
2018
23,008
1.8
65.4
57.4
2017
22,665
2.1
63.8
56.0
Head Office: Italian home loans and advances at amortised cost reduced to £7.9bn (1 January 2018: £8.8bn) and continue to run-off since
new bookings ceased in 2016. The portfolio is secured on residential property with an average balance weighted mark to market LTV of 61.8%
(2017: 61.0%). 90-day arrears and gross charge-off rates remained stable at 1.4% (2017: 1.4%) and 0.8% (2017: 0.8%) respectively.
Credit cards, unsecured loans and other retail lending
The principal portfolios listed below accounted for 87% (2017: 87%) of Barclays Group’s total credit cards, unsecured loans and other retail lending.
Credit cards, unsecured loans and other retail lending principal portfolios
As at 31 December 2018
Barclays UK
UK cards
UK personal loans
Barclays International
US cards
Barclays partner finance
Germany consumer lending
As at 31 December 2017
Barclays UK
UK cards
UK personal loans
Barclays International
US cards
Barclays partner finance
Germany consumer lending
30-day
arrears,
excluding
recovery
book
%
90-day
arrears,
excluding
recovery
book
%
Annualised
gross
charge-off
rate
%
Gross loans
and advances
£m
17,285
6,335
22,178
4,216
3,545
17,686
6,255
21,350
3,814
3,384
1.8
2.3
2.7
1.1
1.9
1.8
2.5
2.6
1.3
2.3
0.9
1.1
1.4
0.4
0.8
0.8
1.2
1.3
0.5
1.0
4.7
3.7
5.7
2.3
2.9
5.0
3.3
5.0
2.6
3.2
170 Barclays PLC Annual Report 2018
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UK cards: 30- and 90-day arrears rates remained stable. The annualised gross charge-off rate reduced to 4.7% (2017: 5.0%) as a result
of charge-offs returning to stabilised levels in 2018 following one-off accelerated charge-offs in 2017.
UK personal loans: 30- and 90-day arrears rates reduced slightly, whilst the annualised charge-off rate increased. These movements were as
a result of accounts that had remained in collections longer than expected in 2017 being moved to charge-off following resolution of collections
performance issues.
US cards: The annualised gross charge-off rate increased to 5.7% (2017: 5.0%) broadly in line with trends across the industry and change
in portfolio mix reflecting a one-off asset sale benefiting 2017.
Barclays partner finance: 30- and 90-day arrear rates reduced driven by improved quality of new business and better arrears management.
Germany consumer lending: Arrears and charge-off rates reduced due to improved performance in collections along with booking lower
risk business.
Forbearance
Forbearance measures consist of concessions towards a debtor that is experiencing or about to experience difficulties in meeting their financial
commitments (‘financial difficulties’).
Analysis of forbearance programmes
As at 31 December 2018
Barclays UK
Barclays International
Head Office
Total retail
Barclays UK
Barclays International
Head Office
Total wholesale
Group total
As at 31 December 2017
Barclays UK
Barclays International
Head Office
Total retail
Barclays UK
Barclays International
Head Office
Total wholesale
Group total
Balances
Impairment
Allowances
647
233
165
1,045
671
2,284
–
2,955
4,000
847
210
186
1,243
606
2,347
–
2,953
4,196
172
190
10
372
45
241
–
286
658
226
86
11
323
31
519
–
550
873
Balances on forbearance programmes decreased 5% driven by better portfolio performance.
Retail balances on forbearance reduced 16% to £1.0bn, reflecting a decrease in Barclays UK partially offset by an increase in Barclays International
portfolios.
■■ Barclays UK: continued to reduce reflecting the ongoing improvements in operational effectiveness over the past two years along with
improving arrears rates and accounts completing and exiting plans.
■■ Barclays International: US cards forbearance balances increased to £177m (2017: £148m) in line with book size but as a percentage of total
balance remained low (<1%).
Wholesale balances on forbearance remained stable at £3.0bn (2017: £3.0bn) with a reduction in CIB of £280m offset by an increase in Wealth BI
of £211m. Impairment allowance reduced to £286m (2017: £550m) reflecting significant write-offs and single name releases within CIB. Barclays
International accounted for 77% of Wholesale forbearance with corporate cases representing 72% of all forborne balances.
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Barclays PLC Annual Report 2018 171
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Risk review
Risk performance
Credit risk
Retail forbearance programmes
Forbearance on Barclays Group’s principal retail portfolios is presented below. The principal portfolios account for 84% (2017: 75%) of total retail
forbearance balances.
Analysis of key portfolios in forbearance programmes
Balances on forbearance
programmes
Mark
to market
LTV of
forbearance
balances:
balance
weighted
%
Mark
to market
LTV of
forbearance
balances:
valuation
weighted
%
Impairment
allowances
marked
against
balances on
forbearance
programmes
£m
Total
balances on
forbearance
programmes
coverage
ratio
%
% of gross
retail loans
and
advances
%
As at 31 December 2018
Barclays UK
UK home loans
UK cards
UK personal loans
Barclays International
US cards
Barclays partner finance
Germany consumer lending
As at 31 December 2017
Barclays UK
UK home loans
UK cards
UK personal loans
Barclays International
US cards
Barclays partner finance
Germany consumer lending
Total
£m
296
289
62
177
6
46
355
302
77
148
9
47
0.2
1.7
1.0
0.8
0.1
1.3
0.3
1.7
1.2
0.7
0.2
1.4
41.6
n/a
n/a
n/a
n/a
n/a
43.2
n/a
n/a
n/a
n/a
n/a
29.8
n/a
n/a
n/a
n/a
n/a
31.0
n/a
n/a
n/a
n/a
n/a
–
121
51
131
4
28
4
179
30
58
7
17
–
41.9
82.3
74.0
66.7
60.9
1.1
59.3
39.0
39.2
77.8
36.2
UK home loans: Forbearance stock reduced to £296m (2017: £355m), due to operational effectiveness and accounts successfully exiting plans.
UK cards: Forbearance balances reduced due to tightening of entry criteria. The coverage ratio reduction was driven by the transition to IFRS 9
model which removed some conservatism and updates to debt sale parameters.
UK personal loans: Forbearance reduced to £62m (2017: £77m), predominantly as a result of tightening criteria for short-term plans. Longer-term
forbearance plans remained the preferred offering and maintained a steady trend across 2018. Term extensions increased, albeit remained low
at £9m.
US cards: Forbearance balances increased to £177m (2017: £148m) reflecting book growth, but remain low (<1%) as a percentage of total balance.
Barclays partner finance: Forbearance plan reduction was primarily driven by operational process changes introduced in 2018 whereby customers
on long-term plans with two missed payments and experiencing financial difficulty were placed on alternative plans and impaired appropriately.
Germany consumer lending: The increase in coverage ratios was primarily driven by transition to IFRS 9 methodology.
Forbearance by type
As at 31 December
Payment concession
Interest-only conversion
Term extension
Fully amortising
Repayment plana
Interest rate concession
Total
UK home loans
2018
£m
80
60
154
–
–
2
296
2017
£m
94
75
184
–
–
2
355
Barclays UK
UK cards
UK personal loans
Barclays International
US cards
2018
£m
69
–
–
–
89
131
289
2017
£m
84
–
–
–
96
122
302
2018
£m
–
–
9
52
1
–
62
2017
£m
–
–
8
54
15
–
77
2018
£m
–
–
–
160
17
–
177
2017
£m
–
–
–
135
13
–
148
Note
a Repayment plan represents a reduction to the minimum payment due requirements and interest rate.
172 Barclays PLC Annual Report 2018
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Wholesale forbearance programmes
The tables below detail balance information for wholesale forbearance cases.
Analysis of wholesale balances in forbearance programmes
As at 31 December 2018
Barclays UK
Barclays International
Total
As at 31 December 2017
Barclays UK
Barclays International
Total
Wholesale forbearance reporting split by exposure class
As at 31 December 2018
Restructure: reduced contractual cash flows
Restructure: maturity date extension
Restructure: changed cash flow profile (other than extension)
Restructure: payment other than cash
Change in security
Adjustments or non-enforcement of covenants
Other (e.g. capital repayment holiday; restructure pending)
Total
As at 31 December 2017
Restructure: reduced contractual cash flows
Restructure: maturity date extension
Restructure: changed cash flow profile (other than extension)
Restructure: payment other than cash
Change in security
Adjustments or non-enforcement of covenants
Other (e.g. capital repayment holiday; restructure pending)
Total
Balances on forbearance
programmes
% of gross
wholesale
loans and
advances
%
Total
balances
£m
Impairment
allowances
marked
against
balances on
forbearance
programmes
£m
Total
balances on
forbearance
programmes
coverage
ratio
%
671
2,284
2,955
606
2,347
2,953
2.4
2.3
2.3
2.1
1.4
1.4
45
241
286
31
519
550
Corporate
£m
Personal
and trusts
£m
Other
£m
3
286
450
18
10
1,040
452
2,259
5
373
297
16
9
1,477
474
2,651
–
186
31
–
3
177
295
692
–
26
–
–
–
101
174
301
–
2
–
–
–
1
1
4
–
–
–
–
–
1
–
1
6.7
10.6
9.7
5.1
22.1
18.6
Total
£m
3
474
481
18
13
1,218
748
2,955
5
399
297
16
9
1,579
648
2,953
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Barclays PLC Annual Report 2018 173
Risk review
Risk performance
Credit risk
Wholesale forbearance reporting split by business unit
As at 31 December 2018
Restructure: reduced contractual cash flows
Restructure: maturity date extension
Restructure: changed cash flow profile (other than extension)
Restructure: payment other than cash
Change in security
Adjustments or non-enforcements of covenants
Other (e.g. capital repayment holiday; restructure pending)
Total
As at 31 December 2017
Restructure: reduced contractual cash flows
Restructure: maturity date extension
Restructure: changed cash flow profile (other than extension)
Restructure: payment other than cash
Change in security
Adjustments or non-enforcements of covenants
Other (e.g. capital repayment holiday; restructure pending)
Total
Wholesale forbearance flows in 2018
As at 1 January 2018
Added to forbearance
Removed from forbearance (credit improvement)
Fully or partially repaid and other movements
Written off/moved to recovery book
As at 31 December 2018
Barclays UK
£m
Barclays
International
£m
1
129
286
–
3
132
120
671
3
90
199
–
–
223
91
606
2
345
195
18
10
1,086
628
2,284
2
309
98
16
9
1,356
557
2,347
Total
£m
3
474
481
18
13
1,218
748
2,955
5
399
297
16
9
1,579
648
2,953
£m
2,953
2,082
(1,126)
(679)
(275)
2,955
Analysis of debt securities
Debt securities include government securities held as part of the Barclays Group’s treasury management portfolio for liquidity and regulatory
purposes, and are for use on a continuing basis in the activities of the Barclays Group.
The following tables provide an analysis of debt securities held by the Barclays Group for trading and investment purposes by issuer type,
and where the Barclays Group held government securities exceeding 10% of shareholders’ equity.
Further information on the credit quality of debt securities is presented on pages 167 to 168.
Debt securities
As at 31 December
Of which issued by:
Governments and other public bodies
Corporate and other issuers
US agency
Mortgage and asset backed securities
Total
Government securities
As at 31 December
United States
United Kingdom
2018
£m
76,646
30,767
7,014
4,143
118,570
%
64.6
26.0
5.9
3.5
100.0
2017
£m
69,981
27,976
7,868
2,520
108,345
2018
Fair value
£m
31,199
19,555
%
64.5
25.9
7.3
2.3
100.0
2017
Fair value
£m
21,570
19,475
174 Barclays PLC Annual Report 2018
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Analysis of derivatives
The tables below set out the fair values of the derivative assets together with the value of those assets subject to enforceable counterparty netting
arrangements for which the Barclays Group holds offsetting liabilities and eligible collateral.
Derivative assets (audited)
As at 31 December
Foreign exchange
Interest rate
Credit derivatives
Equity and stock index
Commodity derivatives
Total derivative assets
Cash collateral held
Net exposure less collateral
2018
Balance
sheet
assets
£m
64,188
125,272
10,755
20,882
1,441
222,538
Counterparty
netting
£m
50,189
95,572
8,450
16,653
1,137
172,001
Balance
sheet
assets
£m
54,943
153,043
12,549
14,698
2,436
237,669
2017
Counterparty
netting
£m
42,117
117,559
9,952
12,702
1,935
184,265
Net
exposure
£m
13,999
29,700
2,305
4,229
304
50,537
31,402
19,135
Net
exposure
£m
12,826
35,484
2,597
1,996
501
53,404
33,092
20,312
Derivative asset exposures would be £203bn (2017: £217bn) lower than reported under IFRS if netting were permitted for assets and liabilities
with the same counterparty or for which the Group holds cash collateral. Similarly, derivative liabilities would be £202bn (2017: £217bn) lower
reflecting counterparty netting and collateral placed. In addition, non-cash collateral of £6bn (2017: £6bn) was held in respect of derivative assets.
The Group received collateral from clients in support of over the counter derivative transactions. These transactions are generally undertaken
under International Swaps and Derivative Association (ISDA) agreements governed by either UK or New York law.
The table below sets out the fair value and notional amounts of OTC derivative instruments by type of collateral arrangement.
Derivatives by collateral arrangement
Unilateral in favour of Barclays
Foreign exchange
Interest rate
Credit derivatives
Equity and stock index
Commodity derivatives
Total unilateral in favour of Barclays
Unilateral in favour of counterparty
Foreign exchange
Interest rate
Credit derivatives
Equity and stock index
Commodity derivatives
Total unilateral in favour of counterparty
Bilateral arrangement
Foreign exchange
Interest rate
Credit derivatives
Equity and stock index
Commodity derivatives
Total bilateral arrangement
Uncollateralised derivatives
Foreign exchange
Interest rate
Credit derivatives
Equity and stock index
Commodity derivatives
Total uncollateralised derivatives
Total OTC derivative assets/(liabilities)
Notional
contract
amount
£m
22,639
4,762
54
107
–
27,562
14,221
64,504
78
714
–
79,517
2018
Fair value
Assets
£m
Liabilities
£m
473
769
1
17
–
1,260
530
2,925
1
242
–
3,698
(369)
(25)
–
–
–
(394)
(1,641)
(4,090)
(3)
(31)
–
(5,765)
Notional
contract
amount
£m
18,280
5,495
–
6
243
24,024
21,052
74,412
283
1,030
515
97,292
4,788,711
9,699,149
380,546
177,496
9,635
15,055,537
371,158
205,050
5,830
12,179
121
594,338
15,756,954
58,772
116,712
6,339
7,984
492
190,299
4,243
3,454
234
1,468
29
9,428
204,685
(56,392) 4,318,754
(114,091) 8,060,574
404,069
144,255
11,801
(184,309) 12,939,453
(5,002)
(8,494)
(330)
(5,495)
(1,138)
(234)
(3,305)
(78)
(10,250)
380,823
202,053
6,808
16,448
4,661
610,793
(200,718) 13,671,562
2017
Fair value
Assets
£m
Liabilities
£m
484
868
–
3
–
1,355
720
8,458
6
432
4
9,620
48,660
135,465
7,337
6,178
630
198,270
4,442
4,215
252
884
60
9,853
219,098
(345)
(26)
–
–
(9)
(380)
(1,851)
(9,934)
(3)
(53)
(6)
(11,847)
(46,403)
(131,334)
(5,903)
(9,099)
(575)
(193,314)
(4,256)
(1,715)
(327)
(5,917)
(266)
(12,481)
(218,022)
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Barclays PLC Annual Report 2018 175
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Risk review
Risk performance
Market risk
Summary of contents
Outlines key measures used to summarise
the market risk profile of the bank such as value
at risk (VaR). A distinction is made between
management and regulatory measures.
Provides a Barclays Group-wide overview of
where assets and liabilities on Barclays Group’s
balance sheet are managed within regulatory
traded and non-traded books.
Barclays Group discloses details on management
measures of market risk. Total management VaR
includes all trading positions and is presented
on a diversified basis by risk factor.
This section also outlines the macroeconomic
conditions modelled as part of Barclays Group’s
risk management framework.
Barclays Group’s regulatory measures of market
risk under the approved internal models approach
are also disclosed.
■■ Market risk overview and summary of performance
■■ Balance sheet view of trading and banking books
■■ Traded market risk
■■ Review of management measures
– The daily average, maximum and minimum values of management VaR
– Business scenario stresses
■■ Review of regulatory measures
– Analysis of regulatory VaR, SVaR, IRC and Comprehensive Risk Measure
– Breakdown of the major regulatory risk measures by portfolio
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176 Barclays PLC Annual Report 2018
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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.
All disclosures in this section on pages 176 to 180 are unaudited unless otherwise stated.
Key metrics
Average management value at risk
+11%
in 2018 at £21m (2017: £19m) remained relatively stable.
This small increase was driven by a higher volatility environment compared to 2017.
Overview of market risk
This section contains key statistics describing
the market risk profile of Barclays Group.
A distinction is made between regulatory
and management measures within the
section. The market risk management section
on pages 163 to 170 of the Barclays PLC
Pillar 3 Report 2018 (unaudited) provides
descriptions of these metrics:
■■ page 178 provides a view of market risk
in the context of Barclays Group’s
balance sheet
■■ page 139 covers the management of market
risk. Management measures are shown
on page 179 and regulatory equivalent
measures are shown on page 180.
Measures of market risk
in Barclays Group and
accounting measures
Traded market risk measures such as VaR
and balance sheet exposure measures have
fundamental differences:
■■ balance sheet measures show accruals-
based balances or mark to market values
as at the reporting date
■■ VaR measures also take account of current
mark to market values, but in addition
hedging effects between positions
are considered
■■ market risk measures are expressed
in terms of changes in value or volatilities
as opposed to static values.
For these reasons, it is not possible to present
direct reconciliations of traded market risk
and accounting measures. The table ‘Balance
sheet split by trading and banking books’,
on page 178, helps the reader understand
the main categories of assets and liabilities
subject to regulatory market risk measures.
Summary of performance
in the period
Overall, Barclays Group has maintained
a steady risk profile:
■■ Measures of traded market risk have
been relatively stable over 2018.
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Barclays PLC Annual Report 2018 177
Risk review
Risk performance
Market risk
Balance sheet view of trading and banking books
As defined by regulatory rules, a trading book consists of positions held for trading intent or to hedge elements of the trading book. Trading intent
must be evidenced in the basis of the strategies, policies and procedures set up by the firm to manage the position or portfolio. The table below
provides a Group-wide overview of where assets and liabilities on the Barclays Group’s balance sheet are managed within regulatory traded and
non-traded books.
The balance sheet split by trading book and banking books is shown on an IFRS accounting scope of consolidation. The reconciliation between
the accounting and regulatory scope of consolidation is shown in table 1 of the Barclays PLC Pillar 3 Report 2018 (unaudited).
Balance sheet split by trading and banking books
As at 31 December 2018
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets
Financial assets designated at fair value
Derivative financial instruments
Financial assets at fair value through other comprehensive income
Investments in associates and joint ventures
Goodwill and intangible assets
Property, plant and equipment
Current tax assets
Deferred tax assets
Retirement benefit assets
Other assets
Total assets
Deposits at amortised cost
Cash collateral and settlement balances
Repurchase agreements and other similar secured borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio liabilities
Financial liabilities designated at fair value
Derivative financial instruments
Current tax liabilities
Deferred tax liabilities
Retirement benefit liabilities
Other liabilities
Provisions
Total liabilities
Banking
booka
£m
177,069
60,309
326,406
2,260
6,479
12,656
688
52,816
762
7,973
2,535
798
3,828
1,768
3,425
659,772
393,492
43,883
17,009
82,286
20,559
–
7,592
734
628
51
315
7,716
2,652
576,917
Trading
book
£m
–
16,913
–
48
97,708
136,992
221,850
–
–
–
–
–
–
–
–
Total
£m
177,069
77,222
326,406
2,308
104,187
149,648
222,538
52,816
762
7,973
2,535
798
3,828
1,768
3,425
473,511 1,133,283
1,346
23,639
1,569
–
–
37,882
209,242
218,909
–
–
–
–
–
394,838
67,522
18,578
82,286
20,559
37,882
216,834
219,643
628
51
315
7,716
2,652
492,587 1,069,504
Note
a The primary risk factors for banking book assets and liabilities are interest rates and to a lesser extent, foreign exchange rates. Credit spreads and equity prices will also be factors
where Barclays Group holds debt and equity securities respectively, either as financial assets designated at fair value (see Note 13) or as financial assets at fair value through other
comprehensive income (see Note 15) of the financial statements.
Included within the trading book are assets and liabilities which are included in the market risk regulatory measures. For more information on
these measures (VaR, SVaR, IRC and CRM) see the risk management section on page 166 of the Barclays PLC Pillar 3 Report 2018 (unaudited).
178 Barclays PLC Annual Report 2018
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Traded market risk review
Review of management measures
The following disclosures provide details on management measures of market risk. Refer to the market risk management section on pages 164
to 166 of the Barclays PLC Pillar 3 Report 2018 (unaudited) for more detail on management measures and the differences when compared to
regulatory measures.
The table below shows the total management VaR on a diversified basis by risk factor. Total management VaR includes all trading positions
in CIB and Head Office.
Limits are applied against each risk factor VaR as well as total Management VaR, which are then cascaded further by risk managers to
each business.
The daily average, maximum and minimum values of management VaR
Management VaR (95%, one day) (audited)
For the year ended 31 Decembera
Credit risk
Interest rate risk
Equity risk
Basis risk
Spread risk
Foreign exchange risk
Commodity risk
Inflation risk
Diversification effectb
Total management VaR
2018
2017
Average
£m
11
8
7
6
6
3
1
3
(24)
21
Highb
£m
16
19
14
8
9
7
2
4
n/a
27
Lowb
£m
8
3
4
4
3
2
–
2
n/a
15
Average
£m
12
8
8
5
5
3
2
2
(26)
19
Highb
£m
18
15
14
6
8
7
3
4
n/a
26
Lowb
£m
8
4
4
3
3
2
1
1
n/a
14
Notes
a Excludes BAGL from 23 July 2018.
b Diversification effects recognise that forecast losses from different assets or businesses are unlikely to occur concurrently, hence the expected aggregate loss is lower than the
sum of the expected losses from each area. Historical correlations between losses are taken into account in making these assessments. The high and low VaR figures reported
for each category did not necessarily occur on the same day as the high and low VaR reported as a whole. Consequently, a diversification effect balance for the high and low
VaR figures would not be meaningful and is therefore omitted from the above table.
Management VaR remained relatively stable year on year. The marginal increase in average management VaR in 2018 was due to a higher volatility
environment compared to 2017.
Barclays Group Management VaRa (£m)
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a Excludes BAGL from 23 July 2018.
Business scenario stresses
As part of Barclays Group’s risk management framework, on a regular basis the performance of the trading business in hypothetical scenarios
characterised by severe macroeconomic conditions is modelled. Up to seven global scenarios are modelled on a regular basis, for example,
a sharp deterioration in liquidity, a slowdown in the global economy, global recession, and a sharp increase in economic growth.
In 2018, the scenario analyses showed that the largest market risk related impacts would be due to a severe deterioration in financial liquidity
and global recession.
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Barclays PLC Annual Report 2018 179
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Risk review
Risk performance
Market risk
Review of regulatory measures
The following disclosures provide details on regulatory measures of market risk. Refer to pages 166 and 167 of the Barclays PLC Pillar 3 Report
2018 (unaudited) for more detail on regulatory measures and the differences when compared to management measures.
Barclays Group’s market risk capital requirement comprises of two elements:
■■ the market risk of trading book positions booked to legal entities are measured under a PRA approved internal models approach, including
Regulatory VaR, Stressed Value at Risk (SVaR), Incremental Risk Charge (IRC) and Comprehensive Risk Measure (CRM) as required
■■ the trading book positions that do not meet the conditions for inclusion within the approved internal models approach are calculated using
standardised rules.
The table below summarises the regulatory market risk measures, under the internal models approach. Refer to Table 80 Market risk own fund
requirements’, on page 119 of the Barclays PLC Pillar 3 Report 2018 (unaudited) for a breakdown of capital requirements by approach.
Analysis of Regulatory VaR, SVaR, IRC and Comprehensive Risk Measurea
As at 31 December 2018
Regulatory VaR (1-day)
Regulatory VaR (10-day)b
SVaR (1-day)
SVaR (10-day)b
IRC
CRM
As at 31 December 2017
Regulatory VaR (1-day)
Regulatory VaR (10-day)b
SVaR (1-day)
SVaR (10-day)b
IRC
CRM
Year-end
£m
24
76
83
262
146
–
28
90
59
186
188
–
Avg
£m
27
87
67
211
126
–
27
85
63
200
202
1
Max
£m
41
129
112
355
219
–
39
123
105
331
326
2
Min
£m
19
61
41
130
52
–
19
60
41
130
142
–
Notes
a Excludes BAGL from 23 July 2018.
b The 10-day VaR is based on scaling of 1-day VaR model output since VaR is currently not modelled for a 10-day holding period.
Overall, there was an increase in SVaR and a decrease in IRC in 2018, with no significant movements in other internal model components:
■■ Regulatory VaR: Average VaR was broadly unchanged compared to the previous year
■■ SVaR: Average SVaR increase was due to a change in the date range selected for the one-year stressed period
■■ IRC: Decrease mainly driven by decrease in Rates and Fixed Income Financing, offset by the Foreign Exchange business
■■ CRM: Remained at zero throughout the year.
Breakdown of the major regulatory risk measures by portfolioa
As at 31 December 2018
Regulatory VaR (1-day)
Regulatory VaR (10-day)
SVaR (1-day)
SVaR (10-day)
IRC
CRM
As at 31 December 2017
Regulatory VaR (1-day)
Regulatory VaR (10-day)
SVaR (1-day)
SVaR (10-day)
IRC
CRM
Macro
£m
Equities
£m
Credit
£m
Barclays
InternationaI
Treasury
£m
Barclays
Group
Treasury
£m
Financial
Resource
Managementb
£m
Investing
and
Lendingb
£m
Banking
£m
10
31
64
203
154
–
13
42
23
72
203
–
19
60
59
187
7
–
6
20
11
35
5
–
14
45
30
95
209
–
19
59
41
130
270
–
–
1
1
2
–
–
–
–
–
1
–
–
10
30
20
63
14
–
5
16
10
30
1
–
5
17
13
40
9
–
6
18
11
35
10
–
10
31
20
64
84
–
8
25
20
64
65
–
1
2
4
11
5
–
–
–
–
–
–
–
Notes
a Excludes BAGL.
b A hierarchy change affecting Financial Resource Management resulted in the creation of the new Investing and Lending portfolio during 2018.
The table above shows the primary portfolios which are driving the trading businesses’ modelled capital requirement as at 2018 year end.
The standalone portfolio results diversify at the total level and are not additive. Regulatory VaR, SVaR, IRC and CRM in the prior table show
the diversified results at a Barclays Group level.
180 Barclays PLC Annual Report 2018
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Risk review
Risk performance
Treasury and capital risk
Summary of contents
Liquidity risk performance
The risk that the firm is unable to meet its
contractual or contingent obligations or that
it does not have the appropriate amount,
tenor and composition of funding and liquidity
to support its assets.
This section provides an overview of Barclays
Group’s liquidity risk.
The liquidity pool is held unencumbered and
is not used to support payment or clearing
requirements. The liquidity pool is intended
to offset stress outflows, and comprises the
following cash and unencumbered assets.
The basis for sound liquidity risk management
is a solid funding structure that reduces the
probability of a liquidity stress leading to an
inability to meet funding obligations as they
fall due.
Asset encumbrance arises from collateral pledged
against secured funding and other collateralised
obligations. Barclays funds a portion of trading
portfolio assets and other securities via
repurchase agreements and other similar
borrowing, and pledges a portion of loans and
advances as collateral in securitisation, covered
bond and other similar secured structures.
In addition to monitoring and managing key
metrics related to the financial strength of
Barclays Group, Barclays Group solicits
independent credit ratings.
These ratings assess the creditworthiness of
Barclays Group, its subsidiaries and branches
and are based on reviews of a broad range of
business and financial attributes including risk
management processes and procedures, capital
strength, earnings, funding, asset quality, liquidity,
accounting and governance.
Provides details on the contractual maturity
of all financial instruments and other assets
and liabilities.
■■ Liquidity overview and summary of performance
■■ Liquidity risk stress testing
– Liquidity risk appetite
– Liquidity regulation
– Liquidity coverage ratio
■■ Liquidity pool
– Composition of the liquidity pool
– Liquidity pool by currency
– Management of the liquidity pool
– Contingent liquidity
■■ Funding structure and funding relationships
– Deposit funding
– Wholesale funding
■■ Encumbrance
– On-balance sheet
– Off-balance sheet
– Repurchase agreements and reverse repurchase agreements
■■ Credit ratings
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Barclays PLC Annual Report 2018 181
Risk review
Risk performance
Treasury and capital risk
Capital risk performance
Capital risk is the risk that the firm has an
insufficient level or composition of capital to
support its normal business activities and to meet
its regulatory capital requirements under normal
operating environments or stressed conditions
(both actual and as defined for internal planning
or regulatory testing purposes). This also includes
the risk from the firm’s pension plans.
This section details Barclays Group’s capital
position providing information on both
capital resources and capital requirements.
It also provides details of the leverage ratios
and exposures.
■■ Capital risk overview and summary of performance
■■ Regulatory minimum capital and leverage requirements
– Capital
– Leverage
This section outlines Barclays Group’s capital
ratios, capital composition, and provides
information on significant movements in CET1
capital during the year.
■■ Analysis of capital resources
– Capital ratios
– Capital resources
– Movement in CET1 capital
This section outlines risk weighted assets
by risk type, business and macro drivers.
This section outlines Barclays Group’s leverage
ratios, leverage exposure composition, and
provides information on significant movements
in the IFRS and leverage balance sheet.
Barclays Group discloses the two sources of
foreign exchange risk that it is exposed to.
■■ Analysis of risk weighted assets
– Risk weighted assets by risk type and business
– Movement analysis of risk weighted assets
■■ Analysis of leverage ratios and exposures
– Leverage ratios and exposures
■■ Foreign exchange risk
– Transactional foreign currency exposure
– Translational foreign exchange exposure
– Functional currency of operations
A review focusing on the UK retirement fund,
which represents the majority of Barclays Group’s
total retirement benefit obligation.
■■ Pension risk review
– Assets and liabilities
– IAS 19 position
– Risk measurement
This section outlines Barclays Group’s Minimum
requirement for own funds and Eligible Liabilities
(MREL) position and ratios.
■■ Minimum Requirement for own funds and Eligible Liabilities
■■ Interest rate risk in the banking book overview and summary
Interest rate risk in the banking book performance
A description of the non-traded market risk
framework is provided.
of performance
■■ Net interest income sensitivity
– by business unit
– by currency
■■ Analysis of equity sensitivity
■■ Volatility of the FVOCI portfolio in the liquidity pool
Barclays Group discloses a sensitivity analysis
on pre-tax net interest income for non-trading
financial assets and liabilities. The analysis is
carried out by business unit and currency.
Barclays Group discloses the overall impact
of a parallel shift in interest rates on other
comprehensive income and cash flow hedges.
Barclays Group measures the volatility of the
value of the FVOCI instruments in the liquidity
pool through non-traded market risk VaR.
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182 Barclays PLC Annual Report 2018
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Liquidity risk
The risk that the firm is unable to meet its contractual or contingent obligations or that
it does not have the appropriate amount, tenor and composition of funding and liquidity
to support its assets.
All disclosures in this section (pages 183 to 196) are unaudited unless otherwise stated.
Key metrics
Liquidity Coverage Ratio
169%
Overview
The Barclays Group has a comprehensive
key risk control framework for managing
liquidity risk. The Liquidity Framework meets
the PRA’s standards and is designed to
maintain liquidity resources that are sufficient
in amount and quality, and a funding profile
that is appropriate to meet the liquidity risk
appetite. The Liquidity Framework is delivered
via a combination of policy formation, review
and governance, analysis, stress testing, limit
setting and monitoring.
This section provides an analysis of the
Barclays Group’s: (i) summary of performance,
(ii) liquidity risk stress testing, iii) liquidity
pool, (iv) funding structure and funding
relationships, (v) encumbrance, (vi) credit
ratings, and (vii) contractual maturity of
financial assets and liabilities.
For further detail on liquidity risk governance
and framework refer to page 176 to 178 of the
Barclays PLC Pillar 3 Report 2018 (unaudited).
Summary of performance
The liquidity pool increased to £227bn
(December 2017: £220bn) driven largely by
net deposit growth across businesses. The
Liquidity Coverage Ratio (LCR) increased to
169% (December 2017: 154%), equivalent to
a surplus of £90bn (December 2017: £75bn)
to 100% regulatory requirement. The Barclays
Group also continued to maintain surpluses to
its internal liquidity requirements. The strong
liquidity position reflects the Barclays Group’s
prudent approach given the continued
macroeconomic uncertainty.
During the year, the Barclays Group issued
£12.2bn of minimum requirement for
own funds and eligible liabilities (MREL)
instruments in a range of tenor and currencies.
Barclays Bank PLC continued to issue in the
shorter-term markets and Barclays Bank UK
PLC issued in the shorter term and secured
markets, helping to maintain their stable and
diversified funding bases.
The overall funding structure has improved
further. Barclays Group has continued to
reduce its reliance on short-term wholesale
funding, where the proportion maturing in
less than one year fell to 30% (December
2017: 31%).
Liquidity risk stress testing
Under the Liquidity Framework, the Barclays
Group has established a liquidity risk appetite
(LRA) together with the appropriate limits for
the management of the liquidity risk. This is
the level of liquidity risk the Barclays Group
chooses to take in pursuit of its business
objectives and in meeting its regulatory
obligations. The Barclays Group sets its
internal liquidity risk appetite (LRA) based
on internal liquidity risk assessments and,
external regulatory requirements namely
the CRD IV Delegated Act Liquidity Coverage
Ratio (LCR).
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Barclays PLC Annual Report 2018 183
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Risk review
Risk performance
Treasury and capital risk
Liquidity Risk Appetite
The liquidity risk assessment measures the potential contractual and contingent stress outflows under a range of stress scenarios, which are then
used to determine the size of the liquidity pool that is immediately available to meet anticipated outflows if a stress occurs.
As part of the LRA, the Barclays Group runs three short-term liquidity stress scenarios, aligned to the PRA’s prescribed stresses:
■■ 90-day market-wide stress event
■■ 30-day Barclays-specific stress event
■■ combined 30-day market-wide and Barclays-specific stress event
Key LRA assumptions
For the year ended 31 December 2018
Drivers of Liquidity risk
LRA Combined stress – key assumptions
Wholesale Secured and Unsecured
Funding Risk
■■ Zero rollover of maturing wholesale unsecured funding
■■ Loss of repo capacity on non-extremely liquid repos at contractual maturity date
■■ Roll of repo for extremely liquid repo at wider haircut at contractual maturity date
■■ Withdrawal of contractual buy-back obligations, excess client futures margin, Prime
Brokerage (PB) client cash and overlifts
■■ Haircuts applied to the market value of marketable assets held in the liquidity buffer
Retail and Corporate Funding Risk
■■ Retail and Corporate deposit outflows as counterparties seek to diversify their
deposit balances
Intraday Liquidity Risk
■■ Liquidity held against intraday requirements for the settlement of cash and securities
under a stress
Intra-Group Liquidity Risk
■■ Liquidity support for material subsidiaries. Surplus liquidity held within certain subsidiaries
is not taken as a benefit to the wider Group
Cross-Currency Liquidity Risk
■■ Currency liquidity cash flows at contractual maturity for physically settled FX forwards
and cross currency swaps
Off-Balance Sheet Liquidity Risk
■■ Drawdown on committed facilities based on facility and counterparty type
■■ Collateral outflows due to a two-notch credit rating downgrade
■■ Increase in the Barclays Group’s initial margin requirement across all major exchanges
■■ Variation margin outflows from collateralised risk positions
■■ Outflow of collateral owing but not called
■■ Loss of internal sources of funding within the PB synthetics business
Franchise-Viability Risk
■■ Liquidity held in order to meet outflows that are non-contractual in nature, but are necessary
in order to support the firm’s ongoing franchise (e.g. debt buy-backs)
Funding Concentration Risk
■■ Liquidity held against largest wholesale funding counterparty refusing to roll
As at 31 December 2018, the Barclays Group held eligible liquid assets well in excess of 100% of net stress outflows of the 30-day combined
scenario, which has the highest net outflows of the three short-term liquidity stress scenarios.
The Barclays Group also runs a long-term liquidity stress test, which measures the anticipated outflows over a 12-month market-wide scenario.
As at 31 December 2018, the Barclays Group remained compliant to this internal metric.
Liquidity regulation
The Barclays Group monitors its position against the CRD IV Delegated Act Liquidity Coverage Ratio and the Basel III Net Stable Funding Ratio (NSFR).
The LCR is designed to promote short-term resilience of a bank’s liquidity risk profile, by holding sufficient High Quality Liquid Assets to survive
an acute stress scenario lasting for 30 days. The NSFR has a time horizon of 12 months and has been developed to promote a sustainable maturity
structure of assets and liabilities.
In October 2014, the BCBS published a standard defining the minimum requirements for the Net Stable Funding Ration (NSFR). The EU is
implementing the NSFR regulations as part of the Risk Reduction Measures package, on which political agreement was reached in December
2018. The regulations are expected to enter into force two years after they are published, which is likely to be around Q2 2021. Barclays continues
to assess the impact of these measures on its NSFR ratio, which remains above the 100% requirement, based on a conservative interpretation
of the regulations.
184 Barclays PLC Annual Report 2018
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Liquidity coverage ratio
The external LCR requirement is prescribed by the regulator taking into account the relative stability of different sources of funding and potential
incremental funding requirements in a stress.
As at 31 December
Eligible liquidity buffer
Net stress outflows
Surplus
Liquidity coverage ratio
2018
£bn
219
(129)
90
169%
2017
£bn
215
(140)
75
154%
As part of the LRA, Barclays also establishes the minimum LCR limit. The Barclays Group plans to maintain its surplus to the internal and
regulatory stress requirements at an efficient level, while considering risks to market funding conditions and its liquidity position. The continuous
reassessment of these risks may lead to management actions to resize the liquidity pool.
Liquidity pool
The Group liquidity pool as at 31 December 2018 was £227bn (2017: £220bn). During 2018, the month-end liquidity pool ranged from £207bn
to £243bn (2017: £165bn to £232bn), and the month-end average balance was £225bn (2017: £202bn). The liquidity pool is held unencumbered
and is not used to support payment or clearing requirements. Such requirements are treated as part of our regular business funding. The liquidity
pool is intended to offset stress outflows, and comprises the following cash and unencumbered assets.
Composition of the Group liquidity pool as at 31 December 2018
Cash and deposits with central banksa
Government bondsb
AAA to AA-
BBB+ to BBB-
Other LCR Ineligible Government bonds
Total government bonds
Other
Government Guaranteed Issuers, PSEs and GSEs
International Organisations and MDBs
Covered bonds
Other
Total other
Total as at 31 December 2018
Total as at 31 December 2017
Liquidity pool of which CRD IV LCR eligiblec
Liquidity
pool
£bn
181
Cash
£bn
176
Level 1
£bn
–
Level 2A
£bn
–
2017
Liquidity
pool
£bn
173
27
4
1
32
6
5
3
–
14
227
220
–
–
–
–
–
–
–
–
–
176
169
23
4
–
27
5
5
3
–
13
40
43
31
2
1
34
6
4
2
1
13
–
–
–
–
1
–
–
–
1
1
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a Includes cash held at central banks and surplus cash at central banks related to payment schemes. Of which over 99% (2017: over 99%) was placed with the Bank of England,
US Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank.
b Of which over 71% (2017: over 84%) comprised of UK, US, French, German, Swiss and Dutch securities.
c The LCR eligible liquidity pool is adjusted for trapped liquidity and other regulatory deductions. It also incorporates other CRD IV qualifying assets that are not eligible under
r
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The Group liquidity pool is well diversified by major currency and the Barclays Group monitors LRA stress scenarios for major currencies.
Liquidity pool by currency
Liquidity pool as at 31 December 2018
Liquidity pool as at 31 December 2017
USD
£bn
57
70
EUR
£bn
64
55
GBP
£bn
76
71
Other
£bn
30
24
Total
£bn
227
220
Management of the liquidity pool
The composition of the liquidity pool is subject to limits set by the Board and the independent liquidity risk, credit risk and market risk functions.
In addition, the investment of the liquidity pool is monitored for concentration risk by issuer, currency and asset type. Given the incremental
returns generated by these highly liquid assets, the risk and reward profile is continuously managed.
As at 31 December 2018, 90% (2017: 93%) of the liquidity pool was located in Barclays Bank PLC and Barclays Bank UK PLC. The residual portion
of the liquidity pool is held outside of these entities, predominantly in the US subsidiaries, to meet entity-specific stress outflows and regulatory
requirements. To the extent the use of this portion of the liquidity pool is restricted due to regulatory requirements, it is assumed to be unavailable
to the rest of the Barclays Group in calculating the LCR.
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Risk review
Risk performance
Treasury and capital risk
Contingent liquidity
In addition to the Group liquidity pool, the Barclays Group has access to other unencumbered assets which provide a source of contingent liquidity.
While these are not relied on in the Group’s LRA, a portion of these assets may be monetised in a stress to generate liquidity through use as
collateral for secured funding or through outright sale.
In a Barclays-specific, market-wide or combined liquidity stress, liquidity available via market sources could be severely disrupted. In circumstances
where market liquidity is unavailable or available only at heavily discounted prices, the Barclays Group could generate liquidity via central bank
facilities. The Barclays Group maintains a significant amount of collateral positioned at central banks and available to raise funding.
For more detail on the Barclays Group’s other unencumbered assets, see pages 188 to 190.
Funding structure and funding relationships
The basis for sound liquidity risk management is a solid funding structure that reduces the probability of a liquidity stress leading to an inability
to meet funding obligations as they fall due. The Barclays Group’s overall funding strategy is to develop a diversified funding base (geographically,
by type and by counterparty) and maintain access to a variety of alternative funding sources, to provide protection against unexpected
fluctuations, while minimising the cost of funding.
Within this, the Barclays Group aims to align the sources and uses of funding. As such, retail and corporate loans and advances are largely funded
by customer deposits in the relevant entities, with the surplus primarily funding the liquidity pool. Other assets, together with other loans and
advances, are funded by wholesale debt and equity. The majority of reverse repurchase agreements are matched by repurchase agreements.
Derivative liabilities and assets are largely matched. A substantial proportion of balance sheet derivative positions qualify for counterparty netting
and the remaining portions are largely offset once netted against cash collateral received and paid.
These funding relationships are summarised below:
Assets
Loans and advances at amortised cost
Group liquidity pool
Other assetsa
Reverse repurchase agreements, trading
portfolio assets, cash collateral and
settlement balances
Derivative financial instruments
Total assets
2018
£bn
327
227
53
2017b
£bn
324
220
47
303
223
1,133
304
238
1,133
Liabilities
Deposits at amortised cost
<1 Year wholesale funding
>1 Year wholesale funding
Equity and other liabilities
Repurchase agreements, trading portfolio
liabilities, cash collateral and settlement
balances
Derivative financial instruments
Total liabilities
2018
£bn
395
47
107
102
2017b
£bn
399
45
99
79
262
220
1,133
273
238
1,133
Notes
a Other assets include fair value assets that are not part of reverse repurchase agreements or trading portfolio assets, and other asset categories.
b December 2017 comparatives have been updated for balance sheet presentation changes.
Deposit funding (audited)
Funding of loans and advances
As at 31 December 2018
Barclays UK
Barclays International
Head Office
Barclays Group
Loans and
advances at
amortised
cost
£bn
189
127
11
326
2018
Deposits at
amortised
cost
£bn
197
197
–
395
2017
Loan to
deposit
ratio
%
95%
68%
Loan:
deposit
ratioa
%
96%
65%
83%
81%
Note
a The loan: deposit ratio is calculated as loans and advances at amortised cost divided by deposits at amortised cost. Comparatives have been updated based on this approach.
As at 31 December 2018, £172bn (2017: £175bn) of total customer deposits were insured through the UK Financial Services Compensation Scheme
(FSCS) and other similar schemes. In addition to these customer deposits £5bn (2017: £4bn) of other liabilities are insured by other governments.
Contractually current accounts are repayable on demand and savings accounts at short notice. In practise, their observed maturity is typically
longer than their contractual maturity. Similarly, repayment profiles of certain types of assets e.g. mortgages, overdrafts and credit card lending,
differ from their contractual profiles. The Barclays Group therefore assesses the behavioural maturity of both customer assets and liabilities to
identify structural balance sheet funding gaps. In doing so, it applies quantitative modelling and qualitative assessments which take into account
historical experience, current customer composition, and macroeconomic projections.
The Barclays Group’s broad base of customers, numerically and by depositor type, helps protect against unexpected fluctuations in balances
and hence provide a stable funding base for the Barclays Group’s operations and liquidity needs.
186 Barclays PLC Annual Report 2018
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Wholesale funding
Barclays Bank Group and Barclays Bank UK Group maintain access to a variety of sources of wholesale funds in major currencies, including
those available from term investors across a variety of distribution channels and geographies, short-term funding markets and repo markets.
Barclays Bank Group has direct access to US, European and Asian capital markets through its global investment banking operations and to
long-term investors through its clients worldwide. Key sources of wholesale funding include money markets, certificates of deposit, commercial
paper, medium-term issuances (including structured notes) and securitisations.
Key sources of wholesale funding for Barclays Bank UK Group include money markets, certificates of deposit, commercial paper, covered bonds
and other securitisations.
Barclays Group expects to continue issuing public wholesale debt from Barclays PLC (the Parent company), in order to maintain compliance
with indicative MREL requirements and maintain a stable and diverse funding base by type, currency and market.
As at 31 December 2018, Barclays Group’s total wholesale funding outstanding (excluding repurchase agreements) was £154.0bn (2017:
£143.7bn), of which £22.5bn (2017: £20.3bn) was secured funding and £131.5bn (2017: £123.4bn) unsecured funding. Unsecured funding
includes £47.3bn (2017: £44.8bn) of privately placed senior unsecured notes issued through a variety of distribution channels including
intermediaries and private banks.
During the year, Barclays Group issued £12.2bn of minimum requirement for own funds and eligible liabilities (MREL) instruments from Barclays
PLC (the Parent company) in a range of different currencies and tenors. Barclays Bank PLC continued to issue in the shorter-term markets and
Barclays Bank UK PLC issued in the shorter term and secured markets, helping to maintain their stable and diversified funding bases.
As at 31 December 2018, wholesale funding of £46.7bn (2017: £44.9bn) matures in less than one year, of which £19.1bn (2017: £13.8bn) relates
to term funding. Although not a requirement, the liquidity pool exceeded the wholesale funding maturing in less than one year by £180bn
(2017: £163bn).
Barclays Bank Group and Barclays Bank UK Group also support various central bank monetary initiatives including participation in the Bank of
England’s Term Funding Scheme. These are reported under ‘repurchase agreements and other similar secured borrowing’ on the balance sheet.
Maturity profile of wholesale fundinga,b
<1
month
£bn
1-3
months
£bn
3-6
months
£bn
6-12
months
£bn
<1 year
£bn
1-2 years
£bn
2-3 years
£bn
3-4 years
£bn
4-5 years
£bn
>5 years
£bn
Total
£bn
Barclays PLC
(the Parent company)
Senior unsecured (Public
benchmark)
Senior unsecured (Privately placed)
Subordinated liabilities
Barclays Bank PLC
(including subsidiaries)
Certificates of deposit and
commercial paper
Asset backed commercial paper
Senior unsecured
(Public benchmark)
Senior unsecured
(Privately placed)c
Asset backed securities
Subordinated liabilities
Other
Barclays Bank UK PLC
(including subsidiaries)
Certificates of deposit and
commercial paper
Covered bonds
Asset backed securities
Total as at 31 December 2018
Of which secured
Of which unsecured
Total as at 31 December 2017
Of which secured
Of which unsecured
–
–
–
0.1
2.0
–
0.1
–
0.2
0.1
–
–
–
2.5
2.0
0.5
7.2
1.9
5.3
–
–
–
7.8
3.7
0.3
3.0
–
0.1
–
1.0
–
–
15.9
3.7
12.2
14.9
5.1
9.8
–
–
–
3.5
1.1
1.1
2.3
–
–
–
0.2
–
–
8.2
1.1
7.1
12.5
1.0
11.5
1.6
–
–
8.0
–
1.1
5.6
1.0
0.1
–
0.1
1.8
0.8
20.1
3.6
16.5
10.3
0.2
10.1
1.6
–
–
19.4
6.8
2.5
11.0
1.0
0.4
0.1
1.3
1.8
0.8
46.7
10.4
36.3
44.9
8.2
36.7
1.1
–
–
1.2
–
3.0
7.7
1.2
0.9
0.1
–
1.0
0.5
16.7
2.7
14.0
18.7
3.5
15.2
4.4
0.2
–
0.8
–
0.4
4.6
0.2
5.2
–
–
1.0
–
16.8
1.2
15.6
12.0
2.0
10.0
1.3
–
–
0.5
–
–
2.6
0.2
3.4
–
–
2.4
–
10.4
2.6
7.8
13.6
1.0
12.6
6.7
0.2
–
0.1
–
–
4.0
0.6
–
0.3
–
1.3
–
13.2
1.9
11.3
10.8
2.5
8.3
16.3
0.5
6.8
31.4
0.9
6.8
–
–
22.0
6.8
1.2
7.1
16.5
2.6
4.1
1.1
–
1.1
–
50.2
3.7
46.5
43.7
3.1
40.6
46.4
5.8
14.0
1.6
1.3
8.6
1.3
154.0
22.5
131.5
143.7
20.3
123.4
Notes
a The composition of wholesale funding principally comprises of debt securities and subordinated liabilities.
b Term funding comprises public benchmark and privately placed senior unsecured notes, covered bonds, asset backed securities (ABS) and subordinated debt where the original
maturity of the instrument was more than one year.
c Includes structured notes of £35.7bn, £6.2bn of which matures within one year.
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Barclays PLC Annual Report 2018 187
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Risk performance
Treasury and capital risk
Currency composition of wholesale debt
As at 31 December 2018, the proportion of wholesale funding by major currencies was as follows:
Currency composition of wholesale funding
Certificates of deposit and commercial paper
Asset backed commercial paper
Senior unsecured (Public benchmark)
Senior unsecured (Privately placed)
Covered bonds/Asset backed securities
Subordinated liabilities
Total as at 31 December 2018
Total as at 31 December 2017
USD
%
48
86
61
54
33
46
53
50
EUR
%
49
9
19
24
35
24
27
28
GBP
%
3
5
12
9
32
28
13
10
Other
%
–
–
8
13
–
2
7
12
To manage cross currency refinancing risk, the Barclays Group manages to foreign exchange cash flow limits, which limit risk at specific maturities.
Encumbrance
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. Barclays funds a portion of
trading portfolio assets and other securities via repurchase agreements and other similar borrowing, and pledges a portion of loans and advances
as collateral in securitisation, covered bond and other similar secured structures. Barclays monitors the mix of secured and unsecured funding
sources and seeks to efficiently utilise available collateral to raise secured funding and meet other collateral requirements.
Encumbered assets have been defined consistently with the Barclays Group’s reporting requirements under Article 100 of the CRR. Securities
and commodities assets are considered encumbered when they have been pledged or used to secure, collateralise or credit enhance a transaction
which impacts their transferability and free use. This includes external repurchase or other similar agreements with market counterparties.
Excluding assets positioned at central banks, as at 31 December 2018, £165.9bn (2017: £193.2bn) of the Barclays Group’s assets were
encumbered, primarily due to firm financing of trading portfolio assets, posting of cash collateral, funding secured against loans and advances,
and other assets at fair value.
Assets may also be encumbered under secured funding arrangements with central banks. In advance of such encumbrance, assets are often
positioned with central banks to facilitate efficient future draw down. £78.6bn (2017: £70.0bn) of on-balance sheet assets were positioned
at the central banks, consisting of encumbered assets and collateral available for use in secured financing transactions.
£350.6bn (2017: £341.9bn) of on- and off-balance sheet assets not positioned at the central banks were identified as readily available assets
for use in secured financing transactions. Additionally, they include cash and securities held in the Barclays Group’s liquidity pool as well as
unencumbered assets which provide a source of contingent liquidity. While these additional assets are not relied upon in the Barclays Group’s
liquidity pool, a portion of these assets may be monetised to generate liquidity through use as collateral for secured funding or through outright
sale. Loans and advances to customers are only classified as readily available if they are already in a form, such that, they can be used to raise
funding without further management actions. This includes excess collateral already in secured funding vehicles.
£216.3bn (2017: £198.0bn) of assets not positioned at the central banks were identified as available as collateral. These assets are not subject to
any restrictions on their ability to secure funding, to be offered as collateral, or to be sold to reduce potential future funding requirements, but are
not immediately available in the normal course of business in their current form. They primarily consist of loans and advances which would be
suitable for use in secured funding structures but are conservatively classified as not readily available because they are not in a transferable form.
Not available as collateral consists of assets that cannot be pledged or used as security for funding due to restrictions that prevent their pledge
or use as security for funding in the normal course of business.
Derivatives and reverse repos are shown separately as these on-balance sheet assets cannot be pledged. However, these assets can give rise to the
receipt of non-cash assets which are held off-balance sheet, and can be used to raise secured funding or meet additional funding requirements.
In addition, £529.0bn (2017: £547.6bn) of the total £598.3bn (2017: £608.4bn) securities accepted as collateral, and held off-balance sheet,
were on-pledged, the significant majority of which related to matched-book activity where reverse repurchase agreements are matched by
repurchase agreements entered into to facilitate client activity. The remainder relates primarily to reverse repurchase agreements used to settle
trading portfolio liabilities as well as collateral posted against derivatives margin requirements.
188 Barclays PLC Annual Report 2018
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Asset encumbrance
On-balance sheet
As at 31 December 2018
Cash and balances at central banks
Cash collateral
Settlement balances
Loans and advances at
amortised cost
Reverse repurchase agreements
and other similar secured lending
Trading portfolio assets
Financial assets at fair value
through the income statement
Derivative financial instruments
Financial assets at fair value
through other comprehensive
income
Other assets
Total on-balance sheet
Off-balance sheet
Fair value of securities accepted as
collateral
Total unencumbered collateral
Assets encumbered as a result of transactions
with counterparties other than central banks
As a
result of
covered
bonds
£bn
–
–
–
As a
result of
securi-
tisations
£bn
–
–
–
Assets
£bn
177.1
59.1
18.1
Other
£bn
–
55.5
–
Total
£bn
–
55.5
–
Assets
positioned
at the
central
banksa
£bn
–
–
–
Other assets (comprising assets encumbered at the central bank
and unencumbered assets)
Assets not positioned at the central bank
Readily
available
assets
£bn
177.1
3.6
–
Available
as
collateral
£bn
–
–
–
Not
available
as
collateral
£bn
–
–
18.1
Derivatives
and
Reverse
repos
£bn
–
–
–
Total
£bn
177.1
3.6
18.1
326.4
11.6
9.7
8.2
29.5
78.1
19.2
197.1
2.5
–
296.9
2.3
104.2
149.6
222.5
–
–
–
–
–
–
–
–
–
63.1
7.4
–
–
63.1
7.4
–
–
–
0.5
–
–
41.1
4.2
–
–
–
18.5
–
–
–
–
–
2.3
–
2.3
41.1
119.0
222.5
142.2
222.5
52.8
21.2
1,133.3
–
–
11.6
–
–
9.7
10.4
–
144.6
10.4
–
165.9
–
–
78.6
41.7
–
286.9
0.7
–
216.3
–
21.2
41.8
–
–
343.8
42.4
21.2
967.4
Collateral
received
of which
on-
pledged
£bn
Readily
available
assets
£bn
Available
as
collateral
£bn
Not
available
as
collateral
£bn
Collateral
received
£bn
598.3
–
529.0
–
63.7
350.6
–
216.3
5.7
47.5
Note
a Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 38
to the financial statements on page 342.
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Barclays PLC Annual Report 2018 189
Risk review
Risk performance
Treasury and capital risk
Asset encumbrance
On-balance sheet
As at 31 December 2017
Cash and balances at central banks
Cash collateral
Settlement balances
Loans and advances at
amortised cost
Reverse repurchase agreements
Trading portfolio assets
Financial assets at fair value
Derivative financial instruments
Financial Investments
Other assets
Assets included in disposal groups
classified as held for sale
Total on-balance sheet
Assets
£bn
171.1
58.6
18.6
324.0
12.5
113.8
116.3
237.7
58.9
20.5
1.2
1,133.2
Off-balance sheet
Fair value of securities accepted as
collateral
Total unencumbered collateral
Assets encumbered as a result of transactions
with counterparties other than central banks
As a
result of
covered
bonds
£bn
–
–
–
As a
result of
securi-
tisations
£bn
–
–
–
11.2
–
–
–
–
–
–
–
11.2
18.4
–
–
–
–
–
–
–
18.4
Other
£bn
–
56.4
–
13.0
–
73.9
4.8
–
15.5
–
Total
£bn
–
56.4
–
42.6
–
73.9
4.8
–
15.5
–
–
163.6
–
193.2
Other assets (comprising assets encumbered at the central bank
and unencumbered assets)
Assets not positioned at the central bank
Assets
positioned
at the
central
banksa
£bn
–
–
–
Readily
available
assets
£bn
171.1
2.2
–
Available
as
collateral
£bn
–
–
–
Not
available
as
collateral
£bn
–
–
18.6
Derivatives
and
Reverse
repos
£bn
–
–
–
70.0
–
–
–
–
–
–
–
70.0
24.1
–
39.9
1.5
–
43.0
–
186.4
–
–
10.0
–
0.4
–
–
281.8
1.2
198.0
0.9
–
–
–
–
–
20.5
–
40.0
–
12.5
–
100.0
237.7
–
–
–
350.2
1.2
940.0
Total
£bn
171.1
2.2
18.6
281.4
12.5
39.9
111.5
237.7
43.4
20.5
Collateral
received
of which
on-
pledged
£bn
Readily
available
assets
£bn
Available
as
collateral
£bn
Not
available
as
collateral
£bn
Collateral
received
£bn
608.4
–
547.6
–
60.1
341.9
–
198.0
0.7
40.7
Note
a Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 38
to the financial statements on page 342.
Repurchase agreements and reverse repurchase agreements
Barclays enters into repurchase and other similar secured borrowing agreements to finance its trading portfolio assets. The majority of reverse
repurchase agreements are matched by offsetting repurchase agreements entered into to facilitate client activity. The remainder are used to settle
trading portfolio liabilities.
Due to the high quality of collateral provided against secured financing transactions, the liquidity risk associated with this activity is significantly
lower than unsecured financing transactions. Nonetheless, Barclays manages to gross and net secured mismatch limits to limit refinancing
risk under a severe stress scenario and a portion of the Barclays Group’s liquidity pool is held against stress outflows on these positions.
The Barclays Group secured mismatch limits are calibrated based on market capacity, liquidity characteristics of the collateral and risk appetite
of the Barclays Group.
The cash value of repurchase and reverse repurchase transactions will typically differ from the market value of the collateral against which these
transactions are secured by an amount referred to as a haircut (or overcollateralisation). Typical haircut levels vary depending on the quality of the
collateral that underlies these transactions. For transactions secured against extremely liquid fixed income collateral, lenders demand relatively
small haircuts (typically ranging from 0-2%). For transactions secured against less liquid collateral, haircuts vary by asset class (typically ranging
from 5-10% for corporate bonds and other less liquid collateral).
As at 31 December 2018, the significant majority of repurchase activity related to matched-book activity. The Barclays Group may face refinancing
risk on the net maturity mismatch for matched-book activity.
190 Barclays PLC Annual Report 2018
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Net matched-book activitya,b
Net match-book repurchase agreements/(Reverse repurchase agreements)
As at 31 December 2018
Extremely liquid fixed incomec
Liquid fixed income
Equities
Less liquid
Total
As at 31 December 2017
Extremely liquid fixed incomec
Liquid fixed income
Equities
Less liquid
Total
Less than
one month
£bn
One month
to three
months
£bn
Over
three
months
£bn
32.4
(0.4)
(10.9)
(1.4)
19.7
36.4
0.9
(9.7)
(1.7)
25.9
(19.6)
0.5
7.7
1.5
(9.9)
(18.1)
(1.5)
5.6
0.7
(13.3)
(11.3)
0.7
6.4
1.9
(2.3)
(16.1)
1.4
8.8
2.2
(3.7)
The residual repurchase agreement activity is the firm-financing component and reflects Barclays funding of a portion of its trading portfolio
assets. The primary risk related to firm-financing activity is the inability to roll over transactions as they mature.
Firm financing repurchase agreementsa,b,d
As at 31 December 2018
Extremely liquid fixed incomec
Liquid fixed income
Equities
Less liquid
Total
As at 31 December 2017
Extremely liquid fixed incomec
Liquid fixed income
Equities
Less liquid
Total
Less than
one month
£bn
One month
to three
months
£bn
Over
three
months
£bn
43.6
3.2
15.9
7.8
70.5
37.2
4.1
17.4
2.1
60.8
5.1
3.3
15.1
1.6
25.1
10.3
1.5
21.4
1.9
35.1
1.6
5.8
9.0
13.8
30.2
1.4
2.5
15.7
12.6
32.2
Total
£bn
50.3
12.3
40.0
23.2
125.8
48.9
8.1
54.5
16.6
128.1
Notes
a Includes collateral swaps, financing positions for prime brokerage clients which reported as loans and advances or deposits on the balance sheet.
b Values are reported on a cash value basis.
c Extremely liquid fixed income is defined as very highly rated sovereigns and agencies, typically rated AA+ or better. It excludes liquid fixed income, equities and other
less liquid collateral.
d Includes participation in central bank monetary initiatives e.g. Bank of England’s Term Funding Scheme.
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Barclays PLC Annual Report 2018 191
Risk review
Risk performance
Treasury and capital risk
Credit ratings
In addition to monitoring and managing key metrics related to the financial strength of the Barclays Group, Barclays also solicits independent
credit ratings from Standard & Poor’s Global (S&P), Moody’s, Fitch and Rating and Investment Information (R&I). These ratings assess the
creditworthiness of the Barclays Group, its subsidiaries and branches and are based on reviews of a broad range of business and financial
attributes including capital strength, profitability, funding, liquidity, asset quality, strategy and governance.
Credit ratings
As at 31 December 2018
Barclays Bank PLC
Long term
Short term
Outlook
Barclays Bank UK PLC
Long term
Short term
Outlook
Barclays PLC
Long term
Short term
Outlook
Standard & Poor’s
Moody’s
A
A-1
Stable
A
A-1
Stable
BBB
A-2
Stable
A2
P-1
Stable
A1
P-1
Stable
Baa3
P-3
Stable
Fitch
A+
F1
Stable
A+
F1
Stable
A
F1
Stable
All credit rating agencies took rating actions during the year to convert their respective initial ratings of Barclays Bank UK PLC to final ratings
in April 2018, following the setting up of the ring-fenced bank.
In March 2018, S&P finalised their rating of Barclays Bank UK PLC, aligning it to Barclays Bank PLC’s rating of A. Both entities are on stable outlooks.
Barclays PLC continues to be rated BBB with a stable outlook.
In April 2018, Moody’s assigned a rating to Barclays Bank UK PLC of A1, whilst Barclays Bank PLC and Barclays PLC’s ratings were downgraded by
one notch to A2 and Baa3 respectively due to their assessment of the entities’ profitability and, for Barclays Bank PLC, the impact of ring-fencing.
All entities carry stable outlooks.
Fitch assigned a rating to Barclays Bank UK PLC of A, aligning it to Barclays Bank PLC’s rating in April 2018. In December 2018, both entities were
upgraded by one notch to A+ due to the sufficient amount of junior debt both entities hold, referred to as qualifying junior debt (QJD). Barclays PLC
continues to be rated A on stable outlook.
Barclays also solicits issuer ratings from R&I and the ratings of A- for Barclays PLC and A for Barclays Bank PLC were affirmed in July 2018 with
stable outlooks.
A credit rating downgrade could result in outflows to meet collateral requirements on existing contracts. Outflows related to credit rating
downgrades are included in the LRA stress scenarios and a portion of the liquidity pool is held against this risk. Credit ratings downgrades could
also result in reduced funding capacity and increased funding costs.
The contractual collateral requirement following one- and two-notch long-term and associated short-term downgrades across all credit rating
agencies, would result in outflows of £5bn and £6bn respectively, and are fully reserved for in the liquidity pool. These numbers do not assume
any management or restructuring actions that could be taken to reduce posting requirements. These outflows do not include the potential
liquidity impact from loss of unsecured funding, such as from money market funds, or loss of secured funding capacity. However, unsecured
and secured funding stresses are included in the LRA stress scenarios and a portion of the liquidity pool is held against these risks.
192 Barclays PLC Annual Report 2018
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Contractual maturity of financial assets and liabilities
The table below provides detail on the contractual maturity of all financial instruments and other assets and liabilities. Derivatives (other than
those designated in a hedging relationship) and trading portfolio assets and liabilities are included in the ‘on demand’ column at their fair value.
Liquidity risk on these items is not managed on the basis of contractual maturity since they are not held for settlement according to such maturity
and will frequently be settled before contractual maturity at fair value. Derivatives designated in a hedging relationship are included according
to their contractual maturity.
Contractual maturity of financial assets and liabilities (audited)
On
demand
£m
2,389
13,606
12,506
175,534
222,384
–
As at
31 December 2018
Assets
Cash and balances
at central banks
Cash collateral and
settlement balances
Loans and advances
at amortised cost
Reverse repurchase
agreements and other
31
similar secured lending
Trading portfolio assets 104,187
Financial assets at fair
value through the
income statement
Derivative financial
instruments
Financial investments
Financial assets at fair
value through other
11
comprehensive income
Other financial assets
761
Total financial assets 531,409
Other assetsa
Total assets
Liabilities
Deposits at
amortised cost
Cash collateral and
settlement balances
Repurchase
agreements and other
similar secured
borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio
liabilities
Financial liabilities
designated at fair value 14,280
Derivative financial
instruments
Other financial
liabilities
Total financial
liabilities
Other liabilities
Total liabilities
Cumulative
liquidity gap
1,331
26
–
342,967
219,578
619,883
37,882
3,542
277
Over three
months but
not more
than six
months
£m
Over six
months but
not more
than nine
months
£m
Over nine
months but
not more
than one
year
£m
Over one
year but
not more
than two
years
£m
Over two
years but
not more
than three
years
£m
Over three
years but
not more
than five
years
£m
Over five
years but
not more
than ten
years
£m
Not more
than three
months
£m
Over ten
years
£m
Total
£m
1,353
74,786
118
19
–
–
64
22
–
2
–
–
–
4
–
–
–
–
177,069
77,222
11,171
7,938
5,416
7,072
26,336
25,559
39,604
48,606 142,198
326,406
1,245
–
–
–
–
–
–
–
586
–
446
–
–
–
–
–
–
–
2,308
104,187
112,297
7,174
3,124
2,312
4,677
165
311
829
5,153
149,648
–
–
6
–
1
–
4
–
14
–
11
–
11
–
86
–
21
–
222,538
–
3,120
182
204,154
2,784
56
18,095
1,696
–
10,237
2,719
7
12,200
6,080
–
37,695
2,765
–
28,946
7,818
–
47,748
7,164
–
18,659
–
52,816
1,006
68,180 154,536 1,113,200
20,083
1,133,283
30,029
7,282
3,672
3,237
3,983
2,053
520
349
746
394,838
63,973
5
2
–
–
–
–
–
–
67,522
r
e
v
e
w
i
5,542
14,779
306
–
5,937
–
–
5,159
78
–
7,686
45
3
6,984
860
10,017
6,248
5,156
1,201
12,988
3,387
484
15,812
6,968
–
6,667
3,759
18,578
82,286
20,559
–
–
–
–
–
–
–
–
–
37,882
143,635
6,809
9,051
3,577
10,383
5,689
7,116
4,415
11,879
216,834
9
2,984
–
–
–
–
–
–
3
554
3
–
3
–
3
–
44
219,643
–
3,815
261,257
20,033
17,962
14,545
22,770
29,166
25,215
28,031 23,095 1,061,957
7,547
1,069,504
(88,474) (145,577) (147,515) (155,240) (157,585) (142,660) (142,880) (120,347) (80,198)
51,243
63,779
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Barclays PLC Annual Report 2018 193
Risk review
Risk performance
Treasury and capital risk
Contractual maturity of financial assets and liabilities (audited)
On
demand
£m
1,794
14,800
13,667
170,236
237,504
30
As at
31 December 2017
Assets
Cash and balances
at central banks
Cash collateral and
settlement balances
Loans and advances
at amortised cost
Reverse repurchase
agreements and other
similar secured lending
7,522
Trading portfolio assets 113,760
Financial assets at fair
value through the
income statement
Derivative financial
instruments
Financial investments
Financial assets at fair
value through other
–
comprehensive income
Other financial assets
2,153
Total financial assets 561,466
Other assetsa
Total assets
Liabilities
Deposits at
amortised cost
Cash collateral and
settlement balances
Repurchase
agreements and other
similar secured
borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio
liabilities
Financial liabilities
designated at fair value 13,298
Derivative financial
instruments
Other financial
liabilities
Total financial
liabilities
Other liabilities
Total liabilities
Cumulative
liquidity gap
3,550
907
–
632,715
237,235
337,881
37,351
2,047
446
(71,249)
Over three
months but
not more
than six
months
£m
Over six
months but
not more
than nine
months
£m
Over nine
months but
not more
than one
year
£m
Over one
year but
not more
than two
years
£m
Over two
years but
not more
than three
years
£m
Over three
years but
not more
than five
years
£m
Over five
years but
not more
than ten
years
£m
Not more
than three
months
£m
Over ten
years
£m
Total
£m
846
75,323
–
32
–
2
–
14
–
3
–
–
–
–
–
–
–
–
171,082
77,168
25,720
9,735
5,594
7,733
36,213
26,244
39,446
48,382 111,314
324,048
4,446
–
578
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,546
113,760
77,288
8,828
4,570
1,252
2,095
160
196
557
6,535
116,281
41
2,378
–
2,717
–
97
–
504
71
5,675
22
3,928
15
16,162
1
17,059
15
10,365
237,669
58,915
–
759
186,801
–
–
21,890
–
–
10,263
–
–
9,503
–
110
44,167
–
–
30,354
–
–
55,819
–
–
–
–
65,999 128,229
–
3,022
1,114,491
18,757
1,133,248
39,586
8,083
3,820
3,823
2,754
634
1,198
266
656
398,701
66,052
16
4
19
4
1
–
–
–
68,143
17,841
17,120
2,402
4,516
8,395
791
2,136
5,107
7
1,396
1,562
23
310
8,136
57
93
3,883
1,959
10,006
12,819
8,751
490
10,983
5,466
–
4,402
4,370
40,338
73,314
23,826
–
–
–
–
–
–
–
–
–
37,351
102,860
10,570
5,918
3,139
10,515
7,281
5,879
4,923
9,335
173,718
10
3,793
3
–
–
–
–
–
10
781
5
–
4
–
41
1,037
238,345
–
–
5,020
249,664
32,374
16,992
9,962
22,567
13,856
38,657
22,169
19,800 1,058,756
8,476
1,067,232
(134,112)
(144,596)
(151,325)
(151,784)
(130,184)
(113,686)
(96,524) (52,694) 55,735
66,016
Expected maturity dates may differ from the contract dates, to account for:
■■ trading portfolio assets and liabilities and derivative financial instruments, which may not be held to maturity as part of Barclays Group’s
trading strategies
■■ corporate and retail deposits, which are included within deposits at amortised cost, are repayable on demand or at short notice on a contractual
basis. In practice, these instruments form a stable base for Barclays Group’s operations and liquidity needs because of the broad base of
customers, both numerically and by depositor type
■■ loans to corporate and retail customers, which are included within loans and advances at amortised cost and financial assets at fair value,
may be repaid earlier in line with terms and conditions of the contract
■■ debt securities in issue, subordinated liabilities, and financial liabilities designated at fair value, may include early redemption features.
194 Barclays PLC Annual Report 2018
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Contractual maturity of financial liabilities on an undiscounted basis
The table below presents the cash flows payable by the Barclays Group under financial liabilities by remaining contractual maturities at the balance
sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows of all financial liabilities (i.e. nominal values).
The balances in the below table do not agree directly to the balances in the consolidated balance sheet as the table incorporates all cash flows,
on an undiscounted basis, related to both principal as well as those associated with all future coupon payments.
Derivative financial instruments held for trading and trading portfolio liabilities are included in the on demand column at their fair value.
Contractual maturity of financial liabilities – undiscounted (audited)
Over three
months but
not more
than six
months
£m
Not more
than three
months
£m
On
demand
£m
Over six
months but
not more
than one year
£m
Over one
year but
not more
than three
years
£m
Over three
years but
not more
than five
years
£m
Over five
years but
not more
than ten
years
£m
Over ten
years
£m
Total
£m
As at 31 December 2018
Deposits at amortised cost
Cash collateral and
settlement balances
Repurchase agreements and
other similar secured borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio liabilities
Financial liabilities designated
at fair value
Derivative financial instruments
Other financial liabilities
Total financial liabilities
As at 31 December 2017
Deposits at amortised cost
Cash collateral and
settlement balances
Repurchase agreements and
other similar secured borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio liabilities
Financial liabilities designated
at fair value
Derivative financial instruments
Other financial liabilities
Total financial liabilities
342,967
30,047
7,295
6,924
6,069
546
412
816
395,076
3,542
63,985
5
2
–
–
–
–
67,534
1,331
26
–
37,882
5,542
14,810
306
–
14,280
219,578
277
619,883
143,766
12
2,984
261,452
–
5,976
–
–
6,948
–
–
20,224
–
12,914
123
–
12,732
–
–
32,695
10,238
13,849
6,147
–
16,546
6
554
53,409
1,243
13,351
3,568
–
7,679
3
–
26,390
337,881
39,602
8,087
7,650
3,405
1,200
2,047
66,059
16
24
5
–
3,550
907
–
37,351
13,298
237,235
446
632,715
17,847
17,614
2,822
–
102,983
9
3,793
250,729
4,526
8,565
1,816
–
10,609
3
–
33,622
3,557
7,025
685
–
9,118
–
–
28,059
410
13,786
5,501
–
18,142
15
781
42,045
10,259
13,928
10,232
–
6,177
5
–
41,801
486
17,639
7,917
–
5,008
4
–
31,466
267
–
490
12,687
6,243
–
5,490
48
–
25,225
–
10,254
4,413
–
18,840
88,819
22,474
37,882
17,621
59
–
224,580
219,662
3,815
33,163 1,078,682
725
398,817
–
68,151
–
6,734
6,231
–
40,639
81,246
33,530
37,351
12,834
1,755
–
178,651
239,070
5,020
28,279 1,082,475
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Barclays PLC Annual Report 2018 195
Risk review
Risk performance
Treasury and capital risk
Maturity of off-balance sheet commitments received and given
The table below presents the maturity split of the Barclays Group’s off-balance sheet commitments received and given at the balance sheet date.
The amounts disclosed in the table are the undiscounted cash flows (i.e. nominal values) on the basis of earliest opportunity at which they
are available.
Maturity analysis of off-balance sheet commitments received (audited)
On
demand
£m
Not more
than three
months
£m
Over three
months but
not more
than six
months
£m
Over six
months but
not more
than nine
months
£m
Over nine
months but
not more
than one
year
£m
Over one
year but
not more
than two
years
£m
Over two
years but
not more
than three
years
£m
Over three
years but
not more
than five
years
£m
Over five
years but
not more
than ten
years
£m
Over ten
years
£m
As at 31 December 2018
Guarantees, letters of credit
and credit insurance
Other commitments
received
Total off-balance sheet
commitments received
As at 31 December 2017
Guarantees, letters of credit
and credit insurance
Other commitments
received
Total off-balance sheet
commitments received
6,288
93
110
42
6,381
152
6,373
–
6,373
5
29
34
20
–
20
2
–
2
13
–
13
3
–
3
16
–
16
1
–
1
65
–
65
8
–
8
10
–
10
7
–
7
33
–
33
5
–
5
10
–
10
3
–
3
5
–
5
4
–
4
Total
£m
6,570
135
6,705
6,411
29
6,440
Maturity analysis of off-balance sheet commitments given (audited)
Over six
months but
not more
than nine
months
£m
Over three
months but
not more
than six
months
£m
Not more
than three
months
£m
On
demand
£m
Over nine
months but
not more
than one
year
£m
Over one
year but
not more
than two
years
£m
Over two
years but
not more
than three
years
£m
Over three
years but
not more
than five
years
£m
Over five
years but
not more
than ten
years
£m
Over ten
years
£m
Total
£m
As at 31 December 2018
Contingent liabilities
Documentary credits and
other short-term trade
related transactions
Standby facilities, credit
lines and other
commitments
Total off-balance sheet
commitments given
As at 31 December 2017
Contingent liabilities
Documentary credits and
other short-term trade
related transactions
Standby facilities, credit
lines and other
commitments
Total off-balance sheet
commitments given
16,344
1,102
553
145
170
415
435
641
319
179
20,303
70
1,263
325
55
14
11
3
–
–
–
1,741
317,257
1,734
1,311
333,671
4,099
2,189
16,047
1,085
560
34
593
147
397
597
92
26
667
851
311
737
242
346
6
5
311,481
1,144
883
77
778
327,562
2,822
1,590
195
1,026
44
395
257
424
19
105 322,482
695
1,065
338
284 344,526
80
1
47
128
59
245
256
19,012
–
259
318
–
2
–
812
46
314,761
247
302
334,585
196 Barclays PLC Annual Report 2018
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Capital risk
The risk that the firm has an insufficient level or composition of capital to support its normal
business activities and to meet its regulatory capital requirements under normal operating
environments or stressed conditions (both actual and as defined for internal planning or
regulatory testing purposes). This includes the risk from the firm’s pension plans.
All disclosures in this section (pages 197 to 204) are unaudited unless otherwise stated.
Key metrics
Common Equity Tier 1 ratio
13.2%
UK leverage ratio
5.1%
Average UK leverage ratio
4.5%
Overview
The CET1 ratio, among other metrics,
is a measure of the capital strength and
resilience of Barclays. Maintenance of our
capital resources is vital in order to meet
the minimum capital requirements, and
to cover the Barclays Group’s current and
forecast business needs, and associated
risks in order to provide a viable and
sustainable business offering.
This section provides an overview of the
Barclays Group’s: (i) regulatory minimum
capital and leverage requirements; (ii) capital
resources; (iii) risk weighted assets (RWAs);
and (iv) leverage ratios and exposures.
More details on monitoring and managing
capital risk may be found in the risk
management sections on pages 175 to 181
of the Barclays PLC Pillar 3 Report 2018.
Summary of performance
in the period
Barclays continues to be in excess of
minimum transitional and fully loaded capital
requirements, and regulatory minimum
leverage requirements.
The CET1 ratio ended the year at 13.2%
(December 2017: 13.3%), at our end state
target of c.13%.
CET1 capital decreased £0.5bn to £41.1bn
as underlying profit generation of £4.2bn,
was more than offset by £2.1bn of litigation
and conduct charges as the Barclays Group
resolved legacy matters, £1.7bn for ordinary
dividends and Additional Tier 1 coupons paid
and foreseen, £1.0bn from the redemption of
capital instruments and £0.5bn of pensions
contributions.
RWAs remained broadly stable at £311.9bn
(December 2017: £313.0bn). The Barclays
Group continued to actively manage capital
allocation to businesses during the year,
including the redeployment of RWAs within
CIB to higher returning businesses and clients,
while targeting growth in selected consumer
businesses in Barclays UK and Consumer,
Cards and Payments. Within Barclays UK, the
increase in RWAs included the impact of a
change in the regulatory methodology for the
Education, Social Housing and Local Authority
(ESHLA) portfolio which was partly offset by a
reduction in Head Office due to the regulatory
deconsolidation of Barclays Africa Group
Limited (BAGL).
The UK leverage ratio remained flat at 5.1%
(December 2017: 5.1%). The leverage
exposure increased marginally to £999bn
(December 2017: £985bn) including securities
financing transactions (SFTs), due to the
CIB utilising leverage balance sheet more
efficiently within high returning financing
businesses. The average UK leverage ratio
decreased to 4.5% (December 2017: 4.9%).
home.barclays/annualreport
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Risk review
Risk performance
Treasury and capital risk
Regulatory minimum capital requirements
Barclays’ fully loaded CET1 regulatory requirement is 11.7% comprising a 4.5% Pillar 1 minimum, a 2.5% Capital Conservation Buffer (CCB),
a 1.5% Global Systemically Important Institution (G-SII) buffer, a 2.7% Pillar 2A requirement applicable from 1 January 2019, and a 0.5%
Countercyclical Capital Buffer (CCyB).
The CCB and the G-SII buffer, determined by the PRA in line with guidance from the Financial Stability Board (FSB), are subject to phased
implementation at 25% per annum from 2016 with full effect from 2019. The CCB has been set at 2.5% with 1.9% applicable for 2018. The G-SII
buffer for 2018 has been set at 1.5% with 1.1% applicable for 2018. The FSB confirmed that the G-SII buffer will remain at 1.5% applicable for 2019
and 2020.
The Barclays CCyB is based on the buffer rate applicable for each jurisdiction in which Barclays has exposures. On 28 November 2018, the Financial
Policy Committee (FPC) increased the CCyB rate for UK exposures from 0.5% to 1%. The buffer rates set by other national authorities for our
non-UK exposures are not currently material. Overall, this results in a 0.5% CCyB for Barclays for Q418.
Barclays’ Pillar 2A requirement as per the PRA’s Individual Capital Requirement for 2018 is 4.3% of which at least 56.25% needs to be met in CET1
form, equating to approximately 2.4% of RWAs. Certain elements of the Pillar 2A requirement are a fixed quantum whilst others are a proportion
of RWAs and are based on a point in time assessment. The Pillar 2A requirement is subject to at least annual review.
The CET1 transitional minimum capital requirement for December 2018 was 10.4% comprising a 4.5% Pillar 1 minimum, a 1.9% CCB, a 1.1%
G-SII buffer, a 0.5% CCyB and a 2.4% Pillar 2A requirement.
Regulatory minimum leverage requirements
Barclays is subject to a leverage ratio requirement that is implemented on a phased basis, with a transitional requirement of 3.8% as at
31 December 2018; this comprised the 3.25% minimum requirement, a transitional G-SII additional leverage ratio buffer (G-SII ALRB) of 0.39%
and a countercyclical leverage ratio buffer (CCLB) of 0.2%. Although the leverage ratio is expressed in terms of T1 capital, 75% of the minimum
requirement, equating to 2.4375%, needs to be met with CET1 capital. In addition, the G-SII ALRB and CCLB must be covered solely with CET1
capital. The CET1 capital held against the 0.39% transitional G-SII ALRB was £4.4bn and the 0.2% CCLB was £2.2bn. The fully loaded UK leverage
requirement is expected to be 4.0%.
Capital resources
The CRR and Capital Requirements Directive (CRD) implemented Basel III within the EU (collectively known as CRD IV) on 1 January 2014. The rules
are supplemented by Regulatory Technical Standards and the PRA’s rulebook, including the implementation of transitional rules. However, rules and
guidance are still subject to change as certain aspects of CRD IV are dependent on final technical standards and clarifications to be issued by the
EBA and adopted by the European Commission and the PRA.
Capital ratiosa,b,c
As at 31 December
CET1
Tier 1 (T1)
Total regulatory capital
2018
13.2%
17.0%
20.7%
2017
13.3%
17.2%
21.5%
Notes
a CET1, T1 and T2 capital, and RWAs are calculated applying the transitional arrangements of the CRR. This includes IFRS 9 transitional arrangements and the grandfathering
of CRR non-compliant capital instruments.
b The fully loaded CET1 ratio, as is relevant for assessing against the conversion trigger in Barclays PLC additional tier 1 (AT1) securities, was 12.8%, with £39.8bn of CET1 capital
and £311.8bn of RWAs calculated without applying the transitional arrangements of the CRR.
c The Barclays PLC CET1 ratio, as is relevant for assessing against the conversion trigger in Barclays Bank PLC T2 Contingent Capital Notes, was 13.2%. For this calculation CET1
capital and RWAs are calculated applying the transitional arrangements under the CRR, including the IFRS 9 transitional arrangements. The benefit of the Financial Services
Authority (FSA) October 2012 interpretation of the transitional provisions, relating to the implementation of CRD IV, expired in December 2017.
198 Barclays PLC Annual Report 2018
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Capital resources (audited)
As at 31 December
Total equity excluding non-controlling interests per the balance sheet
Less: other equity instruments (recognised as AT1 capital)
Adjustment to retained earnings for foreseeable dividends
Other regulatory adjustments and deductions
Additional value adjustments (PVA)
Goodwill and intangible assets
Deferred tax assets that rely on future profitability excluding temporary differences
Fair value reserves related to gains or losses on cash flow hedges
Excess of expected losses over impairment
Gains or losses on liabilities at fair value resulting from own credit
Defined benefit pension fund assets
Direct and indirect holdings by an institution of own CET1 instruments
Adjustment under IFRS 9 transitional arrangements
CET1 capital
AT1 capital
Capital instruments and related share premium accounts
Qualifying AT1 capital (including minority interests) issued by subsidiaries
Other regulatory adjustments and deductions
AT1 capital
2018
£bn
62.6
(9.6)
(0.7)
(1.7)
(8.0)
(0.5)
(0.7)
–
(0.1)
(1.3)
(0.1)
1.3
41.1
9.6
2.4
(0.1)
11.9
2017
£bn
63.9
(8.9)
(0.4)
(1.4)
(7.9)
(0.6)
(1.2)
(1.2)
0.1
(0.7)
(0.1)
–
41.6
8.9
3.5
(0.1)
12.3
T1 capital
53.0
53.9
T2 capital
Capital instruments and related share premium accounts
Qualifying T2 capital (including minority interests) issued by subsidiaries
Other regulatory adjustments and deductions
Total regulatory capital
Movement in CET1 capital
Opening balance as at 1 January
Effects of changes in accounting policies
Profit/Loss for the period attributable to equity holders
Own credit relating to derivative liabilities
Dividends paid and foreseen
Increase in retained regulatory capital generated from earnings
Net impact of share schemes
Fair value through other comprehensive income reserve
Currency translation reserve
Other reserves
Decrease in other qualifying reserves
Pension remeasurements within reserves
Defined benefit pension fund asset deduction
Net impact of pensions
Additional value adjustments (PVA)
Goodwill and intangible assets
Deferred tax assets that rely on future profitability excluding those arising from temporary differences
Excess of expected loss over impairment
Adjustment under IFRS 9 transitional arrangements
Increase in regulatory capital due to adjustments and deductions
Closing balance as at 31 December
6.6
5.3
(0.3)
64.6
6.5
7.0
(0.3)
67.2
2018
£bn
41.6
(2.2)
2.1
(0.1)
(1.7)
0.4
0.1
(0.5)
0.8
(1.0)
(0.6)
0.3
(0.6)
(0.3)
(0.4)
(0.1)
0.1
1.2
1.3
2.2
41.1
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Barclays PLC Annual Report 2018 199
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Risk review
Risk performance
Treasury and capital risk
CET1 capital decreased £0.5bn to £41.1bn (December 2017: £41.6bn).
£4.2bn of organic capital generated from profits was more than offset by £2.1bn of litigation and conduct charges, as the Barclays Group resolved
legacy matters, as well as the following significant items:
■■ £1.7bn of dividends paid and foreseen for ordinary dividends and AT1 coupons
■■ a £1bn decrease in other qualifying reserves following the redemption of the legacy $2.65bn 8.125% Series Non-Cumulative Callable Dollar
Preference Shares and $2bn 8.25% AT1 securities due to these instruments being held on the balance sheet at historical FX rates
■■ a £0.3bn decrease as a result of movements relating to pensions, largely due to deficit contribution payments of £0.25bn in April 2018 and
£0.25bn in September 2018.
The implementation of IFRS 9 resulted in a net increase in CET1 capital as the initial decrease in shareholders’ equity of £2.2bn on implementation
was more than offset by the transitional relief of £1.3bn and the removal of £1.2bn of regulatory deduction for the excess of expected loss
over impairment.
Risk weighted assets
Risk weighted assets (RWAs) by risk type and business
As at 31 December 2018
Barclays UK
Barclays International
Head Office
Barclays Group
As at 31 December 2017
Barclays UK
Barclays International
Head Office
Barclays Group
Credit risk
Std
£bn
3.3
55.6
4.3
63.2
3.8
49.1
2.9
55.8
IRB
£bn
59.7
67.0
5.8
132.5
55.0
69.5
9.8
134.2
Counterparty credit risk
Settlement
Risk
£bn
–
0.2
–
0.2
IRB
£bn
–
15.0
–
15.0
–
17.2
0.6
17.9
–
0.1
–
0.1
Std
£bn
0.2
9.9
–
10.1
–
17.0
0.1
17.1
Movement analysis of risk weighted assets
Risk weighted assets
As at 31 December 2017
Book size
Acquisitions and disposals
Book quality
Model updates
Methodology and policy
Foreign exchange movementa
As at 31 December 2018
Market risk
risk Total RWAs
Operational
CVA
£bn
0.1
3.3
–
3.4
–
2.8
0.2
3.0
Std
£bn
0.1
13.9
–
14.0
–
13.3
0.1
13.4
IMA
£bn
–
16.8
–
16.8
–
13.5
1.4
14.9
£bn
11.8
29.0
15.9
56.7
12.2
27.7
16.8
56.7
Credit
risk
£bn
190.0
6.8
(3.6)
(2.9)
–
2.2
3.1
195.6
Counterparty
credit riska
£bn
38.0
(0.6)
(0.3)
(0.5)
–
(7.8)
–
28.8
Market
risk
£bn
28.3
2.2
(0.2)
–
–
0.5
–
30.8
Operational
risk
£bn
56.7
–
–
–
–
–
–
56.7
£bn
75.2
210.7
26.0
311.9
70.9
210.3
31.8
313.0
Total
RWAs
£bn
313.0
8.4
(4.1)
(3.4)
–
(5.1)
3.1
311.9
Note
a Foreign exchange movement does not include FX for modelled counterparty risk or modelled market risk.
RWAs decreased £1.1bn to £311.9bn:
■■ book size increased RWAs £8.4bn primarily due to increased lending activity within the Investment Banking and Consumer, Cards & Payments
businesses
■■ acquisitions and disposals decreased RWAs £4.1bn primarily due to the regulatory deconsolidation of BAGL
■■ book quality decreased RWAs £3.4bn primarily due to changes in the risk profile in Barclays International
■■ methodology and policy decreased RWAs £5.1bn primarily due to an extended regulatory permission to use the modelled exposure
measurement approach
■■ foreign exchange movements increased RWAs £3.1bn primarily due to appreciation of period end USD against GBP.
200 Barclays PLC Annual Report 2018
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Leverage ratios and exposures
From 1 January 2018, following the end of the transitional period Barclays is required to disclose an average UK leverage ratio which is based
on capital on the last day of each month in the quarter and an exposure measure for each day in the quarter. During the transitional period,
the exposure measure was based on the last day of each month in the quarter. Barclays is also required to disclose a UK leverage ratio based
on capital and exposure on the last day of the quarter. Both approaches exclude qualifying claims on central banks from the leverage exposures.
Leverage ratiosa,b
As at 31 December
UK leverage ratio
CET1 capital
AT1 capital
T1 capitalc
UK leverage exposure
Average UK leverage ratio
Average T1 capitalc
Average UK leverage exposured
UK leverage exposure
As at 31 December
Accounting assets
Derivative financial instruments
Derivative cash collateral
Securities financing transactions (SFTs)
Loans and advances and other assets
Total IFRS assets
Regulatory consolidation adjustments
Derivatives adjustments
Derivatives netting
Adjustments to cash collateral
Net written credit protection
Potential Future Exposure (PFE) on derivatives
Total derivatives adjustments
SFTs adjustments
Regulatory deductions and other adjustments
Weighted off-balance sheet commitments
Qualifying central bank claims
UK leverage exposureb
2018
£bn
5.1%
41.1
9.5
50.6
999
4.5%
50.5
1,110
2018
£bn
223
48
121
741
1,133
2017
£bn
5.1%
41.6
8.8
50.4
985
4.9%
51.2
1,045
2017
£bn
238
53
113
729
1,133
(2)
8
(202)
(42)
19
123
(102)
(217)
(42)
14
120
(125)
17
19
(11)
(13)
108
103
(144)
999
(140)
985
Notes
a The fully loaded UK leverage ratio was 4.9%, with £49.3bn of T1 capital and £997bn of leverage exposure calculated without applying the transitional arrangements of the CRR.
b Capital and leverage measures are calculated applying the transitional arrangements of the CRR.
c The T1 capital is calculated in line with the PRA Handbook, which excludes grandfathered AT1 instruments allowed under the CRR.
d The average UK leverage exposure as at 31 December 2017 was calculated based on the last day of each month in the quarter.
The UK leverage ratio remained flat at 5.1% (December 2017: 5.1%). The leverage exposure increased marginally to £999bn (December 2017:
£985bn). The leverage exposure movements included:
■■ loans and advances and other assets increased £12bn to £741bn primarily driven by growth in the UK mortgage portfolio
■■ SFTs increased £8bn to £121bn primarily driven by the CIB utilising leverage balance sheet more efficiently within high returning
financing business
■■ regulatory consolidation adjustments decreased £10bn primarily driven by the regulatory deconsolidation of BAGL.
The average UK leverage ratio decreased to 4.5% (December 2017: 4.9%) partially driven by the change to the daily exposure measure. Average
UK leverage exposures increased due to higher trading activity in SFTs and trading portfolio assets, as well as a decrease in average Tier 1 capital.
The difference between the average UK leverage ratio and the UK leverage ratio was primarily driven by lower trading portfolio assets, settlement
exposures and SFT exposures at quarter end.
Barclays is required to disclose a CRR leverage ratio. This is included in the additional Barclays regulatory disclosures, prepared in accordance with
European Banking Authority (EBA) guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013 (see the Barclays PLC
Pillar 3 Report 2018 (unaudited)), due to be published by 21 February 2019, available at home.barclays/results.
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Risk review
Risk performance
Treasury and capital risk
Foreign exchange risk (audited)
The Barclays Group is exposed to two sources of foreign exchange risk.
a) Transactional foreign currency exposure
Transactional foreign currency exposures represent exposure on banking assets and liabilities, denominated in currencies other than the functional
currency of the transacting entity.
The Barclays Group’s risk management policies prevent the holding of significant open positions in foreign currencies outside the trading portfolio
managed by Barclays International which is monitored through VaR.
Banking book transactional foreign exchange risk outside of Barclays International is monitored on a daily basis by the market risk function
and minimised by the businesses.
b) Translational foreign exchange exposure
The Barclays Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies, principally
USD and EUR. Changes in the GBP value of the net investments due to foreign currency movements are captured in the currency translation
reserve, resulting in a movement in CET1 capital.
The Barclays Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by matching the CET1
capital movements to the revaluation of the Barclays Group’s foreign currency RWA exposures.
Functional currency of operations (audited)
As at 31 December 2018
USD
EUR
ZAR
JPY
Other
Total
As at 31 December 2017
USD
EUR
ZAR
JPY
Other
Total
Foreign
currency
net
investments
£m
Borrowings
which hedge
the net
investments
£m
Derivatives
which hedge
the net
investments
£m
28,857
2,672
5
489
2,021
34,044
27,848
2,489
8
467
2,475
33,287
(12,322)
(3)
–
–
–
(12,325)
(12,404)
(3)
–
(152)
–
(12,559)
(2,931)
–
–
–
(37)
(2,968)
(540)
–
–
(301)
(1,299)
(2,140)
Structural
currency
exposures
pre-
economic
hedges
£m
13,604
2,669
5
489
1,984
18,751
14,904
2,486
8
14
1,176
18,588
Remaining
structural
currency
exposures
£m
Economic
hedges
£m
(4,827)
(2,146)
–
–
–
(6,973)
(6,153)
(2,127)
–
–
–
(8,280)
8,777
523
5
489
1,984
11,778
8,751
359
8
14
1,176
10,308
The economic hedges primarily represent the USD and EUR preference shares and Additional Tier 1 (AT1) instruments that are held as equity.
These are accounted for at historical cost under IFRS and do not qualify as hedges for accounting purposes.
During 2018, total structural currency exposure net of hedging instruments increased by £1.5bn to £11.8bn (2017: £10.3bn). Foreign currency
net investments increased by £0.7bn to £34.0bn (2017: £33.3bn) driven predominantly by a £1.0bn increase in US Dollars and a £0.2bn increase
in Euro offset by a £0.5bn decrease in other currencies. The hedges associated with these investments increased by £0.6bn to £15.3bn
(2017: £14.7bn).
202 Barclays PLC Annual Report 2018
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Pension risk review
The UK Retirement Fund (UKRF) represents approximately 97% (2017: 96%) of Barclays Group’s total retirement benefit obligations globally.
As such this risk review section focuses exclusively on the UKRF. The UKRF is closed to new entrants and there is no new final salary benefit being
accrued. Existing active members accrue a combination of a cash balance benefit and a defined contribution element. Pension risk arises as the
market value of the pension fund assets may decline, investment returns may reduce or the estimated value of the pension liabilities may increase.
Refer to page 179 of the Barclays PLC Pillar 3 Report 2018 (unaudited) for more information on how pension risk is managed.
Assets
The Trustee Board of the UKRF defines its overall long-term investment strategy with investments across a broad range of asset classes. This
results in an appropriate mix of return seeking assets as well as liability matching assets to better match future pension obligations. The main
market risks within the asset portfolio are interest rates and equities. The split of scheme assets is shown within Note 33. The fair value of the
UKRF assets was £29.0bn as at 31 December 2018 (2017: £30.1bn).
Liabilities
The UKRF retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS 19 basis these cash flows
are sensitive to changes in the expected long-term price inflation rate (RPI) and the discount rate (AA corporate bond yield):
■■ an increase in long-term expected inflation corresponds to an increase in liabilities
■■ a decrease in the discount rate corresponds to an increase in liabilities.
Pension risk is generated through Barclays Group’s defined benefit schemes and this risk is set to reduce over time as the main defined benefit
scheme is closed to new entrants. The chart below outlines the shape of the UKRF’s liability cash flow profile as at 31 December 2018 that takes
account of the future inflation indexing of payments to beneficiaries. The majority of the cash flows (approximately 92%) fall between 0 and
40 years, peaking between 11 and 20 years and reducing thereafter. The shape may vary depending on changes to inflation and longevity
expectations and any members who elect to transfer out. Transfers out will bring forward the liability cash flows.
For more detail on the UKRF’s financial and demographic assumptions see Note 33 to the financial statements.
Proportion of liability cash flows
IAS 19 pension position in 2018
0-10 Years
11-20 Years
21-30 Years
31-40 Years
41-50 Years
6.6%
51 Years+ 1.4%
23.2%
2
29.1%
25.2%
14.5%
UKRF Net IAS19 position (£bn)
0
Q4 Dec 2016
Q4 Dec 2017
Q4 Dec 2018
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The graph above shows the UKRF’s net IAS 19 pension position at each month-end for the past two years. During 2017 and 2018 the net
improvement in the IAS 19 position was largely driven by bank contributions and credit spreads widening. Changes from other market levels,
in particular equity prices and interest rates, were offset by updates to demographic assumptions. Refer to Note 33 for the sensitivity of the UKRF
to changes in key assumptions.
Risk measurement
In line with Barclays’ risk management framework the assets and liabilities of the UKRF are modelled within a VaR framework to show the volatility
of the pension position at a total portfolio level. This enables the risks, diversification and liability matching characteristics of the UKRF obligations
and investments to be adequately captured. VaR is measured and monitored on a monthly basis. Risks are reviewed and reported regularly
at forums including the Board Risk Committee, the Group Risk Committee, the Pensions Management Group and the Pension Executive Board.
The VaR model takes into account the valuation of the liabilities on an IAS 19 basis (see Note 33). The Trustee receives quarterly VaR measures
on a funding basis.
The pension liability is also sensitive to post-retirement mortality assumptions which are reviewed regularly. See Note 33 for more details.
In addition, the impact of pension risk to Barclays Group is taken into account as part of the stress testing process. Stress testing is performed
internally on at least an annual basis. The UKRF exposure is also included as part of regulatory stress tests.
Barclays defined benefit pension schemes affects capital in two ways:
■■ an IAS 19 deficit is treated as a liability on Barclays Group’s balance sheet. Movement in a deficit due to remeasurements, including actuarial
losses, are recognised immediately through Other Comprehensive Income and as such reduces shareholders’ equity and CET1 capital.
An IAS 19 surplus is treated as an asset on the balance sheet and increases shareholders’ equity; however, it is deducted for the purposes
of determining CET1 capital
■■ in Barclays Group’s statutory balance sheet an IAS 19 surplus or deficit is partially offset by a deferred tax liability or asset respectively.
These may or may not be recognised for calculating CET1 capital depending on the overall deferred tax position of Barclays Group at the
particular time.
Pension risk is taken into account in the Pillar 2A capital assessment undertaken by the PRA at least annually. The Pillar 2A requirement forms part
of Barclays Group’s overall regulatory minimum requirement for CET1 capital, Tier 1 capital and total capital. More detail on minimum regulatory
requirements can be found on page 198.
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Barclays PLC Annual Report 2018 203
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Risk review
Risk performance
Treasury and capital risk
Minimum Requirement for own funds and Eligible Liabilities (MREL)
Under the Bank of England’s statement of policy on MREL, the Bank of England will set MREL for UK Global Systemically Important Banks (G-SIBs)
as necessary to implement the total loss-absorbing capacity (TLAC) standard. Institution or group-specific MREL requirements will depend on the
preferred resolution strategy for that institution or group.
The MREL requirements will be phased in from 1 January 2019 and will be fully implemented by 1 January 2022, at which time G-SIBs with
resolution entities incorporated in the UK, including Barclays, will be required to meet an MREL equivalent to the higher of either: (i) two times
the sum of its Pillar 1 and Pillar 2A requirements or; (ii) the higher of two times its leverage ratio requirement or 6.75% of leverage exposures.
However, the PRA will review the MREL calibration by the end of 2020, including assessing the proposal for Pillar 2A recapitalisation which may
drive a different 1 January 2022 MREL requirement than currently proposed. In addition, it is proposed that CET1 capital cannot be counted
towards both MREL and the combined buffer requirement (CBR), meaning that the CBR will effectively be applied above both the Pillar 1 and
Pillar 2A requirements relating to own funds and MREL.
Barclays’ indicative MREL requirement is currently expected to be 30.0% of RWAs from 1 January 2022 consisting of the following components:
■■ loss absorption and recapitalisation amounts consisting of 8% Pillar 1 and 4.7% Pillar 2A buffers respectively
■■ regulatory buffers including a 1.5% G-SII buffer, 2.5% CCB and 0.5% from the planned introduction of a 1% CCyB for the UKa.
MREL position and ratios
MREL ratios
CET1 capitalb
Additional tier 1 (AT1) capital instruments and related share premium accounts
Tier 2 (T2) capital instruments and related share premium accounts
Term senior unsecured funding
Total Barclays PLC (the Parent company) MREL ratio
Qualifying AT1 capital (including minority interests) issued by subsidiariesc
Qualifying T2 capital (including minority interests) issued by subsidiariesc
Total MREL ratio, including eligible Barclays Bank PLC instruments
MREL position
CET1 capitalb
AT1 capital instruments and related share premium accounts
T2 capital instruments and related share premium accounts
Term senior unsecured funding
Total Barclays PLC (the Parent company) MREL position
Qualifying AT1 capital (including minority interests) issued by subsidiariesc
Qualifying T2 capital (including minority interests) issued by subsidiariesc
Total MREL position, including eligible Barclays Bank PLC instruments
2018
13.2%
3.1%
2.1%
9.7%
28.1%
0.7%
1.6%
30.5%
£bn
41.1
9.6
6.6
30.4
87.7
2.3
5.1
95.1
2017
13.3%
2.9%
2.1%
6.8%
25.0%
1.1%
2.2%
28.2%
£bn
41.6
8.9
6.5
21.2
78.2
3.4
6.8
88.4
Total RWAs
311.9
313.0
Notes
a 2022 requirements subject to Bank of England review by the end of 2020.
b CET1 capital and RWAs are calculated applying the transitional arrangements of the CRR. This includes IFRS 9 transitional arrangements and the grandfathering of CRR
non-compliant capital instruments.
c Includes other AT1 capital regulatory adjustments and deductions of £0.1bn (December 2017: £0.1bn), and other T2 credit risk adjustments and deductions of £0.3bn
(December 2017: £0.3bn).
204 Barclays PLC Annual Report 2018
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Interest rate risk in the banking book
The risk that the firm is exposed to capital or income volatility because of a mismatch
between the interest rate exposures of its (non-traded) assets and liabilities.
All disclosures in this section (pages 205 to 207) are unaudited unless otherwise stated.
Key metrics
AEaR
+£213m
across Barclays Group from a positive 100bps shock in interest rates.
Overview
The non-traded market risk framework
covers exposures in the banking book,
mostly relating to accrual accounted and
FVOCI instruments. The potential volatility
of net interest income is measured by an
Annual Earnings at Risk (AEaR) metric which
is monitored regularly and reported to senior
management and the BRC as part of the limit
monitoring framework.
For further detail on interest rate risk in the
banking book governance and framework
refer to page 180 of the Barclays PLC Pillar 3
Report 2018 (unaudited).
Summary of performance
in the period
Annual Earnings at Risk (AEaR), is a key
measure of interest rate risk in the banking
book (IRRBB).
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Barclays PLC Annual Report 2018 205
Risk review
Risk performance
Treasury and capital risk
Net interest income sensitivity
The table below shows a sensitivity analysis on pre-tax net interest income for non-trading financial assets and financial liabilities, including
the effect of any hedging. The sensitivity has been measured using the Annual Earnings at Risk (AEaR) methodology as described on page 180
of the Barclays PLC Pillar 3 Report 2018 (unaudited). Note that this metric assumes an instantaneous parallel change to interest rate forward
curves. The model floors shocked market rates at zero; changes in Net Interest Income (NII) sensitivity are only observed where forward rates are
greater than zero. The main model assumptions are: (i) one-year time horizon; (ii) balance sheet is held constant; (iii) balances are adjusted for
assumed behavioural profiles (i.e. considers that customers may remortgage before the contractual maturity); and (iv) behavioural assumptions
are kept unchanged in all rate scenarios.
Net interest income sensitivity (AEaR) by business unita,b,c (audited)
As at 31 December 2018
+100bps
+25bps
-25bps
As at 31 December 2017
+100bps
+25bps
-25bps
Barclays UK
£m
Barclays
International
£m
124
30
(73)
45
11
(61)
89
23
(35)
31
9
(22)
Total
£m
213
53
(108)
76
20
(83)
Notes
a Excludes investment banking business.
b Excludes Treasury operations, which are driven by the firm’s investments in the liquidity pool, which are risk managed using value-based risk measures described on page 180
of the Barclays PLC Pillar 3 Report 2018 (unaudited). Treasury’s NII (AEaR) sensitivity to a +25/-25bps move is +£23m/-£29m respectively.
c Expected fixed rate mortgage pipeline completions in Barclays UK assumed to be consistent with level and timing of pipeline hedging.
NII asymmetry arises due to the current low level of interest rates. Modelled NII sensitivity to a -25bps shock to rates has increased year on year
as a result of maturity of hedging which provided an offset to the exposure to falling interest rates. Modelled NII sensitivity to +25bps and +100bps
shocks to rates also increased as a result.
Net interest income sensitivity (AEaR) by currencya
As at 31 December
GBP
USD
EUR
Other currencies
Total
As percentage of net interest income
2018
2017
+25 basis
points
£m
43
1
6
3
53
0.58%
-25 basis
points
£m
(99)
(1)
(3)
(5)
(108)
(1.19%)
+25 basis
points
£m
12
1
4
3
20
0.20%
-25 basis
points
£m
(76)
(1)
(1)
(5)
(83)
(0.84%)
Note
a Barclays UK and Barclays International sensitivity (excluding Investment Banking business and Treasury).
Analysis of equity sensitivity
Equity sensitivity table measures the overall impact of a +/- 25bps movement in interest rates on retained earnings, fair value through other
comprehensive income (FVOCI) and cash flow hedge reserves. This data is captured using DV01 metric which is an indicator of the shift in value
for a one basis point in the yield curve.
Analysis of equity sensitivity (audited)
As at 31 December
Net interest income
Taxation effects on the above
Effect on profit for the year
As percentage of net profit after tax
Effect on profit for the year (per above)
Fair value through other comprehensive income reserve
Cash flow hedge reserve
Taxation effects on the above
Effect on equity
As percentage of equity
2018
2017
+25 basis
points
£m
53
(13)
40
1.69%
40
(143)
(574)
179
(498)
(0.78%)
-25 basis
points
£m
(108)
27
(81)
(3.41%)
(81)
256
544
(200)
519
0.81%
+25 basis
points
£m
20
(6)
14
(1.57%)
14
(164)
(616)
195
(571)
(0.87%)
-25 basis
points
£m
(83)
25
(58)
6.49%
(58)
219
598
(204)
555
0.84%
206 Barclays PLC Annual Report 2018
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As discussed in relation to the net interest income sensitivity table on page 206, the increase in impact of a 25bps movement in rates as a result
of maturity of hedging.
Movements in the FVOCI reserve would impact CET1 capital, however the movement in the cash flow hedge reserve would not impact CET1 capital.
Volatility of the FVOCI portfolio in the liquidity pool
Changes in value of FVOCI exposures flow directly through capital via the FVOCI reserve. The volatility of the value of the FVOCI investments
in the liquidity pool is captured and managed through a value measure rather than an earning measure, i.e. the non-traded market risk VaR.
Although the underlying methodology to calculate the non-traded VaR is identical to the one used in traded management VaR, the two measures
are not directly comparable. The non-traded VaR represents the volatility to capital driven by the FVOCI exposures. These exposures are in the
banking book and do not meet the criteria for trading book treatment.
Non-traded value at risk (£m)
80
60
40
20
Jan 2018
Daily value at risk (£m)
Dec 2018
Analysis of volatility of the FVOCI portfolio in the liquidity pool
For the year ended 31 December
Non-traded market value at risk (daily, 95%)
Average
£m
45
2018
High
£m
61
Low
£m
32
Average
£m
36
2017
High
£m
50
Low
£m
27
The volatility in the FVOCI portfolio was primarily driven by changes in interest rate risk exposure taken in the liquid asset buffer.
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Barclays PLC Annual Report 2018 207
Risk review
Risk performance
Operational risk
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.
All disclosures in this section are unaudited unless otherwise stated.
Key metrics
84%
of Barclays Group’s net reportable operational risk events had a loss value of £50,000 or less
61%
of events by number are due to external fraud
Overview
Operational risks are inherent in Barclays
Group’s business activities and it is not always
cost effective or possible to attempt to
eliminate all operational risks. The Operational
Risk Management Framework is therefore
focused on identifying operational risks,
assessing them and managing them within
Barclays Group’s approved risk appetite.
The operational risk principal risk comprises
the following risks: data management and
information, financial reporting, fraud,
payments process, people, physical security,
premises, prudential regulation, supplier,
tax, technology and transaction operations.
For definitions of these risks see pages 143
and 144. In order to provide complete
coverage of the potential adverse impacts on
Barclays Group arising from operational risk,
the operational risk taxonomy extends beyond
the risks listed above to cover operational risks
associated with other principal risks too.
This section provides an analysis of Barclays
Group’s operational risk profile, including
events above Barclays Group’s reportable
threshold, which have had a financial impact
in 2018.
For information on conduct risk events,
see page 212.
Summary of performance
in the period
During 2018, total operational risk losses
decreased to £220m (2017: £291m) and the
number of recorded events for 2018 decreased
to 1,995 from 2,770 events recorded during
the prior year. The total operational risk losses
for the year were primarily driven by events
falling within the execution, delivery and
process management and external fraud
categories, which tend to be high volume
but low impact events.
208 Barclays PLC Annual Report 2018
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Operational risk profile
Within operational risk, a high proportion
of risk events have a low financial impact
whilst a very small proportion of operational
risk events will have a material impact
on the financial results of Barclays Group.
In 2018, 84% of Barclays Group’s reportable
operational risk events by volume had a value
of less than £50,000 (2017: 86%), although
this type of event accounted for only 14%
(2017: 16%) of Barclays Group’s total net
operational risk losses.
The analysis below presents Barclays Group’s
operational risk events by Basel event category:
■■ execution, delivery and process
management impacts decreased to £127m
(2017: £216m) and accounted for 58%
(2017: 74%) of total operational risk losses.
The events in this category are typical of
the banking industry as a whole where high
volumes of transactions are processed on
a daily basis. Whilst the overall frequency of
events in this category increased in 2018 to
31% of total events by volume (2017: 24%),
the decrease in total impacts was due to
a lower number of events with high loss
values compared to the prior year
■■ external fraud remains the category with
the highest frequency of events at 61%
of total events in 2018, although down
from 72% in prior year. In this category,
high volume, low value events are driven
by transactional fraud often related to debit
and credit card usage
■■ business disruption and system failures
impacts decreased to £13m (2017: £20m),
although count of events increased slightly
year on year to 93 (73 for 2017) accounting
for 4.7% of total events by volume in 2018
(2017: 2.6%). The decrease in total impacts
was due to a lower number of events with
high loss values compared to the prior year
■■ employment practices and workplace
safety impacts show a significant increase
to £35m (2017: £0.3m) accounting for
16% of total operational risk losses in 2018.
This resulted from a low number of events
with significant impacts (three single
legacy events relating to closed businesses
accounted for 91% of these impacts)
although the number of events in this
category also increased to 48 for 2018
(11 for 2017)
Barclays Group’s operational risk profile
is informed by bottom-up risk assessments
undertaken by each business unit and
top-down qualitative review by the operational
risk specialists for each risk type. Fraud,
transaction operations and technology
continue to be highlighted as key operational
risk exposures. The operational risk profile
is also informed by a number of risk themes:
cyber, data, execution and resilience.
These represent threats to Barclays Group
that extend across multiple risk types,
and therefore require an integrated risk
management approach.
Investment continues to be made in improving
the control environment across Barclays
Group. Particular areas of focus include new
and enhanced fraud prevention systems and
tools to combat the increasing level of fraud
attempts being made and to minimise any
disruption to genuine transactions. Fraud
remains an industry-wide threat and Barclays
Group continues to work closely with external
partners on various prevention initiatives.
Technology, resilience and cybersecurity risks
evolve rapidly so Barclays Group maintains
continued focus and investment in our control
environment to manage these risks, and
actively partners with peers and relevant
organisations to understand and disrupt
threats originating outside Barclays Group.
Cyber threats, which are evolving and
increasing in sophistication and frequency,
continue to be a threat across multiple
industries globally. Barclays Group recognises
the potential impact of cybersecurity threats
on all areas of its business. This extends to
third-party suppliers and service providers
which also presents a potential source of
cybersecurity threats, leading to the need
for increased scrutiny of Barclays Group’s
relationships with third parties. The potential
impact of cybersecurity threats includes
the potential for operational disruption,
reputational harm, and costs associated
with possible litigation, regulatory
investigation, and remediation. The Regulators
in Europe and the US have been increasingly
focused on cybersecurity risk management
and operational resilience for banking
organisations given the complexity of the
transactions they process, the number of
jurisdictions in which they operate, and the
quantities of sensitive data they hold and
process. This has resulted in a number
of proposed laws, regulations and other
requirements that necessitate implementation
of a variety of increased controls and
enhancement activities for regulated Barclays
Group entities. These include, among others,
the adoption of cybersecurity policies and
procedures meeting specified criteria,
minimum required security measures, controls
and procedures for enhanced reporting and
public disclosures, compliance certification
requirements, and other cyber and
information risk governance measures.
Further to this, Barclays Group continues to
use an intelligence-driven defence approach,
analysing external events for current and
emerging cyber threats which allows the
delivery of proactive counter measures;
Barclays Group also completes cyber threat
scenarios and incident playbooks to assess
our security posture and business impacts
and runs an internal adversarial capability
which simulates hackers to proactively test
controls and responses. The increased control
environment has enhanced and will continue
to enhance our security posture and our
ability to better protect the organisation and
our customers. Cyberattacks however are
increasingly sophisticated and there can be
no assurance that the measures implemented
will be fully effective to prevent or mitigate
future attacks, the consequences of which
could be significant to Barclays Group.
Furthermore, such measures have resulted
and will result in increased technology and
other costs in connection with cybersecurity
mitigation and compliance for Barclays Group.
Barclays Group currently incurs an additional
cost in mitigating its cyber risk via insurance.
For further information, refer to operational
risk management section (pages 143 to 144).
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Barclays PLC Annual Report 2018 209
Risk review
Risk performance
Operational risk
Operational risk events by Basel event categorya
% of total risk events by count
% of total risk events by value
Internal fraud
2018 0.5%
2017 0.5%
External fraud
Internal fraud
2018 0.4%
2017 0.4%
External fraud
19.1%
18.0%
61.0%
71.9%
Execution, delivery and process management
Execution, delivery and process management
30.9%
24.3%
57.8%
74.3%
Employment practices and workplace safety
Employment practices and workplace safety
2.4%
0.4%
15.8%
0.1%
Damage to physical assets
Damage to physical assets
0.4%
0.2%
0.2%
0.1%
Clients, products and business practices
Clients, products and business practices
0.2%
0.0%
0.6%
0.0%
Business disruption and system failures
Business disruption and system failures
4.7%
2.6%
6.1%
7.0%
Note
a The data disclosed includes operational risk losses for reportable events (excluding BAGL) having impact of >£10,000 and excludes events that are conduct or legal risk,
aggregate and boundary events. A boundary event is an operational risk event that results in a credit risk impact. Due to the nature of risk events that keep evolving, prior year
losses are updated.
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Risk review
Risk performance
Model risk
Model risk
The risk of the potential adverse consequences from financial assessments or decisions
based on incorrect or misused model outputs and reports.
All disclosures in this section are unaudited unless otherwise stated.
Overview
Model risk is a focus area for management
and the Barclays Group Board. It is an
important component of regulators’
assessment of Barclays’ risk management
capabilities. Models are used to support a
broad range of business and risk management
activities, including informing business
decisions and strategies, measuring and
limiting risks, valuing exposures, conducting
stress testing, assessing capital adequacy,
supporting new business acceptance and
risk/reward evaluation, managing client
assets, or meeting reporting requirements.
Summary of performance
in the period
The principal risk framework for model
risk was established in 2016. In 2017,
the framework was enhanced and governance
and controls capabilities were established.
In 2018 the framework was embedded
further in the organisation and governance
was improved by:
■■ strengthening of the Barclays Group-wide
Model Risk Management (MRM)
framework, policy and associated standards,
validation templates and procedures
■■ broadening governance of models to
include qualitative estimation approaches
called ‘non-modelled methods’, which cover
material decision making and financial and
regulatory reporting functions of Barclays
Group, such as the primary stress testing
programmes and impairment estimations
■■ enhancement of Board oversight of model
risk, through the reporting of the model risk
tolerance framework and periodic updates
to the Board on the progress of the MRM
implementation
■■ improved collection and attestation of
Barclays Group’s global inventory of models
■■ reporting metrics on policy adherence
and breaches
■■ enhancement of model development and
model identification processes, with the
areas of model ownership throughout
Barclays Group embedding and improving
their own model control functions.
In addition to the governance outlined above,
which details how new models are validated
and existing models are internally controlled
and assessed, models have been classified
based on their materiality (the level of reliance
placed on the model output for decision
making or reporting), and their complexity.
A strengthened programme of review and
validation for such material models
commenced during 2017 and has made
significant progress in 2018. In 2019 through
to 2020, model risk governance will continue
with the programme of model documentation
and reviews, targeting prioritised models
across Barclays Group as well as focusing on
performance monitoring of models already
brought into governance to assess compliance
with the framework.
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Risk review
Risk performance
Conduct risk
Conduct risk
The risk of detriment to customers, clients, market integrity, effective competition or
Barclays from the inappropriate supply of financial services, including instances of wilful
or negligent misconduct.
All disclosures in this section are unaudited unless otherwise stated.
Although certain legacy litigation and conduct
issues have been resolved, the Barclays Group
continued to incur costs in relation to litigation
and conduct matters, refer to Note 27 Legal,
competition and regulatory matters and Note
25 Provisions, for further details. Costs include
customer redress and remediation, as well
as fines and settlements. Resolution of these
matters remains a necessary and important
part of delivering Barclays Group’s strategy
and an ongoing commitment to improve
oversight of culture and conduct.
The Board Reputation Committee and
Senior Management received Barclays Group
Conduct Dashboards setting out key
indicators in relation to conduct, financial
crime, culture, citizenship and complaints.
These continue to be evolved and enhanced
to allow effective oversight and decision-
making. Barclays has operated at the overall
set tolerance for conduct risk throughout
2018. The tolerance is assessed by the
business through Key Indicators which are
aggregated and provide an overall rating
which is reported to the Board Reputation
Committee as part of the Conduct Dashboard.
Barclays remained focused on the continuous
improvements being made to manage risk
effectively, with an emphasis on enhancing
governance and management information
to help identify risks at earlier stages.
For further details on the non-financial
performance measures, refer to page 19
of the Strategic Report.
Overview
Barclays strives to create and maintain
mutually beneficial long-term relationships
with its customers and clients. This means
taking appropriate steps to understand their
needs and providing them with products and
services that meet those needs appropriately
and help them manage their financial affairs.
As a transatlantic consumer, corporate and
investment bank, Barclays also plays a critical
role in promoting fair, open and transparent
markets, as well as fostering shared growth
for all.
Summary of performance
in the period
Barclays is committed to continuing to drive
the right culture throughout all levels of
the organisation. Barclays will continue to
enhance effective management of conduct
risk and appropriately consider the relevant
tools, governance and management
information in decision-making processes.
Focus on management of conduct risk is
ongoing and amongst other relevant business
and control management information the
Barclays Group Conduct Dashboards are
a key component of this.
Barclays Group continues to review the
role and impact of conduct issues in the
remuneration process at both the individual
and business level.
Businesses have continued to assess the
potential customer, client and market impacts
of strategic change and structural reform.
As part of the 2018 Medium-Term Planning
Process, material conduct risks associated with
strategic and financial plans were assessed.
Throughout 2018, conduct risks were raised
by businesses for consideration by the Board
Reputation Committee. The Committee
reviewed the risks raised and whether
management’s proposed actions were
appropriate to mitigate the risks effectively.
The Board Reputation Committee received
regular updates with regards to key risks and
issues including those relating to structural
reform and regulatory change.
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Risk review
Risk performance
Reputation risk
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.
All disclosures in this section are unaudited unless otherwise stated.
RepCo reviewed risks escalated by the
businesses and considered whether
management’s proposed actions, for example
attaching conditions to proposed client
transactions or increased engagement with
impacted stakeholders, were appropriate
to mitigate the risks effectively. RepCo also
received regular updates with regard to key
reputation risks and issues, including: legacy
conduct issues; Barclays’ association with
sensitive sectors; cyber and data security;
consumer and household debt; fraud and
scams that could impact Barclays customers
and the resilience of key Barclays systems
and processes.
Barclays Group continued to incur significant
costs in relation to litigation and conduct
matters, refer to Note 27 Legal, competition
and regulatory matters and Note 25 Provisions
for further details. Costs include customer
redress and remediation, as well as fines
and settlements. Resolution of these matters
remains a necessary and important part of
delivering Barclays Group’s strategy and an
ongoing commitment to improve oversight
of culture and conduct and management
of reputation.
In 2018, the central reputation management
team received 486 referrals from across
the businesses (581 referrals in 2017) for
consideration. These referrals covered a
variety of sectors including, but not limited
to, defence, fossil fuels and mining.
As part of Barclays 2018 Medium-Term
Planning Process, material reputation risks
associated with strategic and financial plans
were also assessed.
Overview
Reputation risk may arise from any business
decision or activity. It may also arise as a
result of issues and incidents relevant to other
principal risks, in particular other non-financial
risks e.g. conduct or operational risk.
Reputation risks and issues are identified
via regular information gathering from within
the business and from external stakeholders.
Some risks and issues are specific to Barclays
Group, while others are also relevant to the
banking sector more generally.
Barclays has set tolerances for reputation risk,
which take into account the risks arising from
specific events or decisions and longer-term
strategic themes. The primary responsibility
for managing reputation risk lies with each
business and function, where there are
processes in place to identify, assess and
manage reputation risks and issues.
There are circumstances, however, where
it is necessary to escalate to Barclays Group
level the evaluation of the reputation risk
associated with particular decisions beyond
an individual, business or function. The GRC
is the most senior executive body responsible
for reviewing and monitoring the effectiveness
of Barclays’ management of reputation risk.
Summary of performance
in the period
Barclays is committed to identifying reputation
risks and issues as early as possible and
managing them appropriately. At a Barclays
Group level throughout 2018, reputation risks
and issues were overseen by the Board
Reputation Committee (RepCo), which reviews
the processes and policies by which Barclays
identifies and manages reputation risk. Within
Barclays Bank UK Group and Barclays Bank
Group oversight of reputation risks and issues
was overseen by the respective Risk and Board
Risk committees. The top live and emerging
reputation risks and issues within Barclays
Bank UK Group and Barclays Bank Group are
included within an over-arching quarterly
report to RepCo.
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Barclays PLC Annual Report 2018 213
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Risk review
Risk performance
Legal risk
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.
All disclosures in this section are unaudited unless otherwise stated.
Overview
Barclays conducts diverse activities in a
highly regulated global market and therefore
is exposed to the risk of loss or imposition
of penalties, damages, fines and sanctions
relating to a failure to meet its legal
obligations in the conduct of its business.
Legal risk encompasses the failure of Barclays
to appropriately seek legal advice, escalate or
manage contractual arrangements, litigation,
intellectual property, competition/anti-trust
issues, its use of law firms and its contact
with regulators. Barclays has limited tolerance
for legal risk, however the multitude of laws
and regulations across the globe are highly
dynamic and their application to particular
circumstances is often unclear. A Legal Risk
Management Framework (LRMF) includes
Group-wide requirements covering how legal
risks are identified, managed and measured
to support effective management of legal risk.
Summary of performance
in the period
In 2018, Barclays remained focused on
continuous improvements to manage legal
risk effectively, with an emphasis on enhancing
and establishing processes to help identify
risks at earlier stages and escalate
as appropriate.
This is supported by the LRMF, which was
reviewed and enhanced to clarify Group-wide
requirements relating to the identification,
management and measurement of legal risk.
The LRMF is supported by legal risk policies
and associated standards covering areas of
identified legal risk and mandatory minimum
control requirements. An additional legal risk
policy has been created and implemented
in relation to the engagement of the Legal
Function with respect to key business
decisions. For further information on the
legal risk policies, see legal risk management
on page 148. Refreshed legal risk mandatory
training was also implemented across
Barclays, reinforced by ongoing engagement
and education of Barclays businesses
and functions.
The Legal Function organisation and coverage
model aligns expertise to businesses,
functions, products, activities and geographic
locations. It continues to provide legal support,
oversight, monitoring and challenge across the
organisation, including advising on appropriate
identification, management and escalation
of legal risk. The Legal Executive Committee
continues to oversee, monitor and challenge
legal risk across Barclays.
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Risk review
Supervision and regulation
Supervision of Barclays Group
Barclays Group’s operations, including
its overseas branches, subsidiaries and
associates, are subject to a large number
of rules and regulations that are a condition
for authorisations to conduct banking and
financial services business in each of the
jurisdictions in which Barclays Group operates.
These apply to business operations, impact
financial returns and include capital, leverage
and liquidity requirements, authorisation,
registration and reporting requirements,
restrictions on certain activities, conduct
of business regulations and many others.
These requirements are set in legislation and
by the relevant central banks and regulatory
authorities that authorise, regulate and
supervise Barclays Group in the jurisdictions
in which it operates. Often, the requirements
may reflect global standards developed
by international bodies such as the G20,
the Financial Stability Board (FSB), the
Basel Committee on Banking Supervision
(BCBS), and the International Organisation
of Securities Commissions (lOSCO).
Various bodies, such as central banks and
self-regulatory organisations (SROs), also
create voluntary Codes of Conduct which
affect the way Barclays Group does business.
Regulatory developments impact Barclays
Group globally. We focus particularly on EU,
UK and US regulation due to the location of
Barclays Group’s principal areas of business.
Regulations elsewhere may also have a
significant impact on Barclays Group due to
the location of its branches, subsidiaries and,
in some cases, clients. For more information
on the risks related to the supervision
and regulation of Barclays Group, including
regulatory change, see the Risk Factor
entitled ‘Regulatory Change agenda and
impact on Business Model’ on page 132.
Supervision in the UK and EU
Financial regulation in the UK is to a
significant degree shaped and influenced
by EU legislation. This provides the structure
of the European Single Market, an important
feature of which is the framework for the
regulation of authorised firms in the EU.
This framework is designed to enable a credit
institution or investment firm authorised in
one EU member state to conduct banking or
investment business in another member state
through the establishment of branches or by
the provision of services on a cross-border
basis without the need for local authorisation.
Barclays Group’s operations in Europe are
authorised and regulated by a combination
of both home and host regulators. The impact
of the UK’s departure from the EU in this
respect and, more broadly, its impact on the
UK domestic regulatory framework, is yet
to be finally determined. In the UK, the Bank
of England (BoE) has responsibility for
monitoring the UK financial system as a
whole, including by way of conducting annual
stress tests on UK banks. The day-to-day
regulation and supervision of Barclays Group
is divided between the Prudential Regulation
Authority (PRA) (a division of the BoE) and
the Financial Conduct Authority (FCA).
In addition, the Financial Policy Committee
(FPC) of the BoE has influence on the
prudential requirements that may be imposed
on the banking system through its powers
of direction and recommendation.
Barclays Bank PLC and Barclays Bank UK PLC
are authorised and subject to prudential
supervision by the PRA and subject to conduct
regulation and supervision by the FCA.
Barclays Group is also subject to prudential
supervision by the PRA on a group
consolidated basis. Barclays Services Limited
is an appointed representative of Barclays
Bank PLC and Clydesdale Financial Services
Limited (the principals). This status enables
Barclays Services Limited to undertake
activities which would otherwise require
authorisation, with the principals assuming
regulatory responsibility for the conduct
of Barclays Services Limited as their
appointed representative.
Barclays Bank Ireland PLC is licensed as a
credit institution by the Central Bank of Ireland
and has recently been designated as a
significant institution falling under direct
supervision on a solo basis by the European
Central Bank (ECB) from 1 January 2019.
Barclays Bank Ireland PLC has recently
acquired an extension of its current licence
to support Barclays Group’s ability to provide
services to EU clients after Brexit. Barclays
Bank Ireland PLC’s German branch is
supervised by the ECB as part of Barclays Bank
Ireland PLC and is also subject to direct
supervision for local conduct purposes by
the German Federal Financial Supervisory
Authority (BaFIN) in accordance with EU
credit institution branch passporting rules.
It is expected that all the remaining EU
branches of Barclays Bank PLC will have been
transferred to Barclays Bank Ireland PLC by
the end of Q1 2019 and will, following such
transfer, be supervised by the ECB as part of
Barclays Bank Ireland PLC and also be subject
to direct supervision for local conduct
purposes in accordance with EU credit
institution branch passporting rules, by
national supervisory authorities in the
jurisdiction where they are established.
Barclays Group is also subject to regulatory
initiatives undertaken by the UK Payment
Systems Regulator (PSR), as a participant
in payment systems regulated by the PSR.
In its role as supervisor, the PRA seeks to
maintain the safety and soundness of financial
institutions with the aim of strengthening, but
not guaranteeing, the protection of customers
and the financial system. The PRA’s continuing
supervision of financial institutions is
conducted through a variety of regulatory
tools, including the collection of information
by way of prudential returns, reports obtained
from skilled persons, visits to firms and
regular meetings with management and
non-executive directors to discuss issues
such as strategy, operational resilience, risk
management, and recovery and resolution.
The regulation and supervision of market
conduct matters is the responsibility of the
FCA. The FCA’s regulation of the UK firms
in Barclays Group is carried out through a
combination of proactive engagement, regular
thematic work and project work based on the
FCA’s sector assessments, which analyse the
different areas of the market and the risks that
may lie ahead.
Both the PRA and the FCA have continued
to develop and apply a more pre-emptive
approach to supervision and the application
of existing standards. This may include the
application of standards that either anticipate
or go beyond requirements established by
global or EU standards, whether in relation
to capital, leverage and liquidity, resolvability
and resolution or matters of conduct.
The FCA has retained an approach to
enforcement based on credible deterrence
that has seen significant growth in the size
of regulatory fines. The approach appears
to be trending towards a more US model of
enforcement including vigorous enforcement
of criminal and regulatory breaches,
heightened fines and proposed measures
related to increased corporate criminal liability.
The FCA has focused strongly on conduct risk
and on customer outcomes and will continue
to do so. This has included a focus on the
design and operation of products, the
behaviour of customers and the operation
of markets. Recently, the FCA has increased
its focus on fair pricing in financial services.
The FCA is also reviewing whether vulnerable
customers pay more for financial services
products. These initiatives may affect both
the incidence of conduct costs and increase
the cost of remediation.
The FCA and the PRA have also increasingly
focused on individual accountability
within firms. This focus is reflected in the
Senior Managers and Certification Regime
(the SMCR) which came into force in 2016.
The SMCR, which implements the
recommendations in the final report of
the Parliamentary Commission on Banking
Standards relating to individual accountability
in banks, imposes a regulatory approval,
accountability and fitness and propriety
framework in respect of senior or key
individuals within relevant firms.
The UK Serious Fraud Office (SFO) has played
an active role in recent years in investigating
and prosecuting complex fraud, bribery and
corruption. If, as a result of an investigation,
the SFO determines that it has sufficient
evidence to support a realistic prospect
of conviction, and to prosecute would be in
the public interest, the SFO may bring forward
a prosecution. Alternatively, the SFO may
consider using a Deferred Prosecution
Agreement (DPA). DPAs, which were
introduced in February 2014, are judicially
supervised agreements between the SFO
and organisations that could be prosecuted
whereby the SFO suspends prosecution
while the organisation in question complies
with conditions imposed on it by the DPA,
such as the payment of fines.
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Risk review
Supervision and regulation
Supervision in the US
Barclays Group’s US activities and operations
are subject to umbrella supervision by the
Board of Governors of the Federal Reserve
System (FRB), as well as additional
supervision, requirements and restrictions
imposed by other federal and state regulators
and SROs. Barclays PLC, Barclays Bank PLC
and their US branches and subsidiaries
are subject to a comprehensive regulatory
framework involving numerous statutes, rules
and regulations, including the International
Banking Act of 1978, the Bank Holding
Company Act of 1956 (BHC Act), the USA
PATRIOT Act of 2001, the Commodity
Exchange Act, the federal securities laws,
and the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (DFA),
which comprehensively amended the
regulation of financial institutions in the US
in response to the financial crisis, including by
amending the other aforementioned statutes.
In some cases, US requirements may impose
restrictions on Barclays Group’s global
activities in addition to its activities in the US.
Barclays PLC and Barclays Bank PLC, along
with Barclays US LLC (BUSL), Barclays Group’s
top-tier US holding company that holds
substantially all of Barclays Group’s US
subsidiaries (including Barclays Capital Inc.
and Barclays Bank Delaware), are regulated
as bank holding companies (BHCs) by the
FRB. BUSL is subject to requirements that
are similar to those applicable to large
US domestic bank holding companies,
including in respect of capital adequacy,
capital planning and stress testing
(including FRB non-objection to proposed
capital distributions), risk management and
governance, liquidity, leverage limits and
financial regulatory reporting. Barclays Bank
PLC’s US branches are also subject to
enhanced prudential supervision
requirements relating to, among others,
liquidity and risk management.
Because the BHC Act generally restricts the
activities of BHCs to banking and activities
closely related to banking, Barclays PLC,
Barclays Bank PLC and BUSL have elected
to be treated as financial holding companies
under the BHC Act. Financial holding
company status allows these entities to
engage in a variety of financial and related
activities, directly or through subsidiaries,
including underwriting, dealing and market
making in securities. Failure to maintain
financial holding company status could
result in increasingly stringent penalties
and ultimately, in the closure or cessation
of certain operations in the US. To qualify
as a financial holding company, Barclays PLC
and Barclays Bank PLC, as foreign banking
organisations and BHCs, and BUSL, as a BHC,
must maintain certain regulatory capital ratios
above minimum requirements and must be
deemed to be ‘well managed’ for US bank
regulatory purposes. In addition, any US
depository institution subsidiaries of the
foreign banking organisation or BHC must
also maintain certain regulatory capital ratios
above minimum requirements and be deemed
to be ‘well managed’ and must have at least
a ‘satisfactory’ rating under the Community
Reinvestment Act of 1977.
In addition to umbrella oversight by the
FRB (and applicable Federal Reserve Banks),
certain of Barclays Group’s branches and
subsidiaries are regulated by additional
authorities based on the location or activities
of those entities. The New York and Florida
branches of Barclays Bank PLC are subject
to extensive supervision and regulation by,
as applicable, the New York State Department
of Financial Services (NYSDFS) and the Florida
Office of Financial Regulation. Barclays Bank
Delaware, a Delaware chartered commercial
bank, is subject to supervision and regulation
by the Delaware Office of the State Bank
Commissioner. The deposits of Barclays Bank
Delaware are insured by the Federal Deposit
Insurance Corporation (FDIC) pursuant to
the Federal Deposit Insurance Act, which also
provides for FDIC supervisory authority over
Barclays Bank Delaware and requires that
Barclays PLC, Barclays Bank PLC and BUSL act
as a source of strength for the insured bank.
This could, among other things, require these
entities to inject capital into Barclays Bank
Delaware if it fails to meet applicable
regulatory capital requirements.
Barclays Group’s US securities broker/dealer
and investment banking operations, primarily
conducted through Barclays Capital Inc.,
are also subject to ongoing supervision
and regulation by the Securities and Exchange
Commission (SEC), the Financial Industry
Regulatory Authority (FINRA) and other
government agencies and SROs as part
of a comprehensive scheme of regulation
of all aspects of the securities and
commodities business under US federal
and state securities laws.
Similarly, Barclays Group’s US commodity
futures, commodity options and swaps-related
and client clearing operations are subject
to ongoing supervision and regulation by
the Commodity Futures Trading Commission
(CFTC), the National Futures Association
and other SROs. Barclays Bank PLC is also
prudentially regulated as a swaps dealer and
is subject to the FRB swaps rules with respect
to margin and capital requirements.
Barclays Group’s US retail and consumer
activities, including the US credit card
operations of Barclays Bank Delaware, are
subject to direct supervision and regulation
by the Consumer Financial Protection Bureau
(CFPB). The CFPB has the authority to examine
and take enforcement action related to
compliance with federal laws and regulations
regarding the provision of consumer financial
services and the prohibition of ‘unfair,
deceptive or abusive acts and practices’.
Supervision in Asia Pacific
Barclays Group’s operations in Asia Pacific
are supervised and regulated by a broad range
of national regulators including: the Japan
Financial Services Agency, the Bank of Japan,
the Hong Kong Monetary Authority, the
Securities and Futures Commission of Hong
Kong, the Monetary Authority of Singapore,
the Reserve Bank of India, the Securities and
Exchange Board of India, the People’s Bank
of China, the State Administration of Foreign
Exchange of the People’s Republic of China
and the China Banking and Insurance
Regulatory Commission. Such supervision
and regulation extends to activities conducted
through branches of Barclays Bank PLC in
the Asia Pacific region as well as subsidiaries
of Barclays Group as applicable.
Global regulatory developments
Regulatory change continues to affect all large
financial institutions. Such change emanates
from global institutions such as the G20,
FSB, BCBS and IOSCO, the EU regionally, and
national regulators, especially in the UK and
US. The level of regulatory and supervisory
uncertainty faced by Barclays Group, and
the financial markets more broadly, continues
to remain elevated in our primary markets.
In the EU, the legislative and regulatory bodies
have been implementing, and continue to
propose, multiple financial regulatory reforms.
There remains much uncertainty regarding
the state of the future relationship between
the UK and the EU and therefore the potential
impact of the UK’s withdrawal from the EU on
the financial regulatory framework in the UK.
There are several possible outcomes.
First, the UK could leave the EU with no deal
or arrangement covering financial services in
place. At the time of writing, this will happen
on 29 March 2019. Under such a scenario,
with no ability to passport, and no third
country ‘equivalence’-based recognition in
place, Barclays Group entities in the UK would
no longer be able to provide certain of their
services from the UK into the EU27 in the way
in which these services are currently provided.
As a result of the onshoring of EU legislation
in the UK, UK firms would (at least initially)
be subject to substantially the same rules and
regulations as before Brexit, albeit with EU
entities, exposures and assets ceasing to enjoy
preferential treatment under the UK’s financial
regulatory framework (including for capital
and liquidity purposes), given that the EU
will become a third country for the purposes
of such framework. The UK regulators have
indicated that they will mitigate the impact
of the removal of preferential treatment by
providing transitional relief for a period of
up to two years during which preferential
treatment will continue to apply. The UK
may seek to make changes to these rules
going forward, particularly in the event of
‘no deal’, where they are not subject to any
requirements to maintain particular rules
or standards for equivalence purposes.
Secondly, the UK and EU could agree a deal.
This could either take the form of a general
withdrawal agreement (such as the draft
Withdrawal Agreement that Parliament voted
against on 15 January 2019) or could be a
series of specific bilateral agreements or
unilateral measures on financial services
topics to facilitate continued provision of
services to and from the UK. In either case,
such a deal would likely permit the provision
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of certain services between the UK and
the EU. In this scenario, firms incorporated
and authorised in the UK would be able to
continue to provide services into the EU27,
and firms incorporated and authorised in the
EU27 would be able to continue to provide
services into the UK in accordance with the
terms of such agreement. UK firms would
again be subject to substantially the same
rules and regulations as before Brexit as a
result of the onshoring of EU legislation in
the UK. There would likely be less scope for
regulatory change in the UK as continued
access to the EU27 would depend on the UK
maintaining equivalence with the EU (and vice
versa) and other constraints as may be agreed
in such an agreement.
Thirdly, the UK could decide to delay its
withdrawal. This would require the unanimous
consent of all other EU member states.
In this scenario, UK firms would continue to
be subject to EU27 law and services could
continue to be provided between the UK and
EU on the basis of the existing passporting
arrangements until such time as the UK finally
withdraws from the EU – in which case one of
the two scenarios described above will apply
– unless it revokes its intention to do so.
Finally, the UK could decide to revoke its
intention to withdraw from the EU. This would
likely only happen for the purposes of holding
a second referendum, if a delay is not agreed
to unanimously by the EU member states.
In this scenario, the status quo in relation
to the financial regulatory framework would
prevail until the result of that referendum
was known and action taken to implement
such result.
In the US, the financial regulatory environment
continues to evolve due to political
developments and the ongoing implementation
of regulations arising from the DFA and
recent amendments to the DFA. Furthermore,
the application of various regional rules on
a cross-border basis increases regulatory
complexity for global financial institutions.
For more information, see the Risk Factor
entitled ‘Regulatory Change agenda and
impact on Business Model’ on page 132.
The programme of reform of the global
regulatory framework previously agreed by
the G20 Heads of Government in April 2009
has continued to be taken forward throughout
2018. The G20 continues to monitor emerging
risks and vulnerabilities in the financial system
and has stated that it will take action to
address them if necessary.
The FSB has been designated by the G20
as the body responsible for co-ordinating
the delivery of the global reform programme
in relation to the financial services industry.
It has focused particularly on the risks posed
by systemically important financial institutions.
In 2011, the G20 Heads of Government
adopted FSB proposals to reform the
regulation of global systemically important
financial institutions (G-SIFIs), including
global systemically important banks (G-SIBs),
such as Barclays Group. In December 2017,
the BCBS finalised ‘Basel III’ (the BCBS
international regulatory framework for banks),
with the majority of the December 2017
changes expected to be implemented by
1 January 2022, including by regulators in
many jurisdictions where Barclays Group
operates. Various other measures have been
agreed at FSB and BCBS level on capital,
including those relating to recovery and
resolution planning of CCPs, the identification
and management of step-in risk, and TLAC
(discussed in detail below).
In December 2018, the Council of the EU
and the European Parliament announced they
had reached a provisional political agreement
on the proposed Risk Reduction Measures
package, which includes the CRD V Directive
and CRR II Regulation and will transpose
many of the Basel III measures into EU law.
Financial regulatory framework
Financial services regulation can broadly
be categorised as follows: (a) prudential
regulation, which aims to promote safety and
soundness of financial institutions and reduce
risk in the financial system; (b) recovery and
resolution, a key aspect of which is to ensure
that G-SIFIs are capable of being resolved
without recourse to taxpayer support and
minimising market disruption; (c) structural
reform and the Volcker rule, aimed at
structurally separating certain wholesale
activities (such as proprietary trading) from
retail-focused activities (such as taking retail
deposits); (d) market infrastructure regulation,
aimed at enhancing client protection, financial
stability and market integrity; and (e) conduct,
culture and other regulation, which includes
regulatory initiatives designed to pursue
any other aims not falling within the previous
categories (such as improving standards
of conduct within financial services firms,
ensuring the right culture in firms,
and protecting personal data).
(a) Prudential regulation
Certain Basel III standards were implemented
in EU law through the Capital Requirements
Directive IV (CRD IV), which came into
effect in 2014 and included new or enhanced
requirements for the quality and quantity
of capital, liquidity and leverage. Beyond
the minimum standards required by CRD IV,
the PRA has expected Barclays Group, in
common with other major UK banks and
building societies, to meet a 7% Common
Equity Tier 1 (CET1) ratio at the level of the
consolidated group since 1 January 2016.
G-SIBs are subject to a number of additional
prudential requirements, including the
requirement to hold additional loss-absorbing
capacity and additional capital buffers above
the level required by Basel III standards.
The level of the G-SIB buffer is set by the FSB
according to a bank’s systemic importance
and can range from 1% to 3.5% of risk-
weighted assets. The G-SIB buffer must be
met with common equity.
In November 2018, the FSB published an
update to its list of G-SIBs, maintaining the
1.5% G-SIB buffer that applies to Barclays
Group. The additional G-SIB buffer was
subject to phase-in arrangements, with 50%
of the buffer requirement applying in 2017,
75% in 2018 and 100% in January 2019.
Barclays Group is also subject to, among other
buffers, a countercyclical capital buffer (CCyB)
based on rates determined by the regulatory
authorities in each jurisdiction in which
Barclays Group maintains exposures.
These rates may vary in either direction.
On 27 June 2017, the FPC raised the UK CCyB
rate from 0% to 0.5% with binding effect
from 27 June 2018. In November 2017, the FPC
raised the UK CCyB rate from 0.5% to 1%
with binding effect from 28 November 2018.
The FPC has a framework for determining a
systemic risk buffer at rates between 0% and
3% of risk weighted assets for ring-fenced
bodies and large building societies (SRB firms).
The systemic risk buffer is a firm-specific
buffer, that is designed to increase the capacity
of SRB firms to absorb stress, and which must
be met solely with CET1. The framework has
applied from 1 January 2019. In the UK, the
PRA has implemented the systemic risk buffer
framework and requires ring-fenced banks
whose groups are already required to meet
the requirements under the leverage ratio
framework on a consolidated basis, such
as Barclays Bank UK PLC, to also meet the
requirements on a sub-consolidated basis.
The PRA has also recently announced that
the systemic risk buffer will be incorporated
in the calculation of banks’ stress test hurdle
rates, which are the target capital ratios set
by the regulator, with a view to capturing
domestic systemic importance as well as
global systemic importance.
Final BCBS standards on securitisation
have been implemented under EU law
from 1 January 2019, with a one-year
grandfathering period for existing transactions.
Final BCBS standards on counterparty credit
risk, leverage, large exposures and a Net
Stable Funding Ratio (NSFR) are being
implemented under EU law via the Risk
Reduction Measures package. The Risk
Reduction Measures package also requires
certain credit institutions or investment firms
established in the EU with a common parent
undertaking established outside the EU to
establish an intermediate parent undertaking,
authorised and established in, and subject
to the supervision of, an EU member state.
The BCBS’s finalisation of Basel III, noted
above, among other things, eliminated
model-based approaches for certain categories
of risk weighted assets (RWAs), (for example,
operational risk RWAs, CVA volatility and
credit risk RWAs for equity exposures), revised
the standardised approach’s risk weights for
a variety of exposure categories, replaced the
four current approaches for operational risk
(including the advanced measurement
approach) with a single standardised
measurement approach, established 72.5%
of standardised approach RWAs for exposure
categories as a floor for RWAs calculated
under advanced approaches (referred to as
the ‘output floor’), and for G-SIBs introduced
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a leverage ratio buffer in an amount equal to
50% of the applicable G-SIB buffer used for
RWA purposes (meaning, for Barclays Group,
a leverage ratio buffer of 0.75%). The majority
of the final Basel III changes are expected to
be implemented commencing 1 January 2022,
with a five-year phase-in period for the
output floor. The new market risk framework,
including rules made as a result of the
‘fundamental review of the trading book’,
is also expected to be implemented from
1 January 2022 (with a potential transitional
period until 1 January 2023), following a
recalibration of the requirements agreed in
January 2019. Precise implementation details
will be confirmed once the finalised Basel III
requirements are transposed into national
and EU law in the jurisdictions where Barclays
Group operates.
IFRS 9 (an accounting standard that covers
accounting for financial instruments) came
into force under EU law on 1 January 2018.
A separate EU regulation has provided
transitional arrangements for mitigating the
impact of the introduction of IFRS 9, largely
in relation to CET1 capital arising from the
expected credit loss accounting measures
set out in IFRS 9. The BCBS is continuing to
assess whether permanent changes to the
recognition of expected credit loss provisions
in regulatory capital are necessary, as well
as any corresponding changes to the
risk-weighting framework.
In the US, BUSL and Barclays Bank PLC’s US
branches are subject to enhanced prudential
supervision requirements as required by the
DFA and described above in ‘Supervision in
the US’.
In addition to prudential regulations already
promulgated under the DFA, the FRB has
issued proposed regulations for NSFR
implementation. The NSFR, as originally
proposed by the FRB and other US regulatory
agencies, would have applied to US bank
holding companies with more than $250bn
in total assets or $10bn or more in on-balance
sheet foreign exposures, including BUSL,
and consolidated depositary institution
subsidiaries of such banking organisations
with more than $10bn in assets, including
Barclays Bank Delaware. Under the proposed
rule, such entities would be required to
maintain a minimum level of available stable
funding that equals or exceeds the amount
of required stable funding over a one-year
period. In October 2018, the FRB and other
US regulatory agencies released proposals
to tailor the applicability of prudential
requirements, including the proposed NSFR,
for large domestic US banking organisations.
The FRB has stated that it is working to
develop a separate proposal relating to the
application of prudential requirements to
foreign banks, including Barclays Group.
Although the NSFR proposal provided for
an effective date of 1 January 2018, the FRB
has not finalised its NSFR proposal and the
schedule for finalisation is uncertain.
In June 2018, the FRB finalised rules regarding
single counterparty credit limit (SCCL).
The SCCL applies single counterparty
credit limits to the largest US bank holding
companies (BHCs) and foreign banks’
(including Barclays Group) US operations.
The SCCL creates two separate limits for
foreign banks, the first on combined US
operations (CUSO) and the second on the
US intermediate holding company (BUSL).
The SCCL requires that no counterparty
of BUSL can exceed 25% of BUSL’s total
regulatory capital plus the balance of its
allowance for loan and lease losses not
included in Tier 2 capital. With respect to
the CUSO, the SCCL rule allows foreign
banks to comply with the rule by certifying
to the Federal Reserve that they comply
with comparable home country regulation.
Stress testing
Barclays Group and certain of its members are
subject to supervisory stress testing exercises
in a number of jurisdictions. These exercises
currently include the annual stress testing
programmes of the BoE and the FRB and the
biennial stress testing programme of the EBA.
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 planning
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
Barclays Group’s data provision, stress testing
capability including model risk management
and internal management processes and
controls. Failure to meet requirements of
regulatory stress tests, or the failure by
regulators to approve the stress test results
and capital plans of Barclays Group or its
members subject to these exercises, could
result in Barclays Group or certain of its
members being required to enhance its capital
position or limit capital distributions, to any
external holders of its equity or capital or
within Barclays Group.
In the US, BUSL participates in the FRB’s
Comprehensive Capital Analysis and Review
(CCAR) process. In June 2018, the FRB issued
its first public CCAR assessment of BUSL.
The 2018 results indicated BUSL’s capital
ratios would remain above all regulatory
minimum required levels and the FRB did
not object to BUSL’s capital plan on either
a quantitative or qualitative basis.
In April 2018, the FRB proposed to amend
its CCAR process to combine the CCAR
quantitative assessment and the buffer
requirements in the FRB’s capital adequacy
rules to create a single integrated capital
requirement.
(b) Recovery and Resolution
Stabilisation and resolution framework
An important component of the EU legislative
framework is the 2014 Bank Recovery and
Resolution Directive (BRRD) which establishes
a framework for the recovery and resolution
of EU credit institutions and investment firms.
The UK implemented the BRRD through the
Bank Recovery and Resolution Order 2014,
which amended the Banking Act 2009
(the Banking Act) and the Financial Services
and Markets Act 2000 (FSMA), and the Banks
and Building Societies (Depositor Preference
and Priorities) Order 2014, which amended
the Insolvency Act 1986 (among other
insolvency legislation).
In November 2016, the European Commission
proposed a package of amendments to the
BRRD, including the introduction of two new
moratorium tools. Political agreement on
this package was reached in December 2018.
On 28 December 2017, an EU directive came
into force harmonising the priority ranking
of unsecured debt instruments under national
insolvency laws. All member states were
required to transpose the directive by
29 December 2018 and it has been transposed
into national law in the UK under the Banks
and Building Societies (Priorities on
Insolvency) Order 2018.
Under the Banking Act, UK resolution
authorities are empowered to intervene
in and resolve a UK financial institution that
is no longer viable. Pursuant to these laws,
the BoE (in consultation with the PRA and
HM Treasury as appropriate) has several
stabilisation options where a banking
institution is failing or likely to fail: (i) transfer
some or all of the securities or business of the
bank to a commercial purchaser; (ii) transfer
some or all of the property, rights and liabilities
of the bank to a ‘bridge bank’ wholly owned
by the BoE or to a commercial purchaser;
(iii) transfer the impaired or problem assets to
an asset management vehicle to allow them
to be managed over time; (iv) cancel or reduce
certain liabilities of the institution or convert
liabilities to equity to absorb losses and
recapitalise the institution; and (v) transfer
the banking institution into temporary public
ownership. In addition, the BoE may apply for
a court insolvency order in order to wind up
or liquidate the institution or to put the
institution into special administration. When
exercising any of its stabilisation powers, the
BoE must generally provide that shareholders
bear first losses, followed by creditors in
accordance with the priority of their claims
under normal insolvency proceedings.
In order to enable the exercise of its
stabilisation powers, the BoE may impose
a temporary stay on the rights of creditors
to terminate, accelerate or close out contracts,
and in some cases to override events of
default or termination rights that might
otherwise be invoked as a result of a resolution
action. In addition, the Banking Act gives the
BoE the power to override, vary, or impose
conditions or contractual obligations between
a UK bank, its holding company and its group
undertakings, in order to enable any transferee
or successor bank to operate effectively after
any of the resolution tools have been applied.
There is also power for HM Treasury to amend
the law (excluding provisions made by or
under the Banking Act) for the purpose of
enabling it to use its powers under this regime
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effectively, potentially with retrospective effect.
The Banking Act powers apply regardless of
any contractual restrictions and compensation
that may be payable.
The BoE’s preferred approach for the
resolution of Barclays Group is a bail-in
strategy with a single point of entry at
Barclays PLC. Under such a strategy, Barclays
PLC’s subsidiaries would remain operational
while Barclays PLC’s eligible liabilities would
be written down or converted to equity in
order to recapitalise Barclays Group and allow
for the continued provision of services and
operations throughout the resolution.
In July 2016, the PRA issued final rules on
ensuring operational continuity in resolution.
The rules apply from 1 January 2019 and
require banks to ensure that their operational
structures facilitate effective recovery and
resolution planning and the continued
provision of functions critical to the economy
in a resolution scenario.
In June 2018, the BoE finalised its policy
on Minimum Requirement for own funds
and Eligible Liabilities (MREL) for UK banks
and published indicative MREL levels for UK
G-SIBs and D-SIBs, including Barclays Group,
to be reached in 2019, 2020 and 2022
(see section on TLAC/ MREL below).
Additionally, the BoE finalised its policy
on Valuations in Resolution in June 2018
with an expected compliance timeline
of 1 January 2021.
The PRA has made rules that require
authorised firms to draw up recovery plans
and resolution packs, as required by the BRRD.
Recovery plans are designed to outline
credible actions that authorised firms could
implement in the event of severe stress
in order to restore their business to a stable
and sustainable condition.
The resolution pack contains detailed
information on the group, and its significant
legal entities which will be used to develop
resolution strategies for that firm, assess
its current level of resolvability against the
strategy, and to inform work on identifying
barriers to the implementation of operational
resolution plans. In the UK, recovery and
resolution planning (RRP) work is considered
part of continuing supervision. Removal of
potential impediments to an orderly resolution
of Barclays Group or one or more of its
subsidiaries is considered as part of the BoE’s
and PRA’s supervisory strategy for each firm,
and the PRA can require firms to make
significant changes in order to enhance
resolvability. Barclays Group currently provides
the PRA with a recovery plan annually and
with a resolution pack as requested.
In December 2018, the BoE and PRA released
a package of consultations setting out how
they propose to increase transparency and
accountability and clarify the responsibilities
on firms with regards to resolution. The
package comprises three main components:
(i) a BoE Consultation Paper (CP) which
proposes how the BoE, as resolution authority,
intends to assess individual banks’
resolvability; (ii) a PRA CP which contains
proposed requirements for banks to assess
their preparations for resolution, identifying
any risks to implementation and their plans
to address these; and (iii) proposals for future
public disclosures.
The final policy will apply to Barclays Group
when published.
While regulators in many jurisdictions have
indicated a preference for single point of entry
resolution, additional resolution or bankruptcy
provisions may apply to certain of Barclays
Bank PLC’s subsidiaries or branches. In the US,
Title II of the DFA established the Orderly
Liquidation Authority, a regime for the orderly
liquidation of systemically important financial
institutions, which could apply to BUSL.
Specifically, when a systemically important
financial institution is in default or in danger of
default, the FDIC may be appointed as receiver
under the Orderly Liquidation Authority
instead of the institution being resolved
through a voluntary or involuntary proceeding
under the US Bankruptcy Code. In certain
circumstances, including insolvency, violations
of law and unsafe business practices, the
licensing authorities of each US branch of
Barclays Bank PLC and of Barclays Bank
Delaware have the authority to take possession
of the business and property of the applicable
Barclays Group entity they license or to revoke
or suspend such licence. Specific resolution
regimes may apply to certain Barclays Group
entities or branches in other jurisdictions in
which Barclays Group does business.
In the US, Title I of the DFA and the
implementing regulations issued by the
FRB and the FDIC require each bank holding
company with assets of $50bn or more,
including those within Barclays Group, to
prepare and submit a plan for the orderly
resolution of subsidiaries and operations in
the event of future material financial distress
or failure. Barclays Group submitted its US
Resolution Plan in respect of its US operations
on 1 July 2018. Barclays Group’s next
submission of the US Resolution Plan in
respect of its US operations will be due on
1 July 2020.
Barclays Group’s 2018 US Resolution Plan
in respect of its US operations included two
strategies. The first is the global preferred
resolution strategy, which is the BoE’s
preferred resolution strategy of single point
of entry with bail-in at Barclays PLC. The 2018
US Resolution Plan also included a US-specific
resolution strategy, which would involve a
single-point-of-entry resolution of Barclays
Group’s US operations with only BUSL entering
bankruptcy or insolvency proceedings.
The US-specific resolution strategy is intended
as an additional option in case the global
preferred resolution strategy is not successful.
In Ireland, as a result of the transfer of Barclays
Group’s European businesses to Barclays Bank
Ireland PLC, that entity has been designated
by the ECB as a significant institution coming
under the direct supervision of the ECB for
prudential supervisory purposes. As a
significant institution, Barclays Bank Ireland
PLC now faces the Single Resolution Board
(SRB) as the Eurozone resolution authority.
The ECB has required Barclays Bank Ireland
PLC to submit a standalone BRRD compliant
recovery plan on an annual basis. The SRB has
the power to require data submissions specific
to Barclays Bank Ireland PLC under powers
conferred upon it by the BRRD and the Single
Resolution Mechanism Regulation (SRMR).
The SRB will exercise these powers to
determine the optimal resolution strategy
for Barclays Bank Ireland PLC in the context
of the BoE’s preferred resolution strategy of
single point of entry with bail-in at Barclays
PLC. The SRB also has the power under the
BRRD and the SRMR to develop a resolution
plan for Barclays Bank Ireland PLC.
TLAC and MREL
The BRRD requires competent authorities
to impose a Minimum Requirement for own
funds and Eligible Liabilities (MREL) on
financial institutions to facilitate their orderly
resolution without broader financial disruption
or recourse to public funds. In November 2015,
the FSB finalised its proposals to enhance the
loss-absorbing capacity of G-SIBs to ensure
that there is sufficient loss-absorbing and
recapitalisation capacity available in resolution
to implement an orderly resolution which
minimises the impact on financial stability,
ensures the continuity of critical functions
and avoids exposing taxpayers to losses.
To this end, the FSB has set a new minimum
requirement for ‘total loss-absorbing capacity’
(TLAC). As the TLAC standard requires a
certain amount of those loss-absorbing
resources to be committed to subsidiaries
or sub-groups that are located in host
jurisdictions and deemed material for the
resolution of the G-SIB as a whole, the FSB
published guiding principles on internal TLAC
on 6 July 2017. These provide guidance on
the size and composition of the internal TLAC
requirement, cooperation and coordination
between home and host authorities and the
trigger mechanism for internal TLAC.
The EU is implementing the TLAC standard
(including internal TLAC) via the MREL
requirement and the relevant amendments
are contained in the Risk Reduction Measures
package. Under the BoE’s statement of policy
on MREL, the BoE will set MREL for UK G-SIBs
as necessary to implement the TLAC standard
and institution or group-specific MREL
requirements will depend on the preferred
resolution strategy for that institution or
group. Internal MREL for operating subsidiaries
will be scaled within a 75-90% range of the
external requirement that would apply to
the subsidiary if it were a resolution entity.
The starting point for the scalar will be 90%
for ring-fenced bank sub-groups.
The MREL requirements are being phased
in as from 1 January 2019 and will be fully
implemented by 1 January 2022, at which time
G-SIBs with resolution entities incorporated
in the UK, including Barclays Group, will be
required to meet an MREL equivalent to the
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higher of: (i) two times the sum of its Pillar 1
and Pillar 2A requirements; or (ii) the higher
of two times its leverage ratio or 6.75% of
leverage exposures. However, the PRA plans
to review the MREL calibration by the end
of 2020, including assessing the proposal for
Pillar 2A recapitalisation which may drive a
different 1 January 2022 MREL requirement
than currently proposed. In June 2018,
the BoE published indicative MREL levels
for UK G-SIBs, including Barclays Group,
to be reached in 2020 and 2022.
Barclays Bank Ireland PLC is subject to the
SRB’s MREL policy, as issued in January 2019,
in respect of the internal MREL that it will be
required to issue to Barclays Bank Group. The
SRB’s MREL policy will be revised in the near
future to reflect the implementation of the
Risk Reduction Measures package in the EU.
The SRB’s current calibration of MREL is
two times the sum of: (i) the firm’s Pillar 1
requirement; (ii) its Pillar 2 requirement; and
(iii) its combined buffer requirement, minus
125 basis points. The SRB’s policy does not
envisage the application of any scalar in
respect of the internal MREL requirement.
In October 2016, the BCBS published its
final standard on the prudential treatment
of banks’ investments in TLAC instruments
issued by other institutions, confirming that
internationally active banks (both G-SIBs
and non-G-SIBs) must deduct their holdings
of TLAC instruments that do not otherwise
qualify as regulatory capital from their own
Tier 2 capital. Where the investing bank owns
less than 10% of the issuing bank’s common
shares, TLAC holdings are to be deducted
from Tier 2 capital only to the extent that they
exceed 10% of the investing bank’s common
equity (or 5% for non-regulatory capital TLAC
holdings). Below this threshold, holdings
would instead be subjected to risk weighting.
G-SIBs may only apply risk weighting to
non-regulatory capital TLAC holdings by the
5% threshold where those holdings are in the
trading book and are sold within 30 business
days. The EU’s Risk Reduction Measures
package requires firms to deduct external
MREL holdings from equivalent MREL capital
of the firm.
In December 2016, the FRB issued final
regulations for TLAC, which apply to BUSL
commencing 1 January 2019. The FRB’s final
TLAC rule, while generally following the FSB
term sheet, contains a number of provisions
that are more restrictive. For example, the
FRB’s TLAC rule includes provisions that
require BUSL (the Barclays IHC) to have:
(i) a specified outstanding amount of eligible
long-term debt; (ii) a specified outstanding
amount of TLAC (consisting of common and
preferred equity regulatory capital plus eligible
long-term debt); and (iii) a specified common
equity buffer. In addition, the FRB’s TLAC rule
would prohibit BUSL, for so long as Barclays
Group’s overall resolution plan treats BUSL
as a non-resolution entity, from issuing TLAC
to entities other than Barclays Group and its
non-US subsidiaries.
Bank Levy and FSCS
The BRRD requires EU member states to
establish a pre-funded resolution financing
arrangement with funding equal to 1% of
covered deposits by 31 December 2024 to
cover the costs of bank resolutions. Where
the amount of such pre-funding is insufficient,
the BRRD requires that EU member states
raise subsequent contributions. The UK
government raises both pre-funded and
subsequent contributions that would be
required were the pre-funded contributions
not to cover costs or other expenses incurred
by use of the resolution funds by way of a tax
on the balance sheets of banks known as
the ‘Bank Levy’.
In addition, the UK has a statutory
compensation fund called the Financial
Services Compensation Scheme (FSCS),
which is funded by way of annual levies on
most financial services firms authorised under
FSMA. The levies consist of a management
expenses levy (which funds the costs of
running the FSCS) and a compensation costs
levy (which funds the costs incurred by the
FSCS in paying compensation).
Similar requirements, which include powers
for competent authorities to adopt resolution
measures, are in force or expected to come
into force imminently in various other
jurisdictions. These requirements will affect
Barclays Group to the extent it has operations
in a relevant jurisdiction.
(c) Structural reform
Recent developments in banking law and
regulation in the UK have included legislation
designed to ring-fence the retail and smaller
deposit-taking businesses of large banks.
The Financial Services (Banking Reform)
Act 2013 put in place a framework for this
ring-fencing and secondary legislation passed
in 2014 elaborated on the operation and
application of the ring-fence. Ring-fencing
requires, among other things, the separation
of the retail and smaller deposit-taking
business activities of UK banks in the UK
and branches of UK banks in the European
Economic Area (EEA) into a legally distinct,
operationally separate and economically
independent entity, which is not permitted to
undertake a range of activities. Ring-fencing
rules have been published by the PRA, further
determining how ring-fenced banks will be
permitted to operate. Further rules published
by the FCA set out the disclosures that
non-ring-fenced banks are required to
make to prospective account holders of
non-ring-fenced banks who are individuals.
In the EU, following the publishing of the
Liikanen Report in October 2012, the European
Commission adopted a legislative proposal
for a regulation on structural measures to
improve the resilience of EU banks in January
2014. The reforms included ring-fencing of
retail activities from risky trading activities and
a ban on proprietary trading for certain banks.
However, the legislative proposal was formally
withdrawn in July 2018 as a result of the
European Parliament and the Council of
the EU failing to reach a political agreement.
US regulation places further substantive
limits on the activities that may be conducted
by banks and holding companies, including
foreign banking organisations such as
Barclays Group. The ‘Volcker Rule’, which
was part of the DFA and which came into
effect in the US in 2015, prohibits banking
entities from undertaking certain proprietary
trading activities and limits such entities’
ability to sponsor or invest in certain private
equity funds and hedge funds (in each case
broadly defined). As required by the rule,
Barclays Group has developed and
implemented an extensive compliance
and monitoring programme addressing
proprietary trading and covered fund
activities (both inside and outside of the US).
Proposed amendments to the Volcker Rule
were published in the Federal Register in
July 2018. The existing Volcker framework
and implemented processes will remain
unchanged until amendments to the
regulations become effective. We do not
expect any changes to the Volcker rule
to be effective prior to Q4 2019.
(d) Market infrastructure regulation
In recent years, regulators as well as
global-standard setting bodies such
as IOSCO have focused on improving
transparency and reducing risk in markets,
particularly risks related to over-the-counter
(OTC) transactions. This focus has resulted
in a variety of new regulations across the
G20 countries and beyond that require
or encourage on-venue trading, clearing,
posting of margin and disclosure of
information related to many derivatives
transactions. Some of the most significant
developments are described below.
The European Market Infrastructure
Regulation (EMIR) has introduced
requirements designed to improve
transparency and reduce the risks associated
with the derivatives market, some of which
are still to be fully implemented. EMIR requires
that certain entities that enter into derivative
contracts: report such transactions; clear
certain over the counter (OTC) transactions
where mandated to do so; and implement risk
mitigation standards in respect of uncleared
OTC trades. The obligation to clear derivatives
only applies to certain counterparties and
specified types of derivatives. In October 2016,
the European Commission adopted a
delegated regulation relating to the exchange
of collateral, one of the risk mitigation
techniques under EMIR. Provisions relating
to initial margin have entered into force,
subject to a phase-in until 1 September 2020.
Provisions relating to variation margin have
already entered into force. EMIR has potential
operational and financial impacts on
Barclays Group, including by imposing
collateral requirements.
The European Commission has recently
proposed two sets of changes to EMIR,
one containing technical changes to EMIR,
and another measure which could result in
certain central counterparties (CCPs) used
by Barclays Group being forced to relocate
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to an EU jurisdiction in order to continue
clearing for EU members. The changes
proposed may have additional operational
and financial impacts on Barclays Group’s
derivatives business.
CRD IV aims to complement EMIR by applying
higher capital requirements for bilateral,
uncleared OTC derivative trades. Lower capital
requirements for cleared derivative trades are
only available if the CCP through which the
trade is cleared is recognised as a ‘qualifying
central counterparty’ (QCCP) which has been
authorised or recognised under EMIR. Higher
capital requirements may apply to Barclays
Group following the UK’s departure from the
EU if UK CCPs are then no longer regarded
as QCCPs and vice versa.
The Markets in Financial Instruments Directive
and Markets in Financial Instruments
Regulation (collectively referred to as MiFID II)
have largely been applicable since 3 January
2018. MiFID II affects many of the investment
markets in which Barclays Group operates,
the instruments in which it trades and the
way it transacts with market counterparties
and other customers. Changes introduced
by MiFID II include: the introduction of a
new type of trading venue (the organised
trading facility), capturing non-equity
trading that falls outside the MiFID I regime;
the strengthening of conduct of business
requirements, including in relation to conflicts
of interest; the expansion of the concept of,
and requirements applicable to, firms which
systematically trade against proprietary capital
(systematic internalisers); and increased
obligations on firms to secure best execution
for their clients. Additionally, MiFID II
mandates a trading obligation for certain
types of cleared derivatives.
MiFID II strengthens investor protections,
imposes new curbs on high frequency
and commodity trading, increases pre-
and post-trade transparency reporting and
introduces a new regime for third country
(non-EU) firms. MiFID II also includes new
requirements relating to non-discriminatory
access to trading venues, CCPs and
benchmarks, research unbundling and
harmonised supervisory powers and sanctions
across the EU.
US regulators have imposed similar rules
as the EU with respect to the mandatory
on-venue trading and clearing of certain
derivatives, and post-trade transparency,
as well as in relation to the margining of
OTC derivatives.
US regulators have addressed the applicability
of certain of their regulations to cross-border
transactions, and are continuing to review
and consider their rules with respect to their
application on a cross-border basis, including
with respect to their registration requirements
in relation to non-US swap dealers and
security-based swap dealers. The regulators
may adopt further rules, or provide further
guidance, regarding the cross-border
applicability of such rules. In December 2017,
the CFTC and the European Commission
recognised the trading venues of each other’s
jurisdiction to allow market participants
to comply with mandatory on-venue trading
requirements while trading on certain venues
recognised by the other jurisdiction.
The EU Benchmarks Regulation came into
force in June 2016. Although some provisions
have applied since 2016, the majority of
provisions have applied since 3 January 2018,
subject to transitional provisions. This
regulation applies to the administration,
contribution of data to and use of benchmarks
within the EU. Financial institutions within the
EU will be prohibited from using benchmarks
unless their administrators are authorised,
registered or otherwise recognised in the EU.
This may impact the ability of Barclays Group
to use certain benchmarks in the future. For
example, EURIBOR will, as currently stands,
no longer be compliant with the Benchmarks
Regulation on 1 January 2020, and the FCA has
stated that it does not intend to support LIBOR
after the end of 2021. International initiatives
are therefore underway to develop alternative
benchmarks and backstop arrangements.
However, adapting processes and systems
to transition to these new benchmarks is likely
to be a very time-consuming and costly task
on an industry-wide basis.
In 2015, the European Commission launched
work on establishing a Capital Markets
Union (CMU) within the EU. The CMU aims
to increase the availability of non-bank
financing in the EU, deepen the EU single
market for financial services and promote
growth and financial stability. The CMU work
programme is now being considered in light
of Brexit. Recent proposals have therefore
included considerably broadened central
supervisory powers for the European
Supervisory Authorities (ESAs) (including in
relation to outsourcing, and delegation and
risk transfer by entities authorised in the EU
to entities or branches in third countries)
and an increased focus by the ESAs on
ongoing equivalence assessments in the
context of third country regimes in various
EU regulations and directives.
Certain participants in US swap markets are
required to register with the CFTC as ‘swap
dealers’ or ‘major swap participants’ and/or,
following the compliance date for relevant
SEC rules, with the SEC as ‘security-based
swap dealers’ or ‘major security-based swap
participants’. Such registrants are subject to
CFTC, and would be subject to SEC, regulation
and oversight. Entities required to register as
swap dealers are subject to business conduct,
record keeping and reporting requirements
under CFTC rules and will be subject to capital
and margin requirements in connection with
transactions with certain US and non-US
counterparties. Barclays Bank PLC has
provisionally registered with the CFTC as
a swap dealer and is subject to CFTC rules
on business conduct, record keeping and
reporting. With respect to margin and capital,
Barclays Group is subject to the rules of
the FRB in connection with its swap
dealer business.
The CFTC has approved certain comparability
determinations that permit substituted
compliance with non-US regulatory regimes
for certain swap regulations related to
business conduct and other requirements,
while other determinations remain pending.
Substituted compliance is permitted, where
applicable, only with respect to transactions
between a non-US swap dealer and a non-US
counterparty. In addition, the CFTC has issued
proposed rules that would require a non-US
swap dealer to comply with certain CFTC
rules in connection with transactions that are
‘arranged, negotiated or executed’ from the
US. It is unclear whether the proposed rules
will be adopted in the form proposed. Most
recently, in October 2017, the CFTC issued
an order permitting substituted compliance
with EU margin rules for certain uncleared
derivatives. However, as Barclays Group is
subject to the margin rules of the FRB, it will
not benefit from the CFTC’s action unless
the FRB takes a similar approach.
It is unclear whether further changes will
be made to the CFTC’s proposed rules or
when they will become effective. In addition,
it is uncertain whether, and to what degree,
other US regulators, such as the FRB, will take
an approach similar to the CFTC’s regarding
substituted compliance.
The SEC finalised the rules governing security
based swap dealer registration in 2015 but
clarified that registration timing is contingent
upon the finalisation of certain additional rules
under Title VII of DFA, several of which are
still pending. In particular, the SEC has stated
that registration will be required at the later
of the SEC’s adoption of final rules on capital
and margin, or the compliance dates for the
SEC’s rules on record keeping and reporting,
business conduct or employment of statutorily
disqualified persons.
Therefore, there is currently no specific
timetable for the effectiveness of the
security-based swap dealer registration
requirement. However, the SEC has recently
proposed additional rules, and republished
prior proposed rules, regarding security-based
swap dealers, and has indicated that it
may take the actions that will trigger the
registration requirement in the near future.
When security-based swap dealer registration
is required, it is anticipated that Barclays Bank
PLC and/or one or more of its affiliates will be
required to register in that capacity and thus
will be required to comply with the SEC’s rules
for security-based swap dealers. These rules
may impose costs and other requirements
or restrictions that could impact our business.
In addition, the SEC has provided some limited
guidance regarding certain aspects of the
cross-border applicability of its security-based
swaps rules, including a final rule addressing
transactions of a non-US person arranged,
negotiated, or executed by personnel located
in a US branch or office. However, it remains
unclear as to how or when substituted
compliance may be available, and which
of the SEC’s rules will be eligible.
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Barclays PLC Annual Report 2018 221
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Risk review
Supervision and regulation
(e) Conduct, culture and other regulation
Conduct and culture
On 7 March 2016, the PRA and FCA
introduced measures to increase the
individual accountability of senior managers
and other covered individuals in the banking
sector. The new regime comprises: the
‘Senior Managers Regime’, which applies to
a limited number of individuals with senior
management responsibilities within a firm;
the ‘Certification Regime’, which is intended
to assess and monitor the fitness and
propriety of a wider range of employees who
could pose a risk of significant harm to the
firm or its customers; and conduct rules that
individuals subject to either regime must
comply with. From March 2017, the conduct
rules have applied more widely to other
staff of firms within the scope of the regime.
The regime will be expanded to apply to
all firms authorised under FSMA from
9 December 2019. The Financial Services Act
2010, among other things, requires the UK
regulators to make rules about remuneration
and to require regulated firms to have a
remuneration policy that is consistent with
effective risk management.
The Banking Act also amended FSMA to
allow the FCA to make rules requiring firms
to operate a collective consumer redress
scheme to deal with cases of widespread
failure by regulated firms to meet regulatory
requirements that may have created
consumer detriment.
Our regulators have also enhanced their
focus on the promotion of cultural values as
a key area for banks, although they generally
view the responsibility for reforming culture
as primarily sitting with the industry.
Strategic review of retail banking
business models
The FCA conducted a strategic review of
retail banking business models throughout
2017 and 2018 and published its final report
in December 2018. The FCA has used the
analysis to inform its view of emerging
scenarios in retail banking and their impact on
business models and consumers. It concluded
that increased competition has the scope to
improve outcomes for many consumers but
it takes time. As a result of this review the
FCA will initiate work in payment services,
SME banking and monitoring of retail banking
business models which could impact
Barclays Group over time.
Data protection and PSD2
Most countries in which Barclays Group has a
presence already have privacy laws governing
the collection, use and disclosure of personal
data, or are considering their introduction.
The harmonisation of the European privacy
regime through the introduction of the
General Data Protection Regulation (GDPR)
was a major focus in 2018. However, new
laws have also recently been introduced in
California, the Cayman Islands, and Brazil,
and existing laws in Japan, Guernsey, Jersey
and the Isle of Man have been updated.
The global nature of our business and IT
infrastructure means personal information
may be made available or stored in countries
other than where it was originally collected.
The proper handling and protection of
personal data is very important to our clients,
employees and to regulators, and there can
be considerable regulatory fines for breaches
(for example, up to 4% of global turnover
under GDPR).
A number of recent developments have
indicated a clear political and regulatory desire
to make customer account information and
transactional services more easily accessible
to customers and parties providing services
to them, such as the revised Payment Services
Directive (PSD2) and the Open Banking
initiative. PSD2 replaced the previous Payment
Services Directive and, with respect to certain
requirements, has a wider scope, applying
transparency and information requirements
to payment transactions in all currencies
where the provider of at least one leg of the
payment service is located in the EU. PSD2
also requires banks which provide accounts
to enable access to those accounts through
dedicated technology to allow third parties
to provide account information and payment
initiation services. The requirements relating
to this technology will come into effect in
September 2019.
Cybersecurity and operational resilience
Regulators in Europe and the US have been
increasingly focused on cybersecurity risk
management and operational resilience
for banking organisations. This has resulted
in a number of proposed laws, regulations
and other requirements that necessitate
the implementation of a variety of increased
controls and enhancement activities for
regulated Barclays Group entities. These
include, among others, the adoption of
cybersecurity policies and procedures meeting
specified criteria, minimum required security
measures, controls and procedures for
enhanced reporting and public disclosures,
compliance certification requirements, and
other cyber and information risk governance
measures. These increased controls will
enhance our security posture and increase
our ability to protect the organisation and
our customers. Such measures may result
in increased technology and compliance
costs for Barclays Group.
Sanctions and financial crime
The UK Bribery Act 2010 introduced a new
form of corporate criminal liability focused
broadly on a company’s failure to prevent
bribery on its behalf. The legislation has broad
application and in certain circumstances
may have extra-territorial impact on entities,
persons or activities located outside the UK,
including Barclays PLC and its subsidiaries.
In practice, the legislation requires Barclays
Group to have adequate procedures to
prevent bribery which, due to the extra-
territorial nature of the status, makes this
both complex and costly.
On 30 September 2017, the Criminal Finances
Act 2017 introduced new corporate criminal
offences of failing to prevent the facilitation
of UK and overseas tax evasion. The legislation
has very broad extra-territorial application
and may impact entities, persons or activities
located outside the UK, including Barclays PLC
and its subsidiaries. It also requires Barclays
Group to have reasonable prevention
procedures in place to prevent the criminal
facilitation of tax evasion by persons acting
for, or on behalf of, Barclays Group.
In the US, the Bank Secrecy Act, the USA
PATRIOT Act 2001 and regulations thereunder
contain numerous anti-money laundering
and anti-terrorist financing requirements
for financial institutions. In addition,
Barclays Group is subject to the US Foreign
Corrupt Practices Act, which prohibits certain
payments to foreign officials, as well as
rules and regulations relating to economic
sanctions and embargo programmes
administered by the US Office of Foreign
Assets Control which restrict certain business
activities with certain individuals, entities,
groups, countries and territories.
Two significant new regulatory rules came
into force in the US in 2018: the New York
Department of Financial Services (DFS)
Rule 504 and the US Department of Treasury’s
Financial Crime Enforcement Network
(FinCEN) Customer Due Diligence (CDD) Rule.
Rule 504 enumerates detailed transaction
filtering and screening requirements for
potential Bank Secrecy Act and anti-money
laundering violations and transactions with
sanctioned entities, applicable to institutions
regulated by the DFS (including Barclays Bank
PLC, New York branch) and requires a
senior bank official to certify compliance.
The CDD Rule requires Barclays Group US
entities to identify natural beneficial owners
above a certain threshold for clients that are
legal entities.
In some cases, US state and federal regulations
addressing sanctions, money laundering and
other financial crimes may impact entities,
persons or activities located outside the US,
including Barclays PLC and its subsidiaries.
The enforcement of these regulations has
been a major focus of US state and federal
government policy relating to financial
institutions in recent years, and failure of
a financial institution to ensure compliance
could have serious legal, financial and
reputational consequences for the institution.
222 Barclays PLC Annual Report 2018
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Financial review
A review of the performance of Barclays, including the key
performance indicators, and the contribution of each of our
businesses to the overall performance of the Barclays Group.
Financial review
■■ Key performance indicators
■■ Consolidated summary income statement
■■ Income statement commentary
■■ Consolidated summary balance sheet
■■ Balance sheet commentary
■■ Analysis of results by business
■■ Margins and balances
■■ Non-IFRS performance measures
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Barclays PLC Annual Report 2018 223
Financial review
Key performance indicators
In assessing the financial performance of the Group, management uses a range of KPIs
which focus on the Group’s financial strength, the delivery of sustainable returns and cost
management. Barclays is on track in the execution of its strategy and continues to target
RoTE of greater than 9% in 2019 and greater than 10% in 2020, excluding litigation and
conduct, based on a CET1 ratio of c.13%, and operating expenses guidance in the range
of £13.6-13.9bn in 2019, excluding litigation and conduct.
Non-IFRS performance measures
Barclays’ management believes that the
non-IFRS performance measures included
in this document provide valuable information
to the readers of the financial statements as
they enable the reader to identify a more
consistent basis for comparing the businesses’
performance between financial periods, and
provide more detail concerning the elements
of performance which the managers of these
businesses are most directly able to influence
or are relevant for an assessment of the
Barclays Group. They also reflect an important
aspect of the way in which operating targets
are defined and performance is monitored by
Barclays’ management. However, any non-IFRS
performance measures in this document are
not a substitute for IFRS measures and readers
Definition
Why is it important and how the Group performed
should consider the IFRS measures as
well. Refer to pages 241 to 245 for further
information and calculations of non-IFRS
performance measures included throughout
this section, and the most directly
comparable IFRS measures.
Common Equity Tier 1 (CET1) ratio
Capital requirements are part of the
regulatory framework governing how banks
and depository institutions are supervised.
Capital ratios express a bank’s capital as a
percentage of its RWAs as defined by the PRA.
CET1 ratio is a measure of capital that is
predominantly common equity as defined
by the CRR.
Average UK leverage ratio
The ratio is calculated as the average
transitional Tier 1 capital divided by
average UK leverage exposure. The average
exposure measure excludes qualifying
central bank claims.
CET1 ratio
13.2%
2017: 13.3%
2016: 12.4%
Average UK leverage ratio
4.5%
2017: 4.9%
2016: 4.5%
The Barclays Group’s capital management
objective is to maximise shareholder value by
prudently managing the level and mix of its
capital to: ensure the Barclays Group and all
of its subsidiaries are appropriately capitalised
relative to their regulatory minimum and
stressed capital requirements, support the
Barclays Group’s risk appetite, growth and
strategic options, while seeking to maintain
a robust credit proposition for Barclays Group
and its subsidiaries.
The Barclays Group’s CET1 ratio continued
to be at the end-state target of c.13%.
The ratio decreased to 13.2% (2017: 13.3%),
as CET1 capital decreased to £41.1bn and
RWAs remained broadly stable at £311.9bn,
as underlying profit generation of £4.2bn,
was more than offset by £2.1bn of litigation
and conduct charges, as Barclays Group
resolved legacy matters, £1.7bn for ordinary
dividends and AT1 coupons paid and
foreseen and £1.0bn from the redemption
of capital instruments.
Barclays Group target: CET1 ratio of c.13%.
The leverage ratio is non-risk based and is
intended to act as a supplementary measure
to the risk-based capital metrics such as
the CET1 ratio.
The average UK leverage ratio decreased
to 4.5% (2017: 4.9%) driven by an increase
in average UK leverage exposure to £1,110bn
(2017: £1,045bn) and a decrease in average
Tier 1 capital to £50.5bn (2017: £51.2bn).
The average UK leverage exposure increased,
including securities financing transactions,
due to the efficient use of leverage balance
sheet within high returning financing
businesses. Tier 1 capital reduced for the
same reasons as CET1 capital.
Barclays Group target: maintaining the UK
leverage ratio above the expected end point
minimum requirement.
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Definition
Why is it important and how the Group performed
Return on average tangible
shareholders’ equity
RoTE is calculated as profit after tax
attributable to ordinary shareholders, including
an adjustment for the tax credit recorded in
reserves in respect of other equity instruments,
as a proportion of average shareholders’
equity excluding non-controlling interests
and other equity instruments adjusted for the
deduction of intangible assets and goodwill.
Operating expenses
Operating expenses excluding litigation and
conduct.
Cost: income ratio
Total operating expenses divided by
total income.
Barclays Group RoTE
excluding litigation and conduct
8.5%
2017: (1.2%)
2016: 6.2%
Barclays Group RoTE
3.6%
2017: (3.6%)
2016: 3.6%
Operating expensesa
£13.9bn
2017: £14.2bn
2016: £15.0bn
Cost: income ratio
77%
2017: 73%
2016: 76%
Cost: income ratio
excluding litigation and conduct
66%
2017: 68%
2016: 70%
This measure indicates the return generated
by the management of the business
based on shareholders’ tangible equity.
Achieving a target RoTE demonstrates the
organisation’s ability to execute its strategy
and align management’s interests with
the shareholders’. RoTE lies at the heart
of the Barclays Group’s capital allocation
and performance management process.
RoTE for the Barclays Group excluding
litigation and conduct, was 8.5%. Based on a
CET1 ratio of 13% this would have been 8.3%.
RoTE for the Barclays Group was positive
3.6% (2017: negative 3.6%) reflecting an
attributable profit of £1,394m (2017: loss
of £1,922m) which included charges for
litigation and conduct of £2.1bn, relating
to RMBS settlement and PPI provisions.
Barclays Group target: Barclays Group RoTE,
excluding litigation and conduct, of greater
than 9% in 2019 and greater than 10%
in 2020, based on a CET1 ratio of c.13%.
Barclays views operating expenses as a key
strategic area for banks; those who actively
manage costs and control them effectively
will gain a strong competitive advantage.
Barclays Group operating expenses
were £13.9bn, in line with 2018 guidance,
after excluding a charge for GMP while
total operating expenses were £16.2bn
(2017: £15.5bn).
Barclays Group target: operating expenses,
excluding litigation and conduct, of £13.6
to 13.9bn in 2019.
This is a measure management uses to assess
the productivity of the business operations.
Managing the cost base is a key execution
priority for management and includes
a review of all categories of discretionary
spending and an analysis of how we can
run the business to ensure that costs increase
at a slower rate than income.
The Barclays Group cost: income ratio
including litigation and conduct increased
to 77% (2017: 73%) due to stable income
and a 5% increase in total operating expenses,
which included charges for RMBS settlement
and PPI provisions.
Excluding litigation and conduct the Barclays
Group cost: income ratio decreased to 66%
(2017: 68%) as continued investment to grow
the business and improve future operating
efficiency was more than offset by elimination
of legacy costs, productivity savings and
a lower bank levy charge.
Barclays Group target: a cost: income ratio
of below 60% over time.
Note
a Group operating expenses, excluding litigation and conduct, and a GMP charge of £140m.
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Financial review
Consolidated summary income statement
For the year ended 31 December
Continuing operations
Net interest income
Net fee, commission and other income
Total income
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
9,062
12,074
21,136
9,845
11,231
21,076
10,537
10,914
21,451
10,608
11,432
22,040
10,086
11,677
21,763
Credit impairment charges and other provisions
(1,468)
(2,336)
(2,373)
(1,762)
(1,821)
Operating costs
UK bank levy
Operating expenses
GMP charge
Litigation and conduct
Total operating expenses
(13,627)
(269)
(13,896)
(140)
(2,207)
(16,243)
(13,884)
(365)
(14,249)
–
(1,207)
(15,456)
(14,565)
(410)
(14,975)
–
(1,363)
(16,338)
(13,723)
(426)
(14,149)
–
(4,387)
(18,536)
(14,959)
(418)
(15,377)
–
(2,807)
(18,184)
Other net income/(expenses)
69
257
490
(596)
(445)
Profit before tax
Tax charge
Profit/(loss) after tax in respect of continuing operations
(Loss)/profit after tax in respect of discontinued operation
Non-controlling interests in respect of continuing operations
Non-controlling interests in respect of discontinued operation
Other equity instrument holdersa
Attributable profit/(loss)
Selected financial statistics
Basic earnings/(loss) per sharea
Diluted earnings/(loss) per sharea
Return on average tangible shareholders’ equitya
Cost: income ratio
Performance measures excluding litigation and conductb
Profit before tax
Attributable profit/(loss)
Return on average tangible shareholders’ equity
Cost: income ratio
3,494
(1,122)
2,372
–
(226)
–
(752)
1,394
9.4p
9.2p
3.6%
77%
5,701
3,530
8.5%
66%
3,541
(2,240)
1,301
(2,195)
(249)
(140)
(639)
(1,922)
(10.3p)
(10.1p)
(3.6%)
73%
4,748
(772)
(1.2%)
68%
3,230
(993)
2,237
591
(346)
(402)
(457)
1,623
10.4p
10.3p
3.6%
76%
4,593
2,908
6.2%
70%
1,146
(1,149)
(3)
626
(348)
(324)
(345)
(394)
(1.9p)
(1.9p)
(0.7%)
84%
5,533
3,570
7.6%
64%
1,313
(1,121)
192
653
(449)
(320)
(250)
(174)
(0.7p)
(0.7p)
(0.3%)
84%
4,120
2,326
4.9%
71%
Notes
a The profit after tax attributable to other equity instrument holders of £752m (2017: £639m) is offset by a tax credit recorded in reserves of £203m (2017: £174m). The net amount
of £549m (2017: £465m), along with non-controlling interests, is deducted from profit after tax in order to calculate earnings per share and return on average tangible
shareholders’ equity.
b Refer to pages 241 to 245 for further information and calculations of performance measures excluding litigation and conduct.
The financial information above is extracted from the published accounts. This information should be read together with the information included
in the accompanying consolidated financial statements.
226 Barclays PLC Annual Report 2018
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Credit impairment charges were broadly stable
at £2,336m (2016: £2,373m) and reflected a
charge of £168m in 2017 relating to deferred
consideration from an asset sale in US Cards,
and the non-recurrence of a £320m charge
in 2016 following the management review
of the UK and US Cards portfolio impairment
modelling. Impairment increased in Barclays
International driven by an increase in
underlying delinquency trends and business
growth in US Cards. The Group loan loss rate
increased 4bps to 57bps.
Operating expenses reduced 5% to £15,456m
driven primarily by lower Non-Core related
operating expenses. Excluding litigation and
conduct charges, Group operating expenses
were £14.2bn, in line with 2017 guidance.
Other net income of £257m (2016: £490m)
primarily reflected a gain of £109m on the sale
of Barclays’ share in VocaLink to MasterCard
and a gain of £76m on the sale of a joint
venture in Japan.
The effective tax rate on profit before tax
increased to 63.3% (2016: 30.7%) principally
due to a one-off tax charge of £1,177m due
to the remeasurement of US DTAs as a result
of the US Tax Cuts and Jobs Act, partially
offset by an unrelated £276m increase in
US DTAs due to a remeasurement of
Barclays Bank PLC’s US branch DTAs.
Loss after tax in respect of the Africa Banking
discontinued operation of £2,195m included
a £1,090m impairment of Barclays’ holding in
BAGL and a £1,435m loss on the sale of 33.7%
of BAGL’s issued share capital, primarily due
to recycling of currency translation reserve
losses to the income statement on accounting
deconsolidation.
RoTE was negative 3.6% (2016: positive 3.6%)
and basic loss per share was 10.3p (2016:
earnings per share of 10.4p). Excluding
litigation and conduct, losses related to the
sell down of BAGL and the one-off net charge
due to the remeasurement of US DTAs, RoTE
was 5.6% and earnings per share was 16.2p.
Financial review
Income statement commentary
The Group’s effective tax rate reduced to
32.1% (2017: 63.3%). This rate included a
one-off net charge due to the remeasurement
of DTAs as a result of the reduction in the
US federal corporate income tax rate.
The underlying effective tax rate was 20.9%
(2017: 29.4%), due to the lower US federal
corporate income tax rate and the beneficial
impact of adjustments to prior periods
recognised in 2018.
The Group’s underlying effective tax rate
for future periods, is expected to be in the
low-to-mid-20 per cents, excluding the
impact of the future accounting change
that will require tax relief on payments in
relation to AT1 instruments to be recognised
in the income statement, as opposed to
retained earnings.
Attributable profit was £1,394m (2017: loss of
£1,922m). This reflected the non-recurrence
of a £2.5bn loss related to the sell down of
BAGL and a tax charge of £1,122m compared
to a 2017 charge of £2,240m which included
a one-off net charge of £0.9bn due to the
remeasurement of US DTAs.
RoTE was 8.5% (2017: negative 1.2%) and
earnings per share was 21.9p (2017: loss
per share of 3.5p), excluding litigation and
conduct. Statutory RoTE was 3.6% (2017:
negative 3.6%) and basic earnings per share
was 9.4p (2017: loss per share 10.3p).
2017 compared to 2016
Profit before tax increased 10% to £3,541m
driven by a 5% reduction in operating
expenses, partially offset by a 2% reduction
in income and lower other net income.
Results were impacted by the appreciation of
average USD and EUR against GBP of 5% and
7% respectively, compared to 2016, which
positively impacted income and adversely
affected impairment and operating expenses.
Following the closure of Barclays Non-Core
on 1 July 2017, Group results for 2017 included
a Barclays Non-Core loss before tax for the
six months ended 30 June 2017 of £647m,
compared to a loss before tax of £2,786m
for the full year in 2016. From 1 July 2017,
residual Barclays Non-Core assets and liabilities
were reintegrated into, and associated financial
performance subsequently reported in,
Barclays UK, Barclays International and
Head Office.
Total income decreased to £21,076m (2016:
£21,451m) reflecting a £613m decrease in
Barclays International and a £262m reduction
in Head Office, partially offset by a reduction
in losses related to Non-Core.
2018 compared to 2017
Profit before tax was £3,494m (2017:
£3,541m). Excluding litigation and conduct
charges, profit before tax increased 20%
to £5,701m driven by an improvement in
credit impairment charges and a reduction
in operating expenses. The 3% depreciation
of average USD against GBP adversely
impacted profits.
Total income was £21,136m (2017: £21,076m).
Barclays UK income was stable as lower
interest margins were offset by strong balance
sheet growth. Barclays International income
growth in Markets, which increased 9%,
was offset by lower Banking income, primarily
from a 20% decrease in Corporate lending
income reflecting the strategy of redeploying
RWAs to higher returning businesses.
Consumer, Cards and Payments income
growth was offset by the non-recurrence of
prior year one-offs, from a US asset card sale
and a valuation gain on Barclays’ preference
shares in Visa Inc. Head Office income was
a net expense of £273m (2017: £159m), and
the Group benefited from the non-recurrence
of negative income associated with the
former Non-Core division, which was closed
on 1 July 2017.
Credit impairment charges decreased 37%
to £1,468m primarily driven by single name
recoveries, updates to consensus-based
macroeconomic forecasts in the UK and US
during the year, the non-recurrence of single
name charges in 2017, portfolio adjustments
as IFRS 9 has continued to embed and the
prudent management of credit risk, including
the impact of repositioning the US Cards
portfolio towards a lower risk mix. This
decrease was partially offset by a Q4 2018
£150m specific charge for the impact of the
anticipated economic uncertainty in the UK.
The Barclays Group loan loss rate was 44bps
(2017: 57bps).
Operating expenses of £13,896m (2017:
£14,249m) reduced 2% as continued
investment to grow the business and improve
future operating efficiency was more than
offset by elimination of legacy costs,
productivity savings and a lower bank levy
charge due to a reduction in the levy rate
and the impact of prior year adjustments.
The cost: income ratio, excluding litigation
and conduct, reduced to 66% (2017: 68%).
Total operating expenses of £16,243m
(2017: £15,456m) included litigation and
conduct charges of £2,207m (2017: £1,207m)
and a £140m charge for GMP in relation to
the equalisation of obligations for members of
the Barclays Bank UK Retirement Fund (UKRF).
There was no capital impact of the GMP
charge as, at 31 December 2018, the UKRF
remained in accounting surplus.
Other net income declined to £69m
(2017: £257m) primarily reflecting the
non-recurrence of gains on the sales of
Barclays’ share in VocaLink and a joint
venture in Japan in Q2 2017.
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Barclays PLC Annual Report 2018 227
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Financial review
Consolidated summary balance sheet
As at 31 December
Assets
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets
Financial assets at fair value through the income statement
Derivative financial instruments
Financial investments
Financial assets at fair value through other comprehensive income
Assets included in disposal groups classified as held for sale
Other assets
Total assets
Liabilities
Deposits at amortised cost
Cash collateral and settlement balances
Repurchase agreements and other similar secured borrowings
Debt securities in issueb
Subordinated liabilities
Trading portfolio liabilities
Financial liabilities designated at fair value
Derivative financial instruments
Liabilities included in disposal groups classified as held for sale
Other liabilities
Total liabilities
Equity
Called up share capital and share premium
Other equity instruments
Other reserves
Retained earnings
Total equity excluding non-controlling interests
Non-controlling interests
Total equity
Total liabilities and equity
Net asset value per ordinary share
Tangible net asset value per share
Number of ordinary shares of Barclays PLC (in millions)
Year-end USD exchange rate
Year-end EUR exchange rate
2018
£m
2017a
£m
2016a
£m
2015a
£m
2014a
£m
177,069
77,222
326,406
2,308
104,187
149,648
222,538
–
52,816
–
21,089
171,082
77,168
324,048
12,546
113,760
116,281
237,669
58,915
–
1,193
20,586
1,133,283 1,133,248
394,838
67,522
18,578
82,286
20,559
37,882
216,834
219,643
–
11,362
398,701
68,143
40,338
73,314
23,826
37,351
173,718
238,345
–
13,496
1,069,504 1,067,232
4,311
9,632
5,153
43,460
62,556
1,223
63,779
22,045
8,941
5,383
27,536
63,905
2,111
66,016
1,133,283 1,133,248
309p
262p
17,133
1.28
1.12
322p
276p
17,060
1.35
1.13
102,353
90,135
345,900
13,454
80,240
78,608
346,626
63,317
–
71,454
21,039
1,213,126
390,744
80,648
19,760
75,932
23,383
34,687
96,031
340,487
65,292
14,797
1,141,761
21,842
6,449
6,051
30,531
64,873
6,492
71,365
1,213,126
344p
290p
16,963
1.23
1.17
49,711
82,980
357,586
28,187
77,348
76,830
327,709
90,267
–
7,364
22,030
1,120,012
39,695
103,403
366,475
131,753
114,717
38,300
439,909
86,066
–
–
37,588
1,357,906
390,307
75,015
25,035
69,150
21,467
33,967
91,745
324,252
5,997
17,213
384,105
101,989
124,479
86,099
21,153
45,124
56,972
439,320
–
32,707
1,054,148 1,291,948
21,586
5,305
1,898
31,021
59,810
6,054
65,864
1,120,012
20,809
4,322
2,724
31,712
59,567
6,391
65,958
1,357,906
324p
275p
16,805
1.48
1.36
335p
285p
16,498
1.56
1.28
Notes
a Barclays introduced changes to the balance sheet presentation as at 31 December 2017 as a result of the adoption of new accounting policies on 1 January 2018. The comparatives
for the prior years have been updated to reflect this presentation change. Further detail on the adoption of new accounting policies can be found in Note 1 on page 264 to 267,
Note 42 on pages 347 to 354 and the Credit risk disclosures on pages 149 to 175.
b Debt securities in issue include covered bonds of £8.5bn (2017: £12.4bn).
228 Barclays PLC Annual Report 2018
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Financial review
Balance sheet commentary
Total assets
Total assets remained flat at £1,133bn.
Cash and balances at central banks increased
£6bn to £177bn, as cash contributed more to
the Group liquidity pool. Cash collateral and
settlement balances remained flat at £77bn.
Loans and advances at amortised cost
increased £2bn to £326bn as £10bn of
new lending, principally in mortgages and
corporate lending, and the reclassification
£5bn of held to maturity securities from
financial investments was offset by the
effects of the transition to IFRS 9.
Reverse repurchase agreements and other
similar secured lending decreased £10bn to
£2bn reflecting the reclassification to financial
assets at fair value through the income
statement on transition to IFRS 9.
Trading portfolio assets decreased £10bn to
£104bn. Financial assets at fair value through
the income statement increased £34bn to
£150bn primarily due to the impact arising
from the transition to IFRS 9 and increased
reverse repurchase agreements activity.
Derivative financial instrument assets
decreased from £238bn to £223bn which
is consistent with the movement in derivative
financial instrument liabilities. The decrease
in both was as a result of an increase in
major interest rate forward curves and
the adoption of daily settlement under the
London Clearing House (LCH), partially offset
by increased foreign exchange and equity
derivative volumes.
Financial investments have been reclassified
to financial assets at fair value through
other comprehensive income following the
implementation of IFRS 9. As part of the
reclassification £5bn of held to maturity
securities were classified as loans and
advances at amortised cost.
Total liabilities
Total liabilities increased £3bn to £1,070bn.
Deposits at amortised cost decreased £4bn
to £395bn as the effects of transition to IFRS 9
more than offset substantial and targeted
increases in Barclays International deposits
and strong deposit growth in Barclays UK.
Cash collateral and settlement balances
remained flat at £68bn.
Repurchase agreements and other similar
secured borrowing decreased £21bn to £19bn
reflecting the reclassification to financial
liabilities at fair value on transition to IFRS 9.
Debt securities in issue increased from
£73bn to £82bn due to net issuances of
bonds, medium term notes and commercial
paper used to manage the Group liquidity
pool. Subordinated liabilities decreased
by £3bn to £21bn as a result of various
redemptions during the year.
Trading portfolio liabilities increased £1bn
to £38bn. Financial liabilities designated at
fair value increased £43bn to £217bn primarily
as a result of the effects of transition to IFRS 9
and additional client margin deposits from
the growth of the Equities business.
Derivative financial instruments decreased
from £238bn to £220bn in line with
the decrease in derivative financial
instrument assets.
Total shareholders’ equity
Total shareholders’ equity decreased £1bn
to £63bn.
Share capital and share premium decreased
£17.7bn to £4.3bn. In September 2018,
the High Court of Justice in England and
Wales confirmed the cancellation of the
share premium account of Barclays PLC,
with the balance of £17.9bn credited to
retained earnings.
Other equity instruments increased £0.7bn
to £9.6bn primarily due the issuance of one
USD AT1 security with a principal amount
of $2.5bn partially offset by a redemption of
one USD AT1 security with a principal amount
of $2.0bn.
The fair value through other comprehensive
income reserve represents the unrealised
change in the fair value through other
comprehensive income investments since
initial recognition. Following the adoption
of IFRS 9, accumulated fair value changes of
£228m previously recognised in the available
for sale reserve are now recorded in fair value
through other comprehensive income.
The decrease in the year of £0.6bn was
primarily driven by changes in the fair value
of bonds held and a decrease in the Absa
Group Limited share price.
The cash flow hedging reserve has decreased
£0.5bn to £0.7bn as a result of the fair value
movements of interest rate swaps held for
hedging purposes as interest rate forward
curves increased whilst gains transferred
to net profit.
The currency translation reserve increased
£0.8bn reflecting the increase in value of
period end USD against GBP.
Excluding the impact on transition to IFRS 9
of £2bn, retained earnings increased £18bn
as a result of the cancellation of the Group’s
share premium account and profits for
the year.
Tangible net asset value per share decreased
to 262p (2017: 276p) as profit before
tax was more than offset by the impact
of implementing IFRS 9, the redemption
of preference shares and dividends paid
in the year.
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Financial review
Analysis of results by business
Barclays UK
Income statement information
Net interest income
Net fee, commission and other income
Total income
Credit impairment charges and other provisions
Net operating income
Operating costs
UK bank levy
Litigation and conduct
Total operating expenses
Other net income/(expenses)
Profit before tax
Attributable profit
Balance sheet information
Loans and advances to customers at amortised cost
Total assets
Customer deposits at amortised cost
Loan: deposit ratio
Risk weighted assets
Period end allocated tangible equity
Key facts
Average LTV of mortgage portfolio
Average LTV of new mortgage lending
Number of branches
Mobile banking active customers
30 day arrears rate – Barclaycard Consumer UK
Number of employees (full time equivalent)a
Performance measures
Return on average allocated tangible equity
Average allocated tangible equity
Cost: income ratio
Loan loss rate (bps)b
Net interest margin
Performance measures excluding litigation and conductc
Profit before tax
Attributable profit
Return on average allocated tangible equity
Cost: income ratio
2018
£m
2017
£m
2016
£m
6,028
1,355
7,383
(826)
6,557
(4,075)
(46)
(483)
(4,604)
3
1,956
1,158
6,086
1,297
7,383
(783)
6,600
(4,030)
(59)
(759)
(4,848)
(5)
1,747
853
6,048
1,469
7,517
(896)
6,621
(3,792)
(48)
(1,042)
(4,882)
(1)
1,738
828
£187.6bn
£249.7bn
£197.3bn
96%
£75.2bn
£10.2bn
£183.8bn
£237.4bn
£193.4bn
95%
£70.9bn
£9.6bn
£166.4bn
£209.6bn
£189.0bn
89%
£67.5bn
£8.5bn
48%
65%
1,058
7.3m
1.8%
22,600
11.9%
£10.0bn
62%
43
3.23%
2,439
1,630
16.7%
56%
48%
64%
1,208
6.4m
1.8%
22,800
9.8%
£9.1bn
66%
42
3.49%
2,506
1,586
17.8%
55%
48%
63%
1,305
5.4m
1.9%
36,000
9.6%
£8.9bn
65%
52
3.62%
2,780
1,862
21.3%
51%
Notes
a As a result of the establishment of Barclays Execution Services in September 2017, employees who are now employed by Barclays Execution Services and who were previously
allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office.
b Comparatives calculated based on gross loans and advances at amortised cost prior to the balance sheet presentation change and IAS 39 impairment charge.
c Refer to pages 241 to 245 for further information and calculations of performance measures excluding litigation and conduct.
230 Barclays PLC Annual Report 2018
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Analysis of Barclays UK
Analysis of total income
Personal Bankinga
Barclaycard Consumer UK
Business Bankinga
Total income
Analysis of credit impairment charges and other provisions
Personal Bankinga
Barclaycard Consumer UK
Business Bankinga
Total credit impairment charges and other provisions
Analysis of loans and advances to customers at amortised cost
Personal Bankinga
Barclaycard Consumer UK
Business Bankinga
Total loans and advances to customers at amortised cost
Analysis of customer deposits at amortised cost
Personal Bankinga
Barclaycard Consumer UK
Business Bankinga
Total customer deposits at amortised cost
2018
£m
4,006
2,104
1,273
7,383
(173)
(590)
(63)
(826)
2017
£m
4,214
1,977
1,192
7,383
(221)
(541)
(21)
(783)
2016
£m
4,334
2,022
1,161
7,517
(200)
(683)
(13)
(896)
£146.0bn
£15.3bn
£26.3bn
£187.6bn
£141.3bn
£16.4bn
£26.1bn
£183.8bn
£138.5bn
£16.5bn
£11.4bn
£166.4bn
£154.0bn
–
£43.3bn
£197.3bn
£153.1bn
–
£40.3bn
£193.4bn
£156.3bn
–
£32.7bn
£189.0bn
Note
a In Q218, Wealth was reclassified from Wealth, Entrepreneurs & Business Banking (now named Business Banking) to Personal Banking. Comparatives have been restated.
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Barclays PLC Annual Report 2018 231
Operating expenses decreased 1% to
£4,848m due to lower charges for PPI of
£700m (2016: £1,000m), partially offset by
the costs of setting up the ring-fenced bank
and increased investment, primarily in cyber
resilience, digital and technology. The cost:
income ratio was 66% (2016: 65%).
Loans and advances to customers at
amortised cost increased 10% to £183.8bn
and total assets increased 13% to £237.4bn
reflecting the integration of the ESHLA
portfolio from Non-Core into Business
Banking on 1 July 2017 and mortgage
growth in Personal Banking in H2 2017.
Customer deposits at amortised cost
increased 2% to £193.4bn due to deposit
growth, partially offset by the realignment
of clients between Barclays UK and
Barclays International in preparation
for structural reform.
RWAs increased to £70.9bn (December 2016:
£67.5bn) reflecting the integration of the
ESHLA portfolio.
Financial review
Analysis of results by business
Customer deposits at amortised cost
increased 2% to £197.3bn as strong deposit
growth was partially offset by the net
realignment of clients between Barclays UK
and Barclays International as part of
structural reform.
RWAs increased to £75.2bn (December 2017:
£70.9bn) primarily due to growth in mortgages
and UK cards, and regulatory methodology
changes for the ESHLA portfolio.
2017 compared to 2016
Profit before tax increased 1% to £1,747m as
lower PPI charges of £700m (2016: £1,000m)
and a reduction in credit impairment charges
were partially offset by the non-recurrence
of the gain on disposal of Barclays’ share of
Visa Europe Limited in 2016, higher costs of
setting up the ring-fenced bank and increased
investment, primarily in cyber resilience,
digital and technology.
Total income decreased 2% to £7,383m,
of which £151m reflected the non-recurrence
of the gain on disposal of Barclays’ share
of Visa Europe Limited in 2016.
Personal Banking income decreased 3% to
£4,214m driven by the non-recurrence of the
Visa gain and the impact of the UK base rate
reduction in 2016, partially offset by deposit
pricing initiatives, growth in balances and
an update to effective interest rate modelling.
Barclaycard Consumer UK income decreased
2% to £1,977m reflecting a provision for
remediation in H2 2017. Business Banking
income increased 3% to £1,192m driven by
the non-recurrence of the Visa gain, partially
offset by growth in balances.
Net interest income increased 1% to £6,086m
due to deposit pricing initiatives and growth
in loans and advances to customers and
deposits, partially offset by the impact of the
UK base rate reduction in 2016. Net interest
margin decreased 13bps to 3.49% reflecting
the integration of the Education, Social
Housing and Local Authority (ESHLA)
portfolio from Non-Core on 1 July 2017. Net
fee, commission and other income decreased
12% to £1,297m driven by the non-recurrence
of the Visa gain.
Credit impairment charges decreased
13% to £783m principally reflecting the
non-recurrence of a £200m charge in 2016
following the management review of the cards
portfolio impairment modelling, partially offset
by higher charges in Barclaycard Consumer
UK and Personal Banking.
2018 compared to 2017
RoTE excluding litigation and conduct was
16.7% (2017: 17.8%) reflecting the continuing
strength of Barclays UK business. Including
litigation and conduct charges of £483m
(2017: £759m), RoTE increased to 11.9%
(2017: 9.8%).
Total income was stable at £7,383m (2017:
£7,383m) as lower interest margins were
offset by strong balance sheet growth in
secured lending and customer deposits.
Personal Banking income decreased 5%
to £4,006m as continued momentum in
mortgage lending and growth in customer
deposits was more than offset by the
non-recurrence of an update to effective
interest rate modelling in Q4 2017, a valuation
gain on Barclays’ preference shares in Visa Inc.
in Q1 2017, and the realignment of clients
from Barclays UK to Barclays International
as part of structural reform. Barclaycard
Consumer UK income increased 6% to
£2,104m reflecting a focus on sustainable
growth and the non-recurrence of
remediation provisioning in H2 2017.
Business Banking income increased 7%
to £1,273m driven by strong deposit growth
and the realignment of clients from Barclays
International to Barclays UK as part of
structural reform.
Net interest margin decreased 26bps to
3.23% reflecting growth in secured lending
at lower margins and the integration of the
ESHLA portfolio.
Credit impairment charges increased 5%
to £826m primarily due to a Q4 2018
£100m specific charge for the impact of
the anticipated economic uncertainty in the
UK. This was partially offset by improved
consensus-based macroeconomic forecasts
during the year and the continued prudent
management of credit risk reflected in the
broadly stable 30 and 90 day arrears rates
in UK Cards of 1.8% (2017: 1.8%) and 0.9%
(2017: 0.8%) respectively.
Operating expenses excluding litigation
and conduct increased 1% to £4,121m as
continued investment to grow the business
including digitisation of the bank and
improvements to future operating efficiency,
were partially offset by cost efficiencies and
lower costs of setting up the ring-fenced bank.
The cost: income ratio excluding litigation
and conduct was 56% (2017: 55%).
Loans and advances to customers at
amortised cost increased 2% to £187.6bn
reflecting £4.6bn of mortgage growth.
Total assets increased 5% to £249.7bn
reflecting increases in the liquidity pool
including the transfer of treasury assets
from Head Office and loans and advances
to customers.
232 Barclays PLC Annual Report 2018
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Barclays International
Income statement information
Net interest income
Net trading income
Net fee, commission and other income
Total income
Credit impairment charges and other provisions
Net operating income
Operating costs
UK bank levy
Litigation and conduct
Total operating expenses
Other net income
Profit before tax
Attributable profit
Balance sheet information
Loans and advances at amortised cost
Trading portfolio assets
Derivative financial instrument assets
Derivative financial instrument liabilities
Financial assets at fair value through the income statement
Total assets
Deposits at amortised cost
Loan: deposit ratio
Risk weighted assets
Period end allocated tangible equity
Key facts
Number of employees (full time equivalent)a
Performance measures
Return on average allocated tangible equity
Average allocated tangible equity
Cost: income ratio
Loan loss rate (bps)b
Net interest margin
Performance measures excluding litigation and conductc
Profit before tax
Attributable profit
Return on average allocated tangible equity
Cost: income ratio
2018
£m
2017
£m
2016
£m
3,815
4,450
5,761
14,026
(658)
13,368
(9,324)
(210)
(127)
(9,661)
68
3,775
2,441
4,307
3,971
6,104
14,382
(1,506)
12,876
(9,321)
(265)
(269)
(9,855)
254
3,275
847
4,512
4,580
5,903
14,995
(1,355)
13,640
(9,129)
(284)
(48)
(9,461)
32
4,211
2,412
£126.8bn
£127.2bn
£104.0bn
£113.0bn
£222.1bn £236.2bn
£237.8bn
£219.6bn
£104.1bn
£144.7bn
£856.1bn
£862.1bn
£187.3bn
£197.2bn
68%
65%
£210.3bn
£210.7bn
£27.5bn
£29.9bn
£153.7bn
£73.2bn
£156.2bn
£160.6bn
£62.3bn
£648.5bn
£184.7bn
83%
£212.7bn
£25.6bn
12,400
11,500
36,900
8.4%
£31.0bn
69%
50
4.11%
3.4%
£28.1bn
69%
75
4.16%
9.8%
£25.5bn
63%
63
3.98%
3,902
2,547
8.7%
68%
3,544
1,107
4.4%
67%
4,259
2,457
9.9%
63%
Notes
a As a result of the establishment of Barclays Execution Services in September 2017, employees who are now employed by Barclays Execution Services and who were previously
allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office.
b Comparatives calculated based on gross loans and advances at amortised cost prior to the balance sheet presentation change and IAS 39 impairment charge.
c Refer to pages 241 to 245 for further information and calculations of performance measures excluding litigation and conduct.
home.barclays/annualreport
Barclays PLC Annual Report 2018 233
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Financial review
Analysis of results by business
Analysis of Barclays International
Corporate and Investment Bank
Income statement information
FICCa
Equities
Markets
Banking fees
Corporate lending
Transaction banking
Banking
Other
Total income
Credit impairment releases/(charges) and other provisions
Net operating income
Operating expenses
Litigation and conduct
Total operating expenses
Other net income
Profit before tax
Balance sheet information
Loans and advances at amortised cost
Deposits at amortised cost
Risk weighted assets
Performance measures
Return on average allocated tangible equity
Average allocated tangible equity
Performance measures excluding litigation and conductb
Profit before tax
Return on average allocated tangible equity
Consumer, Cards and Payments
Income statement information
Total income
Credit impairment charges and other provisions
Net operating income
Operating expenses
Litigation and conduct
Total operating expenses
Other net income
Profit before tax
Balance sheet information
Loans and advances at amortised cost
Deposits at amortised cost
Risk weighted assets
Key facts
30 day arrears rates – Barclaycard US
Total number of Barclaycard business clients
Value of payments processed
Performance measures
Return on average allocated tangible equity
Average allocated tangible equity
Performance measures excluding litigation and conductb
Profit before tax
Return on average allocated tangible equity
Notes
a Fixed income, currencies and commodities (FICC) is composed of Credit and Macro income.
b Refer to pages 241 to 245 for more information and calculations of performance measures excluding litigation and conduct.
2018
£m
2017
£m
2016
£m
2,863
2,037
4,900
2,531
878
1,627
5,036
(171)
9,765
150
9,915
(7,281)
(68)
(7,349)
27
2,593
2,875
1,629
4,504
2,612
1,093
1,629
5,334
40
9,878
(213)
9,665
(7,475)
(267)
(7,742)
133
2,056
3,489
1,790
5,279
2,397
1,195
1,657
5,249
5
10,533
(260)
10,273
(7,579)
(45)
(7,624)
1
2,650
£86.4bn
£136.3bn
£170.9bn
£88.2bn
£128.0bn
£176.2bn
£114.0bn
£134.0bn
£178.6bn
6.9%
£26.0bn
1.1%
£24.0bn
6.1%
£21.9bn
2,661
7.1%
2,323
2.2%
2,695
6.3%
4,261
(808)
3,453
(2,253)
(59)
(2,312)
41
1,182
4,504
(1,293)
3,211
(2,111)
(2)
(2,113)
121
1,219
4,462
(1,095)
3,367
(1,834)
(3)
(1,837)
31
1,561
£40.8bn
£60.9bn
£39.8bn
£38.6bn
£59.3bn
£34.1bn
£39.7bn
£50.7bn
£34.1bn
2.7%
374,000
£344bn
2.6%
366,000
£322bn
2.6%
355,000
£296bn
16.5%
£5.0bn
16.7%
£4.2bn
31.4%
£3.6bn
1,241
17.3%
1,221
16.8%
1,564
31.5%
234 Barclays PLC Annual Report 2018
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2018 compared to 2017
Profit before tax increased 10% to £3,902m
achieving a RoTE of 8.7% (2017: 4.4%),
reflecting improved returns in both CIB of
7.1% (2017: 2.2%) and Consumer, Cards and
Payments of 17.3% (2017: 16.8%) excluding
litigation and conduct.
The 3% depreciation of average USD against
GBP adversely impacted profits and income,
and positively impacted credit impairment
charges and operating expenses.
Total income was £14,026m (2017: £14,382m).
CIB income of £9,765m decreased 1% as
Markets income increased 9% to £4,900m,
reflecting gains in market share, offset by
a decrease in Banking income of 6% to
£5,036m.
FICC income was stable at £2,863m
(2017: £2,875m) with significant share gainsa
despite a challenging environment. Equities
income increased 25% to £2,037m becoming
one of the highest growing Equities franchises
relative to peers, substantially improving our
global ranking. This was driven by strength
in derivatives and continued growth in the
equity financing franchise through increased
client balances, together with technology
investment, which resulted in higher
electronic revenues.
Banking fee income decreased 3% to £2,531m
as Barclays maintained its highest rank and
global fee share in four years, including a
record year in Advisory, which was more than
offset by debt and equity underwriting fees
being down across the industry. Corporate
lending income reduced 20% to £878m
reflecting the strategy of redeploying RWAs
within the CIB towards higher returning
business and the transfer of clients between
Barclays UK and Barclays International as part
of structural reform. Transaction banking
income was stable at £1,627m (2017:
£1,629m) as strong and targeted growth in
deposits was offset by the transfer of clients
between Barclays UK and Barclays
International as part of structural reform.
Consumer, Cards and Payments income
decreased 5% to £4,261m. Excluding material
one-off items in both 2017 and 2018, related
to US Cards portfolio sales and revaluation
of Barclays preference shares in Visa Inc,
underlying income increased due to growth
in US Cards.
Credit impairment charges decreased 56%
to £658m. CIB credit impairment charges
decreased to a release of £150m (2017:
charge of £213m) primarily due to single
name recoveries, improved consensus-based
macroeconomic forecasts during the year,
the non-recurrence of single name charges
in 2017 and the prudent management of
credit risk, partially offset by a Q4 2018 £50m
specific charge for the anticipated economic
uncertainty in the UK. Consumer, Cards
and Payments credit impairment charges
decreased 38% to £808m reflecting the
non-recurrence of a £168m charge in Q3 2017
relating to deferred consideration from the
Q1 2017 asset sale in US Cards, improved
consensus-based macroeconomic forecasts
in the US and the impact of repositioning the
US Cards portfolio towards a lower risk mix.
Total operating expenses decreased 2%
to £9,661m as continued investments in
business growth, talent and technology were
offset by lower restructuring and structural
reform costs, and a reduced impact from the
change in compensation awards introduced
in Q4 2016.
Other net income decreased to £68m
(2017: £254m) due to the non-recurrence
of a gain of £109m on the sale of Barclays’
share in VocaLink to MasterCard and a gain
of £76m on the sale of a joint venture in Japan
in Q2 2017.
Attributable profit increased to £2,441m
(2017: £847m) as 2017 was impacted by the
one-off tax charge due to the remeasurement
of US DTAs.
Loans and advances at amortised cost
remained broadly flat at £127.2bn (December
2017: £126.8bn).
Derivative financial instrument assets and
liabilities decreased £14.1bn to £222.1bn
and £18.2bn to £219.6bn respectively, due to
a decrease in interest rate derivatives, driven
by an increase in major interest rate forward
curves, and the adoption of daily settlement
under the London Clearing House (LCH) rules,
partially offset by increased foreign exchange
and equity derivative volumes.
Financial assets at fair value through the
income statement increased £40.6bn to
£144.7bn primarily due to the impact of the
transition to IFRS 9 and increased reverse
repurchase agreements activity.
Total assets increased £6.0bn to £862.1bn
including the transfer of treasury assets from
Head Office.
Deposits at amortised cost increased £9.9bn
to £197.2bn, due to the integration of treasury
liabilities from Head Office and a strong and
targeted increase in deposits.
RWAs are in line at £210.7bn (December 2017:
£210.3bn) as reductions in CIB were offset
by increased lending in Consumer, Cards
& Payments.
2017 compared to 2016
Profit before tax decreased 22% to £3,275m
driven by a 4% decrease in total income, an
11% increase in credit impairment charges
and a 4% increase in operating expenses.
Total income decreased 4% to £14,382m,
including the 5% appreciation of average
USD and the 7% appreciation of average
EUR against GBP, as CIB income decreased 6%
to £9,878m, partially offset by a 1% increase
in Consumer, Cards and Payments income
to £4,504m.
Markets income decreased 15% to £4,504m.
Macro income decreased driven by lower
market volatility in rates, the exit of the
energy-related commodities business and the
integration of Non-Core assets on 1 July 2017.
Credit income increased due to improved
performance in municipals. Equities income
decreased 9% to £1,629m driven by US equity
derivatives as a result of lower market volatility,
partially offset by improved performance
in equity financing.
Banking income increased 2% to £5,334m.
Banking fee income increased 9% to £2,612m
due to higher debt and equity underwriting
fees, with fee share gains in banking overall
and debt underwriting. Corporate lending
declined 9% to £1,093m driven by lower
lending balances due to the realignment
of certain clients between Barclays UK and
Barclays International in preparation for
structural reform and the reallocation of RWAs
within CIB, as well as the non-recurrence of
prior year treasury gains and lower work-out
gains. Transaction banking declined 2%
to £1,629m driven by lower trade balances
and the non-recurrence of prior year treasury
gains, partially offset by higher average
deposit balances.
Consumer, Cards and Payments income
increased 1% to £4,504m driven by continued
business growth, a gain of £192m relating
to the Q1 2017 asset sale in US Cards and a
valuation gain on Barclays’ preference shares
in Visa Inc. of £74m, partially offset by the
non-recurrence of the £464m gain on the
disposal of Barclays’ share of Visa Europe
Limited in 2016.
Note
All Markets ranks and shares: Coalition, FY18 Preliminary Competitor Analysis based on the Coalition Index and Barclays’ internal business structure.
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Barclays PLC Annual Report 2018 235
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Financial review
Analysis of results by business
Financial assets at fair value through income
statement increased £41.8bn to £104.1bn
primarily due to increased reverse repurchase
agreements activity.
Deposits at amortised cost increased £2.6bn
to £187.3bn, with Consumer, Cards and
Payments increasing £8.6bn to £59.3bn
driven by the realignment of certain clients
from Barclays UK to Barclays International
in preparation for structural reform.
CIB decreased £6bn from a reduction
in deposits within the Investment Bank.
RWAs decreased £2.4bn to £210.3bn due
to the net impact of the remeasurement of
US DTAs and the depreciation of period end
USD against GBP, partially offset by increased
trading portfolio and securities financing
transaction volumes.
Credit impairment charges increased 11%
to £1,506m, including the appreciation of
average USD and EUR against GBP. CIB credit
impairment charges decreased 18% to £213m
primarily due to the non-recurrence of oil and
gas single name charges in 2016, offset by a
single name charge in 2017. Consumer, Cards
and Payments credit impairment charges
increased 18% to £1,293m primarily due to a
£168m charge in Q3 2017 relating to deferred
consideration from the Q1 2017 asset sale
in US Cards, an increase in underlying
delinquency trends and business growth
in US Cards. This was partially offset by the
non-recurrence of a £120m charge in 2016
following the management review of the cards
portfolio impairment modelling. The 30 and
90 day arrears rates within US Cards were
stable at 2.6% (December 2016: 2.6%) and
1.3% (December 2016: 1.3%) respectively,
including a benefit from the Q1 2017 asset
sale in US Cards.
Operating expenses increased 4% to
£9,855m, including the appreciation of
average USD and EUR against GBP. CIB
operating expenses increased 2% to £7,742m
reflecting a provision of £240m in respect
of foreign exchange matters recognised in
Q4 2017, continued investment in technology,
partially offset by lower restructuring charges
and the reduced impact of the change in
compensation awards introduced in Q4 2016.
Consumer, Cards and Payments increased
15% to £2,113m including continued growth
and investment, primarily within the US Cards
and merchant acquiring businesses.
Other net income increased to £254m
(2016: £32m) due to a gain of £109m on
the sale of Barclays’ share in VocaLink to
MasterCard and a gain of £76m on the sale
of a joint venture in Japan.
Attributable profit reduced to £847m
(2016: £2,412m) including the net tax charge
due to the remeasurement of US DTAs in
Q4 2017.
Loans and advances at amortised cost
decreased £26.9bn to £126.8bn with CIB
decreasing £25.8bn to £88.2bn due to a
reduction in lending. Consumer, Cards and
Payments decreased £1.1bn to £38.6bn
due to the depreciation of period end USD
against GBP, partially offset by the realignment
of certain clients from Barclays UK to
Barclays International in preparation for
structural reform.
Trading portfolio assets increased £39.8bn
to £113.0bn due to increased activity.
Derivative financial instrument assets and
liabilities increased £80.0bn to £236.2bn and
£77.2bn to £237.8bn respectively, reflecting
the integration of balances from Non-Core
on 1 July 2017, partially offset by adoption of
daily settlements under the CME, an increase
in major interest rate forward curves and the
depreciation of period end USD against GBP.
236 Barclays PLC Annual Report 2018
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Head Office
Income statement information
Net interest income
Net fee, commission and other income
Total income
Credit impairment charges and other provisions
Net operating (expenses)/income
Operating costs
UK bank levy
GMP charge
Litigation and conduct
Total operating expenses
Other net (expenses)/income
(Loss)/profit before tax
Attributable (loss)/profit
Balance sheet information
Total assets
Risk weighted assets
Period end allocated tangible equity
Key facts
Number of employees (full time equivalent)a
Performance measures
Average allocated tangible equity
Performance measures excluding litigation and conductb
Profit before tax
Attributable profit
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2018
£m
(781)
508
(273)
16
(257)
(228)
(13)
(140)
(1,597)
(1,978)
(2)
(2,237)
(2,205)
2017
£m
(435)
276
(159)
(17)
(176)
(277)
(41)
–
(151)
(469)
(189)
(834)
(868)
2016
£m
(183)
286
103
–
103
(135)
(2)
–
(27)
(164)
128
67
110
£21.5bn
£26.0bn
£4.9bn
£39.7bn
£31.8bn
£10.0bn
£75.2bn
£53.3bn
£9.7bn
48,500
45,600
100
£3.1bn
£9.3bn
£6.5bn
(640)
(647)
(683)
(731)
94
133
Notes
a As a result of the establishment of Barclays Execution Services in September 2017, employees who are now employed by Barclays Execution Services and who were previously
allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office.
b Refer to pages 241 to 245 for more information and calculations of performance measures excluding litigation and conduct.
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2018 compared to 2017
Loss before tax excluding litigation and
conduct was £640m (2017: £683m). Including
litigation and conduct charges of £1,597m
(2017: £151m) primarily related to the £1,420m
settlement with the US DoJ relating to RMBS,
loss before tax was £2,237m (2017: £834m).
the equalisation of obligations for members
of the Barclays Bank UKRF.
Other net expenses were £2m (2017: £189m)
due to non-recurrence of a £180m expense
in Q2 2017 on the recycling of the currency
translation reserve to the income statement
on the sale of Barclays Bank Egypt.
Total income was an expense of £273m (2017:
£159m) reflecting legacy capital instrument
funding costs of £351m and hedge accounting
expenses. This was partially offset by a one-off
gain of £155m from the settlement of
receivables relating to the Lehman Brothers
acquisition in Q2 2018, lower net expenses
from treasury operations, higher Absa Group
Limited dividend income and mark-to-market
gains on legacy investments.
Operating expenses excluding litigation
and conduct and a GMP charge, reduced to
£241m (2017: £318m) driven by lower costs
associated with legacy Non-Core assets
and businesses, and reduced bank levy.
Total operating expenses of £1,978m
(2017: £469m) included litigation and
conduct charges of £1,597m (2017: £151m)
and a £140m charge for GMP in relation to
Total assets decreased to £21.5bn (December
2017: £39.7bn) reflecting the transfer of
treasury assets to Barclays UK and Barclays
International as part of structural reform.
RWAs decreased to £26.0bn (December 2017:
£31.8bn) reflecting the net reduction due
to BAGL regulatory deconsolidation.
2017 compared to 2016
Loss before tax was £834m (2016: profit
of £67m).
Total income reduced to an expense of £159m
(2016: income of £103m) primarily due to
lower net income from treasury operations.
Operating expenses increased to £469m
(2016: £164m) due to costs associated with
Non-Core assets and businesses, which were
integrated on 1 July 2017, and increased
litigation and conduct costs, including
a settlement to resolve the civil action
brought by the US Federal Energy Regulatory
Commission’s Office of Enforcement and
provisions for other legacy redress.
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Other net expenses were £189m (2016:
income of £128m) driven by an expense
of £180m on the recycling of the currency
translation reserve to the income statement
on the sale of Barclays Bank Egypt.
2016 included a gain due to recycling of
the currency translation reserve on disposal
of the Southern European cards business.
Total assets decreased to £39.7bn
(December 2016: £75.2bn) primarily due
to the accounting deconsolidation of BAGL,
which accounted for £65bn of total assets
on deconsolidation from the Barclays Group.
This was partially offset by the integration
of Non-Core assets on 1 July 2017, of which
c.£9bn related to Italian mortgages.
RWAs decreased to £31.8bn (December 2016:
£53.3bn) reflecting a £31.1bn reduction
as a result of the proportional consolidation
of BAGL, partially offset by the integration
of Non-Core assets.
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Barclays PLC Annual Report 2018 237
Financial review
Analysis of results by business
Barclays Non-Core
Income statement information
Net interest income
Net trading income
Net fee, commission and other income
Total income
Credit impairment charges and other provisions
Net operating expenses
Operating costs
UK bank levy
Litigation and conduct
Total operating expenses
Other net income
Loss before tax
Attributable loss
Balance sheet information
Loans and advances to banks and customers at amortised cost
Derivative financial instrument assets
Derivative financial instrument liabilities
Financial assets designated at fair value
Total assets
Customer deposits
Risk weighted assets
Key facts
Number of employees (full time equivalent)
Note
a Represents financial results for the six months ended 30 June 2017.
The Barclays Non-Core segment was closed
on 1 July 2017 with the residual assets and
liabilities reintegrated into, and associated
financial performance subsequently reported
in, Barclays UK, Barclays International and
Head Office. Financial results up until 30 June
2017 are reflected in the Non-Core segment
within the Barclays Group’s results for the
year ended 31 December 2017.
2018
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2017a
£m
(112)
(488)
70
(530)
(30)
(560)
(256)
–
(28)
(284)
197
(647)
(419)
2016
£m
160
(1,703)
379
(1,164)
(122)
(1,286)
(1,509)
(76)
(246)
(1,831)
331
(2,786)
(1,916)
–
–
–
–
–
–
–
–
£51.1bn
£188.7bn
£178.6bn
£14.5bn
£279.7bn
£12.5bn
£32.1bn
5,500
238 Barclays PLC Annual Report 2018
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Discontinued Operation: Africa Banking
Income statement information
Net interest income
Net fee, commission and other income
Total income
Credit impairment charges and other provisions
Net operating income
Operating expenses excluding UK bank levy and impairment of Barclays’ holding in BAGL
UK bank levy
Other net income excluding loss on sale of BAGL
Profit before tax excluding impairment of Barclays’ holding in BAGL and loss on sale of BAGL
Impairment of Barclays’ holding in BAGL
Loss on sale of BAGL
(Loss)/profit before tax
Tax charge
(Loss)/profit after tax
Attributable (loss)/profit
Balance sheet information
Total assets
Risk weighted assets
Key facts
Number of employees (full time equivalent)
Note
a The Africa Banking income statement represents five months of results as a discontinued operation to 31 May 2017.
Following the reduction of the Barclays
Group’s interest in BAGL in 2017, Barclays’
remaining holding of 14.9%, for the
year ended 31 December 2017 is reported
as a financial asset at fair value through other
comprehensive income in the Head Office
segment, with Barclays’ share of Absa Group
Limited’s dividend recognised in the Head
Office income statement.
The PRA agreed to Barclays fully
deconsolidating BAGL for regulatory reporting
purposes effective 30 June 2018. Barclays had
been applying proportional consolidation for
regulatory purposes since Q2 2017. Barclays’
shareholding in Absa Group Limited of 14.9%
is now treated as a 250% risk weighted asset.
2018
£m
2017a
£m
2016
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,024
762
1,786
(177)
1,609
(1,130)
–
5
484
(1,090)
(1,435)
(2,041)
(154)
(2,195)
(2,335)
2,169
1,577
3,746
(445)
3,301
(2,345)
(65)
6
897
–
–
897
(306)
591
189
–
–
–
£65.1bn
£42.3bn
40,800
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Barclays PLC Annual Report 2018 239
Financial review
Margins and balances
Margins analysis
Net interest margin decreased 21bps to 3.53%
primarily reflecting the full year impact of the
integration of Education, Social Housing and
Local Authority (ESHLA) portfolio on 1 July
2017, the mix shift given growth in secured
lending and the recategorisation of certain
treasury income following ring-fencing (from
net interest income to non-interest income).
Barclays Group net interest income decreased
8% to £9.1bn including gross structural hedge
contributions of £1.7bn (2017: £1.7bn).
For the year ended 31 December
Barclays UK
Barclays Internationala
Total Barclays UK and Barclays International
Otherb
Total net interest income
2018
Average
customer
assets
£m
186,881
96,434
283,315
Net interest
margin
%
3.23
4.11
3.53
Net interest
income
£m
6,086
4,326
10,412
(567)
9,845
Net interest
income
£m
6,028
3,966
9,994
(932)
9,062
2017
Average
customer
assets
£m
174,484
104,039
278,523
Net interest
margin
%
3.49
4.16
3.74
Notes
a Barclays International margins include interest earning lending balances within the investment banking business.
b Other includes Head Office and non-interest earning lending balances within the investment banking business. Barclays Non-Core is included in the first six months
of the comparative period.
240 Barclays PLC Annual Report 2018
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Financial review
Non-IFRS performance measures
Barclays’ management believes that the
non-IFRS performance measures included
in this document provide valuable information
to the readers of the financial statements as
they enable the reader to identify a more
consistent basis for comparing the businesses’
performance between financial periods, and
provide more detail concerning the elements
of performance which the managers of these
businesses are most directly able to influence
or are relevant for an assessment of the
Barclays Group. They also reflect an important
aspect of the way in which operating targets
are defined and performance is monitored
by Barclays’ management.
However, any non-IFRS performance
measures in this document are not a
substitute for IFRS measures and readers
should consider the IFRS measures as well.
Non-IFRS performance measures glossary
Measure
Loan: deposit ratio
Period end allocated tangible equity
Average tangible shareholders’ equity
Average allocated tangible equity
Return on average tangible shareholders’
equity
Return on average allocated tangible equity
Cost: income ratio
Loan loss rate
Net interest margin
Tangible net asset value per share
Definition
Loans and advances at amortised cost divided by deposits at amortised cost. The components
of the calculation have been included on page 186.
Allocated tangible equity is calculated as 13.0% (2017: 12.0%) of RWAs for each business,
adjusted for capital deductions, excluding goodwill and intangible assets, reflecting the
assumptions the Barclays Group uses for capital planning purposes. Head Office allocated
tangible equity represents the difference between the Barclays Group’s tangible shareholders’
equity and the amounts allocated to businesses.
Calculated as the average of the previous month’s period end tangible equity and the current
month’s period end tangible equity. The average tangible shareholders’ equity for the period
is the average of the monthly averages within that period.
Calculated as the average of the previous month’s period end allocated tangible equity and
the current month’s period end allocated tangible equity. The average allocated tangible equity
for the period is the average of the monthly averages within that period.
Statutory profit after tax attributable to ordinary equity holders of the parent, including an
adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion
of average shareholders’ equity excluding non-controlling interests and other equity
instruments adjusted for the deduction of intangible assets and goodwill. The components
of the calculation have been included on pag 242.
Statutory profit after tax attributable to ordinary equity holders of the parent, including an
adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion
of average allocated tangible equity. The components of the calculation have been included
on pages 242.
Total operating expenses divided by total income.
Quoted in basis points and represents total impairment charges divided by gross loans and
advances held at amortised cost at the balance sheet date. The components of the calculation
have been included on page153.
Net interest income divided by the sum of average customer assets. The components of the
calculation have been included on page 240.
Calculated by dividing shareholders’ equity, excluding non-controlling interests and other
equity instruments, less goodwill and intangible assets, by the number of issued ordinary
shares. The components of the calculation have been included on page 245.
Performance measures excluding litigation
and conduct
Calculated by excluding litigation and conduct charges from performance measures.
The components of the calculations have been included on pages 243 to 245.
home.barclays/annualreport
Barclays PLC Annual Report 2018 241
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Financial review
Non-IFRS performance measures
Returns
Return on average tangible equity is
calculated as profit for the period attributable
to ordinary equity holders of the parent
(adjusted for the tax credit recorded in
reserves in respect of interest payments on
other equity instruments) divided by average
tangible equity for the period, excluding
non-controlling and other equity interests
for businesses.
Allocated tangible equity has been calculated
as 13.0% (2017: 12.0%) of RWAs for each
business, adjusted for capital deductions,
excluding goodwill and intangible assets,
reflecting the assumptions the Barclays Group
uses for capital planning purposes. Head
Office average allocated tangible equity
represents the difference between the Barclays
Group’s average tangible shareholders’ equity
and the amounts allocated to businesses.
For the year ended 31 December 2018
Barclays UK
Corporate and Investment Bank
Consumer, Cards and Payments
Barclays International
Head Office
Barclays Group
For the year ended 31 December 2017
Barclays UK
Corporate and Investment Bank
Consumer, Cards and Payments
Barclays International
Head Officea
Barclays Non-Core
Africa Banking discontinued operationa
Barclays Group
For the year ended 31 December 2016
Barclays UK
Corporate and Investment Bank
Consumer, Cards and Payments
Barclays International
Head Officea
Barclays Non-Core
Africa Banking discontinued operationa
Barclays Group
Note
a Average allocated tangible equity for Africa Banking is included within Head Office.
Tax credit
in respect
of interest
payments on
other equity
instruments
£m
Profit/(loss)
attributable
to ordinary
equity
holders of
the parent
£m
Attributable
profit/(loss)
£m
Average
tangible
equity
£bn
Return on
average
tangible
equity
%
1,158
1,641
800
2,441
(2,205)
1,394
853
167
680
847
(868)
(419)
(2,335)
(1,922)
828
1,270
1,142
2,412
110
(1,916)
189
1,623
40
140
18
158
5
203
40
102
18
120
4
10
–
174
29
72
11
83
(1)
17
–
128
1,198
1,781
818
2,599
(2,200)
1,597
893
269
698
967
(864)
(409)
(2,335)
(1,748)
857
1,342
1,153
2,495
109
(1,899)
189
1,751
10.0
26.0
5.0
31.0
3.1
44.1
9.1
24.0
4.2
28.1
9.3
2.4
n/m
48.9
8.9
21.9
3.6
25.5
6.5
7.8
n/m
48.7
11.9
6.9
16.5
8.4
n/m
3.6
9.8
1.1
16.7
3.4
n/m
n/m
n/m
(3.6)
9.6
6.1
31.4
9.8
n/m
n/m
n/m
3.6
242 Barclays PLC Annual Report 2018
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Performance measures excluding litigation and conduct
Cost: income ratio
Total operating expenses
Impact of litigation and conduct
Operating expenses
For the year ended 31 December 2018
Corporate
and
Investment
Bank
£m
(7,349)
68
(7,281)
Barclays UK
£m
(4,604)
483
(4,121)
Consumer,
Cards and
Payments
£m
(2,312)
59
(2,253)
Barclays
International
£m
(9,661)
127
(9,534)
Head Office
£m
(1,978)
1,597
(381)
Barclays
Group
£m
(16,243)
2,207
(14,036)
Total income
7,383
9,765
4,261
14,026
(273)
21,136
Cost: income ratio excluding litigation and conduct
56%
75%
53%
68%
n/m
66%
Profit before tax
Profit/(loss) before tax
Impact of litigation and conduct
Profit/(loss) before tax excluding litigation and conduct
Profit attributable to ordinary equity holders of the parent
Attributable profit/(loss)
Post-tax impact of litigation and conduct
Attributable profit/(loss) excluding litigation and conduct
Tax credit in respect of interest payments on other equity instruments
Profit/(loss) attributable to ordinary equity holders of the parent
excluding litigation and conduct
1,956
483
2,439
1,158
472
1,630
40
2,593
68
2,661
1,641
62
1,703
140
1,670
1,843
1,182
59
1,241
800
44
844
18
862
3,775
127
3,902
2,441
106
2,547
158
(2,237)
1,597
(640)
(2,205)
1,558
(647)
5
3,494
2,207
5,701
1,394
2,136
3,530
203
2,705
(642)
3,733
Return on average tangible shareholders’ equity
Average shareholders’ equity
Goodwill and intangibles
Average tangible shareholders’ equity
£13.6bn
(£3.6bn)
£10.0bn
£26.2bn
(£0.2bn)
£26.0bn
£6.1bn
(£1.1bn)
£5.0bn
£32.3bn
(£1.3bn)
£31.0bn
£6.2bn
(£3.1bn)
£3.1bn
£52.1bn
(£8.0bn)
£44.1bn
Return on average tangible shareholders’ equity excluding litigation
and conduct
16.7%
7.1%
17.3%
8.7%
n/m
8.5%
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Barclays Group average tangible shareholders’ equity based on a CET1
ratio of 13%
Barclays Group return on average tangible shareholders’ equity
excluding litigation and conduct based on a CET1 ratio of 13%
Basic earnings per ordinary share
Basic weighted average number of shares
Basic earnings per ordinary share excluding litigation and conduct
£45.0bn
8.3%
17,075m
21.9p
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Barclays PLC Annual Report 2018 243
Financial review
Non-IFRS performance measures
Cost: income ratio
Total operating expenses
Impact of litigation and conduct
Operating expenses
For the year ended 31 December 2017
Corporate
and
Investment
Bank
£m
(7,742)
267
(7,475)
Barclays UK
£m
(4,848)
759
(4,089)
Consumer,
Cards and
Payments
£m
(2,113)
2
(2,111)
Barclays
International
£m
(9,855)
269
(9,586)
Head Officea
£m
(469)
151
(318)
Barclays
Groupb
£m
(15,456)
1,207
(14,249)
Total income
7,383
9,878
4,504
14,382
(159)
21,076
Cost: income ratio excluding litigation and conduct
55%
76%
47%
67%
n/m
68%
Profit before tax
Profit/(loss) before tax
Impact of litigation and conduct
Profit/(loss) before tax excluding litigation and conduct
Profit attributable to ordinary equity holders of the parent
Attributable profit/(loss)
Post-tax impact of litigation and conduct
Attributable profit/(loss) excluding litigation and conduct
Tax credit in respect of interest payments on other equity instruments
Profit/(loss) attributable to ordinary equity holders of the parent
excluding litigation and conduct
1,747
759
2,506
853
733
1,586
40
1,626
2,056
267
2,323
1,219
2
1,221
167
259
426
102
528
680
1
681
18
699
3,275
269
3,544
847
260
1,107
120
(834)
151
(683)
(868)
137
(731)
4
3,541
1,207
4,748
(1,922)
1,150
(772)
174
1,227
(727)
(598)
Return on average tangible shareholders’ equity
Average shareholders’ equity
Goodwill and intangibles
Average tangible shareholders’ equity
£13.6bn
(£4.4bn)
£9.1bn
£24.9bn
(£1.0bn)
£24.0bn
£5.6bn
(£1.4bn)
£4.2bn
£30.5bn
(£2.4bn)
£28.1bn
£10.6bn
(£1.4bn)
£9.3bn
£57.1bn
(£8.2bn)
£48.9bn
Return on average tangible shareholders’ equity excluding litigation
and conduct
17.8%
2.2%
16.8%
4.4%
n/m
(1.2%)
Basic earnings per ordinary share
Basic weighted average number of shares
Basic loss per ordinary share excluding litigation and conduct
Notes
a Average tangible shareholders’ equity for Africa is included within Head Office.
b Barclays Group results also included Barclays Non-Core and the Africa Banking discontinued operation.
16,996m
(3.5p)
244 Barclays PLC Annual Report 2018
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Cost: income ratio
Total operating expenses
Impact of litigation and conduct
Operating expenses
For the year ended 31 December 2016
Corporate
and
Investment
Bank
£m
(7,624)
45
(7,579)
Barclays UK
£m
(4,882)
1,042
(3,840)
Consumer,
Cards and
Payments
£m
(1,837)
3
(1,834)
Barclays
International
£m
(9,461)
48
(9,413)
Head Officea
£m
(164)
27
(137)
Barclays
Groupb
£m
(16,338)
1,363
(14,975)
Total income
7,517
10,533
4,462
14,995
103
21,451
Cost: income ratio excluding litigation and conduct
51%
72%
41%
63%
n/m
70%
Profit before tax
Profit before tax
Impact of litigation and conduct
Profit before tax excluding litigation and conduct
Profit attributable to ordinary equity holders of the parent
Attributable profit
Post-tax impact of litigation and conduct
Attributable profit excluding litigation and conduct
Tax credit in respect of interest payments on other equity instruments
Profit attributable to ordinary equity holders of the parent
excluding litigation and conduct
1,738
1,042
2,780
828
1,034
1,862
29
2,650
45
2,695
1,270
44
1,314
72
1,561
3
1,564
1,142
1
1,143
11
4,211
48
4,259
2,412
45
2,457
83
67
27
94
110
23
133
(1)
3,230
1,363
4,593
1,623
1,285
2,908
128
1,891
1,386
1,154
2,540
132
3,036
Return on average tangible shareholders’ equity
Average shareholders’ equity
Goodwill and intangibles
Average tangible shareholders’ equity
£13.4bn
(£4.5bn)
£8.9bn
£23.2bn
(£1.4bn)
£21.9bn
£5.0bn
(£1.3bn)
£3.6bn
£28.2bn
(£2.7bn)
£25.5bn
£8.0bn
(£1.4bn)
£6.5bn
£57.4bn
(£8.7bn)
£48.7bn
Return on average tangible shareholders’ equity excluding litigation
and conduct
21.3%
6.3%
31.5%
9.9%
n/m
6.2%
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Basic weighted average number of shares
Basic earnings per ordinary share excluding litigation and conduct
Notes
a Average tangible shareholders’ equity for Africa is included within Head Office.
b Barclays Group results also included Barclays Non-Core and the Africa Banking discontinued operation.
Tangible net asset value
Total equity excluding non-controlling interests
Other equity instruments
Goodwill and intangiblesa
Tangible shareholders’ equity attributable to ordinary shareholders of the parent
Shares in issue
Tangible net asset value per share
Note
a Comparative figures for 2016 include goodwill and intangibles in relation to Africa Banking.
16,860m
18.0p
2018
£m
62,556
(9,632)
(7,973)
44,951
2017
£m
63,905
(8,941)
(7,849)
47,115
2016
£m
64,873
(6,449)
(9,245)
49,179
17,133m 17,060m 16,963m
262p
276p
290p
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Presentation of information
Statutory accounts
The consolidated accounts of Barclays PLC
and its subsidiaries (set out on pages 256 to
261 along with the accounts of Barclays PLC
itself on pages 262 to 263) have been prepared
in accordance with the IFRSs as adopted
by the European Union. The accounting
policies on pages 264 to 267 and the notes
commencing on page 268 apply equally to
both sets of accounts unless otherwise stated.
Capital Requirements
Country-by-Country Reporting
The Capital Requirements (Country-by-
Country Reporting) Regulations 2013 require
Barclays PLC to publish additional information
in respect of the year ended 31 December
2018. This information is available on the
Barclays website: barclays.com/citizenship/
our-reporting-and-policy-positions/
country-snapshot
Barclays approach to disclosures
Barclays aims to continually enhance its
disclosures and their usefulness to the readers
of the financial statements in the light of
developing market practice and areas of focus.
Consequently Barclays’ disclosures go
beyond the minimum standards required
by accounting standards and other
regulatory requirements.
Barclays continues to support the
recommendations and guidance made by
the Financial Stability Board and its various
task forces which continue to promote a
broadening of disclosures by global banks
in a number of areas, including liquidity and
funding, credit risk and market risk. Barclays
has adopted the recommendations across
the Annual Report and Pillar 3 Report.
In line with the Financial Reporting Council’s
guidance on Clear and Concise reporting,
Barclays has focused reporting on material
items and sought to present information
in order to aid users’ understanding such
as including detail on relevant accounting
policies within each note.
British Bankers’ Association (BBA) Code
for Financial Reporting Disclosure as
adopted by UK Finance in 2017
Barclays has adopted the BBA Code for
Financial Reporting Disclosure and has
prepared the 2018 Annual Report and
Accounts in compliance with the Code.
It is Barclays’ view that best in class disclosures
will continue to evolve in light of ongoing
market and stakeholder engagement within
the banking sector. Barclays is committed to
continuously reflect the objectives of reporting
set out in the BBA Code for Financial Reporting
Disclosure. This code sets out five disclosure
principles together with supporting guidance
which states that UK banks will:
■■ provide high quality, meaningful and
decision-useful disclosures
■■ review and enhance their financial
instrument disclosures for key areas
of interest
■■ assess the applicability and relevance of
good practice recommendations to their
disclosures acknowledging the importance
of such guidance
■■ seek to enhance the comparability of
financial statement disclosures across
the UK banking sector and
■■ clearly differentiate in their annual reports
between information that is audited and
information that is unaudited.
246 Barclays PLC Annual Report 2018
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Financial statements
Detailed analysis of our statutory accounts, independently
audited and providing in-depth disclosure on the financial
performance of the Barclays Group.
Consolidated financial statements
Notes to the financial statements
Performance/return
■■ Independent Auditor’s Report
■■ Consolidated income statement
■■ Consolidated statement of comprehensive income
■■ Consolidated balance sheet
■■ Consolidated statement of changes in equity
■■ Consolidated cash flow statement
■■ Parent company accounts
■■ Significant accounting policies
■■ Segmental reporting
■■ Net interest income
■■ Net fee and commission income
■■ Net trading income
■■ Net investment income
■■ Credit impairment charges and other provisions
■■ Operating expenses
■■ Tax
■■ Earnings per share
■■ Dividends on ordinary shares
Assets and liabilities held at fair value
■■ Trading portfolio
■■ Financial assets at fair value through the income statement
■■ Derivative financial instruments
■■ Financial assets at fair value through other comprehensive income
Financial instruments held at
amortised cost
Non-current assets and other
investments
Accruals, provisions, contingent
liabilities and legal proceedings
Capital instruments, equity
and reserves
Employee benefits
Scope of consolidation
Other disclosure matters
and Financial investments
■■ Financial liabilities designated at fair value
■■ Fair value of financial instruments
■■ Offsetting financial assets and financial liabilities
■■ Loans and advances and deposits at amortised cost
■■ Finance leases
■■ Property, plant and equipment
■■ Goodwill and intangible assets
■■ Operating leases
■■ Other liabilities
■■ Provisions
■■ Contingent liabilities and commitments
■■ Legal, competition and regulatory matters
■■ Subordinated liabilities
■■ Ordinary shares, share premium and other equity
■■ Reserves
■■ Non-controlling interests
■■ Share-based payments
■■ Pensions and post-retirement benefits
■■ Principal subsidiaries
■■ Structured entities
■■ Investments in associates and joint ventures
■■ Securitisations
■■ Assets pledged
■■ Related party transactions and Directors’ remuneration
■■ Auditors’ remuneration
■■ Discontinued operations and assets included in disposal groups
classified as held for sale and associated liabilities
■■ Transition disclosures
■■ Barclays PLC (the Parent company)
■■ Related undertakings
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Independent Auditor’s report
Independent Auditor’s report
to the members of Barclays PLC
1 Our opinion is unmodified
We have audited the financial statements
of Barclays PLC (‘the Company’) for the
year ended 31 December 2018 which
comprise the consolidated and parent
Company balance sheets as at
31 December 2018 and the consolidated
income statement, consolidated and parent
Company statements of comprehensive
income, cash flow statements and statements
of changes in equity for the year then ended,
and the related notes, including the significant
accounting policies in Note 1.
In our opinion the financial statements:
■■ give a true and fair view of the state of the
Group’s and of the parent Company’s affairs
as at 31 December 2018 and of the Group’s
profit for the year then ended
■■ have been properly prepared in accordance
with International Financial Reporting
Standards as adopted by the European
Union (IFRSs as adopted by the EU), and
■■ have been prepared in accordance with
the requirements of the Companies Act
2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK)
(‘ISAs (UK)’) and applicable law. Our
responsibilities are described below. We
believe that the audit evidence we have
obtained is a sufficient and appropriate
basis for our opinion. Our audit opinion
is consistent with our report to the Board
Audit Committee.
We were first appointed as auditor by the
Directors on 31 March 2017. The period of
total uninterrupted engagement is for the
two financial years ended 31 December 2018.
We have fulfilled our ethical responsibilities
under, and we remain independent of the
Group in accordance with, UK ethical
requirements including the FRC Ethical
Standard as applied to listed public interest
entities. No non-audit services prohibited
by that standard were provided.
2 Key audit matters: including our
assessment of risks of material misstatement
Key audit matters are those matters that,
in our professional judgement, were of
most significance in the audit of the financial
statements and include the most significant
assessed risks of material misstatement
(whether or not due to fraud) identified by us,
including those which had the greatest effect
on: the overall audit strategy; the allocation
of resources in the audit; and directing
the efforts of the engagement team.
We summarise below the key audit matters
in arriving at our audit opinion above, together
with our key audit procedures to address
those matters and, as required for public
interest entities, our results from those
procedures. These matters were addressed,
and our results are based on procedures
undertaken, in the context of, and solely
for the purpose of, our audit of the financial
statements as a whole, and in forming our
opinion thereon, and consequently are
incidental to that opinion, and we do not
provide a separate opinion on these matters.
Key audit matter
The impact of uncertainties due to the UK exiting the European
Union on our audit
Refer to page 43 (Viability Statement) and page 131(Risk review)
How our audit addressed the key audit matter
We developed a standardised firm-wide approach to the consideration
of the uncertainties arising from Brexit in planning and performing our
audits. Our procedures included:
Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness of estimates,
in particular as described in impairment of loans and advances
to customers below, and related disclosures and the appropriateness
of the going concern basis of preparation of the financial
statements (see below). All of these depend on assessments
of the future economic environment and the group’s future
prospects and performance.
In addition, we are required to consider the other information
presented in the Annual Report including the principal risks
disclosure and the viability statement and to consider the Directors’
statement that the Annual Report and financial statements taken
as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
Parent’s position and performance, business model and strategy.
Brexit is one of the most significant economic events for the UK
and at the date of this report its effects are subject to unprecedented
levels of uncertainty of outcomes, with the full range of possible
effects unknown.
■■ Our Brexit knowledge: We considered the Directors’ assessment
of Brexit-related sources of risk for the Group and Parent’s business and
financial resources compared with our own understanding of the risks.
We considered the Directors’ plans to take action to mitigate the risks.
■■ Sensitivity analysis: When addressing impairment of loans and
advances to customers and other areas that depend on forecasts,
we compared the Directors’ analysis to our assessment of the full range
of reasonably possible scenarios resulting from Brexit uncertainty and,
where forecast cash flows are required to be discounted at a rate other
than the original effective interest rate, considered adjustments to
discount rates for the level of remaining uncertainty.
■■ Assessing transparency: As well as assessing individual disclosures
as part of our procedures on impairment of loans and advances to
customers we considered all of the Brexit-related disclosures together,
including those in the strategic report, comparing the overall picture
against our understanding of the risks.
Our results:
As reported under impairment of loans and advances to customers,
we found the resulting estimates and related disclosures of impairment
of loans and advances to customers and disclosures in relation to going
concern to be acceptable. However, no audit should be expected to predict
the unknowable factors or all possible future implications for a company
and this is particularly the case in relation to Brexit.
248 Barclays PLC Annual Report 2018
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Key audit matter
Impairment allowances on loans and advances at amortised cost,
including off-balance sheet elements of the allowance
Refer to page 61 (Board Audit Committee Report), page 273
(accounting policy on accounting for the impairment of financial
assets under IFRS 9), page 149 (credit risk disclosures), and
page 273 (financial disclosure note 7 Credit Impairment charges
and other provisions)
Subjective estimate
IFRS 9 was implemented by the Group on 1 January 2018.
This new and complex standard requires the Group to recognise
expected credit losses (‘ECL’) on financial instruments, which
involves significant judgement and estimates and resulted in
an increase in credit loss provisions. During the year credit loss
provisions increased from £4.7bn as at 31 December 2017 to £6.8bn
as at 31 December 2018. The key areas where we identified greater
levels of management judgement and therefore increased levels
of audit focus in the Group’s implementation of IFRS 9 are:
■■ Economic scenarios – IFRS 9 requires the Group to measure ECLs
on a forward-looking basis reflecting a range of future economic
conditions. Significant management judgement is applied to
determining the economic scenarios used and the probability
weightings applied to them especially for the credit card,
mortgages, consumer lending and corporate portfolios.
■■ Significant Increase in Credit Risk (‘SICR’) – For the credit cards,
consumer loans and corporate portfolios the criteria selected
to identify a significant increase in credit risk is a key area of
judgement within the Group’s ECL calculation as these criteria
determine whether a 12 month or lifetime provision is recorded.
■■ Model estimations – Inherently judgemental modelling is used to
estimate ECLs which involves determining Probabilities of Default
(‘PD’), Loss Given Default (‘LGD’), and Exposures at Default
(‘EAD’). The PD models used in the credit card, consumer loans
and corporate portfolios are the key drivers of the Group’s ECL
results and are therefore most significant judgemental aspect
of the Group’s ECL modelling approach.
■■ Qualitative adjustments – Adjustments to the model-driven
ECL results are raised by management to address known
impairment model limitations or emerging trends. They represent
approximately 6% net of the ECL. Such adjustments are inherently
uncertain and significant management judgement is involved in
estimating these amounts especially in relation to the credit card,
consumer loan, business banking and corporate portfolios.
The effect of these matters is that, as part of our risk assessment,
we determined that the impairment of loans and advances to
customers has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than our materiality
for the financial statements as a whole, and possibly many times
that amount. The credit risk sections of the financial statements
disclose the sensitivities estimated by the Group.
Disclosure quality
The disclosures regarding the Group’s application of IFRS 9 are
key to understanding the change from IAS 39 as well as explaining
the key judgements and material inputs to the IFRS 9 ECL results.
How our audit addressed the key audit matter
Our procedures included:
■■ Controls testing: We performed end to end process walk-throughs
to identify the key systems, applications and controls used in the ECL
processes. We tested the relevant general IT and applications controls
over key systems used in the ECL process.
Key aspects of our controls testing involved the following:
– for the relevant portfolios, testing the design and operating
effectiveness of the key controls over the completeness and accuracy
of the key inputs and assumptions into the IFRS 9 impairment models
– testing the design and operating effectiveness of the key controls
over the authorisation and application of the SICR criteria
– evaluating controls over model monitoring and validation
– evaluating controls over authorisation and calculation of post
model adjustments and management overlays, and
– testing key controls relating to selection and implementation
of material macroeconomic variables and the controls over the
scenario selection and probabilities.
■■ Our financial risk modelling expertise: For the credit card, consumer
loans and corporate portfolios we involved our own financial risk
modelling specialists in evaluating the appropriateness of the Group’s
IFRS 9 impairment methodologies (including the SICR criteria used).
We used our experience to independently assess probability of default,
loss given default and exposure at default assumptions. For a sample
of models we assessed the reasonableness of the model predictions
by comparing them against actual results.
■■ Our economic scenario expertise: We involved our own economic
specialists to assist us in assessing the appropriateness of the Group’s
methodology for determining the economic scenarios used and the
probability weightings applied to them. We also assessed key economic
variables used which included agreeing samples of economic variables
to external sources as well as the overall reasonableness of the
economic forecasts by comparing the Group’s forecasts to our
own modelled forecasts with a focus on the credit cards, mortgages,
consumer lending and corporate portfolios. As part of this work we
assessed the reasonableness of the Group’s considerations of the
ECL impact of economic uncertainty, including Brexit.
Test of details: Key aspects of our testing involved:
– sample testing over key inputs and assumptions impacting ECL
calculations to assess the reasonableness of economic forecasts,
weights, and PD assumptions applied
– Re-performing key aspects of the Group’s SICR determinations
– assessing model predictions against actual results, and
– selecting a sample of post model adjustments, considering the
size and complexity of management overlays, in order to assess the
reasonableness of the adjustments by challenging key assumptions,
inspecting the calculation methodology and tracing a sample back
to source data.
■■ Assessing transparency: We assessed whether the disclosures
appropriately disclose and address the uncertainty which exists when
determining the expected credit losses. As a part of this, we assessed
the sensitivity analysis that is disclosed. In addition, we assessed
whether the disclosure of the key judgements and assumptions
made was sufficiently clear.
Our results:
The results of our testing were satisfactory and we considered the ECL
charge, provision recognised and the related disclosures to be acceptable.
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Independent Auditor’s report
Independent Auditor’s report
to the members of Barclays PLC
Key audit matter
Conduct redress costs (PPI)
Refer to page 61 (Board Audit Committee Report), page 313
(accounting policy on accounting for provisions), and page 313
(financial disclosure note 25 Provisions)
Subjective estimate
The calculation of the provision for PPI redress costs for the Group
requires the Directors to determine a number of key inputs. The
determination of these is judgemental and requires the Directors
to consider a range of information. The most significant input into
the PPI provision calculation is the future complaint flow and that
is where we have focused our procedures.
The Directors have developed a model which calculates the expected
future complaint flow and associated redress cost. A key factor
impacting the period over which the model forecasts complaint
flows was the introduction of a Financial Conduct Authority (‘FCA’)
time-bar for processing new complaints. The effective date of the
time-bar is August 2019, and prior to that the FCA is running a
consumer communications campaign to give potential
complainants notice of the time-bar.
The Directors have assessed the appropriateness of the provision
with reference to the expected impact of this time-bar and also
in the context of the historical observation across the industry
in recent years that the complaint flow has always been greater
than expected.
The effect of these matters is that, as part of our risk assessment,
we determined that PPI provision costs have significant estimation
uncertainty, with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a whole.
Disclosure quality
The related PPI disclosures provide the key assumptions
underpinning the calculation of the future complaint flow
and sensitivity of the provision to the flow and are therefore
key to understanding the judgement which has been applied.
How our audit addressed the key audit matter
Our procedures included:
■■ Historic comparison: We evaluated the assumptions used, particularly
those in relation to future complaint flow which led to an adjustment
to provision estimates in 2018.
■■ Enquiry of regulators: We inspected correspondence with the FCA
and PRA to identify any regulatory observations on the future complaint
flow. We also made enquiries of the FCA discussing the nature of the
matters contained in regulatory correspondence that could materially
affect the level of provisions held.
■■ Controls testing: We tested the design and operating effectiveness
of the key controls over capturing of historic complaints data and
estimating the future complaint flow volumes.
■■ Sensitivity analysis: We considered the sensitivity of the model
to variations in the future complaint flow. We also considered the
appropriateness of the scenarios used to model the potential range
of future complaint flows, with particular focus on the way the
impact of the time-bar and FCA communication campaign have been
determined. We also considered the sensitivity of the model to variations
in the future complaint flow by inspecting the calculation methodology
and challenging the key assumptions using our industry knowledge.
■■ Independent reperformance: We built our own model to allow us to
determine a range of potential future complaint flows under multiple
independently selected scenarios and compared these to the Group’s
own range. We also used our independently determined range to assess
the appropriateness of the Group’s point estimate. We developed
a number of these scenarios using regression analysis of Barclays’
historical complaint data. Where there were differences in the inputs
and ranges we challenged the Group’s rationale for these and assessed
whether they were reasonable. We also used our model to understand
the effect of these ranges on the potential future redress cost.
■■ Assessing transparency: We assessed whether the disclosures
appropriately disclose and address the significant uncertainty which
exists when estimating the future complaint flow. As a part of this,
we reperformed the sensitivity analysis that is disclosed.
Our results:
The results of our testing were satisfactory and we considered the
liability recognised, and sensitivity disclosures made, to be acceptable
(2017 result: acceptable).
250 Barclays PLC Annual Report 2018
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Key audit matter
Valuation of financial instruments held at fair value
Refer to page 62 (Board Audit Committee Report), page 291
(accounting policy on accounting for financial assets and liabilities),
and page 291 (financial disclosure note 17 Fair value of
financial instruments).
Subjective valuation
The fair value of the Group’s financial instruments is determined
through the application of valuation techniques which often involve
the exercise of judgement by management and the use of
assumptions, estimates and valuation models.
How our audit addressed the key audit matter
Our procedures included:
■■ Control testing: We tested the design and operating effectiveness of key
controls relating specifically to the ESHLA and the three longer-dated
portfolios. These included:
– controls over price verification (‘IPV’), performed by a control
function, of key inputs, including completeness of positions and
valuation inputs subject to IPV
– for ESHLA we tested controls over the gilt asset swap curve and credit
spreads. For the long dated portfolios we tested material risk
parameters used in valuation models
Where significant pricing inputs are unobservable, management
has no reliable, relevant market data available in determining the fair
value and hence estimation uncertainty can be high. These financial
instruments are classified as Level 3, with management having
controls in place over the boundary between Level 2 and 3 positions.
– controls over fair value adjustments (FVA). For ESHLA these related
to pre-payments. For the longer-dated portfolios these related to exit
adjustments (to mark the portfolio to bid or offer prices) and model
shortcoming reserves to address model limitations. In addition we
tested funding and credit adjustments for all significant risk portfolios
– controls over the validation, completeness, implementation and usage
of valuation models. This included controls over assessment of model
limitations and assumptions, and
– controls over the levelling classification applied to trades within these
portfolios in line with IFRS 13 disclosure requirements.
■■ Independent reperformance: With the assistance of our own valuation
specialists we independently re-priced a selection of trades from the
ESHLA and three longer-dated portfolios and challenged management
on the valuations where they were outside our expected tolerance.
■■ Methodology choice: In the context of observed industry practice, our
own valuation specialists assisted us in challenging the appropriateness
of significant models and methodologies used in calculating fair values,
risk exposures, appropriateness of risk factors, and in calculating FVAs.
■■ Comparing valuations: For a selection of material collateral disputes
within the longer-dated portfolios we challenged management’s
valuation methodology where significant fair value differences were
observable with the market participant on the other side of the trade.
■■ Historical comparison: We inspected significant gains and losses on
trade exits or restructurings and challenged whether these data points
indicate elements of fair value not incorporated in the current
valuation methodologies.
We inspected movements in unobservable inputs throughout the period
to challenge whether any gain or loss generated was appropriate.
Our results:
The results of our testing were satisfactory and we considered the fair
value of Level 3 financial instrument assets and liabilities recognised
to be acceptable (2017 result: acceptable).
Our significant audit risk is therefore over significant Level 3 portfolios.
We performed risk assessment procedures over the entire Level 3
balance within the Group’s financial statements. As part of these
risk assessment procedures we identified which portfolios have a
risk of material misstatement including those arising from significant
judgements over valuation either due to unobservable inputs or
complex models.
At 31 December 2018, Level 3 instruments (£18.6bn) represented
3.5% of the Group’s financial instrument assets carried at fair value
and 1.1% (£5bn) of the Group’s financial instrument liabilities carried
at fair value.
Within this Level 3 population the fair value instrument portfolios
in the Group with the most significant judgements include:
■■ Education, Social Housing and Local Authority (‘ESHLA’) loan
portfolio – as at 31 December 2018 the Group has outstanding
ESHLA loans which require significant judgement in the
valuation due to the long dated nature of the portfolio, the lack
of a secondary market in the relevant loans and unobservable
loan spreads.
■■ Longer-dated derivative portfolios – we identified three portfolios
(two derivative portfolios and a bond package) each with a
significant risk attached to the valuation methodology due to the
lack of observable pricing inputs. The bond package also includes
a long-standing valuation disparity with the counterparty.
The effect of these matters is that, as part of our risk assessment,
we determined that the subjective estimates in fair value
measurement of the above portfolios have a high degree of
estimation uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial statements
as a whole, and possibly many times that amount.
Disclosure quality
The IFRS 13 fair value measurement disclosures are key to explaining
the valuation techniques, key judgements, assumptions and
material inputs.
The financial statements, Note 17, includes disclosure of sensitivity
of valuation inputs to fair value measurement by the Group.
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Barclays PLC Annual Report 2018 251
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Independent Auditor’s report
Independent Auditor’s report
to the members of Barclays PLC
Key audit matter
Legal, competition and regulatory matters
Refer to page 62 (Board Audit Committee Report), page 313
(accounting policy on accounting for provisions), page 315
(accounting policy on contingent liabilities and commitments),
page 313 (financial disclosures note 27 Provisions), and page 315
(financial disclosures note 29 Legal, competition and
regulatory matters)
Exposure completeness
The Group and Parent operates in a highly litigious and regulated
environment and faces legal, competition and regulatory challenges
which can lead to potential claims and exposures (together ‘litigation
and regulatory matters’). In certain litigation and regulatory matters
significant judgement is required by the Directors to determine if
there is a present obligation under relevant accounting standards.
Subjective estimate
If there is a present obligation the amounts involved can be
potentially significant, and the application of accounting standards
to estimate the expected outflow, if any, of any liability to be
recognised is inherently subjective.
The effect of these matters is that, as part of our risk assessment, we
determined that the litigation liability has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a whole.
Disclosure quality
When a liability is not recognised for possible significant outflows
but there is more than a remote likelihood of an adverse outcome,
the related disclosure is key to understanding the risks and potential
effect on the Group and Parent.
User Access Management (‘UAM’)
Control Performance
The Group’s accounting and reporting processes are dependent
on automated controls enabled by IT systems. User access
management controls are an important component of the General
IT Control environment assuring that unauthorised access to
systems do not impact the effective operation of the automated
controls in the financial reporting processes.
In prior years key user access management controls were reported
as not consistently implemented and effectively operated across the
Group. Ineffective controls included developer access to production,
logging/monitoring of user activities and segregation of duties.
A series of remediation programmes was completed to address
previously identified control deficiencies. The Group has also
implemented further compensating controls to address the issues raised
in the current year, most of them relating to user access management.
If the above controls for user access management are deficient
and not remediated or adequately mitigated the pervasive nature
of these controls may undermine our ability to place some reliance
on automated and IT dependent controls in our audit.
Recoverability of Parent company’s investment in subsidiaries
The carrying amount of the Parent company’s investments in
subsidiaries represents 61% (2017: 57%) of the Company’s total
assets. Their recoverability is not at a high risk of significant
misstatement or subject to significant judgement. However, due
to their materiality in the context of the parent company financial
statements, this is considered to be the area that had the greatest
effect on our overall Parent company audit.
How our audit addressed the key audit matter
Our procedures included:
■■ Inspection of Board of Directors meeting minutes: We inspected
the Board of Directors meeting minutes to obtain an understanding
of the status of all significant litigation and regulatory matters.
■■ Inspection of regulatory correspondence: We inspected
correspondence with the relevant regulatory authorities to identify
actual or possible non-compliance with laws and regulations that
may have a material effect on the financial statements.
■■ Enquiry of lawyers: For significant litigation and regulatory matters we
enquired of the Group and Parent’s internal legal counsel and inspected
internal notes and reports. We also received formal confirmations from
external counsel. For the most significant litigation and regulatory
matters we also had discussions with external counsel. Based on these
procedures we challenged the timing of the recognition of provisions
where there is potential exposure but it is not clear whether a present
obligation exists or where the Directors have determined a reliable
estimate is not possible.
■■ Test of details: For the significant provisions we independently assessed
the estimated value of the provision, based on our enquiries of lawyers
and information obtained from our other procedures.
■■ Assessing transparency: Assessed whether the disclosures detailing
significant litigation and regulatory matters adequately disclose the
potential liabilities and the significant uncertainties that exist.
Our results:
The results of our testing were satisfactory and we considered the
provisions recognised, and the disclosures made, to be acceptable
(2017 result: acceptable).
Our procedures included:
■■ Control testing: We tested the design and operating effectiveness of
key controls over user access management, including controls over:
– authorising access for new joiners
– removal of user access rights on a timely basis
– inappropriate privileged and developer access to production systems, the
procedures to assess potential use, and the removal of these access rights
– segregation of duties including access to multiple systems that could
circumvent segregation controls, and
– re-certification of user access rights.
■■ Control reperformance: To assess whether additional detective
compensating controls adequately address the risk of unauthorised
access, we reperformed on a sample basis management’s assessment
of potential unauthorised access by privileged accounts and users,
whose access rights were not recertified.
Our results:
Our testing did not identify unauthorised user activities in the systems
relevant to financial reporting which would have required us to expand the
extent of our planned detailed testing. (2017: Our testing did not identify
developers who had access and used the access without authorisation that
would have required us to expand the extent of our planned detailed testing.)
Our procedures included:
■■ Tests of detail: Comparing the carrying amount of the highest value
investments, representing 99% of the total investment balance with the
relevant subsidiaries’ draft balance sheet to identify whether their net
assets, being an approximation of their minimum recoverable amount,
were in excess of their carrying amount and assessing whether those
subsidiaries have historically been profit-making. Where we found net
assets to be lower than the cost of investment, we have assessed
recoverability through projection of future cash flows to ascertain
if an impairment is required.
■■ Assessing subsidiary audits: Assessing the work performed by the
subsidiary audit teams on that sample of those subsidiaries and considering
the results of that work, on those subsidiaries’ profits and net assets.
Our results:
We found the group’s assessment of the recoverability of the investment
in subsidiaries to be acceptable (2017: acceptable).
252 Barclays PLC Annual Report 2018
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3 Our application of materiality and
an overview of the scope of our audit
Materiality
Materiality for the Group financial statements
as a whole was set at £250 million,
determined with reference to a benchmark
of group profit before tax from continuing
operations, normalised to exclude charges
related to litigation and conduct as disclosed
in the consolidated income statement, of
£5,701 million, of which it represents 4.4%.
Materiality for the Parent company financial
statements as a whole was set at £235 million,
determined with reference to a benchmark
of net assets, of which it represents 0.4%.
We agreed to report to the Board Audit
Committee any corrected or uncorrected
identified misstatements exceeding
£12 million, in addition to other identified
misstatements that warranted reporting
on qualitative grounds.
Group materiality
A
A £250m
Whole financial
statements materiality
(2017: £225m)
B £145m
Range of materiality
at six components
(£37m–£145m)
(2017: £25m–£165m)
C £12m
Misstatements
reported to the Board
Audit Committee
(2017: £11m)
2018
2017
£5,701m £4,748m
£225m
£250m
B
C
1
2
1 Profit before tax from
continuing operations*
2 Group materiality
* normalised to exclude charges related to litigation
and conduct
Scope – general
We subjected five (2017: six) of the group’s
eporting components, to full scope audits
for group purposes and one (2017: four) to
specified risk-focused audit procedures which
focused on the financial assets designated at
fair value financial statement caption. The last
component was not individually financially
significant enough to require a full scope audit
for group purposes, but did present specific
individual risks that needed to be addressed.
The remaining 7% (2017: 19%) of total Group
income and 2% (2017: 10%) of total Group
assets is represented by a number of other
reporting components, none of which were
individually significant. For these residual
components, we performed analysis at an
aggregated group level to re-examine our
assessment that there were no significant
risks of material misstatement within these.
The work on all components was performed
by component auditors and the remaining
work, including the audit of the Parent
company, was performed by the Group team.
For those items excluded from normalised
group profit before tax, the component teams
performed procedures on items relating to
their components. The group team performed
procedures on the remaining excluded items.
The components within the scope of
our work accounted for the percentages
illustrated below.
Group total income
(2017: 81%)
2
3
1
4
6
5
95%
1 Full scope for group audit purposes 2018
2 Specified risk-focused audit procedures 2018
3 Residual components 2018
4 Full scope for group audit purposes 2017
5 Specified risk-focused audit procedures 2017
6 Residual components 2017
95%
0%
5%
79%
2%
19%
Group total assets
(2017: 90%)
3
2
6
5
1
4
93%
1 Full scope for group audit purposes 2018
2 Specified risk-focused audit procedures 2018
3 Residual components 2018
4 Full scope for group audit purposes 2017
5 Specified risk-focused audit procedures 2017
6 Residual components 2017
91%
2%
7%
87%
3%
10%
Team structure
The Group team led a global planning
conference to discuss key audit risks and
to obtain input from component and other
participating locations. The Group team
instructed component auditors as to the
significant areas to be covered, including
the relevant key audit matters detailed above
and the information to be reported back.
The Group team approved the component
materiality for each component, which ranged
from £36.6 million to £145 million, having
regard to the mix of size and risk profile
across the components.
The Group team visited all of the components
in scope for group reporting purposes to
assess the audit risk and strategy. Conference
meetings and calls were also held with these
component auditors throughout the conduct
of the audit. At these visits and meetings,
we reviewed the components’ key working
papers, the findings reported to the Group
team were discussed in more detail, and any
further work required by the Group team was
then performed by the component auditor.
The Group has centralised certain group-wide
processes in India, the outputs of which are
included in the financial information of
the reporting components it services and
therefore it is not a separate reporting
component. These group wide processes
are subject to specified audit procedures,
predominantly the testing of transaction
processing, reconciliations and review
controls. Additional procedures are performed
at certain reporting components to address
the audit risks not covered by the work
performed over these group-wide processes
in India. The Group team and certain
component teams visited the locations in
India where these group-wide processes
reside and performed consistent procedures
as described above for component site visits.
4 We have nothing to report on going
concern
The Directors have prepared the financial
statements on the going concern basis as
they do not intend to liquidate the Company
or the Group or to cease their operations, and
as they have concluded that the Company’s
and the Group’s financial position means that
this is realistic. They have also concluded that
there are no material uncertainties that could
have cast significant doubt over their ability
to continue as a going concern for at least a
year from the date of approval of the financial
statements (‘the going concern period’).
Our responsibility is to conclude on the
appropriateness of the Directors’ conclusions
and, had there been a material uncertainty
related to going concern, to make reference
to that in this audit report. However, as we
cannot predict all future events or conditions
and as subsequent events may result in
outcomes that are inconsistent with
judgements that were reasonable at the time
they were made, the absence of reference to
a material uncertainty in this auditor’s report
is not a guarantee that the Group and the
Company will continue in operation.
In our evaluation of the Directors’ conclusions,
we considered the inherent risks to the
Group’s and Company’s business model and
analysed how those risks might affect the
Group’s and Company’s financial resources or
ability to continue operations over the going
concern period. The risks that we considered
most likely to adversely affect the Group’s and
Company’s available financial resources over
this period were:
■■ availability of funding and liquidity in the
event of a market wide stress scenario
including the impact of Brexit, and
■■ impact on regulatory capital requirements
in the event of an economic slowdown
or recession.
As these were risks that could potentially
cast significant doubt on the Group’s and
the Company’s ability to continue as a going
concern, we considered sensitivities over
the level of available financial resources
indicated by the Group’s financial forecasts
taking account of reasonably possible
(but not unrealistic) adverse effects that
could arise from these risks individually and
collectively and evaluated the achievability
of the actions the Directors consider they
would take to improve the position should
the risks materialise.
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Barclays PLC Annual Report 2018 253
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Independent Auditor’s report
Independent Auditor’s report
to the members of Barclays PLC
■■ the material existing and emerging risks
disclosures describing these risks within
the Viability statement (page 42) and
explaining how they are being managed
and mitigated, and
■■ the Directors’ explanation in the Viability
statement of how they have assessed the
prospects of the Group, over what period
they have done so and why they considered
that period to be appropriate, and their
statement as to whether they have a
reasonable expectation that the Group will
be able to continue in operation and meet
its liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
Under the Listing Rules we are required
to review the Viability statement. We have
nothing to report in this respect.
Our work is limited to assessing these
matters in the context of only the knowledge
acquired during our financial statements
audit. As we cannot predict all future events
or conditions and as subsequent events
may result in outcomes that are inconsistent
with judgements that were reasonable at the
time they were made, the absence of anything
to report on these statements is not a
guarantee as to the Group’s and Company’s
longer-term viability.
Corporate governance disclosures
We are required to report to you if:
■■ we have identified material inconsistencies
between the knowledge we acquired
during our financial statements audit and
the Directors’ statement that they consider
that the Annual Report and financial
statements taken as a whole is fair,
balanced and understandable and provides
the information necessary for shareholders
to assess the Group’s position and
performance, business model and
strategy, or
■■ the section of the Annual Report
describing the work of the Board Audit
Committee does not appropriately address
matters communicated by us to the
Board Audit Committee.
We are required to report to you if the
Corporate Governance Statement does
not properly disclose a departure from
the eleven provisions of the UK Corporate
Governance Code specified by the Listing
Rules for our review.
We have nothing to report in these respects.
6 We have nothing to report on the other
matters on which we are required to report
by exception
Under the Companies Act 2006, we are
required to report to you if, in our opinion:
■■ adequate accounting records have not
been kept by the Parent company, or returns
adequate for our audit have not been
received from branches not visited by us; or
■■ the Parent company financial statements
and the part of the Directors’ Remuneration
Report to be audited are not in agreement
with the accounting records and returns; or
■■ certain disclosures of Directors’ remuneration
specified by law are not made; or
■■ we have not received all the information
and explanations we require for our audit.
We have nothing to report in these respects.
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their going concern
and Directors’ responsibilities statements set
out on page 92, the Directors are responsible
for: the preparation of the financial statements
including being satisfied that they give a
true and fair view; such internal control as
they determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error; assessing the Group
and Parent company’s ability to continue as
a going concern, disclosing, as applicable,
matters related to going concern; and using
the going concern basis of accounting unless
they either intend to liquidate the Group or
the Parent company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue
our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but
does not guarantee that an audit conducted
in accordance with ISAs (UK) will always
detect a material misstatement when it exists.
Misstatements can arise from fraud, other
irregularities or error and are considered
material if, individually or in aggregate, they
could reasonably be expected to influence
the economic decisions of users taken
on the basis of the financial statements.
A fuller description of our responsibilities
is provided on the FRC’s website at
frc.org.uk/auditorsresponsibilities.
Based on this work, we are required to report
to you if:
■■ we have anything material to add or draw
attention to in relation to the Directors’
statement Note 1 to the financial
statements on the use of the going concern
basis of accounting with no material
uncertainties that may cast significant
doubt over the Group and Company’s
use of that basis for a period of at least
12 months from the date of approval
of the financial statements, or
■■ the related statement under the Listing
Rules is materially inconsistent with our
audit knowledge.
We have nothing to report in these respects,
and we did not identify going concern as
a key audit matter.
5 We have nothing to report on the other
information in the Annual Report
The Directors are responsible for the other
information presented in the Annual Report
together with the financial statements. Our
opinion on the financial statements does not
cover the other information and, accordingly,
we do not express an audit opinion or,
except as explicitly stated below, any form
of assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether, based on our financial statements
audit work, the information therein is
materially misstated or inconsistent with the
financial statements or our audit knowledge.
Based solely on that work we have not
identified material misstatements in the
other information.
Strategic report and Directors’ report
Based solely on our work on the other
information:
■■ we have not identified material
misstatements in the strategic report
and the Directors’ report
■■ in our opinion the information given in those
reports for the financial year is consistent
with the financial statements, and
■■ in our opinion those reports have been
prepared in accordance with the Companies
Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance with
the Companies Act 2006.
Disclosures of principal risks and
longer-term viability
Based on the knowledge we acquired during
our financial statements audit, we have
nothing material to add or draw attention
to in relation to:
■■ the Directors’ confirmation within the
Viability statement (page 42) that they
have carried out a robust assessment
of the principal risks facing the Group,
including those that would threaten its
business model, future performance,
solvency and liquidity
254 Barclays PLC Annual Report 2018
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Irregularities – ability to detect
We identified areas of laws and regulations
that could reasonably be expected to have
a material effect on the financial statements
from our general commercial and sector
experience, through discussion with the
Directors and other management (as required
by auditing standards) and from inspection
of the Group’s regulatory correspondence
and discussed with the Directors and other
management the policies and procedures
regarding compliance with laws and
regulations. We communicated identified
laws and regulations throughout our team
and remained alert to any indications of
non-compliance throughout the audit.
This included communication from the group
to component audit teams of relevant laws
and regulations identified at the group level.
The potential effect of these laws and
regulations on the financial statements
varies considerably. Firstly, the group is subject
to laws and regulations that directly affect
the financial statements including financial
reporting legislation (including related
companies legislation), distributable profits
legislation and taxation legislation. We
assessed the extent of compliance with these
laws and regulations as part of our procedures
on the related financial statement items.
Secondly, the group is subject to many other
laws and regulations where the consequences
of non-compliance could have a material
effect on amounts or disclosures in the
financial statements, for instance through the
imposition of fines or litigation or the loss of
the group’s license to operate. We identified
the following areas as those most likely to have
such an effect: specific areas of regulatory
capital and liquidity, conduct including PPI
mis-selling, money laundering, sanctions list
and financial crime, market abuse regulations
and certain aspects of company legislation
recognising the financial and regulated nature
of the group’s activities. Auditing standards
limit the required audit procedures to identify
non-compliance with these laws and
regulations to enquiry of the Directors
and other management and inspection of
regulatory and legal correspondence, if any.
These limited procedures did not identify
actual or suspected non-compliance.
Owing to the inherent limitations of an audit,
there is an unavoidable risk that we may not
have detected some material misstatements
in the financial statements, even though we
have properly planned and performed our
audit in accordance with auditing standards.
For example, the further removed
non-compliance with laws and regulations
(irregularities) is from the events and
transactions reflected in the financial
statements, the less likely the inherently
limited procedures required by auditing
standards would identify it. In addition,
as with any audit, there remained a higher
risk of non-detection of irregularities, as these
may involve collusion, forgery, intentional
omissions, misrepresentations, or the override
of internal controls. We are not responsible
for preventing non-compliance and cannot
be expected to detect non-compliance with
all laws and regulations.
8 The purpose of our audit work and
to whom we owe our responsibilities
This report is made solely to the Company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the Company and the Company’s members,
as a body, for our audit work, for this report,
or for the opinions we have formed.
Michelle Hinchliffe
(Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
20 February 2019
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Barclays PLC Annual Report 2018 255
Consolidated financial statements
Consolidated income statement
For the year ended 31 December
Continuing operations
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Net investment income
Other income
Total income
Credit impairment charges and other provisions
Net operating income
Staff costs
Infrastructure costs
Administration and general expensesa
Provisions for litigation and conducta
Operating expenses
Share of post-tax results of associates and joint ventures
Profit on disposal of subsidiaries, associates and joint ventures
Profit before tax
Taxation
Profit after tax in respect of continuing operations
(Loss)/profit after tax in respect of discontinued operation
Profit/(loss) after tax
Attributable to:
Equity holders of the parent
Other equity instrument holders
Total equity holders of the parent
Non-controlling interests in respect of continuing operations
Non-controlling interests in respect of discontinued operation
Profit/(loss) after tax
Earnings per share
Basic earnings/(loss) per ordinary share
Basic earnings per ordinary share in respect of continuing operations
Basic (loss)/earnings per ordinary share in respect of discontinued operation
Diluted earnings/(loss) per share
Diluted earnings per ordinary share in respect of continuing operations
Diluted (loss)/earnings per ordinary share in respect of discontinued operation
Notes
2018
£m
2017
£m
2016
£m
3
3
4
4
5
6
7
8
8
8
8
8
9
31
31
10
10
10
10
10
10
14,541
(5,479)
9,062
8,893
(2,084)
6,809
4,566
585
114
21,136
(1,468)
19,668
(8,629)
(2,950)
(2,457)
(2,207)
(16,243)
69
–
3,494
(1,122)
2,372
–
2,372
1,394
752
2,146
226
–
2,372
9.4
9.4
–
9.2
9.2
–
13,631
(3,786)
9,845
8,751
(1,937)
6,814
3,500
861
56
21,076
(2,336)
18,740
(8,560)
(2,949)
(2,740)
(1,207)
(15,456)
70
187
3,541
(2,240)
1,301
(2,195)
(894)
(1,922)
639
(1,283)
249
140
(894)
(10.3)
3.5
(13.8)
(10.1)
3.4
(13.5)
14,541
(4,004)
10,537
8,570
(1,802)
6,768
2,768
1,324
54
21,451
(2,373)
19,078
(9,423)
(2,998)
(2,554)
(1,363)
(16,338)
70
420
3,230
(993)
2,237
591
2,828
1,623
457
2,080
346
402
2,828
10.4
9.3
1.1
10.3
9.2
1.1
Note
a The presentation of administration and general expenses has been amended to include provisions for litigation and conduct as a separate line item. The prior year comparatives
within administration and general expenses categories have been adjusted accordingly.
256 Barclays PLC Annual Report 2018
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Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 31 December
Profit/(loss) after tax
Profit after tax in respect of continuing operations
(Loss)/profit after tax in respect of discontinued operation
Other comprehensive income/(loss) that may be recycled to profit or loss from continuing operations:
Currency translation reserve
Currency translation differencesa
Available for sale reserveb
Net gains from changes in fair value
Net gains transferred to net profit on disposal
Net losses transferred to net profit due to impairment
Net losses/(gains) transferred to net profit due to fair value hedging
Changes in insurance liabilities and other movements
Tax
Fair value through other comprehensive income reserveb
Net losses from changes in fair value
Net losses transferred to net profit on disposal
Net losses transferred to net profit due to impairment
Net losses transferred to net profit due to fair value hedging
Other movements
Tax
Cash flow hedging reserve
Net (losses)/gains from changes in fair value
Net gains transferred to net profit
Tax
Other
Other comprehensive income/(loss) that may be recycled to profit or loss from continuing operations
Other comprehensive income/(loss) not recycled to profit or loss from continuing operations:
Retirement benefit remeasurements
Fair value through other comprehensive income reserve
Own credit
Tax
Other comprehensive income/(loss) not recycled to profit or loss from continuing operations
2018
£m
2,372
2,372
–
2017
£m
(894)
1,301
(2,195)
2016
£m
2,828
2,237
591
834
(1,337)
3,024
–
–
–
–
–
–
473
(294)
3
283
11
(27)
2,147
(912)
20
(1,677)
53
(18)
(553)
48
4
236
(26)
65
(344)
(332)
175
30
137
412
(260)
77
(118)
111
–
–
–
–
–
–
–
–
–
–
–
–
(626)
(643)
321
(5)
(1,841)
1,455
(365)
(292)
13
3,448
115
–
(7)
(66)
42
(1,309)
–
–
329
(980)
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Other comprehensive income/(loss) for the year from continuing operations
248
(1,799)
2,468
Other comprehensive income for the year from discontinued operation
–
1,301
1,520
Total comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year, net of tax from continuing operations
Total comprehensive (loss)/income for the year, net of tax from discontinued operation
Total comprehensive income/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income/(loss) for the year
2,620
–
2,620
2,394
226
2,620
(498)
(894)
(1,392)
(1,749)
357
(1,392)
4,705
2,111
6,816
5,233
1,583
6,816
Notes
a Includes £41m loss (2017: £189m loss; 2016: £101m gain) on recycling of currency translation differences.
b Following the adoption of IFRS 9 Financial Instruments on 1 January 2018, the fair value through other comprehensive income reserve was introduced replacing the available for
sale reserve.
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Consolidated financial statements
Consolidated balance sheet
As at 31 December
Assets
Cash and balances at central banks
Cash collateral and settlement balances
Loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Trading portfolio assets
Financial assets at fair value through the income statement
Derivative financial instruments
Financial investments
Financial assets at fair value through other comprehensive income
Investments in associates and joint ventures
Goodwill and intangible assets
Property, plant and equipment
Current tax assets
Deferred tax assets
Retirement benefit assets
Other assets
Assets included in disposal groups classified as held for sale
Total assets
Liabilities
Deposits at amortised cost
Cash collateral and settlement balances
Repurchase agreements and other similar secured borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio liabilities
Financial liabilities designated at fair value
Derivative financial instruments
Current tax liabilities
Deferred tax liabilities
Retirement benefit liabilities
Other liabilities
Provisions
Liabilities included in disposal groups classified as held for sale
Total liabilities
Equity
Called up share capital and share premium
Other equity instruments
Other reserves
Retained earnings
Total equity excluding non-controlling interests
Non-controlling interests
Total equity
Total liabilities and equity
Notes
2018
£m
2017a
£m
2016a
£m
19
12
13
14
171,082
177,069
77,168
77,222
324,048
326,406
12,546
2,308
113,760
104,187
116,281
149,648
237,669
222,538
58,915
–
–
52,816
718
762
7,849
7,973
2,572
2,535
482
798
3,457
3,828
966
1,768
4,542
3,425
1,193
–
1,133,283 1,133,248
15
36
22
21
9
9
33
41
394,838
67,522
18,578
82,286
20,559
37,882
216,834
219,643
628
51
315
7,716
2,652
–
398,701
68,143
40,338
73,314
23,826
37,351
173,718
238,345
586
44
312
9,011
3,543
–
1,069,504 1,067,232
28
12
16
14
9
9
33
24
25
41
29
29
30
4,311
9,632
5,153
43,460
62,556
1,223
63,779
22,045
8,941
5,383
27,536
63,905
2,111
66,016
1,133,283 1,133,248
31
102,353
90,135
345,900
13,454
80,240
78,608
346,626
63,317
–
684
7,726
2,825
561
4,869
14
4,360
71,454
1,213,126
390,744
80,648
19,760
75,932
23,383
34,687
96,031
340,487
737
29
390
9,507
4,134
65,292
1,141,761
21,842
6,449
6,051
30,531
64,873
6,492
71,365
1,213,126
Note
a Barclays introduced changes to the balance sheet presentation as at 31 December 2017 as a result of the adoption of new accounting policies on 1 January 2018. The
comparatives as at 31 December 2016 have been updated to reflect this presentation change. Further detail on the adoption of new accounting policies can be found in Note 1
on pages 264 to 267, Note 42 on pages 347 to 354 and the Credit risk disclosures on pages 149 to 175.
The Board of Directors approved the financial statements on pages 256 to 358 on 20 February 2019.
John McFarlane
Group Chairman
James E Staley
Group Chief Executive
Tushar Morzaria
Group Finance Director
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Consolidated financial statements
Consolidated statement of changes in equity
Called up
share
capital
and share
premiuma
£m
Other
equity
instru-
mentsa
£m
Available
for sale
reserveb
£m
Fair value
through
other
compre-
hensive
income
reserveb
£m
Cash
flow
hedging
reserveb
£m
Currency
translation
reserveb
£m
Own
credit
reserveb
£m
Other
reserves
and
treasury
sharesb
£m
Retained
earnings
£m
Total
equity
excluding
non-
controlling
interests
£m
Non-
controlling
interests
£m
Total
equity
£m
22,045
8,941
364
–
1,161
3,054
(179)
983
27,536 63,905
2,111
66,016
–
–
(364)
228
–
–
–
–
(2,014)
(2,150)
–
(2,150)
1,161
–
3,054
–
(179)
–
983 25,522
1,394
–
61,755
2,146
2,111 63,866
2,372
226
Balance as at
31 December 2017
Effects of changes in
accounting policiesc
Balance as at
1 January 2018
Profit after tax
Currency translation
movements
Fair value through other
comprehensive income
reserve
Cash flow hedges
Retirement benefit
remeasurements
Own credit reserve
Other
Total comprehensive
income for the year
Issue of new ordinary
shares
Issue of shares under
employee share schemes
Capital reorganisation
Issue and exchange of
other equity instruments
Other equity instruments
coupons paid
Redemption of preference
shares
Debt to equity
reclassificationd
Increase in treasury shares
Vesting of shares under
employee share schemes
Dividends paid
Other reserve movements
Balance as at
31 December 2018
22,045
–
8,941
752
–
–
–
–
–
–
–
88
51
(17,873)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
752
–
–
–
692
(752)
–
–
–
–
–
(1)
4,311
9,632
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
228
–
–
–
834
(486)
–
–
(501)
–
–
–
–
–
–
–
–
–
–
–
(486)
(501)
834
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58
–
58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
313
–
30
834
(486)
(501)
313
58
30
–
–
–
–
–
–
834
(486)
(501)
313
58
30
1,737
2,394
226
2,620
–
449
17,873
88
500
–
(308)
384
203
(549)
–
–
–
–
–
88
500
–
384
(549)
(732)
(732)
(1,309)
(2,041)
–
(267)
268
–
–
–
–
(499)
(768)
(17)
–
(267)
(231)
(768)
(18)
419
–
–
(226)
2
419
(267)
(231)
(994)
(16)
(258)
660
3,888
(121)
984 43,460 62,556
1,223 63,779
Notes
a For further details refer to Note 29.
b For further details refer to Note 30.
c Following the adoption of IFRS 9 Financial Instruments on 1 January 2018, the fair value through other comprehensive income reserve was introduced replacing the available for
sale reserve. From the opening balance of the available for sale reserve of £364m, £228m has been reclassified to the fair value through other comprehensive income reserve,
£139m has been reclassified to retained earnings and an impairment charge of £3m has been recognised through to retained earnings.
d Following a review of subordinated liabilities issued by Barclays Bank PLC, certain instruments deemed to have characteristics that qualify them as equity have been reclassified.
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Barclays PLC Annual Report 2018 259
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Consolidated financial statements
Consolidated statement of changes in equity
Other
equity
instru-
mentsa
£m
6,449
–
6,449
639
–
–
–
–
–
–
Available
for sale
reserveb
£m
(74)
Cash
flow
hedging
reserveb
£m
2,105
Currency
translation
reserveb
£m
3,051
Own
credit
reserveb
£m
–
–
(74)
–
–
449
–
–
–
–
–
2,105
–
–
–
(948)
–
–
–
–
3,051
–
(1,336)
–
–
–
–
–
(175)
(175)
–
–
–
–
–
(11)
–
639
449
(948)
(1,336)
(11)
Other
reserves
and
treasury
sharesb
£m
969
–
969
–
–
–
–
–
–
–
–
Retained
earnings
£m
30,531
175
30,706
413
Total
equity
excluding
non-
controlling
interests
£m
64,873
Non-
controlling
interests
£m
6,492
–
64,873
1,052
(1,336)
449
(948)
53
(11)
(5)
–
6,492
249
(1)
–
–
–
–
–
–
–
–
53
–
(5)
Total
equity
£m
71,365
–
71,365
1,301
(1,337)
449
(948)
53
(11)
(5)
461
(746)
248
(498)
–
(11)
4
1,339
–
–
(2,335)
(1,003)
109
(894)
Called up
share
capital
and share
premiuma
£m
21,842
–
21,842
–
–
–
–
–
–
–
–
–
–
639
438
117
86
–
–
–
2,490
–
–
–
–
–
–
–
22,045
(639)
–
–
–
–
–
2
8,941
(944)
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
364
1,161
3,054
(11)
–
–
–
–
–
–
–
–
–
7
(179)
–
–
–
–
–
–
(315)
329
–
–
–
983
(1,874)
–
(1,749)
117
505
591
357
–
–
(1,392)
117
591
–
2,490
–
2,490
174
(479)
–
(636)
(509)
(465)
(479)
(315)
(307)
(509)
–
(860)
–
(465)
(1,339)
(315)
–
(415)
(307)
(924)
(359)
8
27,536
(359)
17
63,905
(3,462)
(1)
2,111
(3,821)
16
66,016
Balance as at 31 December 2016
Effects of changes in accounting
policiesc
Balance as at 1 January 2017
Profit after tax
Currency translation movements
Available for sale investments
Cash flow hedges
Retirement benefit remeasurements
Own credit reserve
Other
Total comprehensive income net of
tax from continuing operations
Total comprehensive income net of
tax from discontinued operation
Total comprehensive income for
the year
Issue of new ordinary shares
Issue of shares under employee
share schemes
Issue and exchange of other equity
instruments
Other equity instruments coupons
paid
Redemption of preference shares
Increase in treasury shares
Vesting of shares under employee
share schemes
Dividends paid
Net equity impact of partial BAGL
disposal
Other reserve movements
Balance as at 31 December 2017
Notes
a For further details refer to Note 29.
b For further details refer to Note 30.
c As a result of the early adoption of the own credit provisions of IFRS 9 on 1 January 2017, own credit which was previously recorded in the income statement is now recognised
within other comprehensive income. The cumulative unrealised own credit net loss of £175m was therefore reclassified from retained earnings to a separate own credit reserve,
within other reserves. During 2017, a £4m loss (net of tax) on own credit was booked in the reserve.
260 Barclays PLC Annual Report 2018
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Consolidated financial statements
Consolidated cash flow statement
For the year ended 31 December
Continuing operations
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax
Adjustment for non-cash items:
Allowance for impairment
Depreciation, amortisation and impairment of property, plant, equipment and intangibles
Other provisions, including pensions
Net loss/(profit) on disposal of investments and property, plant and equipment
Other non-cash movements including exchange rate movements
Changes in operating assets and liabilities
Net increase in cash collateral and settlement balances
Net (increase)/decrease in loans and advances to banks and customers
Net (increase)/decrease in reverse repurchase agreements and other similar lending
Net increase in deposits and debt securities in issue
Net increase/(decrease) in repurchase agreements and other similar borrowing
Net (increase)/decrease in derivative financial instruments
Net decrease/(increase) in trading assets
Net increase in trading liabilities
Net (increase)/decrease in financial assets and liabilities at fair value through the income
statement
Net decrease/(increase) in other assets
Net decrease in other liabilities
Corporate income tax paid
Net cash from operating activities
Purchase of financial assets at fair value through other comprehensive income
Purchase of available for sale investments
Proceeds from sale or redemption of financial assets at fair value through other comprehensive
income
Proceeds from sale or redemption of available for sale investments
Purchase of property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment and intangibles
Disposal of discontinued operation, net of cash disposed
Disposal of subsidiaries, net of cash disposed
Other cash flows associated with investing activities
Net cash from investing activities
Dividends paid and other coupon payments on equity instruments
Issuance of subordinated debt
Redemption of subordinated debt
Net issue of shares and other equity instruments
Repurchase of shares and other equity instruments
Net purchase of treasury shares
Net cash from financing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents from continuing operations
Net cash from discontinued operation
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash and balances at central banks
Loans and advances to banks with original maturity less than three months
Cash collateral to banks with original maturity less than three months
Treasury and other eligible bills with original maturity less than three months
Trading portfolio assets with original maturity less than three months
Cash and cash equivalents held for sale
Notes
2018
£m
2017
£m
2016
£m
3,494
–
1,468
1,261
2,594
28
(4,366)
–
(574)
(10,602)
(1,711)
23,969
3,525
(3,571)
9,958
531
9
(12,686)
489
(4,755)
(548)
8,504
(106,669)
–
28
28
41
107,539
–
(1,402)
18
–
–
1,191
677
(1,658)
221
(3,246)
1,964
(3,582)
(486)
(6,787)
4,160
6,554
–
6,554
204,612
211,166
177,069
7,676
25,504
917
–
–
211,166
3,541
3,230
2,336
1,241
1,875
(325)
1,031
(3,713)
18,569
908
5,339
20,578
6,815
(33,492)
2,664
40,014
(3,775)
(2,187)
(708)
60,711
–
(83,127)
–
88,298
(1,456)
283
(1,060)
358
206
3,502
(1,273)
3,041
(1,378)
2,490
(1,339)
(580)
961
(4,773)
60,401
101
60,502
144,110
204,612
171,082
7,592
25,228
682
28
–
204,612
2,357
1,261
1,964
(912)
(20,025)
348
(20,055)
14,733
43,386
(4,852)
(2,318)
(5,577)
880
807
(2,629)
(532)
(780)
11,286
–
(65,086)
–
102,515
(1,707)
358
–
595
32
36,707
(1,304)
1,457
(1,143)
1,400
(1,587)
(140)
(1,317)
10,473
57,149
405
57,554
86,556
144,110
102,353
8,850
29,402
356
–
3,149
144,110
Interest received was £26,254m (2017: £21,784m; 2016: £22,099m) and interest paid was £16,124m (2017: £10,310m; 2016: £8,850m).
The Barclays Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £4,717m
(2017: £3,360m; 2016: £4,254m).
For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits and cash equivalents comprise highly liquid
investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less.
Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.
.
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Financial statements of Barclays PLC
Parent company accounts
Statement of comprehensive income
For the year ended 31 December
Dividends received from subsidiaries
Net interest expense
Other income
Operating expenses
Profit before tax
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
Profit after tax attributable to:
Ordinary equity holders
Other equity instrument holders
Profit after tax
Total comprehensive income attributable to:
Ordinary equity holders
Other equity instrument holders
Total comprehensive income
Notes
43
43
2018
£m
15,360
(101)
923
(312)
15,870
(64)
15,806
–
15,806
15,054
752
15,806
15,054
752
15,806
2017
£m
674
(10)
690
(96)
1,258
(111)
1,147
60
1,207
508
639
1,147
568
639
1,207
2016
£m
621
5
334
(26)
934
(60)
874
26
900
417
457
874
443
457
900
For the year ended 31 December 2018, profit after tax was £15,806m (2017: £1,147m) and total comprehensive income was £15,806m
(2017: £1,207m). Other comprehensive income of £60m in 2017 related to the gain on available for sale instruments. The Company has
87 members of staff (2017: 90).
Balance sheet
As at 31 December
Assets
Investment in subsidiaries
Loans and advances to subsidiaries
Financial investments
Financial assets at fair value through the income statement
Derivative financial instruments
Other assets
Total assets
Liabilities
Deposits at amortised cost
Subordinated liabilities
Debt securities in issue
Other liabilities
Total liabilities
Equity
Called up share capital
Share premium account
Other equity instruments
Other reserves
Retained earnings
Total equity
Total liabilities and equity
Notes
2018
£m
2017
£m
43
43
43
43
43
43
43
29
29
29
57,374
29,374
–
6,945
168
115
93,976
39,354
23,970
4,782
–
161
202
68,469
576
6,775
32,373
72
39,796
4,283
28
9,633
394
39,842
54,180
93,976
500
6,501
22,110
153
29,264
4,265
17,780
8,943
480
7,737
39,205
68,469
The financial statements on pages 262 to 263 and the accompanying note on page 354 were approved by the Board of Directors on
20 February 2019 and signed on its behalf by:
John McFarlane
Group Chairman
James E Staley
Group Chief Executive
Tushar Morzaria
Group Finance Director
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Statement of changes in equity
Balance as at 31 December 2017
Effect of changes in accounting policies
Balance as at 1 January 2018
Profit after tax and other comprehensive income
Issue of new ordinary shares
Issue of shares under employee share schemes
Issue and exchange of other equity instruments
Vesting of shares under employee share schemes
Dividends paid
Other equity instruments coupons paid
Capital reorganisation
Other reserve movements
Balance as at 31 December 2018
Balance as at 1 January 2017
Profit after tax and other comprehensive income
Issue of new ordinary shares
Issue of shares under employee share schemes
Issue and exchange of other equity instruments
Vesting of shares under employee share schemes
Dividends paid
Other equity instruments coupons paid
Other reserve movements
Balance as at 31 December 2017
Notes
Called up
share capital
and share
premium
£m
22,045
–
22,045
–
88
51
–
–
–
–
(17,873)
–
4,311
21,842
–
117
86
–
–
–
–
–
11
43
11
Other equity
instruments
£m
8,943
–
8,943
752
–
–
692
–
–
(752)
–
(2)
9,633
6,453
639
–
–
2,490
–
–
(639)
–
Capital
redemption
reserve
£m
394
–
394
–
–
–
–
–
–
–
–
–
394
394
–
–
–
–
–
–
–
–
Available
for sale
reservea
£m
86
(86)
–
–
–
–
–
–
–
–
–
–
–
26
60
–
–
–
–
–
–
–
22,045
8,943
394
86
Retained
earnings
£m
7,737
97
7,834
15,054
–
24
(308)
(23)
(768)
143
17,873
13
39,842
Total equity
£m
39,205
11
39,216
15,806
88
75
384
(23)
(768)
(609)
–
11
54,180
7,607
508
–
27
–
(11)
(509)
123
(8)
7,737
36,322
1,207
117
113
2,490
(11)
(509)
(516)
(8)
39,205
Note
a As a result of the adoption of IFRS 9 on 1 January 2018, the available for sale reserve of £86m has been transferred to retained earnings.
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Cash flow statement
For the year ended 31 December
Reconciliation of profit before tax to net cash flows from operating activities:
Profit before tax
Adjustment for non-cash items:
Dividends in specie
Other non-cash items
Changes in operating assets and liabilities
Net cash generated from operating activities
Capital contribution to and investment in subsidiary
Net cash used in investing activities
Issue of shares and other equity instruments
Redemption of other equity instruments
Net increase in loans and advances to subsidiaries of the Parent
Net increase in debt securities in issue
Proceeds of borrowings and issuance of subordinated debt
Dividends paid
Coupons paid on other equity instruments
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Net cash generated from operating activities includes:
Dividends received
Interest (paid)/received
2018
£m
2017
£m
15,870
1,258
(14,294)
653
55
2,284
(2,680)
(2,680)
1,953
(1,532)
(7,767)
9,174
–
(680)
(752)
396
–
–
–
–
76
102
1,436
(2,801)
(2,801)
2,581
–
(9,707)
6,503
3,019
(392)
(639)
1,365
–
–
–
2016
£m
934
–
62
37
1,033
(1,250)
(1,250)
1,388
–
(10,942)
9,314
1,671
(757)
(457)
217
–
–
–
1,066
(101)
674
(10)
621
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The Parent company’s principal activity is to hold the investment in its wholly-owned subsidiaries, Barclays Bank PLC, Barclays Bank UK PLC and
Barclays Services Limited. Dividends received are treated as operating income.
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Notes to the financial statements
for the year ended 31 December 2018
for the year ended 31 December 2018
This section describes Barclays Group’s significant policies and critical accounting estimates that relate to the financial statements and notes
as a whole. If an accounting policy or a critical accounting estimate relates to a particular note, the accounting policy and/or critical accounting
estimate is contained with the relevant note.
1 Significant accounting policies
1. Reporting entity
These financial statements are prepared for Barclays PLC and its subsidiaries (the Barclays Group) under Section 399 of the Companies Act
2006. The Barclays Group is a major global financial services provider engaged in retail banking, credit cards, wholesale banking, investment
banking, wealth management and investment management services. In addition, individual financial statements have been presented for the
holding company.
2. Compliance with International Financial Reporting Standards
The consolidated financial statements of the Barclays Group, and the individual financial statements of Barclays PLC, have been prepared in
accordance with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) issued by the Interpretations Committee, as
published by the International Accounting Standards Board (IASB). They are also in accordance with IFRS and IFRIC interpretations endorsed
by the European Union. The principal accounting policies applied in the preparation of the consolidated and individual financial statements are
set out below, and in the relevant notes to the financial statements. These policies have been consistently applied with the exception of the
adoption of IFRS 9 Financial Instruments including the early adoption of Prepayment Features with Negative Compensation (Amendments
to IFRS 9), IFRS 15 Revenue from Contracts with Customers and the amendments to IFRS 2 Share-based Payment from 1 January 2018.
3. Basis of preparation
The consolidated and individual financial statements have been prepared under the historical cost convention modified to include the fair
valuation of investment property, and particular financial instruments, to the extent required or permitted under IFRS as set out in the relevant
accounting policies. They are stated in millions of pounds Sterling (£m), the functional currency of Barclays PLC.
The financial statements have been prepared on a going concern basis, in accordance with the Companies Act 2006 as applicable to companies
using IFRS.
4. Accounting policies
The Barclays Group prepares financial statements in accordance with IFRS. The Barclays Group’s significant accounting policies relating to
specific financial statement items, together with a description of the accounting estimates and judgements that were critical to preparing them,
are set out under the relevant notes. Accounting policies that affect the financial statements as a whole are set out below.
(i) Consolidation
Barclays Group applies IFRS 10 Consolidated financial statements.
The consolidated financial statements combine the financial statements of Barclays PLC and all its subsidiaries. Subsidiaries are entities over
which Barclays PLC has control. The Barclays Group has control over another entity when the Barclays Group has all of the following:
1) power over the relevant activities of the investee, for example through voting or other rights
2) exposure to, or rights to, variable returns from its involvement with the investee, and
3) the ability to affect those returns through its power over the investee.
The assessment of control is based on the consideration of all facts and circumstances. The Barclays Group reassesses whether it controls
an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
Intra-group transactions and balances are eliminated on consolidation. Consistent accounting policies are used throughout the Barclays Group
for the purposes of the consolidation.
Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained
and they do not result in loss of control.
As the consolidated financial statements include partnerships where the Barclays Group member is a partner, advantage has been taken of the
exemption under Regulation 7 of the Partnership (Accounts) Regulations 2008 with regard to preparing and filing of individual partnership
financial statements.
Details of the principal subsidiaries are given in Note 34, and a complete list of all subsidiaries is presented in Note 44.
(ii) Foreign currency translation
The Barclays Group applies IAS 21 The Effects of Changes in Foreign Exchange Rates. Transactions in foreign currencies are translated into
Sterling at the rate ruling on the date of the transaction. Foreign currency monetary balances are translated into Sterling at the period end
exchange rates. Exchange gains and losses on such balances are taken to the income statement. Non-monetary foreign currency balances
are carried at historical transaction date exchange rates.
The Barclays Group’s foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may
have different functional currencies. The functional currency of an operation is the currency of the main economy to which it is exposed.
Prior to consolidation (or equity accounting) the assets and liabilities of non-Sterling operations are translated at the period end exchange
rate and items of income, expense and other comprehensive income are translated into Sterling at the rate on the date of the transactions.
Exchange differences arising on the translation of foreign operations are included in currency translation reserves within equity. These are
transferred to the income statement when the Barclays Group disposes of the entire interest in a foreign operation, when partial disposal results
in the loss of control of an interest in a subsidiary, when an investment previously accounted for using the equity method is accounted for as
a financial asset, or on the disposal of an autonomous foreign operation within a branch.
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1 Significant accounting policies continued
(iii) Financial assets and liabilities
The Barclays Group applies IFRS 9 Financial Instruments to the recognition, classification and measurement, and derecognition of financial
assets and financial liabilities and the impairment of financial assets. The Barclays Group applies the requirements of IAS 39 Financial
Instruments: Recognition and Measurement for hedge accounting purposes.
Recognition
The Barclays Group recognises financial assets and liabilities when it becomes a party to the terms of the contract. Trade date or settlement
date accounting is applied depending on the classification of the financial asset.
Classification and measurement
Financial assets are classified on the basis of two criteria:
i) the business model within which financial assets are managed, and
ii) their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’ (SPPI)).
The Barclays Group assesses the business model criteria at a portfolio level. Information that is considered in determining the applicable
business model includes (i) policies and objectives for the relevant portfolio, (ii) how the performance and risks of the portfolio are managed,
evaluated and reported to management, and (iii) the frequency, volume and timing of sales in prior periods, sales expectation for future
periods, and the reasons for such sales.
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent SPPI. In assessing
whether contractual cash flows are SPPI compliant, interest is defined as consideration primarily for the time value of money and the credit risk
of the principal outstanding. The time value of money is defined as the element of interest that provides consideration only for the passage of
time and not consideration for other risks or costs associated with holding the financial asset. Terms that could change the contractual cash
flows so that it would not meet the condition for SPPI are considered, including: (i) contingent and leverage features, (ii) non-recourse
arrangements and (iii) features that could modify the time value of money.
Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows, and their contractual cash flows represent SPPI.
Financial assets will be measured at fair value through other comprehensive income if they are held within a business model whose objective
is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent SPPI.
Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election on initial recognition
for non traded equity investments to be measured at fair value through other comprehensive income, in which case dividends are recognised
in profit or loss, but gains or losses are not reclassified to profit or loss upon derecognition, and impairment is not recognised in the
income statement.
The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Barclays Group’s policies
for determining the fair values of the assets and liabilities are set out in Note 17.
Derecognition
The Barclays Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash
flows from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the
asset or significant risks and rewards, along with the unconditional ability to sell or pledge the asset.
Financial liabilities are de-recognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing
financial liability for a new liability with the same lender on substantially different terms – generally a difference of 10% in the present value
of the cash flows or a substantive qualitative amendment – is accounted for as an extinguishment of the original financial liability and the
recognition of a new financial liability.
Transactions in which the Barclays Group transfers assets and liabilities, portions of them, or financial risks associated with them can be
complex and it may not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform
a quantitative analysis. Such an analysis compares the Barclays Group’s exposure to variability in asset cash flows before the transfer with its
retained exposure after the transfer.
A cash flow analysis of this nature may require judgement. In particular, it is necessary to estimate the asset’s expected future cash flows
as well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the
asset, with market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically
determined by stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned
to each scenario. Stressed parameters may include default rates, loss severity, or prepayment rates.
Accounting for reverse repurchase and repurchase agreements including other similar lending and borrowing
Reverse repurchase agreements (and stock borrowing or similar transaction) are a form of secured lending whereby the Barclays Group
provides a loan or cash collateral in exchange for the transfer of collateral, generally in the form of marketable securities subject to an
agreement to transfer the securities back at a fixed price in the future. Repurchase agreements are where the Barclays Group obtains such loans
or cash collateral, in exchange for the transfer of collateral.
The Barclays Group purchases (a reverse repurchase agreement) or borrows securities subject to a commitment to resell or return them.
The securities are not included in the balance sheet as the Barclays Group does not acquire the risks and rewards of ownership. Consideration
paid (or cash collateral provided) is accounted for as a loan asset at amortised cost, unless it is designated at fair value through profit and loss.
The Barclays Group may also sell (a repurchase agreement) or lend securities subject to a commitment to repurchase or redeem them. The
securities are retained on the balance sheet as the Barclays Group retains substantially all the risks and rewards of ownership. Consideration
received (or cash collateral provided) is accounted for as a financial liability at amortised cost, unless it is designated at fair value through profit
and loss.
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Notes to the financial statements
for the year ended 31 December 2018
1 Significant accounting policies continued
(iv) Issued debt and equity instruments
The Barclays Group applies IAS 32, Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.
Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Barclays Group having
an obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not
the case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other
returns to equity holders are recognised when paid or declared by the members at the AGM and treated as a deduction from equity.
Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt
is estimated first and the balance of the proceeds is included within equity.
5. New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, with the exception of the adoption of IFRS 9 Financial
Instruments including the early adoption of Prepayment Features with Negative Compensation (Amendments to IFRS 9), IFRS 15 Revenue from
Contracts with Customers and the amendments to IFRS 2 Share-based Payment from 1 January 2018.
IFRS 9 – Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces key changes in the
following areas:
■■ Classification and measurement – requiring asset classification and measurement based upon both business model and product
characteristics.
■■ Impairment – introducing an expected credit loss model using forward looking information which replaces an incurred loss model.
The expected credit loss model introduces a three-stage approach to impairment as follows:
Stage 1 – the recognition of 12 month expected credit losses (ECL), that is the portion of lifetime expected credit losses from default events
that are expected within 12 months of the reporting date, if credit risk has not increased significantly since initial recognition;
Stage 2 – lifetime expected credit losses for financial instruments for which credit risk has increased significantly since initial recognition; and
Stage 3 – lifetime expected credit losses for financial instruments which are credit impaired.
Refer to Note 7 for further details regarding the impairment requirements of IFRS 9.
As required by IFRS 9 the Barclays Group applied IFRS 9 retrospectively by adjusting the opening balance sheet at the date of initial application,
and comparative periods have not been restated; for more detail refer to Note 42.
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers replaces IAS 18 Revenue and IAS 11 Construction Contracts. IFRS 15 establishes a more
systematic approach for revenue measurement and recognition by introducing a five-step model governing revenue recognition. The five-step
model includes: 1) identifying the contract with the customer, 2) identifying each of the performance obligations included in the contract, 3)
determining the amount of consideration in the contract, 4) allocating the consideration to each of the identified performance obligations and
5) recognising revenue as each performance obligation is satisfied. The Barclays Group elected the cumulative effect transition method with
a transition adjustment calculated as of 1 January 2018, and recognised in retained earnings without restating comparative periods. There were
no significant impacts from the adoption of IFRS 15 in relation to the timing of when the Barclays Group recognises revenues or when revenue
should be recognised gross as a principal or net as an agent; for more detail refer to Note 42.
IFRS 2 – Share-based Payment – Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement
features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment
transaction changes its classification from cash settled to equity settled. The amendments are effective for annual periods beginning on
or after 1 January 2018. Adoption of the amendments did not have a significant impact on the Barclays Group.
Future accounting developments
There have been, and are expected to be, a number of significant changes to the Barclays Group’s financial reporting after 2018 as a result
of amended or new accounting standards that have been or will be issued by the IASB. The most significant of these are as follows:
IFRS 16 – Leases
In January 2016 the IASB issued IFRS 16 Leases, which was subsequently endorsed by the EU in November 2017, and will replace IAS 17 Leases
for period beginning on or after 1 January 2019. IFRS 16 will apply to all leases with the exception of licenses of intellectual property, rights held
by licensing agreement within the scope of IAS 38 Intangible Assets, service concession arrangements, leases of biological assets within the
scope of IAS 41 Agriculture, and leases of minerals, oil, natural gas and similar non-regenerative resources. A lessee may elect not to apply
IFRS 16 to remaining assets within the scope of IAS 38 Intangible Assets.
IFRS 16 will not result in a significant change to lessor accounting; however, for lessee accounting there will no longer be a distinction between
operating and finance leases. Lessees will be required to recognise both:
■■ a lease liability, measured at the present value of remaining cash flows on the lease, and
■■ a right of use (ROU) asset, measured at the amount of the initial measurement of the lease liability, plus any lease payments made prior
to commencement date, initial direct costs, and estimated costs of restoring the underlying asset to the condition required by the lease,
less any lease incentives received.
There is a recognition exception for leases with a term not exceeding 12 months which allows the lessee to apply similar accounting as an
operating lease under IAS 17.
266 Barclays PLC Annual Report 2018
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1 Significant accounting policies continued
Subsequently the lease liability will increase for the accrual of interest, resulting in a constant rate of return throughout the life of the lease,
and reduce when payments are made. The right of use asset will amortise to the income statement over the life of the lease. The Barclays
Group IFRS 16 implementation and governance programme has been led by Finance with representation from all impacted departments. The
project has identified the contracts impacted by IFRS 16, which are predominantly existing property leases. Other lease types are not material.
The project has also established appropriate accounting policies, determined the appropriate transition options to apply, and updated Finance
systems and processes to reflect the new accounting and disclosure requirements.
As permitted by the standard, the Barclays Group intends to apply IFRS 16 on a retrospective basis but to take advantage of the option not to
restate comparative periods by applying the modified retrospective approach. The Barclays Group intends to take advantage of the following
transition options available under the modified retrospective approach:
■■ To calculate the right of use asset equal to the lease liability, adjusted for prepaid or accrued payments.
■■ To rely on the previous assessment of whether leases are onerous in accordance with IAS 37 immediately before the date of initial application
as an alternative to performing an impairment review. The Barclays Group will adjust the carrying amount of the ROU asset at the date of
initial application by the previous carrying amount of its onerous lease provision.
■■ Apply the recognition exception for leases with a term not exceeding 12 months.
■■ Use hindsight in determining the lease term if the contract contains options to extend or terminate the lease.
The expected impact of adopting IFRS 16 is an increase in assets of £1.6bn, an increase in liabilities of £1.6bn with no material impact on
retained earnings. This impact assessment has been estimated under an interim control environment. The implementation of the
comprehensive end state control environment will continue as the Barclays Group introduces business as usual controls through 2019.
IFRS 17 – Insurance contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering
recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts that was issued
in 2005.
IFRS 17 applies to all types of insurance contracts (i.e. life, non-life, direct insurance and re-insurance), regardless of the type of entities that
issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will
apply. The standard is currently effective from 1 January 2021, and the standard has not yet been endorsed by the EU. The Barclays Group
is currently assessing the expected impact of adopting this standard.
IFRIC Interpretation 23 – Uncertainty over Income Tax Treatment
IFRIC 23 clarifies the application of IAS 12 to accounting for income tax treatments that have yet to be accepted by tax authorities, in scenarios
where it may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept an entity’s
tax treatment. The effective date is 1 January 2019. The Barclays Group has considered the guidance included within the interpretation and
concluded that the prescribed approach under IFRIC 23 is not expected to have a material impact on the Barclays Group’s financial position.
IAS 12 – Income Taxes – Amendments to IAS 12
In December 2017, as part of the Annual Improvements to IFRS Standards 2015–2017 Cycle, the IASB amended IAS 12 in order to clarify the
accounting treatment of the income tax consequences of dividends. Effective from 1 January 2019 the tax consequences of all payments on
financial instruments that are classified as equity for accounting purposes, where those payments are considered to be a distribution of profit,
will be included in, and will reduce, the income statement tax charge. Refer to Note 9 for the expected impact of adopting the amendments
of IAS 12.
IAS 19 – Employee Benefits – Amendments to IAS 19
In February 2018 the IASB issued amendments to the guidance in IAS 19 Employee Benefits, in connection with accounting for plan
amendments, curtailments and settlements. The amendments must be applied to plan amendments, curtailments or settlements occurring on
or after the beginning of the first annual reporting period that begins on or after 1 January 2019. The amendments have not yet been endorsed
by the EU. Adoption of the amendments is not expected to have significant impact on the Barclays Group.
6. 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 the 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 are highlighted under the relevant note. Critical accounting estimates and
judgements are disclosed in:
■■ Credit impairment charges on page 273
■■ Tax on page 278
■■ Fair value of financial instruments on page 291
■■ Pensions and post-retirement benefits – obligations on page 331
■■ Provisions including conduct and legal, competition and regulatory matters on page 313.
7. Other disclosures
To improve transparency and ease of reference, by concentrating related information in one place, certain disclosures required under IFRS have
been included within the Risk review section as follows:
■■ Credit risk on pages 137 to 138 and 149 to 175
■■ Market risk on pages 139 and 176 to 180
■■ Treasury and capital risk – liquidity on pages 140 and 183 to 196
■■ Treasury and capital risk – capital on pages 141 and 197 to 207.
These disclosures are covered by the Audit opinion (included on pages 248 to 255) where referenced as audited.
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Notes to the financial statements
Notes to the financial statements
Performance/return
Performance/return
The notes included in this section focus on the results and performance of the Barclays Group. Information on the income generated,
expenditure incurred, segmental performance, tax, earnings per share and dividends are included here. For further detail on performance,
see income statement commentary within Financial review (unaudited) on page 227.
2 Segmental reporting
Presentation of segmental reporting
The Barclays Group’s segmental reporting is in accordance with IFRS 8 Operating Segments. Operating segments are reported in a manner
consistent with the internal reporting provided to the Executive Committee, which is responsible for allocating resources and assessing
performance of the operating segments, and has been identified as the chief operating decision maker. All transactions between business
segments are conducted on an arm’s-length basis, with intra-segment revenue and costs being eliminated in Head Office. Income and
expenses directly associated with each segment are included in determining business segment performance.
Barclays Group is a transatlantic consumer and wholesale bank and for segmental reporting purposes it defines its two operating divisions
as Barclays UK and Barclays International.
■■ Barclays UK which offers everyday products and services to retail customers and small to medium sized enterprises based in the UK.
The division includes the UK Personal banking, UK Business banking and the Barclaycard consumer UK business.
■■ Barclays International which delivers products and services designed for our larger corporate, wholesale and international banking clients.
The division includes the large UK Corporate business; the international Corporate and Wealth businesses; the Investment Bank; the
international Barclaycard business; and Barclaycard Business Solutions.
The below table also includes Head Office which comprises head office and central support functions (including treasury) and businesses
in transition.
Analysis of results by business
For the year ended 31 December 2018
Total incomea
Credit impairment charges and other provisions
Net operating income/(expenses)
Operating costs
UK bank levy
GMP charge
Litigation and conduct
Total operating expenses
Other net income/(expenses)
Profit/(loss) before tax
Total assets (£bn)
Number of employees (full time equivalent)b
For the year ended 31 December 2017
Total income
Credit impairment charges and other provisions
Net operating income/(expenses)
Operating costs
UK bank levy
Litigation and conduct
Total operating expenses
Other net (expenses)/incomee
Profit/(loss) before tax
Total assets (£bn)
Number of employees (full time equivalent)b
Barclays UK
£m
Barclays
International
£m
Head
Office
£m
Group
results
£m
7,383
(826)
6,557
(4,075)
(46)
–
(483)
(4,604)
3
1,956
249.7
22,600
14,026
(658)
13,368
(9,324)
(210)
–
(127)
(9,661)
68
3,775
862.1
12,400
(273)
16
(257)
(228)
(13)
(140)
(1,597)
(1,978)
(2)
(2,237)
21.5
48,500
21,136
(1,468)
19,668
(13,627)
(269)
(140)
(2,207)
(16,243)
69
3,494
1,133.3
83,500
Barclays UK
£m
Barclays
International
£m
Head
Officec
£m
Barclays
Non-Cored
£m
Group
results
£m
7,383
(783)
6,600
(4,030)
(59)
(759)
(4,848)
(5)
1,747
237.4
22,800
14,382
(1,506)
12,876
(9,321)
(265)
(269)
(9,855)
254
3,275
856.1
11,500
(159)
(17)
(176)
(277)
(41)
(151)
(469)
(189)
(834)
39.7
45,600
(530)
(30)
(560)
(256)
–
(28)
(284)
197
(647)
–
–
21,076
(2,336)
18,740
(13,884)
(365)
(1,207)
(15,456)
257
3,541
1,133.2
79,900
Notes
a £351m of certain legacy capital instrument funding costs are now charged to Head Office, the impact of which would have been materially the same if the charges had been
included in full year 2017.
b As a result of the establishment of Barclays Execution Services in September 2017, employees who are now employed by Barclays Execution Services and who were previously
allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office.
c The reintegration of Non-Core assets on 1 July 2017 resulted in the transfer of c.£9bn of assets into Head Office relating to a portfolio of Italian mortgages. The portfolio
generated a loss before tax of £37m in the second half of the year and included assets of £9bn as at 31 December 2017.
d The Non-Core segment was closed on 1 July 2017 with the residual assets and liabilities reintegrated into, and associated financial performance subsequently reported in, Barclays
UK, Barclays International and Head Office. Financial results up until 30 June 2017 are reflected in the Non-Core segment for 2017. Comparative results have not been restated.
e Other net income/(expenses) represents the share of post-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures,
and gains on acquisitions.
268 Barclays PLC Annual Report 2018
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2 Segmental reporting continued
Analysis of results by business
For the year ended 31 December 2016
Total income
Credit impairment charges and other provisions
Net operating income/(expenses)
Operating costs
UK bank levy
Litigation and conduct
Total operating expenses
Other net (expenses)/incomea
Profit/(loss) before tax from continuing operations
Total assets (£bn)b
Number of employees (full time equivalent)c
Barclays UK
£m
Barclays
International
£m
Head
Office
£m
Barclays
Non-Core
£m
Group
results
£m
7,517
(896)
6,621
(3,792)
(48)
(1,042)
(4,882)
(1)
1,738
209.6
36,000
14,995
(1,355)
13,640
(9,129)
(284)
(48)
(9,461)
32
4,211
648.5
36,900
103
–
103
(135)
(2)
(27)
(164)
128
67
75.2
100
(1,164)
(122)
(1,286)
(1,509)
(76)
(246)
(1,831)
331
(2,786)
279.7
5,500
21,451
(2,373)
19,078
(14,565)
(410)
(1,363)
(16,338)
490
3,230
1,213.0
119,300
Notes
a Other net income/(expenses) represents the share of post-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures,
and gains on acquisitions.
b Africa Banking assets held for sale were reported in Head Office for 2016.
c Number of employees included 40,800 in relation to Africa Banking for 2016.
Income by geographic region
For the year ended 31 December
Continuing operations
United Kingdom
Europe
Americas
Africa and Middle East
Asia
Total
Income from individual countries which represent more than 5% of total incomea
For the year ended 31 December
Continuing operations
United Kingdom
United States
2018
£m
2017
£m
2016
£m
11,050
1,649
7,615
253
569
21,136
11,190
1,663
7,443
251
529
21,076
11,096
2,087
7,278
419
571
21,451
2018
£m
2017
£m
2016
£m
11,050
7,291
11,190
6,871
11,096
6,876
Note
a Total income is based on counterparty location. Income from each single external customer does not amount to 10% or greater of the Barclays Group total income.
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Barclays PLC Annual Report 2018 269
Notes to the financial statements
Performance/return
3 Net interest income
Accounting for interest income and expenses
Interest income on loans and advances at amortised cost, and interest expense on financial liabilities held at amortised cost, are calculated
using the effective interest method which allocates interest, and direct and incremental fees and costs, over the expected lives of the assets
and liabilities.
The effective interest method requires the Barclays Group to estimate future cash flows, in some cases based on its experience of customers’
behaviour, considering all contractual terms of the financial instrument, as well as the expected lives of the assets and liabilities.
Barclays Group incurs certain costs to originate credit card balances with the most significant being co-brand partner fees. To the extent these
costs are attributed to customers that continuously carry an outstanding balance (revolvers), they are capitalised and subsequently included
within the calculation of the effective interest rate. They are amortised to interest income over the period of expected repayment of the originated
balance. Costs attributed to customers that settle their outstanding balances each period (transactors) are deferred on the balance sheet as a cost
of obtaining a contract and amortised to fee and commission expense over the life of the customer relationship (refer to Note 4). There are no
other individual estimates involved in the calculation of effective interest rates that are material to the results or financial position.
Cash and balances at central banks
Loans and advances at amortised cost
Financial investments
Fair value through other comprehensive income
Other
Interest income
Deposits at amortised cost
Debt securities in issue
Subordinated liabilities
Other
Interest expense
Net interest income
2018
£m
1,123
12,073
–
1,029
316
14,541
(2,250)
(1,677)
(1,223)
(329)
(5,479)
9,062
2017
£m
583
12,069
754
–
225
13,631
(1,493)
(915)
(1,223)
(155)
(3,786)
9,845
2016
£m
186
13,558
740
–
57
14,541
(1,779)
(990)
(1,104)
(131)
(4,004)
10,537
Interest income presented above represents interest revenue calculated using the effective interest method.
Costs to originate credit card balances of £596m (2017: £497m; 2016: £480m) have been amortised to interest income during the year.
Interest income includes £53m (2017: £48m; 2016: £75m) accrued on impaired loans.
Included in net interest income is hedge ineffectiveness as detailed in Note 14 amounting to £5m loss (2017: £43m loss; 2016: £71m gain).
4 Net fee and commission income
Accounting for net fee and commission income under IFRS 15 effective from 1 January 2018
The Barclays Group applies IFRS 15 Revenue from Contracts with Customers. The standard establishes a five-step model governing revenue
recognition. The five-step model requires Barclays Group to (i) identify the contract with the customer, (ii) identify each of the performance
obligations included in the contract, (iii) determine the amount of consideration in the contract, (iv) allocate the consideration to each of the
identified performance obligations and (v) recognise revenue as each performance obligation is satisfied.
Barclays Group recognises fee and commission income charged for services provided by the Barclays Group as the services are provided,
for example on completion of the underlying transaction.
Accounting for net fee and commission income under IAS 18 for 2017 and 2016
The Barclays Group applies IAS 18 Revenue. Fees and commissions charged for services provided or received by the Barclays Group are
recognised as the services are provided, for example on completion of the underlying transaction.
Fee and commission income is disaggregated below by fee types that reflect the nature of the services offered across the Barclays Group and
operating segments, in accordance with IFRS 15. It includes a total for fees in scope of IFRS 15. Refer to Note 2 for more detailed information
about operating segments.
Fee type
Transactional
Advisory
Brokerage and execution
Underwriting and syndication
Other
Total revenue from contracts with customers
Other non-contract fee income
Fee and commission income
Fee and commission expense
Net fee and commission income
2018
Barclays UK
£m
Barclays
International
£m
Head Office
£m
Total
£m
1,102
209
153
–
78
1,542
–
1,542
(360)
1,182
2,614
850
1,073
2,462
207
7,206
118
7,324
(1,707)
5,617
–
–
–
–
27
27
–
27
(17)
10
3,716
1,059
1,226
2,462
312
8,775
118
8,893
(2,084)
6,809
270 Barclays PLC Annual Report 2018
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4 Net fee and commission income continued
Fee and commission income
Banking, investment management and credit related fees and commissions
Foreign exchange commission
Fee and commission income
Fee and commission expense
Net fee and commission income
2017a
£m
2016a
£m
8,622
129
8,751
(1,937)
6,814
8,452
118
8,570
(1,802)
6,768
Note
a The Barclays Group elected the cumulative effect transition method on adoption of IFRS 15 for 1 January 2018, and recognised in retained earnings without restating comparative
periods. The comparative figures are reported under IAS 18.
Fee types
Transactional
Transactional fees are service charges on deposit accounts, cash management services and transactional processing fees including interchange
and merchant fee income generated from credit and bank card usage. Transaction and processing fees are recognised at the point in time the
transaction occurs or service is performed. They include banking services such as Automated Teller Machine (ATM) fees, wire transfer fees,
balance transfer fees, overdraft or late fees and foreign exchange fees, among others. Interchange and merchant fees are recognised upon
settlement of the card transaction payment.
Barclays incurs certain card related costs including those related to cardholder reward programmes and various payments made to co-brand
partners. To the extent cardholder reward programmes costs are attributed to customers that settle their outstanding balance each period
(transactors) they are expensed when incurred and presented in fee and commission expense while costs related to customers who continuously
carry an outstanding balance (revolvers) are included in the effective interest rate of the receivable (refer to Note 3). Payments to partners for
new cardholder account originations for transactor accounts are deferred as costs to obtain a contract under IFRS 15 while those costs related
to revolver accounts are included in the effective interest rate of the receivable (refer to Note 3). Those costs deferred under IFRS 15 are capitalised
and amortised over the estimated cardholder relationship. Payments to co-brand partners based on revenue sharing are presented as a reduction
of fee and commission income while payments based on profitability are presented in fee and commission expense.
Advisory
Advisory fees are generated from wealth management services and investment banking advisory services related to mergers, acquisitions and
financial restructurings. Wealth management advisory fees primarily consists of asset-based fees for advisory accounts of wealth management
clients and are based on the market value of client assets. They are earned over the period the services are provided and are generally recognised
quarterly when the market value of client assets is determined. Investment banking advisory fees are recognised at the point in time when the
services related to the transaction have been completed under the terms of the engagement. Investment banking advisory costs are recognised
as incurred in fee and commission expense if direct and incremental to the advisory services or otherwise recognised in operating expenses.
Brokerage and execution
Brokerage and execution fees are earned for executing client transactions with various exchanges and over-the-counter markets and assisting
clients in clearing transactions. Brokerage and execution fees are recognised at the point in time the associated service has been completed which
is generally the trade date of the transaction.
Underwriting and syndication
Underwriting and syndication fees are earned for the distribution of client equity or debt securities and the arrangement and administration
of a loan syndication. This includes commitment fees to provide loan financing. Underwriting fees are generally recognised on trade date if there
is no remaining contingency, such as the transaction being conditional on closing of an acquisition or other transaction. Underwriting costs are
deferred and recognised in fee and commission expense when the associated underwriting fees are recorded. Syndication fees are earned for
arranging and administering a loan syndication; however, the associated fee may be subject to variability until the loan has been syndicated to
other syndicate members or until other contingencies (such as a successful M&A closing) have been resolved and therefore the fee revenue
is deferred until the uncertainty is resolved.
Underwriting and syndication fees were previously reported on a net basis in the income statement. Following the adoption of IFRS 15, expenses
associated with underwriting and syndication of £38m are now reported in fee and commission expense.
Including in the underwriting and syndication, commitment fees to provide loan financing includes fees which are not presented as part of the
effective interest rate of a loan in accordance with IFRS 9. Loan commitment fees included as IFRS 15 revenues are fees for loan commitments
that are not expected to fund, fees received as compensation for unfunded commitments and the applicable portion of fees received for
a revolving loan facility, which for that period, are undrawn. Such commitment fees are recognised over time through to the contractual maturity
of the commitment.
Contract assets and contract liabilities
The Barclays Group had no material contract assets or contract liabilities as at 31 December 2018.
Impairment on fee receivables and contract assets
During 2018, there have been no material impairments recognised in relation to fees receivable and contract assets. Fees in relation to
transactional business can be added to outstanding customer balances. These amounts may be subsequently impaired as part of the overall
loans and advances balance.
Remaining performance obligations
The Barclays Group applies the practical expedient of IFRS 15 and does not disclose information about remaining performance obligations that
have original expected durations of one year or less or because the Barclays Group has a right to consideration that corresponds directly with
the value of the service provided to the client or customer.
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Barclays PLC Annual Report 2018 271
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Notes to the financial statements
Performance/return
4 Net fee and commission income continued
Costs incurred in obtaining or fulfilling a contract
The Barclays Group expects that incremental costs of obtaining a contract such as success fee and commission fees paid are recoverable and
therefore capitalised such contract costs in the amount of £125.4m at 31 December 2018.
Capitalised contract costs are amortised based on the transfer of services to which the asset relates which typically ranges over the expected
life of the relationship. In 2018, the amount of amortisation was £30.4m and there was no impairment loss recognised in connection with the
capitalised contract costs.
5 Net trading income
Accounting for net trading income
In accordance with IFRS 9, trading positions are held at fair value, and the resulting gains and losses are included in the income statement,
together with interest and dividends arising from long and short positions and funding costs relating to trading activities.
Income arises from both the sale and purchase of trading positions, margins which are achieved through market making and customer
business and from changes in fair value caused by movements in interest and exchange rates, equity prices and other market variables.
Gains or losses on non-trading financial instruments designated or mandatorily at fair value with changes in fair value recognised in the income
statement are included in net trading income where the business model is to manage assets and liabilities on a fair value basis which includes
use of derivatives or where an instrument is designated at fair value to eliminate an accounting mismatch and the related instrument’s gain
and losses are reported in trading income.
Net gains from financial instruments held for trading
Net gains from financial instruments designated at fair value
Net gains from financial instruments mandatorily at fair value
Own credit lossesa
Net trading income
2018
£m
3,292
267
1,007
–
4,566
2017
£m
2,388
1,112
–
–
3,500
2016
£m
2,426
377
–
(35)
2,768
Note
a Following the early adoption of the own credit provisions of IFRS 9 on 1 January 2017, own credit on financial liabilities designated at fair value through profit and loss, which was
previously reported in income statement, is now recognised in other comprehensive income.
6 Net investment income
Accounting for net investment income
Dividends are recognised when the right to receive the dividend has been established. Other accounting policies relating to net investment
income are set out in Note 13 and Note 15.
Net gains from disposal of available for sale investmentsa
Net gains from disposal of debt instruments at fair value through other comprehensive income
Dividend income
Net gains from financial instruments designated at fair valueb
Net gains from financial instruments mandatorily at fair value
Other investment income
Net investment income
2018
£m
–
158
91
–
226
110
585
2017
£m
298
–
48
338
–
177
861
2016
£m
912
–
8
158
–
246
1,324
Notes
a Following the adoption of IFRS 9, available for sale classification is no longer applicable.
b Following the adoption of IFRS 9, this category only includes financial assets designated at fair value to eliminate or reduce an accounting mismatch. The net gains on such
instruments are recognised in net trading income which helps to reduce an income statement presentation mismatch.
272 Barclays PLC Annual Report 2018
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7 Credit impairment charges and other provisions
Accounting for the impairment of financial assets under IFRS 9 effective from 1 January 2018
Impairment
The Barclays Group is required to recognise expected credit losses (ECLs) based on unbiased forward-looking information for all financial
assets at amortised cost, lease receivables, debt financial assets at fair value through other comprehensive income, loan commitments and
financial guarantee contracts.
At the reporting date, an allowance (or provision for loan commitments and financial guarantees) is required for the 12 month (Stage 1)
ECLs. If the credit risk has significantly increased since initial recognition (Stage 2), or if the financial instrument is credit impaired (Stage 3),
an allowance (or provision) should be recognised for the lifetime ECLs.
The measurement of ECL is calculated using three main components: (i) probability of default (PD) (ii) loss given default (LGD) and (iii) the
exposure at default (EAD).
The 12 month ECL is calculated by multiplying the 12 month PD, LGD and the EAD. The 12 month and lifetime PDs represent the PD occurring
over the next 12 months and the remaining maturity of the instrument respectively. The EAD represents the expected balance at default, taking
into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdowns
of committed facilities. The LGD represents expected losses on the EAD given the event of default, taking into account, among other attributes,
the mitigating effect of collateral value at the time it is expected to be realised and the time value of money.
Determining a significant increase in credit risk since initial recognition:
The Barclays Group assesses when a significant increase in credit risk has occurred based on quantitative and qualitative assessments.
The credit risk of an exposure is considered to have significantly increased when:
i) Quantitative test
The annualised lifetime PD has increased by more than an agreed threshold relative to the equivalent at origination.
PD deterioration thresholds are defined as percentage increases, and are set at an origination score band and segment level to ensure the test
appropriately captures significant increases in credit risk at all risk levels. Generally, thresholds are inversely correlated to the origination PD,
i.e. as the origination PD increases, the threshold value reduces.
The assessment of the point at which a PD increase is deemed ‘significant’, is based upon analysis of the portfolios’ risk profile against
a common set of principles and performance metrics (consistent across both retail and wholesale businesses), incorporating expert credit
judgement where appropriate.
Wholesale assets apply a 100% increase in PD and 0.2% PD floor to determine a significant increase in credit risk.
Retail assets apply bespoke relative increase and absolute PD thresholds based on product type and origination PD. Thresholds are subject to
maximums defined by Barclays Group policy and typically apply minimum relative thresholds of 50–100% and a maxiumum relative threshold
of 400%.
For existing/historical exposures where origination point scores or data are no longer available or do not represent a comparable estimate
of lifetime PD, a proxy origination score is defined, based upon:
■■ back-population of the approved lifetime PD score either to origination date or, where this is not feasible, as far back as possible,
(subject to a data start point no later than 1 January 2015), or
■■ use of available historical account performance data and other customer information, to derive a comparable ‘proxy’ estimation
of origination PD.
ii) Qualitative test
Relevant for accounts that meet the portfolio’s ‘high risk’ criteria and are subject to closer credit monitoring.
High risk customers may not be in arrears but either through an event or an observed behaviour exhibit credit distress. The definition and
assessment of high risk includes as wide a range of information as reasonably available, such as industry and Group-wide customer level data,
including but not limited to bureau scores and high consumer indebtedness index, wherever possible or relevant.
Whilst the high risk populations applied for IFRS 9 impairment purposes are aligned with risk management processes, they are also regularly
reviewed and validated to ensure that they capture any incremental segments where there is evidence of credit deterioration.
iii) Backstop criteria
Relevant for accounts that are more than 30 calendar days past due. The 30 days past due criteria is a backstop rather than a primary driver
of moving exposures into Stage 2.
Exposures will move back to Stage 1 once they no longer meet the criteria for a significant increase in credit risk. This means that, at
a minimum: all payments must be up-to-date, the PD deterioration test is no longer met, the account is no longer classified as high risk,
and the customer has evidenced an ability to maintain future payments.
Management overlays and other exceptions to model outputs are applied only if consistent with the objective of identifying significant
increases in credit risk.
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Barclays PLC Annual Report 2018 273
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Notes to the financial statements
Performance/return
7 Credit impairment charges and other provisions continued
Forward-looking information
The measurement of ECL involves complexity and judgement, including estimation of PD, LGD, a range of unbiased future economic scenarios,
estimation of expected lives (where contractual life is not appropriate), and estimation of EAD and assessing significant increases in credit risk.
Credit losses are the expected cash shortfalls from what is contractually due over the expected life of the financial instrument, discounted at
the original effective interest rate (EIR). ECLs are the unbiased probability-weighted credit losses determined by evaluating a range of possible
outcomes and considering future economic conditions.
Barclays Group uses a five-scenario model to calculate ECL. An external consensus forecast is assembled from key sources, including HM
Treasury, Bloomberg and the Urban Land Institute, which forms the baseline scenario. In addition, two adverse scenarios (Downside 1 and
Downside 2) and two favourable scenarios (Upside 1 and Upside 2) are derived, with associated probability weightings. The adverse scenarios
are calibrated to a similar severity to internal stress tests, whilst also considering IFRS 9 specific sensitivities and non-linearity. Downside 2 is
benchmarked to the Bank of England’s annual cyclical scenarios and to the most severe scenario from Moody’s inventory, but is not designed
to be the same. The favourable scenarios are calibrated to be symmetric to the adverse scenarios, subject to a ceiling calibrated to relevant
recent favourable benchmark scenarios. The scenarios include six economic core variables, (GDP, unemployment and House Price Index (HPI)
in both the UK and US markets), and expanded variables using statistical models based on historical correlations. All five scenarios converge
to a steady state after eight years.
The methodology for estimating probability weights for each of the scenarios involves a comparison of the distribution of key historic UK and
US macroeconomic variables against the forecast paths of the five scenarios. The methodology works such that the baseline (reflecting current
consensus outlook) has the highest weight and the weights of adverse and favourable scenarios depend on the deviation from the baseline; the
further from the baseline, the smaller the weight. A single set of five scenarios is used across all portfolios and all five weights are normalised to
equate to 100%. The impacts across the portfolios are different because of the sensitivities of each of the portfolios to specific macroeconomic
variables, for example, mortgages are highly sensitive to house prices and base rates, credit cards and unsecured consumer loans are highly
sensitive to unemployment.
Definition of default, credit impaired assets, write-offs, and interest income recognition
The definition of default for the purpose of determining ECLs, and for internal credit risk management purposes, has been aligned to the
Regulatory Capital CRR Article 178 definition of default, to maintain a consistent approach with IFRS 9 and associated regulatory guidance.
The Regulatory Capital CRR Article 178 definition of default considers indicators that the debtor is unlikely to pay, includes exposures in
forbearance and is no later than when the exposure is more than 90 days past due or 180 days past due in the case of UK mortgages. When
exposures are identified as credit impaired or purchased or originated as such interest income is calculated on the carrying value net of the
impairment allowance.
Credit impaired is when the exposure has defaulted which is also anticipated to align to when an exposure is identified as individually impaired.
Uncollectable loans are written off against the related allowance for loan impairment on completion of the Barclays Group’s internal processes
and when all reasonably expected recoverable amounts have been collected. Subsequent recoveries of amounts previously written off are
credited to the income statement. The timing and extent of write-offs may involve some element of subjective judgement. Nevertheless,
a write-off will often be prompted by a specific event, such as the inception of insolvency proceedings or other formal recovery action, which
makes it possible to establish that some or the entire advance is beyond realistic prospect of recovery.
Loan modifications and renegotiations that are not credit-impaired
When modification of a loan agreement occurs as a result of commercial restructuring activity rather than due to the credit risk of the borrower,
an assessment must be performed to determine whether the terms of the new agreement are substantially different from the terms of the
existing agreement. This assessment considers both the change in cash flows arising from the modified terms as well as the change in overall
instrument risk profile.
Where terms are substantially different, the existing loan will be derecognised and a new loan will be recognised at fair value.
Where terms are not substantially different, the loan carrying value will be adjusted to reflect the present value of modified cash flows
discounted at the original EIR, with any resulting gain or loss recognised immediately within the income statement as a modification gain
or loss.
Expected life
Lifetime ECLs must be measured over the expected life. This is restricted to the maximum contractual life and takes into account expected
prepayment, extension, call and similar options. The exceptions are certain revolver financial instruments, such as credit cards and bank
overdrafts, that include both a drawn and an undrawn component where the entity’s contractual ability to demand repayment and cancel the
undrawn commitment does not limit the entity’s exposure to credit losses to the contractual notice period. For revolving facilities, expected
life is analytically derived to reflect behavioural life of the asset, i.e. the full period over which the business expects to be exposed to credit risk.
Behavioural life is typically based upon historical analysis of the average time to default, closure or withdrawal of facility. Where data is
insufficient or analysis inconclusive, an additional ‘maturity factor’ may be incorporated to reflect the full estimated life of the exposures, based
upon experienced judgement and/or peer analysis. Potential future modifications of contracts are not taken into account when determining
the expected life or EAD until they occur.
Discounting
ECLs are discounted at the EIR at initial recognition or an approximation thereof and consistent with income recognition. For loan
commitments the EIR is the rate that is expected to apply when the loan is drawn down and a financial asset is recognised. Issued financial
guarantee contracts are discounted at the risk free rate. Lease receivables are discounted at the rate implicit in the lease. For variable/floating
rate financial assets, the spot rate at the reporting date is used and projections of changes in the variable rate over the expected life are not
made to estimate future interest cash flows or for discounting.
274 Barclays PLC Annual Report 2018
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7 Credit impairment charges and other provisions continued
Modelling techniques
ECLs are calculated by multiplying three main components, being the PD, LGD and the EAD, discounted at the original EIR. The regulatory Basel
Committee of Banking Supervisors (BCBS) ECL calculations are leveraged for IFRS 9 modelling but adjusted for key differences which include:
■■ BCBS requires 12 month through the economic cycle losses whereas IFRS 9 requires 12 months or lifetime point in time losses based on
conditions at the reporting date and multiple forecasts of the future economic conditions over the expected lives;
■■ IFRS 9 models do not include certain conservative BCBS model floors and downturn assessments and require discounting to the reporting
date at the original EIR rather than using the cost of capital to the date of default;
■■ Management adjustments are made to modelled output to account for situations where known or expected risk factors and information
have not been considered in the modelling process, for example forecast economic scenarios for uncertain political events; and
■■ ECL is measured at the individual financial instrument level, however a collective approach where financial instruments with similar risk
characteristics are grouped together, with apportionment to individual financial instruments, is used where effects can only be seen at
a collective level, for example for forward-looking information.
For the IFRS 9 impairment assessment, Barclays Group’s risk models are used to determine the PD, LGD and EAD. For Stage 2 and 3, Barclays
Group applies lifetime PDs but uses 12 month PDs for Stage 1. The ECL drivers of PD, EAD and LGD are modelled at an account level which
considers vintage, among other credit factors. Also, the assessment of significant increase in credit risk is based on the initial lifetime PD curve,
which accounts for the different credit risk underwritten over time.
Forbearance
A financial asset is subject to forbearance when it is modified due to the credit distress of the borrower. A modification made to the terms
of an asset due to forbearance will typically be assessed as a non-substantial modification that does not result in derecognition of the original
loan, except in circumstances where debt is exchanged for equity.
Both performing and non-performing forbearance assets are classified as Stage 3 except where it is established that the concession granted
has not resulted in diminished financial obligation and that no other regulatory definition of default criteria has been triggered, in which
case the asset is classified as Stage 2. The minimum probationary period for non-performing forbearance is 12 months and for performing
forbearance, 24 months. Hence, a minimum of 36 months is required for non-performing forbearance to move out of a forborne state.
No financial instrument in forbearance can transfer back to Stage 1 until all of the Stage 2 thresholds are no longer met and can only move out
of Stage 3 when no longer credit impaired.
Accounting for the impairment of financial assets under IAS 39 for 2017 and 2016
Loans and other assets held at amortised cost
In accordance with IAS 39, the Barclays Group assesses at each balance sheet date whether there is objective evidence that loan assets will not
be recovered in full and, wherever necessary, recognises an impairment loss in the income statement.
An impairment loss is recognised if there is objective evidence of impairment as a result of events that have occurred and these have adversely
impacted the estimated future cash flows from the assets. These events include:
■■ becoming aware of significant financial difficulty of the issuer or obligor
■■ a breach of contract, such as a default or delinquency in interest or principal payments
■■ the Barclays Group, for economic or legal reasons relating to the borrower’s financial difficulty, grants a concession that it would not
otherwise consider
■■ it becomes probable that the borrower will enter bankruptcy or other financial reorganisation
■■ the disappearance of an active market for that financial asset because of financial difficulties
■■ observable data at a portfolio level indicating that there is a measurable decrease in the estimated future cash flows, although the decrease
cannot yet be ascribed to individual financial assets in the portfolio – such as adverse changes in the payment status of borrowers in the
portfolio or national or local economic conditions that correlate with defaults on the assets in the portfolio.
Impairment assessments are conducted individually for significant assets, which comprise all wholesale customer loans and larger retail
business loans, and collectively for smaller loans and for portfolio level risks, such as country or sectoral risks. For the purposes of the
assessment, loans with similar credit risk characteristics are grouped together – generally on the basis of their product type, industry,
geographical location, collateral type, past due status and other factors relevant to the evaluation of expected future cash flows.
The impairment assessment includes estimating the expected future cash flows from the asset or the group of assets, which are then
discounted using the original effective interest rate calculated for the asset. If this is lower than the carrying value of the asset or the portfolio,
an impairment allowance is raised.
If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after
the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the
reversal is recognised in the income statement.
Following impairment, interest income continues to be recognised at the original effective interest rate on the restated carrying amount,
representing the unwind of the discount of the expected cash flows, including the principal due on non-accrual loans.
Uncollectable loans are written off against the related allowance for loan impairment on completion of the Barclays Group’s internal processes
when all reasonably expected recoverable amounts have been collected. Subsequent recoveries of amounts previously written off are credited
to the income statement.
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Notes to the financial statements
Performance/return
7 Credit impairment charges and other provisions continued
Available for sale financial assets
Impairment of available for sale debt instruments
Debt instruments are assessed for impairment in the same way as loans. If impairment is deemed to have occurred, the cumulative decline
in the fair value of the instrument that has previously been recognised in the available for sale reserve is removed from reserves and recognised
in the income statement. This may be reversed if there is evidence that the circumstances of the issuer have improved.
Impairment of available for sale equity instruments
Where there has been a prolonged or significant decline in the fair value of an equity instrument below its acquisition cost, it is deemed to be
impaired. The cumulative net loss that has been previously recognised directly in the available for sale reserve is removed from reserves and
recognised in the income statement.
Increases in the fair value of equity instruments after impairment are recognised directly in other comprehensive income. Further declines
in the fair value of equity instruments after impairment are recognised in the income statement.
Critical accounting estimates and judgements
IFRS 9 impairment involves several important areas of judgement, including estimating forward looking modelled parameters (PD, LGD and
EAD), developing a range of unbiased future economic scenarios, estimating expected lives and assessing significant increases in credit risk,
based on the Barclays Group’s experience of managing credit risk. The determination of expected life is most material for Barclays credit card
portfolios which is obtained via behavioural life analysis. As a result, the expected life of credit card portfolios is modelled over 10 years, to
materially capture the risk of these facilities.
Within the retail and small businesses portfolios, which comprise large numbers of small homogenous assets with similar risk characteristics
where credit scoring techniques are generally used, the impairment allowance is calculated using forward looking modelled parameters which
are typically run at account level. There are many models in use, each tailored to a product, line of business or customer category. Judgement
and knowledge is needed in selecting the statistical methods to use when the models are developed or revised. The impairment allowance
reflected in the financial statements for these portfolios is therefore considered to be reasonable and supportable. The impairment charge
reflected in the income statement for retail portfolios is £1,689m (2017: £2,095m; 2016: £2,053m) of the total impairment charge on loans
and advances.
For individually significant assets in Stage 3, impairment allowances are calculated on an individual basis and all relevant considerations that
have a bearing on the expected future cash flows across a range of economic scenarios are taken into account. These considerations can be
subjective and can include the business prospects for the customer, the realisable value of collateral, the Barclays Group’s position relative
to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. The economic scenarios
considered are the same as those used in the Group’s ECL models. The level of the impairment allowance is the difference between the value
of the discounted expected future cash flows (discounted at the loan’s original effective interest rate), and its carrying amount. Furthermore,
judgements change with time as new information becomes available or as work-out strategies evolve, resulting in frequent revisions to the
impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have
a direct impact on the impairment charge. The impairment charge reflected in the financial statements in relation to wholesale portfolios is
a release of £99m (2017: £238m; 2016: £299m) of the total impairment charge on loans and advances. Further information on impairment
allowances, impairment charges and related credit information is set out within the Risk review on page 153.
Loans and advances
Provision for undrawn
contractually committed facilities
and guarantees provided
Loans impairment
Cash collateral and settlement
balances
Financial investments
Financial instruments at fair value
through other comprehensive
income
Credit impairment charges and
other provisions
Impairment
charges
£m
1,785
2018
Recoveriesb
£m
(195)
Total
£m
1,590
Impairment
charges
£m
2,654
2017a
Recoveriesb
£m
(334)
Total
£m
2,320
Impairment
charges
£m
2,708
2016a
Recoveriesb
£m
(365)
Total
£m
2,343
(125)
1,660
–
(195)
(125)
1,465
13
2,667
–
(334)
13
2,333
9
2,717
–
(365)
9
2,352
(1)
–
4
–
–
–
(1)
–
4
–
3
–
–
–
–
–
3
–
–
21
–
–
–
–
–
21
–
1,663
(195)
1,468
2,670
(334)
2,336
2,738
(365)
2,373
Notes
a The comparatives for 2017 and 2016 are presented on an IAS 39 basis.
b Cash recoveries of previously written off amounts.
276 Barclays PLC Annual Report 2018
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7 Credit impairment charges and other provisions continued
The movement in gross exposures and impairment allowance for loans and advances at amortised cost table under IFRS 9 is presented in the
Credit risk section on page 153. The prior year comparative table for movement in allowance under IAS 39 is presented below.
Movements in allowance for impairment by asset class
2017
Home loans
Credit cards, unsecured and other retail
lending
Corporate loans
Total impairment allowance
At beginning
of year
£m
Acquisitions
and
disposals
£m
Unwind of
discount
£m
Exchange
and other
adjustments
£m
Amounts
written off
£m
Recoveries
£m
Amounts
charged to
income
statement
£m
Balance at
31 December
£m
467
3,060
1,093
4,620
–
–
(5)
(5)
(5)
(43)
–
(48)
(4)
(29)
(223)
(13)
(240)
(2,042)
(258)
(2,329)
–
252
82
334
29
458
2,051
240
2,320
3,055
1,139
4,652
Write-offs subject to enforcement activity
The contractual amount outstanding on financial assets that were written off during the period ended 31 December 2018 and that are still subject
to enforcement activity is £1,445m. This is lower than the write-offs presented in the movement in gross exposures and impairment allowance
table due to post write-off recoveries.
Modification of financial assets
Financial assets with a loss allowance measured at an amount equal to lifetime ECL of £851m were subject to non-substantial modification during
the period, with a resulting loss of £26m. The gross carrying amount at 31 December 2018 of financial assets for which the loss allowance has
changed to a 12 month ECL during the year amounts to £114m.
8 Operating expenses
Accounting for staff costs
The Barclays Group applies IAS 19 Employee benefits in its accounting for most of the components of staff costs.
Short-term employee benefits – salaries, accrued performance costs and social security are recognised over the period in which the employees
provide the services to which the payments relate.
Performance costs – recognised to the extent that the Barclays Group has a present obligation to its employees that can be measured reliably
and are recognised over the period of service that employees are required to work to qualify for the payments.
Deferred cash and share awards are made to employees to incentivise performance over the period employees provide services. To receive
payment under an award, employees must provide service over the vesting period. The period over which the expense for deferred cash and
share awards is recognised is based upon the period employees consider their services contribute to the awards. For past awards, the Barclays
Group considers that it is appropriate to recognise the awards over the period from the date of grant to the date that the awards vest. In relation
to awards granted from 2017, the Barclays Group, taking into account the changing employee understanding surrounding those awards,
considered it appropriate for expense to be recognised over the vesting period including the financial year prior to the grant date.
The accounting policies for share-based payments, and pensions and other post-retirement benefits are included in Note 32 and Note 33
respectively.
Infrastructure costs
Property and equipment
Depreciation of property, plant and equipment
Operating lease rentals
Amortisation of intangible assets
Impairment of property, equipment and intangible assets
Total infrastructure costs
Administration and general costs
Consultancy, legal and professional feesa
Subscriptions, publications, stationery and communications
Marketing, advertising and sponsorship
Travel and accommodation
UK bank levy
Other administration and general expensesa
Total administration and general costs
Staff costs
Provisions for litigation and conducta
Operating expenses
2018
£m
1,360
418
329
834
9
2,950
729
635
495
153
269
176
2,457
8,629
2,207
16,243
2017
£m
1,366
446
342
715
80
2,949
1,064
630
433
150
365
98
2,740
8,560
1,207
15,456
2016
£m
1,180
492
561
670
95
2,998
782
644
435
136
410
147
2,554
9,423
1,363
16,338
Note
a The presentation of other costs has been amended to include litigation and conduct as a separate line item. The prior year comparatives within other cost categories have been
adjusted accordingly.
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Notes to the financial statements
Performance/return
9 Tax
Accounting for income taxes
The Barclays Group applies IAS 12 Income Taxes in accounting for taxes on income. Income tax payable on taxable profits (current tax) is
recognised as an expense in the periods in which the profits arise. Withholding taxes are also treated as income taxes. Income tax recoverable
on tax allowable losses is recognised as a current tax asset only to the extent that it is regarded as recoverable by offsetting against taxable
profits arising in the current or prior periods. Current tax is measured using tax rates and tax laws that have been enacted or substantively
enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except in certain circumstances where the
deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred tax
is determined using tax rates and legislation enacted or substantively enacted by the balance sheet date which are expected to apply when the
deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are only offset when there is both a legal
right to set-off and an intention to settle on a net basis.
The Barclays Group considers an uncertain tax position to exist when it considers that ultimately, in the future, the amount of profit subject to
tax may be greater than the amount initially reflected in the Barclays Group’s tax returns. The Barclays Group accounts for provisions in respect
of uncertain tax positions in two different ways.
A current tax provision is recognised when it is considered probable that the outcome of a review by a tax authority of an uncertain tax position
will alter the amount of cash tax due to, or from, a tax authority in the future. From recognition, the current tax provision is then measured at
the amount the Barclays Group ultimately expects to pay the tax authority to resolve the position, taking into account any interest and penalties
potentially payable to the tax authority.
Deferred tax provisions are adjustments made to the carrying value of deferred tax assets in respect of uncertain tax positions. A deferred tax
provision is recognised when it is considered probable that the outcome of a review by a tax authority of an uncertain tax position will result in
a reduction in the carrying value of the deferred tax asset. From recognition of a provision, measurement of the underlying deferred tax asset is
adjusted to take into account the expected impact of resolving the uncertain tax position on the loss or temporary difference giving rise to the
deferred tax asset.
The approach taken to measurement takes account of whether the uncertain tax position is a discrete position that will be reviewed by the
tax authority in isolation from any other position, or one of a number of issues which are expected to be reviewed together concurrently and
resolved simultaneously with a tax authority. Barclays Group’s measurement of provisions is based upon its best estimate of the additional
profit that will become subject to tax. For a discrete position, consideration is given only to the merits of that position. Where a number of
issues are expected to be reviewed and resolved together, Barclays Group will take into account not only the merits of its position in respect
of each particular issue but also the overall level of provision relative to the aggregate of the uncertain tax positions across all the issues that
are expected to be resolved at the same time. In addition, in assessing provision levels, it is assumed that tax authorities will review uncertain
tax positions and that all facts will be fully and transparently disclosed.
Critical accounting estimates and judgements
There are two key areas of judgement that impact the reported tax position. Firstly, the level of provisioning for uncertain tax positions; and
secondly, the recognition and measurement of deferred tax assets.
The Barclays Group does not consider there to be a significant risk of a material adjustment to the carrying amount of current and deferred tax
balances, including provisions for uncertain tax positions in the next financial year. The provisions for uncertain tax positions cover a diverse
range of issues and reflect advice from external counsel where relevant. It should be noted that only a proportion of the total uncertain tax
positions will be under audit at any point in time, and could therefore be subject to challenge by a tax authority over the next year.
Deferred tax assets have been recognised based on business profit forecasts. Details on the recognition of deferred tax assets is provided in
this note.
Current tax charge/(credit)
Current year
Adjustments in respect of prior years
Deferred tax charge/(credit)
Current year
Adjustments in respect of prior years
Tax charge
2018
£m
900
(214)
686
442
(6)
436
1,122
2017
£m
768
55
823
1,507
(90)
1,417
2,240
2016
£m
896
(361)
535
393
65
458
993
278 Barclays PLC Annual Report 2018
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9 Tax continued
The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK
corporation tax rate to the Barclays Group’s profit before tax.
Profit before tax
Tax charge based on the standard UK corporation tax rate of 19%
(2017: 19.25%; 2016: 20%)
Impact of profits/losses earned in territories with different statutory
rates to the UK (weighted average tax rate is 21.9% (2017: 29.4%;
2016: 32.8%))
Recurring items:
Non-creditable taxes including withholding taxes
Non-deductible expenses
Impact of UK bank levy being non-deductible
Tax adjustments in respect of share-based payments
Non-taxable gains and income
Changes in recognition of deferred tax and effect of unrecognised tax
losses
Impact of Barclays Bank PLC’s overseas branches being taxed both
locally and in the UK
Adjustments in respect of prior years
Banking surcharge and other items
Non-recurring items:
Remeasurement of US deferred tax assets due to US tax rate reduction
Impact of the UK branch exemption election on US branch deferred tax
assets
Non-deductible provisions for UK customer redress
Non-deductible provisions for investigations and litigation
Non-taxable gains and income on divestments
Non-deductible impairments and losses on divestments
Total tax charge
2018
£m
3,494
2018
%
2017
£m
3,541
2017
%
2016
£m
3,230
2016
%
664
19.0%
682
19.3%
646
20.0%
100
2.9%
356
10.1%
415
12.8%
156
81
51
17
(245)
4.5%
2.3%
1.5%
0.5%
(7.0%)
191
90
70
5
(178)
5.4%
2.5%
2.0%
0.1%
(5.0%)
277
114
82
34
(199)
8.6%
3.5%
2.5%
1.1%
(6.2%)
(104)
(3.0%)
(71)
(2.0%)
(178)
(5.5%)
16
(220)
167
0.5%
(6.3%)
4.8%
(61)
(35)
128
(1.7%)
(1.0%)
3.6%
(128)
(296)
88
(4.0%)
(9.2%)
2.7%
–
–
1,177
33.2%
–
–
–
93
346
–
–
1,122
–
2.7%
9.9%
–
–
32.1%
(276)
129
72
(39)
–
2,240
(7.8%)
3.6%
2.0%
(1.1%)
–
63.3%
–
203
48
(180)
67
993
–
6.3%
1.5%
(5.6%)
2.1%
30.7%
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The effective tax rate of 32.1% is higher than the UK corporation tax rate of 19% primarily due to profits earned outside the UK being taxed at local
statutory tax rates that are higher than the UK tax rate, provisions for UK customer redress, investigations and litigation being non-deductible for
tax purposes, non-creditable taxes and non-deductible expenses including UK bank levy. In addition, the UK profits of banking companies are
subject to a surcharge. These factors, which have each increased the effective tax rate, are partially offset by the impact of non-taxable gains and
income in the period, changes in the recognition of deferred tax, and the impact of adjustments in respect of prior years.
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the Barclays Group operates in. In the UK, legislation to reduce the corporation tax rate to 17% from 1 April 2020 has been enacted.
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Effective from 1 January 2019, a change in accounting standards requires the tax consequences of all payments on financial instruments that
are classified as equity for accounting purposes, where those payments are considered to be a distribution of profit, to be included in the income
statement tax charge. The Barclays Group currently includes the tax credit associated with deductions for payments made under Additional Tier 1
instruments as a movement in reserves. This accounting change will result in that tax credit being included in the income statement tax charge,
and this will have the effect of reducing the Barclays Group’s effective tax rate from 2019.
For illustrative purposes, if this future accounting approach had been applied in 2018, then, the tax credit on payments under Additional Tier 1
instruments would have reduced the Barclays Group’s total income statement tax charge by £203m.
Tax in the consolidated statement of comprehensive income
The tax relating to each component of other comprehensive income can be found on page 257 in the consolidated statement of comprehensive
income which includes within Other a tax credit of £30m (2017: £5m charge) on other items including share based payments.
Tax in respect of discontinued operation
Tax relating to the discontinued operation can be found in the BAGL disposal group income statement (refer to Note 41). The tax charge of nil
(2017: £154m) related entirely to the profit from the ordinary activities of the discontinued operation.
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Notes to the financial statements
Performance/return
9 Tax continued
Current tax assets and liabilities
Movements on current tax assets and liabilities were as follows:
Assets
Liabilities
As at 1 January
Income statement from continuing operations
Other comprehensive income
Corporate income tax paid
Other movements
Assets
Liabilities
As at 31 December
Deferred tax assets and liabilities
The deferred tax amounts on the balance sheet were as follows:
Intermediate Holding Company (IHC Tax Group)
US Branch Tax Group
UK Tax Group
Other
Deferred tax asset
Deferred tax liability
Net deferred tax
2018
£m
482
(586)
(104)
(686)
321
548
91
170
798
(628)
170
2018
£m
1,454
1,087
861
426
3,828
(51)
3,777
2017
£m
561
(737)
(176)
(823)
93
708
94
(104)
482
(586)
(104)
2017
£m
1,413
1,234
492
318
3,457
(44)
3,413
US deferred tax assets in the IHC and US Branch Tax Groups
The deferred tax asset in the IHC Tax Group of £1,454m (2017: £1,413m) includes £220m (2017: £286m) relating to tax losses and the deferred
tax asset in Barclays Bank PLC’s US Branch Tax Group of £1,087m (2017: £1,234m) includes £167m (2017: £283m) relating to tax losses. Under
US tax rules, losses occurring prior to 1 January 2018 can be carried forward and offset against profits for a period of 20 years. The losses first
arose in 2011 in the IHC Tax Group and 2008 in the US Branch Tax Group and therefore, any unused amounts may begin to expire in 2031 and
2028 respectively. The remaining US deferred tax assets relate to temporary differences for which there is no time limit on recovery. The deferred
tax assets for the IHC and the US Branch Tax Groups’ tax losses are currently projected to be fully utilised by 2020.
UK Tax Group deferred tax asset
The deferred tax asset in the UK Tax Group of £861m (2017: £492m) relates entirely to temporary differences.
Other deferred tax assets
The deferred tax asset of £426m (2017: £318m) in other entities within the Barclays Group includes £142m (2017: £27m) relating to tax losses
carried forward. These deferred tax assets relate to a number of different territories and their recognition is based on profit forecasts or local
country law which indicate that it is probable that the losses and temporary differences will be utilised.
Of the deferred tax asset of £426m (2017: £318m), an amount of £247m (2017: £218m) relates to entities which have suffered a loss in either the
current or prior year. This has been taken into account in reaching the above conclusion that these deferred tax assets will be fully recovered in
the future.
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9 Tax continued
The table below shows movements on deferred tax assets and liabilities during the year. The amounts are different from those disclosed on the
balance sheet and in the preceding table as they are presented before offsetting asset and liability balances where there is a legal right to set-off
and an intention to settle on a net basis.
Fair value
through
other
compre-
hensive
income
£m
200
(161)
39
(8)
108
6
145
180
(35)
145
Cash flow
hedges
£m
1
(76)
(75)
7
96
1
29
39
(10)
29
Retirement
benefit
obligations
£m
52
(218)
(166)
(120)
(98)
(5)
(389)
46
(435)
(389)
Loan
impairment
allowance
£m
735
–
735
(84)
(48)
(2)
601
601
–
601
Other
provisions
£m
157
–
157
(62)
8
9
112
112
–
112
Tax losses
carried
forward
£m
596
–
596
(103)
1
35
529
529
–
529
Share-
based
payments
and
deferred
compensation
£m
384
–
384
(26)
(13)
14
359
359
–
359
183
(141)
42
–
(3)
–
39
200
(161)
39
–
(333)
(333)
–
262
(4)
(75)
1
(76)
(75)
91
–
91
(322)
49
16
(166)
52
(218)
(166)
151
–
151
(38)
–
(5)
108
108
–
108
251
–
251
(69)
–
(25)
157
157
–
157
503
–
503
131
–
(38)
596
596
–
596
732
–
732
(307)
(22)
(19)
384
384
–
384
Fixed asset
timing
differences
£m
1,266
(28)
1,238
(14)
–
52
1,276
1,292
(16)
1,276
1,801
(92)
1,709
(353)
–
(118)
1,238
1,266
(28)
1,238
Other
£m
1,362
(230)
1,132
(26)
(7)
16
1,115
1,377
(262)
1,115
2,013
(319)
1,694
(459)
22
(125)
1,132
1,362
(230)
1,132
Total
£m
4,753
(713)
4,040
(436)
47
126
3,777
4,535
(758)
3,777
5,725
(885)
4,840
(1,417)
308
(318)
3,413
4,126
(713)
3,413
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Assetsa
Liabilities
At 1 January 2018a
Income statement
Other comprehensive income
Other movements
Assets
Liabilities
At 31 December 2018
Assets
Liabilities
At 1 January 2017
Income statement
Other comprehensive income
Other movements
Assets
Liabilities
At 31 December 2017
Note
a Following the adoption of IFRS 9 and IFRS 15 on 1 January 2018, additional deferred tax assets of £627m were recognised. Refer to Note 42 for further information.
Other movements include the impact of changes in foreign exchange rates as well as deferred tax amounts relating to acquisitions and disposals.
The amount of deferred tax liability expected to be settled after more than 12 months is £635m (2017: £522m). The amount of deferred tax assets
expected to be recovered after more than 12 months is £3,703m (2017: £3,399m). These amounts are before offsetting asset and liability balances
where there is a legal right to set-off and an intention to settle on a net basis.
Unrecognised deferred tax
Tax losses and temporary differences
Deferred tax assets have not been recognised in respect of gross deductible temporary differences of £175m (2017: £157m), unused tax credits
of £198m (2017: £546m), and gross tax losses of £16,313m (2017: £17,919m). The tax losses include capital losses of £3,225m (2017: £3,126m).
Of these tax losses, £240m (2017: £409m) expire within five years, £259m (2017: £193m) expire within six to 10 years, £948m (2017: £2,016m)
expire within 11 to 20 years and £14,866m (2017: £15,301m) can be carried forward indefinitely. Deferred tax assets have not been recognised
in respect of these items because it is not probable that future taxable profits and gains will be available against which they can be utilised.
Group investments in subsidiaries, branches and associates
Deferred tax is not recognised in respect of the value of the Barclays Group’s investments in subsidiaries, branches and associates where the
Barclays Group is able to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse
in the foreseeable future. The aggregate amount of these temporary differences for which deferred tax liabilities have not been recognised was
£0.6bn (2017: £0.1bn).
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Barclays PLC Annual Report 2018 281
Notes to the financial statements
Performance/return
10 Earnings per share
Profit/(loss) attributable to ordinary equity holders of the parent in respect of continuing and discontinued
operations
Tax credit on profit after tax attributable to other equity instrument holders
Total profit/(loss) attributable to ordinary equity holders of the parent in respect of continuing and
discontinued operations
Continuing operations
Profit attributable to ordinary equity holders of the parent in respect of continuing operations
Tax credit on profit after tax attributable to other equity instrument holders
Profit attributable to equity holders of the parent in respect of continuing operations
2018
£m
1,394
203
2017
£m
(1,922)
174
2016
£m
1,623
128
1,597
(1,748)
1,751
1,394
203
1,597
413
174
587
1,434
128
1,562
Discontinued operation
(Loss)/profit attributable to ordinary equity holders of the parent in respect of discontinued operations
Dilutive impact of convertible options in respect of discontinued operations
(Loss)/profit attributable to equity holders of the parent in respect of discontinued operations including
dilutive impact of convertible options
–
–
–
(2,335)
–
(2,335)
189
(1)
188
Profit/(loss) attributable to equity holders of the parent in respect of continuing and discontinued
operations including dilutive impact of convertible options
Basic weighted average number of shares in issue
Number of potential ordinary shares
Diluted weighted average number of shares
1,597
(1,748)
1,750
2018
million
17,075
308
17,383
2017
million
16,996
288
17,284
2016
million
16,860
184
17,044
Earnings/(loss) per ordinary share
Earnings per ordinary share in respect of continuing operations
(Loss)/earnings per ordinary share in respect of discontinued
operation
Basic earnings per share
2018
p
9.4
9.4
2017
p
(10.3)
3.5
–
(13.8)
2016
p
10.4
9.3
1.1
Diluted earnings per share
2018
p
9.2
9.2
2017
p
(10.1)
3.4
–
(13.5)
2016
p
10.3
9.2
1.1
The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the basic weighted average
number of shares excluding treasury shares held in employee benefit trusts or held for trading. When calculating the diluted earnings per share,
the weighted average number of shares in issue is adjusted for the effects of all dilutive potential ordinary shares held in respect of Barclays PLC,
totalling 308m (2017: 288m) shares. The total number of share options outstanding, under schemes considered to be potentially dilutive, was
544m (2017: 534m). These options have strike prices ranging from £1.20 to £2.27.
Of the total number of employee share options and share awards at 31 December 2018, 43m (2017: 10m) were anti-dilutive.
The 79m (2017: 136m) increase in the basic weighted average number of shares since 31 December 2017 to 17,075m is primarily due to shares
issued under employee share schemes and the Scrip Dividend Programme.
11 Dividends on ordinary shares
The Directors have approved a total dividend in respect of 2018 of 6.5p per ordinary share of 25p each. The remaining full year dividend for
2018 of 4.0p per ordinary share will be paid on 5 April 2019 to shareholders on the Share Register on 1 March 2019 following the 2.5p half year
dividend paid in September. On 31 December 2018, there were 17,133m ordinary shares in issue. The financial statements for the year ended
31 December 2018 does not reflect this dividend, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the
year ending 31 December 2019. The 2018 financial statements include the 2018 half year dividend of £427m (2017: £170m) and a final dividend
declared in relation to 2017 of £341m (2017: £339m). Dividends are funded out of distributable reserves.
282 Barclays PLC Annual Report 2018
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Notes to the financial statements
Assets and liabilities held at fair value
The notes included in this section focus on assets and liabilities the Barclays Group holds and recognises at fair value. Fair value refers to the
price that would be received to sell an asset or the price that would be paid to transfer a liability in an arm’s-length transaction with a willing
counterparty, which may be an observable market price or, where there is no quoted price for the instrument, may be an estimate based on
available market data. Detail regarding the Barclays Group’s approach to managing market risk can be found on page 176.
12 Trading portfolio
Accounting for trading portfolio assets and liabilities
In accordance with IFRS 9, all assets and liabilities held for trading purposes are held at fair value with gains and losses in the changes in fair
value taken to the income statement in net trading income (Note 5).
Debt securities and other eligible bills
Equity securities
Traded loans
Commodities
Trading portfolio assets/(liabilities)
Trading portfolio assets
2018
£m
57,283
39,565
7,234
105
104,187
2017
£m
51,200
59,338
3,140
82
113,760
Trading portfolio liabilities
2017
£m
(29,045)
(8,306)
–
–
(37,351)
2018
£m
(25,394)
(12,488)
–
–
(37,882)
13 Financial assets at fair value through the income statement
Accounting for financial assets mandatorily at fair value
Financial assets that are held for trading are recognised at fair value through profit or loss. In addition, financial assets are held at fair value
through profit or loss if they do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial
asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is
achieved by both collecting contractual cash flows and selling.
Accounting for financial assets designated at fair value
Financial assets, other than those held for trading, are classified in this category if they are so irrevocably designated at inception and the use
of the designation removes or significantly reduces an accounting mismatch.
Subsequent changes in fair value for these instruments are recognised in the income statement in net investment income, except if reporting
it in trading income reduces an accounting mismatch.
The details on how the fair value amounts are derived for financial assets at fair value are described in Note 17.
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Debt securities
Equity securities
Reverse repurchase agreements and other
similar secured lending
Other financial assets
Financial assets at fair value through the income statement
2018
£m
5,267
3,855
–
106
–
9,228
Designated at fair value
2017
£m
11,037
15
4,670
Mandatorily at fair value
2017
£m
–
–
–
2018
£m
14,257
667
6,019
Total
2018
£m
19,524
4,522
6,019
2017
£m
11,037
15
4,670
100,040
519
116,281
118,935
542
140,420
–
–
–
119,041
542
149,648
100,040
519
116,281
Credit risk of loans and advances designated at fair value and related credit derivatives
The following table shows the maximum exposure to credit risk, the changes in fair value attributable to changes in credit risk, and the cumulative
changes in fair value since initial recognition together with the amount by which related credit derivatives mitigate this risk:
Loans and advances designated at fair value, attributable to credit risk
Value mitigated by related credit derivatives
Maximum exposure as at
31 December
2018
£m
5,267
–
2017
£m
11,037
256
Changes in fair value during
the year ended
2018
£m
4
–
2017
£m
10
1
Cumulative changes in fair
value from inception
2018
£m
(35)
–
2017
£m
2
(12)
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Notes to the financial statements
Assets and liabilities held at fair value
14 Derivative financial instruments
Accounting for derivatives
Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices defined in the
contract. They include swaps, forward-rate agreements, futures, options and combinations of these instruments and primarily affect the
Barclays Group’s net interest income, net trading income and derivative assets and liabilities. Notional amounts of the contracts are not
recorded on the balance sheet. Derivatives are used to hedge interest rate, exchange rate, commodity, and equity exposures and exposures
to certain indices such as house price indices and retail price indices related to non-trading positions.
All derivative instruments are held at fair value through profit or loss, except for derivatives that are in a designated cash flow or net investment
hedge accounting relationship. Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is
negative. This includes terms included in a contract or financial liability (the host), which, had it been a standalone contract, would have met
the definition of a derivative. If these are separated from the host, i.e. when the economic characteristics of the embedded derivative are not
closely related with those of the host contract and the combined instrument is not measured at fair value through profit or loss, then they are
accounted for in the same way as derivatives. For financial assets, the requirements are whether the financial asset contain contractual terms
that give rise on specified dates to cash flows that are SPPI, and consequently the requirements for accounting for embedded derivatives are
not applicable to financial assets.
Hedge accounting
The Barclays Group applies the requirements of IAS 39 Financial Instruments: Recognition and Measurement for hedge accounting purposes.
The Barclays Group applies hedge accounting to represent the economic effects of its interest rate, currency and contractually linked inflation
risk management strategies. Where derivatives are held for risk management purposes, and when transactions meet the required criteria for
documentation and hedge effectiveness, the Barclays Group applies fair value hedge accounting, cash flow hedge accounting, or hedging
of a net investment in a foreign operation, as appropriate to the risks being hedged.
Fair value hedge accounting
Changes in fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together with
changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The fair value changes adjust the carrying value
of the hedged asset or liability held at amortised cost.
If hedge relationships no longer meet the criteria for hedge accounting, hedge accounting is discontinued. For fair value hedges of interest rate
risk, the fair value adjustment to the hedged item is amortised to the income statement over the period to maturity of the previously designated
hedge relationship using the effective interest method. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised
immediately in the income statement. For items classified as fair value through other comprehensive income, the hedge accounting adjustment
is included in other comprehensive income.
Cash flow hedge accounting
For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge is recognised initially
in other comprehensive income, and then recycled to the income statement in the periods when the hedged item will affect profit or loss.
Any ineffective portion of the gain or loss on the hedging instrument is recognised in the income statement immediately.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the hedged item is ultimately recognised in the income statement.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was recognised in equity is immediately transferred
to the income statement.
Hedges of net investments
The Barclays Group’s net investments in foreign operations, including monetary items accounted for as part of the net investment, are hedged
for foreign currency risks using both derivatives and foreign currency borrowings. Hedges of net investments are accounted for similarly to
cash flow hedges; the effective portion of the gain or loss on the hedging instrument is being recognised directly in other comprehensive
income and the ineffective portion being recognised immediately in the income statement. The cumulative gain or loss recognised in other
comprehensive income is recognised in the income statement on the disposal or partial disposal of the foreign operation, or other reductions
in the Barclays Group’s investment in the operation.
Total derivatives
2018
2017
Total derivative assets/(liabilities) held for trading
Total derivative assets/(liabilities) held for risk management
Derivative assets/(liabilities)
Notional
contract
amount
£m
44,193,753
180,202
44,373,955
Fair value
Assets
£m
222,384
154
222,538
Liabilities
£m
Notional
contract
amount
£m
(219,578) 35,686,673
231,348
(219,643) 35,918,021
(65)
Fair value
Assets
£m
237,504
165
237,669
Liabilities
£m
(237,236)
(1,109)
(238,345)
Further information on netting arrangements of derivative financial instruments can be found within Note 18.
Trading derivatives are managed within the Barclays Group’s market risk management policies, which are outlined on page 139.
The Barclays Group’s exposure to credit risk arising from derivative contracts are outlined in the Credit risk section on page 149 to 175.
284 Barclays PLC Annual Report 2018
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14 Derivative financial instruments continued
The fair values and notional amounts of derivative instruments held for trading are set out in the following table:
Derivatives held for trading
Foreign exchange derivatives
Forward foreign exchange
Currency swaps
OTC options bought and sold
OTC derivatives
Foreign exchange derivatives cleared by central counterparty
Exchange traded futures and options – bought and sold
Foreign exchange derivatives
Interest rate derivatives
Interest rate swaps
Forward-rate agreements
OTC options bought and sold
OTC derivatives
Interest rate derivatives cleared by central counterparty
Exchange traded futures and options – bought and sold
Interest rate derivatives
Credit derivatives
OTC swaps
Credit derivatives cleared by central counterparty
Credit derivatives
Equity and stock index derivatives
OTC options bought and sold
Equity swaps and forwards
OTC derivatives
Exchange traded futures and options – bought and sold
Equity and stock index derivatives
Commodity derivatives
OTC options bought and sold
Commodity swaps and forwards
OTC derivatives
Exchange traded futures and options – bought and sold
Commodity derivatives
Derivative assets/(liabilities) held for trading
Notional
contract
amount
£m
3,460,364
1,180,559
552,838
5,193,761
72,526
23,585
5,289,872
7,333,917
342,883
2,292,525
9,969,325
16,083,853
11,087,714
37,140,892
386,508
372,567
759,075
57,840
132,656
190,496
692,435
882,931
1,648
8,108
9,756
111,227
120,983
44,193,753
2018
2017
Fair value
Assets
£m
Liabilities
£m
Notional
contract
amount
£m
Fair value
Assets
£m
Liabilities
£m
32,575
27,184
4,259
64,018
163
7
64,188
102,613
171
20,922
123,706
1,056
356
125,118
6,575
4,180
10,755
4,542
5,169
9,711
11,171
20,882
26
495
521
920
1,441
222,384
(33,051)
(26,031)
(4,805)
(63,887)
(233)
(7)
(64,127)
3,131,184
1,098,587
506,156
4,735,927
59,618
24,266
4,819,811
(96,394)
(306)
(22,589)
(119,289)
5,680,977
268,277
2,384,453
8,333,707
(1,016) 13,215,545
7,644,560
(120,628) 29,193,812
(323)
(5,239)
(4,280)
(9,519)
(7,719)
(4,111)
(11,830)
(12,066)
(23,896)
411,160
303,841
715,001
58,456
103,283
161,739
632,662
794,401
(34)
(374)
(408)
(1,000)
(1,408)
4,465
12,755
17,220
146,428
163,648
(219,578) 35,686,673
26,534
23,675
4,056
54,265
607
30
54,902
121,560
87
27,235
148,882
3,675
362
152,919
7,595
4,954
12,549
5,262
2,235
7,497
7,201
14,698
32
662
694
1,742
2,436
237,504
(26,177)
(22,003)
(4,665)
(52,845)
(585)
(30)
(53,460)
(112,187)
(88)
(29,635)
(141,910)
(3,390)
(358)
(145,658)
(6,233)
(5,319)
(11,552)
(9,591)
(5,478)
(15,069)
(9,050)
(24,119)
(103)
(753)
(856)
(1,591)
(2,447)
(237,236)
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Total OTC derivatives held for trading
Total derivatives cleared by central counterparty held
for trading
Total exchange traded derivatives held for trading
Derivative assets/(liabilities) held for trading
15,749,846
204,531
(200,653) 13,659,753
218,933
(216,913)
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11,914,961
44,193,753
5,399
12,454
222,384
(5,529) 13,579,004
8,447,916
(219,578) 35,686,673
(13,396)
9,236
9,335
237,504
(9,294)
(11,029)
(237,236)
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Barclays PLC Annual Report 2018 285
Notes to the financial statements
Assets and liabilities held at fair value
14 Derivative financial instruments continued
The fair values and notional amounts of derivative instruments held for risk management are set out in the following table:
Derivatives held for risk management
2018
2017
Derivatives designated as cash flow hedges
Interest rate swaps
Interest rate derivatives cleared by central counterparty
Derivatives designated as cash flow hedges
Derivatives designated as fair value hedges
Interest rate swaps
Interest rate derivatives cleared by central counterparty
Derivatives designated as fair value hedges
Derivatives designated as hedges of net investments
Forward foreign exchange
Derivatives designated as hedges of net investments
Derivative assets/(liabilities) held for risk management
Total OTC derivatives held for risk management
Total derivatives cleared by central counterparty held for risk
management
Derivative assets/(liabilities) held for risk management
Notional
contract
amount
£m
2,075
73,314
75,389
2,065
99,780
101,845
2,968
2,968
180,202
7,108
173,094
180,202
Fair value
Assets
£m
Liabilities
£m
Notional
contract
amount
£m
1,482
122,103
123,585
7,345
97,436
104,781
2,982
2,982
231,348
(6)
–
(6)
(49)
–
(49)
(10)
(10)
(65)
(65)
11,809
–
(65)
219,539
231,348
Fair value
Assets
£m
Liabilities
£m
7
–
7
117
–
117
41
41
165
165
–
165
(3)
–
(3)
(1,096)
–
(1,096)
(10)
(10)
(1,109)
(1,109)
–
(1,109)
11
–
11
143
–
143
–
–
154
154
–
154
The Barclays Group has hedged the following forecast cash flows, which primarily vary with interest rates. These cash flows are expected to
impact the income statement in the following periods, excluding any hedge adjustments that may be applied:
2018
Forecast receivable cash flows
2017
Forecast receivable cash flows
Total
£m
Up to
one year
£m
One to
two years
£m
Two to
three years
£m
Three to
four years
£m
Four to
five years
£m
More than
five years
£m
2,599
685
717
536
346
200
115
2,671
484
584
561
416
305
321
The maximum length of time over which the Barclays Group hedges exposure to the variability in future cash flows for forecast transactions,
excluding those forecast transactions related to the payment of variable interest on existing financial instruments is 10 years (2017: 10 years).
Amounts recognised in net interest income
(Losses)/gains on the hedged items attributable to the hedged risk
Gains/(losses) on the hedging instruments
Fair value ineffectiveness
Cash flow hedging ineffectiveness
Net investment hedging ineffectiveness
2018
£m
(163)
164
1
(5)
(1)
2017
£m
550
(460)
90
(135)
2
Gains and losses transferred from the cash flow hedging reserve to the income statement included a £332m gain (2017: £632m gain) to
interest expense.
286 Barclays PLC Annual Report 2018
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14 Derivative financial instruments continued
Hedge accounting
Hedge accounting is applied predominantly for the following risks:
(i)
Interest rate risk – predominantly arises due to a mismatch between fixed interest rates and floating interest rates. Interest rate risk also
includes exposure to inflation risk for certain types of investments.
(ii) Currency risk – arises due to assets or liabilities being denominated in different currencies than the functional currency of the relevant entity.
At a consolidated level, currency risk also arises when the functional currency of subsidiaries are different from the parent.
(iii) Contractually linked Inflation risk – arises from financial instruments within contractually specified inflation risk. The Barclays Group does not
hedge inflation risk that arises from other activities.
In order to hedge the risks to which the Barclays Group is exposed, the hedging instruments employed are interest rate swaps, inflation swaps,
currency swaps and foreign currency debt to:
(i) Swap fixed interest rate exposures into variable rates.
(ii) Swap variable interest rate exposures into fixed rates.
(iii) Swap inflation exposure into either fixed or variable interest rates.
(iv) Swap foreign currency net investment exposure to local currency.
The hedging instruments share the same risk exposures as the hedged items, being interest rate risk, inflation risk and foreign currency risk.
Hedge effectiveness is assessed with reference to the shared risks, but to the extent hedging instruments are exposed to different risks than the
hedged items, this could result in hedge ineffectiveness or hedge accounting failures.
In some cases, certain items which are economically hedged may be ineligible hedged items for the purposes of IAS 39, such as core deposits and
equity. In these instances, a proxy hedging solution can be utilised whereby portfolios of floating rate assets are designated as eligible hedged
items in cash flow hedges.
The ratio between the hedged item and the hedging instruments is typically determined with reference to the sensitivity of the hedged item,
on designation to the risk factor, compared to that of the hedging instrument. In many cases the ratio is 100%.
In some hedging relationships, the Barclays Group would designate risk components of hedged items as follows:
(i) Benchmark interest rate risk as a component of interest rate risk, such as the LIBOR component.
(ii)
Inflation risk as a contractually specified component of a debt instrument.
(iii) Spot exchange rate risk for foreign currency financial assets or financial liabilities.
(iv) Components of cash flows of hedged items, for example certain interest payments for part of the life of an instrument.
Using the benchmark interest rate risk results in other risks such as credit risk and liquidity risk being excluded from the hedge accounting
relationship. LIBOR is considered the predominant interest rate risk and therefore the hedged items change in fair value on a fully proportionate
basis with reference to this risk.
For disclosures of the extent of risk exposures that the Barclays Group manages, refer to the Risk review section.
In respect of many of the Barclays Group’s hedge accounting relationships, the hedged item and hedging instrument change frequently due to
the dynamic nature of the risk management and hedge accounting strategy.
The Barclays risk management strategy is to hedge interest rate risk with interest rate derivatives (predominantly interest rate swaps), currency
risk with currency derivatives and inflation risk with inflation derivatives. The interest rate risk management strategy is to reduce Barclays’
exposure to interest rate risk to within approved risk limits.
The Barclays Group applies hedge accounting to dynamic scenarios, predominantly in relation to interest rate risk, with a combination of hedged
items (some hedged items are designated by proxy) in order for its financial statements to reflect as closely as possible the economic risk
management undertaken. Hedge relationships are analysed and rebalanced on a daily basis. In some cases, if the hedge accounting objective
changes, the relevant hedge accounting relationship is de-designated; in some cases, a de-designated relationship is replaced with a different
hedge accounting relationship.
Changes in the GBP value of net investments due to foreign currency movements are captured in the currency translation reserve, resulting
in a movement in CET1 capital. The Barclays Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange
movements, by matching the CET1 capital movements to the revaluation of the Barclays Group’s foreign currency RWA exposures. Net investment
hedges are designated where necessary to reduce the exposure to movement in a particular exchange rate to within mandated limits. As far as
possible, existing external currency liabilities are designated as the hedging instruments. Hedging relationships are reviewed, and adjusted if
necessary, at least once a month.
Sources of ineffectiveness affecting hedge accounting are as follows:
(i) Mismatches between the contractual terms of the hedged item and hedging instrument, including basis differences between the hedged
risk and the risk exposure of the hedging instrument.
(ii) Changes in credit risk of the hedging instruments.
(iii) If a hedge accounting relationship becomes overhedged. This might occur in hedges of net investments if the net asset value designated
at the start of the period falls below the amount of the hedging instrument.
(iv) In the cash flow hedging solution, when a hedge is built using external swaps having non-zero present values, it creates ineffectiveness.
No other source of ineffectiveness has arisen during the period. Hedge effectiveness is determined with reference to quantitative tests,
predominantly regression testing, which takes into account the regression co-efficient, the slope of the regression line, and ensuring that the
relevant confidence intervals are complied with. There were no instances of forecast transactions for which hedge accounting had been used
in the previous period, but which are no longer expected to occur.
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Notes to the financial statements
Assets and liabilities held at fair value
14 Derivative financial instruments continued
Amount, timing and uncertainty of future cash flows
The following table shows the hedging instruments which are carried on the Barclays Group’s balance sheet:
Hedge type
As at 31 December 2018
Fair value
Cash flow
Net investment
Risk category
Interest rate risk
Inflation risk
Interest rate risk
Foreign exchange risk
Carrying value
Derivative
assets
£m
Derivative
liabilities
£m
Loan
liabilities
£m
106
37
11
–
(41)
(8)
(6)
(10)
–
–
–
(12,325)
Change in fair
value used as
a basis to
determine
ineffectiveness
£m
135
29
(380)
(745)
Nominal
amount
£m
98,320
3,525
75,389
15,300
The following table profiles the expected notional values of current hedging instruments in future years:
As at 31 December
Fair value hedges of interest rate risk
Notional amount
Fair value hedges of inflation risk
Notional amount
2019
£m
2020
£m
2021
£m
2022
£m
2023
£m
2024 and later
£m
95,411
86,939
70,335
56,938
51,114
41,510
3,107
1,998
1,754
1,331
1,159
986
There are 1,805 interest rate risk fair value hedges with an average fixed rate of 2.79% across the relationships and 44 inflation risk fair value
hedges with an average rate of 1% across the relationships.
Hedged items in fair value hedge accounting relationships
Accumulated fair value adjustment
included in carrying amount
Hedged item statement of financial position
classification and risk category
2018
Assets
Loans and advances classified as
amortised cost
– Interest rate risk
– Inflation risk
Debt securities classified as fair value
through other comprehensive income
– Interest rate risk
– Inflation risk
Liabilities
Debt securities in issue classified as
amortised cost
– Interest rate risk
Of which:
Accumulated
fair value
adjustment on
items no longer
in a hedge
relationship
£m
Change in
fair value
used as a basis
to determine
ineffectiveness
£m
Hedge
ineffectiveness
recognised in the
income statement
£m
Line item in the
income statement
used to recognise
ineffectiveness
Carrying amount
£m
Total
£m
7,106
512
30,108
2,907
(363)
312
416
(20)
(626)
–
(21)
–
(568)
2
(96)
(50)
37 Net interest income
(1) Net interest income
17 Net interest income
(18) Net interest income
53,935
(289)
(256)
549
(34) Net interest income
For items classified as fair value through other comprehensive income, the hedge accounting adjustment is not included in the carrying amount,
but rather recognised as other comprehensive income.
288 Barclays PLC Annual Report 2018
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14 Derivative financial instruments continued
Hedged items in cash flow hedge accounting and hedges of net investments in foreign operations
Change in
value of
hedged item
used as
the basis for
recognising
ineffectiveness
£m
Balance in
cash flow
hedge reserve
for continuing
hedges
£m
Balance in
foreign
currency
reserve
for continuing
hedges
£m
Balances
remaining in
cash flow
hedge reserve
for which
hedge
accounting
is no longer
applied
£m
Balances
remaining
in foreign
currency
translation
reserve for
which hedge
accounting
is no longer
applied
£m
Hedging gains
or losses
recognised
in other
comprehensive
income
£m
Hedge
ineffectiveness
recognised in
the income
statement
£m
Line item in the
statement of
comprehensive
income used
to recognise
ineffectiveness
375
(44)
–
(827)
–
334
Net interest
income
(5)
719
–
–
–
4
2
14
21
(13)
1
–
(4)
–
–
744
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,648
1
–
–
–
–
–
–
–
–
–
(3)
–
–
1,646
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86
(1)
1
53
23
77
(14)
13
78
2
–
2
7
327
719
–
–
–
4
2
14
21
(13)
1
–
(4)
–
–
744
–
–
–
–
–
–
–
–
–
(1)
–
–
–
–
(1)
Net interest
income
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Description of hedge
relationship and hedged risk
2018
Cash flow hedge of interest
rate risk
Loans and
advances classified
as amortised cost
Hedge of net investment
in foreign operation
USD foreign operations
EUR foreign operations
ZAR foreign operations
CAD foreign operations
CHF foreign operations
HKD foreign operations
JPY foreign operations
MXN foreign operations
SEK foreign operations
SGD foreign operations
TWD foreign operations
BRL foreign operations
CNY foreign operations
INR foreign operations
The effect on the income statement and other comprehensive income of recycling amounts in respect of cash flow hedges and net investment
hedges of foreign operations is set out in the following table:
Description of hedge relationship and hedged risk
Cash flow hedge of interest rate risk
Recycled to interest income
Hedge of net investment in foreign operation
Recycled to other income
2018
Amount recycled
from other
comprehensive
income due to
hedged item
affecting income
statement
£m
Amount recycled
from other
comprehensive
income during the
period due to sale
or disposal of
investment
£m
332
–
–
(41)
A detailed reconciliation of the movements of the cash flow hedge reserve and the currency translation reserve is as follows:
Balance on 1 January 2018
Currency translation movementsa
Hedging gains/(losses) for the year
Amounts reclassified in relation to cash flows affecting profit or loss
Tax
Balance on 31 December 2018
Note
a Currency translation movements include amounts attributable to items which are not in net investment hedges (£49m gain).
Cash flow
hedge reserve
£m
1,161
(10)
(334)
(332)
175
660
Currency
translation reserve
£m
3,054
793
–
41
–
3,888
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Barclays PLC Annual Report 2018 289
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Notes to the financial statements
Assets and liabilities held at fair value
15 Financial assets at fair value through other comprehensive income and financial investments
Accounting for financial assets at fair value through other comprehensive income (‘FVOCI’) under IFRS 9 effective from 1 January 2018
Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling
and that contain contractual terms that give rise on specified dates to cash flows that are SPPI are measured at FVOCI. They are subsequently
re-measured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains
and losses) are recognised in other comprehensive income until the assets are sold. Interest (calculated using the effective interest method)
is recognised in the income statement in net interest income (Note 3). Upon disposal, the cumulative gain or loss recognised in other
comprehensive income is included in net investment income.
In determining whether the business model is achieved by both collecting contractual cash flows and selling financial assets, it is determined
that both collecting contractual cash flows and selling financial assets are integral to achieving the objective of the business model. The
Barclays Group will consider past sales and expectations about future sales to establish if the business model is achieved.
For equity securities that are not held for trading, the Barclays Group may make an irrevocable election on initial recognition to present
subsequent changes in the fair value of the instrument in other comprehensive income (except for dividend income which is recognised in
profit or loss). Gains or losses on the de-recognition of these equity securities are not transferred to profit or loss. These assets are also not
subject to the impairment requirements and therefore no amounts are recycled to the income statement. Where the Barclays Group has not
made the irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, equity
securities are measured at fair value through profit or loss.
Accounting for financial investments under IAS 39 for 2017 and 2016
Available for sale financial assets are held at fair value with gains and losses being included in other comprehensive income. The Barclays Group
uses this classification for assets that are not derivatives and are not held for trading purposes or otherwise designated at fair value through
profit or loss, or at amortised cost. Dividends and interest (calculated using the effective interest method) are recognised in the income
statement in net interest income or, net investment income. On disposal, the cumulative gain or loss recognised in other comprehensive
income is also included in net investment income.
Held to maturity assets are held at amortised cost. The Barclays Group uses this classification when there is an intent and ability to hold the
asset to maturity. Interest on the investments are recognised in the income statement within net interest income.
Debt securities and other eligible bills at fair value through other comprehensive income
Equity securities at fair value through other comprehensive income
Loans and advances at fair value through other comprehensive income
Available for sale debt securities and other eligible bills
Available for sale equity securities
Held to maturity debt securities
Financial assets at fair value through other comprehensive income/Financial investments
16 Financial liabilities designated at fair value
2018
£m
51,026
1,122
668
–
–
–
52,816
2017
£m
–
–
–
52,020
1,786
5,109
58,915
Accounting for liabilities designated at fair value through profit and loss
In accordance with IFRS 9, financial liabilities may be designated at fair value, with gains and losses taken to the income statement within net
trading income (Note 5) and net investment income (Note 6). Movements in own credit are reported through other comprehensive income.
On derecognition of the financial liability no amount relating to own credit risk are recycled to the income statement. The Barclays Group has
the ability to make the fair value designation when holding the instruments at fair value reduces an accounting mismatch (caused by an
offsetting liability or asset being held at fair value), or is managed by the Barclays Group on the basis of its fair value, or includes terms that
have substantive derivative characteristics (Note 14).
The details on how the fair value amounts are arrived for financial liabilities designated at fair value are described in Note 17.
Debt securities
Deposits
Repurchase agreements and other similar secured borrowing
Other financial liabilities
Financial liabilities designated at fair value
The cumulative own credit net loss recognised is £121m (2017: £179m loss).
2018
2017
Contractual
amount due
on maturity
£m
54,159
32,029
138,724
19
224,931
Fair value
£m
46,649
31,682
138,484
19
216,834
Contractual
amount due
on maturity
£m
46,920
4,414
126,822
16
178,172
Fair value
£m
42,563
4,448
126,691
16
173,718
290 Barclays PLC Annual Report 2018
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17 Fair value of financial instruments
Accounting for financial assets and liabilities – fair values
Financial instruments that are held for trading are recognised at fair value through profit or loss. In addition, financial assets are held at fair
value through profit or loss if they do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the
financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model
that is achieved by both collecting contractual cash flows and selling. Subsequent changes in fair value for these instruments are recognised
in the income statement in net investment income, except if reporting it in trading income reduces an accounting mismatch.
All financial instruments are initially recognised at fair value on the date of initial recognition (including transaction costs, other than financial
instruments held at fair value through profit or loss) and, depending on the classification of the asset or liability, may continue to be held at fair
value either through profit or loss or other comprehensive income. The fair value of a financial instrument is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Wherever possible, fair value is determined by reference to a quoted market price for that instrument. For many of the Barclays Group’s financial
assets and liabilities, especially derivatives, quoted prices are not available and valuation models are used to estimate fair value. The models
calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These
models use as their basis independently sourced market inputs including, for example, interest rate yield curves, equities and commodities
prices, option volatilities and currency rates.
For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit spreads derived
from observable market data such as in primary issuance and redemption activity for structured notes.
On initial recognition, it is presumed that the transaction price is the fair value unless there is observable information available in an active
market to the contrary. The best evidence of an instrument’s fair value on initial recognition is typically the transaction price. However, if fair
value can be evidenced by comparison with other observable current market transactions in the same instrument, or is based on a valuation
technique whose inputs include only data from observable markets, then the instrument should be recognised at the fair value derived from
such observable market data.
For valuations that have made use of unobservable inputs, the difference between the model valuation and the initial transaction price
(Day One profit) is recognised in profit or loss either: on a straight-line basis over the term of the transaction; or over the period until all model
inputs will become observable where appropriate; or released in full when previously unobservable inputs become observable.
Various factors influence the availability of observable inputs and these may vary from product to product and change over time. Factors
include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the marketplace,
the maturity of market modelling and the nature of the transaction (bespoke or generic). To the extent that valuation is based on models or
inputs that are not observable in the market, the determination of fair value can be more subjective, dependent on the significance of the
unobservable input to the overall valuation. Unobservable inputs are determined based on the best information available, for example by
reference to similar assets, similar maturities or other analytical techniques.
The sensitivity of valuations used in the financial statements to possible changes in significant unobservable inputs is shown on page 300.
Critical accounting estimates and judgements
The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation models
make use of unobservable inputs (‘Level 3’ assets and liabilities). This note provides information on these instruments, including the related
unrealised gains and losses recognised in the period, a description of significant valuation techniques and unobservable inputs, and
a sensitivity analysis.
Valuation
IFRS 13 Fair value measurement requires an entity to classify its assets and liabilities according to a hierarchy that reflects the observability
of significant market inputs. The three levels of the fair value hierarchy are defined below.
Quoted market prices – Level 1
Assets and liabilities are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to
unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents
actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency
to provide pricing information on an ongoing basis.
Valuation technique using observable inputs – Level 2
Assets and liabilities classified as Level 2 have been valued using models whose inputs are observable either directly or indirectly. Valuations
based on observable inputs include assets and liabilities such as swaps and forwards which are valued using market standard pricing techniques,
and options that are commonly traded in markets where all the inputs to the market standard pricing models are observable.
Valuation technique using significant unobservable inputs – Level 3
Assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data
(unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there
is compelling external evidence demonstrating an executable exit price. Unobservable input levels are generally determined via reference to
observable inputs, historical observations or using other analytical techniques.
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Assets and liabilities held at fair value
17 Fair value of financial instruments continued
The following table shows the Barclays Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value
hierarchy) and balance sheet classification:
Assets and liabilities held at fair value
As at 31 December
Trading portfolio assets
Financial assets at fair value through the
income statement
Derivative financial assets
Available for sale investments
Financial assets at fair value through other
comprehensive income
Investment property
Assets included in disposal groups classified
as held for salea
Total assets
2018
Valuation technique using
Level 3
£m
Level 2
£m
Level 1
£m
Total
£m
Level 1
£m
2017
Valuation technique using
Level 3
£m
Level 2
£m
Total
£m
51,029
49,545
3,613
104,187
63,925
47,858
1,977
113,760
8,918
6,813
–
131,348
210,510
–
9,382
5,215
–
149,648
222,538
–
4,347
3,786
22,841
104,187
228,549
30,571
19,764
–
32,697
–
355
9
52,816
9
–
–
–
–
7,747
5,334
395
–
116
116,281
237,669
53,807
–
116
–
86,524
–
424,100
–
18,574
–
529,198
–
94,899
–
411,165
29
15,598
29
521,662
Trading portfolio liabilities
Financial liabilities designated at fair value
Derivative financial liabilities
Total liabilities
(20,654)
(76)
(6,152)
(26,882)
(17,225)
(216,478)
(208,748)
(442,451)
(3)
(280)
(4,743)
(5,026)
(37,882)
(216,834)
(219,643)
(474,359)
(20,905)
–
(3,631)
(24,536)
(16,442)
(173,238)
(229,517)
(419,197)
(4)
(480)
(5,197)
(5,681)
(37,351)
(173,718)
(238,345)
(449,414)
Note
a Disposal groups held for sale and measured at fair value less cost to sell are included in the fair value table.
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17 Fair value of financial instruments continued
The following table shows the Barclays Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value
hierarchy) and product type:
Assets and liabilities held at fair value by product type
Assets
Valuation technique using
Level 1
£m
Level 2
£m
As at 31 December 2018
Interest rate derivatives
Foreign exchange derivatives
Credit derivatives
Equity derivatives
Commodity derivatives
Government and government sponsored debt
Corporate debt
Certificates of deposit, commercial paper and other money market
instruments
Margin lending
Reverse repurchase and repurchase agreements
Non-asset backed loans
Asset backed securities
Issued debt
Equity cash products
Private equity investments
Assets and liabilities held for sale
Othera
Total
As at 31 December 2017
Interest rate derivatives
Foreign exchange derivatives
Credit derivatives
Equity derivatives
Commodity derivatives
Government and government sponsored debt
Corporate debt
Certificates of deposit, commercial paper and other money market
instruments
Reverse repurchase and repurchase agreements
Non-asset backed loans
Asset backed securities
Issued debt
Equity cash productsb
Private equity investments
Assets and liabilities held for sale
Othera,b
Total
–
–
–
6,813
–
41,812
–
–
–
–
–
–
–
37,816
7
–
76
86,524
–
–
–
3,786
–
34,783
–
–
–
–
–
–
56,322
8
–
–
94,899
122,794
63,996
9,373
12,934
1,413
51,644
14,664
1,135
10,388
118,273
7,406
2,314
–
7,195
–
–
571
424,100
150,325
54,783
11,163
9,848
2,430
49,853
15,098
1,491
100,038
5,710
1,837
–
7,690
1
–
898
411,165
Liabilities
Valuation technique using
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
(6,152)
–
(9,396)
–
–
–
–
–
–
–
(11,258)
–
–
(76)
(26,882)
–
–
–
(3,631)
–
(13,079)
–
–
–
–
–
–
(7,826)
–
–
–
(24,536)
(118,227)
(63,952)
(9,188)
(16,001)
(1,380)
(11,171)
(5,061)
(8,556)
(26,875)
(138,460)
–
(245)
(42,101)
(1,181)
–
–
(53)
(442,451)
(143,890)
(53,346)
(11,312)
(18,527)
(2,442)
(13,116)
(3,580)
(7,377)
(126,691)
–
(221)
(38,176)
(388)
–
–
(131)
(419,197)
(2,456)
(185)
(331)
(1,743)
(28)
–
–
(10)
–
–
–
–
(251)
(3)
(19)
–
–
(5,026)
(2,867)
(124)
(240)
(1,961)
(5)
–
(4)
(250)
–
–
–
(214)
–
(16)
–
–
(5,681)
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2,478
192
1,381
1,136
28
14
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–
–
768
8,304
688
–
698
1,071
–
1,360
18,574
2,718
160
1,386
1,064
6
49
871
–
–
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626
–
502
817
29
713
15,598
Notes
a Level 3 preference shares of £390m were reclassified from other to equity cash products.
b Other includes commercial real estate loans, funds and fund-linked products, asset backed loans, physical commodities and investment property.
Valuation techniques and sensitivity analysis
Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible alternative
valuations. The sensitivity methodologies applied take account of the nature of the valuation techniques used, as well as the availability and
reliability of observable proxy and historical data and the impact of using alternative models.
Sensitivities are dynamically calculated on a monthly basis. The calculation is based on range or spread data of a reliable reference source or
a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated without reflecting the
impact of any diversification in the portfolio.
The valuation techniques used for the material products within Levels 2 and 3, and observability and sensitivity analysis for products within Level
3, are described below.
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Notes to the financial statements
Assets and liabilities held at fair value
17 Fair value of financial instruments continued
Interest rate derivatives
Description: Derivatives linked to interest rates or inflation indices. The category includes futures, interest rate and inflation swaps, swaptions,
caps, floors, inflation options, balance guaranteed swaps and other exotic interest rate derivatives.
Valuation: Interest rate and inflation derivatives are generally valued using curves of forward rates constructed from market data to project and
discount the expected future cash flows of trades. Instruments with optionality are valued using volatilities implied from market inputs, and use
industry standard or bespoke models depending on the product type.
Observability: In general, inputs are considered observable up to liquid maturities which are determined separately for each input and underlying.
Unobservable inputs are generally set by referencing liquid market instruments and applying extrapolation techniques or inferred via another
reasonable method.
Level 3 sensitivity: Sensitivity to unobservable valuation inputs is based on the dispersion of consensus data services where available, or
alternatively it is based on stress scenarios or historic data.
Foreign exchange derivatives
Description: Derivatives linked to the foreign exchange (FX) market. The category includes FX forward contracts, FX swaps and FX options.
The majority are traded as over the counter (OTC) derivatives.
Valuation: FX derivatives are valued using industry standard and bespoke models depending on the product type. Valuation inputs include
FX rates, interest rates, FX volatilities, interest rate volatilities, FX interest rate correlations and others as appropriate.
Observability: FX correlations, forwards and volatilities are generally observable up to liquid maturities which are determined separately for each
input and underlying. Unobservable inputs are set by referencing liquid market instruments and applying extrapolation techniques, or inferred
via another reasonable method.
Level 3 sensitivity: Sensitivity relating to unobservable valuation inputs is primarily based on the dispersion of consensus data services.
Credit derivatives
Description: Derivatives linked to the credit spread of a referenced entity, index or basket of referenced entities or a pool of referenced assets
(e.g. a securitised product). The category includes single name and index credit default swaps (CDS) and asset backed CDS.
Valuation: CDS are valued on industry standard models using curves of credit spreads as the principal input. Credit spreads are observed directly
from broker data, third party vendors or priced to proxies.
Observability: CDS contracts referencing entities that are actively traded are generally considered observable. Other valuation inputs are
considered observable if products with significant sensitivity to the inputs are actively traded in a liquid market. Unobservable valuation inputs
are generally determined with reference to recent transactions or inferred from observable trades of the same issuer or similar entities.
Level 3 sensitivity: Sensitivity to unobservable CDS contracts is determined by applying a shift to credit spread curves based on the average range
of pricing observed in the market for similar CDS.
Equity derivatives
Description: Exchange traded or OTC derivatives linked to equity indices and single names. The category includes vanilla and exotic equity
products.
Valuation: Equity derivatives are valued using industry standard models. Valuation inputs include stock prices, dividends, volatilities, interest rates,
equity repurchase curves and, for multi-asset products, correlations.
Observability: In general, valuation inputs are observable up to liquid maturities which are determined separately for each input and underlying.
Unobservable inputs are set by referencing liquid market instruments and applying extrapolation techniques, or inferred via another reasonable
method.
Level 3 sensitivity: Sensitivity is generally estimated using the dispersion of consensus data services.
Commodity derivatives
Description: Exchange traded and OTC derivatives based on underlying commodities such as metals, crude oil and refined products, agricultural,
power and natural gas.
Valuation: Commodity swaps and options are valued using models incorporating discounting of cash flows and other industry standard modelling
techniques. Valuation inputs include forward curves, volatilities implied from market observable inputs and correlations.
Observability: Commodity correlations, forwards and volatilities are generally observable up to liquid maturities which are determined separately
for each input and underlying. Unobservable inputs are set with reference to similar observable products, or by applying extrapolation techniques
to observable inputs.
Level 3 sensitivity: Sensitivity is determined primarily by measuring historical variability over a period of years. Where historical data is unavailable
or uncertainty is due to volumetric risk, sensitivity is measured by applying appropriate stress scenarios or using proxy bid-offer spread levels.
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17 Fair value of financial instruments continued
Complex derivative instruments
Valuation estimates made by counterparties with respect to complex derivative instruments, for the purpose of determining the amount
of collateral to be posted, often differ, sometimes significantly, from Barclays’ own estimates. In almost all cases, Barclays has been able to
successfully resolve such differences or otherwise reach an accommodation with respect to collateral posting levels, including in certain cases
by entering into compromise collateral arrangements. Due to the ongoing nature of collateral calls, Barclays will often be engaged in discussion
with one or more counterparties in respect of such differences at any given time. Valuation estimates made by counterparties for collateral
purposes are considered, like any other third party valuation, when determining Barclays’ fair value estimates.
Government and government sponsored debt
Description: Government bonds, supra sovereign bonds and agency bonds.
Valuation: Liquid bonds that are actively traded through an exchange or clearing house are marked to the levels observed in these markets. Other
actively traded bonds are valued using observable market prices sourced from broker quotes, inter-dealer prices or other reliable pricing sources.
Observability: Prices for actively traded bonds are considered observable. Unobservable bonds prices are generally determined by reference to
bond yields for actively traded bonds from the same (or a similar) issuer.
Level 3 sensitivity: Sensitivity is generally determined by using a range of observable alternative prices.
Corporate debt
Description: Primarily corporate bonds.
Valuation: Corporate bonds are valued using observable market prices sourced from broker quotes, inter-dealer prices or other reliable pricing
sources.
Observability: Prices for actively traded bonds are considered observable. Unobservable bonds prices are generally determined by reference to
bond yields or CDS spreads for actively traded instruments issued by or referencing the same (or a similar) issuer.
Level 3 sensitivity: Sensitivity is generally determined by applying a shift to bond yields using the average ranges of external levels observed in
the market for similar bonds.
Certificates of deposit, commercial paper and other money market instruments
Description: Certificates of deposit, commercial paper and other money market instruments.
Valuation: Instruments are valued using observable market prices sourced from broker quotes, inter-dealer prices or other reliable pricing services.
Observability: Prices for actively traded instruments are considered observable. Unobservable instrument prices are generally determined by
reference to bond yields or CDS spreads for actively traded instruments issued by or referencing the same (or a similar) issuer.
Level 3 sensitivity: Sensitivity is generally calculated by using a range of observable alternative prices.
Margin Lending
Description: Includes Prime Brokerage Margin Lending, and other similar secured lending agreements. The agreements are primarily short-term
in nature.
Valuation: Prime Brokerage Margin Lending transactions are generally valued by discounting the expected future cash flows using industry
standard models that incorporate market interest rates and repurchase rates, based on the specific details of the transaction.
Observability: Inputs are deemed observable up to liquid maturities, and are determined based on the specific features of the transaction.
Unobservable inputs are generally set by referencing liquid market instruments and applying extrapolation techniques, or inferred via another
reasonable method.
Level 3 sensitivity: Sensitivity is generally estimated using the dispersion of consensus data services, or historic trade data. In general, the
sensitivity of unobservable inputs is not significant to the overall valuation given the predominantly short-term nature of the agreements.
Reverse repurchase and repurchase agreements
Description: Includes securities purchased under resale agreements, securities sold under repurchase agreements, and other similar secured
lending agreements. The agreements are primarily short-term in nature.
Valuation: Repurchase and reverse repurchase agreements are generally valued by discounting the expected future cash flows using industry
standard models that incorporate market interest rates and repurchase rates, based on the specific details of the transaction.
Observability: Inputs are deemed observable up to liquid maturities, and are determined based on the specific features of the transaction.
Unobservable inputs are generally set by referencing liquid market instruments and applying extrapolation techniques, or inferred via another
reasonable method.
Level 3 sensitivity: Sensitivity is generally estimated using the dispersion of consensus data services, stress scenarios or historic data. In general,
the sensitivity of unobservable inputs is not significant to the overall valuation given the predominantly short-term nature of the agreements.
Non-asset backed loans
Description: Largely made up of fixed rate loans.
Valuation: Fixed rate loans are valued using models that discount expected future cash flows based on interest rates and loan spreads.
Observability: Within this loan population, the loan spread is generally unobservable. Unobservable loan spreads are determined by incorporating
funding costs, the level of comparable assets such as gilts, issuer credit quality and other factors.
Level 3 sensitivity: The sensitivity of fixed rate loans is calculated by applying a shift to loan spreads.
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Notes to the financial statements
Assets and liabilities held at fair value
17 Fair value of financial instruments continued
Asset backed securities
Description: Securities that are linked to the cash flows of a pool of referenced assets via securitisation. The category includes residential mortgage
backed securities, commercial mortgage backed securities, CDOs, collateralised loan obligations (CLOs) and other asset backed securities.
Valuation: Where available, valuations are based on observable market prices sourced from broker quotes and inter-dealer prices. Otherwise,
valuations are determined using industry standard discounted cash flow analysis that calculates the fair value based on valuation inputs such as
constant default rate, conditional prepayment rate, loss given default and yield. These inputs are determined by reference to a number of sources
including proxying to observed transactions, market indices or market research, and by assessing underlying collateral performance.
Proxying to observed transactions, indices or research requires an assessment and comparison of the relevant securities’ underlying attributes
including collateral, tranche, vintage, underlying asset composition (historical losses, borrower characteristics and loan attributes such as loan
to value ratio and geographic concentration) and credit ratings (original and current).
Observability: Where an asset backed product does not have an observable market price and the valuation is determined using a discounted cash
flow analysis, the instrument is considered unobservable.
Level 3 sensitivity: The sensitivity analysis for asset backed products is based on externally sourced pricing dispersion or by stressing the inputs
of discount cash flow analysis.
Issued debt
Description: Debt notes issued by Barclays.
Valuation: Issued debt is valued using discounted cash flow techniques and industry standard models incorporating various inputs observed
for each instrument.
Observability: Barclays issued notes are generally observable. Structured notes are debt instruments containing embedded derivatives. Where
either an input to the embedded derivative or the debt instrument is deemed unobservable and significant to the overall valuation of the note,
the structured note is classified as Level 3.
Level 3 sensitivity: Sensitivity to the unobservable input in the embedded derivative is calculated in line with the method used for the derivative
instrument concerned.
Equity cash products
Description: Includes listed equities, Exchange Traded Funds (ETF) and preference shares.
Valuation: Valuation of equity cash products is primarily determined through market observable prices.
Observability: Prices for actively traded equity cash products are considered observable. Unobservable equity prices are generally determined
by reference to actively traded instruments that are similar in nature, or inferred via another reasonable method.
Level 3 sensitivity: Sensitivity is generally calculated based on applying a shift to the valuation of the underlying asset.
Private equity investments
Description: Includes private equity holdings and principal investments.
Valuation: Private equity investments are valued in accordance with the ‘International Private Equity and Venture Capital Valuation Guidelines’
which require the use of a number of individual pricing benchmarks such as the prices of recent transactions in the same or similar entities,
discounted cash flow analysis and comparison with the earnings multiples of listed companies. While the valuation of unquoted equity
instruments is subjective by nature, the relevant methodologies are commonly applied by other market participants and have been consistently
applied over time.
Observability: Inputs are considered observable if there is active trading in a liquid market of products with significant sensitivity to the inputs.
Unobservable inputs include earnings estimates, multiples of comparative companies, marketability discounts and discount rates.
Level 3 sensitivity: Private equity valuation models are each sensitive to a number of key assumptions, such as projected future earnings,
comparator multiples, marketability discounts and discount rates. Valuation sensitivity is generally estimated by shifting assumptions to
reasonable alternative levels.
Assets and liabilities held for sale
Description: Assets and liabilities held for sale consist of disposal groups Barclays intend to sell.
Valuation: Assets and liabilities held for sale are valued at the lower of carrying value and fair value less costs to sell.
Level 3 sensitivity: The disposal groups that are measured at fair value less cost to sell are valued at the agreed price less costs to sell and are not
expected to display significant sensitivity. The sensitivity of the assets and liabilities measured at carrying value is explained within the relevant
product descriptions.
296 Barclays PLC Annual Report 2018
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Other
Description: Other includes commercial real estate loans, funds and fund-linked products, asset backed loans, physical commodities and
investment property.
Assets and liabilities reclassified between Level 1 and Level 2
During the period, there were no material transfers between Level 1 and Level 2 (period ended December 2017: £3,807m government bonds
assets and £1,023m/£(950)m of commodity derivative assets and liabilities transferred from Level 1 to Level 2).
Level 3 movement analysis
The following table summarises the movements in the Level 3 balances during the period. Transfers have been reflected as if they had taken
place at the beginning of the year.
Assets and liabilities included in disposal groups classified as held for sale and measured at fair value less cost to sell are not included as these
are measured at fair value on a non-recurring basis.
Asset and liability transfers between Level 2 and Level 3 are primarily due to 1) an increase or decrease in observable market activity related to
an input or 2) a change in the significance of the unobservable input, with assets and liabilities classified as Level 3 if an unobservable input is
deemed significant.
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Barclays PLC Annual Report 2018 297
Notes to the financial statements
Assets and liabilities held at fair value
17 Fair value of financial instruments continued
Analysis of movements in Level 3 assets and liabilities
As at
1 January
2018a
£m
Purchases
£m
Sales
£m
Issues
£m
Government and government
sponsored debt
Corporate debt
Non-asset backed loans
Asset backed securities
Equity cash products
Other
Trading portfolio assets
Non-asset backed loans
Private equity investments
Equity cash products
Other
Financial assets at fair value
through the income statement
Equity cash products
Private equity investments
Other
Fair value through other
comprehensive income
Investment property
Trading portfolio liabilities
Certificates of deposit, commercial
paper and other money market
instruments
Issued debt
Other
Financial liabilities designated at
fair value
Interest rate derivatives
Foreign exchange derivatives
Credit derivatives
Equity derivatives
Commodity derivatives
Net derivative financial
instrumentsb
49
871
166
627
68
196
1,977
6,073
688
398
360
14
108
5,514
205
18
4
5,863
74
279
87
6,624
(49)
(88)
(3,480)
(168)
(9)
(6)
(3,800)
–
(114)
(1)
(4,920)
7,519
7,064
(5,035)
36
129
40
205
116
(4)
(250)
(214)
(16)
(480)
(150)
37
1,146
(896)
–
–
–
–
–
9
–
–
–
–
–
(16)
–
–
(16)
(115)
–
–
–
–
–
1
–
(6)
72
–
(1)
–
3
(570)
–
137
67
(568)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
–
(4)
–
–
–
–
–
–
Settle-
ments
£m
–
(23)
–
(2)
–
(20)
(45)
(508)
–
–
(47)
(555)
–
–
–
–
–
–
5
9
4
18
196
(9)
(12)
125
–
Total gains and losses
in the period
recognised in the
income statement
Other
Trading
income
income
£m
£m
Total
gains
or losses
recog-
nised
in OCI
£m
Transfers
As at 31
December
2018
£m
Out
£m
–
(528)
(8)
(35)
(32)
(139)
(742)
–
(26)
–
–
14
388
2,263
664
136
148
3,613
5,688
1,071
559
2,064
In
£m
–
39
71
58
107
145
420
–
125
–
–
125
(26)
9,382
–
–
314
(18)
(129)
–
2
–
353
314
(147)
355
–
–
–
4
9
(3)
–
(225)
–
238
150
–
(10)
(251)
(19)
(225)
388
(280)
(71)
(13)
7
128
–
72
(13)
(3)
460
–
22
7
1,050
(607)
–
51
516
472
–
9
–
(21)
(16)
(32)
(60)
49
2
1
29
81
–
–
–
–
–
(3)
–
33
–
33
(25)
5
(85)
73
–
–
–
–
–
–
–
–
–
117
74
18
209
–
–
–
–
(1)
–
(3)
–
(7)
(10)
–
–
–
1
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
–
–
–
–
300
(32)
Total
9,470 13,003
(9,534)
(4)
(282)
19
199
(1)
685
(7) 13,548
Notes
a Balances as at 1 January 2018 include the IFRS 9 transition impact. Balances as at 31 December 2017 have been presented on an IAS 39 basis.
b The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £5,215m (2017: £5,334m) and derivative financial liabilities are
£4,743m (2017: £5,197m).
298 Barclays PLC Annual Report 2018
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17 Fair value of financial instruments continued
Analysis of movements in Level 3 assets and liabilities
Government and government
sponsored debt
Corporate debt
Non-asset backed loans
Asset backed securities
Equity cash products
Other
Trading portfolio assets
Non-asset backed loans
Asset backed loans
Private equity investments
Equity cash productsa
Othera
Financial assets at fair value
through the income statement
Equity cash products
Private equity investments
Other
Available for sale investments
Investment property
Trading portfolio liabilities
Certificates of deposit, commercial
paper and other money market
instruments
Issued debt
Other
Financial liabilities designated
at fair value
Interest rate derivatives
Foreign exchange derivatives
Credit derivatives
Equity derivatives
Commodity derivatives
Net derivative financial instruments
Total gains and losses
in the period
recognised in the
income statement
Other
Trading
income
income
£m
£m
Total
gains
or losses
recog-
nised
in OCI
£m
As at
1 January
2017
£m
3
969
151
515
77
350
2,065
8,616
201
562
185
383
Purchases
£m
Sales
£m
Issues
£m
46
73
435
195
24
2
775
–
(47)
(187)
(78)
(11)
(77)
(400)
–
27
26
–
4,675
–
(25)
(127)
–
(4,646)
–
–
–
–
–
–
–
–
–
–
–
–
Settle-
ments
£m
–
(98)
(221)
(9)
–
(97)
(425)
(2,284)
(3)
(1)
(1)
(247)
–
21
(8)
9
(19)
25
28
159
(17)
(1)
(7)
41
–
–
–
–
–
(1)
(1)
–
(3)
29
205
(8)
9,947
4,728
(4,798)
–
(2,536)
175
223
73
294
5
372
81
(7)
(319)
(298)
(223)
(840)
899
81
1,370
(970)
(5)
1,375
–
15
36
51
–
(78)
–
(78)
114
(69)
(4)
1
–
–
–
–
58
–
5
(220)
–
(157)
69
84
–
153
(1)
–
(2)
(14)
–
(17)
–
–
(2)
(2)
–
–
–
–
204
204
(208)
(12)
(29)
374
–
125
–
–
–
–
–
2
–
–
–
–
(166)
27
(128)
(43)
4
(306)
–
–
1
(5)
–
(4)
(10)
–
9
–
(6)
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Transfers
In
£m
–
6
1
–
–
3
10
–
6
21
16
16
59
5
60
–
65
–
(1)
As at 31
December
2017
£m
49
871
166
627
68
196
1,977
6,491
155
498
398
205
Out
£m
–
(53)
(5)
(5)
(3)
(9)
(75)
–
(31)
(11)
–
(9)
(51)
7,747
(45)
(4)
–
(49)
–
5
36
319
40
395
116
(4)
(104)
–
–
95
–
9
(250)
(214)
(16)
(104)
104
(480)
(11)
(13)
(69)
(16)
1
(108)
(721)
(46)
(1)
(7)
–
(775)
(150)
37
1,146
(896)
–
137
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
37
1
40
–
–
–
–
–
–
–
–
–
–
–
–
–
Assets and liabilities held for sale
574
–
(574)
Total
Net assets held for sale measured
at fair value on non-recurring basis
13,567
5,507
(5,782)
(2,634)
(101)
211
40
(79)
(841)
9,888
29
Total
13,567
5,507
(5,782)
–
(2,634)
(101)
211
40
(79)
(841)
9,917
Note
a Preference shares of £390m were reclassified from others to equity cash products.
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Notes to the financial statements
Assets and liabilities held at fair value
17 Fair value of financial instruments continued
Unrealised gains and losses on Level 3 financial assets and liabilities
The following table discloses the unrealised gains and losses recognised in the year arising on Level 3 financial assets and liabilities held at
year end.
Unrealised gains and losses recognised during the period on Level 3 assets and liabilities held at year end
As at 31 December
Trading portfolio assets
Financial assets at fair value through the
income statement
Available for sale investments
Fair value through other comprehensive
income
Investment property
Trading portfolio liabilities
Financial liabilities designated at fair value
Net derivative financial instruments
Total
2018
Income statement
Trading
income
£m
Other
income
£m
Other
compre-
hensive
income
£m
(60)
68
–
–
–
(3)
55
(14)
46
–
206
–
–
(1)
–
–
-
205
–
–
–
(1)
–
–
–
-
(1)
Income statement
2017
Total
£m
Trading
income
£m
Other
income
£m
(60)
(34)
–
274
–
(1)
(1)
(3)
55
(14)
250
147
–
–
–
3
58
(301)
(127)
200
(4)
–
(10)
–
10
–
196
Other
compre-
hensive
income
£m
–
–
29
–
–
–
–
–
29
Totala
£m
(34)
347
25
–
(10)
3
68
(301)
98
Sensitivity analysis of valuations using unobservable inputs
As at 31 December
Interest rate derivatives
Foreign exchange derivatives
Credit derivatives
Equity derivatives
Commodity derivatives
Corporate debt
Non-asset backed loans
Asset backed securities
Equity cash products
Private equity investments
Othera
Total
2018
2017
Favourable changes
Income
statement
£m
Equity
£m
Unfavourable changes
Income
statement
£m
Equity
£m
Favourable changes
Income
statement
£m
Equity
£m
Unfavourable changes
Income
statement
£m
Equity
£m
80
7
126
110
1
10
274
–
121
230
2
961
–
–
–
–
–
–
–
–
–
–
–
–
(162)
(10)
(73)
(112)
(1)
(2)
(458)
–
(155)
(241)
(2)
(1,216)
–
–
–
–
–
–
–
–
–
–
–
–
114
6
106
99
3
4
243
1
12
133
5
726
–
–
–
–
–
–
–
–
24
13
–
37
(138)
(6)
(79)
(99)
(3)
(3)
(468)
-
(8)
(138)
(5)
(947)
–
–
–
–
–
–
–
–
(24)
(13)
–
(37)
Note
a Other includes commercial real estate loans, funds and fund-linked products, asset backed loans, physical commodities and investment property.
The effect of stressing unobservable inputs to a range of reasonably possible alternatives, alongside considering the impact of using alternative
models, would be to increase fair values by up to £961m (2017: £763m) or to decrease fair values by up to £1,216m (2017: £984m) with all the
potential effect impacting profit and loss.
300 Barclays PLC Annual Report 2018
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17 Fair value of financial instruments continued
Significant unobservable inputs
The following table discloses the valuation techniques and significant unobservable inputs for assets and liabilities recognised at fair value and
classified as Level 3 along with the range of values used for those significant unobservable inputs:
Valuation
technique(s)c
Significant
unobservable inputs
2018
Range
2017
Range
Min
Max
Min
Max
Unitsa
Derivative financial
instrumentsb
Interest rate derivatives
Credit derivatives
Equity derivatives
Non-derivative financial
instruments
Non-asset backed loans
Reverse repurchase and
repurchase agreements
Asset backed securities
Private equity investments
Discounted cash flows
Comparable pricing
Option model
Discounted cash flows
Comparable pricing
Option model
Discounted cash flow
Discounted cash flows
Comparable pricing
Discounted cash flows
Comparable pricing
EBITDA multiple
Discounted cash flows
Otherd
Discounted cash flows
Inflation forwards
Credit spread
Yield
Price
Inflation volatility
IR – IR correlation
FX – IR correlation
Interest rate volatility
Credit spread
Price
Equity volatility
Equity – equity correlation
Discounted margin
Loan spread
Credit spread
Price
Price
Funding spread
Price
EBITDA multiple
EBITDA
Discount margin
Credit spread
1
6
0.1
–
33
(26)
(30)
10
142
10
2
(100)
(171)
30
25
–
–
(20)
–
7
–
8
143
2
897
0.2
100
174
100
78
199
209
96
81
100
301
531
800
118
100
139
102
8
153
10
575
1
45
0.1
–
35
(24)
(30)
5
122
97
3
(100)
(105)
30
300
–
–
–
–
8
–
8
152
3
1,320
0.1
100
201
99
24
353
190
97
92
100
301
596
726
50
100
–
99
13
129
10
299
%
bps
bps
points
bps vol
%
%
bps vol
bps
points
%
%
bps
bps
bps
points
points
bps
points
Multiple
£m
%
bps
Notes
a The units used to disclose ranges for significant unobservable inputs are percentages, points and basis points. Points are a percentage of par; for example, 100 points equals
100% of par. A basis point equals 1/100th of 1%; for example, 150 basis points equals 1.5%.
b Certain derivative instruments are classified as Level 3 due to a significant unobservable credit spread input into the calculation of the Credit Valuation Adjustment for the
instruments. The range of significant unobservable credit spreads is between 6-897bps (2017: 31-596bps).
c A range has not been provided for Net Asset Value as there would be a wide range reflecting the diverse nature of the positions.
d Other includes commercial real estate loans, funds and fund-linked products, asset backed loans, physical commodities and investment property.
The following section describes the significant unobservable inputs identified in the table above, and the sensitivity of fair value measurement
of the instruments categorised as Level 3 assets or liabilities to increases in significant unobservable inputs. Where sensitivities are described,
the inverse relationship will also generally apply.
Where reliable interrelationships can be identified between significant unobservable inputs used in fair value measurement, a description
of those interrelationships is included below.
Forwards
A price or rate that is applicable to a financial transaction that will take place in the future.
In general, a significant increase in a forward in isolation will result in a fair value increase for the contracted receiver of the underlying
(currency, bond, commodity, etc.), but the sensitivity is dependent on the specific terms of the instrument.
Credit spread
Credit spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Credit spreads reflect
the additional yield that a market participant demands for taking on exposure to the credit risk of an instrument and form part of the yield used
in a discounted cash flow calculation.
In general, a significant increase in credit spread in isolation will result in a movement in a fair value decrease for a cash asset.
For a derivative instrument, a significant increase in credit spread in isolation can result in a fair value increase or decrease depending on the
specific terms of the instrument.
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Notes to the financial statements
Assets and liabilities held at fair value
17 Fair value of financial instruments continued
Volatility
Volatility is a measure of the variability or uncertainty in return for a given derivative underlying. It is an estimate of how much a particular
underlying instrument input or index will change in value over time. In general, volatilities are implied from observed option prices. For
unobservable options the implied volatility may reflect additional assumptions about the nature of the underlying risk, and the strike/maturity
profile of a specific contract.
In general a significant increase in volatility in isolation will result in a fair value increase for the holder of a simple option, but the sensitivity
is dependent on the specific terms of the instrument.
There may be interrelationships between unobservable volatilities and other unobservable inputs (e.g. when equity prices fall, implied equity
volatilities generally rise) but these are generally specific to individual markets and may vary over time.
Correlation
Correlation is a measure of the relationship between the movements of two variables. Correlation can be a significant input into valuation of
derivative contracts with more than one underlying instrument. Credit correlation generally refers to the correlation between default processes
for the separate names that make up the reference pool of a CDO structure.
A significant increase in correlation in isolation can result in a fair value increase or decrease depending on the specific terms of the instrument.
Comparable price
Comparable instrument prices are used in valuation by calculating an implied yield (or spread over a liquid benchmark) from the price of
a comparable observable instrument, then adjusting that yield (or spread) to account for relevant differences such as maturity or credit quality.
Alternatively, a price-to-price basis can be assumed between the comparable and unobservable instruments in order to establish a value.
In general, a significant increase in comparable price in isolation will result in an increase in the price of the unobservable instrument. For
derivatives, a change in the comparable price in isolation can result in a fair value increase or decrease depending on the specific terms of the
instrument.
Loan spread
Loan spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Loan spreads
typically reflect credit quality, the level of comparable assets such as gilts and other factors, and form part of the yield used in a discounted cash
flow calculation.
The ESHLA portfolio primarily consists of long-dated fixed rate loans extended to counterparties in the UK Education, Social Housing and Local
Authority sectors. The loans are categorised as Level 3 in the fair value hierarchy due to their illiquid nature and the significance of unobservable
loan spreads to the valuation. Valuation uncertainty arises from the long-dated nature of the portfolio, the lack of secondary market in the loans
and the lack of observable loan spreads. The majority of ESHLA loans are to borrowers in heavily regulated sectors that are considered extremely
low credit risk, and have a history of zero defaults since inception. While the overall loan spread range is from 30bps to 531bps (2017: 30bps to
596bps), the vast majority of spreads are concentrated towards the bottom end of this range, with 99% of the loan notional being valued with
spreads less than 200bps consistently for both years.
In general, a significant increase in loan spreads in isolation will result in a fair value decrease for a loan.
Loss given default
Loss given default represents the expected loss upon liquidation of the collateral as a percentage of the balance outstanding.
In general, a significant increase in the loss given default in isolation will translate to lower recovery and lower projected cash flows to pay to the
securitisation, resulting in a movement in fair value that is unfavourable for the holder of the securitised product.
EBITDA multiple
EBITDA multiple is the ratio of the valuation of the investment to the earnings before interest, taxes, depreciation and amortisation.
In general, a significant increase in the multiple will result in a fair value increase for an investment.
Fair value adjustments
Key balance sheet valuation adjustments are quantified below:
Exit price adjustments derived from market bid-offer spreads
Uncollateralised derivative funding
Derivative credit valuation adjustments
Derivative debit valuation adjustments
2018
£m
(457)
(47)
(125)
237
2017
£m
(391)
(45)
(103)
131
Exit price adjustments derived from market bid-offer spreads
The Barclays Group uses mid-market pricing where it is a market maker and has the ability to transact at, or better than, mid price (which is
the case for certain equity, bond and vanilla derivative markets). For other financial assets and liabilities, bid-offer adjustments are recorded to
reflect the exit level for the expected close out strategy. The methodology for determining the bid-offer adjustment for a derivative portfolio
involves calculating the net risk exposure by offsetting long and short positions by strike and term in accordance with the risk management and
hedging strategy.
Bid-offer levels are generally derived from market quotes such as broker data. Less liquid instruments may not have a directly observable bid-offer
level. In such instances, an exit price adjustment may be derived from an observable bid-offer level for a comparable liquid instrument, or
determined by calibrating to derivative prices, or by scenario or historical analysis.
Exit price adjustments derived from market bid-offer spreads have increased by £66m to £457m as a result of movements in market bid
offer spreads.
302 Barclays PLC Annual Report 2018
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Discounting approaches for derivative instruments
Collateralised
In line with market practice, the methodology for discounting collateralised derivatives takes into account the nature and currency of the collateral
that can be posted within the relevant credit support annex (CSA). The CSA aware discounting approach recognises the ‘cheapest to deliver’
option that reflects the ability of the party posting collateral to change the currency of the collateral.
Uncollateralised
A fair value adjustment of £47m is applied to account for the impact of incorporating the cost of funding into the valuation of uncollateralised
and partially collateralised derivative portfolios and collateralised derivatives where the terms of the agreement do not allow the rehypothecation
of collateral received. This adjustment is referred to as the Funding Fair Value Adjustment (FFVA). FFVA has increased by £2m to £47m mainly
as a result of change in Barclays funding spreads and trading activity.
FFVA is determined by calculating the net expected exposure at a counterparty level and applying a funding rate to the exposure that reflects the
market cost of funding. Barclays’ internal Treasury rates are used as an input to the calculation. The approach takes into account the probability
of default of each counterparty, as well as any mandatory break clauses.
FFVA incorporates a scaling factor which is an estimate of the extent to which the cost of funding is incorporated into observed traded levels.
On calibrating the scaling factor, it is with the assumption that Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) are
retained as valuation components incorporated into such levels. The effect of incorporating this scaling factor at 31 December 2018 was to reduce
FFVA by £141m (2017: £138m).
The approach outlined above has been in use since 2012 with no significant changes.
Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains appropriate.
Derivative credit and debit valuation adjustments
CVA and DVA are incorporated into derivative valuations to reflect the impact on fair value of counterparty credit risk and Barclays’ own credit
quality respectively. These adjustments are calculated for uncollateralised and partially collateralised derivatives across all asset classes. CVA and
DVA are calculated using estimates of exposure at default, probability of default and recovery rates, at a counterparty level. Counterparties include
(but are not limited to) corporates, sovereigns and sovereign agencies and supranationals.
Exposure at default is generally estimated through the simulation of underlying risk factors through approximating with a more vanilla structure,
or by using current or scenario-based mark to market as an estimate of future exposure.
Probability of default and recovery rate information is generally sourced from the CDS markets. Where this information is not available, or
considered unreliable, alternative approaches are taken based on mapping internal counterparty ratings onto historical or market-based default
and recovery information. In particular, this applies to sovereign related names where the effect of using the recovery assumptions implied in
CDS levels would imply a £50m (2017: £50m) increase in CVA.
Correlation between counterparty credit and underlying derivative risk factors, termed ‘wrong-way,’ or ‘right-way’ risk, is not systematically
incorporated into the CVA calculation but is adjusted where the underlying exposure is directly related to the counterparty.
CVA increased by £22m to £125m, primarily due to widening of counterparty credit spreads, changes in non-credit factors impacting CVA and
trading activity. DVA increased by £106m to £237m, primarily as a result of Barclays’ credit spreads widening.
Portfolio exemptions
The Barclays Group uses the portfolio exemption in IFRS 13 Fair Value Measurement to measure the fair value of groups of financial assets and
liabilities. Instruments are measured using the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure
or to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the balance
sheet date under current market conditions. Accordingly, the Barclays Group measures the fair value of the group of financial assets and liabilities
consistently with how market participants would price the net risk exposure at the measurement date.
Unrecognised gains as a result of the use of valuation models using unobservable inputs
The amount that has yet to be recognised in income that relates to the difference between the transaction price (the fair value at initial
recognition) and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition, less
amounts subsequently recognised, is £141m (2017: £109m) for financial instruments measured at fair value and £262m (2017: £253m) for
financial instruments carried at amortised cost. There are additions of £65m (2017: £34m), and amortisation and releases of £33m (2017: £104m)
for financial instruments measured at fair value and additions of £29m (2017: £119m) and amortisation and releases of £20m (2017: £22m) for
financial instruments measured at amortised cost.
Third party credit enhancements
Structured and brokered certificates of deposit issued by Barclays are insured up to $250,000 per depositor by the Federal Deposit Insurance
Corporation (FDIC) in the US. The FDIC is funded by premiums that Barclays and other banks pay for deposit insurance coverage. The carrying
value of these issued certificates of deposit that are designated under the IFRS 9 fair value option includes this third party credit enhancement.
The on-balance sheet value of these brokered certificates of deposit amounted to £4,797m (2017: £4,070m).
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Notes to the financial statements
Notes to the financial statements
Assets and liabilities held at fair value
17 Fair value of financial instruments continued
Comparison of carrying amounts and fair values for assets and liabilities not held at fair value
The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Barclays Group’s balance sheet:
2018
2017
Carrying
amount
£m
Fair value
£m
Level 1
£m
Level 2
£m
Level 3
£m
Carrying
amount
£m
Fair value
£m
Level 1
£m
Level 2
£m
Level 3
£m
As at 31 December
Financial assets
Loans and advances at amortised cost
– Home loans
– Credit cards, unsecured and other
retail lending
– Finance lease receivablesa
– Corporate loans
Reverse repurchase agreements and
other similar secured lending
Assets included in disposal groups
classified as held for saleb
Financial liabilities
Deposits at amortised cost
– Banks
– Current and demand accounts
– Savings accounts
– Other time deposits
Repurchase agreements and other
similar secured borrowing
Debt securities in issue
Subordinated liabilities
150,284 148,897
54,560
1,886
119,676
56,462
2,057
117,848
–
657
–
55,805
55,767
2,854
123,532
55,106
2,964
121,666
3,942
68,955
44,951
– 148,897
147,002
145,262
–
655
–
–
145,262
54,451
8,986
63,930
48,750
2,308
2,308
–
–
–
–
2,308
–
–
–
12,546
12,546
1,164
1,195
–
–
12,546
–
–
1,195
(14,166)
(4,636)
(14,166)
(148,714) (148,714) (148,714)
(137,589) (137,589) (137,589)
(94,369) (94,388)
(9,530)
–
–
(57,966) (30,576)
(12,153)
(12,159)
–
(4,375)
– (145,950) (145,927) (145,927)
– (134,339) (134,369) (134,369)
(62,750)
(5,846) (106,259) (106,324)
(7,784)
–
–
(37,723)
(18,578) (18,578)
(82,286) (81,687)
(20,559) (21,049)
–
–
–
(18,578)
(78,315)
(21,049)
–
(3,372)
–
(40,338)
(73,314)
(23,826)
(40,338)
(74,752)
(25,084)
–
–
–
(40,338)
(72,431)
(25,084)
–
–
–
(5,851)
–
(2,321)
–
Notes
a The fair value hierarchy for finance lease receivables is not required as part of the standard.
b Disposal groups held for sale and measured at fair value less cost to sell are included in the fair value table.
The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. As a wide range of valuation techniques are available, it may not be appropriate to directly compare
this fair value information to independent market sources or other financial institutions. Different valuation methodologies and assumptions can
have a significant impact on fair values which are based on unobservable inputs.
Financial assets
The carrying value of financial assets held at amortised cost is determined in accordance with the relevant accounting policy in Note 19.
Loans and advances at amortised cost
The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects
the current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers
is unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount rates.
For retail lending, i.e. home loans and credit cards, tailored discounted cash flow models are predominantly used to estimate the fair value
of different product types. For example, for home loans different models are used to estimate fair values of tracker, offset and fixed rate
mortgage products.
Key inputs to these models are the differentials between historic and current product margins and estimated prepayment rates.
The discount of fair value to carrying amount for home loans has reduced to 0.9% (2017: 1.2%)
The fair value of corporate loans is calculated by the use of discounted cash flow techniques where the gross loan values are discounted at a rate
of difference between contractual margins and hurdle rates or spreads where Barclays charges a margin over LIBOR depending on credit quality
and loss given default and years to maturity. The discount between the carrying and fair value remained constant at 1.5% (2017: 1.5%).
Reverse repurchase agreements
The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised.
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17 Fair value of financial instruments continued
Financial liabilities
The carrying value of financial liabilities held at amortised cost is determined in accordance with the accounting policy in Note 1.
Deposits at amortised cost
In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest rates that
reprice frequently, such as customer accounts and other deposits and short-term debt securities.
The fair value for deposits with longer-term maturities, mainly time deposits, are estimated using discounted cash flows applying either market
rates or current rates for deposits of similar remaining maturities. Consequently, the fair value discount is minimal.
Debt securities in issue
Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated, carrying amount
approximates fair value.
Repurchase agreements
The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated.
Subordinated liabilities
Fair values for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issuer concerned or
issuers with similar terms and conditions.
18 Offsetting financial assets and financial liabilities
In accordance with IAS 32 Financial Instruments: Presentation, the Barclays Group reports financial assets and financial liabilities on a net basis
on the balance sheet only if there is a legally enforceable right to set-off the recognised amounts and there is intention to settle on a net basis,
or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangements on:
■■ all financial assets and liabilities that are reported net on the balance sheet
■■ all derivative financial instruments and reverse repurchase and repurchase agreements and other similar secured lending and borrowing
agreements that are subject to enforceable master netting arrangements or similar agreements, but do not qualify for balance sheet netting.
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting
arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of IAS 32 described above.
The ‘Net amounts’ presented on the next page are not intended to represent the Barclays Group’s actual exposure to credit risk, as a variety
of credit mitigation strategies are employed in addition to netting and collateral arrangements.
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Effects of offsetting on-balance sheet
Related amounts not offset
Gross
amounts
£m
Amounts
offseta
£m
Net amounts
reported on
the balance
sheet
£m
Financial
instruments
£m
Financial
collateralb
£m
Net
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£m
Amounts not
subject to
enforceable
netting
arrange-
mentsc
£m
Balance
sheet totald
£m
239,180
(18,687)
220,493
(172,001)
(36,904)
11,588
2,045
222,538
354,409
593,589
(233,543)
(235,772)
(254,459)
18,229
118,637
339,130
(215,314)
–
(172,001)
172,001
(118,195)
(155,099)
32,959
442
12,030
(10,354)
121,349
2,712
4,757
343,887
(4,329) (219,643)
(375,976)
(609,519)
235,772
254,001
(140,204)
(355,518)
–
172,001
140,165
173,124
(39)
(10,393)
(16,858)
(157,062)
(21,187) (376,705)
256,881
(21,638)
235,243
(184,265)
(39,262)
11,716
2,426
237,669
326,340
583,221
(253,030)
(223,495)
(245,133)
21,065
102,845
338,088
(231,965)
–
(184,265)
184,265
(102,380)
(141,642)
36,444
465
12,181
(11,256)
9,741
12,167
(6,380)
112,586
350,255
(238,345)
(374,616)
(627,646)
223,495
244,560
(151,121)
(383,086)
–
184,265
151,073
187,517
(48)
(11,304)
(15,908)
(22,288)
(167,029)
(405,374)
As at 31 December 2018
Derivative financial assets
Reverse repurchase agreements and other
similar secured lendinge
Total assets
Derivative financial liabilities
Repurchase agreements and other similar
secured borrowinge
Total liabilities
As at 31 December 2017
Derivative financial assets
Reverse repurchase agreements and other
similar secured lending
Total assets
Derivative financial liabilities
Repurchase agreements and other similar
secured borrowinge
Total liabilities
Notes
a Amounts offset for Derivative financial assets include cash collateral netted of £2,187m (2017: £2,393m). Amounts offset for Derivative financial liabilities include cash collateral
netted of £2,645m (2017: £1,820m). Settlements assets and liabilities have been offset amounting to £23,095m (2017: £13,241m). No other significant recognised financial
assets and liabilities were offset in the balance sheet. Therefore, the only balance sheet categories necessary for inclusion in the table are those shown above.
b Financial collateral of £36,904m (2017: £39,262m) was received in respect of derivative assets, including £31,402m (2017: £33,092m) of cash collateral and
£5,502m (2017: £6,170m) of non–cash collateral. Financial collateral of £32,959m (2017: £36,444m) was placed in respect of derivative liabilities, including
£29,842m (2017: £32,575m) of cash collateral and £3,117m (2017: £3,869m) of non-cash collateral. The collateral amounts are limited to net balance sheet exposure
so as to not include overcollateralisation.
c This column includes contractual rights of set-off that are subject to uncertainty under the laws of the relevant jurisdiction.
d The balance sheet total is the sum of ‘Net amounts reported on the balance sheet’ that are subject to enforceable netting arrangements and ‘Amounts not subject to enforceable
netting arrangements’.
e Repurchase and Reverse Repurchase agreements include instruments at amortised cost and instruments designated at fair value through profit and loss.
Reverse repurchase agreements and other similar secured lending of £121,349m (2017: £112,586m) is split by fair value £119,041m (2017: £100,040m) and amortised cost
£2,308m (2017: £12,546m). Repurchase agreements and other similar secured borrowing of £157,062m (2017: £167,029m) is split by fair value
£138,484m (2017: £126,691m) and amortised cost £18,578m (2017: £40,338m).
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Notes to the financial statements
Assets and liabilities held at fair value
18 Offsetting financial assets and financial liabilities continued
Derivative assets and liabilities
The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set-off under netting agreements, such as the ISDA
Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty
can be offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other
predetermined events occur.
Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties
by enabling the collateral to be realised in an event of default or if other predetermined events occur.
Repurchase and reverse repurchase agreements and other similar secured lending and borrowing
The ‘Amounts offset’ column identifies financial assets and liabilities that are subject to set-off under netting agreements, such as Global Master
Repurchase Agreements and Global Master Securities Lending Agreements, whereby all outstanding transactions with the same counterparty
can be offset and close-out netting applied across all outstanding transactions covered by the agreements if an event of default or other
predetermined events occur.
Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated in the event of counterparty default.
These offsetting and collateral arrangements and other credit risk mitigation strategies used by Barclays Group are further explained in the Credit
risk mitigation section on page 138.
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Notes to the financial statements
Financial instruments held at amortised cost
The notes included in this section focus on assets that are held at amortised cost arising from the Barclays Group’s retail and wholesale lending
including loans and advances and deposits at amortised cost and finance leases. Details regarding the Barclays Group’s liquidity and capital
position can be found on pages 181 to 204.
19 Loans and advances and deposits at amortised cost
Accounting for loans and advances and deposits held at amortised cost under IFRS 9 effective from 1 January 2018
Loans and advances to customers and banks, customer accounts, debt securities and most financial liabilities, are held at amortised cost.
That is, the initial fair value (which is normally the amount advanced or borrowed) is adjusted for repayments and the amortisation of coupon,
fees and expenses to represent the effective interest rate of the asset or liability. Balances deferred on-balance sheet as effective interest rate
adjustments are amortised to interest income over the life of the financial instrument to which they relate.
Financial assets that are held in a business model to collect the contractual cash flows and that contain contractual terms that give rise on
specified dates to cash flows that are SPPI, are measured at amortised cost. The carrying value of these financial assets at initial recognition
includes any directly attributable transaction costs. Refer to Note 1 for details on ‘solely payments of principal and interest’.
In determining whether the business model is a ‘hold to collect’ model, the objective of the business model must be to hold the financial asset
to collect contractual cash flows rather than holding the financial asset for trading or short-term profit taking purposes. While the objective of
the business model must be to hold the financial asset to collect contractual cash flows this does not mean Barclays Group is required to hold
the financial assets until maturity. When determining if the business model objective is to collect contractual cash flows Barclays Group will
consider past sales and expectations about future sales.
Accounting for loans and advances and deposits held at amortised cost under IAS 39 for 2017 and 2016
Loans and advances to customers and banks, customer accounts, debt securities and most financial liabilities, are held at amortised cost.
That is, the initial fair value (which is normally the amount advanced or borrowed) is adjusted for repayments and the amortisation of coupon,
fees and expenses to represent the effective interest rate of the asset or liability. Balances deferred on-balance sheet as effective interest rate
adjustments are amortised to interest income over the life of the financial instrument to which they relate.
In accordance with IAS 39, where the Barclays Group no longer intends to trade in financial assets it may transfer them out of the held for
trading classification and measure them at amortised cost if they meet the definition of a loan. The initial value used for the purposes of
establishing amortised cost is fair value on the date of the transfer.
Loans and advances at amortised cost
As at 31 December
Gross loans and advances at amortised cost excluding debt securities
at amortised cost
Less: allowance for impairment
Loans and advances at amortised cost excluding debt securities
at amortised cost
Gross debt securities at amortised cost
Less: allowance for impairment
Debt securities at amortised cost
Loans to
banks
£m
2018
Loans to
customers
£m
Total
£m
Loans to
banks
£m
2017
Loans to
customers
£m
Total
£m
10,576
(1)
316,861
(6,764)
327,437
(6,765)
10,633
–
316,696
(4,652)
327,329
(4,652)
10,575
310,097
320,672
10,633
312,044
322,677
–
–
–
5,739
(5)
5,734
5,739
(5)
5,734
–
–
–
1,371
–
1,371
1,371
–
1,371
Total gross loans and advances at amortised cost
Less: allowance for impairment
Total loans and advances at amortised cost
10,576
(1)
10,575
322,600
(6,769)
315,831
333,176
(6,770)
326,406
10,633
–
10,633
318,067
(4,652)
313,415
328,700
(4,652)
324,048
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Deposits at amortised cost
As at 31 December
Deposits at amortised cost
Deposits from
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£m
14,166
2018
Deposits from
customers
£m
380,672
Total
£m
394,838
Deposits from
banks
£m
12,153
2017
Deposits from
customers
£m
386,548
Total
£m
398,701
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Barclays PLC Annual Report 2018 307
Notes to the financial statements
Financial instruments held at amortised cost
20 Finance leases
Accounting for finance leases
The Barclays Group applies IAS 17 Leases in accounting for finance leases, both where it is the lessor or the lessee. A finance lease is a lease
which confers substantially all the risks and rewards of the leased assets on the lessee. Where the Barclays Group is the lessor, the leased asset
is not held on the balance sheet; instead a finance lease receivable is recognised representing the minimum lease payments receivable under
the terms of the lease, discounted at the rate of interest implicit in the lease. Where the Barclays Group is the lessee, the leased asset is
recognised in property, plant and equipment and a finance lease liability is recognised, representing the minimum lease payments payable
under the lease, discounted at the rate of interest implicit in the lease.
Interest income or expense is recognised in interest receivable or payable, allocated to accounting periods to reflect a constant periodic
rate of return.
Finance lease receivables
Finance lease receivables are included within loans and advances at amortised cost. The Barclays Group specialises in the provision of leasing
and other asset finance facilities across a broad range of asset types to business customers.
Gross
investment
in finance
lease
receivables
£m
1,333
2,012
381
3,726
2018
2017
Present
value of
minimum
lease
payments
receivable
£m
1,223
1,841
337
3,401
Un-
guaranteed
residual
values
£m
86
148
22
256
Gross
investment
in finance
lease
receivables
£m
1,130
1,750
284
3,164
Future
finance
income
£m
(110)
(171)
(44)
(325)
Present
value of
minimum
lease
payments
receivable
£m
1,039
1,615
252
2,906
Un-
guaranteed
residual
values
£m
69
156
21
246
Future
finance
income
£m
(91)
(135)
(32)
(258)
Not more than one year
Over one year but not more than five years
Over five years
Total
The impairment allowance for uncollectable finance lease receivables amounted to £87m (2017: £57m).
Finance lease liabilities
The Barclays Group leases items of property, plant and equipment on terms that meet the definition of finance leases. Finance lease liabilities
are included within Note 24.
As at 31 December 2018, the total future minimum payments under finance leases were £22m (2017: £20m). The carrying amount of assets
held under finance leases was £19m (2017: £9m).
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Notes to the financial statements
Non-current assets and other investments
The notes included in this section focus on the Barclays Group’s non-current tangible and intangible assets and property, plant and equipment,
which provide long-term future economic benefits.
21 Property, plant and equipment
Accounting for property, plant and equipment
The Barclays Group applies IAS 16 Property Plant and Equipment and IAS 40 Investment Properties.
Property, plant and equipment is stated at cost, which includes direct and incremental acquisition costs less accumulated depreciation
and provisions for impairment, if required. Subsequent costs are capitalised if these result in enhancement of the asset.
Depreciation is provided on the depreciable amount of items of property, plant and equipment on a straight-line basis over their estimated
useful economic lives. Depreciation rates, methods and the residual values underlying the calculation of depreciation of items of property,
plant and equipment are kept under review to take account of any change in circumstances. The Barclays Group uses the following annual
rates in calculating depreciation:
Annual rates in calculating depreciation
Freehold land
Freehold buildings and long-leasehold property (more than 50 years to run)
Leasehold property over the remaining life of the lease (less than 50 years to run)
Costs of adaptation of freehold and leasehold property
Equipment installed in freehold and leasehold property
Computers and similar equipment
Fixtures and fittings and other equipment
Depreciation rate
Not depreciated
2-3.3%
Over the remaining life of the lease
6-10%
6-10%
17-33%
9-20%
Costs of adaptation and installed equipment are depreciated over the shorter of the life of the lease or the depreciation rates noted
in the table above.
Investment property
The Barclays Group initially recognises investment property at cost, and subsequently at fair value at each balance sheet date, reflecting
market conditions at the reporting date. Gains and losses on remeasurement are included in the income statement.
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Cost
As at 1 January 2018
Additions
Disposals
Change in fair value of investment properties
Exchange and other movements
As at 31 December 2018
Accumulated depreciation and impairment
As at 1 January 2018
Depreciation charge
Impairment
Disposals
Exchange and other movements
As at 31 December 2018
Net book value
Cost
As at 1 January 2017
Additions
Disposals
Change in fair value of investment properties
Exchange and other movements
As at 31 December 2017
Accumulated depreciation and impairment
As at 1 January 2017
Depreciation charge
Impairment
Disposals
Exchange and other movements
As at 31 December 2017
Net book value
Investment
property
£m
Property
£m
Equipment
£m
Leased
assets
£m
116
9
(115)
(3)
2
9
–
–
–
–
–
–
9
81
114
(69)
(5)
(5)
116
–
–
–
–
–
–
116
3,493
217
(83)
–
57
3,684
(1,668)
(166)
(3)
73
(28)
(1,792)
1,892
3,429
220
(18)
–
(138)
3,493
(1,483)
(171)
(28)
–
14
(1,668)
1,825
2,748
262
(99)
–
45
2,956
(2,117)
(252)
–
79
(32)
(2,322)
634
3,840
299
(1,082)
–
(309)
2,748
(3,043)
(275)
–
972
229
(2,117)
631
9
–
–
–
–
9
(9)
–
–
–
–
(9)
–
10
–
(1)
–
–
9
(9)
–
–
–
–
(9)
–
Total
£m
6,366
488
(297)
(3)
104
6,658
(3,794)
(418)
(3)
152
(60)
(4,123)
2,535
7,360
633
(1,170)
(5)
(452)
6,366
–
(4,535)
(446)
(28)
972
243
(3,794)
2,572
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Non-current assets and other investments
21 Property, plant and equipment continued
Property rentals of nil (2017: £2m) and £19m (2017: £8m) have been included in net investment income and other income respectively.
The fair value of investment property is determined by reference to current market prices for similar properties, adjusted as necessary for condition
and location, or by reference to recent transactions updated to reflect current economic conditions. Discounted cash flow techniques may be
employed to calculate fair value where there have been no recent transactions, using current external market inputs such as market rents and
interest rates. Valuations are carried out by management with the support of appropriately qualified independent valuers. Refer to Note 17 for
further details.
22 Goodwill and intangible assets
Accounting for goodwill and intangible assets
Goodwill
The carrying value of goodwill is determined in accordance with IFRS 3 Business Combinations and IAS 36 Impairment of Assets.
Goodwill arising on the acquisition of subsidiaries represents the excess of the fair value of the purchase consideration over the fair value
of the Barclays Group’s share of the assets acquired and the liabilities and contingent liabilities assumed on the date of the acquisition.
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. The test
involves comparing the carrying value of goodwill with the present value of the pre-tax cash flows, discounted at a rate of interest that reflects
the inherent risks, of the cash generating unit (CGU) to which the goodwill relates, or the CGU’s fair value if this is higher.
Intangible assets
Intangible assets other than goodwill are accounted for in accordance with IAS 38 Intangible Assets.
Intangible assets are initially recognised when they are separable or arise from contractual or other legal rights, the cost can be measured
reliably and, in the case of intangible assets not acquired in a business combination, where it is probable that future economic benefits
attributable to the assets will flow from their use.
Intangible assets are stated at cost (which is, in the case of assets acquired in a business combination, the acquisition date fair value) less
accumulated amortisation and provisions for impairment, if any, and are amortised over their useful lives in a manner that reflects the pattern
to which they contribute to future cash flows, generally using the amortisation periods set out below:
Annual rates in calculating amortisation
Goodwill
Internally generated softwarea
Other software
Customer lists
Licences and other
Amortisation period
Not amortised
12 months to 6 years
12 months to 6 years
12 months to 25 years
12 months to 25 years
Intangible assets are reviewed for impairment when there are indications that impairment may have occurred.
Note
a Exceptions to the above rate relate to useful lives of certain core banking platforms that are assessed individually and, if appropriate, amortised over longer periods ranging
from 10 to 15 years.
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22 Goodwill and intangible assets continued
2018
Cost
As at 1 January 2018
Additions and disposals
Exchange and other movements
As at 31 December 2018
Accumulated amortisation and impairment
As at 1 January 2018
Disposals
Amortisation charge
Impairment charge
Exchange and other movements
As at 31 December 2018
Net book value
2017
Cost
As at 1 January 2017
Additions and disposals
Exchange and other movements
As at 31 December 2017
Accumulated amortisation and impairment
As at 1 January 2017
Disposals
Amortisation charge
Impairment charge
Exchange and other movements
As at 31 December 2017
Net book value
Internally
generated
software
£m
Goodwill
£m
Other
software
£m
Customer
lists
£m
Licences
and other
£m
Total
£m
4,759
–
9
4,768
(860)
–
–
–
(1)
(861)
3,907
4,847
–
(88)
4,759
(930)
–
–
–
70
(860)
3,899
5,501
280
54
5,835
(2,195)
530
(669)
(6)
(22)
(2,362)
3,473
4,927
662
(88)
5,501
(1,864)
207
(546)
(52)
60
(2,195)
3,306
427
(34)
(4)
389
(313)
101
(50)
–
8
(254)
135
204
16
207
427
(143)
10
(32)
–
(148)
(313)
114
1,547
–
83
1,630
(1,209)
–
(81)
–
(69)
(1,359)
271
1,708
(15)
(146)
1,547
(1,231)
15
(101)
–
108
(1,209)
338
519
12
27
558
(327)
13
(34)
–
(23)
(371)
187
551
13
(45)
519
(343)
24
(36)
–
28
(327)
192
12,753
258
169
13,180
(4,904)
644
(834)
(6)
(107)
(5,207)
7,973
12,237
676
(160)
12,753
(4,511)
256
(715)
(52)
118
(4,904)
7,849
2018
£m
3,526
334
47
3,907
2017
£m
3,526
325
48
3,899
Goodwill
Goodwill is allocated to business operations according to business segments as follows:
Barclays UK
Barclays International
Head Office
Total net book value of goodwill
Goodwill
Testing goodwill for impairment involves a significant amount of judgement. This includes the identification of independent CGUs and the
allocation of goodwill to these units based on which units are expected to benefit from the acquisition. The allocation is reviewed following
business reorganisations. Cash flow projections necessarily take into account changes in the market in which a business operates including
the level of growth, competitive activity, and the impacts of regulatory change. Determining both the expected pre-tax cash flows and the risk
adjusted interest rate appropriate to the operating unit requires the exercise of judgement. The estimation of pre-tax cash flows is sensitive
to the periods for which detailed forecasts are available and to assumptions regarding long-term sustainable cash flows.
Other intangible assets
Determining the estimated useful lives of intangible assets (such as those arising from contractual relationships) requires an analysis of
circumstances. The assessment of whether an asset is exhibiting indicators of impairment as well as the calculation of impairment, which
requires the estimate of future cash flows and fair values less costs to sell, also requires the preparation of cash flow forecasts and fair values
for assets that may not be regularly bought and sold.
Impairment testing of goodwill
During 2018, the Barclays Group recognised an impairment charge of nil (2017: nil).
Key assumptions
The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £560m
(2017: £769m) was allocated to multiple CGUs which are not considered individually significant.
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Notes to the financial statements
Non-current assets and other investments
22 Goodwill and intangible assets continued
Barclays UK
Goodwill within Personal Banking was £2,718m (2017: £2,718m) of which £2,501m (2017: £2,501m) was attributable to Woolwich and within
Business Banking was £629m (2017: £629m), fully attributable to Woolwich. The carrying value of the CGUs have been determined by using
net asset values. The recoverable amounts of the CGUs, calculated as value in use, have been determined using cash flow predictions based on
financial budgets approved by management, covering a five-year period, with a terminal growth rate of 1.8% (2017: 2%) applied thereafter. The
forecasted cash flows have been discounted at a pre-tax rate of 13.7% (2017: 13.9%). Based on these assumptions, the total recoverable amount
exceeded the carrying amount including goodwill by £7,762m (2017: £5,262m). A one percentage point change in the discount rate or terminal
growth rate would increase or decrease the recoverable amount by £1,501m (2017: £1,128m) and £980m (2017: £734m) respectively. A reduction
in the forecasted cash flows of 10% per annum would reduce the recoverable amount by £1,828m (2017: £1,409m).
23 Operating leases
Accounting for operating leases
The Barclays Group applies IAS 17 Leases, for operating leases. An operating lease is a lease where substantially all of the risks and rewards
of the leased assets remain with the lessor. Where the Barclays Group is the lessor, lease income is recognised on a straight-line basis over the
period of the lease unless another systematic basis is more appropriate. The Barclays Group holds the leased assets on-balance sheet within
property, plant and equipment.
Where the Barclays Group is the lessee, rentals payable are recognised as an expense in the income statement on a straight-line basis over the
lease term unless another systematic basis is more appropriate.
Operating lease commitments
The Barclays Group leases various offices, branches and other premises under non-cancellable operating lease arrangements. With such operating
lease arrangements, the asset is kept on the lessor’s balance sheet and the Barclays Group reports the future minimum lease payments as an
expense over the lease term. The leases have various terms, escalation and renewal rights. There are no contingent rents payable.
Operating lease rentals of £329m (2017: £342m) have been included in administration and general expenses.
The future minimum lease payments by the Barclays Group under non-cancellable operating leases are as follows:
Not more than one year
Over one year but not more than five years
Over five years
Total
2018
2017
Property
£m
302
786
1,257
2,345
Equipment
£m
–
–
–
–
Property
£m
332
844
1,337
2,513
Equipment
£m
2
21
–
23
Total future minimum sublease payments to be received under non-cancellable subleases was £28m (2017: £53m).
312 Barclays PLC Annual Report 2018
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Notes to the financial statements
Accruals, provisions, contingent liabilities
and legal proceedings
The notes included in this section focus on the Barclays Group’s accruals, provisions and contingent liabilities. Provisions are recognised for
present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle
the obligation, and it can be reliably estimated. Contingent liabilities reflect potential liabilities that are not recognised on the balance sheet.
24 Other liabilities
Accruals and deferred income
Other creditors
Items in the course of collection due to other banks
Obligations under finance leases (refer to Note 20)
Insurance contract liabilities, including unit-linked liabilities
Other liabilities
25 Provisions
2018
£m
3,877
3,522
277
22
18
7,716
2017
£m
3,951
4,563
446
20
31
9,011
Accounting for provisions
The Barclays Group applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets in accounting for non-financial liabilities.
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer
of economic benefit will be necessary to settle the obligation, which can be reliably estimated. Provision is made for the anticipated cost
of restructuring, including redundancy costs when an obligation exists; for example, when the Barclays Group has a detailed formal plan for
restructuring a business and has raised valid expectations in those affected by the restructuring by announcing its main features or starting
to implement the plan. Provision is made for undrawn loan commitments if it is probable that the facility will be drawn and result in the
recognition of an asset at an amount less than the amount advanced.
Critical accounting estimates and judgements
The financial reporting of provisions involves a significant degree of judgement and is complex. Identifying whether a present obligation exists
and estimating the probability, timing, nature and quantum of the outflows that may arise from past events requires judgements to be made
based on the specific facts and circumstances relating to individual events and often requires specialist professional advice. When matters
are at an early stage, accounting judgements and estimates can be difficult because of the high degree of uncertainty involved. Management
continues to monitor matters as they develop to re-evaluate on an ongoing basis whether provisions should be recognised, however there
can remain a wide range of possible outcomes and uncertainties, particularly in relation to legal, competition and regulatory matters, and
as a result it is often not practicable to make meaningful estimates even when matters are at a more advanced stage.
The complexity of such matters often requires the input of specialist professional advice in making assessments to produce estimates.
Customer redress and legal, competition and regulatory matters are areas where a higher degree of professional judgement is required.
The amount that is recognised as a provision can also be very sensitive to the assumptions made in calculating it. This gives rise to a large
range of potential outcomes which require judgement in determining an appropriate provision level. See below for information on payment
protection redress and Note 27 for more detail of legal, competition and regulatory matters.
As at 1 January 2018
Additions
Amounts utilised
Unused amounts reversed
Exchange and other movements
As at 31 December 2018
Redundancy
Undrawn
contractually
committed
and facilities and
guaranteesa
£m
420
463
(11)
(588)
(13)
271
Onerous
contracts restructuring
£m
159
170
(102)
(56)
(2)
169
£m
225
74
(135)
(26)
1
139
Customer redress
Payment
Protection
Insurance
£m
1,606
400
(1,118)
–
–
888
Other
customer
redress
£m
639
182
(328)
(48)
(1)
444
Legal,
competition
and
regulatory
matters
£m
435
1,716
(1,680)
(98)
41
414
Sundry
provisions
£m
400
89
(86)
(42)
(34)
327
Total
£m
3,884
3,094
(3,460)
(858)
(8)
2,652
Note
a Undrawn contractually committed facilities and guarantees provisions are accounted for under IFRS 9.
Provisions expected to be recovered or settled within no more than 12 months after 31 December 2018 were £2,144m (2017: £2,394m).
Onerous contracts
Onerous contract provisions comprise an estimate of the costs involved with fulfilling the terms and conditions of contracts net of any
expected benefits to be received.
Redundancy and restructuring
These provisions comprise the estimated cost of restructuring, including redundancy costs where an obligation exists. Additions made during
the year relate to formal restructuring plans and have either been utilised, or reversed, where total costs are now expected to be lower than the
original provision amount.
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Notes to the financial statements
Accruals, provisions, contingent liabilities
and legal proceedings
25 Provisions continued
Undrawn contractually committed facilities and guarantees
Impairment allowance under IFRS 9 considers both the drawn and the undrawn counterparty exposure. For retail portfolios, the total impairment
allowance is allocated to the drawn exposure to the extent that the allowance does not exceed the exposure as ECL is not reported separately.
Any excess is reported on the liability side of the balance sheet as a provision. For wholesale portfolios, the impairment allowance on the undrawn
exposure is reported on the liability side of the balance sheet as a provision. 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 Barclays Group’s business activities. Provisions for other customer
redress include smaller provisions across the retail and corporate businesses which are likely to be utilised in the next 12 months.
Legal, competition and regulatory matters
The Barclays 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, refer to Note 27.
Sundry provisions
This category includes provisions that do not fit into any of the other categories, such as fraud losses and dilapidation provisions.
Payment Protection Insurance Redress
As at 31 December 2018, Barclays Group had recognised cumulative provisions totalling £9.6bn (2017: £9.2bn), of which £0.4bn was recognised
in Q1 2018, against the cost of Payment Protection Insurance (PPI) redress and associated processing costs. Utilisation of the cumulative
provisions to date is £8.7bn (2017: £7.6bn), leaving a residual provision of £0.9bn (2017: £1.6bn).
Through to 31 December 2018, 2.4m (2017: 2.1m) customer initiated claimsa had been received and processed.
The current provision reflects the estimated costs of PPI redress primarily relating to customer initiated complaints and ongoing remediation
programmes, based on information at year end. This also includes liabilities managed by third parties arising from portfolios previously sold
where Barclays Group remains liable.
As at 31 December 2018, the provision of £0.9bn represents Barclays Group’s best estimate of expected PPI redress reflecting the complaints
deadline implemented by the FCA of 29 August 2019. However, it is possible the eventual outcome may differ from the current estimate.
Barclays Group will continue to review the adequacy of provision level in respect of the future impacts.
The PPI provision is calculated using a number of key assumptions which continue to involve significant modelling and management judgement:
■■ 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 cease after the PPI deadline.
■■ 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 Group of assessing and processing each valid claim.
These assumptions remain subjective, mainly due to the uncertainty associated with future claims levels, which include complaints driven
by claims management company (CMC) activity and the FCA advertising campaign.
The following table outlines key forecast assumptions used in the provision calculation as at 31 December 2018 and a sensitivity analysis
illustrating the impact on the provision if the future expected assumptions prove too high or too low.
Assumption
Customer initiated claims received and processed (thousands)a
Average uphold rate per claim (%)b
Average redress per valid claim (£)c
Cumulative
actual to
31.12.18
2,400
89
2,136
Future
expected
290
91
2,233
Sensitivity
analysis
increase/
decrease in
provision
50k=£117m
1%=£6m
£100=£26m
Notes
a Total mis-selling claims received directly by Barclays Group, including those received via CMCs but excluding those for which no PPI policy exists and excluding responses to
proactive mailing. The sensitivity analysis has been calculated to show the impact a 50,000 increase or decrease in the number of customer initiated mis-selling policy claims
would have on the provision level inclusive of operational processing costs.
b Average uphold rate per customer initiated mis-selling claim received directly by Barclays Group and proactive mailings, excluding those for which no PPI policy exists.
The sensitivity analysis has been calculated to show the impact a 1% change in the average uphold rate per claim would have on the provision level.
c Average redress stated on a per policy basis for future customer initiated mis-selling complaints received directly by Barclays Group. The sensitivity analysis has been calculated
to show the impact a £100 increase or decrease in the average redress per claim would have on the provision level.
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26 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 likelihood of an outflow of economic resources is remote.
The following table summarises the nominal principal amount of contingent liabilities and commitments which are not recorded on-balance sheet:
Guarantees and letters of credit pledged as collateral security
Performance guarantees, acceptances and endorsements
Total contingent liabilities
Of which: Financial guarantees carried at fair value
Documentary credits and other short-term trade related transactions
Standby facilities, credit lines and other commitmentsa
Total commitments
Of which: Loan commitments carried at fair value
2018
£m
15,805
4,498
20,303
4
1,741
322,482
324,223
11,723
2017
£m
14,275
4,737
19,012
812
314,761
315,573
Provisions held against contingent liabilities and commitments equal £271m. Post IFRS 9, loan commitments carried at fair value amounted to
£18.9bn as 1 January 2018.
The Financial Services Compensation Scheme (the FSCS) is the UK’s government-backed compensation scheme for customers of authorised
institutions that are unable to pay claims. The compensation paid out to customers is funded through loan facilities provided by HM Treasury
to the FSCS which at 31 December 2018 has been completely repaid and has nil balance (2017: £4.7bn).
Further details on contingent liabilities relating to legal and competition and regulatory matters can be found in Note 27.
27 Legal, competition and regulatory matters
Members of the Barclays Group face legal, competition and regulatory challenges, many of which are beyond our control. The extent of the
impact on Barclays 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 recognition of provisions in relation to such matters involves critical accounting estimates and
judgements in accordance with the relevant accounting policies as described in Note 25, Provisions. We have not disclosed an estimate of
the potential financial effect on Barclays of contingent liabilities where it is not currently practicable to do so.
In connection with the implementation of structural reform in the UK, on 1 April 2018, the UK banking business was transferred from Barclays
Bank PLC to Barclays Bank UK PLC, a separate subsidiary of Barclays PLC. Although the matters described below are relevant to Barclays PLC either
on an individual or on a consolidated basis, certain matters may relate to either or both of Barclays Bank PLC and Barclays Bank UK PLC. Matters
are ordered under headings corresponding to the financial statements in which they are disclosed.
1. Barclays PLC and Barclays Bank PLC
Investigations into certain advisory services agreements and other matters and civil action
The UK Serious Fraud Office (SFO), the Financial Conduct Authority (FCA), the US Department of Justice (DoJ) and the US Securities and
Exchange Commission (SEC) have been conducting investigations into two advisory services agreements entered into by Barclays Bank PLC.
These agreements were entered into with Qatar Holding LLC (Qatar Holding) in June and October 2008 (the Agreements). The FCA commenced
an investigation into whether the Agreements may have related to Barclays PLC’s capital raisings in June and November 2008 (the Capital
Raisings). The existence of the June 2008 advisory services agreement was disclosed, but the entry into the advisory services agreement in
October 2008 and the fees payable under the Agreements, which amounted 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. The SFO also commenced an investigation into the
Agreements and into a $3bn loan (the Loan) provided by Barclays Bank PLC in November 2008 to the State of Qatar.
SFO Proceedings
In 2017, the SFO charged Barclays PLC with two offences of conspiring with certain former senior officers and employees of Barclays to commit
fraud by false representations relating to the Agreements and one offence of unlawful financial assistance in relation to the Loan. In February 2018,
the SFO also charged Barclays Bank PLC with the same offence in respect of the Loan. In May 2018, the Crown Court dismissed all charges against
Barclays PLC and Barclays Bank PLC, and in October 2018, the High Court denied the SFO’s application to reinstate the charges, which were
consequently dismissed.
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Accruals, provisions, contingent liabilities
and legal proceedings
27 Legal, competition and regulatory matters continued
FCA Proceedings and other investigations
In 2013, the FCA issued warning notices (the Notices) finding that, while Barclays PLC and Barclays Bank PLC believed at the time of the execution
of the Agreements that there should be at least some unspecified and undetermined value to be derived from them, 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 Notices concluded that Barclays PLC and Barclays Bank PLC were in breach of certain disclosure-related listing rules
and Barclays PLC 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 Barclays PLC and Barclays Bank PLC acted recklessly. The financial penalty provided
in the Notices against Barclays is £50m. Barclays PLC and Barclays Bank PLC continue to contest the findings. The FCA action has been stayed
due to the SFO proceedings pending against certain former Barclays executives, trial in respect of which commenced in January 2019.
In addition, the DoJ and the SEC have been conducting investigations relating to the Agreements.
Civil Action
In 2016, PCP Capital Partners LLP and PCP International Finance Limited (PCP) served a claim on Barclays Bank PLC seeking damages for
fraudulent misrepresentation and deceit, arising from alleged statements made by Barclays Bank PLC to PCP in relation to the terms on which
securities were to be issued to potential investors, allegedly including PCP, in the November 2008 capital raising. PCP seeks damages of up to
£1,477m (plus interest from November 2017) and costs. Barclays Bank PLC is defending the claim and trial is scheduled to commence in
October 2019.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might
have upon Barclays’ operating results, cash flows or financial position in any particular period. The financial penalty provided in the FCA’s
Notices against Barclays is £50m. PCP has made a claim against Barclays Bank PLC for damages of up to £1,477m plus interest and costs.
These amounts do not necessarily reflect Barclays’ potential financial exposure in respect of these matters.
Investigations into certain business relationships
In 2012, the DoJ and SEC commenced investigations in relation to whether certain relationships with third parties who assist Barclays PLC to win
or retain business are compliant with the US Foreign Corrupt Practices Act. Various regulators in other jurisdictions are also being briefed on the
investigations. Separately, Barclays is cooperating with the DoJ and SEC in relation to an investigation into certain of its hiring practices in Asia
and elsewhere and is keeping certain regulators in other jurisdictions informed.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might have
upon Barclays’ operating results, cash flows or financial position in any particular period.
Investigations relating to whistleblowing systems and controls
In 2017, the FCA and the Prudential Regulation Authority (PRA) commenced investigations into the Barclays Group Chief Executive Officer (CEO),
relating to his attempt in 2016 to identify the author of a letter that was treated by Barclays Bank PLC as a whistleblow, and into Barclays Bank PLC,
as to its responsibilities relating to the attempt by the CEO to identify the author of the letter, as well as Barclays’ systems and controls and culture
relating to whistleblowing.
In May 2018, the FCA and PRA published final notices confirming their finding that the CEO’s actions in relation to this matter represented
a breach of Individual Conduct Rule 2 (requirement to act with due skill, care and diligence). There were no findings by the FCA or PRA that the CEO
acted with a lack of integrity nor any findings that he lacked fitness and propriety to continue to perform his role as Group Chief Executive Officer.
In respect of its investigation relating to Barclays Bank PLC, the FCA and PRA concluded that they would not take enforcement action in respect
of this matter. However, each of Barclays Bank PLC and Barclays Bank UK PLC agreed to be subject to requirements to report to the FCA and PRA
on certain aspects of their whistleblowing programmes.
The New York Department of Financial Services (NYDFS) and the Federal Reserve Bank of New York also conducted their own investigations in
respect of this matter. In December 2018, the NYDFS issued a consent order that imposed a $15m civil penalty on Barclays Bank PLC, which has
been paid, for failings in its whistleblowing programme as well as certain remediation and reporting obligations related to its whistleblowing
programme. All regulatory investigations relating to these events are now concluded.
Claimed amounts/Financial impact
Aside from the settlement discussed above, there is no financial impact on Barclays’ operating results, cash flows or financial position.
Investigations into LIBOR and other benchmarks
Regulators and law enforcement agencies, including certain competition authorities, from a number of governments have been conducting
investigations relating to Barclays Bank PLC’s involvement in manipulating certain financial benchmarks, such as LIBOR and EURIBOR. In 2012,
Barclays Bank PLC announced that it had reached settlements with the Financial Services Authority (FSA) (as predecessor to the FCA), the
US Commodity Futures Trading Commission (CFTC) and the DoJ in relation to their investigations concerning certain benchmark interest rate
submissions, and Barclays Bank PLC paid total penalties of £290m. The settlement with the DoJ was made by entry into a Non-Prosecution
Agreement (NPA) which has now expired. Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. (BCI) have reached settlements with certain
other regulators and law enforcement agencies. Barclays Bank PLC continues to respond to requests for information from the SFO in relation
to its ongoing LIBOR investigation, including in respect of Barclays Bank PLC.
Claimed amounts/Financial impact
Aside from the settlements discussed above, it is not currently practicable to provide an estimate of any further financial impact of the actions
described on Barclays or what effect they might have upon Barclays’ operating results, cash flows or financial position in any particular period.
LIBOR and other benchmark civil actions
Following settlement of the investigations referred to above in ‘Investigations into LIBOR and other benchmarks’, various individuals and
corporates in a range of jurisdictions have threatened or brought civil actions against Barclays and other banks in relation to LIBOR and/or other
benchmarks. While certain cases have been dismissed, settled or settled subject to final approval from the relevant court (and in the case of class
actions, the right of class members to opt out of the settlement and to seek to file their own claims), other actions remain pending and their
ultimate impact is unclear.
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27 Legal, competition and regulatory matters continued
USD LIBOR Cases in the Multidistrict Litigation Court
The majority of the USD LIBOR cases, which have been filed in various US jurisdictions, have been consolidated for pre-trial purposes before
a single judge in the US District Court in the Southern District of New York (SDNY).
The complaints are substantially similar and allege, amongst other things, that Barclays PLC, Barclays Bank PLC, BCI and other financial institutions
individually and collectively violated provisions of the US Sherman Antitrust Act (Antitrust Act), the US Commodity Exchange Act (CEA), the US
Racketeer Influenced and Corrupt Organizations Act (RICO), the Securities Exchange Act of 1934 and various state laws by manipulating USD
LIBOR rates.
Certain of the proposed class actions have been settled. Barclays has settled claims purportedly brought on behalf of plaintiffs that (i) engaged
in USD LIBOR-linked over-the-counter transactions (OTC Class); (ii) purchased USD LIBOR-linked financial instruments on an exchange; (iii)
purchased USD LIBOR-linked debt securities; or (iv) issued loans linked to USD LIBOR (Lender Class) and paid $120m, $20m, $7.1m and $4m
respectively. The settlements with the OTC Class and the Lender Class have received final court approval. The other settlements remain subject
to final court approval and/or the right of class members to opt out of the settlement and to seek to file their own claims.
The remaining putative class actions and individual actions seek unspecified damages with the exception of five lawsuits, in which the plaintiffs
are seeking a combined total in excess of $1.25bn in actual damages against all defendants, including Barclays Bank PLC, plus punitive damages.
Some of the lawsuits also seek trebling of damages under the Antitrust Act and RICO.
EURIBOR Case in the SDNY
In 2015, $94m was paid in settlement of a EURIBOR-related class action. The court granted final approval of Barclays’ settlement in May 2018.
Additional USD LIBOR Cases in the SDNY
In 2015, an individual action against Barclays Bank PLC and other panel bank defendants was dismissed by the SDNY. The plaintiff alleged that the
panel bank defendants conspired to increase USD LIBOR, which caused the value of bonds pledged as collateral for a loan to decrease, ultimately
resulting in the sale of the bonds at a low point in the market. In March 2018, the court denied the plaintiff ’s motion for leave to amend its
complaint and dismissed the case. The plaintiff ’s appeal of the court’s order is pending.
In January 2019, two putative class actions were filed in the SDNY against Barclays PLC, Barclays Bank PLC, BCI, other financial institution
defendants and Intercontinental Exchange Inc. (ICE) and certain of its affiliates, asserting antitrust and unjust enrichment claims on allegations
that, beginning in 2014, defendants manipulated USD LIBOR through defendants’ submissions to ICE, which took over rate-setting duties for
LIBOR from the British Bankers’ Association in 2014. These two actions were consolidated in February 2019.
Sterling LIBOR Case in SDNY
In 2015, a putative class action was filed in the SDNY against Barclays Bank PLC and other Sterling LIBOR panel banks by a plaintiff involved
in exchange-traded and over-the-counter derivatives that were linked to Sterling LIBOR. The complaint alleges, among other things, that the
defendants manipulated the Sterling LIBOR rate between 2005 and 2010 and, in so doing, committed CEA, Antitrust Act, and RICO violations.
In 2016, this class action was consolidated with an additional putative class action making similar allegations against Barclays Bank PLC and
BCI and other Sterling LIBOR panel banks. The defendants’ motion to dismiss was granted in December 2018. The plaintiff has asked the court
to reconsider this decision.
Japanese Yen LIBOR Cases in SDNY
In 2012, a putative class action was filed in the SDNY against Barclays Bank PLC and other Japanese Yen LIBOR panel banks by a plaintiff involved
in exchange-traded derivatives. The complaint also names members of the Japanese Bankers Association’s Euroyen Tokyo Interbank Offered Rate
(Euroyen TIBOR) panel, of which Barclays Bank PLC is not a member. The complaint alleges, amongst other things, manipulation of the Euroyen
TIBOR and Yen LIBOR rates and breaches of the CEA and Antitrust Act between 2006 and 2010. In 2014, the court dismissed the plaintiff ’s
antitrust claims in full, but the plaintiff ’s CEA claims remain pending. Discovery is ongoing.
In 2017, a second putative class action concerning Yen LIBOR which was filed in the SDNY against Barclays PLC, Barclays Bank PLC and BCI
was dismissed in full. The complaint makes similar allegations to the 2012 class action. The plaintiffs have appealed the dismissal.
SIBOR/SOR Case in the SDNY
In 2016, a putative class action was filed in the SDNY against Barclays PLC, Barclays Bank PLC, BCI and other defendants, alleging manipulation
of the Singapore Interbank Offered Rate (SIBOR) and Singapore Swap Offer Rate (SOR). The plaintiffs amended their complaint in 2017 following
dismissal by the court of the claims against Barclays for failure to state a claim. In October 2018, the court dismissed all claims against Barclays
PLC, Barclays Bank PLC and BCI, a decision that the plaintiffs are challenging.
Non-US Benchmarks Cases
In addition to the US actions described above, legal proceedings have been brought or threatened against Barclays in connection with alleged
manipulation of LIBOR and EURIBOR and other benchmarks in the UK, including the matter referred to below in ‘Local authority civil actions
concerning LIBOR’ that is also related to Barclays Bank UK PLC, as well as in a number of other jurisdictions in Europe, Israel and Argentina.
Additional proceedings in other jurisdictions may be brought in the future.
Claimed amounts/Financial impact
Aside from the settlements discussed above, it is not currently practicable to provide an estimate of any further financial impact of the actions
described on Barclays or what effect they might have upon Barclays’ operating results, cash flows or financial position in any particular period.
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27 Legal, competition and regulatory matters continued
Foreign Exchange Investigations
Various regulatory and enforcement authorities across multiple jurisdictions have been investigating a range of issues associated with Foreign
Exchange sales and trading, including electronic trading.
In 2015 Barclays reached settlements with the CFTC, the DoJ, the NYDFS, the Board of Governors of the Federal Reserve System (Federal Reserve)
and the FCA (together, the 2015 Resolving Authorities) in relation to investigations into certain sales and trading practices in the Foreign
Exchange market. In connection with these settlements, Barclays paid total penalties of approximately $2.38bn and agreed to undertake certain
remedial actions.
Under the plea agreement with the DoJ, in addition to a criminal fine, Barclays PLC agreed to a term of probation of three years during which
Barclays PLC, including its subsidiaries, 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 program designed to prevent and detect the conduct that gave rise to the plea agreement,
(iii) report credible evidence of criminal violations of US antitrust or fraud laws to the relevant US authority, and (iv) strengthen its compliance and
internal controls as required by relevant regulatory or enforcement agencies. In January 2017, the US District Court for the District of Connecticut
accepted the plea agreement and in accordance with the agreement sentenced Barclays PLC to pay $650m as a fine and $60m for violating the
NPA (which amounts are part of the $2.38bn referred to above) and to serve three years of probation from the date of the sentencing order.
Barclays also continues to provide relevant information to certain of the 2015 Resolving Authorities.
The European Commission is one of a number of authorities still conducting an investigation into certain trading practices in the Foreign
Exchange market.
The DoJ has also conducted an investigation into conduct relating to certain trading activities in connection with certain transactions during
2011 and 2012. Barclays has been providing information to the DoJ and other relevant authorities reviewing this conduct. In February 2018, the
DoJ issued a letter closing its investigation of Barclays in exchange for, among other things, Barclays’ agreement to pay $12.9m in disgorgement
and restitution, which can be offset by any settlement amount paid as civil restitution. Barclays resolved a related civil dispute. The amount paid
was not material to Barclays.
Claimed amounts/Financial impact
Aside from the settlements discussed above, it is not currently practicable to provide an estimate of any further financial impact of the actions
described on Barclays or what effect they might have on Barclays’ operating results, cash flows or financial position in any particular period.
Civil actions in respect of Foreign Exchange
Following settlement of certain investigations referred to above in ‘Foreign Exchange Investigations’ a number of individuals and corporates
in a range of jurisdictions have threatened or brought civil actions against Barclays and other banks in relation to Foreign Exchange or may
do so in the future. Certain of these cases have been dismissed, settled or settled subject to final approval from the relevant court (and in
the case of class actions, the right of class members to opt out of the settlement and to seek to file their own claims).
Consolidated FX Action
In 2014, a number of civil actions filed in the SDNY on behalf of proposed classes of plaintiffs alleging manipulation of Foreign Exchange
markets under the Antitrust Act and New York state law and naming several international banks as defendants, including Barclays Bank PLC,
were combined into a single consolidated action (Consolidated FX Action). In 2015, Barclays Bank PLC and BCI settled the Consolidated FX
Action and paid $384m. The settlement received final court approval in August 2018.
FX Opt Out Action
In November 2018, a group of 16 plaintiffs (and several of their affiliates) who opted out of the Consolidated FX Action settlement filed a complaint
in the SDNY against the Consolidated FX Action defendants, including Barclays Bank PLC and BCI.
ERISA FX Action
Since 2015, several civil actions have been filed in the SDNY on behalf of proposed classes of plaintiffs purporting to allege different legal theories
of injury (other than those alleged in the Consolidated FX Action) related to alleged manipulation of Foreign Exchange rates, including claims
under the US Employee Retirement Income Security Act (ERISA) statute (ERISA Claims), and naming several international banks as defendants,
including Barclays PLC, Barclays Bank PLC and BCI. The Court dismissed the ERISA Claims. This dismissal was affirmed on appeal in 2018 and
is not subject to further appeal.
Retail Basis Action
A putative action was filed in the Northern District of California (and subsequently transferred to the SDNY) against several international banks,
including Barclays PLC and BCI, on behalf of a putative class of individuals that exchanged currencies on a retail basis at bank branches (Retail
Basis Claims). The Court has ruled that the Retail Basis Claims are not covered by the settlement agreement in the Consolidated FX Action. The
Court subsequently dismissed all Retail Basis Claims against Barclays and all other defendants. The plaintiffs amended their complaint and sought
to expand the action to include credit card, debit card and wire transactions, which expansion the Court denied.
State Law FX Action
In 2016, a putative class action was filed in the SDNY under federal, New York and California law on behalf of proposed classes of stockholders of
Exchange Traded Funds and others who supposedly were indirect investors in FX Instruments. The plaintiffs’ counsel subsequently amended the
complaint to bring claims on behalf of a proposed class of investors under federal and various state laws who traded FX Instruments through FX
dealers or brokers not alleged to have manipulated Foreign Exchange Rates. A different group of plaintiffs subsequently filed another action and
asserted substantively similar claims. These two actions were consolidated and a consolidated complaint was filed in 2017. The consolidated
action was dismissed, but the plaintiffs were permitted to file an amended complaint, except as to their federal claims, in November 2018.
Non-US FX Actions
In addition to the actions described above, legal proceedings have been brought or are threatened against Barclays in connection with
manipulation of Foreign Exchange in the UK, a number of other jurisdictions in Europe and Israel, and additional proceedings may be brought
in the future.
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27 Legal, competition and regulatory matters continued
Claimed amounts/Financial impact
Aside from the settlement described above, it is not currently practicable to provide an estimate of any further financial impact of the actions
described on Barclays or what effect they might have upon Barclays’ operating results, cash flows or financial position in any particular period.
Metals investigations
Barclays Bank PLC has provided information to the DoJ, the CFTC and other authorities in connection with investigations into metals and
metals-based financial instruments.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might have
upon Barclays’ operating results, cash flows or financial position in any particular period.
Civil actions in respect of the gold and silver fix
A number of civil complaints, each on behalf of a proposed class of plaintiffs, have been consolidated and transferred to the SDNY. The complaints
allege that Barclays Bank PLC and other members of The London Gold Market Fixing Ltd. manipulated the prices of gold and gold derivative
contracts in violation of the CEA, the Antitrust Act, and state antitrust and consumer protection laws.
Also, in the US, a proposed class of plaintiffs filed a complaint against a number of banks, including Barclays Bank PLC, BCI and Barclays Capital
Services Ltd., alleging manipulation of the price of silver in violation of the CEA and antitrust laws. The court has dismissed this action as against
the Barclays entities.
Civil actions have also been filed in Canadian courts against Barclays PLC, Barclays Bank PLC, Barclays Capital Canada Inc., BCI and Barclays Capital
PLC on behalf of proposed classes of plaintiffs alleging manipulation of gold and silver prices in violation of Canadian law.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might have
upon Barclays’ operating results, cash flows or financial position in any particular period.
US residential and commercial mortgage-related activity and litigation
There have been various investigations and civil litigation relating to secondary market trading of US Residential Mortgage-Backed Securities
(RMBS) and US Commercial Mortgage-Backed Securities (CMBS).
DoJ Civil Action
In December 2016, the DoJ filed a civil complaint against Barclays Bank PLC, Barclays PLC, BCI, Barclays Group US Inc., Barclays US LLC, BCAP LLC,
Securitized Asset Backed Receivables LLC and Sutton Funding LLC, in the US District Court in the Eastern District of New York (EDNY) containing
a number of allegations, including mail and wire fraud, relating to mortgage-backed securities sold between 2005 and 2007. In March 2018,
Barclays reached a settlement with the DoJ to resolve this complaint. Barclays paid a civil penalty of $2bn in connection with this settlement.
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RMBS Repurchase Requests
Barclays was the sole provider of various loan-level representations and warranties (R&Ws) with respect to:
■■ approximately $5bn of Barclays sponsored securitisations
■■ approximately $0.2bn of sales of loans to government sponsored enterprises (GSEs), and
■■ approximately $3bn of loans sold to others.
In addition, an entity that Barclays acquired in 2007 (Acquired Subsidiary) provided R&Ws on $19.4bn of loans it sold to third parties.
R&Ws on the remaining Barclays sponsored securitisations were primarily provided by third-party originators directly to the securitisation trusts
with a Barclays subsidiary, such as the depositor for the securitisation, providing more limited R&Ws. There are no stated expiration provisions
applicable to most R&Ws made by Barclays, the Acquired Subsidiary or these third parties.
Under certain circumstances, Barclays and/or the Acquired Subsidiary may be required to repurchase the related loans or make other payments
related to such loans if the R&Ws are breached.
The unresolved repurchase requests received on or before 31 December 2018 associated with all R&Ws made by Barclays or the Acquired
Subsidiary on loans sold to GSEs and others and private-label activities had an original unpaid principal balance of approximately $2.1bn at the
time of such sale.
The unresolved repurchase requests discussed above relate to civil actions that have been commenced by the trustees for certain RMBS
securitisations in which the trustees allege that Barclays and/or the Acquired Subsidiary must repurchase loans that violated the operative
R&Ws. Such trustees and other parties making repurchase requests have also alleged that the operative R&Ws may have been violated with
respect to a greater (but unspecified) amount of loans than the amount of loans previously stated in specific repurchase requests made by
such trustees. This litigation is ongoing.
In May 2018, the Acquired Subsidiary agreed to a settlement of a civil action relating to claims for indemnification for losses allegedly suffered
by a loan purchaser as a result of alleged breaches of R&Ws provided by the Acquired Subsidiary in connection with loan sales to the purchaser
during the period 1997 to 2007. The amount paid was not material to Barclays.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of any further financial impact of the actions described on Barclays or what effect
they might have upon Barclays’ operating results, cash flows or financial position in any particular period.
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27 Legal, competition and regulatory matters continued
Alternative trading systems
In 2014, the New York State Attorney General (NYAG) filed a complaint (NYAG Complaint) against Barclays PLC and BCI in the Supreme Court
of the State of New York alleging, amongst other things, that Barclays PLC and BCI engaged in fraud and deceptive practices in connection with
LX, Barclays’ SEC-registered alternative trading system (ATS). In February 2016, Barclays reached separate settlement agreements with the SEC
and the NYAG to resolve those agencies’ claims against Barclays PLC and BCI relating to the operation of LX and paid $35m to each.
Barclays PLC and BCI were named in a purported class action by an institutional financial services firm under California law based on allegations
similar to those in the NYAG Complaint. In October 2016, the federal court in California granted the motion of Barclays PLC and BCI to dismiss
the entire complaint. In July 2018, the court of appeals affirmed the dismissal.
Following the filing of the NYAG Complaint, Barclays PLC and BCI were also named in a putative shareholder securities class action along with
certain current and former executives. The plaintiffs claim that holders of Barclays American Depository Receipts (ADRs) suffered damages
when the ADRs declined in value as a result of the allegations in the NYAG Complaint. The parties have agreed to a settlement of this action
for $27m, which is subject to final court approval.
Claimed amounts/Financial impact
Barclays does not expect the financial impact of the actions described to be material to Barclays’ operating results, cash flows or financial position.
Treasury auction securities civil actions and related matters
Various civil actions have been filed against Barclays Bank PLC, BCI and other financial institutions alleging violations of antitrust and other laws
relating to the markets for US Treasury securities and Supranational, Sovereign and Agency securities. Certain governmental authorities are also
conducting investigations relating to trading of certain government and agency securities in various markets.
Numerous putative class action complaints have been filed in US Federal Court against Barclays Bank PLC, BCI and other financial institutions that
have served as primary dealers in US Treasury securities. Those actions have been consolidated and in 2017, plaintiffs in the putative class action
filed a consolidated amended complaint in the US Federal Court in New York against the defendants as well as certain corporations that operate
electronic trading platforms on which US Treasury securities are traded. The complaint purports to assert claims under US federal antitrust laws
and state common law based on allegations that the defendants (i) conspired to manipulate the US Treasury securities market and/or
(ii) conspired to prevent the creation of certain platforms by boycotting or threatening to boycott such trading platforms. The defendants
have filed a motion to dismiss.
In addition, certain plaintiffs have filed a related, direct action against BCI and certain other financial institutions that have served as primary
dealers in US Treasury securities. This complaint alleges that defendants conspired to fix and manipulate the US Treasury securities market
in violation of US federal antitrust laws, the CEA and state common law.
Barclays PLC, Barclays Bank PLC, BCI, Barclays Services Limited, Barclays Capital Securities Limited and certain other financial institutions
have been named as defendants in a civil antitrust complaint that alleges that the defendants engaged in a conspiracy to fix prices and
restrain competition in the market for US dollar-denominated Supranational, Sovereign and Agency bonds (SSA Bonds) from 2009 through 2015.
The defendants have moved to dismiss the action. In February 2019, indirect purchasers of SSA Bonds filed a separate but related complaint
making similar allegations.
Certain governmental authorities are conducting investigations into activities relating to the trading of certain government and agency securities
in various markets and Barclays has been providing information to various authorities on an ongoing basis.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might have
upon Barclays’ operating results, cash flows or financial position in any particular period.
Mexican Government Bond civil action
Barclays PLC, Barclays Bank PLC, BCI, Barclays Capital Securities Limited, Barclays Bank Mexico, S.A., Grupo Financiero Barclays Mexico, S.A. de
C.V. and Banco Barclays S.A., together with other financial institutions that allegedly transacted in Mexican government bonds (MGB), are named
as defendants in a class action consolidated in the SDNY. The plaintiffs assert antitrust and state law claims arising out of an alleged conspiracy
to fix the prices of MGB from 2006 through mid-2017. Defendants have moved to dismiss the consolidated action.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might have
upon Barclays’ operating results, cash flows or financial position in any particular period.
American Depositary Shares
Barclays PLC and Barclays Bank PLC were named as defendants in a securities class action consolidated in the SDNY that alleged misstatements
and omissions in offering documents for certain American Depositary Shares issued by Barclays Bank PLC in April 2008 with an original
face amount of approximately $2.5 billion (the April 2008 Offering). The plaintiffs asserted claims under the Securities Act of 1933, alleging
misstatements and omissions concerning (amongst other things) Barclays Bank PLC’s exposure to mortgage and credit market risk and its
financial condition. In 2017, the SDNY granted the defendants’ motion for summary judgment on all claims against them, a decision affirmed
by the appellate court in November 2018.
Claimed amounts/Financial impact
Absent the summary judgment decision being overturned on appeal, Barclays does not expect the financial impact of the action described
to be material to Barclays’ operating results, cash flows or financial position.
320 Barclays PLC Annual Report 2018
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27 Legal, competition and regulatory matters continued
BDC Finance L.L.C.
In 2008, BDC Finance L.L.C. (BDC) filed a complaint in the NY Supreme Court alleging that Barclays Bank PLC had breached a contract in
connection with a portfolio of total return swaps governed by an ISDA Master Agreement (collectively, the Agreement) when it failed to transfer
approximately $40m of alleged excess collateral in response to BDC’s 2008 demand (Demand).
BDC asserts that under the Agreement Barclays Bank PLC was not entitled to dispute the Demand before transferring the alleged excess collateral
and that even if the Agreement entitled Barclays Bank PLC to dispute the Demand before making the transfer, Barclays Bank PLC failed to dispute
the Demand. BDC demands damages totalling $298m plus attorneys’ fees, expenses, and pre-judgement interest. Following a trial on certain
liability issues, the court ruled in December 2018 that Barclays Bank PLC was not a defaulting party. In January 2019, BDC filed a notice of appeal
of that decision.
In 2011, BDC’s investment advisor, BDCM Fund Adviser, L.L.C. and its parent company, Black Diamond Capital Holdings, L.L.C. also sued Barclays
Bank PLC and BCI in Connecticut State Court for unspecified damages allegedly resulting from Barclays Bank PLC’s conduct relating to the
Agreement, asserting claims for violation of the Connecticut Unfair Trade Practices Act and tortious interference with business and prospective
business relations. The Connecticut case is currently stayed.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might have
upon Barclays’ operating results, cash flows or financial position in any particular period. BDC has made claims against Barclays totalling $298m
plus attorneys’ fees, expenses, and pre-judgement interest. This amount does not necessarily reflect Barclays’ potential financial exposure if
a ruling were to be made against it.
Civil actions in respect of the US Anti-Terrorism Act
Civil complaints against Barclays Bank PLC and other banks allege engagement in a conspiracy and violation of the US Anti-Terrorism Act (ATA).
These include various civil complaints filed in the US Federal Courts in the EDNY and SDNY by separate groups of plaintiffs (aggregating over
4,000) alleging that Barclays Bank PLC and a number of other banks engaged in a conspiracy and violated the ATA by facilitating US dollar
denominated transactions for the Government of Iran and various Iranian banks, which in turn funded acts of terrorism that injured or killed
the plaintiffs’ family members. The plaintiffs seek to recover for pain, suffering and mental anguish pursuant to the provisions of the ATA, which
allows for the tripling of any proven damages and attorneys’ fees. In respect of a motion by defendants to dismiss one of the complaints, in July
2018, a magistrate judge (to whom the court referred the motion) issued a recommendation that the motion be denied; the defendants objected
to that recommendation; and the motion is pending before the court.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might
have upon Barclays’ operating results, cash flows or financial position in any particular period.
Interest rate swap and credit default swap US civil actions
Barclays PLC, Barclays Bank PLC, and BCI, together with other financial institutions that act as market makers for interest rate swaps (IRS), Trade
Web, and ICAP, are named as defendants in several antitrust class actions which were consolidated in the SDNY in 2016. The complaints allege the
defendants conspired to prevent the development of exchanges for IRS and demand unspecified money damages, treble damages and legal fees.
Plaintiffs include certain swap execution facilities, as well as buy-side investors. The buy-side investors claim to represent a class that transacted
in fixed-for-floating IRS with defendants in the US from 2008 to the present, including, for example, US retirement and pension funds,
municipalities, university endowments, corporations, insurance companies and investment funds. The case is in discovery.
In 2017, a separate suit was filed in the US District Court in the SDNY against the same financial institution defendants in the IRS cases, including
Barclays PLC, Barclays Bank PLC, and BCI, claiming that certain conduct alleged in the IRS cases also caused plaintiff to suffer harm with respect
to the Credit Default Swaps market. The defendants have moved to dismiss this action. Separately, in June 2018, trueEX LLC filed an antitrust class
action in the SDNY against 11 financial institutions that act as dealers in the IRS market, including Barclays Bank PLC and BCI, alleging that the
defendants unlawfully conspired to block trueEX from successfully entering the market with its IRS trading platform. trueEX LLC also alleges that
the defendants more generally boycotted other anonymous, all-to-all IRS trading platforms. In November 2018, the court dismissed certain claims
for unjust enrichment and tortious interference, but denied a motion to dismiss the federal and state antitrust claims which remain pending.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the actions described on Barclays or what effect they might
have upon Barclays’ operating results, cash flows or financial position in any particular period.
Portuguese Competition Authority investigation
The Portuguese Competition Authority is investigating whether competition law was infringed by the exchange of information about retail
credit products amongst 15 banks in Portugal, including Barclays, over a period of 11 years with particular reference to mortgages, consumer
lending and lending to small and medium enterprises. Barclays is cooperating with the investigation.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the matter described on Barclays or what effect it might
have upon Barclays’ operating results, cash flows or financial position in any particular period.
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27 Legal, competition and regulatory matters continued
2. Barclays PLC, Barclays Bank PLC and Barclays Bank UK PLC
Investigations relating to retail structured deposits and capital protected structured notes
In 2015, the FCA commenced an enforcement investigation relating to the design, manufacture and sale of structured deposits by Barclays from
November 2009. In January 2018, the FCA also commenced an enforcement investigation relating to the design, manufacture and sale of capital
protected structured notes by Barclays from June 2008 to July 2014. The FCA has now closed these investigations with no action to be taken
against Barclays.
Claimed amounts/Financial impact
There is no financial impact on Barclays’ operating results, cash flows or financial position.
Investigation into collections and recoveries relating to unsecured lending
In February 2018, the FCA commenced an enforcement investigation in relation to whether or not Barclays implemented effective systems and
controls with respect to collections and recoveries and whether or not it paid due consideration to the interests of customers in default and
arrears.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of the financial impact of the investigation on Barclays or what effect that it might have upon
Barclays’ operating results, cash flows or financial position in any particular period.
HM Revenue & Customs (HMRC) assessments concerning UK Value Added Tax
In 2018, HMRC issued notices that have the effect of removing certain overseas subsidiaries that have operations in the UK from Barclays’
UK VAT group, in which group supplies between members are generally free from VAT. The notices have retrospective effect and correspond
to assessments of £181m (inclusive of interest), of which Barclays would expect to attribute an amount of approximately £128m to Barclays Bank
UK PLC and £53m to Barclays Bank PLC. Barclays has appealed HMRC’s decision to the First Tier Tribunal (Tax Chamber).
Claimed amounts/Financial impact
The total amount of the HMRC assessments is approximately £181m, inclusive of interest.
Local authority civil actions concerning LIBOR
Following settlement by Barclays Bank PLC of various governmental investigations concerning certain benchmark interest rate submissions
referred to above in ‘Investigations into LIBOR and other benchmarks’, in the UK, certain local authorities have brought claims against Barclays
asserting that they entered into loans in reliance on misrepresentations made by Barclays in respect of its conduct in relation to LIBOR.
Claimed amounts/Financial impact
It is not currently practicable to provide an estimate of any further financial impact of the actions described on Barclays or what effect they might
have upon Barclays’ operating results, cash flows or financial position in any particular period.
3. Barclays PLC and Barclays Bank UK PLC
CCUK Finance Limited and CIAC Corporation
In May 2017, Barclays was served with a civil claim by CCUK Finance Limited and CIAC Corporation issued in the English High Court alleging
breach of a contractual indemnity, fraudulent misrepresentation and breach of warranty arising out of the sale of a portfolio of credit cards
in 2007. The parties have settled the claim.
Claimed amounts/Financial impact
The financial impact of the action described was not material to Barclays’ operating results, cash flows or financial position.
General
Barclays is engaged in various other legal, competition and regulatory matters in the UK, the US and a number of other overseas jurisdictions.
It is subject to legal proceedings brought by and against Barclays which arise in the ordinary course of business from time to time, including
(but not limited to) disputes in relation to contracts, securities, debt collection, consumer credit, fraud, trusts, client assets, competition, data
management and protection, money laundering, financial crime, employment, environmental and other statutory and common law issues.
Barclays is also subject to enquiries and examinations, requests for information, audits, investigations and legal and other proceedings by
regulators, governmental and other public bodies in connection with (but not limited to) consumer protection measures, compliance with
legislation and regulation, wholesale trading activity and other areas of banking and business activities in which Barclays is or has been engaged.
Barclays is cooperating with the relevant authorities and keeping all relevant agencies briefed as appropriate in relation to these matters and
others described in this note on an ongoing basis.
At the present time, Barclays does not expect the ultimate resolution of any of these other matters to have a material adverse effect on its
financial position. However, in light of the uncertainties involved in such matters and the matters specifically described in this note, there can be no
assurance that the outcome of a particular matter or matters (including formerly active matters or those matters arising after the date of this note)
will not be material to Barclays’ results, 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 profit otherwise reported for the reporting period.
322 Barclays PLC Annual Report 2018
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Notes to the financial statements
Capital instruments, equity and reserves
The notes included in this section focus on the Barclays Group’s loan capital and shareholders’ equity including issued share capital, retained
earnings, other equity balances and interests of minority shareholders in our subsidiary entities (non-controlling interests). For more information
on capital management and how the Barclays Group maintains sufficient capital to meet our regulatory requirements refer to page 141.
28 Subordinated liabilities
Accounting for subordinated liabilities
Subordinated liabilities are measured at amortised cost using the effective interest method under IFRS 9.
Opening balance as at 1 January
Issuances
Redemptions
Other
Total subordinated liabilities
2018
£m
23,826
221
(3,246)
(242)
20,559
2017
£m
23,383
3,041
(1,378)
(1,220)
23,826
Redemptions totalling £3,246m include £500m Fixed/Floating Rate Subordinated Callable Notes, €1,750m 6% Fixed Rate Subordinated
Notes (£1,532m), $1,000m 7.75% Contingent Capital Notes (£713m), $99m 7.7% Undated Subordinated Notes (£72m), €40m Floating Rate
Subordinated Notes 2018 (£35m), €235m CMS Linked Subordinated Notes (£206m), £140m 8.25% Undated Subordinated Notes and a number
of small redemptions by Barclays Securities Japan Limited totalling £48m.
Other movements include £514m due to the appreciation of USD and JPY against GBP offset by the reclassification of subordinated liabilities
to non-controlling interests of £491m and accrued interest of £128m.
Subordinated liabilities include accrued interest and comprise undated and dated subordinated liabilities as follows:
Undated subordinated liabilities
Dated subordinated liabilities
Total subordinated liabilities
None of the Barclays Group’s subordinated liabilities are secured.
Undated subordinated liabilities
Barclays Bank PLC issued
Tier One Notes (TONs)
6% Callable Perpetual Core Tier One Notes
6.86% Callable Perpetual Core Tier One Notes (USD 179m)
Reserve Capital Instruments (RCIs)
6.3688% Step-up Callable Perpetual Reserve Capital Instruments
14% Step-up Callable Perpetual Reserve Capital Instruments
5.3304% Step-up Callable Perpetual Reserve Capital Instruments
Undated Notes
7.7% Undated Subordinated Notes (USD 99m)
8.25% Undated Subordinated Notes
7.125% Undated Subordinated Notesa
6.125% Undated Subordinated Notesa
Junior Undated Floating Rate Notes (USD 38m)
Undated Floating Rate Primary Capital Notes Series 3a
Bonds
9.25% Perpetual Subordinated Bonds (ex-Woolwich Plc)a
9% Permanent Interest Bearing Capital Bondsa
Loans
5.03% Reverse Dual Currency Undated Subordinated Loan (JPY 8,000m)a
5% Reverse Dual Currency Undated Subordinated Loan (JPY 12,000m)a
Total undated subordinated liabilities
2018
£m
3,522
17,037
20,559
2017
£m
4,191
19,635
23,826
Initial call date
2032
2032
2019
2019
2036
2018
2018
2020
2027
Any interest payment date
Any interest payment date
2021
At any time
2018
£m
16
199
34
3,189
51
–
–
–
–
30
–
–
–
2028
2028
–
–
3,522
2017
£m
16
197
36
3,142
52
74
144
182
43
28
21
87
45
51
73
4,191
Note
a Following a review, these instruments are deemed to have characteristics that would qualify them as equity rather than subordinated liabilities. They have been subsequently
reclassified in December 2018 resulting in a £491m movement.
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Barclays PLC Annual Report 2018 323
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Notes to the financial statements
Capital instruments, equity and reserves
28 Subordinated liabilities continued
Undated subordinated liabilities
Undated subordinated liabilities are issued by Barclays Bank PLC and its subsidiaries for the development and expansion of the business
and to strengthen the capital bases. The principal terms of the undated subordinated liabilities are described below:
Subordination
All undated subordinated liabilities rank behind the claims against the bank of depositors and other unsecured unsubordinated creditors and
holders of dated subordinated liabilities in the following order: Junior Undated Floating Rate Notes; other issues of Undated Notes, Bonds and
Loans ranking pari passu with each other; followed by TONs and RCIs ranking pari passu with each other.
Interest
All undated subordinated liabilities bear a fixed rate of interest until the initial call date, with the exception of the 9% Bonds which are fixed for
the life of the issue, and the Junior and Series 3 Undated Notes which are floating rate at rates fixed periodically in advance based on the related
interbank rate.
After the initial call date, in the event that they are not redeemed, the 7.125%, 6.125% Undated Notes and the 9.25% Bonds will bear interest at
rates fixed periodically in advance for five-year periods based on market rates. All other undated subordinated liabilities will bear interest at rates
fixed periodically in advance based on London interbank rates.
Payment of interest
Barclays Bank PLC is not obliged to make a payment of interest on its Undated Notes, Bonds and Loans excluding the 9.25% Bonds if, in the
preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC or, in certain cases, any class of preference
shares of Barclays Bank PLC. Barclays Bank PLC is not obliged to make a payment of interest on its 9.25% Perpetual Subordinated Bonds if, in the
immediately preceding 12 month interest period, a dividend has not been paid on any class of its share capital. Interest not so paid becomes
payable in each case if such a dividend is subsequently paid or in certain other circumstances. During the year, Barclays Bank PLC declared and
paid dividends on its ordinary shares and on all classes of preference shares.
No payment of principal or any interest may be made unless Barclays Bank PLC satisfies a specified solvency test.
Barclays Bank PLC may elect to defer any payment of interest on the RCIs. Any such deferred payment of interest must be paid on the earlier of:
(i) the date of redemption of the RCIs, (ii) the coupon payment date falling on or nearest to the tenth anniversary of the date of deferral of such
payment, and (iii) in respect of the 14% RCIs only, substitution. While such deferral is continuing, neither Barclays Bank PLC nor Barclays PLC
may declare or pay a dividend, subject to certain exceptions, on any of its ordinary shares or preference shares.
Barclays Bank PLC may elect to defer any payment of interest on the TONs if it determines that it is, or such payment would result in it being,
in non-compliance with capital adequacy requirements and policies of the PRA. Any such deferred payment of interest will only be payable on
a redemption of the TONs. Until such time as Barclays Bank PLC next makes a payment of interest on the TONs, neither Barclays Bank PLC nor
Barclays PLC may (i) declare or pay a dividend, subject to certain exceptions, on any of their respective ordinary shares or preference shares, or
make payments of interest in respect of Barclays Bank PLC’s Reserve Capital Instruments and (ii) certain restrictions on the redemption, purchase
or reduction of their respective share capital and certain other securities also apply.
Repayment
All undated subordinated liabilities are repayable at the option of Barclays Bank PLC, generally in whole, at the initial call date and on any
subsequent coupon or interest payment date or in the case of the 7.125%, 6.125% Undated Notes and the 9.25% Bonds on any fifth anniversary
after the initial call date. In addition, each issue of undated subordinated liabilities is repayable, at the option of Barclays Bank PLC in whole for
certain tax reasons, either at any time, or on an interest payment date. There are no events of default except non-payment of principal or
mandatory interest. Any repayments require the prior approval of the PRA.
Other
All issues of undated subordinated liabilities are non-convertible.
324 Barclays PLC Annual Report 2018
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28 Subordinated liabilities continued
Dated subordinated liabilities
Barclays PLC issued
2.625% Fixed Rate Subordinated Callable Notes (EUR 1,250m)
2% Fixed Rate Subordinated Callable Notes (EUR 1,500m)
4.375% Fixed Rate Subordinated Notes (USD 1,250m)
3.75% Fixed Rate Resetting Subordinated Callable Notes (SGD 200m)
5.20% Fixed Rate Subordinated Notes (USD 2,050m)
4.836% Fixed Rate Subordinated Callable Notes (USD 2,000m)
Barclays Bank PLC issued
Floating Rate Subordinated Notes (EUR 40m)
6% Fixed Rate Subordinated Notes (EUR 1,750m)
CMS-Linked Subordinated Notes (EUR 100m)
CMS-Linked Subordinated Notes (EUR 135m)
Fixed/Floating Rate Subordinated Callable Notes
7.75% Contingent Capital Notes (USD 1,000m)
Floating Rate Subordinated Notes (EUR 50m)
5.14% Lower Tier 2 Notes (USD 1,094m)
6% Fixed Rate Subordinated Notes (EUR 1,500m)
9.5% Subordinated Bonds (ex-Woolwich Plc)
Subordinated Floating Rate Notes (EUR 100m)
10% Fixed Rate Subordinated Notes
10.179% Fixed Rate Subordinated Notes (USD 1,521m)
Subordinated Floating Rate Notes (EUR 50m)
6.625% Fixed Rate Subordinated Notes (EUR 1,000m)
7.625% Contingent Capital Notes (USD 3,000m)
Subordinated Floating Rate Notes (EUR 50m)
5.75% Fixed Rate Subordinated Notes
5.4% Reverse Dual Currency Subordinated Loan (JPY 15,000m)
6.33% Subordinated Notes
Subordinated Floating Rate Notes (EUR 68m)
External issuances by other subsidiaries
Total dated subordinated liabilities
Initial
call date
Maturity
date
2020
2023
2025
2027
2018
2018
2025
2028
2024
2030
2026
2028
2018
2018
2018
2018
2023
2023
2019
2020
2021
2021
2021
2021
2021
2022
2022
2022
2023
2026
2027
2032
2040
2019–2023
2018
£m
1,130
1,367
982
116
1,509
1,523
–
–
–
–
–
–
45
851
1,474
256
89
2,194
1,143
45
1,032
2,272
45
351
107
61
61
384
17,037
2017
£m
1,119
1,325
947
111
1,439
1,471
36
1,643
93
124
533
747
44
841
1,484
273
88
2,261
1,118
44
1,043
2,163
44
366
97
62
60
59
19,635
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Dated subordinated liabilities
Dated subordinated liabilities are issued by Barclays PLC, Barclays Bank PLC and respective subsidiaries for the development and expansion
of their business and to strengthen their respective capital bases. The principal terms of the dated subordinated liabilities are described below:
Subordination
Dated subordinated liabilities issued by Barclays PLC ranks behind the claims against Barclays PLC of unsecured unsubordinated creditors
but before the claims of the holders of its equity.
All dated subordinated liabilities externally issued by Barclays Bank PLC rank behind the claims against the bank of depositors and other unsecured
unsubordinated creditors but before the claims of the undated subordinated liabilities and the holders of its equity. The dated subordinated
liabilities externally issued by other subsidiaries are similarly subordinated as the external subordinated liabilities issued by Barclays Bank PLC.
Interest
Interest on the Floating Rate Notes is fixed periodically in advance, based on the related interbank or local central bank rates.
Interest on the 2.625% Fixed Rate Subordinated Callable Notes, 4.836% Fixed Rate Subordinated Callable Notes, 2% Fixed Rate Subordinated
Callable Notes and the 3.75% Fixed Rate Resetting Subordinated Callable Notes are fixed until the call date. After the respective call dates,
in the event that they are not redeemed, the interest rates will be reset and fixed until maturity based on a market rate.
Repayment
Those subordinated liabilities with a call date are repayable at the option of the issuer, on conditions governing the respective debt obligations,
some in whole or in part, and some only in whole. The remaining dated subordinated liabilities outstanding at 31 December 2018 are redeemable
only on maturity, subject in particular cases to provisions allowing an early redemption in the event of certain changes in tax law, or to certain
changes in legislation or regulations.
Any repayments prior to maturity require, in the case of Barclays PLC and Barclays Bank PLC, the prior approval of the PRA, or in the case
of the overseas issues, the approval of the local regulator for that jurisdiction and of the PRA in certain circumstances.
There are no committed facilities in existence at the balance sheet date which permit the refinancing of debt beyond the date of maturity.
Other
The 7.625% Contingent Capital Notes will be automatically transferred from investors to Barclays PLC (or another entity within the Barclays Group)
for nil consideration in the event the Barclays PLC consolidated CRD IV CET1 ratio (FSA October 2012 transitional statement) falls below 7%.
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Barclays PLC Annual Report 2018 325
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Notes to the financial statements
Capital instruments, equity and reserves
29 Ordinary shares, share premium, and other equity
Called up share capital, allotted and fully paid
As at 1 January 2018
Issued to staff under share incentive plans
Issuances relating to Scrip Dividend Programme
AT1 securities issuance
AT1 securities redemption
Capital reorganisation
Other movements
As at 31 December 2018
As at 1 January 2017
Issued to staff under share incentive plans
Issuances relating to Scrip Dividend Programme
AT1 securities issuance
Other movements
As at 31 December 2017
Number of
shares
m
17,060
30
43
–
–
–
–
17,133
16,963
46
51
–
–
17,060
Ordinary
share
capital
£m
4,265
7
11
–
–
–
–
4,283
4,241
12
12
–
–
4,265
Ordinary
share
premium
£m
17,780
44
77
–
–
(17,873)
–
28
17,601
74
105
–
–
17,780
Total share
capital and
share
premium
£m
22,045
51
88
–
–
(17,873)
–
4,311
Other
equity
instruments
£m
8,941
–
–
1,925
(1,233)
–
(1)
9,632
21,842
86
117
–
–
22,045
6,449
–
–
2,490
2
8,941
Called up share capital
Called up share capital comprises 17,133m (2017: 17,060m) ordinary shares of 25p each.
Share repurchase
At the 2018 AGM on 1 May 2018, Barclays PLC was authorised to repurchase up to an aggregate of 1,706m of its ordinary shares of 25p.
The authorisation is effective until the AGM in 2019 or the close of business on 30 June 2019, whichever is the earlier. No share repurchases
were made during either 2018 or 2017.
Capital reorganisation
On 11 September 2018, the High Court of Justice in England and Wales confirmed the cancellation of the share premium account of Barclays PLC,
with the balance of £17,873m credited to retained earnings.
Other equity instruments
Other equity instruments of £9,632m (2017: £8,941m) include AT1 securities issued by Barclays PLC. The AT1 securities are perpetual securities
with no fixed maturity and are structured to qualify as AT1 instruments under CRD IV.
In 2018, there was one issuance of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities (2017: two issuances), with
principal amount totalling $2.5bn (2017: £2.5bn). There was also one redemption in 2018 (2017: none), with principal amount totalling $2bn.
AT1 equity instruments
AT1 equity instruments – Barclays PLC
8.25% Perpetual Subordinated Contingent Convertible Securities (USD 2,000m)
7.0% Perpetual Subordinated Contingent Convertible Securities
6.625% Perpetual Subordinated Contingent Convertible Securities (USD 1,211m)
6.5% Perpetual Subordinated Contingent Convertible Securities (EUR 1,077m)
8.0% Perpetual Subordinated Contingent Convertible Securities (EUR 1,000m)
7.875% Perpetual Subordinated Contingent Convertible Securities
7.875% Perpetual Subordinated Contingent Convertible Securities (USD 1,500m)
7.25% Perpetual Subordinated Contingent Convertible Securities
7.75% Perpetual Subordinated Contingent Convertible Securities (USD 2,500m)
5.875% Perpetual Subordinated Contingent Convertible Securities
Total AT1 equity instruments
Initial
call date
2018
2019
2019
2019
2020
2022
2022
2023
2023
2024
2018
£m
–
695
711
856
830
995
1,131
1,245
1,925
1,244
9,632
2017
£m
1,233
695
711
856
830
995
1,131
1,245
–
1,245
8,941
326 Barclays PLC Annual Report 2018
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29 Ordinary shares, share premium, and other equity continued
The principal terms of the AT1 securities are described below:
■■ AT1 securities rank behind the claims against Barclays PLC of 1) unsubordinated creditors; 2) claims which are expressed to be subordinated to
the claims of unsubordinated creditors of Barclays PLC but not further or otherwise; or 3) claims which are, or are expressed to be, junior to the
claims of other creditors of Barclays PLC, whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari
passu with, or junior to, the claims of holders of the AT1 securities.
■■ AT1 securities bear a fixed rate of interest until the initial call date. After the initial call date, in the event that they are not redeemed, the AT1
securities will bear interest at rates fixed periodically in advance for five-year periods based on market rates.
■■ Interest on the AT1 securities will be due and payable only at the sole discretion of Barclays PLC, and Barclays PLC has sole and absolute
discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any interest
payment date.
■■ AT1 securities are undated and are redeemable, at the option of Barclays PLC, in whole but not in part at the initial call date, or on any fifth
anniversary after the initial call date. In addition, the AT1 securities are redeemable, at the option of Barclays PLC, in whole in the event of
certain changes in the tax or regulatory treatment of the securities. Any redemptions require the prior consent of the PRA.
All AT1 securities will be converted into ordinary shares of Barclays PLC, at a pre-determined price, should the fully loaded CET1 ratio of the
Barclays Group fall below 7%.
30 Reserves
Currency translation reserve
The currency translation reserve represents the cumulative gains and losses on the retranslation of the Barclays Group’s net investment
in foreign operations, net of the effects of hedging.
Available for sale reserve
Following the adoption of IFRS 9, accumulated fair value changes of £228m previously recognised in the available for sale reserve are now
recorded in fair value through other comprehensive income.
Fair value through other comprehensive income reserve
The fair value through other comprehensive income reserve represents the changes in the fair value of fair value through other comprehensive
income investments since initial recognition.
Cash flow hedging reserve
The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled
to profit or loss when the hedged transactions affect profit or loss.
Own credit reserve
The own credit reserve reflects the cumulative own credit gains and losses on financial liabilities at fair value. Amounts in the own credit reserve
are not recycled to profit or loss in future periods.
Other reserves and treasury shares
Other reserves relate to redeemed ordinary and preference shares issued by the Barclays Group.
Treasury shares relate to Barclays PLC shares held in relation to the Barclays Group’s various share schemes. These schemes are described
in Note 32. Treasury shares are deducted from shareholders’ equity within other reserves. A transfer is made to retained earnings in line with
the vesting of treasury shares held for the purposes of share-based payments.
Currency translation reserve
Available for sale reserve
Fair value through other comprehensive income reserve
Cash flow hedging reserve
Own credit reserve
Other reserves and treasury shares
Total
2018
£m
3,888
–
(258)
660
(121)
984
5,153
2017
£m
3,054
364
–
1,161
(179)
983
5,383
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Barclays PLC Annual Report 2018 327
Notes to the financial statements
Capital instruments, equity and reserves
31 Non-controlling interests
Barclays Bank PLC issued:
– Preference shares
– Upper Tier 2 instruments
Barclays Africa Group Limited
Other non-controlling interests
Total
Profit attributable to
non-controlling interest
Equity attributable to
non-controlling interest
Dividends paid to
non-controlling interest
2018
£m
204
22
–
–
226
2017
£m
242
3
140
4
389
2018
£m
529
691
–
3
1,223
2017
£m
1,838
272
–
1
2,111
2018
£m
204
22
–
–
226
2017
£m
242
–
173
–
415
Barclays Bank PLC
Barclays PLC holds 100% of the voting rights of Barclays Bank PLC. As at 31 December 2018, Barclays Bank PLC has in issue preference shares
and Upper Tier 2 instruments. In December 2018, Barclays Bank PLC redeemed its 8.125% USD Preference Shares in full. Preference share
dividends and redemption are typically at the discretion of Barclays Bank PLC. The payment of Upper Tier 2 instrument coupons and principal
are typically at the discretion of Barclays Bank PLC, except for coupon payments that become compulsory where Barclays PLC has declared or
paid a dividend on ordinary shares in the preceding six-month period. Preference share and Upper Tier 2 instrument holders typically only have
rights to redeem in the event of insolvency.
Following a review of subordinated liabilities issued by Barclays Bank PLC, certain instruments have been deemed to have characteristics
that would qualify them as equity and have subsequently been reclassified. These are accounted for as non-controlling interests.
Instrument
Preference Shares:
6.278% non-cumulative callable preference shares
4.75% non-cumulative callable preference shares
8.125% non-cumulative callable preference shares
Total Barclays Bank PLC Preference Shares
Total
Upper Tier 2 Instruments:
Undated Floating Rate Primary Capital Notes Series 1
Undated Floating Rate Primary Capital Notes Series 2
5.03% Undated Reverse Dual Currency Subordinated Note (JPY8bn)
5.0% Reverse Dual Currency Subordinated (JPY12bn)
Undated Floating Rate Primary Capital Notes Series 3 (£145m)
9% Permanent Interest Bearing Capital Bonds (£100m)
7.125% Undated Subordinated Notes (£525m)
6.125% Undated Subordinated Notes (£550m)
9.25% Perpetual Sub Notes (ex Woolwich) (£150m)
Total Upper Tier 2 Instruments
2018
£m
318
211
–
529
529
93
179
39
53
20
40
158
34
75
691
2017
£m
318
211
1,309
1,838
1,838
93
179
–
–
–
–
–
–
–
272
Protective rights of non-controlling interests
Barclays Bank PLC
Barclays Bank PLC also has in issue preference shares, which are non-controlling interests to the Barclays Group. Under the terms of these
instruments, Barclays PLC may not pay dividends on ordinary shares until a dividend is next paid on these instruments or the instruments are
redeemed or purchased by Barclays Bank PLC. There are no restrictions on Barclays Bank PLC’s ability to remit capital to the Parent as a result
of these issued instruments.
328 Barclays PLC Annual Report 2018
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Notes to the financial statements
Employee benefits
The notes included in this section focus on the costs and commitments associated with employing our staff.
32 Share-based payments
Accounting for share-based payments
The Barclays Group applies IFRS 2 Share-based Payments in accounting for employee remuneration in the form of shares.
Employee incentives include awards in the form of shares and share options, as well as offering employees the opportunity to purchase shares
on favourable terms. The cost of the employee services received in respect of the shares or share options granted is recognised in the income
statement over the period that employees provide services. The overall cost of the award is calculated using the number of shares and options
expected to vest and the fair value of the shares or options at the date of grant.
The number of shares and options expected to vest takes into account the likelihood that performance and service conditions included
in the terms of the awards will be met. Failure to meet the non-vesting condition is treated as a cancellation, resulting in an acceleration
of recognition of the cost of the employee services.
The fair value of shares is the market price ruling on the grant date, in some cases adjusted to reflect restrictions on transferability. The fair
value of options granted is determined using option pricing models to estimate the numbers of shares likely to vest. These take into account
the exercise price of the option, the current share price, the risk-free interest rate, the expected volatility of the share price over the life of the
option and other relevant factors. Market conditions that must be met in order for the award to vest are also reflected in the fair value of the
award, as are any other non-vesting conditions – such as continuing to make payments into a share-based savings scheme.
The charge for the year arising from share-based payment schemes was as follows:
Share Value Plan
Deferred Share Value Plan
Others
Total equity settled
Cash settled
Total share-based payments
Charge for the year
2018
£m
45
217
187
449
1
450
2017
£m
153
166
186
505
3
508
2016
£m
473
–
192
665
1
666
The terms of the main current plans are as follows:
Share Value Plan (SVP)
The SVP was introduced in March 2010 and approved by shareholders (for executive Director participation and use of new issue shares)
at the AGM in April 2011. SVP awards are granted to participants in the form of a conditional right to receive Barclays PLC shares or provisional
allocations of Barclays PLC shares which vest or are considered for release over a period of three, five or seven years. Participants do not pay
to receive an award or to receive a release of shares. The grantor may also make a dividend equivalent payment to participants on release of
a SVP award. SVP awards are also made to eligible employees for recruitment purposes. All awards are subject to potential forfeiture in certain
leaver scenarios.
Deferred Share Value Plan (DSVP)
The DSVP was introduced in February 2017. The terms of the DSVP are materially the same as the terms of the SVP as described above,
save that executive Directors are not eligible to participate in the DSVP and the DSVP operates over market purchase shares only.
Other schemes
In addition to the SVP and DSVP, the Barclays Group operates a number of other schemes settled in Barclays PLC Shares including Sharesave
(both UK and Ireland), Sharepurchase (both UK and overseas), and the Barclays Group Long Term Incentive Plan. A delivery of upfront shares
to ‘Material Risk Takers’ can be made as Share Incentive Award.
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Barclays PLC Annual Report 2018 329
Notes to the financial statements
Employee benefits
32 Share-based payments continued
Share option and award plans
The weighted average fair value per award granted, weighted average share price at the date of exercise/release of shares during the year,
weighted average contractual remaining life and number of options and awards outstanding (including those exercisable) at the balance
sheet date are as follows:
2018
2017
Weighted
average fair
value per
award
granted
in year
£
1.90
1.94
Weighted
average
share price
at exercise/
release
during year
£
2.11
2.10
0.36-2.11 1.82-2.11
Weighted
average
remaining
contractual
life
years
<1
1
0-3
Number of
options/
awards
outstanding
(000s)
67,898
206,571
217,952
Weighted
average fair
value per
award
granted
in year
£
2.30
2.26
0.41-2.30
Weighted
average
share price
at exercise/
release
during year
£
2.29
2.06
1.99-2.30
Weighted
average
remaining
contractual
life
years
1
1
0-3
Number of
options/
awards
outstanding
(000s)
191,610
125,399
210,160
SVPa,b
DSVPa,b
Othersa
SVP and DSVP are nil cost awards on which the performance conditions are substantially completed at the date of grant. Consequently, the fair
value of these awards is based on the market value at that date.
Movements in options and awards
The movement in the number of options and awards for the major schemes and the weighted average exercise price of options was:
Outstanding at beginning of
year/acquisition date
Granted in the year
Exercised/released in the year
Less: forfeited in the year
Less: expired in the year
Outstanding at end of year
Of which exercisable:
SVPa,b
DSVPa,b
Othersa,c
Number (000s)
Number (000s)
Number (000s)
2018
2017
2018
2017
2018
2017
Weighted average
ex. price (£)
2018
2017
191,610
1,425
(119,688)
(5,449)
–
67,898
–
406,016
943
(200,350)
(14,999)
–
191,610
18
125,399
135,964
(43,402)
(11,390)
–
206,571
–
–
132,316
(2,275)
(4,642)
–
125,399
–
210,160
114,335
(78,771)
(25,494)
(2,278)
217,952
23,556
205,129
118,222
(90,324)
(17,733)
(5,134)
210,160
24,569
1.41
1.51
1.50
1.54
1.80
1.41
1.96
1.38
1.66
1.52
1.42
2.03
1.41
1.59
Notes
a Options/award granted over Barclays PLC shares.
b Nil cost award and therefore the weighted average exercise price was nil.
c The number of awards within Others at the end of the year principally relates to Sharesave (number of awards exercisable at end of year was 8,159,542). The weighted average
exercise price relates to Sharesave.
Certain of the Barclays Group’s share option plans enable certain Directors and employees to subscribe for new ordinary shares of Barclays PLC.
For the accounting of treasury shares refer to Note 32.
There were no significant modifications to the share-based payments arrangements in 2018 and 2017.
As at 31 December 2018, the total liability arising from cash-settled share-based payments transactions was £2m (2017: £2m).
Holdings of Barclays PLC shares
Various employee benefit trusts established by the Barclays Group hold shares in Barclays PLC to meet obligations under the Barclays share-based
payment schemes. The total number of Barclays PLC shares held in these employee benefit trusts at 31 December 2018 was 11.4 million
(2017: 9.9 million). Dividend rights have been waived on all these shares. The total market value of the shares held in trust based on the
year end share price of £1.51 (2017: £2.03) was £17.2m (2017: £20.1m).
330 Barclays PLC Annual Report 2018
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33 Pensions and post-retirement benefits
Accounting for pensions and post-retirement benefits
The Barclays Group operates a number of pension schemes and post-employment benefit schemes.
Defined contribution schemes – the Barclays Group recognises contributions due in respect of the accounting period in the income statement.
Any contributions unpaid at the balance sheet date are included as a liability.
Defined benefit schemes – the Barclays Group recognises its obligations to members of each scheme at the period end, less the fair value
of the scheme assets after applying the asset ceiling test.
Each scheme’s obligations are calculated using the projected unit credit method. Scheme assets are stated at fair value as at the period end.
Changes in pension scheme liabilities or assets (remeasurements) that do not arise from regular pension cost, net interest on net defined
benefit liabilities or assets, past service costs, settlements or contributions to the scheme, are recognised in other comprehensive income.
Remeasurements comprise experience adjustments (differences between previous actuarial assumptions and what has actually occurred),
the effects of changes in actuarial assumptions, return on scheme assets (excluding amounts included in the interest on the assets) and any
changes in the effect of the asset ceiling restriction (excluding amounts included in the interest on the restriction).
Post-employment benefit schemes – the cost of providing healthcare benefits to retired employees is accrued as a liability in the financial
statements over the period that the employees provide services to the Barclays Group, using a methodology similar to that for defined benefit
pension schemes.
Pension schemes
UK Retirement Fund (UKRF)
The UKRF is the Barclays Group’s main scheme, representing 97% of the Barclays Group’s total retirement benefit obligations. Barclays Bank PLC
is the principal employer of the UKRF. The UKRF was closed to new entrants on 1 October 2012, and comprises 10 sections, the two most
significant of which are:
■■ Afterwork, which comprises a contributory cash balance defined benefit element, and a voluntary defined contribution element. The cash
balance element is accrued each year and revalued until Normal Retirement Age in line with the increase in Retail Price Index (RPI) (up to
a maximum of 5% p.a.). An increase of up to 2% a year may also be added at Barclays’ discretion. Between 1 October 2003 and 1 October 2012
the majority of new UK employees (except for the employees of the investment banking business within Barclays International) were eligible to
join this section. The costs of ill-health retirements and death in service benefits for Afterwork members are borne by the UKRF. The main risks
that Barclays runs in relation to Afterwork are limited although additional contributions are required if pre-retirement investment returns are not
sufficient to provide for the benefits.
■■ The 1964 Pension Scheme. Most employees recruited before July 1997 built up benefits in this non-contributory defined benefit scheme in
respect of service up to 31 March 2010. Pensions were calculated by reference to service and pensionable salary. From 1 April 2010, members
became eligible to accrue future service benefits in either Afterwork or the Pension Investment Plan (PIP), a historic defined contribution
section which is now closed to future contributions. The risks that Barclays runs in relation to the 1964 section are typical of final salary
pension schemes, principally that investment returns fall short of expectations, that inflation exceeds expectations, and that retirees live longer
than expected.
Barclays Pension Savings Plan (BPSP)
From 1 October 2012, a new UK pension scheme, the BPSP, was established to satisfy Auto Enrolment legislation. The BPSP is a defined
contribution scheme (Group Personal Pension) providing benefits for all new UK hires from 1 October 2012, employees of the investment banking
business within Barclays International who were in PIP as at 1 October 2012, and also all UK employees who were not members of a pension
scheme at that date. As a defined contribution scheme, BPSP is not subject to the same investment return, inflation or life expectancy risks for
Barclays that defined benefit schemes are. Members’ benefits reflect contributions paid and the level of investment returns achieved.
Other
Apart from the UKRF and the BPSP, Barclays operates a number of smaller pension and long-term employee benefits and post-retirement
healthcare plans globally, the largest of which are the US defined benefit schemes. Many of the schemes are funded, with assets backing the
obligations held in separate legal vehicles such as trusts. Others are operated on an unfunded basis. The benefits provided, the approach to
funding, and the legal basis of the schemes, reflect local environments.
Governance
The UKRF operates under trust law and is managed and administered on behalf of the members in accordance with the terms of the Trust Deed
and Rules and all relevant legislation. The Corporate Trustee is Barclays Pension Funds Trustees Limited, a private limited company and a wholly
owned subsidiary of Barclays Bank PLC. The Trustee is the legal owner of the assets of the UKRF which are held separately from the assets of the
Barclays Group.
The Trustee Board comprises six Management Directors selected by Barclays, of whom three are independent Directors with no relationship
with Barclays (and who are not members of the UKRF), plus three Member Nominated Directors selected from eligible active staff and pensioner
members who apply for the role.
The BPSP is a Group Personal Pension arrangement which operates as a collection of personal pension plans. Each personal pension plan
is a direct contract between the employee and the BPSP provider (Legal & General Assurance Society Limited), and is regulated by the FCA.
Similar principles of pension governance apply to the Barclays Group’s other pension schemes, depending on local legislation.
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Barclays PLC Annual Report 2018 331
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Notes to the financial statements
Employee benefits
33 Pensions and post-retirement benefits continued
Amounts recognised
The following tables include amounts recognised in the income statement and an analysis of benefit obligations and scheme assets for all Barclays
Group defined benefit schemes. The net position is reconciled to the assets and liabilities recognised on the balance sheet. The tables include
funded and unfunded post-retirement benefits.
Income statement charge
Current service cost
Net finance cost
Past service cost
Other movements
Total
2018
£m
243
(24)
134
5
358
2017
£m
265
(12)
(3)
–
250
Balance sheet reconciliation
2018
2017
Benefit obligation at beginning of the year
Current service cost
Interest costs on scheme liabilities
Past service cost
Remeasurement loss – financial
Remeasurement (loss)/gain – demographic
Remeasurement (loss)/gain – experience
Employee contributions
Benefits paid
Exchange and other movements
Benefit obligation at end of the year
Fair value of scheme assets at beginning of the year
Interest income on scheme assets
Employer contribution
Remeasurement – return on scheme assets greater than discount rate
Employee contributions
Benefits paid
Exchange and other movements
Fair value of scheme assets at end of the year
Net surplus
Retirement benefit assets
Retirement benefit liabilities
Net retirement benefit assets
Of which
relates to
UKRF
£m
(29,160)
(226)
(677)
(140)
1,075
(245)
(94)
(1)
2,167
–
(27,301)
30,112
709
741
(360)
1
(2,167)
–
29,036
1,735
1,735
–
1,735
Total
£m
(30,268)
(243)
(705)
(134)
1,129
(241)
(75)
(4)
2,205
67
(28,269)
30,922
729
754
(400)
4
(2,205)
(82)
29,722
1,453
1,768
(315)
1,453
Total
£m
(33,033)
(265)
(843)
3
(387)
(228)
(612)
(5)
4,970
132
(30,268)
32,657
855
1,152
1,333
5
(4,970)
(110)
30,922
654
966
(312)
654
2016
£m
243
(32)
–
2
213
Of which
relates to
UKRF
£m
(31,847)
(245)
(810)
–
(330)
(240)
(614)
(1)
4,927
–
(29,160)
31,820
831
1,124
1,263
1
(4,927)
–
30,112
952
952
–
952
Included within the benefit obligation was £757m (2017: £895m) relating to overseas pensions and £204m (2017: £213m) relating to other
post-employment benefits.
As at 31 December 2018, the UKRF’s scheme assets were in surplus versus IAS 19 obligations by £1,735m (2017: £952m). The movement for the
UKRF was driven by an increase in the discount rate and payment of deficit contributions, offset by lower than assumed asset returns and revised
early retirement and cash commutation factors.
The Group has considered all of the implications of the High Court ruling in the Lloyds Banking Group Pension Trustees case on the requirement
to equalise pensions in respect of Guaranteed Minimum Pensions (GMP). This resulted in a £140m increase in pension obligation which has been
recognised as a Past service cost. Any future clarifications to GMP equalisation leading to a change in financial assumptions are expected to be
recognised in equity.
Of the £2,167m (2017: £4,927m) UKRF benefits paid out, £1,420m (2017: £4,151m) related to transfers out of the fund.
Where a scheme’s assets exceed its obligation, an asset is recognised to the extent that it does not exceed the present value of future contribution
holidays or refunds of contributions (the asset ceiling). In the case of the UKRF the asset ceiling is not applied as, in certain specified circumstances
such as wind-up, the Barclays Group expects to be able to recover any surplus. The Trustee does not have a substantive right to augment benefits,
nor do they have the right to wind up the plan except in the dissolution of the Barclays Group or termination of contributions by the Barclays
Group. The application of the asset ceiling to other plans is considered on an individual plan basis.
332 Barclays PLC Annual Report 2018
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33 Pensions and post-retirement benefits continued
Critical accounting estimates and judgements
Actuarial valuation of the schemes’ obligation is dependent upon a series of assumptions. Below is a summary of the main financial and
demographic assumptions adopted for the UKRF.
Key UKRF financial assumptions
Discount rate
Inflation rate (RPI)
2018
% p.a.
2.71
3.25
2017
% p.a.
2.46
3.22
The UKRF discount rate assumption for 2018 was based on a variant of the standard Willis Towers Watson RATE Link model. This variant
includes all bonds rated AA by at least one of the four major ratings agencies, and assumes that yields after year 30 are flat. The RPI inflation
assumption for 2018 was set by reference to the Bank of England’s implied inflation spot curve, assuming the spot curve remains flat after
30 years. The inflation assumption incorporates a deduction of 20 basis points as an allowance for an inflation risk premium. The methodology
used to derive the discount rate and price inflation assumptions is consistent with that used at the prior year end.
The UKRF’s post-retirement mortality assumptions are based on a best estimate assumption derived from an analysis in 2016 of the Barclays
Group own post-retirement mortality experience, and taking account of recent evidence from published mortality surveys. An allowance has
been made for future mortality improvements based on the 2017 core projection model published by the Continuous Mortality Investigation
Bureau subject to a long-term trend of 1.25% per annum in future improvements. The methodology used is consistent with the prior year end,
except that the 2016 core projection model was used at 2017. The table below shows how the assumed life expectancy at 60, for members of
the UKRF, has varied over the past three years:
Assumed life expectancy
Life expectancy at 60 for current pensioners (years)
– Males
– Females
Life expectancy at 60 for future pensioners currently aged 40 (years)
– Males
– Females
2018
2017
2016
27.7
29.4
29.2
31.0
27.8
29.4
29.3
31.0
27.9
29.7
29.7
31.7
The assumption for future transfers out has been adjusted to reflect volumes experienced in 2018 which were lower than previously assumed.
The revised assumption is that 7.5% of the benefit obligation in respect of deferred members will transfer out during 2019, 5% in 2020, 2.5% in
2021, tapering down to 0% from 2022 onwards (2017:15% of the benefit obligation in respect of deferred members will transfer out during 2019,
10% in 2020, 5% in 2021, tapering down to 0% from 2022 onwards).
Sensitivity analysis on actuarial assumptions
The sensitivity analysis has been calculated by valuing the UKRF liabilities using the amended assumptions shown in the table below and keeping
the remaining assumptions the same as disclosed in the table above, except in the case of the inflation sensitivity where other assumptions that
depend on assumed inflation have also been amended correspondingly. The difference between the recalculated liability figure and that stated
in the balance sheet reconciliation table above is the figure shown. The selection of these movements to illustrate the sensitivity of the defined
benefit obligation to key assumptions should not be interpreted as Barclays expressing any specific view of the probability of such movements
happening.
Change in key assumptions
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(Decrease)/
Increase in
UKRF
defined
benefit
obligation
£bn
2017
(Decrease)/
Increase in
UKRF
defined
benefit
obligation
£bn
Discount rate
0.5% p.a. increase
0.25% p.a. increase
0.25% p.a. decrease
0.5% p.a. decrease
Assumed RPI
0.5% p.a. increase
0.25% p.a. increase
0.25% p.a. decrease
0.5% p.a. decrease
Life expectancy at 60
One year increase
One year decrease
(2.1)
(1.1)
1.1
2.4
1.3
0.7
(0.6)
(1.3)
0.9
(0.9)
(2.4)
(1.2)
1.3
2.8
1.6
0.8
(0.7)
(1.5)
1.0
(1.0)
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Employee benefits
33 Pensions and post-retirement benefits continued
The weighted average duration of the benefit payments reflected in the defined benefit obligation for the UKRF is 17 years.
Assets
A long-term investment strategy has been set for the UKRF, with its asset allocation comprising a mixture of equities, bonds, property and other
appropriate assets. This recognises that different asset classes are likely to produce different long-term returns and some asset classes may be
more volatile than others. The long-term investment strategy ensures, among other aims, that investments are adequately diversified. Asset
managers are permitted some flexibility to vary the asset allocation from the long-term investment strategy within control ranges agreed with
the Trustee from time to time.
The UKRF also employs derivative instruments, where appropriate, to achieve a desired exposure or return, or to match assets more closely
to liabilities. The value of assets shown reflects the assets held by the scheme, with any derivative holdings reflected on a fair value basis.
The value of the assets of the schemes and their percentage in relation to total scheme assets were as follows:
Analysis of scheme assets
As at 31 December 2018
Equities – quoted
Equities – non-quoted
Bonds – fixed governmenta
Bonds – index-linked governmenta
Bonds – corporate and othera
Property – commercialb
Derivativesb
Otherc
Fair value of scheme assets
As at 31 December 2017
Equities – quoted
Equities – non-quoted
Bonds – fixed governmenta
Bonds – index-linked governmenta
Bonds – corporate and othera
Property – commercialb
Derivativesb
Otherc
Fair value of scheme assets
Notes
a Assets held are predominantly quoted.
b Assets held are predominantly non-quoted.
c Assets held are predominantly in Infrastructure Funds.
Total
Of which relates to UKRF
% of total
fair value of
scheme
assets
%
9.8
6.7
13.8
40.2
19.0
5.8
0.9
3.8
100.0
14.1
6.5
7.9
42.3
16.8
6.2
2.6
3.6
100.0
Value
£m
2,916
1,995
4,099
11,960
5,653
1,712
266
1,121
29,722
4,377
2,001
2,433
13,089
5,195
1,911
816
1,100
30,922
% of total
fair value of
scheme
assets
%
9.6
6.9
13.2
41.1
18.9
5.9
0.9
3.5
100.0
13.8
6.6
7.3
43.4
16.6
6.3
2.7
3.3
100.0
Value
£m
2,787
1,995
3,840
11,951
5,479
1,702
266
1,016
29,036
4,151
2,001
2,184
13,078
4,999
1,902
816
981
30,112
Included within the fair value of scheme assets were: nil (2017: £0.1m) relating to shares in Barclays PLC and nil (2017: £0.6m) relating
to bonds issued by Barclays PLC. The UKRF also invests in pooled investment vehicles which may hold shares or debt issued by Barclays PLC.
The UKRF scheme assets also include £1m (2017: £15m) relating to UK private equity investments and £1,994m (2017: £1,986m) relating
to overseas private equity investments. These are disclosed above within Equities – non-quoted.
Approximately 46% of the UKRF assets are invested in liability-driven investment strategies; primarily UK gilts as well as interest rate and inflation
swaps. These are used to better match the assets to its liabilities. The swaps are used to reduce the scheme’s inflation and duration risks against
its liabilities.
Funding
The Scheme Actuary prepares an annual update of the UKRF funding position in addition to the full triennial actuarial valuation. The latest
annual update was carried out as at 30 September 2018 and showed a deficit of £4.04bn and a funding level of 88.4%.
The last triennial actuarial valuation of the UKRF had an effective date of 30 September 2016 and was completed in July 2017. This valuation
showed a funding deficit of £7.87bn and a funding level of 81.5%.
The improvement in funding position between 30 September 2016 and 30 September 2018 was largely due to payment of deficit contributions,
higher than assumed asset returns, higher Government bond yields, and transfers out of the scheme.
334 Barclays PLC Annual Report 2018
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33 Pensions and post-retirement benefits continued
At the 2016 triennial actuarial valuation the Barclays Group and UKRF Trustee agreed a revised scheme-specific funding target, statement of
funding principles, schedule of contributions, a recovery plan to seek to eliminate the deficit relative to the funding target and some additional
support measures. The agreement with the UKRF Trustee also takes into account the changes to the Barclays Group structure that were
implemented as a result of ring-fencing.
The main differences between the funding and IAS 19 assumptions were a different approach to setting the discount rate and a more conservative
longevity assumption for funding.
The deficit reduction contributions agreed with the UKRF Trustee as part of the 30 September 2016 valuation recovery plan are shown in the
table below.
Year
2017
2018
2019
2020
2021 to 2026
Deficit
contributions
30 September 2016
valuation
£m
740
500
500
500
1,000 each year
The deficit reduction contributions are in addition to the regular contributions to meet the Barclays Group’s share of the cost of benefits
accruing over each year. The next funding valuation of the UKRF is due to be completed in 2020 with an effective date of 30 September 2019.
Other support measures agreed at the same time as the valuation
Collateral – The UKRF Trustee and Barclays Bank PLC have entered into an arrangement whereby a collateral pool has been put in place to provide
security for the UKRF funding deficit as it increases or decreases over time, and associated deficit recovery contributions. The collateral pool is
currently made up of government securities. Agreement was made with the Trustee to increase the proportion of the deficit covered from 88.5%
to 100% effective from 26 March 2018 with an overall cap remaining of £9bn, at which date the collateral pool consisted of government securities
only (the Trustee and Barclays Bank PLC may agree alternative eligible collateral in the future). The arrangement provides the UKRF Trustee with
dedicated access to the pool of assets in the event of Barclays Bank PLC not paying a deficit reduction contribution to the UKRF or in the event of
Barclays Bank PLC’s insolvency. These assets are included within Note 38.
Support from Barclays PLC – In the event of Barclays Bank PLC not paying a deficit reduction contribution payment required under the 2016
valuation recovery plan by a specified pre-payment date, Barclays PLC has entered into an arrangement whereby it will be required to use, in first
priority, dividends received from Barclays Bank UK PLC (if any) to invest the proceeds in Barclays Bank PLC (up to the maximum amount of the
deficit reduction contribution unpaid by Barclays Bank PLC). The proceeds of the investment will be used to discharge Barclays Bank PLC’s unpaid
deficit reduction contribution.
Participation – As permitted under the Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015, Barclays Bank UK
PLC is a participating employer in the UKRF and will remain so during a transitional phase until September 2025 as set out in a deed of participation.
Barclays Bank UK PLC will make contributions for the future service of its employees who are currently Afterwork members and, in the event of
Barclays Bank PLC’s insolvency during this period provision has been made to require Barclays Bank UK PLC to become the principal employer of
the UKRF. Barclays Bank PLC’s Section 75 debt would be triggered by the insolvency (the debt would be calculated after allowing for the payment
to the UKRF of the collateral above).
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Defined benefit contributions paid with respect to the UKRF were as follows:
Contributions paid
2018
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2016
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1,124
634
There were nil (2017: £153m; 2016: £112m) Section 75 contributions included within the Barclays Group’s contributions paid as no participating
employers left the UKRF scheme in 2018.
The Barclays Group’s expected contribution to the UKRF in respect of defined benefits in 2019 is £725m (2018: £716m). In addition, the expected
contributions to UK defined contribution schemes in 2019 is £34m (2018: £35m) to the UKRF and £168m (2018: £146m) to the BPSP.
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Notes to the financial statements
Scope of consolidation
The section presents information on the Barclays Group’s investments in subsidiaries, joint ventures and associates and its interests in
structured entities. Detail is also given on securitisation transactions the Barclays Group has entered into and arrangements that are held
off-balance sheet.
34 Principal subsidiaries
The Barclays Group applies IFRS 10 Consolidated Financial Statements. The consolidated financial statements combine the financial statements
of the Barclays Group and all its subsidiaries. Subsidiaries are entities over which the Barclays Group has control. Under IFRS 10, this is when the
Barclays Group is exposed or has rights to variable returns from its involvement in the entity and has the ability to affect those returns through
its power over the entity.
The Barclays Group reassesses whether it controls an entity if facts and circumstances indicate that there have been changes to its power,
its rights to variable returns or its ability to use its power to affect the amount of its returns.
Intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Barclays
Group for the purposes of the consolidation. Changes in ownership interests in subsidiaries are accounted for as equity transactions if they
occur after control has been obtained and they do not result in loss of control.
The significant judgements used in applying this policy are set out below.
Accounting for investment in subsidiaries
In the individual financial statements of Barclays PLC, investments in subsidiaries are stated at cost less impairment.
Principal subsidiaries for the Barclays Group are set out below. This includes those subsidiaries that are most significant in the context
of the Barclays Group’s business, results or financial position.
Company name
Barclays Bank PLC
Barclays Bank UK PLC
Barclays Bank Ireland PLC
Barclays Services Limited
Barclays Capital Inc.
Barclays Capital Securities Limited
Barclays Securities Japan Limited
Barclays Bank Delaware
Principal place of business
or incorporation
England
England
Ireland
England
United States
England
Japan
United States
Nature of business
Banking, holding Company
Banking, holding Company
Banking, holding Company
Service Company
Securities dealing
Securities dealing
Securities dealing
Credit card issuer
Non-controlling
interests –
proportion of
ownership
interests
%
3
–
–
–
–
–
–
–
Non-controlling
interests –
proportion of
voting
interests
%
–
–
–
–
–
–
–
–
Percentage of
voting rights held
%
100
100
100
100
100
100
100
100
The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries.
Ownership interests are in some cases different to voting interests due to the existence of non-voting equity interests, such as preference shares.
Refer to Note 31 for more information.
Determining whether the Barclays Group has control of an entity is generally straightforward based on ownership of the majority of the voting
capital. However, in certain instances, this determination will involve judgement, particularly in the case of structured entities where voting rights
are often not the determining factor in decisions over the relevant activities. This judgement will involve assessing the purpose and design of the
entity. It will also often be necessary to consider whether the Barclays Group, or another involved party with power over the relevant activities,
is acting as a principal in its own right or as an agent on behalf of others.
There is also often considerable judgement involved in the ongoing assessment of control over structured entities. In this regard, where market
conditions have deteriorated such that the other investors’ exposures to the structure’s variable returns have been substantively eliminated, the
Barclays Group may conclude that the managers of the structured entity are acting as its agent and therefore will consolidate the structured entity.
An interest in equity voting rights exceeding 50% would typically indicate that the Barclays Group has control of an entity. However, the entity
set out below is excluded from consolidation because the Barclays Group does not have exposure to its variable returns.
Country of registration or incorporation
Cayman Islands
Company name
Palomino Limited
Percentage of
voting rights held
%
100
Equity
shareholders’
funds
£m
–
Retained profit
for the year
£m
–
This entity is managed by an external counterparty and consequently is not controlled by the Barclays Group. Interests relating to this entity are
included in Note 35.
336 Barclays PLC Annual Report 2018
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34 Principal subsidiaries continued
Significant restrictions
As is typical for a Group of its size and international scope, there are restrictions on the ability of Barclays PLC to obtain distributions of capital,
access the assets or repay the liabilities of members of its Group due to the statutory, regulatory and contractual requirements of its subsidiaries
and due to the protective rights of non-controlling interests. These are considered below.
Regulatory requirements
Barclays’ principal subsidiary companies have assets and liabilities before intercompany eliminations of £1,399bn (2017: £1,407bn) and £1,330bn
(2017: £1,341bn) respectively. The assets and liabilities are subject to prudential regulation and regulatory capital requirements in the countries in
which they are regulated. These require entities to maintain minimum capital levels which cannot be returned to the Parent company, Barclays PLC
on a going concern basis.
In order to meet capital requirements, subsidiaries may issue certain equity-accounted and debt-accounted financial instruments and non-equity
instruments such as Tier 1 and Tier 2 capital instruments and other forms of subordinated liabilities. Refer to Note 28 and Note 29 for particulars
of these instruments. These instruments may be subject to cancellation clauses or preference share restrictions that would limit the ability of the
entity to repatriate the capital on a timely basis.
Liquidity requirements
Regulated subsidiaries of the Barclays Group are required to meet applicable PRA or local regulatory requirements pertaining to liquidity. Some of
the regulated subsidiaries include Barclays Bank PLC, Barclays Bank UK PLC, Barclays Capital Inc. and Barclays Bank Delaware. See pages 183 to196
for further details of liquidity requirements, including those of the Barclays Group’s significant subsidiaries.
Statutory requirements
The Barclays Group’s subsidiaries are subject to statutory requirements not to make distributions of capital and unrealised profits and generally
to maintain solvency. These requirements restrict the ability of subsidiaries to make remittances of dividends to Barclays PLC, the ultimate
parent, except in the event of a legal capital reduction or liquidation. In most cases, the regulatory restrictions referred to above exceed the
statutory restrictions.
Contractual requirements
Asset encumbrance
The Barclays Group uses its financial assets to raise finance in the form of securitisations and through the liquidity schemes of central banks,
as well as to provide security to the UK Retirement Fund. Once encumbered, the assets are not available for transfer around the Barclays Group.
The assets typically affected are disclosed in Note 38.
Assets held by consolidated structured entities
None of the assets (2017: nil) included in the Barclays Group’s balance sheet relate to consolidated investment funds, held to pay return and
principal to the holders of units in the funds.
Other restrictions
The Barclays Group is required to maintain balances with central banks and other regulatory authorities, and these amounted to £4,717m
(2017: £3,360m).
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35 Structured entities
A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are generally
created to achieve a narrow and well-defined objective with restrictions around their ongoing activities.
Depending on the Barclays Group’s power over the activities of the entity and its exposure to and ability to influence its own returns,
it may consolidate the entity. In other cases, it may sponsor or have exposure to such an entity but not consolidate it.
Consolidated structured entities
The Barclays Group has contractual arrangements which may require it to provide financial support to the following types of consolidated
structured entities:
Securitisation vehicles
The Barclays Group uses securitisation as a source of financing and a means of risk transfer. Refer to Note 37 for further detail.
The Barclays Group, in previous periods, has provided liquidity facilities to certain securitisation vehicles. At 31 December 2018, there were no
outstanding loan commitments to these entities (2017: nil).
Commercial paper (CP) and medium-term note conduits
The Barclays Group provided £11.7bn (2017: £10.2bn) in undrawn contractual backstop liquidity facilities to CP conduits.
Fund management entities
In previous periods, the Barclays Group had contractually guaranteed the performance of certain cash investments in a number of managed
investment funds which resulted in their consolidation. As at 31 December 2018, the notional value of the guarantees were nil (2017: nil) as the
European Wealth Funds associated with these guarantees were either closed or ownership has been transferred outside the Barclays Group and
they are no longer consolidated.
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Notes to the financial statements
Scope of consolidation
35 Structured entities continued
Employee benefit and other trusts
Barclays PLC provides capital contributions to employee benefit trusts to enable them to meet obligations to the employees of Barclays PLC in
relation to the Barclays Group’s share-based remuneration arrangements. During 2018, the Barclays Group provided undrawn liquidity facilities
of £2.6bn (2017: £1.8bn) to certain trusts.
Unconsolidated structured entities in which the Barclays Group has an interest
An interest in a structured entity is any form of contractual or non-contractual involvement which creates variability in returns arising from the
performance of the entity for the Barclays Group. Such interests include holdings of debt or equity securities, derivatives that transfer financial
risks from the entity to the Barclays Group, lending, loan commitments, financial guarantees and investment management agreements.
Interest rate swaps, foreign exchange derivatives that are not complex and which expose the Barclays Group to insignificant credit risk by being
senior in the payment waterfall of a securitisation and derivatives that are determined to introduce risk or variability to a structured entity are
not considered to be an interest in an entity and have been excluded from the disclosures below.
The nature and extent of the Barclays Group’s interests in structured entities is summarised below:
Summary of interests in unconsolidated structured entities
As at 31 December 2018
Assets
Trading portfolio assets
Financial assets at fair value through the income statement
Derivative financial instruments
Loans and advances at amortised cost
Other assets
Total assets
Liabilities
Derivative financial instruments
As at 31 December 2017
Assets
Trading portfolio assets
Financial assets at fair value through the income statement
Derivative financial instruments
Loans and advances at amortised cost
Reverse repurchase agreements and other similar secured lending
Other assets
Total assets
Liabilities
Derivative financial instruments
Secured
financing
£m
Short-term
traded
interests
£m
Traded
derivatives
£m
Other
interests
£m
Total
£m
–
32,359
–
–
–
32,359
12,206
–
–
–
–
12,206
–
–
5,236
–
–
5,236
–
2,598
–
17,341
33
19,972
12,206
34,957
5,236
17,341
33
69,773
–
–
6,438
2,586
9,024
–
31,520
–
5,481
753
–
37,754
10,788
–
–
–
–
–
10,788
–
–
4,380
–
–
–
4,380
699
2,721
–
17,386
–
509
21,315
11,487
34,241
4,380
22,867
753
509
74,237
–
–
5,193
3,356
8,549
Secured financing arrangements, short-term traded interests and traded derivatives are typically managed under market risk management policies
described on page 139 which includes an indication of the change of risk measures compared to last year. For this reason, the total assets of these
entities are not considered meaningful for the purposes of understanding the related risks and so have not been presented. Other interests include
conduits and lending where the interest is driven by normal customer demand.
Secured financing
The Barclays Group routinely enters into reverse repurchase contracts, stock borrowing and similar arrangements on normal commercial terms
where the counterparty to the arrangement is a structured entity. Due to the nature of these arrangements, especially the transfer of collateral
and ongoing margining, the Barclays Group has minimal exposure to the performance of the structured entity counterparty. This includes margin
lending which is presented under financial assets at fair value through the income statement to align to the balance sheet presentation.
Short-term traded interests
The Barclays Group buys and sells interests in structured entities as part of its trading activities, for example, retail mortgage-backed securities,
collateralised debt obligations and similar interests. Such interests are typically held individually or as part of a larger portfolio for no more than
90 days. In such cases, the Barclays Group typically has no other involvement with the structured entity other than the securities it holds as part
of trading activities and its maximum exposure to loss is restricted to the carrying value of the asset.
As at 31 December 2018, £8,436m (2017: £9,645m) of the Barclays Group’s £12,206m (2017: £10,788m) short-term traded interests were
comprised of debt securities issued by asset securitisation vehicles.
338 Barclays PLC Annual Report 2018
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35 Structured entities continued
Traded derivatives
The Barclays Group enters into a variety of derivative contracts with structured entities which reference market risk variables such as interest
rates, foreign exchange rates and credit indices among other things. The main derivative types which are considered interests in structured
entities include index-based and entity specific credit default swaps, balance guaranteed swaps, total return swaps, commodities swaps, and
equity swaps. A description of the types of derivatives and the risk management practices are detailed in Note 14. The risk of loss may be
mitigated through ongoing margining requirements as well as a right to cash flows from the structured entity which are senior in the payment
waterfall. Such margining requirements are consistent with market practice for many derivative arrangements and in line with the Barclays Group’s
normal credit policies.
Derivative transactions require the counterparty to provide cash or other collateral under margining agreements to mitigate counterparty credit
risk. The Barclays Group is mainly exposed to settlement risk on these derivatives which is mitigated through daily margining. Total notionals
amounted to £1,477,753m (2017: £1,680,615m).
Except for credit default swaps where the maximum exposure to loss is the swap notional amount, it is not possible to estimate the maximum
exposure to loss in respect of derivative positions as the fair value of derivatives is subject to changes in market rates of interest, exchange rates
and credit indices which by their nature are uncertain. In addition, the Barclays Group’s losses would be subject to mitigating action under its
traded market risk and credit risk policies that require the counterparty to provide collateral in cash or other assets in most cases.
Other interests in unconsolidated structured entities
The Barclays Group’s interests in structured entities not held for the purposes of short-term trading activities are set out below, summarised
by the purpose of the entities and limited to significant categories, based on maximum exposure to loss.
Nature of interest
As at 31 December 2018
Financial assets at fair value through the income statement
– Debt securities
– Loans and advances
Loans and advances at amortised cost
Other assets
Total on-balance sheet exposures
Total off-balance sheet notional amounts
Maximum exposure to loss
Total assets of the entity
As at 31 December 2017
Trading portfolio assets
– Debt securities
Financial assets at fair value through the income statement
– Loans and advances
Loans and advances at amortised cost
Other assets
Total on-balance sheet exposures
Total off-balance sheet notional amounts
Maximum exposure to loss
Total assets of the entity
Multi-seller
conduit
programmes
£m
Investment
funds and
trusts
£m
Lending
£m
Others
£m
Total
£m
444
–
6,100
9
6,553
11,671
18,224
73,109
–
–
9,140
3
9,143
4,327
13,470
196,865
–
–
–
21
21
–
21
9,341
114
2,040
2,101
–
4,255
431
4,686
28,163
558
2,040
17,341
33
19,972
16,429
36,401
307,478
–
–
–
–
5,424
468
5,892
6,270
12,162
103,057
11,497
11
11,508
6,337
17,845
179,994
–
699
699
–
–
8
8
–
8
11,137
2,721
465
22
3,907
446
4,353
22,669
2,721
17,386
509
21,315
13,053
34,368
316,857
Maximum exposure to loss
Unless specified otherwise below, the Barclays Group’s maximum exposure to loss is the total of its on-balance sheet positions and its off-balance
sheet arrangements, being loan commitments and financial guarantees. Exposure to loss is mitigated through collateral, financial guarantees,
the availability of netting and credit protection held.
Multi-seller conduit programme
The multi-seller conduit engages in providing financing to various clients and holds whole or partial interests in pools of receivables or similar
obligations. These instruments are protected from loss through overcollateralisation, seller guarantees, or other credit enhancements provided
to the conduit. The Barclays Group’s off-balance sheet exposure included in the table above represents liquidity facilities that are provided to the
conduit for the benefit of the holders of the commercial paper issued by the conduit and will only be drawn where the conduit is unable to access
the commercial paper market. If these liquidity facilities are drawn, the Barclays Group is protected from loss through overcollateralisation, seller
guarantees, or other credit enhancements provided to the conduit.
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Scope of consolidation
35 Structured entities continued
Lending
The portfolio includes lending provided by the Barclays Group to unconsolidated structured entities in the normal course of its lending business
to earn income in the form of interest and lending fees and includes loans to structured entities that are generally collateralised by property,
equipment or other assets. All loans are subject to the Barclays Group’s credit sanctioning process. Collateral arrangements are specific to the
circumstances of each loan with additional guarantees and collateral sought from the sponsor of the structured entity for certain arrangements.
During the period the Barclays Group incurred an impairment of £67m (2017: £11m) against such facilities.
Investment funds and trusts
In the course of its fund management activities, the Barclays Group establishes pooled investment funds that comprise investments of various
kinds, tailored to meet certain investors’ requirements. The Barclays Group’s interest in funds is generally restricted to a fund management fee,
the value of which is typically based on the performance of the fund.
The Barclays Group acts as trustee to a number of trusts established by or on behalf of its clients. The purpose of the trusts, which meet the
definition of structured entities, is to hold assets on behalf of beneficiaries. The Barclays Group’s interest in trusts is generally restricted to unpaid
fees which, depending on the trust, may be fixed or based on the value of the trust assets. The Barclays Group has no other risk exposure to
the trusts.
Other
This includes fair value loans with structured entities where the market risk is materially hedged with corresponding derivative contracts,
interests in debt securities issued by securitisation vehicles and drawn and undrawn loan facilities to these entities.
Assets transferred to sponsored unconsolidated structured entities
Assets transferred to sponsored unconsolidated structured entities were immaterial.
36 Investments in associates and joint ventures
Accounting for associates and joint ventures
The Barclays Group applies IAS 28 Investments in Associates and IFRS 11 Joint Arrangements. Associates are entities in which the Barclays
Group has significant influence, but not control, over the operating and financial policies. Generally the Barclays Group holds more than 20%,
but less than 50%, of their voting shares. Joint ventures are arrangements where the Barclays Group has joint control and rights to the net
assets of the entity.
The Barclays Group’s investments in associates and joint ventures are initially recorded at cost and increased (or decreased) each year by the
Barclays Group’s share of the post acquisition profit/(loss). The Barclays Group ceases to recognise its share of the losses of equity accounted
associates when its share of the net assets and amounts due from the entity have been written off in full, unless it has a contractual or
constructive obligation to make good its share of the losses. In some cases, investments in these entities may be held at fair value through
profit or loss, for example, those held by private equity businesses.
There are no individually significant investments in joint ventures or associates held by the Barclays Group.
Equity accounted
Held at fair value through profit or loss
Total
Associates
£m
481
–
481
2018
Joint ventures
£m
281
509
790
Total
£m
762
509
1,271
Associates
£m
402
–
402
2017
Joint ventures
£m
316
447
763
Total
£m
718
447
1,165
Summarised financial information for the Barclays Group’s equity accounted associates and joint ventures is set out below. The amounts shown
are the net income of the investees, not just the Barclays Group’s share for the year ended 31 December 2018, with the exception of certain
undertakings for which the amounts are based on accounts made up to dates not earlier than three months before the balance sheet date.
Profit from continuing operations
Other comprehensive income/(expense)
Total comprehensive income from continuing operations
Associates
2018
£m
173
28
201
2017
£m
117
–
117
Joint ventures
2018
£m
54
32
86
2017
£m
77
(15)
62
Unrecognised shares of the losses of individually immaterial associates and joint ventures were nil (2017: nil).
The Barclays Group’s associates and joint ventures are subject to statutory or contractual requirements such that they cannot make remittances
of dividends or make loan repayments to Barclays PLC without agreement from the external parties.
The Barclays Group’s share of commitments and contingencies of its associates and joint ventures comprised unutilised credit facilities provided
to customers of £1,715m (2017: £1,712m). In addition, the Barclays Group has made commitments to finance or otherwise provide resources
to its joint ventures and associates of £318m (2017: £304m).
340 Barclays PLC Annual Report 2018
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37 Securitisations
Accounting for securitisations
The Barclays Group uses securitisations as a source of finance and a means of risk transfer. Such transactions generally result in the transfer
of contractual cash flows from portfolios of financial assets to holders of issued debt securities.
Securitisations may, depending on the individual arrangement, result in continued recognition of the securitised assets and the recognition of
the debt securities issued in the transaction; lead to partial continued recognition of the assets to the extent of the Barclays Group’s continuing
involvement in those assets or to derecognition of the assets and the separate recognition, as assets or liabilities, of any rights and obligations
created or retained in the transfer. Full derecognition only occurs when the Barclays Group transfers both its contractual right to receive cash
flows from the financial assets, or retains the contractual rights to receive the cash flows, but assumes a contractual obligation to pay the cash
flows to another party without material delay or reinvestment, and also transfers substantially all the risks and rewards of ownership, including
credit risk, prepayment risk and interest rate risk.
In the course of its normal banking activities, the Barclays Group makes transfers of financial assets, either where legal rights to the cash
flows from the asset are passed to the counterparty or beneficially, where the Barclays Group retains the rights to the cash flows but assumes
a responsibility to transfer them to the counterparty. Depending on the nature of the transaction, this may result in derecognition of the assets
in their entirety, partial derecognition or no derecognition of the assets subject to the transfer.
A summary of the main transactions, and the assets and liabilities and the financial risks arising from these transactions, is set out below:
Transfers of financial assets that do not result in derecognition
Securitisations
The Barclays Group was party to securitisation transactions involving its credit card balances.
In these transactions, the assets, interests in the assets, or beneficial interests in the cash flows arising from the assets, are transferred to a special
purpose entity, which then issues interest bearing debt securities to third party investors.
Securitisations may, depending on the individual arrangement, result in continued recognition of the securitised assets and the recognition of the
debt securities issued in the transaction. Partial continued recognition of the assets to the extent of the Barclays Group’s continuing involvement
in those assets can also occur or derecognition of the assets and the separate recognition, as assets or liabilities, of any rights and obligations
created or retained in the transfer.
The following table shows the carrying amount of securitised assets that have not resulted in full derecognition, together with the associated
liabilities, for each category of asset on the balance sheet:
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Loans and advances at amortised cost
Credit cards, unsecured and other retail
lending
2018
2017
Assets
Liabilities
Assets
Liabilities
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
4,242
4,334
(4,234)
(4,218)
3,772
3,757
(3,635)
(3,626)
Balances included within loans and advances at amortised cost represent securitisations where substantially all the risks and rewards
of the asset have been retained by the Barclays Group.
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The relationship between the transferred assets and the associated liabilities is that holders of notes may only look to cash flows from the
securitised assets for payments of principal and interest due to them under the terms of their notes, although the contractual terms of their
notes may be different to the maturity and interest of the transferred assets.
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Barclays PLC Annual Report 2018 341
Notes to the financial statements
Scope of consolidation
37 Securitisations continued
Continuing involvement in financial assets that have been derecognised
In some cases, the Barclays Group may have transferred a financial asset in its entirety but may have continuing involvement in it. This arises in
asset securitisations where loans and asset backed securities were derecognised as a result of the Barclays Group’s involvement with commercial
mortgage backed securities. Continuing involvement largely arises from providing financing into these structures in the form of retained notes,
which do not bear first losses.
The table below shows the potential financial implications of such continuing involvement:
Type of transfer
2018
Commercial mortgage backed securities
2017
Commercial mortgage backed securities
Continuing involvementa
Carrying
amount
£m
Fair value
£m
Maximum
exposure to
loss
£m
Gain/(loss) from continuing
involvement
For the
year ended
£m
Cumulative to
31 December
£m
135
94
135
94
135
94
2
1
3
1
Note
a Assets which represent the Barclays Group’s continuing involvement in derecognised assets are recorded in Loans and advances at amortised cost.
38 Assets pledged
Assets are pledged as collateral to secure liabilities under repurchase agreements, securitisations and stock lending agreements or as security
deposits relating to derivatives. Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 188
(unaudited), other than those held in commercial paper conduits. In these transactions, Barclays Group will be required to step in to provide
financing itself under a liquidity facility if the vehicle cannot access the commercial paper market. The following table summarises the nature
and carrying amount of the assets pledged as security against these liabilities:
Cash collateral
Loans and advances at amortised cost
Trading portfolio assets
Financial assets at fair value through the income statement
Financial investments
Financial assets at fair value through other comprehensive income
Assets pledged
2018
£m
55,532
42,683
63,143
7,450
–
10,354
179,162
2017
£m
56,351
41,772
73,899
4,798
15,058
–
191,878
Barclays Group has an additional £10bn (2017: £9bn) of loans and advances within its asset backed funding programmes that can readily be used
to raise additional secured funding and are available to support future issuances.
Total assets pledged includes a collateral pool put in place to provide security for the UKRF funding deficit. Refer to Note 33 for further details.
Collateral held as security for assets
Under certain transactions, including reverse repurchase agreements and stock borrowing transactions, the Barclays Group is allowed to resell
or re-pledge the collateral held. The fair value at the balance sheet date of collateral accepted and re-pledged to others was as follows:
Fair value of securities accepted as collateral
Of which fair value of securities re-pledged/transferred to others
Additional disclosure has been included in collateral and other credit enhancements (see pages 151 to 152).
2018
£m
598,348
528,957
2017
£m
608,412
547,637
342 Barclays PLC Annual Report 2018
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Notes to the financial statements
Other disclosure matters
The notes included in this section focus on related party transactions, Auditors’ remuneration and Directors’ remuneration. Related parties
include any subsidiaries, associates, joint ventures and Key Management Personnel.
39 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.
Subsidiaries
Transactions between Barclays PLC and its subsidiaries meet the definition of related party transactions. Where these are eliminated on
consolidation, they are not disclosed in the Barclays Group’s financial statements. Transactions between Barclays PLC and its subsidiaries
are fully disclosed in Barclays PLC’s financial statements. A list of the Barclays Group’s principal subsidiaries is shown in Note 34.
Associates, joint ventures and other entities
The Barclays Group provides banking services to its associates, joint ventures and the Barclays Group pension funds (principally the UK Retirement
Fund), providing loans, overdrafts, interest and non-interest bearing deposits and current accounts to these entities as well as other services.
Barclays Group companies also provide investment management and custodian services to the Barclays Group pension schemes. All of these
transactions are conducted on the same terms as third party transactions. Summarised financial information for the Barclays Group’s investments
in associates and joint ventures is set out in Note 36.
Amounts included in the Barclays Group’s financial statements, in aggregate, by category of related party entity are as follows:
For the year ended and as at 31 December 2018
Total income
Credit impairment and other provisions
Operating expenses
Total assets
Total liabilities
For the year ended and as at 31 December 2017
Total income
Credit impairment and other provisions
Operating expenses
Total assets
Total liabilities
For the year ended and as at 31 December 2016
Total income
Credit impairment and other provisions
Operating expenses
Total assets
Total liabilities
Associates
£m
Joint ventures
£m
Pension funds
£m
–
–
(27)
12
85
(20)
2
–
2
75
(20)
(13)
–
72
94
7
–
(7)
1,288
2
61
–
(23)
1,048
2
32
–
(25)
2,244
95
4
–
–
3
139
4
–
–
2
162
4
–
–
–
260
Guarantees, pledges or commitments given in respect of these transactions in the year were £20m (2017: £27m) predominantly relating to joint
ventures. No guarantees, pledges or commitments were received in the year. Derivatives transacted on behalf of the pensions funds were £3m
(2017: £3m).
Key Management Personnel
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 and Officers of Barclays PLC, 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 member of Key Management Personnel
(or any connected person) is also a member of Key Management Personnel (or any connected person) of Barclays PLC.
The Barclays Group provides banking services to Key Management Personnel and persons connected to them. Transactions during the year
and the balances outstanding were as follows:
Loans outstanding
As at 1 January
Loans issued during the yeara
Loan repayments during the yearb
As at 31 December
2018
£m
4.8
4.2
(1.8)
7.2
2017
£m
9.2
0.5
(4.9)
4.8
Notes
a Includes loans issued to existing Key Management Personnel and new or existing loans issued to newly appointed Key Management Personnel.
b Includes loan repayments by existing Key Management Personnel and loans to former Key Management Personnel.
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Barclays PLC Annual Report 2018 343
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Notes to the financial statements
Other disclosure matters
Other disclosure matters
39 Related party transactions and Directors’ remuneration continued
No allowances for impairment were recognised in respect of loans to Key Management Personnel (or any connected person).
Deposits outstanding
As at 1 January
Deposits received during the yeara
Deposits repaid during the yearb
As at 31 December
2018
£m
6.9
24.8
(24.8)
6.9
2017
£m
7.3
25.7
(26.1)
6.9
Notes
a Includes deposits received from existing Key Management Personnel and new or existing deposits received from newly appointed Key Management Personnel.
b Includes deposits repaid by existing Key Management Personnel and deposits of former Key Management Personnel.
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 2018 were £0.9m (2017: £0.3m).
All loans to 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 Key Management Personnel
Total remuneration awarded to 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 126. Costs recognised in the income statement reflect the accounting charge for the year 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 Key Management Personnel.
Salaries and other short-term benefits
Pension costs
Other long-term benefits
Share-based payments
Employer social security charges on emoluments
Costs recognised for accounting purposes
Employer social security charges on emoluments
Other long-term benefits – difference between awards granted and costs recognised
Share-based payments – difference between awards granted and costs recognised
Total remuneration awarded
2018
£m
33.0
–
7.6
16.2
7.5
64.3
(7.5)
2.8
0.7
60.3
Disclosure required by the Companies Act 2006
The following information regarding the Barclays PLC Board of Directors is presented in accordance with the Companies Act 2006:
Aggregate emolumentsa
Amounts paid under LTIPsb
2018
£m
9.0
0.9
9.9
2017
£m
33.9
0.1
18.4
26.8
9.6
88.8
(9.6)
(9.8)
(11.7)
57.7
2017
£m
8.5
1.1
9.6
Notes
a The aggregate emoluments include amounts paid for the 2018 year. In addition, deferred share awards for 2018 with a total value at grant of £1m (2017: £1m) will be made to
James E Staley and Tushar Morzaria which will only vest subject to meeting certain conditions.
b The figure above for ‘Amounts paid under LTIPs’ in 2018 relates to an LTIP award that was released to Tushar Morzaria in 2018. Dividend shares released on the award are
excluded. The LTIP figure in the single total figure table for executive Directors’ 2018 remuneration in the Directors’ Remuneration report relates to the award that is scheduled
to be released in 2019 in respect of the 2016–2018 LTIP cycle.
There were no pension contributions paid to defined contribution schemes on behalf of Directors (2017: nil). There were no notional pension
contributions to defined contribution schemes.
As at 31 December 2018, there were no Directors accruing benefits under a defined benefit scheme (2017: nil).
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 2018 amounted to 18,884,023 (2017: 12,460,877) ordinary shares of 25p each (0.11% of the ordinary share capital outstanding).
As at 31 December 2018, executive Directors and Officers of Barclays PLC (involving 11 persons) held options to purchase a total of
6,000 (2017: 6,000) Barclays PLC ordinary shares of 25p each at a price of 120p 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 2018 to persons who
served as Directors during the year was £0.4m (2017: £0.2m). The total value of guarantees entered into on behalf of Directors during 2018
was nil (2017: nil).
344 Barclays PLC Annual Report 2018
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40 Auditors’ remuneration
Auditors’ remuneration is included within consultancy, legal and professional fees in administration and general expenses and comprises:
Audit of the Barclays Group's annual accounts
Other services:
Audit of the Company's subsidiariesa
Other audit related feesb
Other servicesc
Total Auditors’ remuneration
2018
£m
8
32
9
2
51
2017
£m
11
27
8
2
48
2016
£m
14
27
4
4
49
Notes
a Comprises the fees for the statutory audit of subsidiaries both inside and outside the UK and fees for work performed by associates of KPMG or PwC in respect of the
consolidated financial statements of the Company.
b Comprises services in relation to statutory and regulatory filings. These include audit services for the review of the interim financial information under the Listing Rules
of the UK listing authority.
c Includes consultation on tax matters, tax advice relating to transactions and other tax planning and advice in 2016.
KPMG became the Barclays Group’s principal Auditor in 2017. PwC was the principal Auditor in 2016.
The figures shown in the above table relate to fees paid to KPMG or PwC as principal Auditor, of which the fees paid in relation to discontinued
operations were nil (KPMG 2017: £4m, PwC 2016: £12m).
41 Discontinued operations and assets included in disposal groups classified as held for sale and associated liabilities
Accounting for non-current assets held for sale and associated liabilities
The Barclays Group applies IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale
transaction rather than continuing use. In order to be classified as held for sale, the asset must be available for immediate sale in its present
condition subject only to terms that are usual and customary and the sale must be highly probable. Non-current assets (or disposal groups)
held for sale are measured at the lower of carrying amount and fair value less cost to sell.
A component of the Barclays Group that has either been disposed of or is classified as held for sale is presented as a discontinued operation
if it represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of the
separate major line or geographical area of operations, or if it is a subsidiary acquired exclusively with a view to re-sale.
Assets included in disposal groups classified as held for sale
Financial assets at fair value through the income statement
Loans and advances at amortised cost
Property, plant and equipment
Total assets included in disposal groups classified as held for sale
2018
£m
–
–
–
–
2017
£m
3
1,164
26
1,193
Discontinued operation
Following the reduction of the Barclays Group’s interest in BAGL in 2017, the Barclays Group’s remaining holding of 14.9%, as at 31 December 2018
is reported as a financial asset at fair value through other comprehensive income in the Head Office division, with the Barclays Group’s share of
BAGL’s dividend recognised in the Head Office income statement.
Prior to the disposal of shares on 1 June 2017, BAGL met the requirements for presentation as a discontinued operation. As such, the results,
which have been presented as the profit after tax and non-controlling interest in respect of the discontinued operation on the face of the Barclays
Group’s income statement, are analysed in the income statement below. The income statement, statement of other comprehensive income and
cash flow statement below represent five months of results as a discontinued operation to 31 May 2017, compared to the full year ended
31 December 2016.
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Barclays PLC Annual Report 2018 345
Notes to the financial statements
Other disclosure matters
Other disclosure matters
41 Discontinued operations and assets included in disposal groups classified as held for sale and associated liabilities continued
Barclays Africa disposal group income statement
For the year ended 31 December
Net interest income
Net fee and commission income
Net trading income
Net investment income
Other income
Total income
Net claims and benefits incurred on insurance contracts
Total income net of insurance claims
Credit impairment charges and other provisions
Net operating income
Staff costs
Administration and general expensesa
Operating expenses
Share of post-tax results of associates and joint ventures
(Loss)/profit before tax
Taxation
(Loss)/profit after taxb
Attributable to:
Equity holders of the parent
Non-controlling interests
(Loss)/profit after taxb
2018
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
£m
1,024
522
149
30
145
1,870
(84)
1,786
(177)
1,609
(586)
(1,634)
(2,220)
5
(606)
(154)
(760)
(900)
140
(760)
2016
£m
2,169
1,072
281
45
370
3,937
(191)
3,746
(445)
3,301
(1,186)
(1,224)
(2,410)
6
897
(306)
591
189
402
591
Notes
a Includes impairment of nil (2017: £1,090m, 2016: nil).
b Total loss in respect of the discontinued operation incurred in 2017, was £2,195m which included the £60m loss on sale and £1,375m loss on recycling of other comprehensive
loss on reserves.
Other comprehensive income relating to discontinued operations is as follows:
For the year ended 31 December
Available for sale assets
Currency translation reserves
Cash flow hedge reserves
Other comprehensive (loss)/income, net of tax from discontinued operations
The cash flows attributed to the discontinued operation are as follows:
For the year ended 31 December
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
2018
£m
–
–
–
–
2018
£m
–
–
–
–
–
2017
£m
(3)
(38)
19
(22)
2017
£m
540
(245)
(165)
(29)
101
2016
£m
(9)
1,451
89
1,531
2016
£m
1,164
(691)
(105)
37
405
346 Barclays PLC Annual Report 2018
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42 Transition disclosures
Impairment allowance reconciliations
Reconciliation from IAS 39 to IFRS 9 – financial assets under IFRS 9 subject to an increase in impairment allowance
The table below reconciles the closing impairment allowances for financial assets in accordance with IAS 39, and provisions for loan commitments
and financial guarantee contracts in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets as at 31 December 2017, and
the opening impairment allowances determined in accordance with IFRS 9 as at 1 January 2018.
Reconciliation of impairment allowance and provisions
Loans and advances at amortised cost and other assetsa
Available for sale investments/financial assets at fair value through other
comprehensive income
Total on-balance sheet
Provision for undrawn contractually committed facilities and guarantee
contracts
Total impairment and provision
Note
a Includes impairment of £5m for cash collateral and settlement balances and £1m for other assets.
As at
31 December
2017
Impairment
allowance under
IAS 39 or
provisions
under IAS 37
£m
4,652
38
4,690
79
4,769
As at
1 January
2018
Reclassification
impact
£m
(52)
Additional IFRS 9
impairment
allowance
£m
2,508
Impairment
allowance
under IFRS 9
£m
7,108
(38)
(90)
–
(90)
3
2,511
341
2,852
3
7,111
420
7,531
■■ The introduction of IFRS 9 increased the total impairment allowance held by Barclays by £2.76bn, from £4.8bn as at 31 December 2017
to £7.5bn as at 1 January 2018, as a result of earlier recognition of impairment allowances.
■■ The reclassification impact is due to assets moving to a fair value through income statement treatment that do not have an impairment
allowance under IFRS 9.
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Barclays PLC Annual Report 2018 347
Notes to the financial statements
Other disclosure matters
42 Transition disclosures continued
Balance sheet movement – impact of transition to IFRS 9 and IFRS 15
The table below presents the impact of the changes to balance sheet presentation and of the transition to IFRS 9 and IFRS 15 on Barclays PLC’s
balance sheet showing separately the changes arising from reclassification and any associated remeasurement, and the impact of increased
impairment.
Assets
Cash and balances at central
banks
Items in the course of collection
from other banks
Loans and advances to banks
Loans and advances to
customers
Cash collateral and settlement
balances
Loans and advances at
amortised cost
Reverse repurchase agreements
and other similar secured
lending
Trading portfolio assets
Financial assets designated at
fair value
Financial assets at fair value
through the income statementa
Derivative financial instruments
Financial investments
Financial investments
Financial investments
Financial assets at fair value
through other comprehensive
income
Investments in associates and
joint ventures
Goodwill and intangible assets
Property, plant and equipment
Current tax assets
Deferred tax assets
Retirement benefit assets
Prepayments, accrued income
and other assets
Other assets
IFRS 9
present-
ation
change
£m
IFRS 9
classification
and
measurement
£m
IFRS 9
impairment
change
£m
IFRS 15
impact
£m
As at
1 January
2018
IFRS 9
carrying
amount
£m
171,082
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,389)
(5)
74,774
5,109
(9,467)
(2,502)
317,188
As at 31
December
2017
Published
IAS 39
carrying
amount
£m
Balance
sheet
present-
ation
changes
£m
As at 31
December
2017
Revised
IAS 39
carrying
amount
£m
171,082
–
171,082
2,153
(2,153)
35,663 (35,663)
365,552 (365,552)
–
–
–
–
77,168
77,168
– 324,048
324,048
IAS 39
measurement
category
IFRS 9
measurement
category
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
FVTPL
Amortised
cost
FVTPL
12,546
113,760
–
–
12,546
113,760
FVTPL
FVTPL
116,281 (116,281)
–
– 116,281
–
237,669
116,281
237,669
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,949)
413
–
23,930
–
FVTPL
FVTPL
FVTPL
FVTPL
AFS – debt
instruments FVOCI
AFS – equity
instruments FVOCI
Amortised
cost
Amortised
cost
AFS
FVOCI
N/A
N/A
N/A
N/A
N/A
N/A
Amortised
cost
Amortised
cost
N/A
N/A
N/A
N/A
N/A
N/A
Amortised
cost
Amortised
cost
N/A
52,020
1,787
5,109
–
718
7,849
2,572
482
3,457
966
–
–
–
–
–
–
–
–
–
–
52,020
– (50,886)
(1,134)
1,787
5,109
–
–
(1,419)
(367)
(5,109)
–
–
–
52,305
936
718
7,849
2,572
482
3,457
966
–
–
–
–
(22)
–
–
89
–
67
–
–
–
–
–
–
–
–
–
–
(19)
–
–
–
–
–
–
31
2,389
(2,389)
–
–
4,542
4,542
1,193
1,133,248
–
1,193
– 1,133,248
–
–
–
–
–
–
–
–
–
–
–
–
–
649
–
–
597
114,173
–
140,211
237,669
–
–
–
53,241
699
7,849
2,572
482
4,084
966
–
(1)
4,661
Assets included in disposal
groups classified as held for sale N/A
Total assets
–
(15)
–
1,193
(1,859) 1,131,441
Note
a Comprised of mandatory fair value assets of £130.2bn and designated fair value assets of £10bn.
348 Barclays PLC Annual Report 2018
home.barclays/annualreport
42 Transition disclosures continued
IAS 39
measurement
category
IFRS 9
measurement
category
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
FVTPL
FVTPL
FVTPL
N/A
N/A
N/A
Amortised
cost
Amortised
cost
N/A
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
FVTPL
FVTPL
FVTPL
N/A
N/A
N/A
Amortised
cost
Amortised
cost
N/A
As at 31
December
2017
Published
IAS 39
carrying
amount
£m
Balance
sheet
present-
ation
changes
£m
As at 31
December
2017
Revised
IAS 39
carrying
amount
£m
37,723 (37,723)
–
– 398,701
398,701
446
(446)
429,121 (429,121)
–
–
– 68,143
68,143
40,338
73,314
23,826
37,351
173,718
238,345
586
44
312
–
–
–
–
–
–
–
–
–
40,338
73,314
23,826
37,351
173,718
238,345
586
44
312
8,565 (8,565)
–
–
3,543
1,067,232
9,011
–
–
9,011
3,543
1,067,232
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
22,045
5,383
27,536
8,941
63,905
2,111
66,016
–
–
–
–
–
–
–
–
22,045
5,383
27,536
8,941
63,905
2,111
66,016
1,133,248
Liabilities
Deposits from banks
Deposits at amortised cost
Items in the course of collection
due to other banks
Customer accounts
Cash collateral and settlement
balances
Repurchase agreements and
other similar secured borrowing
Debt securities in issue
Subordinated liabilities
Trading portfolio liabilities
Financial liabilities designated at
fair value
Derivative financial instruments
Current tax liabilities
Deferred tax liabilities
Retirement benefit liabilities
Accruals, deferred income and
other liabilities
Other liabilities
Provisions
Total liabilities
Equity
Called up share capital and
share premium
Other reserves
Retained earnings
Other equity instruments
Total equity excluding
non-controlling interests
Non-controlling interests
Total equity
IFRS 9
present-
ation
changes
£m
IFRS 9
classification
and
measurement
£m
IFRS 9
impairment
change
£m
IFRS 15
impact
£m
As at
1 January
2018
IFRS 9
carrying
amount
£m
–
379,841
–
–
65,925
15,053
73,314
23,826
37,351
220,083
238,345
586
44
312
–
i
S
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a
t
e
g
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
R
i
s
k
r
e
v
e
w
i
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(18,860)
–
–
(2,218)
(25,285)
–
–
–
46,365
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
67
–
67
–
67
67
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,011
–
341
3,884
341 1,067,575
–
(139)
122
–
–
3
(2,203)
–
(17)
–
(17)
(2,200)
–
(2,200)
22,045
5,247
25,522
8,941
61,755
2,111
63,866
(15)
(1,859) 1,131,441
Total liabilities and equity
1,133,248
Balance sheet and IFRS 9 presentation changes
The following voluntary changes in presentation have been made as a result of the review of accounting presentation following the adoption of
IFRS 9, and is expected to provide more relevant information to the users of the financial statements. These presentational changes have no effect
on the measurement of these items and therefore had no impact on retained earnings or profit for any period. The effect of these presentational
changes on transition are noted below:
■■ ‘Items in the course of collection from other banks’ and ‘prepayments, accrued income and other assets’ are reported in ‘other assets’. Equally,
‘items in the course of collection due to other banks’ and ‘accruals, deferred income and other liabilities’ are reported in ‘other liabilities’
■■ ‘Loans and advances to banks’ and ‘loans and advances to customers’ have been disaggregated and are now reported in ‘loans and advances
at amortised cost’ and ‘cash collateral and settlement balances’
■■ ‘Deposits from banks’ and ‘customer accounts’ have been disaggregated and are now reported in ‘deposits at amortised cost’ and ‘cash
collateral and settlement balances’
■■ ‘Financial assets designated at fair value’ are now reported within ‘financial assets at fair value through the income statement’
■■ The majority of available for sale assets which were previously reported in ‘financial investments’ are now reported in ‘financial assets at fair
value through other comprehensive income’
■■ Held to maturity assets which were previously reported in ‘financial investments’ are now reported in ‘loans and advances at amortised cost’.
home.barclays/annualreport
Barclays PLC Annual Report 2018 349
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Notes to the financial statements
Other disclosure matters
42 Transition disclosures continued
IFRS 15 impact
On adoption of IFRS 15, Barclays Group changed its accounting treatment in relation to certain costs incurred in obtaining contracts with credit
card customers. The costs of acquiring such contracts had previously been recognised as operating expenses when they were incurred. The
adoption of IFRS 15 has resulted in the costs being capitalised as a cost to obtain an asset and recognised within ‘other assets’ on the balance
sheet. The asset will be amortised over the expected life of the customer relationship, with the corresponding expense recognised in the income
statement. The cumulative effect of the change as of 1 January 2018 was an increase to retained earnings of £67m and the recognition of an asset
of £89m. There were no other material changes to fee recognition from the adoption of IFRS 15.
IFRS 9 classification and measurement
This column represents the changes to the balance sheet from classification and measurement. The net effect is a decrease in shareholders’ equity
of £17m, with no significant offsetting movements. The classification changes include the transfer of certain Barclays International Prime Services
and Equities business positions from an amortised cost to a fair value approach.
There are no other changes in measurement category.
IFRS 9 impairment change
Additional impairment from the adoption of IFRS 9 is shown in the impairment change column. The increase in impairment results in the
recognition of a deferred tax asset. The post-tax impact is a reduction in shareholders’ equity of £2.2bn. Impairment allowance under IFRS 9
considers both the drawn and the undrawn counterparty exposure. For retail portfolios, the total impairment allowance is allocated to the
drawn exposure to the extent that the allowance does not exceed the exposure. Any excess is reported on the liability side of the balance sheet
as a provision. For wholesale portfolios the impairment allowance on the undrawn exposure is reported on the liability side of the balance
sheet as a provision.
Impact of IFRS 9 per financial statement line
The narrative below provides further granularity on the impact of changes to the balance sheet from the transition to IFRS 9 and IFRS 15 on
Barclays PLC’s balance sheet as presented in the tables on pages 350 to 354. The analysis shows transfers between balance sheet lines arising
from reclassification and any associated remeasurement, and the impact of increased impairment. Further details are provided for balance sheet
lines with multiple impacts.
Assets
Cash collateral and settlement balances – measured on an amortised cost basis
Transfer out: Balances of £2,389m are reclassified to ‘Financial assets at fair value through the income statement’ as a result of the assessment
of the business model. Balances are reclassified from amortised cost to fair value through profit and loss as the business model is classified as
‘Other’ rather than ‘Hold to Collect’ as the portfolio is risk managed on a fair value basis.
Expected credit losses have decreased the balances by £5m.
Loans and advances at amortised cost
Transfer in: Held to maturity assets of £5,109m which were previously reported in ‘Financial Investments’ are reported in this balance sheet line.
‘Financial investments’ (available for sale) balances of £653m, ‘Financial assets designated at fair value’ balances of £485m, and ‘Trading portfolio
assets’ of £73m are reclassified to this balance sheet line following the assessment of the business model which is classified as ‘Hold to Collect’
and meets the SPPI test. There has been a remeasurement impact of £29m due to reclassification to an amortised cost line from ‘Financial assets
designated at fair value’.
Transfer out: Balances of £9,279m are reclassified to ‘Financial assets mandatory at fair value’, balances of £478m moved to ‘Trading portfolio
assets’, and balances of £15m reclassified to ‘Financial assets designated at fair value’ as a result of the assessment of the business model which
is classified as ‘Other’ rather than ‘Hold to Collect’. The balances are subsequently measured on a fair value basis rather than amortised cost.
In addition, balances of £936m are reclassified to ‘Financial assets at fair value through other comprehensive income’ as a result of the
assessment of the business model which is classified as ‘Hold to Collect and Sell’ and meets the SPPI test.
Expected credit losses have decreased the balance by £2,502m.
Loans and advances at amortised cost
Opening balance
Transfer in:
– From financial investments (held to maturity)
– From financial investments (available for sale)
– From financial assets designated at fair value
– From trading portfolio assets
Transfer out:
– To financial assets mandatory at fair value
– To financial assets at fair value through other
comprehensive income
– To trading portfolio assets
– To financial assets designated at fair value
Increase in expected credit losses
Total loans and advances at amortised cost
As at
31 December
2017
Revised IAS 39
carrying
amount
£m
324,048
–
–
–
–
–
–
–
–
–
324,048
IFRS 15
impact
£m
IFRS 9
presentation
changes
£m
IFRS 9
classification
£m
IFRS 9
measurement
£m
IFRS 9
impairment
change
£m
–
–
–
–
–
–
–
–
–
–
5,109
–
–
–
–
653
485
73
–
(9,279)
–
–
–
–
5,109
(936)
(478)
(15)
–
(9,497)
–
–
29
–
–
–
–
–
–
–
29
–
–
–
–
–
–
–
–
(2,502)
(2,502)
As at
1 January
2018
IFRS 9
carrying
amount
£m
324,048
5,109
653
514
73
(9,279)
(936)
(478)
(15)
(2,502)
317,188
350 Barclays PLC Annual Report 2018
home.barclays/annualreport
42 Transition disclosures continued
Reverse repurchase agreements and other similar secured lending – measured on an amortised cost basis
Transfer out: Balances of £11,949m are reclassified to ‘Financial assets at fair value through the income statement’ as a result of the assessment
of the business model which is classified as ‘Other’ rather than ‘Hold to Collect’. The balances are subsequently measured on a fair value basis
rather than amortised cost.
Trading portfolio assets – measured on a fair value basis
Transfer in: Balances from ‘Loans and advances at amortised cost’ of £478m, ‘Financial Investments’ of £10m, and ‘Financial assets mandatory
at fair value’ of £9m are reclassified to this balance sheet line as a result of the assessment of the business model in accordance with IFRS 9.
There has been a remeasurement impact of £11m due to reclassification from an amortised cost basis.
Transfer out: Balances of £73m are reclassified to ‘Loans and advances at amortised cost’ as a result of the assessment of the business model
which is classified as ‘Hold to Collect’ and meets the SPPI test.
Financial assets at fair value through the income statement
Balances of £105,844m are moved to ‘Financial assets mandatory at fair value’ for presentational purposes and in accordance with IFRS 9.
Transfer in: Balances of £15m from ‘Loans and advances at amortised cost’ are elected to ‘Financial assets designated at fair value’. ‘Reverse
repurchase agreements and other similar secured lending’ balances of £11,949m, ‘Loans and advances at amortised cost’ balances of £9,279m
and ‘Cash collateral and settlement balances’ of £2,389m are reclassified to this balance sheet line as a result of the assessment of the business
model which is classified as ‘Other’ rather than ‘Hold to Collect’. The balances are subsequently measured on a fair value basis rather than
amortised cost. There has been a remeasurement impact of £14m due to reclassification from an amortised cost basis. Balances of £838m
are reclassified from ‘Financial investments (available for sale)’ as a result of the assessment of the business model which is classified as
‘Other’ rather than ‘Hold to Collect and Sell’. The balances are subsequently measured on a fair value basis rather than amortised cost.
Transfer out: Balances of £485m are reclassified to ‘Loans and advances at amortised cost’ as a result of the assessment of the business model
which is classified as ‘Hold to Collect’ and meets the SPPI test. In addition, balances of £31m and £9m are reclassified to ‘Other assets’ and
‘Trading portfolio assets’ as a result of the assessment of the business model in accordance with IFRS 9.
Financial assets at fair value through the income
statement
Financial assets designated at fair value
Opening balance
Transfer in:
– From loans and advances at amortised cost
Transfer out:
– To financial assets mandatory at fair value
– To loans and advances at amortised cost
Financial assets mandatory at fair value
Transfer in:
– From financial assets designated at fair value
– From reverse repurchase agreements
– From loans and advances at amortised cost
– From cash collateral and settlement balances
– From financial investments (available for sale)
Transfer out:
– To other assets
– To trading portfolio assets
Total financial assets at fair value through the income
statement
As at
31 December
2017
Revised IAS 39
carrying
amount
£m
116,281
–
–
–
–
–
–
–
–
–
–
116,281
IFRS 15
impact
£m
IFRS 9
presentation
changes
£m
IFRS 9
classification
£m
IFRS 9
measurement
£m
IFRS 9
impairment
change
£m
–
–
–
–
–
–
–
–
–
–
–
–
15
(105,844)
–
–
(485)
–
11,949
9,279
2,389
838
(31)
(9)
105,844
–
–
–
–
–
–
–
–
–
–
–
–
(14)
–
–
–
–
23,944
(14)
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As at
1 January
2018
IFRS 9
carrying
amount
£m
116,281
15
(105,844)
(485)
105,844
11,949
9,265
2,389
838
(31)
(9)
140,211
–
–
–
–
–
–
–
–
–
–
–
Financial investments
Transfer out: The Barclays Group has applied the fair value through other comprehensive income option under IFRS 9 for the value of £52,305m
as a result of the assessment of the business model, with balances moving to ‘Financial assets at fair value through other comprehensive income’.
Balances of £838m are reclassified to ‘Financial assets at fair value through the income statement’ and balances of £10m reclassified to ‘Trading
portfolio assets’ as a result of the assessment of the business model which is classified as ‘Other’ rather than ‘Hold to Collect’. Balances of £653m
are reclassified to ‘Loans and advances at amortised cost’ as a result of the assessment of the business model which is classified as ‘Hold to
Collect’ and meets the SPPI test.
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Barclays PLC Annual Report 2018 351
Notes to the financial statements
Other disclosure matters
42 Transition disclosures continued
From a presentational basis, Held to maturity assets of £5,109m are now reported in ‘Loans and advances at amortised cost’.
Financial investments
Available for sale (measured at fair value)
Opening balance
Transfer out:
– To financial assets at fair value through other
comprehensive income
– To other financial assets at fair value through the
income statement
– To trading portfolio assets
– To loans and advances at amortised cost
Held to maturity (measured at amortised cost)
Opening balance
Transfer out:
– To loans and advances at amortised cost
Total financial investments
As at
31 December
2017
Revised IAS 39
carrying
amount
£m
53,807
–
–
–
–
5,109
–
58,916
IFRS 15
impact
£m
IFRS 9
presentation
changes
£m
IFRS 9
classification
£m
IFRS 9
measurement
£m
IFRS 9
impairment
change
£m
–
–
–
–
–
–
(52,305)
–
–
–
–
(838)
(10)
(653)
(5,109)
(57,414)
–
(1,501)
–
–
–
–
–
–
–
–
–
–
–
–
As at
1 January
2018
IFRS 9
carrying
amount
£m
53,807
(52,305)
(838)
(10)
(653)
5,109
(5,109)
–
Financial assets at fair value through other comprehensive income
Transfer in: As above, Barclays has applied the fair value through other comprehensive income option under IFRS 9 for the value of £52,305m.
Balances of £936m are reclassified from ‘Loans and advances at amortised cost’ as a result of the assessment of the business model which is
classified as ‘Hold to Collect and Sell’ and meets the SPPI test.
Investments in associates and joint ventures
The adoption of IFRS 9 on associates and joint ventures results in a lower Barclays Group share of profit and loss, thereby decreasing the
investment by £19m.
Deferred tax assets
The balance has increased by £627m due to the tax impact of expected credit losses of £649m, offset by £22m due to the impact of IFRS 15.
Other assets
Transfer in: Balances of £31m reclassified from ‘Financial assets at fair value through the income statement’ as a result of the assessment
of the business model which is classified as ‘Hold to Collect’ and meets the SPPI test.
In addition, the balance increased by £89m due to the impact of IFRS 15.
Expected credit losses have decreased the balance by £1m.
Liabilities
Deposits at amortised cost
Transfer out: Balances of £18,860m are reclassified to ‘Financial liabilities designated at fair value’ as a result of trades that are linked to assets
for accounting symmetry.
Cash collateral and settlement balances – measured on an amortised cost basis
Transfer out: Balances of £2,218m are reclassified to ‘Financial liabilities designated at fair value’ as a result of trades that are linked to assets
for accounting symmetry.
Repurchase agreements and other similar secured borrowing – measured on an amortised cost basis
Transfer out: Balances of £25,285m are reclassified to ‘Financial liabilities designated at fair value’ as a result of trades that are linked to assets
for accounting symmetry.
Financial liabilities designated at fair value
Transfer in: ‘Repurchase agreements and other similar secured borrowing’ balances of £25,285m, ‘Deposits at amortised cost’ balances of
£18,860m, and ‘Cash collateral and settlement balances’ of £2,218m reclassified to this balance sheet line as a result of trades that are linked to
assets for accounting symmetry. There has been a remeasurement impact of £2m due to reclassification from ‘Repurchase agreements and other
similar secured borrowing’ on an amortised cost basis.
352 Barclays PLC Annual Report 2018
home.barclays/annualreport
42 Transition disclosures continued
Financial liabilities designated at fair value
Opening balance
Transfers in:
– From repurchase agreements and other similar
secured borrowing
– From deposits at amortised cost
– From cash collateral and settlement balances
Total financial liabilities designated at fair value
As at
31 December
2017
Revised IAS 39
carrying
amount
£m
173,718
–
–
–
173,718
IFRS 15
impact
£m
IFRS 9
presentation
changes
£m
IFRS 9
classification
£m
IFRS 9
measurement
£m
IFRS 9
impairment
change
£m
As at
1 January
2018
IFRS 9
carrying
amount
£m
173,718
–
–
–
–
–
–
–
–
25,285
18,860
2,218
46,363
2
–
–
2
–
–
–
–
25,287
18,860
2,218
220,083
Provisions
The balance has increased by £341m due to expected credit losses on off balance sheet provisions.
Equity
The adoption of IFRS 9 results in a credit moving from the Fair value through other comprehensive income reserve (formerly available for sale
reserve) to Retained earnings to reflect the cumulative impairment recognised in profit or loss in accordance with IFRS 9 (net of impairment losses
previously recognised in profit or loss under IAS 39). The amount transferred from ‘Other reserves’ to ‘Retained earnings’ was £139m. In addition,
a £3m increase relates to expected credit losses on ‘Fair value through other comprehensive income’. The cumulative remeasurement due to
reclassification was £17m. The cumulative expected credit losses (post-tax) recognised in ‘Retained earnings’ was £2,203m.
In addition, the balance increased by £67m due to the impact of IFRS 15.
Other reserves
Opening balance
Transfers out:
– To retained earnings
Increase in expected credit losses
Total other reserves
Retained earnings
Opening balance
Increases/(decreases):
From other reserves
Remeasurement due to reclassifications
Increases due to IFRS 15
Impairment (after tax)
Total retained earnings
As at
31 December
2017
Revised IAS 39
carrying
amount
£m
5,383
–
–
5,383
As at
31 December
2017
Revised IAS 39
carrying
amount
£m
27,536
–
–
–
–
27,536
IFRS 15
impact
£m
IFRS 9
presentation
changes
£m
IFRS 9
classification
£m
IFRS 9
measurement
£m
IFRS 9
impairment
change
£m
–
–
–
–
–
–
(139)
–
(139)
–
–
–
–
3
3
IFRS 15
impact
£m
IFRS 9
presentation
changes
£m
IFRS 9
classification
£m
IFRS 9
measurement
£m
IFRS 9
impairment
change
£m
–
–
67
–
67
–
–
–
–
–
139
(17)
–
–
122
–
–
–
–
–
–
–
–
(2,203)
(2,203)
As at
1 January
2018
IFRS 9
carrying
amount
£m
5,383
(139)
3
5,247
As at
1 January
2018
IFRS 9
carrying
amount
£m
27,536
139
(17)
67
(2,203)
25,522
Reclassification to amortised cost
The following table shows the effects of the reclassification of financial assets and financial liabilities from IAS 39 categories into the amortised
cost category under IFRS 9. The table shows the fair value gains or losses that would have been recognised had these balances not been
reclassified to amortised cost.
home.barclays/annualreport
Barclays PLC Annual Report 2018 353
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Notes to the financial statements
Other disclosure matters
42 Transition disclosures continued
As at 31 December 2018
From available for sale financial assets under IAS 39
Fair value as at 31 December 2018
Fair value loss that would have been recognised for the year ended 31 December 2018 in other comprehensive income if the
financial assets had not been reclassified
From financial assets at fair value through the income statement under IAS 39
Fair value as at 31 December 2018
Fair value gain that would have been recognised for the year ended 31 December 2018 in profit or loss if the financial assets had
not been reclassified
Effective interest rate determined on the date of initial application
Interest income recognised for the year ended 31 December 2018
Total
£m
490
(1)
489
4
1.81%
9
■■ The balance as at 31 December 2018 of £490m reflects a decrease since transition due to disposals of assets of £162m during the year and
a fair value decrease of £1m (1 January 2018: £653m). The majority of the balance is related to the Municipals portfolio that contains highly
rated floating rate bonds measured at par with no fair value impact. The fair value loss that would have been recognised is £1m related to
collateralised mortgage obligations.
■■ The balance as at 31 December 2018 of £489m is mainly related to the ESHLA portfolio. The fair value gain that would have been recognised
for the period was £4m (1 January 2018: £485).
43 Barclays PLC (the Parent company)
Total income
Dividends received from subsidiaries
Dividends received from subsidiaries of £15,360m (2017: £674m, 2016: £621m) primarily includes a dividend in specie, representing the transfer
of the holding in Barclays Bank UK PLC from Barclays Bank PLC to Barclays PLC, as well as ordinary dividends from subsidiaries.
Other income
Other income of £923m (2017: £690m, 2016: £334m) includes £752m (2017: £639m, 2016: £457m) of income received from gross coupon
payments on Barclays Bank PLC and Barclays Bank UK PLC issued AT1 securities.
Non-current assets and liabilities
Investment in subsidiaries
The investment in subsidiaries of £57,374m (2017: £39,354m) predominantly relates to investments made into Barclays Bank PLC and Barclays
Bank UK PLC. This further includes investments in AT1 securities of £9,666m (2017: £8,986m). The increase of £18,020m during the year was
predominantly driven by the £14,025m holding in Barclays Bank UK PLC, capital contributions into Barclays Bank PLC totalling £3,046m and
a net increase in AT1 securities of £680m.
Subordinated liabilities and debt securities in issue
During the period, Barclays PLC issued $7,000m of Fixed and Floating Rate Senior Notes, €1,805m Fixed Rate Senior Notes, £1,500m Fixed Rate
Senior Notes, ¥147,600m Fixed Rate Bonds, AUD 600m Fixed and Floating Rate Senior Debt and CHF175m Fixed Rate Senior Debt within the debt
securities in issue balance of £32,373m (2017: £22,110m). Barclays PLC did not issue any subordinated liabilities in the period.
Financial assets at fair value through the income statement
The financial assets at fair value through the income statement relate to loans made to subsidiaries of the Barclays Group. These include
a feature that allows for the loan to be written down in whole or in part by the borrower only in the event that the liabilities of the subsidiary
would otherwise exceed its assets. Following the implementation of IFRS 9 on 1 January 2018, loans that were treated as available for sale assets
were reclassified as financial assets held at fair value through the income statement.
Derivative financial instruments
The derivative financial instrument of £168m (2017: £161m) held by the Parent company represents Barclays PLC’s right to receive a Capital Note
for no additional consideration, in the event the Barclays PLC consolidated CRD IV CET1 ratio (FSA October 2012 transitional statement) falls
below 7% at which point the notes are automatically assigned by the holders to Barclays PLC.
Management of internal investments, loans and advances
Barclays PLC retains the discretion to manage the nature of its internal investments in its subsidiaries according to their regulatory and business
needs. Barclays PLC may invest capital and funding into Barclays Bank PLC, Barclays Bank UK PLC and other Barclays Group subsidiaries such as the
Group Service Company and the US Intermediate Holding Company (IHC). In June 2018 the Bank of England published its updated statement of
policy on ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)’. Accordingly, during the
course of December 2018, Barclays restructured certain investments in subsidiaries, including subordinating internal MREL instruments beneath
operating liabilities, to the extent required to achieve compliance with internal MREL requirements which are in effect from 1 January 2019.
Total equity
Called up share capital and share premium of Barclays PLC was £4,311m (2017: £22,045m). Other equity instruments of £9,633m (2017: £8,943m)
comprises AT1 securities. For further details, refer to Note 29.
Share premium
On 11 September 2018, the High Court of Justice in England and Wales confirmed the cancellation of the share premium account of Barclays PLC,
with the balance of £17,873m credited to retained earnings.
Other reserves
As a result of the adoption of IFRS 9 on 1 January 2018, the available for sale reserve of £86m has been transferred to retained earnings.
Retained earnings
Following the capital reorganisation and receipt of a dividend in specie from Barclays Bank PLC representing its holding in Barclays Bank UK PLC,
retained earnings have increased from £7,737m to £39,842m in the period.
354 Barclays PLC Annual Report 2018
home.barclays/annualreport
44 Related undertakings
The Barclays Group’s corporate structure
consists of a number of related undertakings,
comprising subsidiaries, joint ventures,
associates and significant other interests.
A full list of these undertakings, the country
of incorporation and the ownership of each
share class is set out below. The information
is provided as at 31 December 2018.
The entities are grouped by the countries
in which they are incorporated. The profits
earned by the activities of these entities are
in some cases taxed in countries other than
the country of incorporation. Barclays’ 2018
Country Snapshot provides details of where
the Group carries on its business, where its
profits are subject to tax and the taxes it
pays in each country it operates in.
Wholly owned subsidiaries
Unless otherwise stated the undertakings
below are wholly owned and consolidated
by Barclays and the share capital disclosed
comprises ordinary and/or common shares,
100% of the nominal value of which is held
by Barclays Group subsidiaries.
Notes
A Directly held by Barclays PLC
B
Partnership Interest
C Membership Interest
D Trust Interest
E
F
Guarantor
Preference Shares
G A Preference Shares
H B Preference Shares
I
J
K
L
Ordinary/Common Shares in addition to other
shares
A Ordinary Shares
B Ordinary Shares
C Ordinary Shares
M F Ordinary Shares
N W Ordinary Shares
O Redeemable Preference Shares
P
Non-Redeemable Ordinary Class A & B
V
Class A Ordinary Shares, Class A Preference
Shares, Class B Ordinary Shares, Class C
Ordinary Shares, Class C Preference Shares,
Class D Ordinary Shares, Class D Preference
Shares, Class E Ordinary Shares, Class E
Preference Shares, Class F Ordinary Shares,
Class F Preference Shares, Class H 2012
Ordinary Shares, Class H 2012 Preference
Shares, Class H Ordinary Shares, Class H
Preference Shares, Class I Preference Shares,
Class J Ordinary Shares, Class J Preference Shares
W First Class Common Shares, Second Class
X
Y
Common Shares
PEF Carry Shares
EUR Tracker 1 Shares, GBP Tracker 1 Shares,
USD Tracker 1 Shares, USD Tracker
2 Shares, USD Tracker 3 shares
Z
Not Consolidated (see Note 35 Structured entities)
AA USD Linked Ordinary Shares
BB Redeemable Class B Shares
CC A Ordinary, Y Ordinary, Z Ordinary
Q Core Shares and Insurance (Classified) Shares
DD Nominal Shares
R
S
T
B, C, D, E (94.36%), F (94.36%), G (94.36%),
H (94.36%), I (94.36%), J (95.23%) and K Class
Shares
EE Redeemable Class A & Class B Preference Shares
FF Class B Redeemable Preference Shares
GG Class A1 Ordinary Shares, Class A2 Ordinary
A Unit Shares, B Unit Shares
Non-Redeemable Ordinary Shares
Shares
HH Class A Unit Shares
U Preferred Shares Class A,B,C and D
II
JJ
A Shares – Tranche I, Premium – Tranche I, C
Shares – Tranche II, Premium – Tranche II
Capital Contribution Shares
KK Registered Address not in country of incorporation
Wholly owned subsidiaries
United Kingdom
– 1 Churchill Place, London, E14 5HP
Aequor Investments Limited
Ardencroft Investments Limited
B D & B Investments Limited
B.P.B. (Holdings) Limited
Barafor Limited
Barclay Leasing Limited
Barclays (Barley) Limited
Barclays Aldersgate Investments Limited
Barclays Asset Management Limited
Barclays Bank PLC
Barclays Bank UK PLC
Barclays Capital Asia Holdings Limited
Barclays Capital Finance Limited
Barclays Capital Japan Securities Holdings
Limited
Barclays Capital Nominees (No.2) Limited
Barclays Capital Nominees (No.3) Limited
Barclays Capital Nominees Limited
Barclays Capital Principal Investments Limited
Barclays Capital Securities Client Nominee
Limited
Barclays Capital Securities Limited
Barclays CCP Funding LLP
Barclays Converted Investments (No.2) Limited
Barclays Direct Investing Nominees Limited
Barclays Directors Limited
Barclays Equity Holdings Limited
Barclays Executive Schemes Trustees Limited
Barclays Financial Planning Nominee Company
Limited
Barclays Funds Investments Limited
Barclays Global Shareplans Nominee Limited
Barclays Group Holdings Limited
Barclays Group Operations Limited
Barclays Industrial Development Limited
Barclays Industrial Investments Limited
Barclays Insurance Services Company Limited
Barclays Investment Management Limited
Barclays Investment Solutions Limited
Note
J,K
A, F, I
A
F, I, O
B
Wholly owned subsidiaries
Barclays Leasing (No.9) Limited
Barclays Long Island Limited
Barclays Marlist Limited
Barclays Mercantile Business Finance Limited
Barclays Nominees (George Yard) Limited
Barclays Pension Funds Trustees Limited
Barclays Principal Investments Limited
Barclays Private Bank
Barclays SAMS Limited
Barclays Security Trustee Limited
Barclays Services (Japan) Limited
Barclays Services Limited
Barclays Shea Limited
Barclays Singapore Global Shareplans Nominee
Limited
Barclays Term Funding Limited Liability
Partnership
Barclays UK Investments Limited
Barclays Unquoted Investments Limited
Barclays Unquoted Property Investments
Limited
Barclays Wealth Nominees Limited
Barclayshare Nominees Limited
Barcosec Limited
Barsec Nominees Limited
BB Client Nominees Limited
BMBF (No.24) Limited
BMI (No.9) Limited
BNRI ENG 2013 Limited Partnership
BNRI ENG 2014 Limited Partnership
BNRI ENG GP LLP
BNRI England 2010 Limited Partnership
BNRI England 2011 Limited Partnership
BNRI England 2012 Limited Partnership
Carnegie Holdings Limited
Chapelcrest Investments Limited
Clydesdale Financial Services Limited
Cobalt Investments Limited
Condor No.1 Limited Partnership
Cornwall Homes Loans Limited
CP Flower Guaranteeco (UK) Limited
Note
A, J, K
A
A
B
B
B
B
B
B
B
I, J, K
B
E
Wholly owned subsidiaries
CP Propco 1 Limited
CP Propco 2 Limited
CP Topco Limited
CPIA England 2008 Limited Partnership
CPIA England 2009 Limited Partnership
CPIA England No.2 Limited Partnership
DMW Realty Limited
Dorset Home Loans Limited
Durlacher Nominees Limited
Eagle Financial and Leasing Services (UK)
Limited
Equity Value Investments No.1 Limited
Equity Value Investments No.2 Limited
Finpart Nominees Limited
FIRSTPLUS Financial Group Limited
Foltus Investments Limited
Global Dynasty Natural Resource Private
Equity Limited Partnership
Globe Nominees Limited
Hawkins Funding Limited
Heraldglen Limited
Investors In Infrastructure Limited
J.V. Estates Limited
Kirsche Investments Limited
Long Island Assets Limited
Maloney Investments Limited
Menlo Investments Limited
Mercantile Credit Company Limited
Mercantile Leasing Company (No.132) Limited
MK Opportunities LP
Murray House Investment Management Limited
Naxos Investments Limited
North Colonnade Investments Limited
Northwharf Investments Limited
Northwharf Nominees Limited
PIA England No.2 Limited Partnership
Real Estate Participation Management Limited
Real Estate Participation Services Limited
Relative Value Investments UK Limited
Liability Partnership
Relative Value Trading Limited
Note
J, K
B
B
B
B
G, H, I
B
I, X
B
B
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Other disclosure matters
Other disclosure matters
44 Related undertakings continued
Wholly owned subsidiaries
Roder Investments No. 1 Limited
Roder Investments No. 2 Limited
Ruthenium Investments Limited
RVT CLO Investments LLP
Solution Personal Finance Limited
Surety Trust Limited
Swan Lane Investments Limited
US Real Estate Holdings No.1 Limited
US Real Estate Holdings No. 2 Limited
US Real Estate Holdings No.3 Limited
Wedd Jefferson (Nominees) Limited
Westferry Investments Limited
Woolwich Homes Limited
Woolwich Plan Managers Limited
Woolwich Qualifying Employee Share
Ownership Trustee Limited
Woolwich Surveying Services Limited
Zeban Nominees Limited
– Hill House, 1 Little New Street,
London, EC4A 3TR
Barclays Mercantile Limited (In Liquidation)
Barclays Nominees (Branches) Limited
(In Liquidation)
Barclays Nominees (K.W.S.) Limited
(In Liquidation)
Barclays Stockbrokers Limited (In Liquidation)
Barclays USD Funding LLP (In Liquidation)
BMBF (No.3) Limited (In Liquidation)
BMBF (No.6) Limited (In Liquidation)
BMBF (No.9) Limited (In Liquidation)
Gerrard Financial Planning Limited
(In Liquidation)
Gerrard Management Services Limited
(In Liquidation)
Gerrard Nominees Limited (In Liquidation)
Greig, Middleton Nominees Limited
(In Liquidation)
Lombard Street Nominees Limited
(In Liquidation)
– 5 The North Colonnade, Canary Wharf,
London, E14 4BB
Leonis Investments LLP
Preferred Liquidity Limited Partnership
– Aurora Building, 120 Bothwell Street,
Glasgow, G2 7JS
R.C. Grieg Nominees Limited
– 50 Lothian Road, Festival Square, Edinburgh,
EH3 9WJ
BNRI PIA Scot GP Limited
BNRI Scots GP, LLP
Pecan Aggregator LP
– 1 New Street Square, London, EC4A 3HQ
Keepier Investments (In Liquidation)
– Logic House, Waterfront Business Park,
Fleet Road, Fleet, GU1 3SB
The Logic Group Enterprises Limited
The Logic Group Holdings Limited
– 9, allée Scheffer, L-2520
Barclays Claudas Investments Partnership
Barclays Pelleas Investments Limited
Partnership
Blossom Finance General Partnership
Argentina
– 855 Leandro N.Alem Avenue, 8th Floor,
Buenos Aires
Compañía Sudamerica S.A.
– Marval, O’Farrell & Mairal, Av. Leandro N.
Alem 882, Buenos Aires, C1001AAQ
Compañia Regional del Sur S.A.
Note
Q
F, I
Note
I, Y
I, Y
B
Wholly owned subsidiaries
Brazil
– Av. Brigadeiro Faria Lima, No. 4.440, 12th
04538-132
Barclays Brasil Assessoria Financeira Ltda.
BNC Brazil Consultoria Empresarial Ltda
Note
Wholly owned subsidiaries
Germany
– TaunusTurm, Taunustor 1, 60310, Frankfurt
Barclays Capital Effekten GmbH
– Stuttgarter Straße 55-57, 73033 Göppingen
Holding Stuttgarter Straße GmbH
Canada
– 333 Bay Street, Suite 4910, Toronto
ON M5H 2R2
Barclays Capital Canada Inc.
– Stikeman Elliot LLP, 199 Bay Street, 5300
Commerce Court West, Toronto ON M5L 1B9
Barclays Corporation Limited
– 5 The North Colonnade, Canary Wharf,
London, E14 4BB
CPIA Canada Holdings
Cayman Islands
– Maples Corporate Services Limited, PO Box
309, Ugland House, George Town, Grand
Cayman, KY1-1104
Alymere Investments Limited
Analytical Trade UK Limited
Barclays Capital (Cayman) Limited
Braven Investments No.1 Limited
Capton Investments Limited
Claudas Investments Limited
Claudas Investments Two Limited
CPIA Investments No.1 Limited
CPIA Investments No.2 Limited
Hurley Investments No.1 Limited
Iris Investments 1 Limited (In Liquidation)
Mintaka Investments No. 4 Limited
OGP Leasing Limited
Pelleas Investments Limited
Pelleas Investments Two Limited
Pippin Island Investments Limited
Razzoli Investments Limited
RVH Limited
– PO Box 1093, Queensgate House, Grand
Cayman, KY1-1102
Blaytell Limited (In Liquidation)
Coskwo Limited (In Liquidation)
Godler Limited (In Liquidation)
Harflane Limited (In Liquidation)
Hentock Limited (In Liquidation)
Hollygrice Limited (In Liquidation)
Pilkbull Limited (In Liquidation)
Strickyard Limited (In Liquidation)
Winhall Limited (In Liquidation)
– 190 Elgin Avenue, George Town, Grand
Cayman, KY1-9005
Calthorpe Investments Limited
Gallen Investments Limited
JV Assets Limited
Palomino Limited
Wessex Investments Limited
– Walkers Corporate Limited, Cayman
Corporate Centre, 27 Hospital Road,
George Town, KY1– 9008
Long Island Holding B Limited
China
– Room 213, Building 1, No. 1000 Chenhui
Road, Zhangjiang Hi-Tech Park, Shanghai
Barclays Technology Centre (Shanghai)
Company Limited (In Liquidation)
France
– 34/36 avenue de Friedland, Paris, 75008
BBAIL SAS
B
B
B
B
B
J
B, KK
B, KK
B, KK
Guernsey
– P.O. Box 33, Dorey Court, Admiral Park,
St. Peter Port, GY1 4AT
Barclays Insurance Guernsey PCC Limited
– PO BOX 41, Floor 2, Le Marchant House,
Le Truchot, St Peter Port, GY1 3BE
Barclays Nominees (Guernsey) Limited
Hong Kong
– 42nd floor Citibank Tower, Citibank Plaza,
3 Garden Road
Barclays Bank (Hong Kong Nominees) Limited
(in Liquidation)
Barclays Capital Asia Nominees Limited (In
Liquidation)
– Level 41, Cheung Kong Center, 2 Queen's
Road Central
Barclays Asia Limited
Barclays Capital Asia Limited
India
– 208 Ceejay House, Shivsagar Estate,
Dr A Beasant Road, Worli, Mumbai, 400 018
Barclays Securities (India) Private Limited
Barclays Wealth Trustees (India) Private Limited
– Ground to Fourth Floor, Wing 3 – Cluster A,
Eon Free Zone, MIDC Knowledge Park,
Kharadi, Pune, 411014
Barclays Global Service Centre Private Limited
– Level 10, Block B6, Nirlon Knowledge Park,
Off Western Express Highway, Goregaon
(East), Mumbai, 40063
Barclays Investments & Loans (India) Limited
Indonesia
– Barclays House, 12th Floor, Jl. Jend Sudirman
Kav. 22-23, Jakarta, 12920
PT Bank Barclays Indonesia (In Liquidation)
– Plaza Lippo, 10th Floor, Jalan Jend, Sudirman
Kav 25, Jakarta, 12920
PT Bhadra Buana Persada (In Liquidation)
B, KK
G, H, I
I, EE
V
F, I
F, I
F, I
F, I
Ireland
– One Molesworth Street, Dublin 2, D02RF29
Barclaycard International Payments Limited
Barclays Bank Ireland Public Limited Company
Barclays Europe Client Nominees Designated
Activity Company
Barclays Europe Firm Nominees Designated
Activity Company
Barclays Europe Nominees Designated Activity
Company
– 25-28 North Wall Quay, Dublin 1, D01H104
Erimon Home Loans Ireland Limited
L
Z
Isle of Man
– Barclays House, Victoria Street, Douglas
Barclays Nominees (Manx) Limited
– P O Box 9, Victoria Street, Douglas, IM99 1AJ
Barclays Private Clients International Limited
J, K
Japan
– 10-1, Roppongi 6-chome, Minato-ku, Tokyo
Barclays Funds and Advisory Japan Limited
Barclays Securities Japan Limited
Barclays Wealth Services Limited
356 Barclays PLC Annual Report 2018
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44 Related undertakings continued
Wholly owned subsidiaries
Jersey
– 2nd Floor, Gaspé House, 66-72 Esplanade,
St. Helier, JE1 1GH
CP Newco 1 Limited
CP Newco2 Limited
CP Newco3 Limited
– La Motte Chambers, St Helier, JE1 1BJ
Barclays Services Jersey Limited
– 39-41 Broad Street, St Helier, JE2 3RR
Barclays Wealth Management Jersey Limited
BIFML PTC Limited
– 13 Castle Street, St. Helier, JE4 5UT
Barclays Index Finance Trust
– Lime Grove House, Green Street,
St Helier, JE1 2ST
Barbridge Limited (In Liquidation)
– 13 Library Place, St Helier, JE4 8NE
Barclays Nominees (Jersey) Limited
Barclaytrust Channel Islands Limited
– Appleby Trust (Jersey) Limited, PO Box 207,
13-14 Esplanade, St Helier, JE1 1BD
MK Opportunities GP Ltd
Korea, Republic of
– A-1705 Yeouido Park Centre, 28-3
Yeouido-dong, Yeongdeungpo-gu, Seoul
Barclays Korea GP Limited
Luxembourg
– 9, allée Scheffer, L-2520
Barclays Alzin Investments S.à r.l.
Barclays Bayard Investments S.à r.l.
Barclays Bedivere Investments S.à r.l.
Barclays Bordang Investments S.à r.l.
Barclays BR Investments S.à r.l.
Barclays Cantal Investments S.à r.l.
Barclays Capital Luxembourg S.à r.l.
Barclays Capital Trading Luxembourg S.à r.l.
Barclays Claudas Investments S.à r.l.
Barclays Equity Index Investments S.à r.l.
Barclays International Luxembourg Dollar
Holdings S.à r.l.
Barclays Lamorak Investments S.à r.l.
Barclays Leto Investments S.à r.l.
Barclays Luxembourg EUR Holdings S.à r.l
Barclays Luxembourg Finance S.à r.l.
Barclays Luxembourg GBP Holdings S.à r.l.
Barclays Luxembourg Global Funding S.à r.l.
Barclays Luxembourg Holdings S.à r.l.
Barclays Luxembourg Holdings SSC
Barclays Pelleas Investments S.à r.l.
– 68-70 Boulevard de la Petrusse, L-2320
Adler Toy Holding Sarl
Note
J, K
S
I, DD
J, K
GG
J, K
P
T
J, K, L
T
T
J, K
I, AA
B
Mauritius
– C/O Rogers Capital Corporate Services,
St. Louis Business Centre, Cnr Desroches &
St. Louis Streets, Port Louis
Barclays Capital Mauritius Limited
Barclays Capital Securities Mauritius Limited
– Fifth Floor, Ebene Esplanade, 24 Cybercity,
Ebene
Barclays (H&B) Mauritius Limited (In
Liquidation)
Barclays Mauritius Overseas Holdings Limited
Mexico
– Paseo de la Reforma 505, 41 Floor, Torre
Mayor, Col. Cuauhtemoc, CP 06500
K, M
Barclays Bank Mexico, S.A.
Barclays Capital Casa de Bolsa, S.A. de C.V.
K, M
Grupo Financiero Barclays Mexico, S.A. de C.V. K, M
Servicios Barclays, S.A. de C.V.
Wholly owned subsidiaries
Monaco
– 31 Avenue de la Costa, BP 339
Barclays Private Asset Management (Monaco)
S.A.M
Note
Netherlands
– Prins Bernhardplein 200, 1097 Hj
Amsterdam
Chewdef BidCo BV. (In Liquidation)
Nigeria
– Southgate House, Udi Street, Osborne
Estate, Ikoyi, Lagos
Barclays Group Representative Office (NIG)
Limited (In Liquidation)
Philippines
– 21/F, Philamlife Tower, 8767 Paseo de
Roxas, Makati City, 1226
Meridian (SPV-AMC) Corporation
Saudi Arabia
– 3rd Floor Al Dahna Center, 114 Al-Ahsa
Street, PO Box 1454, Riyadh 11431
Barclays Saudi Arabia (In Liquidation)
Singapore
– 10 Marina Boulevard, #24-01 Marina Bay
Financial Centre, Tower 2, 018983
Barclays Bank (Singapore Nominees) Pte Ltd
(In Liquidation)
Barclays Bank (South East Asia) Nominees Pte
Ltd (In Liquidation)
Barclays Capital Futures (Singapore) Private
Limited
Barclays Capital Holdings (Singapore) Private
Limited
Barclays Merchant Bank (Singapore) Ltd.
Spain
– Calle Jose, Abascal 51, 28003, Madrid
Barclays Tenedora De Immuebles SL.
BVP Galvani Global, S.A.U.
Switzerland
– Chemin de Grange Canal 18-20, PO Box
3941, 1211, Geneva
Barclays Bank (Suisse) S.A.
Barclays Switzerland Services SA
BPB Holdings SA
United States
– Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington
DE 19801
Archstone Equity Holdings Inc
Barclays BWA, Inc.
Barclays Capital Derivatives Funding LLC
Barclays Capital Energy Inc.
Barclays Capital Holdings Inc.
Barclays Capital Real Estate Finance Inc.
Barclays Capital Real Estate Holdings Inc.
Barclays Capital Real Estate Inc.
Barclays Commercial Mortgage Securities LLC
Barclays Electronic Commerce Holdings Inc.
Barclays Financial LLC
Barclays Group US Inc.
Barclays Oversight Management Inc.
Barclays Receivables LLC
Barclays Services Corporation
Barclays US CCP Funding LLC
Barclays US Funding LLC
Barclays US Investments Inc.
C
G, H, I
C
C
G, I
C
C
C
J, K
Note
I, U
C
C
C
C
C
C
B
B
C
C
C
C
JJ
F, I
C
C
C
C
D
B
B
B
J
BB
C
J, K
C
C
C
C
Wholly owned subsidiaries
Barclays US LLC
BCAP LLC
Crescent Real Estate Member LLC
Gracechurch Services Corporation
Long Island Holding A LLC
LTDL Holdings LLC
Marbury Holdings LLC
Protium Finance I LLC
Protium Master Mortgage LP
Protium REO I LP
Securitized Asset Backed Receivables LLC
Sutton Funding LLC
TPLL LLC
TPProperty LLC
US Secured Investments LLC
– 1201 North Market Street, P.O. Box 1347
Wilmington, DE19801
Barclays Bank Delaware
Procella Investments LLC
Procella Investments No.1 LLC
Procella Investments No.2 LLC
Procella Investments No.3 LLC
Verain Investments LLC
– 2711 Centerville Road, Suite 400,
Wilmington, DE 19808
Analog Analytics Inc
Protium Master Grantor Trust
– 251 Little Falls Drive, New Castle County,
Wilmington DE 19808
Barclays Capital Equities Trading GP
Lagalla Investments LLC
Relative Value Holdings, LLC
Surrey Funding Corporation
Sussex Purchasing Corporation
– 745 Seventh Avenue, New York NY 10019
Alynore Investments Limited Partnership
Barclays Payment Solutions Inc.
Curve Investments GP
Preferred Liquidity, LLC
– CT Corporation System, One Corporate
Center, Floor 11, Hartford CT 06103-3220
Barclays Capital Inc.
– c/o RL&F Service Corp, One Rodney Square,
10th Floor, Tenth and King Streets,
Wilmington DE 19801
Analytical Trade Holdings LLC
Analytical Trade Investments LLC
– 100 South West Street, Wilmington DE
19801
Barclays Dryrock Funding LLC
Wilmington Riverfront Receivables LLC
– 15 East North Street, Dover DE 19801
Barclays Services LLC
– CT Corporation System, 225 Hillsborough
Street, Raleigh, NC 27603
Barclays US GPF Inc.
– CT Corporation System, 350 North St. Paul
Street, Dallas TX 75201
La Torretta Beverages LLC
La Torretta Hospitality LLC
La Torretta Operations LLC
– 500 Forest Point Circle, Charlotte,
North Carolina 28273
Equifirst Corporation (In Liquidation)
– Aon Insurance Managers (USA) Inc.,
76 St. Paul Street, Suite 500, Burlington,
VT05401-4477
Barclays Insurance U.S. Inc.
Zimbabwe
– 2 Premium Close, Mount Pleasant Business
Park, Mount Pleasant , Harare
Branchcall Computers (Pvt) Limited
home.barclays/annualreport
Barclays PLC Annual Report 2018 357
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Notes to the financial statements
Other disclosure matters
Other disclosure matters
44 Related undertakings continued
Other Related Undertakings
Unless otherwise stated, the undertakings
below are consolidated and the share capital
disclosed comprises ordinary and/or common
shares which are held by subsidiaries of
the Group. The Group’s overall ownership
percentage is provided for each undertaking.
J
Z
Z
Z
L, Z
E, Z
Note
J, L
B
75.00%
19.50%
25.00%
25.00%
20.00%
30.00%
B, Z
B, Z
Percentage
65.47% CC, Z
20.00%
35.00%
50.00%
50.00%
Other Related Undertakings
United Kingdom
– 1 Churchill Place, London, E14 5HP
Barclaycard Funding PLC
PSA Credit Company Limited
(In Liquidation)
Barclays Covered Bond Funding LLP
– 1 Poultry, London, England,
EC2R 8EJ
Igloo Regeneration (General Partner)
Limited
– 3-5 London Road, Rainham, Kent,
ME8 7RG
Trade Ideas Limited
– Derby Training Centre, Ascot Drive,
Derby, DE24 8GW
Develop Training Group Limited
– 50 Lothian Road, Festival Square,
Edinburgh, EH3 9BY
Equistone Founder Partner II L.P.
Equistone Founder Partner III L.P.
– Building 6 Chiswick Park, 566
Chiswick High Road, London,
W4 5HR
Intelligent Processing Solutions
Limited
– 20-22 Bedford Row, London,
WC1R 4JS
Cyber Defence Alliance Limited
– 30 Gresham Street, London,
EC2V 7PG
Gresham Leasing March (3) Limited
– 80 New Bond Street, London,
W1S 1SB
GW City Ventures Limited
– 5th Floor, 70 Gracechurch Street,
London, EC3V 0XL
Camperdown UK Limited
– 2nd Floor, 110 Cannon Street,
London, EC4N 6EU
Vectorcommand Limited
(In Liquidation)
– 55 Baker Street, London, W1U 7EU
Formerly H Limited (In Liquidation)
– 15 Canada Square, London,
E14 5GL
Woolwich Countryside Limited
(In Liquidation)
– Haberfield Old Moor Road,
Wennington, Lancaster, LA2 8PD
Full House Holdings Limited
– 6th Floor 60 Gracechurch Street,
London, EC3V 0HR
BMC (UK) Limited
– Central House, 124 High Street,
Hampton Hill, Middlesex , TW12 1NS
Rio Laranja Holdings Limited
– 13-15 York Buildings, London,
WC2N 6JU
BGF Group Limited
– Hill House, 1 Little New Street,
London, EC4A 3TR
Claas Finance Limited (In Liquidation)
– Gate House, Turnpike Road,
High Wycombe, Buckinghamshire,
HP12 3NR
GN Tower Limited
– Victoria Works, Thrumpton Lane,
Retford, Nottinghamshire, DN22 6HH
Crosslink Technology Holdings Limited 19.97% F, K, Z
40.18% F, J, Z
30.39% J, K, Z
50.00%
50.00%
50.00%
50.00%
70.32%
45.00%
51.00%
24.48%
67.43%
N, Z
K, Z
J, Z
J, Z
J, Z
J, Z
Z
Z
K
Percentage
Note
Other Related Undertakings
Cayman Islands
– Maples Corporate Services Limited,
PO Box 309GT, Ugland House, South
Church Street, Grand Cayman,
KY1-1104
Cupric Canyon Capital LP
Cupric Canyon Capital GP Limited
Southern Peaks Mining LP
SPM GP Limited
Third Energy Holdings Limited
Germany
– Schopenhauerstraße 10, D-90409,
Nurnberg
Eschenbach Holding GmbH
Eschenbach Optik GmbH
Korea, Republic of
– 18th Floor, Daishin Finance Centre,
343, Samil-daero, Jung-go, Seoul
Woori BC Pegasus
Securitization Specialty Co., Limited
Luxembourg
– 9, allée Scheffer, L-2520
BNRI Limehouse No.1 Sarl
Partnership Investments S.à r.l.
Preferred Funding S.à r.l.
Preferred Investments S.à r.l.
40.19% HH, Z
Z
50.00%
55.69% HH, Z
90.10%
Z
78.94% F, J, K, Z
21.70%
21.70%
Z
Z
70.00%
W
96.30%
R
33.40% I, J ,K ,L
FF
33.33%
FF, I
33.33%
Malta
– RS2 Buildings, Fort Road, Mosta
MST 1859
RS2 Software PLC
18.25%
Z
Monaco
– 31 Avenue de la Costa, Monte Carlo
Societe Civile Immobiliere 31 Avenue
de la Costa
75.00%
Netherlands
– Alexanderstraat 18, 2514 JM,
The Hague
Tulip Oil Holding BV
South Africa
– 9 Elektron Road, Techno Park,
Stellenbosch 7600
Imalivest Mineral Resources LP
Sweden
– c/o ForeningsSparbanken AB,
105 34 Stockholm
EnterCard Group AB
30.36%
II, Z
66.41% J, K, Z
40.00%
K, Z
United States of America
– 777 Main Street, Fort Worth
TX 76102
80.00%
CRE Diversified Holdings LLC
Crescent Legacy LLC
80.00%
Crescent Crown Land Holding SPV LLC 80.00%
80.00%
Crescent Plaza Residential LP, LLC
80.00%
Crescent Plaza Residential, L.P.
80.00%
Crescent Plaza Residential, LLC
80.00%
Crescent Resort Development LLC
80.00%
Crescent Tower Residences GP, LLC
80.00%
Crescent Tower Residences, L.P.
80.00%
Crescent TRS Holdings LLC
80.00%
CREW Tahoe Holdings LLC
60.80%
CREW Tahoe LLC
80.00%
DBL Texas Holdings LLC
80.00%
Desert Mountain Development LLC
C, Z
C, Z
C, Z
C, Z
B, Z
C, Z
C, Z
C, Z
B, Z
C, Z
C, Z
C, Z
C, Z
C, Z
74.75%
Percentage
74.40%
Other Related Undertakings
Desert Mountain Properties Limited
Partnership
East West Resort Development V, L.P.,
L.L.L.P.
East West Resort Development VII LLC 80.00%
56.96%
Gray’s Station, LLC
78.40%
Mira Vista Development LLC
76.83%
Mira Vista Golf Club, L.C.
80.00%
Mountainside Partners LLC
60.80%
MVWP Investors LLC
60.80%
Northstar Mountain Properties, LLC
60.80%
Northstar Trailside Townhomes, LLC
56.93%
Northstar Village Townhomes, LLC
60.80%
Tahoe Club Company, LLC
Tahoe Club Employee Company
60.80%
– 126 Riverfront Lane , 5th Floor,
Drawer 2770, Avon, CO 81620
Blue River Land Company, LLC
East West Resort Development XIV,
L.P., L.L.L.P.
EWRD Summit, LLC
– 1701 Wynkoop Street, Suite 140,
Box 47, Denver, CO 80202
Central Platte Valley Management, LLC 51.78%
47.63%
St. Charles Place, LLC
47.63%
The Park at One Riverfront, LLC
Union Center LLC
51.78%
– Corporation Trust Company,
Corporation Trust Center, 1209
Orange Street, Wilmington DE 19801
DG Solar Lessee II, LLC
DG Solar Lessee, LLC
VS BC Solar Lessee I LLC
– 1415 Louisiana Street, Suite 1600,
Houston, Texas, 77002
Sabine Oil & Gas Holdings, Inc.
50.00%
50.00%
50.00%
33.52%
79.10%
23.25%
39.55%
Note
B, Z
B, Z
C, Z
C, Z
C, Z
Z
C, Z
C, Z
C, Z
C, Z
C, Z
C, Z
Z
C, Z
B, Z
C, Z
C, Z
C, Z
C, Z
C, Z
C, Z
C, Z
C, Z
Z
Subsidiaries by virtue of control
The related undertakings below are
subsidiaries in accordance with s.1162
Companies Act 2006 as Barclays can exercise
dominant influence or control over them.
Subsidiaries by virtue of control
United Kingdom
– 1 Churchill Place, London, E14 5HP
Oak Pension Asset
Management Limited
Water Street Investments Limited
Percentage
00.00%
00.00%
Cayman Islands
– PO Box 309GT, Ugland House,
South Church Street, Grand Cayman,
KY1-1104
Hornbeam Limited
Barclays US Holdings Limited
00.00%
10.00%
Note
Z
Z
Z
J
Joint Ventures
The related undertakings below are Joint
Ventures in accordance with s. 18, Schedule 4,
The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations
2008 and are proportionally consolidated.
Note
Percentage
Joint Ventures
United Kingdom
– All Saints Triangle, Caledonian
Road, London, N1 9UT
Vaultex UK Limited
Joint management factors
The Joint Venture Board comprises two Barclays
representative Directors, two JV partner Directors and
three non-JV partner Directors. The Board are responsible
for setting the company strategy and budgets.
50.00%
Z
358 Barclays PLC Annual Report 2018
home.barclays/annualreport
Shareholder information
Barclays shareholding
C haring Cross
Strand
River Thames
Pall M all
The M all
Green Park
St. James’s Park
St. James’s Park
Victoria Street
QEII
Centre
Broad Sanctuary
Victoria
Horseferry Road
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Key dates
5 April 2019
Full year dividend payment date
25 April 2019
Q1 Results Announcement
2 May 2019
Annual General Meeting, at 11.00am
17 September 2019
Half year dividend payment date
Annual General Meeting (AGM)
This year’s AGM will be held at the
QEII Centre, Broad Sanctuary,
Westminster, London SW1P 3EE, on
Thursday, 2 May 2019 at 11.00am.
The Chairman and Chief Executive
will update shareholders on our
performance in 2018 and our goals for
2019. Shareholders will also have the
opportunity to ask the Board questions
at the meeting.
You can find out more at:
home.barclays/agm
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Keep your personal details up to date
Please remember to tell Equiniti if:
■■ you move
■■ you need to update your bank or building
society details.
If you are a Shareview member, you can
update your bank or building society account
or address details online. If you hold 2,500
shares or less, you can update details quickly
and easily over the telephone using the
Equiniti contact details overleaf. If you hold
more than 2,500 shares you will need to write
to Equiniti.
Dividends
The Barclays PLC 2018 full year dividend for the
year ended 31 December 2018 will be 4.0p per
share, making the 2018 total dividend 6.5p.
Barclays understands the importance of
the ordinary dividend for our shareholders.
Barclays is therefore committed to maintaining
an appropriate balance between total cash
returns to shareholders, investing in the
business, and maintaining a strong
capital position.
Going forward, Barclays intends to pay an
annual ordinary dividend that takes into
account these objectives, and the medium-
term earnings outlook of the Barclays Group.
It is also the Board’s intention to supplement
the ordinary dividends with additional returns
to shareholders as and when appropriate.
The Board notes that in determining any
proposed distributions to shareholders,
the Board will consider the expectation
of servicing more senior securities.
Save time and receive your dividends faster
by choosing to have them paid directly into
your bank or building society account
It is easy to set up and your money will be in
your bank account on the dividend payment
date. If you hold 2,500 shares or less, you can
provide your bank or building society details
quickly and easily over the telephone using
the Equiniti contact details overleaf. If you
hold more than 2,500 shares, please contact
Equiniti for details of how to change your
payment instruction.
How do Barclays
shareholders receive
their dividends?
Direct to bank account
Cheque
Scrip Dividend Programme (new shares)
57%
20.5%
22.5%
Scrip Dividend Programme
Shareholders can choose to have their
dividends reinvested in new ordinary Barclays
shares through the Scrip Dividend Programme.
More information, including the Terms and
Conditions and application form, are available
on our website.
To find out more, contact Equiniti or visit:
home.barclays/dividends
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home.barclays/annualreport
Barclays PLC Annual Report 2018 359
Shareholder information
Barclays shareholding
Shareholder security
Shareholders should be wary of any cold
calls with an offer to buy or sell shares.
Fraudsters use persuasive and high-
pressure techniques to lure shareholders
into high-risk investments or scams.
You should treat any unsolicited calls
with caution.
Please keep in mind that firms authorised
by the Financial Conduct Authority (FCA)
are unlikely to contact you out of the blue.
You should consider getting independent
financial or professional advice from
someone unconnected to the respective
firm before you hand over any money.
Report a scam
If you suspect that you have been
approached by fraudsters please tell the
FCA using the share fraud reporting form
at fca.org.uk/scams. You can also call the
FCA Helpline on 0800 111 6768 or through
Action Fraud on 0300 123 2040.
Alternative formats
Shareholder documents
can be provided in large print,
audio CD or Braille free of
charge by calling Equiniti.
0371 384 2055a
(in the UK)
+44 121 415 7004
(from overseas)
Audio versions of the
Strategic Report will also
be available at the AGM.
Useful contact details
Equiniti
The Barclays share register is maintained
by Equiniti. If you have any questions
about your Barclays shares, please
contact Equiniti by visiting
shareview.co.uk
Equiniti
0371 384 2055a
(in the UK)
+44 121 415 7004
(from overseas)
0371 384 2255a
(for the hearing impaired in the UK)
+44 121 415 7028
(for the hearing impaired
from overseas)
Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA
American Depositary Receipts (ADRs)
ADRs represent the ownership of Barclays PLC
shares which are traded on the New York
Stock Exchange. ADRs carry prices, and pay
dividends, in US dollars.
If you have any questions about
ADRs, please contact J.P.Morgan:
jpmorgan.adr@eq-us.com
or visit adr.com
J.P.Morgan Shareholder Services
+1 800 990 1135
(toll free in US and Canada)
+1 651 453 2128
(outside the US and Canada)
JPMorgan Chase Bank N.A.
PO Box 64504
St Paul
MN 55164-0504
USA
Shareholder Relations
To give us your feedback or if you
have any questions, please contact:
privateshareholderrelations@barclays.com
Shareholder Relations
Barclays PLC
1 Churchill Place
London E14 5HP
Share price
Information on the Barclays share price
and other share price tools are available
at: home.barclays/investorrelations
Managing your shares online
Shareview
Barclays shareholders can go online to
manage their shareholding and find out about
Barclays performance by joining Shareview.
Through Shareview, you:
■■ will receive the latest updates from Barclays
direct to your email
■■ can update your address and bank details
online
■■ can vote in advance of general meetings.
To join Shareview, please follow these three
easy steps:
Step 1
Go to portfolio.shareview.co.uk
Step 2
Register for electronic
communications by following the
instructions on screen
Step 3
You will be sent an activation code
in the post the next working day
Returning funds to shareholders
Over 60,000 shareholders did not cash
their Shares Not Taken Up (SNTU) cheque
following the Rights Issue in September
2013. In 2018, we continued the tracing
process to reunite these shareholders
with their SNTU monies and any
unclaimed dividends and by the end of
the year, we had returned approximately
£65,000 to our shareholders, in addition
to the approximately £212,000 returned
in 2017, £1.65m returned in 2016 and
£2.2m in 2015.
Donations to charity
We launched a Share Dealing Service in
October 2017 aimed at shareholders with
relatively small shareholdings for whom it
might otherwise be uneconomical to deal.
One option open to shareholders was to
donate their sale proceeds to ShareGift.
As a result of this initiative, £46,957 was
donated in 2018, taking the total donated
since 2015 to over £345,000.
Note
a Lines open 8.30am to 5.30pm (UK time) Monday to Friday, excluding public holidays.
360 Barclays PLC Annual Report 2018
home.barclays/annualreport
Notes
The terms Barclays or Barclays Group refer to Barclays PLC
together with its subsidiaries. Unless otherwise stated, the
income statement analysis compares the year ended 31
December 2018 to the corresponding twelve months of 2017
and balance sheet analysis as at 31 December 2018 with
comparatives relating to 31 December 2017. The
abbreviations ‘£m’ and ‘£bn’ represent millions and
thousands of millions of Pounds Sterling respectively; the
abbreviations ‘$m’ and ‘$bn’ represent millions and
thousands of millions of US Dollars respectively; the
abbreviations ‘€m’ and ‘€bn’ represent millions and
thousands of millions of Euros respectively.
There are a number of key judgement areas, for example
impairment calculations, which are based on models and
which are subject to ongoing adjustment and modifications.
Reported numbers reflect best estimates and judgements at
the given point in time.
Relevant terms that are used in this document but are not
defined under applicable regulatory guidance or International
Financial Reporting Standards (IFRS) are explained in the
results glossary that can be accessed at home.barclays/
results.
The information in this announcement, which was approved
by the Board of Directors on 20 February 2019, does not
comprise statutory accounts within the meaning of Section
434 of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2018, which contain an unqualified
audit report under Section 495 of the Companies Act 2006
(which does not make any statements under Section 498 of
the Companies Act 2006) will be delivered to the Registrar of
Companies in accordance with Section 441 of the Companies
Act 2006.
These results will be filed as a Form 20-F to the SEC as soon
as practicable following their publication. Once filed with the
SEC, copies of the Form 20-F will also be available from the
Barclays Investor Relations website at home.barclays/results
and from the SEC’s website at www.sec.gov.
Barclays is a frequent issuer in the debt capital markets and
regularly meets with investors via formal road-shows and
other ad hoc meetings. Consistent with its usual practice,
Barclays expects that from time to time over the coming
quarter it will meet with investors globally to discuss these
results and other matters relating to the Barclays Group..
Non-IFRS performance measures
Barclays’ management believes that the non-IFRS
performance measures included in this document provide
valuable information to the readers of the financial
statements as they enable the reader to identify a more
consistent basis for comparing the businesses’ performance
between financial periods and provide more detail concerning
the elements of performance which the managers of these
businesses are most directly able to influence or are relevant
for an assessment of the Barclays Group. They also reflect an
important aspect of the way in which operating targets are
defined and performance is monitored by Barclays’
management. However, any non-IFRS performance measures
in this document are not a substitute for IFRS measures and
readers should consider the IFRS measures as well. Refer to
pages 223 to 227 for further information and calculations of
non-IFRS performance measures included throughout this
document, and the most directly comparable IFRS measures.
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
Barclays 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 or relating to the Barclays
Group’s future financial position, income growth, assets,
impairment charges, provisions, business strategy, capital,
leverage and other regulatory ratios, payment of dividends
(including dividend payout ratios and expected payment
strategies), projected levels of growth in the banking and
financial markets, projected costs or savings, any
commitments and targets, estimates of capital expenditures,
plans and objectives for future operations, projected
employee numbers, IFRS 9 impacts 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 including the continuing impact of IFRS 9
implementation, 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, 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 applicable to past, current and future periods;
UK, US, Eurozone and global macroeconomic and business
conditions; the effects of any volatility in credit markets;
market related risks such as changes in interest rates and
foreign exchange rates; effects of changes in valuation of
credit market exposures; changes in valuation of issued
securities; volatility in capital markets; changes in credit
ratings of any entities within the Barclays Group or any
securities issued by such entities; the potential for one or
more countries exiting the Eurozone; instability as a result of
the exit by the United Kingdom from the European Union and
the disruption that may subsequently result in the UK and
globally; and the success of future acquisitions, disposals and
other strategic transactions. A number of these influences
and factors are beyond the Barclays Group’s control. As a
result, the Barclays 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 Barclays Group’s forward-looking statements.
Additional risks and factors which may impact the Barclays
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 2018), 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.
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