Barclays
Annual Report 2020

Plain-text annual report

Making a difference Barclays PLC Annual Report 2020 Making a difference Barclays is a British universal bank. We support consumers and small businesses through our retail banking services, and larger businesses and institutions through our corporate and investment banking services. In the wake of an extraordinary year, we have refreshed our corporate Purpose and our Values to ensure they are relevant to today’s world. Our Purpose We deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability, for the common good and the long term. Our Stakeholders Having a strong Purpose and Values ensures we are able to deliver for all our stakeholders: Our Values Respect We harness the power of diversity and inclusion in our business, trust those we work with, and value everyone’s contribution. Integrity We operate with honesty, transparency and fairness in all we do. Service We act with empathy and humility, putting the people and businesses we serve at the centre of what we do. Excellence We champion innovation, and use our energy, expertise and resources to make a positive difference. Stewardship We prize sustainability, and are passionate about leaving things better than we found them. You can read more about our new Purpose at home.barclays/purposeandvalues For our customers and clients We help those who use our products, services and expertise realise their aspirations For our colleagues We support their health and wellbeing, enable them to build their career, and empower and motivate them to be able to provide excellent service For society Our success over the long term is tied inextricably to the progress of our communities, and the preservation of our environment For our investors We continue to build a strong, diversified business that can deliver attractive and sustainable returns Strategic report Shareholder information Governance Risk review Financial review Financial statements Strategic report Shareholder information Barclays PLC Annual Report 2020 Understanding Barclays Chairman’s introduction Chief Executive’s review Operating environment Our strategy Our business model Engaging with our stakeholders Section 172(1) statement Key performance indicators Making a difference for our customers and clients: Barclays UK Barclays International: Corporate and Investment Bank Barclays International: Consumer, Cards and Payments Making a difference for our colleagues: Our people and culture Making a difference for society: Tackling climate change Supporting our communities Making a difference for our investors: Summary financial review Managing risk Viability statement Non-financial information statement Key dates, Annual General Meeting, dividends, and other useful information 002 004 006 009 011 014 016 018 022 026 028 030 033 039 042 045 048 050 052 054 Governance Governance contents Directors’ report Remuneration report Risk review Financial review Risk review contents Risk management Material existing and emerging risks Climate change risk management Principal risk management Risk performance Supervision and regulation Financial review contents Key performance indicators Consolidated summary income statement Income statement commentary Consolidated summary balance sheet Balance sheet commentary Analysis of results by business Non-IFRS performance measures Financial statements Financial statements contents Consolidated financial statements Notes to the financial statements The Barclays PLC Strategic Report 2020 was approved by the Board of Directors on 17 February 2021 and signed on its behalf by the Chairman. Report of the auditor The Auditor’s report on the Financial statements of Barclays PLC for the year ended 31 December 2020 was unmodified, and its statement under Section 496 of the Companies Act 2006 was also unmodified (see page 260 of Part 2 of the Annual Report 2020). 059 060 108 143 145 147 159 161 167 233 239 240 242 243 244 245 246 253 259 279 286 Barclays PLC home.barclays/annualreport 001 Strategic report Shareholder information Governance Risk review Financial review Financial statements Understanding Barclays We are proud of our history and deep roots in the UK, while our scale, geographic reach and diversification make us a universal bank, delivering financial expertise in many different markets around the world. Our investment proposition 1Resilience through diversification 2Growth opportunities 3Sustainable impact 4Strong balance  sheet supporting returns We are a British universal bank diversified by business, geography and income type, serving consumers and wholesale customers and clients globally. This diversification provides resilience through different economic cycles. ■■ Scale retail and business bank in the UK. ■■ Top tier global corporate and investment bank. ■■ Broad international consumer lending, cards, and payments franchise, and private bank. Our diversified model offers us growth opportunities. We intend to grow Barclays by continuing to invest in our core business strengths, and delivering world-class technology and digital capabilities to our customers and clients. ■■ Attractive growth opportunities in markets where we have established businesses today. ■■ Investing in less capital intensive, technology-led, annuity businesses. ■■ Opening up potential new income streams and improving cost efficiencies. We understand that our success is judged not only by commercial performance, but also by how we act sustainably and responsibly for each other and the long term. We are agents of change. ■■ Our ambition to be a net zero bank by 2050 and a commitment to align all our financing activities with the goals of the Paris Climate Agreement. ■■ Tackling climate change by accelerating the transition to a low-carbon economy. A strong capital base, high levels of liquidity, and diversified profit streams provide a solid foundation for attractive and sustainable return of capital to shareholders. Barclays aims to achieve the following targets: ■■ Group returns: return on tangible equity (RoTE) of >10% over time. ■■ Cost efficiency: cost: income ratio of <60% over time. ■■ Capital strength: Common Equity Tier 1 (CET1) ratio in the range of 13-14%. For further information on our diversified business, please see our divisional reviews on pages 25 to 31. For further information on growing our company, please see the Chief Executive’s review on page 8. For further information on our approach to climate, please see how we act in our society and environment on pages 39 to 43. For further information on our performance in 2020, please see our summary financial review on pages 45 to 47. 002 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Understanding Barclays continued See our business model on page 14 for an overview of our customer base and our diverse range of products and services. Barclays at a glance Group income by business % Group income by region % Number of colleagues by business 000s Number of colleagues by region 000s Barclays UK Personal Barclaycard Business Banking Barclays International Consumer, Cards and Payments Corporate and Investment Bank: Investment Banking Corporate Banking 16 10 £21.8bn total Group income 46 7 6 15 Percentages exclude Head Office which was a negative income of £0.5bn. 5 52 21.3 47.7 £21.8bn total Group income 34 9 United Kingdom Europe Americas Asia Paci�c Barclays UK Corporate and Investment Bank Consumer, Cards and Payments BX and Head O�ce 83k colleagues 7.8 3.0 50.9 21.8 83k colleagues 10.2 3.3 United Kingdom Europe Americas Asia Pacific Barclays Execution (BX) and Head Office include our functions, technology and centralised support personnel supporting the client-facing businesses, reducing duplication and providing operational synergies. BX facilitates the sharing of expertise and ideas across the Group to allow us to bring our entire organisation to bear in delivering the right solutions for customers and clients, seamlessly. Our income generation demonstrates the range of retail and commercial products and services we offer. The culture of Barclays is built and shaped by the thousands of professionals around the world who serve our customers and clients. Group profit before taxa £bn Barclays UK and Barclays International statutory profit before tax (PBT) was £0.5bn and £3.6bn respectively. Earnings per sharea p Common Equity Tier 1 ratio % Total capital distribution per share p 2020 (0.3) (1.0) 0.6 4.0 3.2 2020 9.5 2020 15.1 2020 1.0 4.0 2019 (0.6) 2.6 3.1 1.2 6.2 2019 24.4 2019 2018 (0.6) 2.4 2.7 1.2 5.7 2018 21.9 2018 13.8 13.2 2019 2018 3.0a 6.5 Barclays UK Corporate and Investment Bank Consumer, Cards and Payments Head O�ce a Excluding litigation and conduct. Including litigation and conduct, a Excluding litigation and conduct. PBT was £3.1bn (2019: £4.4bn, 2018: £3.5bn). The diversification of the Group helps support sustainable earnings through the cycle, as seen during 2020. Statutory earnings per share (EPS) were 8.8p (2019: 14.3p, 2018: 9.4p). Our CET1 ratio demonstrates resilience and provides a solid foundation for shareholder returns. Barclays PLC Annual Report 2020 Dividend Dividend Buyback a Although we declared a 9p dividend for 2019, the full year dividend of 6p was cancelled in response to a request from the PRA. We are pleased to approve a total payout of 5.0p per share, including a 1.0p 2020 full year dividend and the intention to initiate a share buyback of up to £700m. Barclays PLC home.barclays/annualreport 003 Strategic report Shareholder information Governance Risk review Financial review Financial statements Chairman’s introduction This year has taught us some valuable lessons, and underlined the importance of purpose in everything we do. Our strategy is working and we are confident Barclays is in a strong position for the challenges and opportunities ahead. Purpose during the pandemic For most people, and indeed companies, the defining memory of 2020 will be the COVID-19 pandemic, which is of course still with us and has had such devastating consequences for the lives and livelihoods of millions around the world. As the pandemic unfurled, Barclays’ priorities were clear. We first needed to ensure our operational and financial resilience, not least because banks would be called upon to play a key role in mitigating some of the financial and economic consequences of the crisis. That resilience then had to be put to real use in supporting our customers and clients. And we needed to do this while protecting the health and wellbeing of our many thousands of employees. We have been fortunate in pursuing those priorities to have the commitment of so many dedicated and resilient colleagues. While many switched to working from home with remarkable adaptability, I would like to record particular thanks to the thousands who continued to work in branches, looked after clients from the trading floors, and staffed our contact centres so as to deal with a significantly heightened volume of questions from customers. It has been fantastically uplifting to witness the spirit in which our colleagues have taken on these challenges. Of course, our workforce was not immune to the worst health impacts of the virus either. For those colleagues we have lost or who suffered personally, or whose families have been affected, I extend my deepest sympathy. 004 Barclays PLC home.barclays/annualreport Revisiting our Purpose During the course of the last year, we revisited our expression of Purpose with a view to improving its connectivity to the actual things that we do day-in and day-out. Our commitment now is to “deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability, for the common good and the long term.” We want to ensure that, behind the headline, this real sense of Purpose is deeply embedded in the way in which the organisation takes decisions. This will not always be easy, and the interests of different groups of stakeholders can sometimes appear to collide, at least in the short term, but we will do our best to take the right decisions for the long term, even if that is not the easiest step in the short term. We think that our statement of Purpose largely stood the test set by the pandemic. In an extremely difficult year for a lot of people and businesses, we deployed hundreds of millions of pounds in payment holidays and other schemes to support our retail customers, and lent billions of pounds more to those businesses, large and small, that needed it most to weather the immediate impact of the crisis. We have done our best to support customers and communities in other ways. For example, we are very aware how frustrating it can be waiting to speak to a real person at times of high demand. At their peak, our contact volumes were up by 40%, while our contact centre capacity was cut by 70% as a result of the closure of operations in India and elsewhere due to the pandemic. We were ultimately able to resolve this issue through a substantial deployment of technology to enable UK call centre staff to handle enquiries at home, as well as redeployment of some branch staff to bolster that capacity. We are appreciative of the patience and understanding shown by the vast majority of our customers. The pandemic also provided an opportunity – indeed a necessity – to innovate at unprecedented speed. The UK Government’s Bounce Back Loan Scheme (BBLS) is a case in point, requiring us to go operationally live only a matter of days after being notified that the scheme was to be established. One of our priorities for this coming year, and the years ahead, is to ensure that we ‘bottle up’ the agility and innovation that stood us in such good stead in weathering this crisis. This has prompted a far-reaching assessment of our operational mindset, and we will be embedding new ways of thinking about our work across the entire colleague population during the course of 2021, based in large part on lessons learnt from our experience in 2020. “We want to ensure that, behind the headline, this real sense of our Purpose is deeply embedded in the way in which the organisation takes decisions. With colleagues located in local communities around the UK, as well as near our big centres of operations in the US and India, we thought hard about other ways of making a contribution to the crisis response. A key element of our response was the launch of a £100m COVID-19 Community Aid Package, including a matching programme for colleagues. Of the £95m donated to date, £59m is already funding the COVID-19 relief efforts of 250+ charity partners around the world. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Chairman’s introduction continued We hope that initiatives such as this demonstrate clearly the ways in which Barclays can do good in society by deploying finance in multiple ways. As I said in my letter to shareholders and other stakeholders last year, we want to be increasingly proactive in making a substantive contribution in what we hope will become an age of greater corporate conviction. This is something all of our stakeholders expect of us. Let me take two examples: First, the environment. Given the operational and other challenges of the last few years, Barclays had been slow to embrace its full responsibilities in the face of the climate challenge. Our shareholders and other stakeholders told us this, so we started a complete refresh of our environmental policies in the autumn of 2019. This led to our March 2020 announcement of our ambition to be net zero across scopes 1, 2 and 3 by 2050, and our commitment to align our financing to the goals of the Paris Climate Agreement. We are extremely grateful for the support of practically all of our shareholders, who endorsed resolutions that we put before them in May 2020. Going forward, we have committed to be positive, thoughtful, authentic and open in our engagement with external stakeholders, and we recognise that the acceptable frontier of activity is moving very clearly in the direction of a green agenda. A further step was taken in November last year with the release of more detailed information on our targets, in particular in the energy and power sectors, and our overall framework for setting the measures by which we think we should be held accountable. Secondly, we have been doing a lot more to embrace the Race at Work agenda. High profile incidents and protests in 2020 prompted organisations like Barclays to appraise what we have been doing to aid the fight against racism, and to ask ourselves: ‘is it enough?’. We acknowledged that, despite our best intentions, the answer was likely ‘no’ and so we took action to address this. In June 2020, we established our Global Race at Work agenda with a goal of reinforcing our stance of zero tolerance on racism, and to improve opportunities and representation for ethnic minority colleagues. In October 2020, we presented colleagues with Barclays PLC Annual Report 2020 our 12-point Race at Work Action Plan focused on attracting, developing, advancing and retaining Black professionals at all levels. We have made tangible progress against each of these actions and, in 2021, we are now extending the work to include all other ethnically diverse colleagues, as well as customers, clients, and communities. The right strategy Our results indicate that our strategy is working, though in a completely different way to that which we might have envisaged at the start of the year. We remain a British universal bank committed to a diversified but synergistic portfolio of businesses. We strongly believe that it is better to stand on two or three legs than one, particularly when financial resilience is such an important part of a bank’s appeal to customers and clients. I think it is fair to say that this strategy, grounded in diversification, has been validated in the extreme stress we experienced this past year. During 2020, the normally reliable profitability of our UK activities was placed under severe pressure by the costs of addressing the pandemic, the impairment provisions that we made, and policy responses that have led to structurally much lower interest rates and a flatter yield curve. At the same time, the businesses in the Corporate and Investment Bank, and in particular our Markets business, benefited from significantly increased volatility and wider trading margins. Given the interest rate environment, and also the agility that the business demonstrated in our response to the crisis, it is clear that there is both a need and an opportunity for the transformation of our UK business. We seek, at the same time, to serve our customers, to assist the most vulnerable among that group, and roll out further opportunities for a more streamlined service taking advantage of the digital world. This represents the principal strategic challenge for the Group in the near term. More broadly, and as described in the letter from Jes Staley, we also now wish to focus on more of a growth agenda, in particular in the capital markets businesses, in our Corporate Bank, in our digital platforms, and in our UK Wealth business. Reviewing our performance The Group’s performance has, for understandable reasons, been greatly affected by the external events of 2020. We ended 2019 with an RoTE of 9.0% excluding litigation and conduct, and believe that we were well on course towards our medium-term target of >10%. as a ring-fenced bank and leading its independent board. It is very good news that Crawford Gillies has been willing to take on the role of Chair of Barclays Bank UK PLC as we head into the next stage of its business transformation. Thanks too to Mary Anne Citrino who stepped down from the Board in October. It is disappointing of course that returns last year fell short of that, and hitting our targets, absent a significant change in the macroeconomic environment and interest rate structures in particular, has become harder and more distant. Nevertheless, we remain committed to improving returns and to attaining a >10% RoTE over time. Balancing decisions in a way that optimises our Purpose requires a Board in which constructive challenge, openness and diversity of background and opinion are prized, along with a commitment to act fairly and in the interests of all stakeholders. Your Board is well placed to help the Company stay true to its Purpose. We did report a return on tangible equity of close to 10% in the Corporate and Investment Bank, but to deliver a greater than 10% RoTE across the board will require a return to higher levels of borrowing and transaction activity in our cards businesses, and the successful implementation of our plans for Barclays UK. The future Notwithstanding the positive progress made on the medical front, the impact of the COVID-19 pandemic will continue to cast its shadow over the global economy for some time to come, and therefore continue to be the defining force affecting our business. Our intention remains returning a healthy proportion of profits, and surplus capital, to shareholders via dividends and/or share buy-backs. The full year 2019 dividend was cancelled in response to a request from the PRA, but we are pleased that sufficient confidence is returning to the system to allow a moderate return of capital in the first quarter of 2021. The Board I am very grateful for the support and hard work of my Board colleagues during 2020, and in particular in responding to the extra commitments as a result of the pandemic and our desire to improve our environmental policies. I am delighted that Dawn Fitzpatrick, Mohamed A. El-Erian and Brian Gilvary have settled in so well. We are also very pleased to be welcoming Julia Wilson as a Non-Executive Director from April. These additions to the Board, and its overall strength, have enabled us to plan ahead for succession in key roles. I would like to thank Sir Ian Cheshire, who is retiring at this year’s AGM, for the hard work he has put in over the last four years, notably in overseeing the successful establishment of Barclays Bank UK PLC I believe we are well placed to respond to the challenges that brings. Our diversified model has proved its value, and we have a clear view of our business priorities going forward. We are determined to shape our own future as a company, and we will seek to leverage our pioneering spirit to serve our customers, clients and the communities in which we live and work to the best of our abilities. Finally, I want to thank everyone involved in this most challenging of years – customers, clients, investors, regulators and governments. But above all, thank you to our colleagues, whose indomitable spirit has been a credit to themselves and to Barclays. Nigel Higgins Chairman Barclays PLC home.barclays/annualreport 005 Strategic report Shareholder information Governance Risk review Financial review Financial statements Chief Executive’s review The health and economic impacts of the COVID-19 pandemic have tested our business model, and demonstrated Barclays’ commitment to our customers and clients, our colleagues, and to society. Making a difference when it matters most This year has taught us a great deal about Barclays’ strengths, our Values, and our resilience. As the COVID-19 pandemic grew, and the global economy began to contract, we were clear we needed to focus on three things. First, we needed to preserve our financial integrity, for if we were to maximise our support for the economy and society during a time of such challenge, we needed to be a strong and profitable business. Secondly, we wanted to be there for our customers and clients. That is why we did things like waiving charges and interest payments to help people cope during a very difficult period, while at the same time working with governments, particularly the UK Government, to deliver programmes to help businesses weather the storm. Finally, we knew we needed to embrace and support our colleagues within Barclays, recognising the challenges we faced on a personal and professional level. Resilience and stability This year, I am pleased with the way we have demonstrated our financial integrity, maintaining profitability throughout the year. We have delivered a resilient performance, despite extreme contraction in the global economy, with Group PBT of £3.1bn, and showed a capacity for strong capital generation. Our CET1 ratio as at 31 December 2020 was 15.1% – the highest level of capitalisation in Barclays’ history – and our liquidity pool of £266bn represented 20% of the Group’s balance sheet. We have £9.6bn of provisions set aside for impairments. We ended the year therefore highly capitalised, highly liquid, and well provisioned for impairments. Most importantly, the Group’s performance means we can make choices about our future from a position of strength and stability. Given that strength in our business, we have decided the time is right to resume capital distributions. As a result, we are pleased to approve a total payout of 5.0p per share, including a 1.0p 2020 full year dividend and the intention to initiate a share buyback of up to £700m. We expect to comment further on capital distributions as appropriate. The right model Our British universal banking model remains core to our strategy for success, providing us with the diversification that has been critical to our performance. This year our model has demonstrated its capacity to deliver resilience through economic cycles, borne out in our relatively strong Group level results over a difficult macroeconomic period, driven by the performance of our Corporate and Investment Bank. “Our British universal banking model remains core to our strategy for success, providing us with the diversification that has been critical to our performance. Barclays is now the only British global investment bank with a leading presence in the US, competing at scale in a structurally attractive market as many of our European competitors pull back. As well as a positive for Barclays, this has the potential to become a strategically important proposition for the UK, providing a competitive edge for the economy here as more and more companies look for finance through the capital markets instead of via bank balance sheets. At the same time, both Barclays UK and our Consumer, Cards and Payments business have faced significant challenges this year, enduring a severe economic shock, while also managing a long-term low interest rate environment, lower charges for overdrafts, and the elimination of certain banking fees. 006 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Chief Executive’s review continued Structural challenges in the UK retail banking market have been evident for some time, but they have been brought into even sharper relief by COVID-19. Restoring Barclays UK to a position of strong and sustained profitability is now our principal near-term strategic challenge. Specifically, we need to deliver a better, more digital bank for consumers and small businesses; we need to address our cost base; and we need to increase our commercial engagement with a significant portion of customers where currently we generate too little income for the Group. I am encouraged by the progress we have already made on this front, but there is more to do in 2021 and beyond. Support in challenging times This year, when it mattered most, Barclays was there for our customers and clients, and for the communities where we live and work all over the world. We took significant steps to relieve financial pressure for our customers, for example in waiving over £100m of fees and interest charges, and in granting hundreds of thousands of payment holidays. We also worked with governments to deliver support programmes, including facilitating some £27bn in lending for British businesses. What the UK Government has done in terms of fiscal spending, through the furlough scheme and business loans, has been unprecedented. What the Bank of England has done in terms of monetary easing and providing liquidity to the financial markets, to encourage the markets to lend to businesses and other institutions, is on a scale way beyond anything we saw in the 2009 financial crisis. Both institutions are to be commended for being so decisive and bold in their actions to protect jobs and the economy. In the UK, Asia, and across the Americas, we created a £100m COVID-19 Community Aid Package to work with local charities and support vulnerable communities hardest hit by COVID-19. As a company, we are deeply indebted to our 83,000 employees who have worked so hard over the last 12 months to keep Barclays delivering for its customers and clients, and for our other stakeholders too. From our branches, to trading floors, to call centres, thousands of our staff were designated key or critical workers, and, like everyone else, we have all had to adapt to new ways of working while taking the necessary steps to slow the spread of the virus. I am proud of the way we moved so many people to remote working in a matter of days, providing the technology to support them, and investing in our physical spaces so we are able to return colleagues to work safely when circumstances allow. For those colleagues unable to work during the pandemic, I am pleased we were able to pay people in full, as well as offer financial support for things like childcare and self-quarantine. Throughout the pandemic, we have learnt an enormous amount about the character of this company, about our people’s capacity to cope and adaptability, and about ways of balancing our work and personal lives – and we must apply that knowledge as the world transitions back to normal, hopefully in the course of 2021. Character and conviction Our experience this year also prompted us to look afresh at our Purpose as an organisation, and to make sure our Values are as up to date as they should be. This is a worthwhile exercise for any company to undertake from time to time, but I believe it was particularly important this year for us to take some time to reflect on who we are as a company, and what we stand for. I am confident that our renewed expression of Purpose and Values effectively encapsulates Barclays today. This crisis is clearly not over, but my hope is that Barclays will live up to its 330-year heritage, and emerge from this pandemic with pride in what we have done, and how we have helped. “This year, when it mattered most, Barclays was there for our customers and clients, and for the communities where we live and work all over the world. One immediate example of our conviction as a company is last year’s profoundly important announcement of our ambition to be a net zero bank by 2050. Notwithstanding the disruption caused by COVID-19, we have undertaken significant work over the course of this past year to build out our approach. In November, we set out the details of the methodology and targets that begin to align the emissions we finance through our activity, with the Paris Climate Agreement, on the way to achieving our net zero ambition. We believe that our 2050 net zero ambition is the best way for Barclays to help accelerate the transition to a low-carbon economy, across all sectors, by harnessing the breadth and depth of our leading capital markets franchise to direct financing flows towards building a greener future. Facts and figures Return on tangible equitya 3.4%2019: 9.0% Common Equity Tier 1 ratio 15.1%2019: 13.8% Income £21.8bn 2019: £21.6bn Operating expensesa £13.7bn 2019: £13.6bn Note a Excluding litigation and conduct. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 007 Strategic report Shareholder information Governance Risk review Financial review Financial statements Chief Executive’s review continued I want to recognise also the contribution of the management team for their leadership across the Group, particularly important in this past year. And we are grateful too for the stewardship, support – and challenge – from our Chairman and the Board. As I look to 2021, I remain, above all, committed to Barclays continuing to support and deliver for all our stakeholders. James E Staley Group Chief Executive Officer, Barclays See our strategy on pages 11 to 13 See our approach to managing risk on pages 48 to 49 See how we act in our society and environment on pages 39 to 43 Go online at home.barclays/annualreport Second, we will accelerate the geographic roll out of Barclays’ commercial banking expertise, building from our historic strength in the UK, and targeting rapid expansion in mainland Europe and the US. We will help corporations around the world manage their core financial needs, from liquidity management, to payments processing, to trade finance. Third, we are investing in our consumer banking and payments businesses to provide a payments led multiway value exchange ecosystem for customers and clients who interact with us across our digital platforms. To enable this, we will be launching a platform-based business model to offer new avenues of growth for our corporate and Small and Medium-sized Enterprise (SME) clients, and provide differentiated products and services to our customers in the UK. This business model will further enhance the capabilities of our Payments and Consumer businesses, deepening the relationships with SMEs and corporates and expanding into mainland Europe. We will also connect corporates and our customers as we expand our partner focused consumer finance businesses in the UK, mainland Europe and the US. And fourth, we will invest in the expansion of our wealth management business in the UK. Central to this is the extension of access to our investment platform and advice services to eligible banking customers, within our existing base. With our expertise we should be a major provider to hundreds of thousands more UK consumers as they plan for the future and invest in more attractive returning assets. Through 2021 we will continue to work on these opportunities, and look to strengthen diversification and deliver growth. Thank you Finally, and as always in these letters, I want to thank my colleagues for their steadfast commitment, and for all they do for Barclays, and our customers and clients every day around the world. I am privileged to lead such a group of people. “I want to thank my colleagues for their steadfast commitment, and for all they do for Barclays, and our customers and clients every day around the world. I am privileged to lead such a group of people. This is the beginning of a lengthy journey of course, and will require considerable effort on our part, but I am proud that Barclays is taking a leading positive position in an area so critical to the world, and our collective future. Growing our company The diversity in our model gives us balance, financial strength, and resilience, but we are also ambitious to grow this business, and strategically we have four priority areas of focus in this regard. First, we will continue to invest in our role as a major participant in the global capital markets. The capital markets – where companies, institutions, and governments issue securities, facilitated and underwritten by banks – drive the world’s economic growth. Barclays aims to increase market share in our debt underwriting and equity issuance offering, building confidence in global liquidity and helping drive economic growth. 008 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Operating environment We pay close attention to the environment in which we operate, scanning the horizon for risks and opportunities, and adapting our strategy accordingly. We also monitor trends in the behaviour of our customers and clients so we can effectively meet their evolving needs. A rapidly changing world The health and economic impacts of COVID-19 continue to have significant implications for Barclays and our stakeholders. The global economy has experienced significant fluctuations in activity levels over the last 12 months, and GDP in many of our key markets is still below pre-pandemic levels. The implications for wider society, and the way we live and interact, have also been dramatic and will continue to be for some time. Throughout a challenging year, we are proud of the support we have been able to provide to our customers and clients. Now, we are committed to helping them rebuild and, where required, adapt to new trends that may arise in the coming years such as long-term implications for population centres or global supply “As the vaccine rollout continues to progress, we are optimistic about the opportunities that will exist for Barclays and for our customers and clients in a recovery environment. Barclays PLC Annual Report 2020 chains. As the vaccine rollout continues to progress, we are optimistic about the opportunities that will exist for Barclays and for our customers and clients in a recovery environment. National governments around the world continue to implement measures to socially distance populations and restrict movement of people. This requires our operating model to adapt, innovate and be nimble, particularly in our capacity to manage disruption risks to our people, processes, infrastructure, and technology services. In March last year, we executed a major workforce transformation, migrating 70,000 colleagues to remote working in a matter of days. At the same time, we adapted working environments for colleagues and branch staff in the UK, as well as call centres globally, to ensure colleague and customer safety. We also stood up physical trading floors at designated emergency sites around the world to ensure uninterrupted service for our Investment Bank clients. Where possible, and in line with local government guidance, we have instigated gradual returns to office working in certain parts of the business and parts of the world. In time, with the safety and wellbeing of colleagues as our first priority, we envisage more people will return to on-site working over the course of the coming months, more detail on which is set out in the people section of this report. See our strategy on pages 11 to 13 See our people and culture on pages 33 to 37 Interest rates and other economic consequences As a direct result of the economic consequences of the pandemic, there have been changes in the financial environment that we have adapted to meet. In particular, we have seen a reduction in interest rates in many of the jurisdictions where we operate, intensifying an already long-term low-interest rate environment that we expect to endure for some time. This underlines the importance, and opportunity, of transformation of our business to adapt to the structural challenges of the retail banking market. In the financial markets, the last 12 months were characterised by initial periods of high volatility, market dislocation and significant trading activity, later stabilising across asset classes. The global markets revenue poola grew by 30% in 2020, attributable to the period of heightened activity in the first part of the year. Capital markets issuanceb rose by 9% as companies sought to strengthen their balance sheets. These trends illustrate the importance of Barclays’ market infrastructure, allowing our clients to continue to access the global capital markets in a distributed workplace. We have also seen significant increases in our impairment provisioning, and have further constrained our risk appetite. This has required a re-evaluation of our strategic and investment priorities, set out in more detail elsewhere in this report. See our strategy on pages 11 to 13 Customer and client behaviour The impact of COVID-19 on society has accelerated a number of existing trends in consumer behaviour and preferences. In the last 12 months, for example, we have seen a further shift away from cash usage towards contactless payments as customers adapt to and embrace the low-touch environment necessitated by the pandemic. Contactless payments now account for 78% of total transactions within Barclays UK, increasing 8% since March 2020. At the same time, we continue to observe a growing trend towards online transactions and servicing, further reducing customers’ use of our branch infrastructure. Downloads of our mobile banking apps continue to increase as more and more customers look for ways to self-serve. As a consequence of lower spending and increasing cash reserves, we also continue to see a reduction in credit card balances and an increase in repayment volumes. Growth of the use of credit alternatives, and growth in precautionary savings, has also meant an increase in customer appetite for financial advice. Notes a Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis is based on Barclays internal business structure and internal revenues. b Dealogic for the period covering 1 January to 31 December 2020. Barclays PLC home.barclays/annualreport 009 Strategic report Shareholder information Governance Risk review Financial review Financial statements Operating environment continued These trends present significant opportunities for Barclays to transform and continue to improve our services, finding further efficiencies through technology and automation, and creating new business models and partnerships based on digital engagement, customer trust, and our Payments capabilities. This emphasis is important because we continue to operate in a highly competitive environment. The rapid growth of ecommerce continues, amplified even further by the pandemic, and a number of payments focused FinTechs have benefited from this trend. This creates an imperative for Barclays to continue investing in new digital architecture, not only to keep pace with competitors, but at a rate that allows us to develop ahead of them. Within our Markets business, we continue to observe a shift in client preferences from active to passive fund management as well as the greater tendency towards electronic trading. This drives the need for the further digitalisation of our platforms, in turn generating higher volumes at tighter spreads, greater speed of execution and with lower costs for us and for our clients. Again, this has been accelerated by the COVID-19 pandemic, in particular as clients look to more digital means of execution in a distributed working environment. Here too, we are seeing a growing emergence of non-banking players, often leveraging a core competency in technology to accelerate their offering. See our strategy on pages 11 to 13 See our divisional review on pages 25 to 31 “Looking ahead, we are optimistic about some of the additional opportunities the transition to a low-carbon economy will present for Barclays. Political and regulatory change Geopolitical events have implications for our operating environment, and political volatility continues to influence customer and client needs and behaviours. The long-term economic consequences of the pandemic may also have important monetary and fiscal impacts, including changes to tax and government spending in a number of jurisdictions, which is also likely to impact client needs. In the United States, we expect the new administration, along with central banks, to continue to want to focus on liquidity facilities and bank capital strength, in addition to leading the efforts of the Financial Stability Board to implement international standards, such as Basel III. Trading relationships with the rest of the world, particularly China, will continue to have direct implications for our clients. In Europe, agreement between the UK and European Union (EU) over the shape of its future trading relationship is positive. The UK is also actively pursuing new trading relationships with other parts of the world, which have the potential to lead to an increase in cross-border activity for our customers and clients. Within the UK, there is the possibility of continued political tension over the prospect of a Scottish independence referendum following Scottish parliamentary elections this year. Post the UK’s withdrawal from the EU, the UK continues to develop a new framework for financial services regulation. We anticipate a new architecture for rule-making and an increase in public policy and legislative activity in the near term, including the potential for changes in regulatory approach between the UK and the EU. We also await the conclusion of the UK Financial Conduct Authority (FCA) reviews into the retail banking market and cost of credit. Barclays remains subject to ongoing and significant levels of regulatory change in different jurisdictions around the world. In particular, we continue to pay close attention to the changing landscape of prudential requirements and supervisory expectations, changing approaches to stress testing, as well as policymaker focus on the derivatives market across the G20 countries and beyond. Climate change As the global effort to tackle climate change grows, Barclays is moving rapidly to take a leading role in contributing to the transition to a low-carbon economy. In March last year, we set out our ambition to be a net zero bank by 2050. In November 2020, on the way to achieving that ambition, we set out the methodology and targets that begin to align the emissions we finance with the Paris Climate Agreement. More information is set out in our ESG Report, published alongside this document. Looking ahead, we are optimistic about some of the additional opportunities the transition to a low-carbon economy will present for Barclays, including through increased green and infrastructure finance capabilities. Gradual changes to the structure of our economy are likely to be accelerated by advances in sustainable technologies, which will require us to be able to support new industries, and help customers in impacted industries adapt. See how we act in our society and environment on pages 39 to 43 For more information please see our ESG resource hub at home.barclays/esg 010 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our strategy We are a British universal bank with a diversified and connected portfolio of businesses, serving retail and wholesale customers and clients globally. Our four strategic pillars Barclays has transformed over the past few years. We have evolved to respond to the needs of customers and clients, and adapted to changes in the economic and regulatory environment. See our key performance indicators on pages 22 to 23 See our people and culture on pages 33 to 37 See our approach to managing risk on pages 48 to 49 1Focus on customers and clients Putting them at the heart of the decisions we make about running our business and shaping it for the future 2Continue digitalising Enabling our customers and clients to engage with us in the way they want to, and making our business more efficient 3Strengthen our diversification Diversify our organisation by business, geography and income type to be more resilient to economic headwinds and future trends 4Protect and strengthen our culture Draw on our Purpose and Values to guide our choices as colleagues and as an organisation Each of these components is complementary, with benefits from improvements in one reinforcing progress across the others. For example, we better meet our client needs by focusing on digitalisation, which in turn expands our product sets and strengthens diversification. This improves the resilience of the Group, increases efficiency and reduces cost and operational risk, while providing an improved experience and faster capability for our customers. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 011 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our strategy continued 1Focus on customers and clients Our customers and clients are at the heart of everything we do, and we are relentless in our commitment to their best interests. 2Continue digitalising Technology is ubiquitous and our digital strategy similarly spans our entire organisation, improving the experience, efficiency, simplicity and reach of our products and services. Internally we call this the Power of One Barclays, a philosophy that unites colleagues across all of our businesses in a single objective to meet our customer and client needs end-to-end, realising operational and financial synergies across the Group. There is, of course, always more we can do. This year, for example, we have simplified our debit and credit card offerings, removing certain fees and charges to better reflect how our customers interact with us and to do so fairly. We measure our performance against customer and client priorities through metrics such as Net Promoter Scores (NPS®) – a view of how willing customers are to recommend our products and services to others – and client engagement, as well as the number and character of complaints we receive, to make sure we are making progress and understand when and why we haven’t met expectations. See our key performance indicators on pages 22 to 23 See our divisional reviews on pages 25 to 31 In our Corporate Bank, we continue our three-year plan to improve our clients’ digital experience, supporting more and more to self-serve in line with their needs. Last year, we successfully migrated Barclays iPortal from legacy physical infrastructure to the cloud, providing a more resilient and cost effective platform. In our Markets business, we continued to increase the scale of our network and platforms, extending our electronic capabilities, including our BARX and options offerings. Electronic trading continues to increase in importance, continuing to benefit from sustained multi-year investment. Finally, in a year that saw a peak of over 70,000 colleagues working remotely, the value of our strategic investment in digital infrastructure was plain to see. Within a matter of days, Barclays enabled a huge number of people to make that transition, deploying c.£51m of IT kit, infrastructure and home office equipment to improve capabilities. Barclays PLC Annual Report 2020 In the UK, we continue to focus investment on the rapid automation of as many processes as possible while striving to not leave any customer behind. This enhances customer experience and the reach of our products, and it also reduces costs, creating the capacity to finance further investment in automation and a virtuous circle of multi-year cost efficiencies. As well as significant cost opportunities, new income streams have also become possible, for example, our Plan & Invest platform, a digitally delivered advice and investment offering for current account customers in the UK, launched in September 2020. During the COVID-19 pandemic, we recognised that digital access was a necessity and worked to accelerate investment in our digital and automation agenda, helping customers bank and transact with us more easily. Putting customers and clients at the heart of what we do requires us to listen and to understand their priorities, tailoring our products and services to meet their needs, while using our expertise to support their progress. The global reach of our universal banking platform across a diverse set of products and services allows us to meet an unparalleled range of our customer and client needs. We have taken steps to join up and strengthen the way we think about our service across all of our businesses to present a single, compelling face to our customers and clients. This inter- connection is reinforced by our common core operating platform, BX, which facilitates the sharing of expertise and ideas across the Group. We are now better able to bring our entire organisation to bear in delivering the right solutions for customers and clients seamlessly. 012 Barclays PLC home.barclays/annualreport Strategic report Shareholder information Governance Risk review Financial review Financial statements Our strategy continued 3Strengthen our diversification 2020 has demonstrated the power of our universal banking model and the benefits of diversification, creating the resilience required to deliver for our stakeholders through the economic cycle. 4Protect and strengthen our culture We believe that the way we do business is a powerful differentiator and a core driver of our success. ■■ Sources of income: through the combination of interest and fee income business, our profits remain consistent despite economic headwinds. Only 37% of Group income is from net interest income, meaning we are less impacted by the income challenge posed by current low interest rates. We demonstrated the benefits of our diversification through 2020, delivering consistent profitability during the COVID-19 pandemic, while managing our risk appropriately and taking significant provisions for future potential credit losses. Our Markets business benefited from high asset price volatility and volumes of client transactions, and from a well-executed risk strategy. This generated significant profits, helping to offset headwinds that we saw in our consumer businesses. A culture which makes it easy for colleagues to determine and make the right decisions in any given situation. This has never been more important than during the extreme challenges experienced in 2020. Our senior leaders spend significant time setting the right tone, with a sense of purpose ingrained in how they communicate and lead Barclays. Colleague performance continues to be evaluated in terms of ‘what’ has been achieved against agreed objectives and ‘how’ these objectives have been delivered in line with our Values and desired behaviours. Decisions on individual performance and compensation outcomes are therefore influenced by whether an individual is helping to build and embed the desired culture we want to see. This continues to be a powerful way of embedding our Purpose, Values and desired behaviours throughout Barclays. We continue to believe that creating an inclusive and supportive culture is not only the right thing to do, but also what is best for our business. It creates a sense of belonging and value and enables colleagues to perform at their best. At Barclays, we focus on five areas of inclusion – disability, gender, LGBT+, multicultural, and multi-generational – which you can read more about later in this report. See our people and culture on pages 33 to 37 Barclays PLC home.barclays/annualreport 013 We are committed to a culture that upholds the highest standards of conduct and controls. This benefits all of our stakeholders, helping our customers and clients to succeed, our colleagues to realise their potential, and the communities in which we operate to prosper. Our business is focused on the areas where we can have the greatest long-term positive impacts, operating responsibly with respect to the environment and society and investing in communities. We have made significant progress across all of these areas in 2020, more detail on which is set out later in this report. At the heart of our culture are Barclays’ Purpose and Values, both of which have been updated to reflect what we have learnt during the extraordinary circumstances of the past year. Together, they ensure that a strong ethical and inclusive culture defines the way we do business at Barclays. We are diversified in a variety of different ways across: ■■ Customers and clients: we serve a wide spectrum from individual customers and businesses, to institutional investor clients and governments; ■■ Business lines: our Personal Banking, Barclaycard Consumer UK and Business Banking businesses in Barclays UK, and our Corporate and Investment Banking and Consumer, Cards and Payments businesses in Barclays International; ■■ Geographies: the UK is our home market, but we also operate a highly successful franchise in the US, and generate significant value in Europe, Asia Pacific, and emerging markets; ■■ Currencies: our clients enjoy access to international markets in over 80 currencies; Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our business model Barclays plays a key role in connecting the providers and users of capital. We recognise the role we play in society, and our success as a business has always been closely linked to the progress of the people, communities and businesses we serve. A British universal bank 014 Barclays PLC home.barclays/annualreport We deploy our resources … to deliver the right outcomes for our customers and clients to serve our diversified customer base … ranging from retail banking customers, through to the largest multinational corporates and institutional clients People Our people are our organisation. We deliver success through a purpose-driven and inclusive culture. Financial resources We deploy our financial resources to help our customers and clients achieve their goals. Technology and infrastructure Our deep technology and infrastructure capabilities drive seamless customer experiences and support strong resiliency. Operations and governance Our risk management, governance and controls help ensure customer and client outcomes are delivered in the right way. Barclays UK Group income – Personal Banking Group income – Barclaycard Consumer UK Group income – Business Banking Barclays International Group income – Consumer, Cards and Payments Group income – Investment Bank Group income – Corporate Banking 16% 7% 6% 15% 46% 10% Income splits of revenue- generating divisions. Head Office had negative income of £0.5bn Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our business model continued across all of their financial needs … with our diverse range of products and services employing our strengths … which allow us to be the trusted financial partner for all of our customers and clients to deliver value to all our stakeholders and fulfilling a vital role in the economies in which we operate Move We facilitate transactions and move money around the world. ■■ Payments ■■ Foreign exchange Lend We lend to customers and clients to support their needs. Connect We connect companies seeking funding with the financial markets. Protect We ensure the assets of our clients and customers are safe. Invest and advise We help our customers and clients invest assets to drive growth. Barclays PLC Annual Report 2020 ■■ Term lending ■■ Credit cards ■■ Overdrafts ■■ Trade and working capital ■■ Equity capital markets ■■ Debt capital markets ■■ Deposit accounts ■■ Risk management ■■ Investments ■■ Trading ■■ M&A Brand and heritage Our brand and heritage helps foster a strong relationship of trust with our customers and clients. Diversified model Our diversified model strengthens our ability to deliver attractive and sustainable Group returns amidst economic uncertainty. Digitalisation and innovation Being at the forefront of innovation allows us to deliver excellent customer and client experiences and enables growth. Service execution Our service company, BX, allows us to deliver excellent customer experiences and effective and efficient services. Customers and clients Supporting financial goals for our customers and clients with products and services delivered through a superior offering. Colleagues Helping our colleagues across the world develop as professionals. Society Providing support to our communities, and access to social and environmental financing to address societal needs. Investors Delivering attractive and sustainable shareholder returns on a foundation of a strong balance sheet. Barclays PLC home.barclays/annualreport 015 Strategic report Shareholder information Governance Risk review Financial review Financial statements Engaging with our stakeholders Barclays aims to create value for everyone we serve, balanced across the short and the long term – our sustainable impact. We think about our priority stakeholders as belonging to four groups: customers and clients, colleagues, society, and investors. Sustained dialogue Customers and clients Colleagues Our customers and clients are at the heart of everything we do. We are relentless in our commitment to their best interests and we must engage with them regularly to help us achieve that. What do they tell us? In 2020, we engaged with customers and clients in a wide variety of ways, including running regular surveys, analysing customer complaints, and drawing on data from millions of individual transactions and personal customer interactions. Customers told us: ■■ to make things easy and intuitive so they can self-serve and complete (simple) everyday tasks, via a digital channel when it’s convenient for them. ■■ to be there and provide support, expertise and guidance, for important financial decisions. ■■ to help them stay in control of their finances by providing tools, and information tailored to their specific financial circumstances. ■■ to be reliable, always available and to keep their money and data safe. ■■ to be there for local communities and businesses, helping them adapt to the changes brought about by the pandemic. How do we respond to them? ■■ Helped businesses and institutions raise c.£1.5trn of new issuance in the capital markets. ■■ Facilitated c.£27bn of financing to businesses through the UK Government support schemes. ■■ Provided over 680,000 payment holidays for customers globally. ■■ Waived c.£100m in overdraft interest and banking charges for UK customers and clients. ■■ Made significant improvements to our Barclays apps, including enhanced payment alerts, and the ability to see itemised digital receipts. ■■ Introduced Dream Accelerator to help first time homebuyers get onto the property ladder sooner. ■■ Launched Plan & Invest, a digital investment service that creates a personalised investment plan, tailored by our experts. c.£1.5trn raised across Equity and Debt Capital Markets in Q220-Q420 c.£27bn financing provided to businesses through UK Government support schemes Our people are our most valuable asset. They make a critical difference to our success, and our investment in them protects and strengthens our culture. What do they tell us? Our long established approach to regularly engaging with colleagues, Unite, the Barclays European Forum and other colleague forums, ensures we listen and take all perspectives into account in our decision- making and action plans. As a result of COVID-19, many of our events this year have been web based, although, where possible, we have supported colleagues in our branches and offices with site visits. In addition to our annual employee opinion survey, this year we have run regular Here to Listen surveys to understand how colleagues were feeling during the COVID-19 pandemic, with a specific focus on wellbeing, working remotely and work/life balance: ■■ 83% of colleagues believe Barclays supports colleague wellbeing (2019: 74%). ■■ 77% believe they have the work tools and resources they need to achieve excellent performance (2019: 56%). ■■ 74% believe the stress levels at work are manageable (2019: 61%). ■■ 78% say they have been able to balance their personal and work demands. The data and insights from our surveys form an important part of our decision-making, and continuing to improve these scores is a priority. How do we respond to them? ■■ Mental Health Awareness training completed by 96% of colleagues (2019: 27%). ■■ 39% of colleagues have registered for our Be Well portal (2019: 23%). ■■ Spent c.£51m on IT kit, infrastructure and home office equipment to ensure 70,000 colleagues were set up to work remotely. ■■ We implemented a 12-point Race at Work action plan to open up opportunities to attract, develop and add to our great Black talent. ■■ Our Diversity and Inclusion networks are at an all-time high, with over 23,000 colleagues now involved. ■■ Our overall Inclusion Index score for 2020 is 76%, with 89% of colleagues saying they feel included in their team. 83%of colleagues believe Barclays supports their wellbeing 96%of colleagues completed Mental Health Awareness training 016 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Engaging with our stakeholders continued Society Investors Delivering long-term value depends on deep and thoughtful engagement with the numerous individuals and interest groups that represent wider society. What do they tell us? The rapid changes brought about by COVID-19 have meant our role in society and the embedding of Environmental, Social and Governance (ESG) within our strategy have never been more important. This year, we engaged constructively with a wide range of stakeholders, including non-governmental organisations (NGOs) and others. We participate in multiple sustainability and human rights forums and global and regional industry initiatives, engaging directly through Barclays’ Sustainability and ESG teams. Major themes we heard from them included: ■■ climate change and our support of customers and clients in the transition to a low-carbon economy. ■■ the financial assistance and support we’re providing to customers, clients and communities through COVID-19. ■■ the management of our broader environmental and social impacts. How do we respond to them? ■■ Published our methodology and targets to align to the goals of the Paris Climate Agreement, including £100bn green financing committed to by 2030. ■■ £100m committed through our COVID-19 Community Aid Package, supporting more than 250 charities globally: – 5,000 colleagues have donated or raised money to support people in 17 countries – 9m+ meals provided to vulnerable communities across the US through our partnership with Feeding America – 65,000+ hygiene kits distributed to people across Asia Pacific – 13+ UK NHS hospitals supported to meet the immediate and urgent needs of patients, staff and volunteers £100m committed through our COVID-19 Community Aid Package £100bn green finance committed by 2030 Barclays PLC Annual Report 2020 We engage with all parties who are interested and invested in the success and sustainability of our business. Doing so helps us understand expectations and leads to better outcomes over the long-term. What do they tell us? We engaged extensively with our institutional equity and fixed income investors throughout the year, as well as our private shareholders, in what has been a challenging year where we could not conduct the AGM in the manner we have done previously. We also continued to take part in collaborative and transparent dialogue with our regulators, working together to ensure we meet prudential and conduct based regulatory standards and contributing to a safe and robust banking system. Important topics for our stakeholders included: ■■ credit conditions and risk management through the COVID-19 pandemic. ■■ impact of low interest rates and reduced levels of consumer spending on our income generation. ■■ regulatory restriction on dividends across all UK banks, to allow continued support for the economy. ■■ climate change, following Barclays’ climate change resolution duly passed at the AGM with overwhelming shareholder support. How do we respond to them? ■■ Adjusted our investor engagement programme for a virtual format, ensuring continued high level activity with existing and target investors despite restrictions on face-to-face meetings. ■■ In November 2020, we published an update on our climate strategy detailing the methodology we will follow, the metrics for measuring our progress and the targets against which we will report. ■■ More effective engagement with our sell side analysts and investors, resulting in a nomination for Best Overall Company Investor Relations at the Investor Relations Society Best Practice Awards 2020. 99.93% Number of votes cast in favour of Barclays’ own climate change resolution For further information on the 2020 AGM voting, please see page 97 of Part 2 of the Annual Report Barclays PLC home.barclays/annualreport 017 Strategic report Shareholder information Governance Risk review Financial review Financial statements Section 172(1) statement Having regard to our stakeholders in Board decision-making. Engaging with our stakeholders The Directors have acted in the way that they considered, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and this section forms our Section 172 disclosure, describing how, in doing so, the Directors considered the matters set out in Section 172(1)(a) to (f) of the Companies Act 2006. The Directors also took into account the views and interests of a wider set of stakeholders, including the Group’s pensioners, regulators, the UK Government and non-governmental organisations. You can find out more about how Barclays engages with its stakeholders on the previous pages. The Directors recognise that having a good understanding of the views and interests of the Group’s key stakeholders will help them to deliver the Group’s strategy in line with its Purpose and to operate the business in a sustainable way. Consistent with its regulatory responsibilities, the Board also considers carefully the impact its decisions will have on the Group’s risk and control environment, and on customer outcomes. Considering a broad range of stakeholders and their relative interests is an important part of the way in which the Board makes decisions, although in having regard to those different perspectives it is not always possible to deliver everyone’s desired result or necessarily achieve a positive outcome for all stakeholders. How does the Board engage with stakeholders? Depending on the decision in question, the relevance of each particular stakeholder group may differ, and equally the Board adopts a variety of methods of engagement with different stakeholder groups. The Board will sometimes engage directly with particular stakeholders on certain issues, but the number and distribution of the Group’s stakeholders and the size of the Group overall means that stakeholder engagement often takes place at an operational level. In addition to direct engagement with stakeholders by Board members, the Board regularly receives reports and considers and discusses information from across the organisation to help it understand the impact of the Group’s operations on, and the interests and views of, the Group’s key stakeholders. As a result of these activities and the information it receives, the Board has an overview of engagement with stakeholders, and other relevant factors, which enables the Directors to comply with their legal duty under Section 172 of the Companies Act 2006. Engagement in action Read on to find out how the Directors have had regard to the matters set out in Section 172 when discharging their duties, and the effect of those considerations in reaching certain decisions taken by them, in the context of (i) establishing the Group’s climate strategy, and (ii) responding to the challenges arising from the COVID-19 pandemic. Engagement in action: Climate change The Board recognised that Barclays can, and should, make a real contribution to tackling climate change, and help to accelerate the transition to a low-carbon economy. The Board also recognised, however, that we were behind where we needed to be, and approached the challenge to help accelerate the transition in a positive, thoughtful, authentic and open way. Having begun in the autumn of 2019 to review our environmental policies with a view to making the step-change required, in the first quarter of 2020 the Board established a Board Climate Committee, to oversee our activities in this critically important area. The Board and its Climate Committee recognised that delivering on this ambition would involve balancing the needs and expectation of a range of key stakeholders and that gaining a detailed understanding of the views of those stakeholders would be key to making meaningful progress. Accordingly, in the first quarter of 2020 we began an extensive stakeholder engagement programme, led by the Chairman, personally, and the Company Secretary. This engagement programme was undertaken in three parts initially, following which we took action and reported back to our stakeholders: We engaged and listened First, we engaged and listened. We sought to understand the views and expectations of major shareholders, shareholder representative bodies, shareholder activists, non-governmental organisations, and stakeholders from across society more broadly. We also took into account the views of customers, clients and employees. The feedback was consistent and clear: the vast majority of our stakeholders wanted Barclays to take a leadership position in addressing climate change. We developed proposals Secondly, we developed proposals, with the benefit of the rich and valuable feedback we had received from our stakeholders. We formulated an ambition to be a net zero bank by 2050 and developed real and tangible commitments to align our provision of financing across all sectors, starting with the energy and power sectors, to the goals and timelines of the Paris Climate Agreement. We developed a clear strategy, with specific targets and regular reporting. We tested our proposed new approach and strategy Thirdly, we tested our proposed new approach and strategy with many of the same stakeholders as well as with representatives of governments, and various customers, clients and suppliers, to check whether what we were proposing aligned with their aspirations for us. We made refinements to our proposals based on the feedback we received. 1 2 3 018 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Section 172(1) statement continued 4 We acted Then, we acted. The Board always intended that our new approach should be a binding commitment on our part. It was clear that many of our shareholders, as well as other stakeholders, wanted this commitment to be reflected in a shareholder resolution. The Board also believed that this was the right thing to do. With the advice and support of its Climate Committee and on the recommendation of management, the Board resolved to put its own binding resolution to shareholders to give the maximum force and effect to its new approach and strategy. Shareholders gave their overwhelming support to this resolution at our AGM in May 2020. The Board also approved the creation of a new Executive Committee role focused on driving the execution and evolution of our climate strategy, and so began the process of embedding into the business the changes our new commitments required. 5 We reported back And finally, we reported back. Having set our ambition and formalised our commitments, the Board undertook to develop, with the help of a range of stakeholders, detailed metrics for measuring our progress and targets against which we would report and be held to account, and to report on progress by the end of the year. Continuing their respective oversight roles throughout, the Board and its Climate Committee approved materials for publication and, on 30 November 2020, we delivered on this commitment. Addressing the climate challenge is a monumental task and opportunity and we are committed to playing our part. Doing so will not only help to build Barclays’ reputation and to secure its long-term success by mitigating associated risk, but will also help deliver meaningful change for the benefit of society at large, and also enable Barclays credibly to access the business opportunities that playing an active role in the transition will present. Engagement with our stakeholders has been integral and essential to the progress we have made so far, but this is the start of a journey and we have a long way to go. Our success over the long term is inextricably tied to the progress of our communities and the preservation of the environment, and continued engagement with our stakeholders will therefore be integral and essential also to our future success. Barclays PLC Annual Report 2020 Developing and delivering on our climate change strategy has required us to take account of the sometimes conflicting needs and expectations of different stakeholder groups and to have regard to these in a fair and balanced manner. The Board also had to give due consideration to important issues such as energy transition and the impact of our decisions on businesses and the wider communities in which they operate, as well as to our relationship with various key stakeholders. You can find further information about our climate change strategy on pages 39 to 43 in our society and environment section. Engagement in action: COVID-19 Throughout almost the entirety of 2020 the primary focus of the Company and the Board has been on how best to deliver its strategy while at the same time supporting the Group’s stakeholders through the challenges brought about by the COVID-19 pandemic. This has meant the Board has met, whether in person (when permitted) or by video conference calls, significantly more frequently than in previous years, in order to devote the time needed to address the challenges which have arisen and to provide the necessary support to customers, clients, colleagues and society more broadly while continuing to drive value creation over the longer term. Between formal meetings, the Board has received regular updates on the implementation of the Group’s strategy, in particular in relation to the Group’s participation in the UK Government schemes and its broader support for customers and clients, as well as its ongoing engagement with key stakeholders and the steps being taken to safeguard the health and wellbeing of customers and colleagues. Given the importance of the Group’s response to the COVID-19 crisis and its impact on stakeholders and the economy as a whole, the Board also set up a Board COVID-19 Crisis Response Committee in April. This Committee met initially weekly and then fortnightly until well into the summer of 2020, in order to act both as a point of escalation for considering material matters arising during the crisis and as a review and sounding board for business decisions made by management which might impact the reputation of the Group. Close co-ordination between the Board and the Chairs of the main subsidiary boards has also ensured an ongoing dialogue has been maintained across the Group throughout the crisis, resulting in a more co-ordinated response to the crisis. Set out overleaf is a summary of some of the key decisions and actions the Group has taken in response to the impact of the ongoing pandemic where the Board has had regard to the interests of, and impact on, affected stakeholders, including consideration of stakeholder engagement, feedback received, the key decisions made by the Board and the potential outcomes of those decisions. On the following pages we describe the Board’s consideration of the interests of our four priority stakeholder groups: ■ Customers and clients ■ Colleagues ■ Society ■ Investors For further detail on Governance please see pages 59 to 142 of Part 2 of the Annual Report Barclays PLC home.barclays/annualreport 019 Strategic report Shareholder information Governance Risk review Financial review Financial statements Section 172(1) statement continued Engagement in action Customers and clients Colleagues holidays, the waiver of interest and fees on overdrafts and forbearance on late payments, as well as facilitating borrowing under the various government loan schemes. The rationale for these changes has been to provide breathing space for customers; to appropriately reflect the impact of the pandemic on customers’ income and circumstances in affordability calculations and credit decisions given the unprecedented uncertainty as a result of the pandemic. See our strategy on pages 11 to 13 for further information. All of this has been achieved while maintaining an appropriate risk and control environment. Through regular updates from the Board Audit Committee, the Board Risk Committee and management, the Board has closely scrutinised the risk and control environment across the Group, and ensured that the ongoing support for customers and clients during the pandemic has been achieved while continuing to adopt a robust approach to risk and control so as to maintain a strong capital position for the longer term. The Board has paid particularly keen attention to updates from management on various metrics and tools used to measure customer and client satisfaction and had been pleased to note that feedback on the Group’s support during 2020 has been positive. The Board and senior management will continue to monitor customer and client behaviours and preferences – whether arising from ongoing concerns over social distancing or from a change in customer and client banking patterns, or greater use of online services rather than branch or call centre facilities – and this information will help inform the Board’s decisions on future strategy as it evolves to meet the long-term needs of our customers and clients. to support self-quarantine, sickness or care for dependants and financial help with childcare, as well as the provision of education and training tools, including increased support in relation to mental health and wellbeing, and support services and helplines. In assessing the Group’s future strategy, the Board will take into account the lessons learnt during the pandemic and, in particular, will monitor changes in customer and client banking patterns and the ability of colleagues to provide services through remote working, in order to assess whether these changes could be adopted in the longer term so as to provide greater flexibility in terms of working practices for colleagues once the pandemic is over. Colleagues across the Group have also made a considerable contribution towards charitable giving during the year. Much of this has been provided through the COVID-19 Community Aid Package announced by the Group Chairman on behalf of the Board in early April 2020. Colleagues have been able to support charities of their choice, local to their homes or places of work and which are working to support communities impacted by the COVID-19 pandemic, with Barclays match-funding colleague contributions. We have been pleased to note strong engagement with the match-funding initiative. Colleague surveys have been conducted on a number of occasions throughout the year in order to maintain ongoing engagement and gather feedback, and reported to the Board. In addition to the colleague surveys and regular updates from management, members of the Board have continued to engage with colleagues in a variety of ways throughout the pandemic. These included holding virtual town halls, and interactive video call sessions. You can read more about how we support the health and wellbeing of our colleagues and about our workforce engagement more generally on page 16 and in Our people and culture on pages 33 to 37. Barclays PLC Annual Report 2020 The Board has regarded colleagues’ wellbeing as being of paramount importance throughout the pandemic. Together with management, the Board has sought to support colleagues both financially (by minimising job losses), and by ensuring our working environments are as safe as possible, both for colleagues who have continued to work from our offices or branches and for the 70,000 colleagues who moved to work remotely. For our offices and branches, this has meant the introduction of health and safety measures across our sites, including restricting occupation levels, enhanced hygiene and cleaning measures, and social distancing. We established a formal risk assessment process across our sites, and a COVID-19 Health and Safety Forum, who have overseen our approach to protecting colleagues’ health and safety during the COVID-19 pandemic. The Board, with management, has also ensured that colleagues have been provided with the necessary tools to enable the shift to remote working, including by the provision of increased technological support, laptops and other home office equipment. We also helped colleagues cope with some of the personal challenges the pandemic created, including offering paid leave Continuing to support customers and clients has been a critical focus of the Board throughout the year. This has been reflected in a range of actions and decisions taken by the Board and management, including in their efforts to ensure a COVID-19 safe environment has been maintained for our customers and clients as well as our colleagues. This has been achieved through the provision of safe access to bank branches, putting in place a programme to achieve effective social distancing and a stringent cleaning routine. Balancing the needs of our customers and clients against their health and safety and that of our colleagues has been crucial and so, while such measures included notifying customers and clients of reduced opening times, we also sought to enhance our call centre facilities in order to deal with increased volumes. We also took steps to support vulnerable customers who were unable to visit a branch. In order to support our customers and clients financially throughout these unprecedented times, the Board supported management in making appropriate adjustments to the Group’s strategy and policies. This has included decisions to support the Group’s credit card and borrower customers such as the implementation of payment 020 Barclays PLC home.barclays/annualreport Strategic report Shareholder information Governance Risk review Financial review Financial statements Section 172(1) statement continued Engagement in action Society Investors partnerships with trusted charities that can have a direct and immediate impact in the communities where we have a presence. The package also comprised a commitment to match-fund personal donations and fundraising efforts made by colleagues to charities of their choice supporting COVID-19 relief. A wide range of colleagues have since made donations through the COVID-19 Community Aid Package, including the Group Chairman and two Executive Directors who each personally donated one third of their respective Group fees and fixed pay for six months of 2020. We have also continued to engage with local communities throughout the pandemic, to understand their needs and develop alternative solutions to enhance the provision of our services where possible, including by working closely in communities across the UK to help them access and feel confident in using our digital services through our team of Barclays Digital Eagles. The Board is pleased to note that external feedback has been very positive in relation to the Group’s support of society both through the maintenance of its financial services and the delivery of our COVID-19 Community Aid Package. The Board is committed to develop its future strategy so as to continue this support and engagement with local communities and society more broadly through the remainder of the pandemic and its aftermath during 2021. Read more about our work supporting our local communities in Our society and environment on pages 39 to 43. response to a request from the UK Prudential Regulatory Authority, that it was prudent not to undertake any interim ordinary share dividend payments, accrual of ordinary share dividends or share buy-backs in 2020; and likewise that it should cancel the ordinary share full year 2019 dividend which was due for payment in April 2020. These were difficult decisions for the Board, not least in terms of the adverse short-term impact on investors, but the Board concluded that this was right and prudent in order to preserve additional capital so as to allow the Group to continue to serve the needs of its customers and clients throughout the crisis. The Board is pleased that the continuing strong capital position of the Group means that it has been able to resume paying a dividend to ordinary shareholders. The Board considers engagement with its shareholders as being critical to its understanding of investors’ views. The AGM is an important event in the Company’s corporate calendar and an excellent opportunity to engage with shareholders and for shareholders to ask questions of the Board. Despite the impossibility of shareholder attendance at the 2020 AGM as a result of the UK Government’s prohibition on public gatherings because of the pandemic, the Board ensured that all shareholders had the opportunity to submit questions in advance of the AGM. All questions were considered carefully and answered individually and pre-recorded presentations by the Group Chairman and the Group Chief Executive were made available on the Group website on the day of the AGM. In addition, as noted in the section above entitled ‘Climate change’, extensive shareholder engagement took place both in person, where possible, and remotely in the lead-up to the AGM in the context of seeking shareholders’ views on and support for the Group’s approach to climate change. Following the AGM, the Board has continued to maintain its engagement programme with investors, notwithstanding the inability to meet face to face. Find out more about our engagement with our investors on page 17. Barclays PLC home.barclays/annualreport 021 The Board is committed to achieving sustainable returns for our investors over the long term. Taking into consideration the importance to investors of the long-term security and soundness of the Group and the preservation of its balance sheet, the Board encouraged management to ensure that lending decisions would continue to be taken prudently throughout the pandemic, notwithstanding the drive to provide increased support to our customers and clients. This has also been reflected in the Board’s Risk Committee monitoring closely any changes to relevant risk limits and financial products. Balancing the needs of the Company’s key stakeholders is a key part of the Board’s decision-making process. In this regard, given the unprecedented nature of the COVID-19 pandemic, the Board concluded that the long-term interests of the Group and its responsibility towards supporting customers, clients and society more broadly in dealing with the impact of the pandemic, were of paramount importance, even if that might inevitably be less favourable in terms of investor returns in the short term. In light of the challenges imposed by the COVID-19 pandemic and following engagement with the Group’s regulators, the Board decided, in line with its peers and in From the outset of the pandemic, the Board has encouraged management to ensure that the Group, as a key universal bank both in the UK and within the international financial system, strives to operate responsibly in supporting the wider community in dealing with the current unprecedented medical and economic crisis caused by COVID-19, and in preparing for recovery in its aftermath. In particular, the Board has focused on the need for the economy to be supported; and has taken a particularly keen interest in the regular updates provided by management as to the Group’s efforts in this regard. In addition, in early April 2020 the Group Chairman announced, on behalf of the Board, the launch of the Barclays’ COVID-19 Community Aid Package totalling £100m. This comprised a Charity Partners Programme to support charities working to support vulnerable people impacted by COVID-19 and to alleviate the associated social and economic hardship caused by the crisis. This funding has been donated to, and deployed through, Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Key performance indicators We analyse a broad range of financial and non-financial measures to make sure our strategy is working. Ultimately, the experience of our stakeholders is the key indicator as to whether we are succeeding. Enabling us to adapt and deliver We use a number of sources to assess our performance and provide a balanced review of performance during the year. Financial targets and strategic non-financial performance measures are also linked to the way we pay our colleagues, including at executive management level. This approach means we are better able to deliver positive and sustainable results for our stakeholders, while at the same time maintaining flexibility for our businesses to adapt in a fast-moving world. We consider a range of metrics across all stakeholder groups and continuously assess whether new measures should be added or removed from our dashboards. For example, in recent years digital engagement and related customer satisfaction scores have become increasingly important. Key measures used in our 2020 assessment include the metrics reported on this page, and in the broader discussion of our performance on the subsequent pages of this report. 022 Barclays PLC home.barclays/annualreport Customers and clients We aim to build trust by offering innovative products and services, with an excellent customer and client experience, such that customers and clients are happy to recommend us to others. See our divisional reviews on pages 25 to 31 Colleagues We promote and maintain a diverse and inclusive workforce in which colleagues of all backgrounds are treated equally and supported to achieve their potential within a positive, values-based culture. See our people and culture on pages 33 to 37 Society We manage the environmental and societal impact of our business, making decisions that provide all our stakeholders with access to a prosperous and sustainable future. See our society and environment on pages 39 to 43 Investors Our ambition is to generate attractive and sustainable returns through the economic cycle. We measure our progress through our Group financial targets. See our summary financial review on pages 45 to 47 Barclays UK Net Promoter Score (NPS®)a Consumer, Cards and Payments US customer digital engagement Barclays UK complaints excluding PPI Corporate and Investment Bank revenue ranks and market shares 2020 2019 2018 +15 +18 +17 The NPS is a view of how willing customers are to recommend our products and services to others. Colleague engagement % 2020 2019 2018 83 77 79 This is a measure derived from our nine engagement questions in the Your View survey. % % 2020 2019 2018 71.4 71.0 69.4 2020 2019 2018 Metric shows percentage of digitally active CC&P US consumers. 2020 -6 2019 -9 2018 We received a signi�cant volume of PPI-related claims leading up to the FCA deadline of 29 August 2019. As such, the underlying trend provides a more meaningful comparison. 4.9 3.6 4.3 4.2 4.2 4.1 #6 #7 #6 #6 #7 #7 Markets global revenue ranking and share (Coalition Greenwich)b Banking global fee ranking and share (Dealogic)c Demonstrating our performance vs peers. Females at Managing Director and Director level “I would recommend Barclays as a good place to work” “I believe that my team and I do a good job of role modelling the Values every day” 26 25 24 Metric re�ects % of females at Managing Director and Director level within Barclays. A question in the Your View employee survey that measures colleague advocacy. 94 92 93 A question from the Your View employee survey showing colleagues’ connection to the Barclays Values which underpin the desired culture. Social and environmental financing £bn Operational carbon emissions tonnes CO2 equiv. 2020 2019 2018 34.8 28.5 60.9 2020 83,071 Financing in select social and environmental segments aligned to Barclays sustainable impact framework. 113,363 2019 2018 Emissions generated from Barclays’ branches, o�ces and data centres, including all indirect emission from electricity consumption. 286,599 LifeSkills – Number of people upskilled in the UK per year Connect with Work – Number of people placed into work globally Number of people participating in the Barclays LifeSkills programme focused on employability skills. 49,700 2019: 66,600 Number of people placed into work following training provided by Barclays Connect with Work partner organisations. Common Equity Tier 1 (CET1) ratio % Operating expensesd,e £bn Cost: income ratiod Group return on tangible equity (RoTE)d 2020 2019 2018 15.1 13.8 13.2 Group target: CET1 ratio in the range of 13-14%. Barclays PLC Annual Report 2020 13.7 13.6 13.9 2020 2019 2018 Group operating expenses increased 1% to £13.7bn, including £0.4bn of structural costs actions and additional COVID-19 related costs. Cost discipline and maximizing e�ciencies remain a priority. The Group targets a cost: income ratio below 60% over time. 3.4 RoTE excluding litigation and conduct was 3.4% due to lower pro�t before tax including materially higher credit impairment charges relating to the COVID-19 pandemic and higher operating expenses, partially o�set by favourable income. 9.0 8.5 % -32 % 2020 2019 2018 million 2020 2019 2018 % 2020 2019 2018 87 80 83 2.33 2.31 2.30 63 63 66 #,% 2020 2019 2018 2020 2019 2018 % 2020 2019 2018 Strategic report Shareholder information Governance Risk review Financial review Financial statements Key performance indicators continued Notes a ®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. b Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis is based on Barclays internal business structure and internal revenues. c Dealogic for the period covering 1 January 2017 to 31 December 2020. d Excluding litigation and conduct. e 2018 excludes litigation and conduct and a Guaranteed Minimum Pensions (GMP) charge of £140m. 2020 2019 2018 % 2020 2019 2018 £bn 2020 2019 2018 % 2020 2019 2018 Barclays UK Net Promoter Score (NPS®)a Consumer, Cards and Payments US customer digital engagement % Barclays UK complaints excluding PPI % Corporate and Investment Bank revenue ranks and market shares #,% +15 +18 +17 The NPS is a view of how willing customers are to recommend our products and services to others. 71.4 71.0 69.4 2020 2019 2018 Metric shows percentage of digitally active CC&P US consumers. -32 2020 -6 2019 -9 2018 We received a signi�cant volume of PPI-related claims leading up to the FCA deadline of 29 August 2019. As such, the underlying trend provides a more meaningful comparison. 2020 2019 2018 4.9 3.6 4.3 4.2 4.2 4.1 #6 #7 #6 #6 #7 #7 Markets global revenue ranking and share (Coalition Greenwich)b Banking global fee ranking and share (Dealogic)c Demonstrating our performance vs peers. Colleague engagement Females at Managing Director and Director level % “I would recommend Barclays as a good place to work” % “I believe that my team and I do a good job of role modelling the Values every day” 83 77 79 This is a measure derived from our nine engagement questions in the Your View survey. 2020 2019 2018 26 25 24 Metric re�ects % of females at Managing Director and Director level within Barclays. 2020 2019 2018 87 80 83 A question in the Your View employee survey that measures colleague advocacy. 2020 2019 2018 94 92 93 A question from the Your View employee survey showing colleagues’ connection to the Barclays Values which underpin the desired culture. Social and environmental financing Operational carbon emissions tonnes CO2 equiv. LifeSkills – Number of people upskilled in the UK per year million Connect with Work – Number of people placed into work globally 60.9 2020 83,071 34.8 28.5 Financing in select social and environmental segments aligned to Barclays sustainable impact framework. 113,363 2019 2018 Emissions generated from Barclays’ branches, o�ces and data centres, including all indirect emission from electricity consumption. 286,599 2020 2019 2018 Common Equity Tier 1 (CET1) ratio Operating expensesd,e £bn Cost: income ratiod % 15.1 13.8 13.2 Group target: CET1 ratio in the range of 13-14%. 13.7 13.6 13.9 2020 2019 2018 Barclays PLC Annual Report 2020 Group operating expenses increased 1% to £13.7bn, including £0.4bn of structural costs actions and additional COVID-19 related costs. Cost discipline and maximizing e�ciencies remain a priority. 2020 2019 2018 2.33 2.31 2.30 63 63 66 Number of people participating in the Barclays LifeSkills programme focused on employability skills. 49,700 2019: 66,600 Number of people placed into work following training provided by Barclays Connect with Work partner organisations. The Group targets a cost: income ratio below 60% over time. Group return on tangible equity (RoTE)d % 3.4 2020 2019 2018 RoTE excluding litigation and conduct was 3.4% due to lower pro�t before tax including materially higher credit impairment charges relating to the COVID-19 pandemic and higher operating expenses, partially o�set by favourable income. 9.0 8.5 Barclays PLC home.barclays/annualreport 023 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for our clients When I called, they were ready My business has always thrived on the power of relationships, and I had great expectations from 2020. I created CMe Media to help British brands with their advertising and campaign needs. Since then, we’ve grown steadily, winning new clients and business, and this year we were on course to pass the £2 million mark. Then COVID-19 hit, and suddenly everything I had worked so hard for was in danger of being wiped out. I knew I needed to act quickly to protect not only my team, but my growing family too. So, I picked up the phone to Ian Jarvis, my relationship manager at Barclays. Ian was already familiar with my business and my plans for long-term development, so when I called, he was ready. He helped me access a CBILS loan, to ease cashflow and support growth, and worked closely with me to create a solid development plan. As a result, the business I created and the team that helps drive its success are protected during one of the most challenging times we have faced. I know I need to be incredibly organised and to work smart – Barclays help me with that. Charisse Smith Director, CME Media Fareham 024 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews We are diversified by business, geography, and income type. Our businesses include consumer banking and payments operations around the world, as well as a top-tier, full service, global corporate and investment bank. A diversified portfolio for resilient performance Profit before tax (PBT) by businessa £bn 0.6 3.7 Barclays UK Barclays International BUK and BI PBT for 2019 were £2.6bn and £4.2bn respectively. Risk weighted assets (RWAs) by business £bn 73.7 222.3 Barclays UK Barclays International BUK and BI RWAs for 2019 were £74.9bn and £209.2bn respectively. Return on tangible equity (RoTE) by businessa % BUK BI 3.4 7.2 BUK and BI RoTE for 2019 were 17.5% and 9.3% respectively. Notes a Excluding litigation and conduct. Our structure Barclays operates as two divisions, Barclays UK and Barclays International, supported by our service company, Barclays Execution Services. Barclays UK Barclays International Global consumer banking and payments UK Retail and Business Banking Consumer, Cards and Payments Corporate and Investment Bank Barclays Execution Services Barclays UK Barclays UK (BUK) consists of our UK Personal Banking, UK Business Banking and Barclaycard Consumer UK businesses. These businesses are carried on by our UK ring-fenced bank (Barclays Bank UK PLC) and certain other entities within the Group. UK Personal Banking offers retail solutions to help customers with their day-to-day banking needs. UK Business Banking serves business clients, from high growth start-ups to SMEs, with specialist advice for their business banking needs. Barclaycard Consumer UK is a leading credit card provider, offering flexible borrowing and payment solutions, while delivering a leading customer experience. Barclays International Barclays International (BI) consists of our Corporate and Investment Bank and Consumer, Cards and Payments businesses. These businesses are carried on by our non- ring-fenced bank (Barclays Bank PLC) and its subsidiaries, as well as by certain other entities within the Group. With relentless focus on delivering for customers and clients 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 sustainable improved returns. Barclays International offers customers and clients a range of products and services spanning consumer and wholesale banking. Barclays Execution Services Barclays Execution Services (BX) is the Group-wide service company providing technology, operations and functional services to businesses across the Group. Barclays PLC Annual Report 2020 Barclays has a CEO, Consumer Banking and Payments, whose role is to oversee the execution of plans for the Group’s consumer banking and payments businesses in the UK and internationally. Barclays PLC home.barclays/annualreport 025 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews: Barclays UK Barclays UK consists of our UK Personal Banking, UK Business Banking and Barclaycard Consumer UK businesses. These businesses are carried on by our UK ring-fenced bank (Barclays Bank UK PLC) and certain other entities within the Group. Barclays UK ■■ UK Personal Banking offers retail solutions to help customers with their day-to-day banking needs. ■■ UK Business Banking serves business clients, from high growth start-ups to SMEs, with specialist advice for their business banking needs. ■■ Barclaycard Consumer UK is a leading credit card provider, offering flexible borrowing and payment solutions, while delivering a leading customer experience. 026 Barclays PLC home.barclays/annualreport Measuring success Income £6.3bn 2019: £7.4bn Operating expensesa £4.3bn 2019: £4.0bn Profit before taxa £0.6bn 2019: £2.6bn Return on tangible equitya 3.4%2019: 17.5% Barclays UK complaints excl. PPI -32%2019: -6% Barclays UK NPS +152019: +18 Note a Excluding litigation and conduct. Strategic priorities The UK’s retail banking environment is rapidly transforming and we remain focused on being at the forefront of that transformation. We want to provide customers with banking services in new and innovative ways, embracing technology as a means of making things simpler, more transparent and more secure. Barclays UK will continue to support customers and businesses, acting with empathy and integrity to build a sustainable bank. At the same time, we know banking cannot be something only a narrow section of society is able to use. There must be a sustainable means for everyone – including vulnerable customers who may need additional protection or want to access banking products in a different kind of way. We are focused on the following areas: 1. 2. 3. Providing exceptional service and insights to customers: we want to provide simple, relevant and prompt services and propositions for our customers so they have greater choice and access to money management capabilities. Using insights, we want to help customers better manage their finances and make informed financial decisions. Driving technology and digital innovation: we continue to invest in our digital capabilities, upgrading our systems, moving to cloud technology and implementing rapid automation of manual processes. This allows us to deliver a more personalised digital experience, reduce cost and create additional capacity to support more of our customers. Continuing to grow our business: by pursuing partnership opportunities to build and deliver better propositions and services for our customers. We will fully utilise the Barclays platform to open up new income stream opportunities and provide greater services to more customers. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews Barclays UK continued Year in review 2020 was a highly varied and challenging year for Barclays UK, which required immediate and balanced actions to support millions of our customers and clients impacted by the pandemic. We endured severe economic shock, while incurring additional costs, driven by our response to the pandemic. We waived fees and charges and interest payments and we worked with UK regulators and Government to provide ongoing support for our customers and clients. Despite a turbulent year, Barclays UK continued to deliver against our strategic priorities. ■■ Throughout the COVID-19 pandemic, we played a key role in the facilitation and delivery of the UK Government’s business support schemes, designing and executing a digital application system within days, overcoming significant operational challenges. Over the course of the period to 8 January 2021, we lent £10.1bn to British businesses under the Bounce Back Loan Scheme (BBLS) and £1.2bn under the Coronavirus Business Interruption Loan Scheme (CBILS). This is the equivalent of four years of traditional lending volumes, condensed into less than 12 months. This represents a significant number of new customers to Barclays through the Government schemes, providing us with an opportunity to establish long-lasting relationships for the future. ■■ We took significant steps to relieve financial pressure for our customers, acting quickly and effectively at a time of maximum need. Over the course of the year, we waived £100m of fees and interest charges and granted hundreds of thousands of payment holidays. Over 650 of our branches (80% of the total estate) remained open throughout the pandemic and over 250 staff received additional training to answer calls from customers experiencing financial difficulty. Barclays PLC Annual Report 2020 ■■ Despite facing significant challenges this year and enduring a severe economic shock, we continued to meet more of our customers’ needs by simplifying our credit and debit card offerings. We eliminated certain fees and charges to better reflect how our customers interact with us and we made changes to our overdrafts fees and charges to protect our most vulnerable customers. We also continued to deliver digital innovation with 67% of our products provided to customers through digital channels. Currently, 70% of our products are available via a fully digital solution or self-service enabled. ■■ Complaints across Barclays UK in 2020 were significantly lower than in 2019, decreasing 32%. This was, in part, a consequence of the pandemic and lower business volumes but also thanks to great strides we have made in reducing complaint volume year on year. In Q1 2020, prior to the outbreak of the pandemic, we saw lower year on year complaint volumes, driven by robust management actions. NPS for Barclays UK and Barclaycard has remained relatively stable at +15 and +8 respectively. NPS scores across the market have softened as customers continue to feel the financial pressure of the pandemic and ongoing movement restrictions. While the market remains challenging, Barclays UK has continued to deliver support and assistance to customers. ■■ We made significant improvements to our Barclays apps, which have over 9.2m active users. We introduced Dream Accelerator to help customers looking to buy their first home, enabling them to access tools to help them in the home buying preparation process. Our customers can now also view itemised digital receipts directly from the Barclays app when they shop at participating retailers, removing the need to carry paper receipts and helping customers better manage their spending. ■■ We launched Plan & Invest, a new digital investment service that provides customers with the confidence and support to invest for the future. Plan & Invest creates a personalised investment plan, tailored to our customers’ goals, with dedicated support at every step. Customers can stay updated over the phone and in an online hub, and see how well their investments are tracking against their financial goals. ■■ While managing a long-term low interest rate environment, we have driven strong Mortgage application volumes this year, and maintained competitive service levels for our customers. Despite the pandemic, we have continued to support customers with their home buying needs and have seen a strong performance in Mortgage completions, particularly through the second half of the year. ■■ We continued to build strategic partnerships, including launching a new collaboration with Nextdoor, a fast-growing social network service, to help thousands of local businesses secure new customers by arranging free advertising on the platform. ■■ We accelerated our green agenda by leveraging environmentally friendly material for our debit cards, reducing paper statements sent to our customers, and expanding our plastic reduction programme. We also supported ‘green’ agricultural lending across SMEs and will continue to explore opportunities to go further. Through our Barclays Partner Finance business, we plan to expand the distribution of Green Finance across a range of home improvement assets that aid in reducing energy consumption. Looking ahead Customer expectations continue to evolve, with more interactions moving to digital or via a virtual channel (call, video or web chat) and more customers seeking expert guidance for their specific financial circumstances. We also continue to see a reduction in the use of our branch infrastructure and a significant shift away from cash usage towards contactless payments. Where appropriate, we will continue reshaping our footprint to better support the customers we serve in ways they want to be serviced. Barclays UK is working to build a better bank for customers, a more efficient bank that is safe, intuitive and that will support customers and businesses responsibly and sustainably. Our focus is on customers Money Mentors – a free and impartial mentoring service Customers can now book a free session with one of our 300 Money Mentors, asking questions playing on their minds without fear of judgement. The service responds to millennial customers who told us they wanted a more open forum to talk through their financial concerns and goals. We had over 2,000 conversations in 2020, with over 80% of customers saying they will do something different with their finances as a result. For the full story go online at barclays.co.uk/money-mentors/ and clients and putting them at the heart of the decisions we make about running our business and shaping it for the future. We are reinventing our service model for customers to create a more efficient, more resilient and seamless service, which will include the expansion of our Wealth Management proposition. We are building partnerships in the open market and working across the whole of Barclays to deliver additional value for our customers and businesses through our size and scale. We will continue to invest in digital platforms, remove unnecessary processes and costs and make it seamless for customers to self-serve. We will continue to invest in digitalisation and automation to be more efficient, reduce costs and to create additional capacity for colleagues to support customers. In recent years we have invested in cloud technology and begun to build our digital bank capabilities, removing reliance on a heritage core. This investment will continue and will provide a strong digital customer platform that stands out from our competitors. For more information go online at home.barclays/annualreport Barclays PLC home.barclays/annualreport 027 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews: Barclays International Barclays Corporate and Investment Bank is comprised primarily of the Banking, Corporate Banking and Markets businesses, aiding money managers, financial institutions, governments, supranational organisations and corporate clients to manage their funding, financing, strategic and risk management needs. Barclays International: Corporate and Investment Bank ■■ Banking provides clients with strategic advice on mergers and acquisitions (M&A), corporate finance and financial risk management solutions, as well as equity and debt fundraising services. ■■ Corporate Banking provides GBP and EUR working capital, transaction banking including trade and payments, and lending for multinational corporates and institutions and for large and medium-sized corporate clients in the UK. ■■ 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 products. 028 Barclays PLC home.barclays/annualreport Measuring success Income £12.5bn 2019: £10.2bn Operating expensesa £6.9bn 2019: £7.0bn Profit before taxa £4.0bn 2019: £3.1bn Return on tangible equitya 9.5%2019: 8.0% Banking global fee ranking 7thFY 2020 Dealogic rankingb Global markets revenue rank 6thLargest non-US bank FY 2020 Coalition Greenwich rankingc Strategic priorities Barclays is a European headquartered investment bank competing at scale in the US and providing universal banking services around the world. At a time of heightened stress for many corporates, governments and institutions, we maintain our client-centric focus and our commitment to a full capability offering in our Corporate and Investment Bank. We are focused on the following areas: 1. 2. 3. Adapting to the evolving needs of our clients: We continue to invest in technology that makes it easier for our clients to do business with us. That includes the development of our electronic offering in Markets and the build out of our full service Corporate Banking digital proposition. Running an efficient and effective business: Our focus is on achieving better operational performance and driving improvements in market share. At the same time, we want to maintain cost discipline and drive more productive use of capital by recycling risk weighted assets to the highest returning opportunities. Improving returns by investing in and growing our capital markets and capital efficient businesses: The capital markets are an increasingly important source of financing and growth for the global economy. In order to ensure we remain globally relevant, we want to invest to grow our share of global debt and equity underwriting. At the same time, we remain focused on growing capital-light parts of our business, including Transaction Banking and fee-led advisory work in Banking. We are also developing other higher-returning businesses where we see opportunities, including in securitised products and our prime financing business. Notes a Excluding litigation and conduct. b Dealogic for the period covering 1 January to 31 December 2020. c Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis is based on Barclays internal business structure and internal revenues. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews Barclays International: Corporate and Investment Bank continued In Corporate Banking, we will look to continue the investment in our digital proposition and in our European offering, a critical enabler for Barclays’ ambitions across the continent. We will also focus on steadily improving our credit portfolio returns by reallocating risk weighted assets to higher-returning opportunities as well as making selective investments in expanding the footprint of our US Corporate Banking offering. Markets will continue to focus on growing balances, driving client-centricity and building a large and stable income base. We will keep investing in low-touch electronic execution platforms, to drive efficiency and scale, and will also seek to utilise the strength of our integrated financing platform to drive growth in client balances. For more information go online at home.barclays Year in review ■■ In Banking, we helped some of the world’s largest governments, corporations and public institutions issue debt in order to help them manage the strain that the COVID-19 pandemic placed on their operating environments. In total, we helped our corporate clients raise c.£1.6trn and governments, government-related clients and supranationals raise c.£430bn in 2020. While our Banking global fee rankingb fell to 7th in 2020 from 6th in 2019, largely attributable to a decline in activity in the sectors where we have relative strength, our revenue growth of 8% is testament to a resilient performance in a challenging year. ■■ Our Corporate business played a key role in supporting the UK economy through the COVID-19 pandemic, helping clients to raise funding in excess of £15bn under the UK Government lending schemes including the Coronavirus Large Business Interruption Scheme and the Covid Corporate Financing Facility. In the UK, Corporate Banking deposits grew by 22% during the year, and we had over 600 net new client wins, illustrating the extent to which our corporate clients trusted us during a time of uncertainty. ■■ Our Markets business acted as a market-maker and liquidity provider to institutions across the globe, playing a pivotal role in allowing them to manage risk during a time of unprecedented disruption. Despite a challenging environment, we were able to gain sharec to 4.9% (2019: 4.3%), maintaining our global revenue rankingc at 6th – the largest non-US bank. In line with our strategy, we have made significant progress in our multi-year effort to provide our clients with market-leading electronic capabilities. ■■ We continued to invest in enhancing our digital proposition, including our electronic trading capabilities and our digital self-service platform. Our BARX (cross-asset electronic trading) and options platforms continue to benefit from sustained multi-year investment. The user base of iPortal, our digital self-service platform, grew in 2020, and we are seeing a continued reduction in cost to serve through digital adoption. In order to ensure a seamless experience, we have invested in resilience, with client-impacting technology incidents down 14% compared to last year. The World Bank – sustainable financing to help combat COVID-19 As the pandemic spread, the World Bank wanted to raise funds to support its member countries. Barclays participated as a joint lead manager on a record-breaking US$8bn Sustainable Development Bond, a transaction that was part of the World Bank’s issuance programme to support the financing of sustainable development projects and programmes. At a critical moment, when cautious investors were looking for signs of confidence in an uncertain market, we were proud to be able to support the World Bank and its members as they work to prevent, detect and roll out vaccination programmes, as well as to strengthen health systems, and sustain economies for the long term. ■■ We continued to broaden our digital footprint business across Europe, with our Transaction Banking offering now digitally live across nine key EU countries, without the overheads of a branch network. Despite the challenging environment, we on-boarded over 640 new clients and attracted over £2bn of new deposits in the year. ■■ We also continued to enjoy a strong partnership with our colleagues in BX, including in our Transaction Banking business, which had significant demand placed on its technology infrastructure during the early days of the COVID-19 pandemic, including the rapid deployment of the UK Government schemes and the distribution of support via Local Authorities. We remain committed to growing capital-light businesses across our expanded geographic presence and through investment in our digitalised offering. Looking ahead Across our Corporate and Investment Bank, we will remain focused on maintaining our client-centric approach and, in doing so, developing opportunities to grow our business and increase returns. We will continue to focus on growth in high-returning, capital efficient parts of our business and to sustain our focus on cost discipline and operational rigour. We will look to make further, selective investments for the long term, establishing ourselves as the leading European Corporate and Investment Bank, competing on an even footing with our US peers and operating at the most efficient scale possible. Banking will continue to invest in select sectors, particularly Health Care and Technology, in the US and Europe to improve revenue contribution from our equity and advisory offerings and help us narrow the gap to our US peers. We will continue to build our Sustainable and Impact Investment Banking team, ensuring that we accelerate our efforts to support growth stage companies as well as our broader client base on implementing ESG. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 029 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews: Barclays International Consumer, Cards and Payments is comprised of our US Consumer Bank, Barclays Payments, Barclaycard Germany and our Private Bank. Barclays International: Consumer, Cards and Payments ■■ ■■ Barclays Payments enables businesses of all sizes to make and receive payments and we continue to be a leader in payment processing and commercial payments.a In the US, we have a partnership-focused business model, offering credit cards to consumers through our partners, such as American Airlines and Wyndham Hotels & Resorts, as well as online retail savings products. ■■ We also offer multiple consumer products in Germany, including credit cards, online loans, instalment purchase- financing, electronic Point of Sale (ePOS) financing and deposits. ■■ Our Private Bank offers banking, credit and investment capabilities to meet the needs of our clients across the UK, Europe, the Middle East and Africa, and Asia. Measuring success Income £3.4bn 2019: £4.4bn Operating expensesb £2.1bn 2019: £2.3bn (Loss)/profit before taxb £(0.3)bn 2019: £1.2bn Return on tangible equityb (6.7)% 2019: 15.9% Net Promoter Score +352019: +33 CC&P US customer digital engagement 71.4%2019: 71.0% Notes a Nilson Report #1175. b Excluding litigation and conduct. Strategic priorities Leveraging the combined strength of our Consumer, Cards and Payments businesses, we continue to serve and strive to deliver best-in-class consumer finance, private banking and payment solutions to our customers and clients. We are focused on the following areas: 1. 2. Responding to changing consumer behaviour: We continue to invest heavily in the digitalisation of our businesses, delivering new products and capabilities to reflect the growing trends within our Consumer, Cards and Payments businesses. This includes investing in a new platform-based business model to build digital connections between our customers and our corporates and small businesses, creating a new multiway value exchange ecosystem with Barclays at the centre. Building a more efficient and seamless business: We are accelerating our automation agenda to drive operational efficiency and create seamless digital journeys to enhance the customer experience. For example, we launched our first fully digital application for our commercial payments cardholders who can now view their accounts through the Barclays app, as well as our new mobile app for corporate card customers. 3. Winning new partnerships: We are focused on delivering across all our markets through broadening our product penetration with our existing partners and pursuing new partnerships, particularly in the US, as well as building capabilities to offer new financing solutions in markets such as Germany. 030 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Divisional reviews Barclays International: Consumer, Cards and Payments continued Year in review ■■ We forged new partnerships across all our businesses, notably in the US, where we signed a multi-year partnership agreement with Emirates, the world’s largest international airline, as well as successfully renewed partnerships with key clients across our US Consumer Bank and, as such, maintained our position as a top 10 credit card issuer in the USa. Additionally, we signed a multi- year agreement for a card programme relationship with AARP, the largest non-profit, non-partisan organisation in the US dedicated to empowering people aged 50 and older to choose how they live as they age. ■■ We launched a streamlined credit card process on Frontier Airline’s native mobile app, simplifying the application process for customers within Frontier’s booking journey. For us, it creates an exciting new capability for existing and future partners. As part of our push to broaden our product set, we also launched our card-based Equal Payment Plan proposition, which helps customers finance purchases with our partners. ■■ The investments we have made in digital servicing have allowed us to reach a digital active user rate of 71.4% and enabled strong delivery of customer supporting programmes, including payment relief and merchant disputes. The NPS for the US Consumer Bank in 2020 was +35, demonstrating an increase on our 2019 scoreb. ■■ Our Payments business maintained its position as one of the largest payment processors in Europec, and secured significant new client relationships, and retained others, including BT/EE and The Range. We also launched the first phase of our Smartpay Fuse gateway solution – an intermediary merchant service that provides omnichannel transaction processing services – through our relationship with CyberSource, a Visa solution. This complements our existing suite of gateway solutions and enables us to bring best-in-class commerce products to more clients in the UK and Europe. ■■ In Germany, we continue to be a leading lender in credit cardsd as well as providing loans. This year, we established a new partnership with leading ecommerce provider, Amazon, to offer their customers instalment lending at the point of purchase – a product that has seen increased popularity in the market. ■■ Our Private Bank continues to strive to become a leading investments house for Ultra High Net-Worth (UHNW) and High Net-Worth (HNW) customers and Family Offices, offering more complex solutions in collaboration with our Corporate and Investment Bank. By leveraging the global reach of our universal banking model to seamlessly deliver capabilities, we have won numerous notable client mandates. We have seen significant inflows into our discretionary investment offering as we deliver continued outperformance, as highlighted by our Multi-Asset Portfolio award at the 2020 Wealth Manager Investment Performance Awards in association with Asset Risk Consultants. Additionally, our sustainable solutions won ‘Best ESG Investment Fund: Multi Asset’ at the ESG Investing Awards 2020, aligning to our wider sustainability ambitions. Looking ahead Across our Consumer, Cards and Payments businesses, we will look to accelerate our strategy to invest in and build world-class technology and digital capabilities. This includes our focus on building out a new platform- based business model, to be launched later this year, to offer differentiated products and services in partnership with our clients, to Barclays’ customers. In the US, as we continue to pursue a partnership- centric business model, we are extending our product set to deliver incremental value to our existing partners and win new partners across a broader range of sectors. Throughout the COVID-19 pandemic, we have seen an increase in the number of customer complaints in the US Consumer Bank, however we have largely identified the root causes and have plans in place to address these going forward. Barclays PLC Annual Report 2020 BT Group – payments services that enhance the customer experience In 2020, we were proud to be selected as the primary strategic payments processing partner for the whole of BT Group, meeting their ambition to consolidate their acquiring needs into a single, best-in-class supplier. This follows a long-standing relationship with BT that has provided first-class payments services to their sizeable EE business for over a decade, and we are now exploring exciting new opportunities for additional value added services such as card-linked loyalty and partner offers. We will drive further scale in our Payments business through best-in-class digital capabilities, expanding and diversifying our customers and partnerships, and unlocking further opportunity in Europe. We will remain closely aligned with the Corporate Bank and Business Banking in Barclays UK to maximise value for clients and leverage our proprietary digitally integrated merchant platforms to deepen penetration. Through more seamless client journeys for our Private Banking clients, we will aim to drive operational efficiency and develop our existing platforms as part of our digitalisation agenda. We will continue to enhance our offering for UHNW and HNW customers, particularly across Credit and Alternatives solutions, and increasingly focus on our sustainable investment offerings. In Germany, we will seek to continue to expand our Business-to-Business-to-Consumer business and pursue instalment-lending partnerships with other retail merchants. Notes a Nilson Report #1183 b NICE Satmetrix Survey c Nilson Report #1175 d Deutsche Bundesbank, Advanzia Bank S.A, plus own calculations For more information go online at home.barclays Barclays PLC home.barclays/annualreport 031 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for our customers and clients Supporting black talent makes a better business I’ve worked at Barclays in New York for two and a half years after I transferred from London. It has been an incredible journey and coming to America has provided a very different perspective on issues such as #blacklivesmatter. My day job is as a relationship manager, but my passion role is co-chair of our Black Professionals Forum, which is part of Embrace, Barclays international network dedicated to championing our multicultural workforce. It’s important to support Black talent in the financial service industry – and not just within Barclays. We’ve created an action plan for colleagues to open up new opportunities to attract, develop and add to our Black talent. It will also help break down the unconscious bias deeply ingrained in all of us. We are now expanding our plan to other ethnically diverse colleagues. We are also going to enhance our long-standing support for citizenship programmes that are dedicated to tackling racial inequalities in communities. We are working with colleagues, customers, clients and communities to attract, develop and add to our Black talent. Toks Sotande-Peters Relationship Director, International Corporate Banking New York City 032 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our people and culture The strength and success of Barclays is in our people. We want to support their health and wellbeing, enable them to build their career and empower and motivate them to be able to provide excellent service. Supporting our colleagues Events over the last 12 months have affected all our lives, and the disruption has been significant. Nevertheless, we have continued to invest in our colleagues in order to strengthen our business and protect our culture. Our people have shown extraordinary adaptability and resilience, and thanks to them so has Barclays. As ever, our approach to our people is informed by the latest thinking in behavioural and data science, and by our capacity to track effectiveness and progress over time. Barclays PLC Annual Report 2020 Measuring success Colleague engagement 83%2019: 77% Females at Managing Director and Director level 26%2019: 25% “I would recommend Barclays as a good place to work” 87%2019: 80% “I believe that my team and I do a good job of role modelling the Values every day” 94%2019: 92% Adapting to challenge Throughout the COVID-19 pandemic, colleagues around the world have been working incredibly hard to continue to support our customers and clients. Many were designated as frontline or critical workers in the countries in which they work. 70,000 colleagues moved to remote working. At all times, we have worked tirelessly to prioritise each other’s safety and wellbeing, as well as to taking all necessary steps to slow the spread of the virus. We put in place a set of global principles to ensure we were doing as much as possible to support our people. This included instigation of new working patterns and technology. We also helped colleagues cope with some of the personal challenges the pandemic created, including offering paid leave to support self-quarantine, sickness or care for dependants, financial help with childcare and advice made available to help protect physical and mental health. Through our colleague surveys, we have also regularly checked in with our people to better understand the impact that working through the pandemic has had. Barclays continues to believe that people working together in the same physical location reinforces our culture and helps with collaboration and inspiration. Where possible, and in line with local government guidance, we have instigated gradual returns to the office in certain parts of the business and in certain parts of the world. In time, with the safety and wellbeing of colleagues as our first priority, we envisage more people will return to on-site working. In advance of this we have already put in place additional measures to ensure we are COVID-secure, including risk assessments at our sites and Return to Office Crews to support social distancing and minimise risks. Over the last 12 months, we have learnt an enormous amount about the benefits and challenges of working more flexibly. Ultimately, we believe this will inform our ambitions for future ways of working. Hiring the best people We continue to focus on hiring people with skills that help us accelerate our digital transformation, as well as the fast-changing needs of our customers and clients. Barclays PLC home.barclays/annualreport 033 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our people and culture continued We are investing in our key sites, including our global campuses, strategically placed in both urban and rural areas. At the heart of our hiring strategy is our ability to match locations to the local talent pool in that area. This includes reaching out to local communities and upskilling local students. We are acting swiftly to adapt to changes in hiring demands and volumes because of COVID-19, particularly in customer-facing areas where it is now, more than ever, key that we are providing support. We retain an emphasis on hiring from within. In 2020, we filled around 36% of role vacancies internally and added a further 961 graduates to our internal pipeline of future leaders. This was one of our most gender diverse class of graduates ever, with almost 40% female. COVID-19 has meant moving all candidates to a virtual experience, including for over 2,500 graduates, interns and apprentices. To ensure individuals feel supported and connected to the business, we have appointed talent coaches and created extra opportunities for virtual networking and collaboration so that social connections are formed. We also continue to invest in our flagship career development programmes, including our AFTER programme to support those who have been in the armed forces. People with different perspectives and life experiences make our organisation stronger. We are committed to attracting, developing and retaining a workforce that is as diverse and inclusive as possible. We are an equal opportunities employer and our policies require us to give full and fair consideration to all populations based on their competencies, strengths and potential. As ever, we are increasingly relying on data and analytics so we can understand how to improve our hiring process. We also know the importance of measuring our progress. In particular, we have set ourselves a number of targets to ensure we are creating a more gender diverse workforce. Our ambition is to achieve 28% female Managing Directors and Directors by the end of 2021. Currently 26% of our Managing Directors and Directors are female, and 29% of our UK Managing Directors and Directors are female. “Over the last 12 months, we have learnt an enormous amount about the benefits and challenges of working more flexibly. Ultimately, we believe this will inform our ambitions for future ways of working. 034 Barclays PLC home.barclays/annualreport Developing talent for the future In response to the pandemic, all development content went virtual in 2020, and we invested a total of £23m in training. We launched e-learning programmes to help people working from home during the COVID-19 pandemic, as well as online training to provide information to help keep everyone safe. Through our regular Here to Listen surveys, we have listened carefully to what colleagues have told us about the realities of working remotely, and tailored our training and support materials accordingly. A wide range of development opportunities are available to help colleagues build their careers, delivered through our digital learning platform, Learning Lab, which makes development more available than ever. We also continue to operate our two flagship leadership development programmes: our Enterprise Leaders Programme; and our Strategic Leaders Programme, driven by our belief that quality leadership makes a difference to our success. We track the progression of people that have participated in these programmes to see how effective they are. We have invested in the tools, programmes and technology needed to enable colleagues to work smarter, collaborate more easily and so that we can unlock the power of the connections between our people. In our latest Your View survey, 77% of colleagues told us they have the work tools and resources needed to achieve excellent performance, up 21 percentage points on last year. We also want to help colleagues balance their work life with their personal commitments, supporting career development opportunities at each life stage. We offer enhanced maternity, paternity, adoption and shared parental entitlements in all our major jurisdictions. We remain committed to closing pay gaps at Barclays. Our UK pay gaps for 2020 are disclosed at home.barclays/diversity Female colleagues Females at Managing Director and Director level % 28% target by 2021 2020 2019 26 25 Females on Board of Directorsa % 33% target by 2020 2020 2019 25 33 Females on Group ExCo and ExCo direct reports % 33% target by 2020 2020 2019 29 26 Females in Barclays % Female Male 46 2020 54 Note a With the appointment of Julia Wilson (effective 1 April 2021) and Sir Ian Cheshire stepping down from the Board at the conclusion of the 2021 AGM, the percentage of females on the BPLC Board of Directors will increase to 33%. You can read more about gender diversity on the Board in the report of the Board Nominations Committee on page 82 of Part 2 of the Report. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our people and culture continued Highlights Graduate hires 961 Average training hours per annum per employee (payroll) 13 Voluntary employee turnover 6% Employee turnover 9% Note Under the Companies Act 2006, Barclays is required to report on the gender breakdown of our employees, ‘senior managers’, and the Board of Barclays PLC’s Directors. The Group’s global workforce was 89,015 (48,447 male, 40,563 female, 5 unavailable), with 495 senior managers (388 male, 107 female), and the Board of Barclays PLC had 12 directors (9 male, 3 female) as at 31 December 2020. This is on a headcount basis, including colleagues on long term leave. Unavailable refers to colleagues who do not record their gender in our systems. ‘Senior managers’ includes Barclays PLC Group Executive Committee members, their direct reports and directors on the boards of undertakings of the Group, but excludes Directors on the Board of Barclays PLC. Where such persons hold multiple directorships across the Group they are only counted once. The definition of ‘senior managers’ within this disclosure has a narrower scope than the Managing Director and Director female representation data provided above. Barclays PLC Annual Report 2020 Creating an inclusive and supportive culture Creating an inclusive and supportive culture is not only the right thing to do, but also best for our business. It creates a sense of belonging and value and enables colleagues to perform at their best. We focus on five areas: disability, gender, LGBT+, multicultural, and multigenerational. Each area is embedded in the business through colleague networks to provide support and advice, create development opportunities and raise awareness of issues and challenges. Membership of our colleague diversity networks is at an all-time high, with over 23,000 colleagues now involved in one or more of our diversity networks. This also influences our people policies, teaching us how we need to adapt to give our people the support they need to succeed. In 2020, we increased our focus on embedding a culture of inclusion and encouraged colleagues to become allies in the workplace. Through a new toolkit we supported them to take conscious, positive steps to make everyone feel that they belong, and develop empathy towards another group’s challenges or issues. In our Your View survey, 84% of colleagues told us they believe we are all in this together at Barclays, while 82% say they believe leaders are committed to building a diverse workforce. We also closely track the ever-changing composition of our people through online dashboards, to make sure that our senior leaders understand the diverse makeup and needs of the organisation they lead. In 2020, we launched our Inclusion Index, which is one way we have been able to measure how included our colleagues feel. It has enabled us to use data to assess the impact of our initiatives and lay a benchmark for monitoring progress year on year. Our overall Inclusion Index score for 2020 is 76%, while 89% of colleagues say they feel included in their team. Events last year rightly prompted organisations like ours to appraise what we have been doing to aid the fight against racism, and to ask ourselves whether we can do more. Over recent months, Barclays has worked extensively with its Black colleague forums in both the UK and the US to produce a Race at Work Action Plan. The plan comprises a thorough set of actions that will open up new opportunities to attract, develop, and add to our great Black talent, using data to measure success. From 2021, we will expand our plan to include all ethnically diverse groups as well as actions to enhance our long-standing support for citizenship programmes dedicated to tackling racial inequalities in communities, as well as support of this agenda for customers and clients. We want to become one of the most accessible and inclusive FTSE companies for all our customers, clients and colleagues. We require managers to give full and fair consideration to those with a disability on the basis of strengths, potential and ability, both when hiring and managing. We also ensure opportunities for training, career development and promotion are available to all. As part of the UK Government Disability Confident scheme, we encourage applications from people with a disability, or a physical or mental health condition. In response to feedback at the end of 2019, we undertook a review of workplace adjustment processes in order to improve our colleagues’ experience. Through our BeWell programme, we continue to provide expert advice and guidance on the practical steps colleagues can take to look after their physical and mental health. In 2020, our Mental Health Awareness e-learning became mandatory, and we regularly check in with managers to ensure they are supporting colleagues’ wellbeing. We were also one of the first businesses to sign up to the Mental Health at Work Commitment. In our Your View survey, 83% of colleagues told us that Barclays supports their efforts to enhance their wellbeing. You can find more information in our Diversity and Inclusion report available at home.barclays/annualreport Employee statistics Number of employees split by region 000s 3.3 2020 2019 47.7 10.2 21.8 47.8 9.8 20.4 2.8 UK Europe Americas Asia Paci�c Number of employees split by grade % 2020 8 2019 7 39 39 Senior (Managing Director and Director) Middle (Assistant Vice President and Vice President) Junior (Business Analyst grades) Split by full time/part time % Total 83.0 Total 80.8 53 54 90 10 2020 Full time Part time Barclays PLC home.barclays/annualreport 035 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our people and culture continued COVID-19 support Supporting our colleagues £m Full pay for colleagues unable to work Childcare support and overtime IT kit, infrastructure and home o�ce equipment Grocery vouchers and meal provision for critical workers Additional �nancial and outplacement support 2m 14m 20m 32m £119m in support for colleagues 51m We spent £119m in 2020 to support our colleagues during the COVID-19 pandemic Note Costs have been taken from multiple sources across our locations. Some of these costs are estimated, and some are reliant on employee self-reporting. The overtime costs include all overtime paid above the normal hourly rate. A continuous conversation with colleagues We think colleague engagement should be a two-way exercise, with equal weight placed on listening to our people as it is on keeping them informed. We want to be able to consider our colleagues’ perspective when we make decisions, including at the most senior level. Our regular Here to Listen and Your View surveys are a key part of how we track engagement. In 2020, in part in response to the challenge of the COVID-19 pandemic, we improved the effectiveness and regularity of how we do this. We saw a 5 percentage point increase in the response rate to our annual Your View employee engagement survey with 67% of colleagues responding. The results showed an increase in our engagement levels, up 6 percentage points, to 83%, and an increase of 7 percentage points, to 87%, of colleagues saying they would recommend Barclays as a good place to work. We were also very pleased to see that our colleagues have continued their focus on customer and client feedback, with 81% responding favourably to this question. In addition, 94% of respondents said they believe they and their teams do a good job of role modelling the Values every day, an increase of 2 percentage points. Overall, we are encouraged by our ability to work remotely in many more roles than we had previously thought possible. Our colleagues told us that they enjoyed having more flexibility in their lives, with 78% saying they have been able to balance personal and work demands, and 76% saying there is effective collaboration between teams. With that said, we recognise there are also areas where we need to do more. We saw a 1 percentage point drop to 78% this year in the number of colleagues who feel it is safe to speak up, while colleague feedback also indicates we have room to make our internal processes more user friendly, with only 65% of colleagues saying work processes make it easy for employees to be productive. “Creating an inclusive and supportive culture is not only the right thing to do, but also best for our business. It creates a sense of belonging and value and enables colleagues to perform at their best. 036 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our people and culture continued We make sure we are keeping everyone up to date on the strategy, performance and progress of the organisation through a strategic, multichannel approach. This combines leader-led engagement, digital and print communication, blogs, vlogs and podcasts. In response to the COVID-19 pandemic, this year we also provided additional regular updates to colleagues to provide practical advice and support, including via a dedicated COVID-19 intranet page. We also engage with our people collectively through a strong and effective partnership with Unite, as well as the Barclays Group European Forum, which represents all colleagues within the European Union, and other colleague forums. In 2020 we worked together closely with the specific goal of ensuring the safety and wellbeing of our colleagues throughout the COVID-19 pandemic. Unite strongly supported the transition of many colleagues to homeworking, as well as the introduction of measures to protect colleagues working in our branches and offices. As we progress to return more colleagues to work, our union partners remain centrally involved. We regularly brief our union partners on the strategy and progress of the business, seeking their input on ways in which we can improve the colleague experience of working for Barclays. The collective bargaining coverage of Unite in the UK represents around 84% of our UK workforce and 50% of our global workforce. We consult in detail with colleague representatives on major change programmes affecting our people. We do this to help us minimise compulsory job losses wherever possible, including through voluntary redundancy and redeployment. Our policies Our people policies are designed to provide equal opportunities and create an inclusive culture, in line with our Values and in support of our long-term success. They also reflect relevant employment law, including the provisions of the Universal Declaration of Human Rights and ILO Declaration on Fundamental Principles and Rights at Work. We expect our people to treat each other with dignity and respect, and do not tolerate discrimination, bullying, harassment or victimisation on any grounds. We are committed to paying our people fairly and equitably relative to their role, skills, experience and performance – in a way that balances the needs of all our stakeholders. That means our remuneration policies reward sustainable performance that is in line with our Purpose and Values, as well as our risk expectations. You can find more information in our Fair Pay Report, available on home.barclays/annualreport We encourage our people to benefit from Barclays’ performance by enrolling in our share ownership plans, further strengthening their commitment to the organisation. The Directors’ Remuneration Report sets out updates on remuneration outcomes and developments during 2020, including the implementation of the new Directors’ Remuneration Policy approved at the 2020 AGM. For more information on our Fair Pay Report go online at home.barclays/annualreport We maintain an engagement approach that is in line with the UK’s Financial Reporting Council (FRC) governance requirements. This extends to those who work for us indirectly as well, such as contractors, although in a more limited way. As of 2020, our supplier Code of Conduct requires organisations with more than 250 employees to demonstrate that they have an effective workforce engagement approach of their own. The results from our surveys are an important part of the conversations our Executive Committee and Board have about our culture and how we run Barclays. We also update the Board and its relevant sub- committees throughout the year. We monitor our culture across the organisation, and in individual business areas, through culture dashboards. These combine colleague survey data with other metrics about our business, so leadership can identify areas of continued strength of our culture and areas of focus for leaders. In addition to these data sources, our leaders engage regularly with colleagues locally to hear what they think. Where possible this year, leaders visited branches or trading floors to support colleagues during the COVID-19 pandemic. However, the majority of engagement activities moved to virtual forums, with opportunities for face-to-face engagement being more limited due to social distancing requirements, including large-scale virtual town halls, training and development activity, mentoring, informal breakfast sessions, committee membership, ex-officio roles, diversity and wellbeing programmes, focus and consultative groups. Direct engagement, a comprehensive reporting approach and dedicated time at Board meetings, helps our Board take the issues of interest to our colleagues into account in their decision-making. This has enabled them to confirm that our workforce engagement approach is effective. Barclays PLC Annual Report 2020 Ethnicity split Global % 2020 55 39 3 3 White Asian Black Other ethnically diverse colleagues United Kingdom % 2020 81 14 3 2 White Asian Black Other ethnically diverse colleagues USA % 2020 49 32 9 10 White Asian Black Other ethnically diverse colleagues Other ethnically diverse colleagues category includes Hispanic/ Latino, Mixed, Native Hawaiian or Other Pacific Islander and Native American. USA and UK relate to Country and not Region. Colleagues with an undeclared ethnicity and/or are based in continental Europe and the Middle East (21% of our global population) have been excluded from all calculations Multi-generational split Age of employees % *0.3 *0.5 21.8 22.8 Colleagues with an undeclared age (0.03% of our 2020 global population) have been excluded from all calculations * <20 >=20 & <30 >=30 & <40 >=40 & <50 >=50 & <60 > 60 years 38.5 38.4 22.9 13.7 22.6 13.1 2.8 2.6 2020 2019 Barclays PLC home.barclays/annualreport 037 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for society A new era in sustainable farming Cutting-edge technology and analytics allow us to grow a wide variety of pesticide-free food with a longer shelf life, without compromising the highest food safety standards. Plus, we use 97% less water than a regular farm, taking up only 1% of the footprint and delivering 300 times the yield. Demand for fresh, locally grown, nutritious food is increasing. Thanks to our partnership with Barclays and the Unreasonable Impact programme, 80 Acres Farms can continue to meet that demand. By connecting us to investors, we’ve been able to build and launch our first fully-automated vertical farm in Hamilton, Ohio. And an additional grant from the Unreasonable Impact COVID-19 Response Initiative helped us get fresh, healthy food to those who needed it most through lockdown. Like all of us at 80 Acres Farms, I am passionate about enhancing sustainability and food security in farming. By providing fresh food with a significantly reduced environmental impact, we lead the way in the future of farming, with the potential to unlock an exciting new era in agriculture, and, crucially, help tackle climate change. By providing fresh food with a significantly reduced environmental impact, we lead the way in next-generation farming. Mike Zelkind CEO, 80 Acres Farms Hamilton 038 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our society and environment Our success is judged not only by commercial performance, but also by how we act sustainably and responsibly for each other and the long term. For the common good and the long term We believe that we can, and should, make a positive difference for society – globally and locally. We do that through the choices we make about how we run our business, and through the commitments we make proactively to support others in our communities to achieve their goals. We prize sustainability, and are passionate about leaving things better than we found them. We cannot be successful in the long term without recognising that we are at our best when our clients, customers, communities, and colleagues all progress. Measuring success Social and environmental financing £60.9bn 2019: £34.8bn Operational carbon emissions tonnes CO2 equivalent 83,072 2019: 134,347 Renewable Electricity RE100 target (started 2019) 74%2019: 60% Barclays PLC Annual Report 2020 Tackling climate change We believe Barclays can make a real contribution to tackling climate change and help accelerate the transition to a low-carbon economy. Our net zero ambition It is our ambition to be a net zero bank by 2050. We are already net zero in the context of our own emissions; our focus now is on reducing the client emissions that we finance. That starts with aligning our financing with the Paris Climate Agreement – the international treaty on climate change adopted in 2015. To help us do that, it was necessary to create a methodology that builds on and extends existing industry approaches beyond just lending, to include capital markets. This better reflects the breadth of our support for clients through our investment bank, and we are the first bank to implement such an approach. We call our methodology BlueTrack™. What does ‘net zero’ mean? Stopping global warming requires halting further human addition of long-lived greenhouse gases (GHGs) to the atmosphere. This can be achieved by stopping emissions, or by removing the same amount of GHGs from the atmosphere as are added in a given year. Achieving either of these outcomes can be referred to as having reached ‘net zero emissions’. We expect to use some level of negative emissions to offset any residual gap-to-net-zero, although our approach is principally focused on emissions reduction. Barclays PLC home.barclays/annualreport 039 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our society and environment continued Sustainable finance – performance against targets (2018 to 2020) Social and environmental financing - against a target of £150bn by 2025 £bn 124.2 150 Achieved to date Target by 2025 Social, environmental and sustainability linked financing facilitated £bn 2020 2019 2018 41.2 14.8 5.0 23.9 7.8 3.1 21.8 5.3 1.4 Social Environmental Sustainability-linked Green financing - against a target of £100bn by 2030 £bn 32.4 100 Achieved to date Target by 2030 Green financing facilitated £bn 2020 2019 2018 7.8 1.4 5.3 0.3 14.8 2.8 Total 60.9 Total 34.8 Total 28.5 Total 17.6 Total 9.2 Total 5.7 Environmental Sustainability-linked (green) 040 Barclays PLC home.barclays/annualreport Accelerating the transition We have also committed to providing £100bn of green financing by 2030, to help accelerate the transition to a low-carbon economy. Green financing supports the transition by providing investment that is specifically focused on green activity, including for renewables, energy efficiency and sustainable transport. This includes specific products such as Green Loans, Green Project Finance, and Green Bonds, and there is increasing demand for more innovative products, such as Sustainability Linked Loans and Bonds. Barclays is committed to two targets for financing under our Framework: £150bn of social and environmental financing from 2018 to 2025, and £100bn of green financing from 2018 to 2030. We facilitated a total of £60.9bn in total social, environmental and sustainability-linked financing in 2020, up 75% from £34.8bn in 2019. On a cumulative basis since 2018, we have facilitated £124.2 bn against our £150bn social and environmental financing commitment, and accelerated delivery against our £100bn green financing commitment, with a total of £32.4bn to date driven by growing momentum across our businesses, products and geographies. We hope to continue this acceleration as we work closely with our clients to help deliver the investment required to make the transition. In 2020, we updated our Sustainable Finance Framework, which sets out our approach to classifying financing as sustainable, and references industry guidelines and principles. We welcome and encourage greater global harmonisation in the way this financing is defined, and will be working with other financial institutions and stakeholders towards this goal. We also issued the second Barclays Green Bond in October 2020. Funds from the £400m bond are allocated to mortgages on energy efficient residential properties in England and Wales. More than half the funds raised will be allocated to refinance Barclays’ Green Home Mortgage products, which are offered to customers at a discount provided their property meets certain energy efficiency thresholds. Our Sustainable Impact Capital Initiative will invest £175m of equity capital in sustainability-focused start-ups, helping to accelerate our clients’ transition to a net zero future. We hope these investments will advance innovative carbon-efficient technologies and supply-chains, and help to develop viable markets for carbon capture and sequestration. Through the initiative, we aim to fill growth-stage funding gaps and help accelerate and scale catalytic and strategic solutions to environmental challenges. As of the end of 2020, we have invested £24m and are actively working on more. Managing our operational footprint We use high-quality offsets to eliminate any residual or unavoidable emissions from our own operations, making us net zero today for what are called Scope 1 and 2 emissions. We are committed to going further to minimise the absolute emissions that we need to offset. As a member of the RE100 initiative, we are committed to sourcing 100% renewable electricity – targeting 90% by 2021 and 100% by 2030 at the latest. In 2020, we continued our work on improving the operational efficiency of our property portfolio, achieving a total of 8GWh of energy savings. In parallel, we have continued to increase our procurement of renewable electricity to 74% across our operations in the UK, continental Europe, Hong Kong, Japan, Singapore and the US. We are on track to meet our 2021 target. In combination, these factors have contributed to a further reduction of our Scope 1 and 2 carbon emissions, which now stand at 71% below our 2018 baseline. Managing climate-related risks As well as playing our part in accelerating the transition to a low-carbon economy, we also have an important role to play in managing climate-related risks, particularly as a significant institution in the global financial system. We broadly categorise climate risks into three types: transition risk, physical risk and connected risk. Within these broad categories we identify a number of factors arising from climate change which we monitor over the short, medium and long term. We manage these risks through our Enterprise Risk Management Framework (ERMF). It sets our strategic approach for risk management by defining standards, objectives and responsibilities for all areas of Barclays. It is complemented by frameworks, policies and standards, aligned to individual Principal Risks. In March 2020 we released our updated Climate Change Statement which sets out our approach to managing the impact of our climate-related activities. We have developed an internal standard to reflect these positions in more detail and, together with other climate-related statements and standards (such as the Forestry & Agricultural Commodities), these now determine our approach to climate change and relevant sensitive sectors. These standards sit under the management of Reputation risk within the ERMF and are enforced through an existing transaction origination, review and approval process. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our society and environment continued During the year we focused on augmenting our enhanced due diligence approach for clients in the energy sub sectors covered by our Climate Change Statement, such as thermal coal, oil sands, and hydraulic fracturing (commonly referred to as fracking). All in-scope clients in these sub sectors are now required to complete a detailed due diligence questionnaire on an annual basis, which is used to evaluate their performance on a range of environmental and social issues, such as use of tailings dams or community engagement approach, for example. This annual review generates a reputation risk rating (low, medium, high), which in turn determines whether further review and client engagement may be required. As we have undertaken the annual review process, we have evolved our approach to address certain parameters, such as when general corporate purposes conglomerate financing would require enhanced due diligence on business interests that touch these energy sub-sectors (in the case of oil sands and fracking, for example, we apply a 10% of group revenue test, amongst other factors that we consider). See more about climate change risk management in the Risk Review, pages 159 to 160 of Part 2 of the Annual Report, and within our TCFD Report available at home.barclays/esg Barclays’ position statements are available online at our ESG resources hub at home.barclays/esg Climate-related disclosures Barclays welcomes the work of the Taskforce on Climate-related Financial Disclosures (TCFD) to help identify the information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities. We firmly support the taskforce’s view that increasing transparency makes markets more efficient and economies more stable and resilient. More detailed information about the climate- related governance, strategy, risk management and metrics used by Barclays is available in our dedicated TCFD report. For more information go to our TCFD Report at home.barclays/annualreport Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 041 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our society and environment continued Measuring success LifeSkills – No. of people upskilled in the UK per year 2.33m 2019: 2.31m Connect with Work – No. of people placed into work globally 49,700 2019: 66,600 Unreasonable Impact – ventures supported 1632019: 124 Supporting our communities Making retail banking accessible and safe We want as many people as possible to be able to benefit from access to financial services. We continue to see growing demand from many of our customers for more digital ways to bank, not least as a result of the COVID-19 pandemic. Our investment in technology means millions more customers who have access to digital tools are able to use our online and mobile banking channels to take advantage of accessible features. We continue to improve our customer experience for those who have accessibility requirements. Our main digital channels are all accredited by AbilityNet, a leading UK accessibility charity. To help encourage and educate our suppliers, partners and corporate clients we have published a supplier guide to accessibility. We are working to ensure that customers who rely on cash – including older and more vulnerable customers – can still access it and get the support they need from Barclays. Access to a transactional bank account enables consumers to benefit from bill reductions paid by direct debit and access to cheaper goods and services online. There were more than 614,000 Barclays Basic Current Accounts open at the end of 2020, serving the financial needs of those who wouldn’t otherwise qualify for an account. We also provide free banking to over 134,000 small, not-for-profit organisations through our Community Accounts, including sports and community clubs, religious groups, and local charities. To help keep our customers safe, we have invested millions of pounds in multi-layered security systems that protect against fraud and scams. We prevent thousands of attempted fraudulent transactions every day. To support a comprehensive approach to tackling increasingly common and sophisticated scams, we have been able to play an important role in the creation of the Contingent Reimbursement Model code, which is a step forward in helping to protect customers and reimburse those who have been victims of criminal activity. Supporting our suppliers Our engagement with suppliers is important. The Directors have regard, via management oversight, to the need to foster business relationships with suppliers and, as such, engage with them to ensure adherence to the Barclays’ Supplier Code of Conduct and Supply Control obligations which cover our expectations of suppliers. Adherence is confirmed through pre-contract attestation. Further, Barclays PLC is a signatory to the Prompt Payment Code in the UK, committing to pay our suppliers within clearly defined terms. In 2019, we achieved 88% (2018: 85%) on-time payment by value to our suppliers, meeting our public commitment to the suppliers of 85%. To see more about how we manage and support our supply chain, please see page 36 of our ESG Report at home.barclays/esg For more information on our role in our communities please see our ESG Report at home.barclays/esg “We are working to ensure that customers who rely on cash can still access it and get the support they need from Barclays. 042 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our society and environment continued ■■ Unreasonable Impact: A partnership between Barclays and Unreasonable Group, helping fast-growing, social and environment-focused companies all over the world to accelerate their business and create hundreds of new jobs, while solving some of society’s most pressing problems. With advice and guidance from a community of world-class mentors and industry specialists, the programme has so far supported 163 growth-stage ventures. By 2022, we aspire to have supported 250 high-growth businesses through the programme. In 2020, Barclays and Unreasonable Group launched the Unreasonable Impact COVID-19 Response Initiative that provided US$2 million in grants for entrepreneurial solutions addressing challenges resulting from the global pandemic. Supporting our employees and the communities where they work Alongside these high-impact programmes, we also help our employees to make a difference on the issues that matter most to them personally, by supporting them to volunteer their time and skills in their own community and by matching their financial contribution with our own. Building skills, breaking down barriers A strong, inclusive economy is a better economy for everyone. A vibrant, skilled workforce ensures that businesses can thrive, and that individuals, along with their families and wider communities, can achieve financial independence and security. We are helping to build skills and break down barriers to work wherever we find them, to enable people to succeed now and in the future. ■■ LifeSkills: Giving people across the UK the skills, knowledge and confidence they need to be ready for the world of work – now and in the future. We have already helped 12.4 million people through the programme since 2013 and we are committed to helping a further 3.6 million by 2022. We have made good progress towards our target, with 2.33 million upskilled through the programme in 2020. ■■ Connect with Work: Providing people from often overlooked communities with vital work skills and connecting them to businesses that are recruiting, including Barclays’ clients and suppliers. By the end of 2020 we helped more than 100,000 people around the world into work with more than 4,200 businesses, and successfully adapted our programmes to more effectively support job seekers and our partners facing a new employment landscape in light of the COVID-19 pandemic. We aspire to place 250,000 people into work through the programme by 2022. ■■ Eagle Labs: Our UK network of branch-based spaces that support individuals and businesses to innovate and grow. Eagle Labs are helping drive transformation in SMEs and across industry sectors, through local collaborations with industry-leading companies, universities and start-ups. Barclays COVID-19 Community Aid Package In April 2020, Barclays established a £100m COVID-19 Community Aid Package to support communities impacted by the social and economic crisis caused by the pandemic. The support consists of two components: donations to charity partners around the world to support vulnerable people impacted by the crisis; and a commitment to match colleagues’ personal donations and active fundraising efforts for their chosen charities supporting COVID-19 relief. The donations have been deployed through partnerships with trusted charities who are able to have a direct and immediate impact on the communities in which we operate. Highlights: ■■ £100m committed, which is supporting more than 250 charities globally. Of the £95m donated to date, £59m is already funding COVID-19 relief efforts ■■ 9m+ meals provided to vulnerable communities across the US ■■ 65,000+ hygiene kits distributed to people across Asia Pacific ■■ 13+ UK NHS hospitals supported to meet the immediate and urgent needs of patients, staff and volunteers. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 043 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for our investors Introducing BlueTrack™ is Barclays’ methodology for measuring our financed emissions, and tracking them at a portfolio level against the goals of the Paris Climate Agreement using independent benchmarks. We’re effectively setting a ‘carbon limit’ on the activity we finance. Our approach is also helping us to embed climate impact in our financing decisions, so that we can make active choices to re-shape our portfolio. BlueTrack™ covers capital markets activity as well as lending. It will cover all sectors over time, starting with targets for the Energy and Power sectors, which between them are responsible for up to three-quarters of all emissions globally. Our Power portfolio emissions intensity will reduce by 30% by 2025, on the way to alignment with the benchmark by 2035; our Energy portfolio absolute emissions will reduce by 15% by 2025, and continue to track the benchmark reduction on an ongoing basis. Our online dashboard tracks our progress against those targets. It also shows the fuel mix of our portfolios, not just the overall ‘carbon limit’. This reflects our focus on the transition to a low-carbon economy, and shows specifically how we are accelerating the shift from higher-emissions to lower-emissions activity. You can find out more about BlueTrack™, and track our progress through our dashboard, at home.barclays/netzero. 044 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Summary financial review We continue to build a strong, diversified business that can deliver attractive and sustainable returns. Preserving our financial integrity In 2020, Barclays helped support the economy during the COVID-19 pandemic, demonstrating our strengths, our Values and our resilience. Management focused on preserving the financial and operational integrity of the firm so support for clients and customers, for colleagues and for the communities in which we live and work could be maximised. Barclays provided over 680k payment holidays to customers, c.£27bn of COVID-19 support to UK businessesa and helped businesses and institutions access global capital markets, including underwriting c.£1.5tn of new issuanceb. Barclays also waived c.£100m of interest and fees to customers, and committed £100m to a COVID-19 Community Aid Package. Barclays PLC Annual Report 2020 Financial performance in 2020 Barclays’ diversified business model delivered a resilient operating performance, allowing capital distributions to shareholders equivalent to 5.0p per share. Despite the pandemic, Barclays remained profitable every quarter during 2020 and delivered a full year Group profit before tax of £3.1bn (2019: £4.4bn, including a PPI provision of £1.4bn), attributable profit of £1.5bn (2019: £2.5bn), a RoTE of 3.2% (2019: 5.3%) and EPS of 8.8p (2019: 14.3p). Total income increased 1% to £21.8bn versus prior year due to the following: Within Barclays International, CIB income of £12.5bn, up 22% due to strong Markets income reflecting market share gainsc in a buoyant trading environment, as well as strong Banking income, resulting in the best ever year on a comparable basis for both businessesd. CC&P income of £3.4bn, down 22%, driven by lower credit card balances, margin compression and reduced payments activity. Barclays UK income of £6.3bn, down 14% versus prior year reflecting lower unsecured lending balances and interest rates, and COVID-19 customer support actions, partially offset by mortgages growth. Pre-provision profitse were broadly stable at £8.1bn despite the pandemic, benefiting from the Group’s diversified business model, which included a strong performance in CIB offset by headwinds in Barclays UK and CC&P. Credit impairment charges increased to £4.8bn (2019: £1.9bn) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The current year charge is broadly driven by £2.3bn of non-default provision for expected future customer and client stress and £0.8bn of single name wholesale loan charges. The expected credit loss provision remains highly uncertain as the economic impact of the global pandemic continues to evolve. Group operating expenses increased 1% to £13.7bn which included structural cost actions and additional COVID-19 related costs, resulting in a cost: income ratio, excluding litigation and conduct, of 63%. Our CET1 capital ratio increased 130bps in the year to 15.1%, reflecting headroom of 3.9% above our maximum distributable amount (MDA) hurdle of 11.2%. Barclays understands the importance of delivering attractive total cash returns to shareholders and announced a total payout equivalent to 5.0p per share, consistent with the temporary guardrails announced by the PRA in December 2020, comprising 1.0p 2020 full year dividend and the intention to initiate a share buyback of up to £700m, which is expected to commence in Q121. Notes a Total payment holidays granted as at 31 December 2020, business lending and commercial paper issuance data as at 12 and 15 February 2021 respectively. b Across Equity and Debt Capital Markets in Q220-Q420. c Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis is based on Barclays internal business structure and internal revenues. d Period covering Q114-Q420. Pre-2014 financials were not restated following re-segmentation in Q116. e Excluding litigation and conduct. Barclays PLC home.barclays/annualreport 045 Strategic report Shareholder information Governance Risk review Financial review Financial statements Summary financial review continued Financial metrics CET1 ratio 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 the Group’s CET1 capital as a percentage of its RWAs. RWAs are a measure of the Group’s assets adjusted for their associated risks. Operating expenses 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. Cost: income ratio The cost: income ratio measures operating expenses as a percentage of total income and is used to assess the productivity of our business operations. Group RoTE RoTE measures our ability to generate acceptable returns for shareholders. It is calculated as profit after tax attributable to ordinary shareholders 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 to align management’s interests with those of its shareholders. RoTE lies at the heart of the Group’s capital allocation and performance management process. 046 Barclays PLC home.barclays/annualreport Our performance in 2020 CET1 ratio The CET1 ratio increased to 15.1% (2019: 13.8%), reflecting headroom of 3.9% above the MDA hurdle of 11.2%. CET1 capital increased by £5.5bn to £46.3bn reflecting resilient capital generation through £7.9bn of profits before tax, excluding credit impairment charges of £4.8bn, and a £1.0bn increase due to the cancellation of the full year 2019 dividend. These increases were partially offset by £0.9bn of AT1 coupons paid and the announced 1.0p full year 2020 dividend. The CET1 capital increase also reflects regulatory measures for IFRS 9 transitional relief, prudent valuation and qualifying software assets. RWAs increased by £11.1bn to £306.2bn primarily due to higher market volatility, increased client activity and a reduction in credit quality within CIB, partially offset by lower consumer lending. The Group remains in a strong capital position, acknowledging likely headwinds in 2021 including procyclical effects on RWAs, reversal of regulatory forbearance applied through 2020 and increased pension contributions. Operating expenses Operating expenses increased 1% to £13.7bn, including structural cost actions and additional COVID-19 related costs, resulting in a cost: income ratio, excluding litigation and conduct, of 63% (2019: 63%). COVID-19 related expenses are likely to remain elevated in 2021. However, the Group will continue to drive efficiencies while investing in its franchise where appropriate. For further detailed analysis of our financial performance in 2020, please see our full Financial review and our Financial statements on pages 239 to 258, and pages 259 to 376 respectively of Part 2 of the Annual Report For more information on our global tax contribution as well as our approach to tax, please see our Country Snapshot report avaliable at home.barclays/annualreport CET1 ratio % 2020 2019 2018 Cost: income ratioa % 15.1 2020 13.8 13.2 2019 2018 The Group targets a CET1 ratio in the range of 13-14%. Cost discipline remains a priority and we continue to target a cost: income ratio below 60% over time. Operating expensesa,b £bn 13.7 13.6 13.9 2020 2019 2018 Group RoTEa % 2020 2019 2018 3.4 63 63 66 9.0 8.5 COVID-19 related expenses are likely to remain elevated in 2021. However, the Group will continue to drive efficiencies while investing in its franchise where appropriate. Barclays continues to target greater than 10% RoTE over time. However, given the COVID-19 pandemic, a meaningful improvement in returns versus 2019 was not possible due to the challenging operating environment. a Excluding litigation and conduct. b 2018 excludes litigation and conduct and a GMP charge of £140m. Cost: income ratio The Group cost: income ratio, excluding litigation and conduct, was stable at 63% (2019: 63%), as favourable income was offset by £0.4bn of structural cost actions and additional COVID-19 related costs. Cost discipline remains a priority and management continues to target a cost: income ratio below 60% over time. Group RoTE RoTE, excluding litigation and conduct, was 3.4% (2019: 9.0%) due to lower profit before tax including materially higher credit impairment charges relating to the COVID-19 pandemic and higher operating expenses, partially offset by favourable income. The Group continues to target a RoTE of greater than 10% over time. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Summary financial review continued Consolidated summary income statement Consolidated summary balance sheet For the year ended 31 December Net interest income Net fee, commission and other income Total income Credit impairment charges Net operating income Operating costs UK bank levy Operating expenses Litigation and conduct Total operating expenses Other net income Profit before tax Tax charge Profit after tax Non-controlling interests Other equity instrument holders Attributable profit Selected financial statistics Basic earnings per share Diluted earnings per share Return on average tangible shareholders’ equity Cost: income ratio Performance measures excluding litigation and conducta Profit before tax Attributable profit Return on average tangible shareholders’ equity Cost: income ratio 2020 £m 8,122 13,644 21,766 2019 £m 9,407 12,225 21,632 (4,838) 16,928 (1,912) 19,720 (13,434) (299) (13,733) (153) (13,886) (13,359) (226) (13,585) (1,849) (15,434) 23 71 3,065 (604) 2,461 (78) (857) 1,526 8.8p 8.6p 3.2% 64% 3,218 1,638 3.4% 63% 4,357 (1,003) 3,354 (80) (813) 2,461 14.3p 14.1p 5.3% 71% 6,206 4,194 9.0% 63% Note a Refer to the Non-IFRS performance measures section on page 253 of Part 2 of the Annual Report for further information and calculations of performance measures excluding litigation and conduct Barclays PLC Annual Report 2020 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 assets at fair value through other comprehensive income Other assets Total assets Liabilities Deposits at amortised cost Cash collateral and settlement balances Repurchase agreements and other similar secured borrowings Debt securities in issue Subordinated liabilities Trading portfolio liabilities Financial liabilities designated at fair value Derivative financial instruments 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 2020 £m 2019 £m 191,127 101,367 342,632 9,031 127,950 175,151 302,446 78,688 21,122 150,258 83,256 339,115 3,379 114,195 133,086 229,236 65,750 21,954 1,349,514 1,140,229 481,036 85,423 14,174 75,796 16,341 47,405 249,765 300,775 11,917 415,787 67,341 14,517 76,369 18,156 36,916 204,326 229,204 11,953 1,282,632 1,074,569 4,637 11,172 4,461 45,527 65,797 1,085 66,882 4,594 10,871 4,760 44,204 64,429 1,231 65,660 1,349,514 1,140,229 315p 269p 17,359 1.37 1.12 309p 262p 17,322 1.32 1.18 Barclays PLC home.barclays/annualreport 047 Strategic report Shareholder information Governance Risk review Financial review Financial statements Managing risk Barclays is exposed to internal and external risks as part of its 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 ERMF, which supports the business in its aim to embed effective risk management and a strong risk management culture. The ERMF governs the way in which Barclays identifies and manages its risks. The management of risk is then 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 prepared to accept across the different risk types, taking into consideration varying levels of financial and operational stress. Risk appetite is key to our decision-making processes, including ongoing business planning and setting of strategy, new product approvals and business change initiatives. The Group sets its risk appetite in terms of performance metrics as well as a set of mandate and scale limits to monitor risks. During 2020, the Group’s performance remained within its risk appetite limits. 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, sets the controls and escalates risk events to the second line of defence. The second line of defence is made up of Risk and Compliance and oversees the first line by setting limits, rules and constraints on their operations, consistent with the risk appetite. The third line of defence is comprised of Internal Audit, providing independent assurance to the Board and Executive Committee on the effectiveness of governance, risk management and control over current, systemic and evolving risks. 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 Group. The Legal function is also subject to oversight from the Risk and Compliance functions (second line) with respect to the management of operational and conduct 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 Group risk appetite and capital plans. Information received includes measures of risk profile against risk appetite as well as the identification of new and emerging risks. During 2020, Barclays ran a range of scenario analyses to determine potential outcomes of the COVID-19 pandemic which informed management actions. One of the scenarios was a macroeconomic stress test which considered, among other factors, a no deal Brexit and a second wave of the COVID-19 pandemic in which scientific progress was limited to the extent that no vaccine was available throughout 2021. In addition, a Group-wide, exploratory stress test was performed against a severe but plausible climate scenario, testing vulnerability to disorderly transition risks and elevated physical risks. The aim of the tests was to identify key vulnerabilities that were most relevant and material to the Group’s business model and geographical footprint. The results of these tests met Group risk appetite. We believe that our structure and governance supports us in managing risk in the changing economic, political and market environments. For further detailed analysis of approach to risk management and risk performance, please see our full Risk review on pages 143 to 238 of Part 2 of the Annual Report “We believe that our structure and governance supports us in managing risk in the changing economic, political and market environments. 048 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Managing risk continued The Enterprise Risk Management Framework defines eight Principal Risks Financial Principal Risks Principal Risks How risks are managed Non-financial Principal Risks Principal Risks How risks are managed Credit risk Market risk Treasury and Capital risk The risk of loss to the Group from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the Group, 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 Group’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. Liquidity risk: The risk that the Group 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 Group 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 Group’s pension plans. Interest rate risk in the banking book: The risk that the Group is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. Barclays PLC Annual Report 2020 Credit risk teams identify, evaluate, sanction, limit and monitor various forms of credit exposure, individually and in aggregate. Operational risk The risk of loss to the Group from inadequate or failed processes or systems, human factors or due to external events where the root cause is not due to Credit or Market risks. A range of complementary approaches are used to identify and evaluate Market risk and to capture exposure to Market risk. These are measured, controlled and monitored by Market risk specialists. 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; internal and external stress testing. Model risk Conduct risk The risk of potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports. 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. Reputation risk The risk that an action, transaction, investment, event, decision or business relationship will reduce trust in the Group’s integrity and/or competence. Legal risk The risk of loss or imposition of penalties, damages or fines from the failure of the Group to meet its legal obligations including regulatory or contractual requirements. Operational risk comprises the following risks: data management and information, execution risk, financial reporting, fraud, payments processing, people, physical security, premises, prudential regulation, supplier, tax, technology and transaction operations. It is not always cost effective or possible to attempt to eliminate all Operational risks. Operational risk is managed across the businesses and functions through an internal control environment with a view to limiting the risk to acceptable residual levels. Models are independently validated and approved prior to implementation and their performance is monitored on a continual basis. The Compliance function sets the minimum standards required, and provides oversight to monitor that these risks are effectively managed and escalated where appropriate. Reputation risk is managed by embedding our Purpose and Values and maintaining a controlled culture within the Group, with the objective of acting with integrity, enabling strong and trusted relationships with customers and clients, colleagues and broader society. The Legal function supports colleagues in identifying and managing legal risks. Barclays PLC home.barclays/annualreport 049 Strategic report Shareholder information Governance Risk review Financial review Financial statements Viability statement The financial statements and accounts have been prepared on a going concern basis. Provision 31 of the 2018 UK Corporate Governance Code requires the Directors to make a statement in the Annual Report regarding the viability of the Group, including an explanation of 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 the start of February 2021. The WCR is a formal projection of capital and liquidity based upon formal profitability forecasts. 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 formal medium term plans approved by the Board which contain projections of profitability, cash flows, capital requirements and capital resources ■■ it is also within the period over which internal stress testing is carried out ■■ it is representative of the period and level of anticipated 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 its assessment the Board has: ■■ carried out a robust and detailed assessment of the Group’s risk profile and material existing and emerging risks (see material existing and emerging risks section), in particular those risks which senior management believes 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 meet regulatory requirements ■■ reviewed how those risks are identified, managed and controlled (further detail provided on pages 48 to 49) ■■ reviewed the draft statutory accounts and the in-depth disclosure of the financial performance of the Group ■■ considered the WCR which provides an assessment of forecast CET1, leverage, Tier 1 and total capital ratios, as well as the build-up of MREL up to the end of 2023 ■■ considered the Group’s medium-term business plan ■■ reviewed the Group’s liquidity and funding profile, including forecasts of the Group’s internal Liquidity Risk Appetite (LRA) and regulatory liquidity coverage ratios ■■ considered the Group’s viability under specific internal stress scenarios ■■ considered the stability of the major markets in which it operates, supply chain resiliency and regulatory changes ■■ considered the sustainability of any future capital distributions; ■■ considered scenarios which might affect the operational resiliency of the Group ■■ considered factors that may inform the impact of the COVID-19 pandemic, including (among other things), provision and future removal of government and central bank support schemes, changing macroeconomic variables, further waves of the pandemic, successful deployment of vaccines and emergence of new strains ■■ considered the impact of the Group’s ambition to be a net zero carbon bank by 2050 and support its clients’ transition to a low-carbon economy ■■ reviewed the possible impact of legal, competition and regulatory matters set out in Note 26 to the financial statements on pages 337 to 341. Assessment Risks faced by the Group’s business, including in respect of financial, conduct and operational risks, are controlled and managed within the Group in line with the ERMF. Executive management sets 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 provides 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 147 to 158 in Part 2 of the Report. Certain risks are additionally identified as key themes and monitored closely by the Board and Board Committees. These are chosen on the basis of their potential to impact viability over the time frame of the assessment but in some instances the risks exist beyond this time frame. 050 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Viability statement continued These particular risks include: ■■ The impact of the COVID-19 pandemic has caused disruption to the Group’s customers, suppliers and staff globally and It remains unclear how the COVID-19 pandemic will evolve through 2021 and beyond, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. Impacts on the Group could include reduced profitability (from lower income and higher expected credit loss (ECL) charges) as well as the impact the COVID-19 pandemic may have on the management of (among other things) Operational risk. ■■ The consequences of the UK’s exit from the EU are unpredictable and diverse, difficult to predict and may impact over a prolonged period. In particular, uncertainty as to the effectiveness of the EU-UK Trade and Cooperation Agreement and the manner in which trading arrangements will be enforced by both the EU and the UK and uncertainty over current and future provision of financial services to EEA-based clients. ■■ 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. ■■ Embedding climate risk into the Group’s risk framework in line with regulatory expectations, and adapting the Group’s operations and business strategy to address both the financial risks resulting from: (i) the physical risk of climate change; and (ii) the risk from the transition to a low-carbon economy. ■■ Sudden shocks or geopolitical unrest in any of the major economies in which the Group 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. ■■ Evolving Operational risks (notably cybersecurity, technology and resilience) and the ability to respond to the new and emerging technologies in a controlled fashion. As a universal bank with a diversified and connected portfolio of businesses, servicing customers and clients globally, the Group is impacted in the longer term by a wide range of macroeconomic, political, regulatory and accounting, technological, social and environmental 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. Stress tests The Board has also considered the Group’s viability under specific internal stress scenarios. The latest macroeconomic internal stress test, conducted in Q4 2020, considered the potential impacts of: ■■ a second wave of the COVID-19 pandemic in which scientific progress is limited, with no vaccine available through 2021 ■■ the UK exiting from the EU Withdrawal Agreement on WTO terms ■■ US political and social tensions and worsening US-China trade relations with escalating tariffs ■■ increasing EU sovereign risk due to increases in budget deficits. All of the above 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. In addition, Barclays conducted a Group-wide, exploratory stress test against a severe but plausible climate scenario, testing vulnerability to disorderly transition risks and elevated physical risks. The aim of the analysis was to identify key vulnerabilities that were most relevant and material to the Group’s business model and geographical footprint. 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, cyber-attacks), adverse outcomes in legal proceedings, competition, regulatory and conduct matters and capital/liquidity events. Legal proceedings, competition, regulatory and remediation/redress conduct matters are also assessed as part of the stress testing process. Capital and Liquidity Risk Appetite 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 flight path. These internal 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 051 Strategic report Shareholder information Governance Risk review Financial review Financial statements Non-financial information statement 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. Certain of the non-financial information required pursuant to the Companies Act 2006 is provided by reference to the following locations: Non-financial information Section Business model Business model Policies Non-financial information statement Principal Risks Risk review Principal risk management Risk performance Key performance indicators Key performance indicators Pages 14 52 48 161* 167* * in Part 2 of the Report 22 The Non-Financial Reporting requirements contained in Sections 414CA and 414CB of the Companies Act 2006 are addressed within this section by means of cross reference in order to indicate in which part of the strategic narrative the respective requirements are embedded. We have used cross referencing as appropriate to deliver clear, concise and transparent reporting. We have a range of policies and guidance (also available at home.barclays/esg) that support our key outcomes for all of our stakeholders. Performance against our strategic non-financial performance measures, as shown on pages 22 to 31, is one indicator of the effectiveness and outcome of policies and guidance. 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: Environmental matters Policy statement Description Climate Change statement The Barclays Position on Climate Change 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, oil sands and hydraulic fracturing. 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. World Heritage Site and Ramsar Wetlands statement 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 (WHS) and Ramsar Wetlands (RW). Our WHS and RW statement outlines our client due diligence approach to preserving and safeguarding these sites. Climate Change Financial and Operational Risk Policy Forestry and Agricultural Commodities statement In 2019, we published a ‘Climate Change Financial Risk and Operational Risk Policy’. This introduced climate change as an overarching risk impacting certain Principal Risks: Credit risk, Market risk, Treasury and Capital risk and Operational risk. The policy is jointly owned by the relevant Principal Risk Leads with oversight by the Board Risk Committee. For more information, please see the Risk section on pages 143 to 238 in Part 2 of the Report. We recognise that forestry and agribusiness industries are responsible for producing a range of commodities such as timber, palm oil and soy that are often associated with significant environmental and social impacts, particularly in relation to biodiversity loss, tropical deforestation and climate change. Our Forestry and Agricultural Commodities Statement outlines our due diligence approach for clients involved in these activities, ensuring that we support clients that promote sustainable forestry and agri-business practices while respecting the rights of workers and local communities. Colleagues Policy statement Description Board Diversity Policy Code of Conduct The Board Diversity Policy sets out the approach to diversity on the Boards of Barclays. 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. 052 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Non-financial information statement continued Social matters Policy statement Description Human rights Policy statement Description Donations Tax Sanctions 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 our employees. Barclays 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 our communities in which we operate. Barclays does not accept unsolicited donation requests. Human rights Modern slavery 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 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. Supply chain 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, which outlines the actions we have taken to address the risks of modern slavery and human trafficking in our operations, supply chain, and customer and client relationships. Our supply base is diverse, including start-ups, SMEs, 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. The defence industry 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 appetite for defence-related transactions and relationships. Data protection 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 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 UN and Organisation for Economic Co-operation and Development conventions on corruption. Anti-money laundering and counter-terrorist financing 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 Group being used to facilitate financial crime. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 053 Strategic report Shareholder information Governance Risk review Financial review Financial statements Shareholder information Annual General Meeting (AGM) Looking ahead to the 2021 AGM, the Board currently intends to hold the AGM on 5 May 2021 at 11:00am, subject to the ongoing COVID-19 pandemic and any UK Government guidance on social distancing, non-essential travel and/or public gatherings. The arrangements for the Company’s 2021 AGM and details of the resolutions to be proposed, together with explanatory notes, will be set out in the Notice of AGM to be published on the Company’s website (home.barclays/agm) Guidance on whether physical attendance by shareholders will be possible will be determined nearer the time of the AGM. We will keep the considerable benefits of shareholder engagement in the AGM at the forefront of our planning for the 2021 AGM. Further details will be provided in the Notice of AGM. 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. Key dates 1 April 2021 Full year dividend payment date 30 April 2021 Q1 Results Announcement 5 May 2021 Annual General Meeting at 11.00am Dividends The Barclays PLC 2020 full year dividend for the year ended 31 December 2020 will be 1.0p per share, making the 2020 total dividend 1.0p. 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. Dividend Re-investment Plan Barclays has decided to cease to offer the scrip dividend programme and will no longer offer a scrip alternative for dividends. For those shareholders who wish to elect to use their cash dividends to purchase additional ordinary shares in the market, rather than receive a cash payment, Barclays has arranged for its registrar, Equiniti, to provide and administer a dividend re-investment plan (DRIP). Further details regarding the DRIP can be found at home.barclays/dividends and www.shareview.co.uk/info/drip 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 2020, 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 £26,978 to our shareholders, (2019: approximately £23,000). Since 2015, we have returned approximately £4.2m to our shareholders. 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, the total donated to ShareGift since 2015 is over £461,267. 054 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Shareholder information continued Shareholder security Useful contact details Shareholders should be wary of any cold calls with an offer to buy or sell shares. Fraudsters use persuasive and highpressure 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. 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 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 To find out more, contact Equiniti or visit: home.barclays/dividends 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 Shareowner Services: StockTransfer@equiniti.com or visit adr.com 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. +1 800 990 1135 (toll free in US and Canada) +1 651 453 2128 (outside the US and Canada)) Shareowner Services PO Box 64504, St Paul, MN 55164-0504, USA Delivery of ADR certificates and overnight mail Shareowner Services, 1110 Centre Point Curve, Suite 101, Mendota Heights, MN 55120, USA Qualifying US and Canadian resident ADR holders should contact Shareowner Services for further details regarding the DRIP 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 Barclays PLC Annual Report 2020 Note a Lines open 8.30am to 5.30pm (UK time) Monday to Friday, excluding public holidays. Barclays PLC home.barclays/annualreport 055 Strategic report Shareholder information Governance Risk review Financial review Financial statements 056 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Strategic report Understanding Barclays Chairman’s introduction Chief Executive’s review Operating environment Our strategy Our business model Engaging with our stakeholders Section 172(1) Statement Key performance indicators Making a difference for our customers and clients: Barclays UK Barclays International: Corporate and Investment Bank Barclays International: Consumer, Cards and Payments 2 4 6 9 11 14 16 18 22 26 28 30 Making a difference for our colleagues: Our people and culture Making a difference for society: Tackling climate change Supporting our communities Making a difference for our investors: Financial review Managing risk Viability statement Non-financial information statement 33 39 42 45 48 50 52 Governance Governance contents Directors’ report Remuneration report Risk review Financial review Risk review contents Risk management Material existing and emerging risks Climate change risk management Principal risk management Risk performance Supervision and regulation Financial review contents Key performance indicators Consolidated summary income statement Income statement commentary Consolidated summary balance sheet Balance sheet commentary Analysis of results by business Non-IFRS performance measures 59 60 108 143 145 147 159 161 167 232 239 240 242 243 244 245 246 253 Financial statements Financial statements contents Consolidated financial statements Notes to the financial statements 259 279 286 Shareholder information Key dates, Annual General Meeting, dividends, and other useful information 54 . Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 057 Making a difference for our colleagues Support for frontline workers like me My team and I worked in-branch throughout the pandemic, making sure all our customers – especially those who are more vulnerable – were fully supported. I saw first-hand how challenging things were for everyone and the daily fear and anxiety people felt. It was important to me to ensure we looked after each other. One thing that really helped was that we had paid time off to visit and care for loved ones if we needed it. Leading a wellbeing day across my two branches in Southampton also helped my team and had a direct positive impact on their families, reducing stress. That meant we could do more to help our customers. And not just with banking. Barclays donated 20 iPads and 10 Bluetooth speakers to the intensive care unit when my dad contracted coronavirus and went into a coma. It meant that those of us who were unable to be with our loved ones, could see and speak to them whenever we wanted. It made a massive difference to so many people. My dad is better now, and my team and I are so much stronger thanks to the support we’ve had – and the support we have given to all our customers. I saw first-hand how challenging things were for everyone and the daily fear and anxiety people felt.” Lisa Griffiths Local Manager, Barclays UK Southampton 058 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Our Governance Welcome to our Governance report. This report explains the composition of our Board and Executive Committee, how our governance framework operates and our key areas of focus in 2020. Directors’ report ■■ Board of Directors ■■ Executive Committee ■■ Purpose-led decision making ■■ Key areas of focus in 2020 ■■ Key priorities ■■ Board Audit Committee report ■■ Board Nominations Committee report ■■ Board Risk Committee report ■■ How we comply ■■ Other statutory information Remuneration report 60 64 65 68 69 72 82 87 96 102 108 Aim of our governance The primary aim of our governance is that it: ■■ seeks to ensure that our decision-making is aligned to our Purpose and Values ■■ creates long-term sustainable value for our shareholders, having regard to the interests of all our stakeholders ■■ is effective in providing constructive challenge, advice and support to management ■■ provides checks and balances and drives informed, collaborative and accountable decision-making. Compliance with the Code and Regulations Our Governance report reflects the requirements of the 2018 UK Corporate Governance Code (the ‘Code’) and the Companies (Miscellaneous Reporting) Regulations 2018 (the ‘Regulations’). To view our specific compliance as against the Code, please see pages 96 to 101. Certain additional information, signposted throughout this report, is available at home.barclays/corporategovernance Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 059 Directors’ report: Board of Directors Focused on protecting the health and wellbeing of our colleagues and supporting our customers, clients and other stakeholders, while maintaining the financial and operational integrity of the Barclays Group. Embedding our corporate Purpose in everything we do Overview of key developments in 2020 The challenges presented by the COVID-19 pandemic reinforced the importance for the Board of our corporate Purpose in everything we do and, in particular, embedding it in our response to the pandemic. We want to reinforce that clarity and conviction about our Purpose and our Values, and stay true to that way of thinking about how we take action at pace. Accordingly, during 2020, the Board approved the introduction of a new, extended narrative of the Group’s Purpose and the refreshed descriptions of our Values to make sure they are still relevant for the challenges ahead. You can read more about how the Board oversaw the evolution of our Purpose and Values on page 69. Throughout the COVID-19 pandemic, the Board has been keenly focused on protecting the health and wellbeing of our colleagues and supporting our customers, clients and other stakeholders, while at the same time maintaining the financial and operational integrity of the Barclays Group. Nigel Higgins Group Chairman Appointed: 2 May 2019 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, and this contribution is reflected in Barclays’ strategy and long- term sustainable success of the business. 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 JP Morgan’s Global Investment Bank. Key current appointments Board Member, Bank Policy Institute; Board Member, Institute of International Finance Board Committee membership None Relevant skills and experience Nigel is the Group Chairman. He is also Chairman of Barclays Bank PLC. Nigel has extensive experience in, and understanding of, banking and financial services, gained through a 36-year career at Rothschild & Co. where he was most recently Deputy Chairman. Prior to that he was Chairman of the Group Executive Committee and Managing Partner of Rothschild & Co. He is a seasoned business leader with a strong track record in leading and chairing a range of organisations and in acting as a strategic adviser to multiple major international corporations and governments. The breadth of Nigel’s knowledge and operational experience with international banking groups, building teams and culture and growing businesses are all hugely beneficial to Barclays, and enables Nigel to contribute to the strategic direction and long-term sustainable success of Barclays. Key current appointments Chairman, Sadler’s Wells; Non-Executive Director, Tetra Laval Group Board Committee membership Board Nominations Committee (Chair) 060 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Brian Gilvary Senior Independent Director Appointed: 1 February 2020 Crawford Gillies Non-Executive Appointed: 1 May 2014 Mike Ashley Non-Executive Appointed: 18 September 2013 Relevant skills and experience Brian was appointed to the Board with effect from 1 February 2020 and took on the role of Senior Independent Director on 1 January 2021. He is an experienced executive having served on the Board of BP p.l.c. as Chief Financial Officer from 2012 to 2020. Brian’s BP career spanned Upstream, Downstream and Trading based in the UK, USA and Europe. Previously, he held several senior financial and commercial roles, including member of the Board of TNK-BP (a BP Russian JV), Chief Executive of BP’s commodity trading division and Commercial Director of the downstream division. His other senior-level experience includes serving on the Boards of various commercial and charitable organisations. Brian was also Chairman of the FTSE 100 Group of Finance Directors from 2018-2020, a member of the UK Treasury Financial Management Review Board from 2014-2017 and has served on various HRH Prince of Wales’ Business in the Community Leadership Teams from 2007 to 2009. Brian brings to the Board his extensive experience of management, finance and strategy gained at BP and other public and private boards, along with deep experience of US and UK shareholder engagement. His experience with, and understanding of, the challenges and opportunities inherent in advancing a sustainable energy future will be invaluable as Barclays considers how it can help to accelerate the transition to a low-carbon world. Key current appointments Non-Executive Director, Air Liquide S.A; Executive Chairman, INEOS Energy, an INEOS group company Board Committee membership Board Remuneration Committee, Board Nominations Committee (from 1 January 2021), Board Risk Committee (from 1 January 2021) Barclays PLC Annual Report 2020 Relevant skills and experience Crawford is a senior member of the Board having held the role of Senior Independent Director prior to 1 January 2021. He is also Chair of Barclays Bank UK PLC (subject to regulatory approval). He has extensive business transformation and management experience at executive and board level spanning over 30 years. Beneficial to the Board and to Barclays’ strategy and long-term sustainable success is his key understanding of stakeholder needs and his experience in international and cross-sector organisations, strong leadership and strategic decision-making. Key current appointments Chairman, Edrington Group Board Committee membership Board Audit Committee, (until 31 December 2020), Board Nominations Committee, Board Remuneration Committee (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 include acting 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. The Board benefits from his extensive experience in accounting, auditing and financial reporting and therefore Mike continues to contribute to the long-term sustainable success of the business. Key current appointments Member, Cabinet Office Board; Member, International Ethics Standards Board for Accountants; Member, ICAEW Ethics Standards Committee; Treasurer, The Scout Association Board Committee membership Board Audit Committee (Chair), Board Nominations Committee, Board Risk Committee Barclays PLC home.barclays/annualreport 061 Directors’ report: Board of Directors continued Tim Breedon CBE Non-Executive Appointed: 1 November 2012 Mohamed A. El-Erian Non-Executive Appointed: 1 January 2020 Dawn Fitzpatrick Non-Executive Appointed: 25 September 2019 Relevant skills and experience Dawn is a highly experienced financial executive who holds the role of Chief Investment Officer at Soros Fund Management LLC. Her previous experience includes 25 years with UBS and its predecessor organisations, most recently as Head of Investments for UBS Asset Management. Her knowledge of the businesses and markets in which the Group operates further strengthens the depth and range of relevant sector skills and experience across the Board. This enables Dawn to challenge and contribute effectively to the Group’s operations and the long-term sustainable success of the business. Key current appointments Chief Investment Officer, Soros Fund Management LLC; Member, The New York Federal Reserve’s Investor Advisory Committee on Financial Markets; Member, Advisory Board and Investment Committee of the Open Society Foundations’ Economic Justice Programme Board Committee membership Board Risk Committee Relevant skills and experience Mohamed is a highly respected economist and investor, with considerable experience in the asset management industry and multilateral institutions. He is the President of Queens’ College Cambridge and a part-time adviser to Allianz, the corporate parent of Pacific Investment Management Company (PIMCO LLC), where he formerly served as Chief Executive and Co-Chief Investment Officer. As well as serving on several advisory committees and boards, Mohamed is a regular columnist for Bloomberg Opinion and a contributing editor at the Financial Times. He has also published widely on international economic and financial topics. He spent 15 years at the IMF, where he served as Deputy Director before moving to the private sector and financial services. Mohamed’s acute knowledge and understanding of international economics and the financial services sector strengthens the Board’s capacity for overseeing the strategic direction and development of the Group. Mohamed’s knowledge and experience enable him to contribute to the long-term sustainable success and strategy of the business. Key current appointments Lead Independent Director, Under Armour Inc.; Chief Economic Adviser, Allianz SE; Chairman, Gramercy Funds Management; Senior Adviser, Investcorp Bank BSC; President, Queens’ College, Cambridge University Board Committee membership Board Risk Committee Relevant skills and experience Tim’s continued contribution to Barclays’ strategy and long-term sustainable success comes from his extensive financial services experience, knowledge of risk management and UK and EU regulation, as well as an understanding of key investor issues. He had a distinguished career with Legal & General, where, among other roles, he was the Group CEO until June 2012; this experience enables Tim to provide challenge, advice and support to management on business performance and decision-making. Key current appointments Chairman, Apax Global Alpha Limited; Non-Executive Director, Quilter PLC Board Committee membership Board Audit Committee, Board Nominations Committee, Board Remuneration Committee, Board Risk Committee (Chair) Sir Ian Cheshire Non-Executive Appointed: 3 April 2017 Relevant skills and experience Sir Ian is a member of the Board and until 31 December 2020 was Chair of Barclays Bank UK PLC. He contributes to the Board’s 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 which are important to the Group’s strategy and long-term sustainable success. 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, Menhaden plc; Trustee, Institute for Government; Non-Executive Director, British Telecommunications plc Board Committee membership Board Nominations Committee (until 31 December 2020) 062 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Mary Francis CBE Non-Executive Appointed: 1 October 2016 Tushar Morzaria Group Finance Director Appointed: 15 October 2013 Diane Schueneman Non-Executive Appointed: 25 June 2015 Relevant skills and experience Mary has extensive and diverse board-level experience across a range of industries, including her previous Non-Executive Directorships of the Bank of England, Alliance & Leicester, Aviva, Centrica and Swiss Re Group. Through her former senior executive positions with HM Treasury, the Prime Minister’s Office, and as Director General of the Association of British Insurers, she brings to the Board a strong understanding of the interaction between public and private sectors, skills in strategic decision- making and reputation management and promotes strong board governance values, which enables her to continue to contribute effectively to the long-term sustainable success of the Group. Key current appointments Non-Executive Director, Valaris PLC; Senior Independent Director, PensionBee Ltd; Member of Advisory Panel, The Institute of Business Ethics; Member, UK Takeover Appeal Board Board Committee membership Board Remuneration Committee Relevant skills and experience Tushar is a chartered accountant and joined the Barclays Board and Executive Committee as Group Finance Director in October 2013. As part of his role he is responsible for Finance, Tax, Treasury, Investor Relations and Strategy. His extensive knowledge of strategic financial management, investment banking and operational and regulatory relations enable him to contribute effectively to Barclays’ long-term sustainable success. He has worked in investment banking for most of his career and held various roles at SG Warburg, Credit Suisse and JPMorgan. Immediately prior to joining Barclays he was CFO of the Corporate and Investment Bank at JPMorgan Chase. Tushar is currently Chair of the Working Group on Sterling Risk Free Reference Rates and a Non-Executive Director on the BP p.l.c board and a member of its Audit and Remuneration Committees. Key current appointments Non-Executive Director, BP p.l.c; Member, 100 Group Main Committee; Chair, Sterling Risk Free Reference Rates Working Group Board Committee membership None Relevant skills and experience Diane is a member of the Board, Chair of Barclays Execution 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, which enables her to robustly challenge the Group’s strategy and support the long-term sustainable success of Barclays. 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 Board Committee membership Board Audit Committee, Board Nominations Committee, Board Risk Committee Stephen Shapiro Group General Counsel and Group Company Secretary Appointed: 1 November 2017 Relevant skills and experience Stephen joined Barclays in November 2017 as Group Company Secretary and was subsequently appointed Group General Counsel in August 2020, in addition to his role as Group Company Secretary. Before joining Barclays Stephen served as the Group Company Secretary and Deputy General Counsel of SABMiller plc, and 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 as Vice Chair 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 063 Directors’ report: Executive Committee Balancing the skills and experience that we need to deliver our strategic ambitions. Strategically strengthened and developed further In 2020 we refreshed the composition of the Executive Committee (ExCo) to ensure, as our most senior management forum for the Group, it continues to have the right balance of skills and experience that we need to deliver our strategic ambitions. Through the appointments made during the year, we have sought to further strengthen the senior management of the Group, bringing fresh perspectives and talents to bear on important areas of our business. We have created a new role on the ExCo to ensure that societal engagement and our climate change ambitions are at the heart of our decision-making. We have also created the roles of Co-President of Barclays Bank PLC, so that our Corporate Bank, Banking and Markets businesses work more closely together, driving stronger collaboration across the CIB and delivering the Power of One Barclays for the benefit of our customers and clients: New roles Head of Public Policy and Corporate Responsibility Sasha Wiggins Global Head of Banking and Co-President of Barclays Bank PLC Paul Compton Global Head of Markets and Co-President of Barclays Bank PLC C.S. Venkatakrishnan Paul and Venkat were previously members of the ExCo in their respective capacities as President of Barclays Bank PLC and Group Chief Risk Officer; Joe McGrath stepped down from the ExCo on 31 December 2020 and we are immensely grateful for his continued contribution as Chairman of Investment Banking. New Appointments to the ExCo Group Chief Risk Officer Taalib Shah Group General Counsel Stephen Shapiro Bob Hoyt stepped down as the Group General Counsel in July 2020. Jes Staley Group Chief Executive Tushar Morzaria Group Finance Director Mark Ashton Rigby Group Chief Operating Officer Paul Compton Global Head of Banking and Co-President of Barclays Bank PLC Alistair Currie Head of Corporate Banking Stephen Dainton Deputy Head of Markets Matt Hammerstein Chief Executive Officer, Barclays UK Laura Padovani Group Chief Compliance Officer Tristram Roberts Group Human Resources Director Taalib Shah Group Chief Risk Officer Stephen Shapiro Group General Counsel and Group Company Secretary Ashok Vaswani Chief Executive Officer, Consumer Banking & Payments C.S. Venkatakrishnan Global Head of Markets and Co-President of Barclays Bank PLC Sasha Wiggins Group Head of Public Policy & Corporate Responsibility 064 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Directors’ report The Board views governance as how it makes decisions and provides oversight in order to promote Barclays’ success for the long-term benefit of its shareholders having regard to the interests of its other key stakeholders. Purpose-led decision-making and stakeholder accountability Our governance framework The Board views governance as how it makes decisions and provides oversight in order to promote Barclays’ success for the long-term benefit of its shareholders having regard to the interests of its other key stakeholders – our clients, customers, colleagues and the communities in which we operate. Effective governance facilitates the delivery of Barclays’ Purpose and strategy, particularly in challenging times. Barclays is a large, diversified organisation. The Board is committed, through our governance model, to driving purpose-led decision- making and to delivering accountability to our stakeholders. Our Group-wide governance framework has been designed to facilitate the effective management of the Group across its diverse businesses by our Group CEO and his ExCo, while preserving the constructive challenge, support and oversight of the Group’s major subsidiary boards in the UK, Ireland and the US, consistent with their respective legal and regulatory responsibilities and in compliance with UK ring-fencing requirements. The Barclays PLC (BPLC) Board is responsible for setting the strategic direction and risk appetite of the Group and is the ultimate decision-making body for matters of Group-wide strategic, financial, regulatory or reputational significance. BPLC is the Group Parent company and has a premium listing on the London Stock Exchange. Each of its main operating entities, Barclays Bank PLC (BBPLC), Barclays Bank UK PLC (BBUKPLC), Barclays Bank Ireland PLC, Barclays US LLC and Barclays Bank Delaware, has its own board comprising Executive and Non-Executive Directors. Each also has its own board committees. These main operating companies are supported by BX, the Group-wide service company providing technology, operations and functional services to businesses across the Group. Membership of the BPLC and BBPLC Boards was consolidated and streamlined in 2019, and this has led to significantly improved coordination and efficiency and reduced complexity and unnecessary duplication. Membership of the BBPLC Board became a subset of the BPLC Board, with all members of the BPLC Board, except the Senior Independent Director (SID), the Chairman of BBUKPLC and one other Barclays PLC Annual Report 2020 Non-Executive Director, also serving on the Board of BBPLC. In 2020, the Nominations Committee reviewed the effectiveness of the consolidated structure and considered that this partial consolidation continued to deliver its intended benefits and was operating effectively, giving due regard to matters relevant to each individual entity. You can read more about the Nominations Committee’s role in driving and reviewing the effectiveness of our governance framework on pages 82 to 86. Board composition In 2020, the Board welcomed the addition of two new Non-Executive Directors: ■■ Mohamed A. El-Erian, who was appointed on 1 January 2020 ■■ Brian Gilvary, who was appointed on 1 February 2020. Both appointments have brought valuable insight and experience to the Board, relevant to the markets and geographies in which Barclays operates. In December 2020, the Board was very pleased to announce that Julia Wilson will join the Board as a Non-Executive Director with effect from 1 April 2021. She will also join the Audit Committee. Julia’s appointment reflects our commitment to strengthening our Board through the addition of further highly respected individuals with strong financial services expertise. She will bring significant corporate finance, tax and accounting experience to the Board and we look forward to welcoming her ahead of our AGM. As reported in our 2019 Annual Report, Matthew Lester stepped down from the Board on 1 January 2020. Mary Anne Citrino stepped down from the Board on 30 September 2020 in order to dedicate more time to her other board commitments. We are grateful to them both for their service to Barclays. In line with the Group’s plans for orderly succession, Sir Ian Cheshire stepped down as a Non-Executive Director and Chair of BBUKPLC on 31 December 2020 and was succeeded by Crawford Gillies with effect from 1 January 2021 (subject to regulatory approval). Crawford’s track record and deep knowledge of the Group, including BBUKPLC, position him well for this role. He remains on the BPLC Board alongside the BBUKPLC Board and we consider the ongoing benefits of having the Chair of one of our principal subsidiaries as a member of the BPLC Board to be significant. Upon his appointment to the BBUKPLC Board, Crawford ceased to be the SID of BPLC and was succeeded in that role by Brian Gilvary with effect from 1 January 2021. Sir Ian has agreed to remain on the BPLC Board until the AGM in May 2021 to help ensure a smooth transition. The Board is enormously grateful to Sir Ian for the tremendous work that he has undertaken on behalf of the Group and BBUKPLC in particular. Crawford will continue to chair the Remuneration Committee until 1 March 2021, when he will be succeeded in that role by Brian Gilvary (subject to regulatory approval). At that time, Brian will have served as a member of the Remuneration Committee for 12 months as recommended by the Code. Brian also joined the Risk and Nominations Committees with effect from 1 January 2021. You can read more about the membership of each of our Board Committees on pages 72 to 94 and 141 to 142. Efforts are ongoing to further complement the current range of skills on the Board through the recruitment of an additional Non-Executive Director with technology experience. The benefits of increased diversity remain at the forefront of this search. We continue to believe that a Board with the right balance of skills, experience and diversity – of gender, ethnicity, cognitive and personal strengths and social backgrounds – is critical to the sustainable delivery of value to our shareholders. Tim Breedon will have been on the Board for nine years in November 2021 and Mike Ashley will have been on the Board for nine years in September 2022 and, therefore, the Board is currently focused on identifying and developing potential successors for their roles as Risk Committee Chair and Audit Committee Chair, respectively. You can read more about the Board’s composition, diversity and succession planning, including recent changes and the appointment of Julia Wilson in the report of the Nominations Committee on pages 84 to 85. Barclays PLC home.barclays/annualreport 065 Directors’ report continued Board Governance Framework Barclays PLC Responsible for the overall leadership of the Group (with direct oversight of matters relating to reputation, environment and culture) Audit Committee Nominations Committee Risk Committee ■■ Assesses the integrity of the Group’s financial statements ■■ Evaluates the effectiveness of the Group’s internal controls ■■ Scrutinises the activities and performance of internal and external auditors ■■ Reviews and monitors the Group’s whistleblowing policies ■■ Reviews the composition ■■ Monitors and recommends of the Board ■■ Recommends the appointment of new Directors ■■ Considers succession plans for key Board and ExCo positions ■■ Oversees the annual Board effectiveness review the Group’s financial, operational and legal risk appetite ■■ Monitors the Group’s financial, operational, conduct and legal risk profile ■■ Considers and reports on key financial and non-financial risk issues ■■ Oversees conduct and compliance and the leadership of the Risk and Compliance functions Remuneration Committee ■■ Sets overarching principles and parameters of remuneration across the Group ■■ Considers and approves remuneration for the Chair, Executive Directors, other senior executives and certain Group employees ■■ Oversees remuneration issues For more information see page 72 For more information see page 82 For more information see page 87 For more information see page 141 Principal Committees The principal Committees of the Board, and the core responsibilities of each Committee, are described in the ‘Board Governance Framework’ table above. The remit of each Committee is set out in brief in the table, and you can read more about the Committees and their work on pages 72 to 94 and 141 to 142. Measuring Board and Committee effectiveness We believe that an effective board is one which delivers value for its stakeholders – our shareholders, clients, customers, communities and colleagues. We assess the effectiveness of our Board, its Committees and Board members each year. In respect of 2020, the Board effectiveness review was conducted internally, in line with the Code, by the Group Company Secretary, overseen by the SID. The SID and Group Company Secretary are well placed to do this, having previously conducted the 2019 review using broadly similar methodology. As the Code requires an externally facilitated evaluation to be undertaken every three years, in 2021 our effectiveness review will be undertaken by an external evaluator. You can read more about the 2020 process and progress against the 2019 review on pages 85 to 86. 066 066 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 2 3 8 8 3 Board composition as at 31 December 2020 Balance of Non-Executive Directors – Executive Directors No. of Directors The Board considers all of the Non-Executive Directors to be independent. 1 Chairman Non-Executive Directors Executive Directors Gender balance No. of Directors Male Female 9 9 As at the conclusion of our 2021 AGM, there will be 8 male and 4 female directors. Board allocation of timea % 2020 2019 Strategy formulation and implementation monitoring Finance (including capital and liquidity) Governance and risk (including regulatory issues) Other (including remuneration) 58 7 50 16 27 25 Length of tenure (Chairman and Non-Executive Directors) No. of Directors 4 3 0-3 years 3-6 years 6-9 years Industry experienceb No. of Directors 12 8 7 3 2 2 Financial services Political/regulatory experience Current/recent Chair/CEO Accountancy/ auditing Operations/ technology Retail/ marketing International experiencec No. of Directors 9 6 7 International (UK) International (US) International (Rest of the World) Notes a The percentages are subject to rounding and therefore may not equal 100% when rounded. Including ad hoc meetings. 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. b c Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 067 067 Directors’ report continued Effective governance facilitates the delivery of Barclays’ Purpose and strategy, particularly in challenging times. Key areas of focus in 2020 We believe that effective governance facilitates the delivery of Barclays’ Purpose and strategy, particularly in challenging times. Throughout the COVID-19 pandemic, our Board has been keenly focused on protecting the health and wellbeing of our workforce and supporting our customers, clients and other stakeholders, while ensuring that Barclays remains secure and resilient, both financially and operationally. The challenges created by the COVID-19 pandemic provided the Board with a unique opportunity to consider how to balance decisions in a way that optimises our Purpose and takes into account the interests of all our stakeholders. As highlighted in our Chairman’s introduction, this requires a Board in which constructive challenge, openness and diversity of background and opinion are prized, along with a commitment to act fairly and in the interests of all our stakeholders. The Board is well placed to help Barclays stay true to its Purpose. You can read more about the key areas of focus for the Board in 2020 on pages 68 to 70. The Board discharged its responsibilities in 2020 as described in the high-level flow diagram on this page. Board responsibilities Setting strategy and Challenging and supporting management to drive sustainable value creation for our shareholders through Compliance with law and regulation all in Setting risk appetite and risk management Entrepreneurial and ethical leadership and by and Effective internal and financial control Engaging with our stakeholders and within a framework of that aligns our Values with our strategy Promoting our culture and Purpose 068 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Key priorities Reviewing our Purpose and Values In 2019, the Board considered, together with management, the extent to which our Purpose had been fully embedded across the Group. While concluding that our Purpose was integrated into many of our key processes and decision-making forums, the Board was of the view that there was potential for our Purpose to be reinvigorated such that it is better connected with our stakeholders and what we do on a day-to-day basis as a bank and is deeply embedded in our decision-making. The last 12 months have been immensely challenging for the firm and our colleagues, but they have also shown Barclays at its best: who we are, what we stand for, and how quickly we can move to get things done. We want to reinforce that clarity and conviction about our Purpose and our Values, and stay true to that way of thinking about how we take action at pace. Accordingly, during 2020, the Board approved the introduction of a new, extended narrative of the Group’s Purpose and the refreshed descriptions of our Values to make sure they are still relevant for the challenges ahead. Our reinvigorated Purpose to ‘deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability, for the common “The last 12 months have been immensely challenging for the firm and our colleagues, but they have also shown Barclays at its best: who we are, what we stand for, and how quickly we can move to get things done. Barclays PLC Annual Report 2020 good and the long term’ is intended to serve as an expression of purpose which encapsulates our position as a universal bank providing global financial services and resonates with colleagues and all of our stakeholders. We updated and refreshed the language in the descriptors for each Value to better reflect who we are today, modern societal expectations, and things we should explicitly prioritise – such as inclusion and sustainability. Our Values remain core to how we individually ‘show up’ in the organisation; they are our moral compass and will continue to be used as a mandatory measure of individual performance. We believe that positive culture, supported by effective leadership and a consistent ‘tone from the top’, is crucial to our success. As such, culture remains a core focus for the Board and it is reviewed in a number of ways including: ■■ analysis of colleague survey results, reviewing and discussing colleague sentiment and feedback on areas including colleague wellbeing and engagement ■■ direct engagement with colleagues locally to hear their views through channels such as town hall meetings, talent sessions and office visits ■■ review of our people policies, which are designed to provide equal opportunities and create an inclusive culture, in line with our Values and in support of our long-term success. The Board reviewed Barclays’ method of workforce engagement during 2020 and concluded that it had been effective, with many direct engagement mechanisms moving to digital channels. Our workforce policies and practices were also reviewed and the Board agreed they were consistent with our Values and supported the long-term sustainable success of the Group. Feedback from our colleagues indicated that the COVID-19 pandemic had accentuated many aspects of our culture, manifesting itself in improved execution speeds, higher levels of colleague engagement and a belief among a majority of colleagues that our culture had improved. The Board has also carefully reviewed and endorsed how we define the way in which we want to get things done at Barclays – what we will call our mindset: ‘Empower. Challenge. Drive.’ Alongside our strategy, and our strong commercial positioning, our Purpose, Values and Mindset will provide the foundations to move to the next phase of our cultural and commercial journey, supporting us in fulfilling our obligations to our shareholders, colleagues, customers, clients and wider society, in the spirit of the common good. How the Board thinks about strategy The current COVID-19 related challenges are unprecedented in nature and, as the Board has discussed at length, the macroeconomic environment brings a significant degree of uncertainty. This has far-reaching impacts across the Group, raising significant matters for consideration by the Board in the context of the Board’s responsibility for the long-term sustainable success of Barclays, generating value for shareholders and contributing to wider society, as well as for the culture of the Group more broadly. It has also required the Board to focus on how best to try to protect the health and wellbeing of colleagues and customers and, particularly in the context of the AGM arrangements, that of shareholders as well. Updates presented to the Board through the pandemic have reported on a range of stakeholder interests including matters which are key to the Group’s reputation, such as business model impacts, colleague considerations, support for customers, clients and the communities in which Barclays operates, engagement with regulators, and the Group’s support for customers and communities through the pandemic. You can find further details of this in our Section 172 Statement on pages 18 to 21. To clearly establish and implement the Group’s strategy, and be effective, with management, in addressing the challenges arising from the pandemic, the Board has continued to deepen its understanding of the Group’s business and the risks and opportunities it faces. As such, a prioritised series of ‘deep dives’ forms an important part of each Board meeting, enabling the Board to spend a good proportion of its time considering longer-term and strategic issues and the Group’s operational resilience, with strategy considered at every Board meeting, rather than in a set piece event once a year. This has been particularly beneficial in the context of the dynamic and evolving environment during Barclays PLC home.barclays/annualreport 069 069 Directors’ report continued in our Section 172 Statement on pages 18 to 21. The Board will keep the considerable benefits of shareholder engagement in the AGM at the forefront of its planning for the 2021 AGM. This is an evolving situation and we will keep shareholders apprised of our plans as they develop. Further information will be made available in our 2021 Notice of Meeting and on our website in due course. Climate change The Board has direct oversight of social and environmental matters, including climate change. The Board recognised that Barclays can, and should, make a real contribution to tackling climate change, and help to accelerate the transition to a low-carbon economy. In the first quarter of 2020 the Board established a Board Climate Committee, to oversee our activities in this critically important area. You can read more about our climate change strategy and stakeholder engagement in our Section 172 Statement on pages 18 to 21 and in  the Society and environment section of our Strategic report on pages 39 to 44. You can also find out more about our climate change plans on our website at home.barclays/climatechange Our investor and stakeholder engagement Despite the impact of the COVID-19 pandemic limiting the scope for ‘in-person’ meetings due to restrictions introduced during the course of the year, we were able to continue our extensive engagement programme with institutional equity and fixed income investors through a range of ‘virtual’ formats. Our Executive Directors, as well as other senior management representatives, supported by our Investor Relations team, engaged regularly with existing shareholders and target investors throughout the year. Our engagement programme also included a series of video conference calls with our major shareholders and other stakeholders (including proxy advisory agencies and investor associations) on our climate change ambition and commitments. In addition, throughout the year our Chairman, Nigel Higgins, frequently spoke with our shareholders and other stakeholders. You can read more about our continued engagement with our investors in our Strategic report on pages 16 to 21. Meaningful engagement with our colleagues has long been a key priority of the Board and you can read about our workforce engagement model in the People and culture section on pages 33 to 37. More information about our broader stakeholder engagement is described in the Strategic report on pages 16 to 21. 2020, and has allowed the Board to discuss the impact of the pandemic on the different businesses within the Group and to provide support and constructive challenge to management in addressing diverse challenges by business and geography. The approval of the Group’s Medium Term Plan (MTP), in which our strategy is embedded, was reviewed by the Board at its September, November and December meetings. Deep dive topics were informed by discussions with our shareholders and other stakeholders, as well as formal and informal Board discussions. In response to the growing pandemic, during 2020 our deep dives programme was kept under review to give time to the discussion of new topics flowing directly from the COVID-19 pandemic. Deep dive topics discussed by the Board during the year covered a wide range of topics, including our Purpose and Values, the Group’s operational mindset during the COVID-19 pandemic, the unwinding of crisis measures, and our climate change strategy, alongside updates from selected individual businesses and from key Group functions including Compliance, Legal, Risk and HR. As in previous years, we gave considerable focus to developments in the regulatory environment, to our key correspondence with regulators during the year in the context of their annual assessments and reviews, and to our engagement with our principal regulators in the UK and the US in particular. The oversight of risk profile and of our control environment is also a core Board responsibility and, in addition to the detailed oversight of these matters by the relevant Board Committees, has been addressed at Board meetings throughout the year. Governance through the pandemic Given the dynamic environment brought about by the COVID-19 pandemic, the Board needed to operate in ‘crisis’ mode and shift its focus from long-term value creation to addressing the short and medium-term implications of the pandemic. As part of the Board’s direct oversight of matters relating to reputation, updates were presented to the Board throughout the COVID-19 pandemic reporting on a range of stakeholder interests and matters key to our reputation. You can read more about the Board’s response to the COVID-19 pandemic, including the difficult decision to cancel our ordinary share full year 2019 dividend, the establishment of a Board COVID-19 Response Committee and the need to revise our 2020 AGM arrangements in order to comply with UK Government guidance and to protect the health and wellbeing of our shareholders, colleagues and other stakeholders 070 070 Barclays PLC home.barclays/annualreport “The Board recognised that Barclays can, and should, make a real contribution to tackling climate change, and help to accelerate the transition to a low-carbon economy. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for our customers and clients The choice for America’s best brands This year, we were delighted to be able to celebrate the ten-year anniversary of Barclays’ partnership with Wyndham Rewards, part of Wyndham Hotels & Resorts, in the US. It’s a really long-standing relationship and one that we’re incredibly proud of. There are lots of reasons for our success over so many years, including the great personal relationships between our teams. We’ve also thought about ways we can help maximise applications for the Wyndham Rewards co-branded credit card, for instance by tailoring marketing and discount offers to customers making a booking at one of Wyndham’s branded hotels. It is fantastic that we are able to enhance our customers’ experience, while supporting our partner to bring together all of its businesses through its rewards programme. 2020 also brought the launch of our new Wyndham Rewards Earner Card suite of products – enhanced consumer cards and a brand new small business card product. I am also really pleased that, for the second consecutive year, the Wyndham Rewards Visa Card was named the winner of the USA Today 10 Best Readers’ Choice Award for Best Travel & Hotel Co-Branded Credit Card. Nichelle Evans Managing Director, Travel & Affinity Partnerships, US Consumer Banking Wilmington Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 071 Directors’ report: Board Audit Committee report Ensuring the independence and effectiveness of the internal and external audit functions. Maintaining robust internal controls throughout the pandemic Dear Fellow Shareholders 2020 was a challenging year in terms of monitoring the internal and business controls environment alongside reviewing the Group’s financial performance in light of the COVID-19 pandemic. The calculation of expected credit loss (ECL) in accordance with IFRS 9 was a major focus for the Committee during the year as the calculation of credit impairment charges proved challenging due to ongoing macroeconomic uncertainty and evolving consensus. The ECL models are based on historical relationships between macroeconomic variables and credit impairment outcomes that pre-dated the impact of the COVID-19 pandemic, in particular the unprecedented level of government support provided to businesses and consumers in both the UK and in the US. Given the forward-looking nature of IFRS 9 provisioning, the ECL models showed, as expected, a significant degree of sensitivity to the current economic uncertainty. While, as noted below, the Committee is satisfied that the overall ECL provision level is appropriate, it must be recognised that the profit and loss impact reflects the difference between the opening and closing stock of provisions after accounting for write-offs in the period. The lack of significant increases in the latter at present, due to government support measures, magnifies the sensitivity of the provision charge to changes in assumptions. To date the impact of climate change on the Group’s financial statements has been very limited. However, the Committee expects that to change over time and will continue to keep under review both this and the extent and accuracy of disclosures regarding the Group’s environmental impact. In relation to Barclays’ internal control environment, the Committee noted that the Barclays Internal Control Environment Programme (BICEP) which commenced in January 2017 and was focused on strengthening the internal control environment across the Group, successfully completed in March 2020. The Group’s control environment is now in a much stronger position, which helped to deal with the operational challenges which the COVID-19 pandemic has presented. Management has operated within a robust framework for identifying and responding to control issues with appropriate reporting to the Committee and other Board Committees. The Committee was pleased to note that, effective 25 June 2020, the Federal Reserve Board (FRB) announced the termination of its enforcement action initiated against Barclays Bank PLC in May 2015 with regard to business practices relating to its US FX, Rates, Commodities, Government Bonds and Credit Derivatives activities; the FRB was satisfied with the remediation actions taken by the Group to enhance its firm-wide compliance systems and controls relating to those activities. Termination of the action was contingent upon completion by the Group of a review of relevant policies and procedures, which has now been achieved. In assessing general control issues for disclosure in this Annual Report, the Committee continued to apply similar concepts to those used for assessing internal financial controls for the purposes of the US Sarbanes-Oxley Act (SOx). The Committee remained of the view that there are no control issues that are considered to be a material weakness and which merit specific disclosure. During 2020, I held regular meetings with the Chair of the BBUKPLC Board Audit Committee and with the Chair of the Barclays US LLC Audit Committee. I also attended the meetings of the Barclays Bank Ireland PLC Audit Committee and BBUKPLC Audit Committee which considered the main year-end accounting issues, and I will be attending the Barclays US LLC Audit Committee meeting in March 2021. The Chair of the BBUKPLC Board Audit Committee attended the meeting of the Committee at which the control environment of BBUKPLC was considered as part of the Committee’s year-end evaluation. I also continued to meet frequently with members of senior management, including the Group Finance Director and Chief Internal Auditor. Barclays Internal Audit (BIA) is a key component in supporting the Committee’s work. I am pleased with the way that the function has performed throughout the year, particularly in scoping, performing and reporting the outcomes of its work both to management and the Committee in an environment where the scope of its audit plan, as approved in December 2019, has had to change owing to the operational and risk challenges brought on by the COVID-19 pandemic. As the pandemic took hold, I spoke weekly with the Chief Internal Auditor and her key management team. A BIA Contingency Plan was established and invoked in response to the pandemic, outlining heightened management, reporting and escalation protocols for BIA, both as a Third Line of Defence and a function within the Group. I have also continued my regular engagement with the Group’s regulators, both in the UK and US. This has encompassed not only my work as the Chair of the Committee, but also my role as the Group’s Whistleblowing Champion. In that respect, I oversaw the production of the second of three annual reports which we agreed to submit to the FCA and PRA in the UK and to the New York Department of Financial Services regarding our whistleblowing programme. Committee effectiveness The 2020 Committee effectiveness review was conducted in accordance with the Code. This internal review involved completion of a tailored questionnaire by Committee members and standing attendees (which included our external lead audit engagement partner), in line with the approach adopted for all Board Committees in 2020. The review is an important part of the way Barclays monitors and improves Committee performance and effectiveness, maximising strengths and highlighting areas for further development. 072 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The results confirm that the Committee is operating effectively. It is considered well- constituted and provides an effective and appropriately broad level of challenge and oversight of the areas within its remit. It was suggested that the Committee may benefit from an additional member with specialist financial reporting and management expertise, with feedback noting that this would be addressed following the appointment of Julia Wilson as a new member of the Committee when she joins the BPLC Board in April 2021. In particular, the review indicates that the Committee has continued to operate effectively in the context of the COVID-19 pandemic. My role as Chair in balancing a demanding agenda efficiently so that time is allocated to the most significant items for discussion was recognised. The Committee has a broad remit and has taken on additional responsibilities during recent years, for example the oversight of tax matters, so continued focus on this area will be beneficial. The review commented that the Committee’s interaction with the Board, Board Committees and senior management is considered effective, noting in particular that the Committee’s interaction with the Board Risk Committee works well. The review highlighted that reporting to the Committee on issues relevant to the Committee’s remit relating to BBUKPLC had been streamlined and effective. Following the consolidation of the membership of the Committee with the BBPLC Board Audit Committee, coverage of BBPLC matters within concurrent meetings was considered adequate. Changes to Committee composition Having taken on the role of Chair of BBUKPLC at the end of December 2020, Crawford Gillies left the Committee. I look forward to welcoming Julia Wilson as a new member of the Committee when she joins the BPLC Board in April 2021. Looking ahead In 2021, the Committee will continue to monitor the key IFRS 9 processes, particularly in light of the development of the COVID-19 pandemic, the uncertain economic environment and related impact upon the Group. There is always a balance to be struck between the sophistication of models and the ability to adapt them to changing circumstances and run them on a timely basis using different assumptions and scenarios. In implementing IFRS 9, the Group developed a number of highly complex and sophisticated models for ECL which have been particularly challenged in the pandemic, which is a situation also impacting a number of the Group’s peers. Going forward, therefore, management is looking to simplify the model environment significantly, while at the same time making it more readily responsive to major changes in the economic environment. These changes will also provide increased flexibility to perform sensitivity analysis. The Committee is fully supportive of this effort and will be monitoring this development closely. The Committee will also seek to monitor the sustainability of the continuing evolution of the internal control environment, notwithstanding so many Group processes having ‘returned to Satisfactory’ as part of the now successfully completed BICEP initiative; and to continue the scrutiny of the control issues and new working arrangements resulting from, or associated with, the impact of the COVID-19 pandemic. We will also be looking to assess the reporting of control issues – with increasing focus on the remaining key areas of focus – as well as to monitor the satisfactory completion of various ongoing remediation programmes. Mike Ashley Chair, Board Audit Committee 17 February 2021 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 073 Directors’ report: Board Audit Committee report continued Role of the Committee The role of the Committee is to review and monitor, among other things: ■■ the integrity of the Group’s financial statements and related announcements ■■ the effectiveness of the Group’s internal controls ■■ the independence and effectiveness of the internal and external audit process ■■ the Group’s relationship with the external auditors ■■ the effectiveness of the Group’s whistleblowing policies and procedures. The Committee’s terms of reference are available at home.barclays/who-we-are/ our-governance/board-committees Board Audit Committee Committee members Member Mike Ashley Tim Breedon Crawford Gillies Diane Schueneman Meetings attended/ eligible to attend 10/10 10/10 10/10 10/10 Committee allocation of time % 2020 2019 4 5 23 36 11 11 15 17 39 11 12 16 Control Issues Business Control Environment Financial Results Internal Audit Matters External Audit Matters Other (including litigation, governance and compliance) 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 SOx, 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. When she joins the Committee in April 2021, Julia Wilson will also bring deep technical experience to the Committee, including corporate finance, tax and accounting expertise. You can find more details of the experience of the current Committee members in their biographies on pages 61 to 63. During 2020, the Committee met 10 times (2019: 10 times) and the chart opposite shows how the Committee allocated its time. Attendance by members at Committee meetings is also shown opposite. Committee meetings were attended by representatives from management, including the Group CEO, Group FD, Chief Internal Auditor, Chief Controls Officer, Chief Risk Officer, Chief Operating Officer, Group General Counsel and Group Chief Compliance Officer, as well as representatives from the businesses and other functions, and from BBPLC senior management reflecting the streamlined operation of the BPLC and BBPLC Committee meetings. The lead audit engagement partner of KPMG, Michelle Hinchliffe, also attended Committee meetings. The Committee held a number of separate private sessions with each of the Chief Internal Auditor and the lead audit engagement partner during 2020, which were not attended by management. 074 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Area of focus Reporting issue Role of the Committee Conclusion/action taken Fair, balanced and understandable reporting (including Country- by-Country Reporting and Modern Slavery Statement) In light of the Board’s obligation under the Code, the Committee assesses external reporting to ensure it is fair, balanced and understandable. ■■ In addition to this Annual Report and associated year-end reports, the Committee also reviewed the Group’s quarterly reports and the presentations to analysts. ■■ The Committee informed these reviews by: – consideration of reports of the Disclosure Committee which included views on content, accuracy and tone – direct questioning of management, including the Group CEO and Group FD, on the transparency and accuracy of disclosures – consideration of management’s response to letters issued by the Financial Reporting Council (FRC) and other industry reporting guidance – evaluation of the output of the Group’s internal control assessments and SOx s404 internal control process – consideration of the results of management’s processes relating to financial reporting matters and evidencing the representations provided to the external auditors. Going concern and long-term viability (refer to the Viability Statement on pages 50 and 51) Barclays is required to assess whether it is appropriate to prepare the financial statements on a going concern basis and also, in accordance with the Code, Barclays must provide a statement of its viability. The Committee considered both the going concern assumption and the form and content of the Viability Statement having regard to: ■■ the Medium Term Plan (MTP) and Working Capital Review (WCR) ■■ the forecasted liquidity and funding profile ■■ the results of stress tests based on internal assumptions as reviewed by the Board Risk Committee ■■ current risk and strategy disclosures ■■ changes to capital ratios. The Committee considered the extensive disclosures regarding the COVID-19 pandemic relating not just to the impact on the financial statements, but also to the actions taken and support provided by the Group to ensure they met the required standard. In relation to the former, the Committee considered in particular the ECL judgements and disclosures from a IFRS 9 perspective in light of guidance issued by regulators as part of their response to the COVID-19 pandemic, including (among other things) capital measures in relation to IFRS 9 transitional relief and impact of government support schemes and other support measures from central banks and regulators. Having evaluated all of the available information, the assurances by management and underlying processes used to prepare the published financial information, the Committee concluded and advised the Board that the 2020 Annual Report and financial statements are fair, balanced and understandable. The Committee recommended to the Board that the financial statements should be prepared on a going concern basis and that there were no material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern; and noted that capital ratios remained above minimum mandatory requirements. The Committee also agreed that the appropriate time frame for the Viability Statement continued to be three years and recommended the Viability Statement to the Board for approval. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 075 Directors’ report: Board Audit Committee report continued Area of focus Reporting issue Role of the Committee Conclusion/action taken Impairment of Financial Instruments (refer to Note 7 to the financial statements) Goodwill and Intangible Impairments (refer to Note 22 to the financial statements) ECLs are modelled using a range of forecast economic scenarios. They use forward-looking models which require judgements to be made over modelling assumptions, including: ■■ the determination of macroeconomic scenarios to be used ■■ the methodology for weighting scenarios ■■ the establishment of criteria to determine significant deterioration in credit quality ■■ the application of management adjustments to the modelled output. The latter has been particularly relevant in 2020 as the models were not designed to take account of the unprecedented level of government support for both businesses and consumers during the COVID-19 pandemic. The valuations of goodwill and intangible assets are assessed on the basis of discounted forecast future earnings, which in the current economic circumstances are significantly reduced. In addition, given the nature of the Group’s business and the significant component of earnings attributable to net interest income, such forecasts are particularly sensitive to the level of long-term interest rates and the shape of the yield curve. As part of its monitoring, the Committee considered a number of reports from management on: ■■ the economic impact of the COVID-19 pandemic ■■ the impact of the uncertain macroeconomic environment and effectiveness of government support measures ■■ the continued development and embedding of controls over the internal processes supporting the ECL calculation and related assessment of SOx compliance (including by the external auditors) ■■ model changes ■■ regeneration of the macroeconomic variables and associated weighting ■■ adjustments made to the modelled output to reflect updated data and known model deficiencies, including in relation to the impact of government support ■■ comparisons between actual experience and forecast losses. Having considered and scrutinised the reports, the Committee agreed with management’s conclusion that the impairment provision (including specifically the £4,838m for credit impairment charges) was appropriate. In particular, the Committee agreed with the judgement exercised by management in determining post-model adjustments on the assumption that government support is likely largely to defer, rather than eliminate, the impact of the current economic stresses. The Committee also agreed with management that it was important to develop the ECL models so that they are more responsive to changing economic scenarios. In light of the increased inherent uncertainty of the ECL calculation, the Committee encouraged management to continue increasing disclosures relating to the provision and its sensitivity to key variables. The Committee considered the allocation of goodwill and intangibles to the cash generating units, ensuring consistency with the treatment adopted in prior years. The Committee also discussed with management methodology for assessing value in use given the reduction in headroom which required a more detailed review than in earlier years. In particular, the Committee reviewed the basis for allocating net tangible equity to the relevant cash generating units. The Committee also considered management’s forecast future earnings (as shown by the MTP after taking account of subsequent key changes in the macroeconomic environment which might be expected to impact the impairment assessment) and the extrapolation of those earnings out beyond that time. Finally, the Committee considered the sensitivity analyses prepared by management, which indicated what changes to assumptions would trigger the need for impairment. The Committee was satisfied that the forecasts supported the recoverability of the goodwill and intangibles and no impairment was required. As expected, however, the headroom was significantly decreased from prior years and the sensitivity analyses illustrated that comparatively small changes in key assumptions could lead to impairment. The Committee therefore carefully reviewed the disclosures made to ensure that the key sensitivities and the potential impacts were appropriately highlighted. 076 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Area of focus Reporting issue Role of the Committee Conduct provisions (refer to Note 24 to the financial statements) Barclays makes certain assumptions and estimates, analysis of which underpins provisions made for the costs of customer redress. Legal, competition and regulatory provisions (refer to Notes 24 and 26 to the financial statements) Valuations (refer to Notes 13 to 17 to the financial statements) Barclays is engaged in various legal, competition and regulatory matters which may give rise to provisioning based on the facts. 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. Barclays exercises judgement in the valuation and disclosure of financial instruments, derivative assets and certain portfolios, particularly where quoted market prices are not available. With a view to evaluating adequacy of the provisions, the Committee analysed: ■■ the judgements and estimates made with regard to Barclays’ provisioning for the remaining PPI claims ■■ the estimated extent of compensation payable to customers in respect of non-delivery of certain expected benefits ■■ the possibility of conduct issue claims arising as a result of the changed working environment in the context of the COVID-19 pandemic ■■ the possibility of claims arising from the Group’s participation in government loan schemes to support customers against the impact of the pandemic, taking account of work carried out by the Risk Committee on the underlying risks and management’s mitigating actions. The Committee evaluated advice on the status of current legal, competition and regulatory matters. It considered management’s judgements on the level of provision to be taken and accompanying disclosure. Conclusion/action taken The Committee noted that, following the imposition of the deadline in relation to PPI claims, the significance of conduct provisions has considerably declined. The Committee agreed with management that the overall level of provision in relation to the various conduct matters was adequate and appropriate at £497m as at the end of the year. The Committee discussed provisions and utilisation and, 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. The Committee: ■■ evaluated reports outlining the Group’s material valuation judgements ■■ monitored the valuation methods applied, including changes in light of the COVID-19 pandemic ■■ considered pensions liability valuations. The Committee noted that there were no new significant valuation judgements at the end of the year. The Committee was satisfied with the accounting treatment in respect of the various matters. 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 to the recognition and measurement of deferred tax assets. The Committee is responsible for considering the Group’s tax strategy and overseeing compliance with the Group’s Tax Code of Conduct. In this regard the Committee received reports from the Tax Management Oversight Committee and, in particular, considered the upward revaluation of UK deferred tax assets due to cancellation of a scheduled 2% UK corporation tax cut which had been due to take place in April 2020 and additional tax considerations arising from the COVID-19 pandemic. The Committee reviewed the appropriateness of provisions made for uncertain tax positions. The Committee also confirmed that the estimates and assumptions used in assessing the recoverability of deferred tax assets were supported by the MTP. The Committee was satisfied that specific strategies were in line with the Group’s Tax Code of Conduct and on behalf of the Board approved the UK Tax Strategy statement published as part of the Country-by- Country Report. The Committee noted that the uncertain tax positions covered a diverse range of issues and, as a consequence, agreed with management’s view that there was not a significant risk of a material adjustment during the next year. The Committee was also satisfied that deferred tax assets recognition was appropriate. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 077 Directors’ report: Board Audit Committee report continued Area of focus Reporting issue Role of the Committee Conclusion/action taken Internal controls and business control environment (read more about Barclays’ internal control and risk management processes on pages 100 to 101) The effectiveness of the overall control environment, including the status of any significant control issues and the progress of specific remediation plans. Raising concerns Internal audit The adequacy of the Group’s arrangements to allow employees to raise concerns in confidence and anonymously without fear of retaliation; and the outcomes of any substantiated cases. 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. External audit The work and performance of KPMG. The Committee: ■■ monitored finalisation of BICEP which completed at the end of March 2020 as well as ongoing sustainability of the enhanced control environment ■■ evaluated and tracked the status of the most significant control issues through regular reports from the Chief Controls Officer, including updates on lessons learned and progress relating to remediation areas, as well as priorities looking forward to sustain and strengthen the control environment ■■ focused on reports relating to individual businesses and functions on the control aspects of key matters such as IBOR transition and post-Brexit transition period control preparedness, operational resilience and controls, particularly in the context of the impact of the COVID-19 pandemic, cyber security and data management controls ■■ received independent evaluations from BIA and external auditors. The Committee has received reports from management and monitored whistleblowing metrics and retaliation reports. The Committee has during the year: ■■ monitored BIA’s implementation of the first year of its three-year internal audit plan ending December 2022 ■■ approved the establishment of the Internal Audit Contingency Plan, in response to the COVID-19 pandemic ■■ reviewed BIA’s audit reports in relation to specific audits, noting that any planned audits cancelled in 2020 owing to the COVID-19 pandemic would be rescheduled for 2021, as appropriate ■■ tracked the levels of adverse audits and issues raised by BIA and monitored related remediation plans ■■ discussed BIA’s assessment of the management control approach and control environment in the Group companies and functions. The Committee: ■■ met with key members of the KPMG audit team to discuss the 2020 Audit Plan and KPMG’s areas of focus ■■ assessed regular reports from KPMG on the progress of the 2020 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 2020 year end ■■ considered the draft SOx control report and the draft audit opinion. The Committee has focused on the ability of the Group to maintain strong internal controls in the context of the challenges brought about by the COVID-19 pandemic, the huge increase in number of staff working remotely and the pressure on systems, branch facilities and customer service levels generally. During 2020 the Committee received reports, including a year-end annual report, on whistleblowing from management and noted that the whistleblowing programme continued to operate satisfactorily during the COVID-19 pandemic. The Committee received BIA’s annual review of its charter and reviewed BIA’s performance report, including quality assurance. The Committee also agreed BIA’s proposed 2021 Audit Plan, noting the related methodology, deliverables and level of resources to be allocated in respect of internal audit execution and delivery, data analytics, people, diversity and leadership as well as governance and management information. The Committee approved the 2020 Audit Plan and the main areas of focus for the year. Read more about the Committee’s role in assessing the performance, effectiveness and independence of the external auditor on the next page. 078 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements External auditor Following an external audit tender in 2015, KPMG was appointed as Barclays’ Statutory Auditor with effect from the 2017 financial year. Michelle Hinchliffe of KPMG is Barclays’ lead audit engagement partner and was appointed to this role with effect from the 2018 financial year. Assessing external auditor effectiveness, objectivity and independence and non-audit services The Board Audit Committee is responsible for assessing the effectiveness, objectivity and independence of the Group’s auditor, KPMG. This responsibility was discharged throughout the year at formal Committee meetings, during private meetings with KPMG and through discussions with key Group executives. 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 Group policy on the Provision of Services by the Group Statutory Auditor (the Policy) and regularly analysed reports from management on the non-audit services provided to Barclays ■■ evaluated and approved revisions to the 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 ■■ considered and discussed the audit quality inspection report on KPMG issued by the FRC’s Audit Quality Review (AQR) team in relation to its review of KPMG’s audit of the financial statements for the period ended 31 December 2018. As well as receiving the AQR team’s formal report the Committee benefited, as on a previous occasion, from a presentation by the AQR team which was greatly appreciated. This presentation, which was also attended by the Chair of the BBUKPLC Board Audit Committee, allowed the Committee to discuss the main findings of the AQR in some detail. As foreshadowed last year, the AQR team had identified certain areas for improvement in KPMG’s audit work, particularly in relation to the depth of substantive testing of financial derivative instruments and both controls and substantive work in relation to ECL estimates under IFRS 9. Again, as noted last year, KPMG had already increased its coverage of these areas both in the 2019 audit and in planning for its 2020 audit. It became apparent, however, during the Committee’s discussions with the AQR team and subsequent interaction with KPMG, that the expectations continue to evolve particularly in relation to the substantive testing of IFRS ECL models, requiring some element of code review and reperformance of nearly all of the Group’s models by KPMG. The Committee acknowledges that the level of audit work required is a matter of auditor judgement and more work can always be carried out, and the AQR team’s comments can be helpful in this respect. However, we do have some concern over the level of incremental audit evidence obtained from these procedures, particularly in the current year when the models themselves are more than usually supportive of the judgement necessarily exercised by management, rather than determinative of the level of impairment provision required. We are also conscious of the need to balance the sufficiency of audit evidence needed with the time required, by both auditors and the Group’s own employees, to execute on this expanded level of work. The Committee encouraged KPMG to continue its dialogue with the AQR team on addressing the feedback and to amend its approach to the audit work as required, but at the same time to seek to arrive at a more general consensus with both the other major firms and audit regulators on an appropriate approach for the future. KPMG’s performance, independence and objectivity during 2020 were also formally assessed at the beginning of 2021 by way of a questionnaire completed by key stakeholders across the Group, including the chairs of the Board Audit Committees of the Group’s main operating companies (BBUKPLC, Barclays US LLC and Barclays Bank Ireland PLC). 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, as well as key issues relevant to the COVID-19 pandemic. In addition, as in the prior year, KPMG nominated a senior partner of the audit team reporting to the lead audit engagement partner to have specific responsibility for ensuring audit quality. The Committee therefore met with the partner concerned, without the lead audit engagement partner present, to receive a report on his assessment of audit quality bearing in mind particularly the comments received from the AQR team. Taking into account the result of all of the above, the Committee considered that KPMG maintained its independence and objectivity and that the audit process was effective. Non-audit services In order to safeguard the auditor’s independence and objectivity, Barclays 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 Group audit. 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 Group’s auditor) should be performed by the auditor only in certain controlled circumstances. The Policy sets out those types of services that are permitted (‘Permitted’ services). A summary of the Policy can be found at home.barclays/ who–we-are/our-governance/auditor- independence. The Policy is reviewed on an annual basis to ensure that it is fit for purpose and that it reflects applicable rules and guidelines. The Policy is aligned both with the FRC’s requirements and with KPMG’s own internal policy on non-audit services for FTSE 350 companies which broadly restricts non-audit work to services that are ‘closely related’ to the audit. The Committee approved an updated Policy in 2020 which reflected the revised FRC Ethical Standard ‘white list’ of permitted non-audit/additional services. Any changes to the Policy are approved at a Group level by the Committee. This is in accordance with laws applicable in the UK and FRC guidance, pursuant to which audit committees of Public Interest Entities (such as Barclays) are required to approve non-audit services provided by their auditors to such entities; and subsidiary Public Interest Entities in the UK – such as BBUKPLC and BBPLC – can rely on the approval of non-audit services by the ultimate parent’s Board Audit Committee. Pursuant to the Policy, audit services and the fee cap are monitored by the relevant Board Audit Committee, as appropriate. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 079 Directors’ report: Board Audit Committee report continued “2020 was a challenging year in terms of monitoring the internal and business controls environment alongside reviewing the Group’s financial performance in light of the COVID-19 pandemic. Under the Policy, except for specific categories of ‘Permitted’ services that require explicit Committee approval, the Committee has pre-approved all ‘Permitted’ services for which fees are less than £100,000. However, all proposed work, regardless of the amount 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 lead audit 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 (who are not involved in any work to which the proposed engagement relates) before work can commence. Requests for ‘Permitted’ service types in respect of which the fees are expected to meet or exceed the above threshold but expected to be less than £250,000 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 2020, all engagements for which expected fees met or exceeded the above thresholds were evaluated by either the Committee Chair or the Committee members 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 2020 (2019: 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. 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 trivial 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 between £50,000 and £100,000 may be regarded as such. The Committee undertook a review of pre-approved services at its meeting in December 2020. The fees payable to KPMG for the year ended 31 December 2020 amounted to £59m (2019: £56m), of which £12m (2019: £11m) 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 financial statements. Of the £12m of non-audit services provided by KPMG during 2020, 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 Client Assets Sourcebook (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) ■■ audit related services: services in connection with regulatory, compliance and internal control reports and audit procedures, required by law or regulation to be provided by the Statutory Auditor ■■ 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. 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 Group’s statutory 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 continues to maintain its independence and objectivity, and the Committee remains satisfied with its performance, the Group has no intention of tendering for an alternative external auditor before the end of the current required period of 10 years. 080 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for society LifeSkills added real, practical value Many of our students are teenagers who are about to make the transition to further education or the job market. It’s an important stage, and ensuring they are fully prepared can make a real difference to their futures. We have a solid careers curriculum, but when Barclays approached us last year and offered to share their LifeSkills programme, we were delighted to be getting extra support. Together we created a series of lessons that help them feel more confident about the kinds of things they will soon be doing – whether that’s coming across well in an interview, or knowing how to open up their first bank account. The pupils find it all really practical and engaging – you know when a lesson is good when the kids ask for a bit more time at the end! Now we include the content as part of our regular lessons, and it continues to prove extremely valuable. We created a series of lessons with Barclays that added engaging and practical content for pupils. Simon Gallacher Principal Teacher, Park School Kilmarnock Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 081 Directors’ report: Board Nominations Committee report Ensuring that we have the right balance of skills, experience, diversity of background and opinion Delivering effectiveness and diversity Board Nominations Committee Committee members Member Nigel Higgins Mike Ashley Tim Breedon Crawford Gilles Sir Ian Cheshire Diane Schueneman Meetings attended/ eligible to attend 8/8 8/8 8/8 8/8 6/7 8/8 Committee allocation of time % 2020 2019 9 9 19 25 54 11 7 44 10 12 Corporate governance matters Board and Board Committee composition Succession planning and talent Board effectiveness Other Note Including ad hoc meetings. Balancing decisions in a way that optimises our Purpose requires a Board in which constructive challenge, openness and diversity of background and opinion are prized, along with a commitment to act fairly and in the interests of all stakeholders. Achieving this - through its focus on the composition of the Board, its Committees and the ExCo and ensuring that each has the right balance of skills, experience and diversity of background and opinion and by creating a pipeline of succession to these and other senior management key roles – is the main role of the Nominations Committee. Key to the Board’s effectiveness is how the Board operates in practice – we continue to focus on simplification in the context of our agendas, papers and presentations. As part of our drive for simplification, the Board and Committee membership of BPLC and BBPLC was consolidated and streamlined in 2019 to increase effectiveness and reduce duplication while still enabling the appropriate focus on matters relevant to each entity. You can read more about this partial consolidation on page 65. The Committee reviewed the effectiveness of the consolidated Board and Committee Nominations Committee Identifying skills gaps Leading appointments Reviewing effectiveness and effecting change Ensuring succession planning for key roles in place Reviewing core skills and time commitment Maintaining effective Board, Committee and ExCo composition 082 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements structure in 2020 and remains confident that the consolidated structure delivers its intended benefits in our governance processes while ensuring that the spirit of the ring-fencing legislation is respected in any decision-making affecting BBUKPLC. In discharging its responsibilities, the Committee takes into account feedback from key stakeholders (including our regulators and shareholders) and Board discussions more widely. The Committee considered the effectiveness of the Board during the COVID-19 pandemic and concluded that the Board had performed well through the pandemic, with the establishment of a Board COVID-19 Crisis Response Committee and its very regular cadence of meetings. As a practical matter, the Board was required to convene remotely in order to comply with government guidance. Informal Board discussions also took place during this period, the objective of which was to operate as a virtual alternative for the sort of conversations the Board would generally have informally when meeting together in person. These informal discussions also had the aim of maintaining the Board’s connectivity and collegiality, and of helping to draw out some of the questions on the Board’s mind during this period for discussion during the Board meetings. The Committee concluded that collaboration between the Board and senior management had helped ensure an effective and robust response to the pandemic. You can read more about our Board governance during the pandemic on pages 69 to 70. Committee membership The Committee is composed solely of Non-Executive Directors and is chaired by our Group Chairman. Details on Committee membership and meeting attendance are set out on page 82. Principal activities The Committee’s allocation of time during 2020 is set out on page 82 and the Committee’s principal activities during 2020 are set out opposite. Committee responsibilities 1   Ensuring the right individuals are appointed – in line with suitability criteria – who can discharge the duties and responsibilities of Directors. 2   Effective ExCo, Board and Committee composition, through focus on appointment and succession based on merit and skill, through a diversity lens. 3   Leading candidate search and identification. 4   Regular review of succession planning and recommendations for key executive and non-executive roles. 5   Monitoring of time commitments for incoming and existing Directors to ensure sufficient time for effective discharge of duties. 6   Monitoring compliance against corporate governance guidelines and the Diversity Policy, including yearly review and any recommendations for enhancements. 7   Ensuring compliance by the Board with legal and regulatory requirements. 8   Individual Director, Board and Committee effectiveness reviews and implementing any required actions. 9   Considering and authorising, subject to ratification by the Board, any conflicts of interest. Approval of changes to ExCo roles and remits. Approval of key executive appointments including Group Head of Corporate, Public and Regulatory Affairs, Group General Counsel, Group Chief Risk Officer and Heads of Banking and Markets. Consideration and approval of changes in the composition of the Group’s main subsidiary boards. Candidate evaluation for both executive and non-executive current and future roles including review of core skills and (for internal candidates) scrutiny of internal feedback. Review of the balance of skills and diversity on the Board, and leading the search and recruitment process (including conflict analysis) for potential candidates. The Committee utilised external search consultants Egon Zehnder and Spencer Stuart to facilitate the targeted external mapping and search processes based on agreed and reviewed criteria. 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 6 9   Directors’ tenure and effectiveness review, and identifying candidates for re-election. 1 2 4 6 7 8   Approval of the appointment of Brian Gilvary as Senior Independent Director and to the Nominations and Risk Committees. Approval of appointment of Julia Wilson as an additional Non-Executive Director, effective 1 April 2021, and approval of changes in Board Committee composition during the year. Review of ExCo composition and succession planning for strengths and diversity of the development of ExCo members and key successors. Review of recommendations and suggested improvements arising from the 2019 Board effectiveness review. Approved that the 2020 effectiveness review be conducted internally, led by the Group Company Secretary with support from the SID and Nominations Committee oversight. Consideration of Director training and development, including revision of deep dive schedule in response to the COVID-19 pandemic. Review and approval of size, composition and succession planning for Board and the Board Committees. Board effectiveness through the COVID-19 pandemic, including COVID-19 emergency cover plan for key executive roles. 1 2 3 4 5   1 2 3 5   2 3 4 6   1 2 7 8   8 7 8 1 2 5   7 8 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 083 Directors’ report: Board Nominations Committee report continued Changes to the Board in 2020 We welcomed two new Non-Executive Directors to the Board in 2020 – Mohamed A. El-Erian (appointed 1 January 2020) and Brian Gilvary (appointed 1 February 2020). Their respective skills and experience are set out in their biographies on pages 60 to 63. The Board was also very pleased to announce that Julia Wilson (currently the Finance Director of 3i Group PLC and Senior Independent Director of Legal & General Group PLC) will join the Board as a Non-Executive Director and a member of the Board Audit Committee with effect from 1 April 2021. Julia will be retiring as Senior Independent Director of Legal & General Group PLC in March 2021, before taking up her role on the Board. Julia’s appointment reflects Barclays’ commitment to strengthening the Board through the addition of further highly respected individuals with strong financial services expertise. As reported in our 2019 Annual Report, Matthew Lester stepped down from the Board on 1 January 2020. Mary Anne Citrino stepped down from the Board on 30 September 2020. Further details regarding changes to our Board composition during 2020 are provided in the Directors’ report on pages 65 to 70. Board composition The appointment of Julia Wilson, effective 1 April 2021, will temporarily increase the size of the Board from 12 to 13 before it reduces to 12 following the resignation of Sir Ian Cheshire at the conclusion of the 2021 AGM. While we are keen to bring a further Director with technology experience on board, we have not yet identified a suitable candidate. We intend to carry on our search, with the primary aim of finding a candidate with sufficient board experience and the relevant skills to make a meaningful contribution to Board deliberations. We strongly believe that the Board remains effective taking into account the need to be small enough to operate in an effective, efficient and collaborative manner and the need to be large enough to have an appropriate mix of skills and diversity and to support succession planning and the additional roles and responsibilities of some of our Directors on the Boards of BBPLC, BBUKPLC, Barclays US LLC and BX. “Effective succession planning should take into account contingency planning As mentioned above, the Committee is keen to complement the current range of skills on the Board with additional technology experience to enhance the Board’s ability to provide informed and constructive challenge to management and therefore its effectiveness. Independent external search firm Spencer Stuart is undertaking a full search against this brief following searches previously undertaken by Egon Zehnder. Capturing the clear benefits of diversity of background and opinion is at the forefront of that search. Spencer Stuart and Egon Zehnder do not have any connection to Barclays or any of the Directors other than to assist with searches for executive and non-executive talent. Working alongside Spencer Stuart, the Committee has set rigorous criteria for the role it is seeking to fill, both in terms of experience and personal qualities, and has conducted an extensive search and selection process. The Committee continues to review the search remit and give further consideration to the desired skills and experience, in order to ensure due consideration is given to strong potential candidates. Open advertising for Board positions was not used this year. The Committee reviewed the Non-Executive Director selection and appointment process in 2020, which was refreshed in 2019, and concluded that no changes were required to the current process. Diversity We believe that diversity at Board, ExCo and senior management level – of gender, ethnicity, cognitive and personal strengths and social backgrounds – is an essential element in maintaining a competitive advantage and effective governance, as well as mitigating the risk of ‘group think’. The Board Diversity Policy, which has been adopted by the Board, confirms that the Committee will consider candidates on merit against objective criteria with due regard to the benefits of diversity when identifying suitable candidates for appointment to the Board. At the end of 2019 we had met our Board gender diversity target of 33%. Following changes in Board composition in 2020, as at 31 December 2020 the Board’s gender diversity was 25%. With the appointment of Julia Wilson (effective 1 April 2021) and Sir Ian Cheshire stepping down from the Board at the conclusion of the 2021 AGM, this will increase to 33%, in line with both the Board Diversity Policy and the Hampton Alexander Review target. In 2020, the Committee reviewed whether the level of the Board gender diversity target was still appropriate, given that it was set in 2018, and concluded that it should remain at 33%. Group-wide, Barclays has set a number of targets focused on creating more gender diversity in its wider workforce, including its ambition to achieve 28% female Managing Directors and Directors by the end of 2021. You can read more about gender diversity at Barclays, including data on the percentage of females at Managing Director and Director level, on Group ExCo and within ExCo direct reports and in Barclays’ wider workforce in Our people and culture section on pages 33 to 34. As at 31 December 2020, 17% of the Board was from an ethnically diverse background, meeting the recommendations contained within the Parker Review Committee Report into the Ethnic Diversity of UK Boards. Alongside the Board, the Committee continues to champion the Group’s Global Race at Work agenda, designed to reinforce Barclays’ zero tolerance stance on racism and improve opportunities and representation for ethnically diverse colleagues. In October, Barclays implemented a 12-point Race at Work action plan focused on opening up opportunities to attract, develop and add to our Black talent. The plan comprises a thorough set of actions, using data to set goals and measure success, and will be expanded in 2021 to include other ethnically diverse colleagues, as well as customers, clients and communities. You can find more information on diversity and inclusion, including Barclays’ Global Race at Work agenda and latest Ethnicity data within our wider workforce, in Our people and culture section on pages 33 to 37 and in our Diversity and Inclusion Report, which will be made available on our website. Succession Robust succession planning for both the Board and the ExCo takes into account current and future business needs and ensures a good balance of skills, experience and effectiveness while recognising the benefits of diversity. Effective succession planning should take into account contingency planning (for any unforeseen departures or unexpected absences), medium-term planning (orderly refreshing of the Board, Committees and the ExCo) and long-term planning (looking ahead to the skills that may be required on the Board and the ExCo in the future). A number of changes have been made this year to the composition of our ExCo in order to ensure that it continues to have the depth of skills and experience that we need to deliver our strategic ambitions. The Committee reviews and discusses all ExCo changes prior to announcement, taking into account executive succession plans, and considers all the changes to the ExCo composition during the year. You can find more information about the changes made to the composition of our ExCo on page 64. 084 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements With regard to Board succession planning, Tim Breedon will have been on the Board for nine years in November 2021 and Mike Ashley will have been on the Board for nine years in September 2022, and the Committee is giving further consideration to potential successors for their respective roles of Board Risk Committee Chair and Board Audit Committee Chair. Director training and development In accordance with its Terms of Reference available at home.barclays/who-we-are/ our-governance/board-committees, the Committee supports the Group Chairman in developing and monitoring effective induction, training and development for the Board. Opportunities for in-person Director training were more limited in 2020 as a result of social distancing guidance and as the Board and senior management focused on the Group’s response to the COVID-19 pandemic. However, Director training and development was supported through Board deep dives and through Risk deep dives and Function reviews described on pages 69 to 70. Risk deep dive topics covered in 2020 had a strategic focus and areas covered included Interest Rate Risk in the Banking Book and the implications of a low rate environment for the Group’s financial operating model. The Board also received an annual briefing on regulatory responsibilities, including the Senior Managers Regime and on Barclays’ conduct and financial crime policies and standards. Board induction schedules for incoming Non-Executive Directors were reviewed and refined, with sessions covering Board engagement, strategy, culture and people, finance, specific business areas, risk and controls, internal audit, governance matters and additional meetings with the business. Review of Board, Committee and individual Director effectiveness Progress against 2019 Board Effectiveness Review The 2019 review outlined the following key recommendations: ■■ that consideration be given to facilitating deeper discussion of complex issues without significantly increasing demands on the Board’s time ■■ that consideration be given to adding greater technology expertise to the Board, through greater external input or by looking to expand or adjust Board membership ■■ that consideration be given to increasing input to the Board from outside Barclays on a wider range of issues ■■ that the Barclays’ ongoing structured approach to workforce engagement should include appropriate opportunities for Board members to engage directly with employees. Barclays PLC Annual Report 2020 In 2020, progress was planned, and in some respects made, on each of these matters, but disruption due to the demands of the pandemic has made it difficult to achieve all the progress we would have liked. For example, we experienced increased pressure on the Board’s time and agendas, which often had to be revised at short notice to deal with urgent pandemic- related matters. The effect of this was that, first, it was often not possible to achieve the extent of debate and depth of discussion that had been planned before the pandemic; secondly, the scope for accommodating external input in addition to the considerable expertise on the Board was limited and, thirdly, opportunities for Board members to increase their direct engagement with the workforce were restricted. Notwithstanding this, we continued with searches for suitably qualified and experienced non-executive directors with technology expertise, although these have not yet yielded suitable candidates. In addition, while direct physical engagement with the workforce has been restricted, Board members did undertake virtual engagement where possible throughout the year, for example by way of virtual “town hall” meetings. We are committed to building on the progress made this year and, to the extent not fully addressed, we will carry these recommendations forward to 2021 and will take action to address them with the Board as appropriate. 2020 Board Effectiveness Review The 2020 Board effectiveness review was conducted internally, in line with the Code, and was led by the Group Company Secretary, overseen by the SID. The review followed a structured interview process with Board members, senior management and other stakeholders, including our auditors. The full and frank feedback of interviewees provides an important input into the further development of the performance and effectiveness of the Board, in particular in identifying areas in which the Board could be more effective. This feedback is shared with the Chairman and the other members of the Board by reference to the key themes and recommendations that have been identified. Feedback from this review indicated that the composition of the Board is considered to be strong, with the latest additions to the Board, Brian Gilvary, Dawn Fitzpatrick and Mohamed El-Erian each having settled in well, contributing meaningfully to the quality of discussion. Board members commented particularly favourably on the ‘tone from the top’ set by the Chairman and the other members of the Board, the strength and diversity of views of Board members contributing to a complete absence of ‘group think’ in discussions, the inclusive style of the Chairman and the healthy relationship developed with management. “Director training and development was supported through Board deep dives Challenge by the Board was considered to be strong yet constructive and collegiate. The Board is considered to have performed well through the pandemic, with the establishment of a COVID-19 Crisis Response Committee and its very regular cadence of meetings having enabled the Board to exercise close and effective oversight of the bank’s role in supporting customers, clients and colleagues while remaining secure and resilient, both operationally and financially, in a rapidly evolving and dynamic environment. 2020 Board Effectiveness Review: Recommendations ■■ The inevitable challenges of conducting Board meetings virtually and being unable to get together in person made it more challenging for the recently appointed Non-Executive Directors, in particular, and the Board as a whole, to build and deepen relationships both with each other and with management to the extent they would have liked. This was also perceived to have made it more difficult for those more recently appointed Directors to quickly gain an in-depth understanding of the bank and the key challenges facing it than would have been the case had travel and physical meetings been possible to a greater extent than they were in the last year. Consideration will be given to how best to address this both while the pandemic-related restrictions continue and once a degree of normalcy has been restored. ■■ While good progress has been made in holding more in-depth discussions at the Board on strategic matters, significant disruption to the Board’s agenda and increased pressure on the Board’s time due to the pandemic has meant that not all deep dive topics have benefited from as much debate and discussion as would have been optimal. This is being addressed in 2021 by scheduling fewer deep dives and allocating more time to each of them. Barclays PLC home.barclays/annualreport 085 Directors’ report: Board Nominations Committee report continued “Diversity at Board, ExCo and senior management level...is an essential element in maintaining a competitive advantage and effective governance, as well as mitigating the risk of ‘group think’ ■■ Once pandemic-related restrictions have been lifted, consideration should be given to providing more opportunities for Board members to visit parts of the business in person in order both to gain a broader understanding of the business and to help facilitate direct engagement with the workforce in those locations. ■■ There would be benefit in working with management to access opportunities to learn from, and to escalate more quickly, the insights gained from the handling of past issues and the reviews conducted of the root causes, and to embed those learnings into the business. The review concluded that the Board operated effectively throughout 2020, and continues to do so. Review of Nominations Committee effectiveness The 2020 Committee effectiveness review was conducted in accordance with the Code. This internal review involved completion of a tailored questionnaire by Committee members and senior management, in line with the approach adopted for all Board Committees in 2020. The review is an important part of the way Barclays monitors and improves Committee performance and effectiveness, maximising strengths and highlighting areas for further development. The results confirm that the Committee is operating effectively. This year’s review highlights that the Committee continues to be well constituted and that the role and responsibilities of the Committee are clear and well understood. The Committee’s interaction with the Board, Board Committees and senior management is considered effective. This year’s review noted that the Committee continued to operate effectively in the context of the COVID-19 pandemic. The review noted that the Committee may benefit from a more formalised meeting schedule. Due to the nature of the Committee’s roles and responsibilities this may not always be possible, but further consideration will be given to this during the year. In response to a request to provide feedback on interaction with subsidiary committees, the review noted that the Committee’s interaction with the BBUKPLC Board Nominations Committee had been effective. Following the consolidation of the membership of the Committee with the BBPLC Board Nominations Committee coverage of BBPLC within concurrent meetings was considered effective. Review of the effectiveness of the other Committees In addition to reviewing its own effectiveness, the Committee also reviewed the outcomes of the effectiveness reviews conducted by the Audit, Remuneration and Risk Committees, which had also been conducted by way of tailored questionnaire. You can read about those reviews in the individual Committee reports elsewhere in this Governance report. Following consideration of the findings of the 2020 Board and Board Committee effectiveness reviews, the Committee remains satisfied that the Board and each of the Board Committees are operating effectively. Individual Director effectiveness All Directors in office at the end of 2020 were subject to an individual effectiveness review which was conducted in early 2021. The Chairman considered each Director’s individual contribution to the Board as well as any feedback received as part of the broader Board and Committee effectiveness review. The reviews were conducted by the Chairman and the Chairman’s review was conducted by the SID. The Committee reviewed the independence of the Non-Executive Directors and, in the cases of Tim Breedon, Mike Ashley and Crawford Gillies, all of whom have served on the Board for more than six years, their independence was subjected to a more rigorous review. Based on these reviews, the Board accepted the view of the Committee that each Director to be proposed for re-election at the 2021 AGM continues to be effective and contributes to Barclays’ long-term sustainable success. In accordance with the Code, all of the current Directors of the Company, other than Sir Ian Cheshire who is stepping down from the Board at the end of the AGM, will be submitting themselves for election or re-election at the 2021 AGM to be held on 5 May 2021 and will be unanimously recommended by the Board for election or re-election as appropriate. As part of its decision in respect of Mr Staley, the Board has had regard to the conclusions it reached last year, which conclusions remain unchanged, in relation to the investigations by the PRA and the FCA, details of which were disclosed in our 2019 Annual Report and which remain ongoing. 086 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Directors’ report: Board Risk Committee report The Committee continues to work with management to position the Group conservatively in response to the heightened risk environment. Effective risk management in challenging times Dear Fellow Shareholders 2020 was a particularly challenging year for risk management, as the COVID-19 pandemic introduced new risks to the Group, as well as increasing the severity and correlation of those risks already being monitored and managed. During the first half of the year, the Committee focused on the emerging economic, market and operational impacts of the measures put in place by governments to slow the spread of the pandemic, as well as the effectiveness of the various extraordinary fiscal and monetary measures taken to mitigate the financial impact on companies and individuals. While the situation stabilised to some extent in the second half of the year as lockdowns proved reasonably effective in containing the virus and there were positive developments with respect to potential vaccines, the global economic, market and political situation remains difficult and the Committee continues to work with management to position the Group conservatively in response to the heightened risk environment. Financial risk The Committee monitored developments related to the COVID-19 pandemic closely, including transmission of the virus and associated operational and economic impacts. The mandatory lockdown measures imposed by governments globally resulted in sudden and severe GDP contractions in most major economies. However, government support measures and significant central bank policy easing acted to soften the negative effects to a degree. The Committee concentrated initially on the capital and liquidity stress on the Group, as precautionary drawing by clients on revolving credit facilities reduced cash holdings and inflated risk-weighted assets, which were also being pushed higher by general market volatility. As the stress continued, focus moved to assessing the short and medium-term Credit risk implications of rising unemployment and exposure to corporates in certain sectors, including, travel, leisure and consumer discretionary. Credit risk positioning was already conservative before the pandemic took hold, so the Committee reviewed any additional actions taken by management, comparing them with those envisaged under previous stress test scenarios. The economic shock also triggered a requirement to refresh the Group’s Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) and this exercise confirmed that the Bank continued to operate within its risk appetite. The Committee continued to review the performance of the UK and US consumer credit exposure portfolios and the impact which government support schemes and other support measures from central banks and regulators have had on these exposures. While performance has remained robust, the Committee noted the risk of rising delinquencies and further credit impairment as support schemes expire. In response to the economic and market impacts of the COVID-19 pandemic, central banks materially eased monetary policy, including cutting interest rates to record lows. This supported asset markets but increased margin pressure on banks resulting from very low or negative interest rates, while also presenting operational challenges. The Committee has reviewed the impact of low or negative interest rates on the Group on a number of occasions in recent years and impressed upon management the need to be prepared both operationally and financially for such an eventuality. Policy tools available to central banks to deal with further economic weakness have been limited; and the abundance of liquidity has influenced risk-pricing in financial markets. These factors have contributed to the potential for extreme market moves to occur. These risks have been actively managed by the Group’s Risk function, and the Committee has maintained regular oversight of the overall risk profile of the Group’s balance sheet and actions taken. The Committee also reviewed geopolitical risks, in particular deteriorating relations between the US and China. These risks present a threat to global growth recovery efforts. UK risks remained a focus for the Committee due to the economic uncertainty arising as the UK formally left the EU at the end of January 2020 and the transition period began. As negotiations regarding the future trading relationship with the EU remained ongoing throughout most of the year leading up to the eventual conclusion of the free trade agreement just before the end of the transition period on 31 December 2020, the Committee focused on the operational resilience of the Group in the face of the risk of the macroeconomic impact of a failure to negotiate such an agreement. During the year the Committee monitored developments in Oil & Gas markets, notably the severe stress in Q2 2020. The Committee reviewed in detail exposures in the Oil & Gas portfolio and potential losses from a sustained price stress. The Committee continues to manage Conduct risk following the dissolution of the Board Reputation Committee in 2019. In addition to focusing on the Conduct risk profile of the Group’s core businesses, the Committee has identified a number of key conduct themes requiring active management. Notable among these is the risk that, in response to the COVID-19 pandemic, rapid introduction of new products (such as Bounce Back Loans in the UK) or changes to existing products and practices (such as the granting of payment holidays) will be reviewed subsequently and found by regulators or other stakeholders to be inadequate in some way. The Committee has encouraged management to maintain focus on the Group’s established Conduct risk controls to minimise this risk, despite the rapidly changing environment. Finally, the Committee reviewed the significant enhancements the Group has made in its approach to the management of Climate change risk. The climate change stress test, which was first executed in 2019, was further developed in 2020 with enhancements to several climate change stress approaches. This exercise will support the Group’s response to the forthcoming Bank of England (BoE) industry-wide stress test. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 087 Directors’ report: Board Risk Committee report continued Operational risk Operational risk was heightened in 2020 due to the impact of the COVID-19 pandemic and, in particular, the Committee considered closely operational resilience, as the workforce largely switched to remote working. The operation of contact centres was particularly impacted by mandatory lockdown measures. The Committee focused, in particular, on efforts to restore capacity in call centres in order to support customers in financial difficulty. During the year, the Committee continued to monitor and challenge the progress being made in the identification, assessment and management of Operational risk. Two complementary risk management tools used by management are the Risk and Control Self Assessments (RCSAs) and Structured Scenario Assessments (SSAs). The RCSAs give ‘day-to-day’ coverage of the risk and control environment of the Group. They are built on a foundation of the actual processes the Group employs and the risks it faces from its activities. This approach enables management to improve identification and management of Operational risks going forward and also to review in detail risk events that have occurred in order to identify root causes. The SSAs are used to evaluate Operational risk arising from more extreme but plausible situations and so complement the RCSA approach; in combination they enable the Committee to oversee the risk the Group faces at both ends of the risk likelihood spectrum. The SSAs are also an important input to the Group’s Operational risk stress testing and capital frameworks. During the course of the year the Committee’s SSA focus was on reviewing the specific risk scenario of data privacy and misuse (a Conduct risk theme). Risk appetite and risk models One of the most important roles of the Committee is to recommend to the Board an appropriate risk appetite for the Group. This represents the amount of risk the Group is able to take to earn an appropriate return while meeting minimum internal and regulatory capital requirements in a severe but plausible stress environment. The Committee analyses Barclays performance in both its internally generated stress tests and those run externally by such bodies as the BoE, the European Banking Authority and the FRB and, following such analysis, will recommend adjustments to the Group’s overall risk profile. For the Group’s internal stress test, the Committee received a detailed briefing on the process being applied and was satisfied that the internally generated scenario was appropriately calibrated, and stressed particular vulnerabilities of the Group. The Committee was further satisfied that the Group would meet internal and regulatory requirements for capital and liquidity in such a scenario. The Committee continued to oversee the improvement of model risk management in the Group and the ongoing validation of the Group’s models, with specific progress and methodology enhancements in the model outputs supporting the Group’s stress tests, including the ICAAP and ILAAP. The Group’s models are the core foundation upon which the majority of its internal assessment processes run. The Committee is pleased to report that progress has continued during 2020 to embed the Model risk management framework as evidenced by an increasingly stable model inventory and further improvements in documentation and control. However, models remain a key risk area for the Group and the Committee is closely monitoring the development of the Group’s approach while noting that the extreme market and economic conditions experienced during 2020 will have affected the performance of many of the existing models in use. Risk function The Committee is responsible for ensuring the independence and effectiveness of the Risk function, whose primary role is the oversight and challenge of risk taking as the Second Line of Defence. It accomplishes this by establishing the policies, limits, rules and constraints under which first line activities shall be performed, consistent with the Group’s risk appetite and through monitoring the performance of the first line of defence against these policies, limits and constraints. The Committee’s responsibilities include designing a consistent classification of the risks faced by the Group in order to organise their management and reporting; designing and operating the process of setting risk appetite and material limits for the Group as a whole and its main entities; setting or approving strategies for approvals of transactions, and indeed approving significant individual agreements; and establishing key controls requirements to which customer-facing areas of Barclays must adhere in the conduct of their businesses. The Committee reviewed the Risk function’s own assessment of its capability in late 2020 which showed that the function continues to meet expectations in providing effective and independent oversight with strong stewardship and technical competency. The Committee also oversaw a number of changes to the senior management of the Risk function, including and consequent upon the appointment of the Group’s new Chief Risk Officer, Taalib Shaah. It was encouraging that these changes were achieved through internal succession, supporting the stability of the function. Compliance function The purpose of the Compliance function is to provide oversight of Conduct risk management practices as part of Barclays’ second line of defence. Compliance participates in the prevention, detection and management of breaches of applicable laws, rules, regulations and relevant procedures and has a key role in helping to strengthen the culture of Barclays and achieve the right conduct outcomes. The Committee supports the independence of the Compliance function from the operational functions so that it has sufficient authority, stature, resources and access to the management body. The Committee monitored the delivery of the Compliance function’s Annual Plan for 2020 and approved the Compliance Annual Plan for 2021. Committee effectiveness The 2020 Committee effectiveness review was conducted in accordance with the Code. This internal review involved completion of a tailored questionnaire by Committee members and senior management, in line with the approach adopted for all Board Committees in 2020. The review is an important part of the way Barclays monitors and improves Committee performance and effectiveness, maximising strengths and highlighting areas for further development. The results of the review were positive and indicated that the Committee is operating effectively; and that it is well constituted and provides an effective and broad level of challenge and oversight of the areas within its remit. The Committee was considered to be both challenging and influential, providing strong support to the new Group Chief Risk Officer. The review noted that the Committee has a broad remit having taken on oversight of Conduct and Compliance matters in 2019 following the disbanding of the Reputation Committee and that a continued focus on these areas was considered to be beneficial. The review concluded that the Committee’s interaction with the Board, Board Committees and senior management is considered effective. Following the consolidation of the membership of the Committee with the BBPLC Risk Committee, coverage of BBPLC matters within concurrent meetings was considered appropriate. In particular, this year’s review noted that the Committee continued to operate effectively in the context of the COVID-19 pandemic and that recent appointments to the Committee had strengthened its depth of experience. 088 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Changes to Committee composition I am pleased to have been able to welcome to the Committee Dawn Fitzpatrick and Mohamed A. El-Erian during 2020 and Brian Gilvary at the beginning of 2021, who together will add considerable relevant experience and expertise to the Committee. Looking ahead In 2021, the Committee will continue to focus on the impact of the external environment on the Group’s risk profile, particularly with regard to the ongoing impact of the COVID-19 pandemic, the consequences of the UK’s withdrawal from the EU, broader geopolitical developments following the US presidential election in November 2020 and the impact of initiatives to limit the extent of climate change. Tim Breedon Chair, Board Risk Committee 17 February 2021 Committee meetings During 2020, the Committee met 11 times and the chart opposite shows how it allocated its time during those meetings. Given the COVID-19 pandemic, meetings were primarily held by video and audio conference. Attendance by members at Committee meetings is shown opposite. Committee meetings were attended by representatives from management, including the Group Chief Executive Officer, Group Finance Director, Group Chief Internal Auditor, Group Chief Risk Officer, Group Treasurer, Group Chief Compliance Officer and Group General Counsel, as well as representatives from the businesses and other representatives from the Risk function. The lead audit engagement partner of KPMG, Michelle Hinchliffe, also attended Committee meetings. The Committee held a number of separate private sessions with the Group Chief Risk Officer and the Group Chief Compliance Officer, which were not attended by management. Committee roles and responsibilities The Committee is responsible for reviewing on behalf of the Board management’s recommendations on the Principal Risks as set out in the Group’s Enterprise Risk Management Framework (ERMF) with the exception of Reputation risk, which is a matter reserved to the Board and in particular: ■■ reviewing, on behalf of the Board, the management of those Principal Risks in the ERMF ■■ considering and recommending to the Board the Group’s risk appetite and tolerances for those Principal Risks ■■ reviewing, on behalf of the Board, the Group’s risk profile for those Principal Risks commissioning, receiving and considering reports on key risk issues ■■ safeguarding the independence, and overseeing the performance, of Barclays’ Risk and Compliance functions. The Committee’s terms of reference are available at home.barclays/ corporategovernance Board Risk Committee Committee members Member Tim Breedon Mike Ashley Mary Anne Citrino (1 Jan 2020 – 30 Sept 2020) Mohamed A. El-Erian (1 July 2020 onwards) Dawn Fitzpatrick Diane Schueneman Note * Brian Gilvary joined the Committee on 1 January 2021. Meetings attended/ eligible to attend* 11/11 11/11 7/9 5/5 11/11 11/11 Committee allocation of time % 2020 2019 39 45 9 7 46 39 10 5 Risk profile/appetite (including capital and liquidity management) Key risk issues/monitoring Internal control/risk policies Other (including remuneration and governance issues) Note Including ad hoc meetings. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 089 Directors’ report: Board Risk Committee report continued Primary activities The Committee has discharged its responsibilities diligently in 2020, reviewing Group exposures in the context of the current and emerging risks facing Barclays. It has sought to promote a strong culture of disciplined risk management. Areas of focus Matters addressed Role of Committee Conclusion/action taken Risk appetite and stress testing i.e. the level of risk the Group chooses to take in pursuit of its business objectives, including testing whether the Group’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic scenarios. The risk context to the MTP, the financial parameters and constraints and mandate and scale limits for specific business risk exposures; the 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 BoE. ■■ To advise the Board on the appropriate risk appetite and tolerance for the Principal Risks, including the proposed overall Group risk appetite and limits. ■■ To discuss and agree stress loss and mandate and scale limits for Credit risk, Market risk and Treasury and Capital risk. ■■ To consider and approve internal stress test themes and the financial constraints and scenarios for stress testing risk appetite for the MTP. ■■ To evaluate the results of the BoE’s annual cyclical stress (ACS) test and the BoE’s Biennial Exploratory Scenario. ■■ To consider the feedback from the FRB on the Barclays US LLC’s Comprehensive Capital Analysis and Review (CCAR) following the submission of the CCAR stress test results. Early in the year the Committee reviewed and recommended the proposed risk appetite to the Board for approval, and discussed and approved the mandate and scale limits for the Group during 2020, which included changes to A-level stress loss limits. Subsequent changes were approved during the course of the year. The Committee reviewed proposed enhancements to the Group’s stress testing processes and models such as taking into account structural projections. The Group was not required to conduct an ACS test during the period under review, although, later in 2020 in the context of the consideration of the MTP and risk appetite for 2021, the Committee considered and approved the stress scenarios for an Internal Stress Test, a Reverse Stress Test and a climate change stress test. The Committee received updates on the positive qualitative and quantitative results of the 2020 CCAR submission to the FRB, which for the first time had been run during a period of stress, demonstrating significant progress on remediation of certain areas following regulatory feedback from the FRB. Subsequently, the FRB required US banks, including Barclays US LLC, to resubmit capital plans using new supervisory and internal baseline stress scenarios, which were reviewed by the Committee. In the context of the Company’s strategic planning process, the Committee continued periodically throughout the year to review and/or approve the risk appetite statement consisting of both quantitative constraints and qualitative risk appetite statements by various Principal Risks. 090 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Areas of focus Matters addressed Role of Committee Conclusion/action taken The trajectory to achieving required regulatory and internal targets and capital and leverage ratios. Capital and funding i.e. having sufficient capital and financial resources to meet the Group’s regulatory requirements and its obligations as they fall due, to maintain its credit rating, to support growth and strategic options. ■■ To review, on a regular basis, capital performance against plan, tracking the capital trajectory, any challenges and opportunities and regulatory policy developments. ■■ 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 Group’s 2020 ICAAP and the Group’s 2020 ILAAP. During the course of the year the Committee noted regulatory feedback on the ICAAP and ILAAP, reviewed updates to the ICAAP and ILAAP to reflect the impact of the COVID-19 pandemic, overseeing a continued improvement in processes and a refresh of both ICAAP and ILAAP in the fourth quarter. The Committee examined and supported the forecast capital and funding trajectory and the actions identified by management to manage the Group’s capital position, taking into account the impact of the COVID-19 pandemic, uncertainties relating to the end of the post-Brexit transition period and other macroeconomic factors. Following the outbreak of the COVID-19 pandemic, the Committee reviewed and scrutinised the Group COVID-19 stress scenarios, reflecting the adoption of more prudent assumptions given the Company’s assessment of the economic impact of the pandemic. The extent of the economic shock triggered a requirement to re-run key aspects of the ICAAP and ILAAP. The Committee noted amendments to the individual allocation of risk appetite by business and risk type in light of the pandemic and acknowledged that at all times the Company had remained within its overall Risk Appetite. The Committee has also received and considered regular updates on the potential risk impacts of LIBOR transition and negative interest rates. The Committee monitored the Group’s performance throughout the year in light of the COVID-19 pandemic, including considering the impact of government support schemes and other support measures from central banks and regulators. The Committee monitored potential post-Brexit risk impacts and, in particular, considered the risk of there being no free trade agreement between the EU and the UK in place at the end of the transition period. The Committee also considered the possibility of negative interest rates being introduced by the BoE following a post-Brexit shock or as part of its COVID-19 support measures to the UK economy, reviewing in particular any potential impact to the Group’s capital and liquidity positions. The Committee monitored the Group’s performance in light of a backdrop of uncertain global political and economic conditions, with particular focus on tensions in the Eurozone and also in China, following the introduction of new security laws in Hong Kong. Political and economic risk i.e. the impact on the Group’s risk profile of political and economic developments and macroeconomic conditions. The potential impact on the Group’s risk profile of geopolitical developments, as well as continuing to monitor the political and economic impact of post-Brexit transition period scenarios. ■■ To consider the impact of COVID-19 on the business directly and indirectly. ■■ To review and discuss plans for the impacts of Brexit under various post- transition period scenarios. ■■ To consider trends in the UK and US economies. ■■ To assess the geopolitical tensions in both the Eurozone and China. ■■ To review potential consequences of the BoE statement regarding negative interest. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 091 Directors’ report: Board Risk Committee report continued Areas of focus Matters addressed Role of Committee Conclusion/action taken Credit risk i.e. the potential for financial loss if customers fail to fulfil their contractual obligations. Conditions in the UK housing market; levels of UK consumer indebtedness; unemployment levels in the US and UK; 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 Group’s operational risk capital requirements and any material changes to the Group’s operational risk profile and performance of specific operational risks against agreed risk appetite. Model risk governance. 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. ■■ To assess conditions in the UK property market and monitor signs of stress. ■■ To monitor management’s tracking and responding to persistent rising levels of consumer indebtedness, particularly unsecured credit in both the UK and US. ■■ To monitor unemployment trends and COVID-19 pandemic financial support incentives, particularly in both the UK and US. ■■ To review leveraged finance portfolios in order to assess maintenance within risk appetite and manageable limits. ■■ To review business development activities in the CIB. ■■ 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 SSAs which had been created to support assessments and management of tail risk within the business, stress testing and risk tolerance. ■■ To evaluate the appropriateness of the 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. The Committee reviewed the risk aspects associated with the Group’s support of customers through the COVID-19 pandemic in line with the UK government’s expectations, including (among other things) payment holidays and forbearance for customers in financial difficulty. The Committee considered the appropriate capital and impairment treatment for customers exiting payment holidays and the risk of more severe economic stress. The Committee considered the risks arising from the participation of BBUKPLC in the CBILS and BBLS government loan schemes, in particular the potential default rate arising from conduct, legal, operational, fraud, AML/KYC and look-back risks associated with exposures under such schemes. The Committee noted that the deteriorating economic outlook was expected to lead to delinquencies and impairment. The Committee assessed the risks associated with mortgage collateralisation of loans relating to the UK housing market, given the increase in Barclays’ market share, noting that exposure to high LTV loans was low. The Committee received updates on the risks from the CIB. The Committee noted that the equities business and the structured hedging programmes had held up well during the pandemic, as had leveraged finance. The Committee focused attention on the financial and capital implications of operational risk throughout the year, particularly in light of the impact of the COVID-19 pandemic as the workforce largely switched to remote working. The Committee approved and recommended the 2020 Operational Risk Appetite Statement to the Board, which included increased financial loss limits for fraud and transaction operations. Due to the COVID-19 pandemic, the Operational risk profile of the Group increased to a material extent. The Committee focused on ensuring that the technology systems remained stable and that heightened fraud monitoring and cybersecurity was in place. The Committee was briefed by management as part of a specific Operational risk deep dive on various Key Risks, including those relating to settlements, erroneous payments, suppliers, cybersecurity and wellbeing (the Committee being concerned for colleague wellbeing within the Group in light of the pandemic and the risks arising from any adverse impact on levels of colleague engagement). The Committee reviewed updates to practices in relation to the new and amended products approval process, which were of particular interest to regulators in light of the pandemic. The Committee scrutinised management’s proposals in relation to managing Model risk, which increased during the year as a result of the consequences of the COVID-19 pandemic, given that models needed to be adjusted, re-built and/or re-calibrated given the unprecedented nature and impact of the COVID-19 pandemic. The Committee noted the importance of Post-Model Adjustment and scrutiny by the Independent Valuation Unit, particularly in the context of provisioning against impairment. 092 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Areas of focus Matters addressed Role of Committee Conclusion/action taken Risk framework and governance The frameworks, policies and tools in place to support effective risk management and oversight. ■■ To track the progress of significant risk management projects, achieving compliance with the Basel Committee for Banking Supervision (BCBS239) risk data aggregation principles and the RCSA process across the Group. ■■ To assess risk management matters raised by Barclays’ regulators and the actions being taken by management to respond. ■■ To review the design of the ERMF. Remuneration The scope of any risk adjustments to be taken into account by the Board Remuneration Committee when making remuneration decisions for 2020. ■■ 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 2020. The Committee monitored the delivery of projects susceptible to the impact of significant risks, notably the COVID-19 pandemic, macroeconomic developments, post-Brexit trade deal uncertainties, climate change, stress testing and cyberattacks. The Committee discussed and approved an annual refresh of the Principal Risks Framework, which was supported by the ERMF and included climate change references within each Principal risk, it being decided that Climate risk would become one of the Principal Risks within the ERMF from 2022. The Committee reviewed reports from management prepared in light of the current macroeconomic environment, which showed that management had created various ‘watch list’ categories based on particular sectors and the severity of their credit deterioration, which were aligned to the IFRS 9 staging approach. The Committee reviewed the performance of the Group’s activities as against its RCSAs, noting that the overall residual risk continued to decrease, driven by the continued focus on controls remediation, the RCSA process being key to supporting a robust and effective risk and control culture within Barclays. The Committee continued to monitor management’s progress in achieving compliance with all aspects of BCBS239, receiving updates on the level of implementation during the year and progress made towards achieving full compliance by early 2021. The risk related guidance or review reports received from regulators and related management responses were reported to, and reviewed by, the Committee in a timely manner during the year. The Committee also received updates during the year from BIA in relation to its assessments following audits in relation to the Risk, as well as the Compliance function. The Committee discussed the report of the Group Chief Risk Officer and considered the 2020 ex-ante risk adjustment methodology, which had been updated to address feedback from the Board’s Remuneration Committee and, in particular, in relation to ‘Conduct’ measures. The Committee noted the impact of the COVID-19 pandemic on Conduct risk which would in turn impact remuneration decisions. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 093 Directors’ report: Board Risk Committee report continued Areas of focus Matters addressed Role of Committee Conclusion/action taken Conduct Risk i.e. the risk of detriment to customers from the inappropriate supply of financial services. Conduct robust reviews of any current and emerging risks arising from the inappropriate provision of financial services, including instances of wilful negligent misconduct. ■■ To receive updates from management on Conduct risk and consider performance against key Conduct risk indicators and the status of initiatives in place to address those risks to further strengthen the culture of the business. ■■ To review the effectiveness of the Conduct risk framework and approve any amendments to it. ■■ To review the Compliance function’s Annual Compliance Plan. The Committee reviewed Compliance’s contribution in supporting Barclays’ response to the COVID-19 pandemic through the monitoring of areas of heightened Conduct risk and overseeing the implementation of additional controls, particularly in the context of ongoing remediation activities and monitoring working from home arrangements, new products and reprioritisation of risks. During the year the Committee assessed the Conduct themes in the context of Conduct risk. Towards year end the Committee approved the revised Conduct risk management framework. During the year the Committee reviewed the Compliance function’s performance of activities against its Compliance Plan for 2020; and towards year end approved the Annual Compliance Plan for 2021. 094 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for our colleagues Prioritising wellbeing helped us through I’ve learned the importance of physical and mental wellbeing at work over the past year. Like so many others, I lost friends and family due to COVID-19 and suffered from the anxiety that came from the pandemic and the various lockdowns. My managers at Barclays were generous in giving me time and support when I needed it most. So, it was important for me to ensure the team I oversaw felt the same sense of commitment and care. We benefited from the creation of an online wellbeing portal with a growing store of practical resources, and a variety of hands-on virtual events that allowed us to share personal stories and advice. The Barclays Cycling Club was also a real help. We had a number of virtual rides that helped me spend time by myself uninterrupted. As a result, we have become closer as a team and created a balance that has helped us, our families, and our customers cope better with some of the issues we’ve faced. It was important to ensure my team felt the same sense of commitment and care. Push Gumaste Global Head of International Corporates, Corporate Banking London Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 095 Directors’ report: How we comply For the year ended 31 December 2020, and as at the date of this report, Barclays PLC has complied in full with the Code’s principles and provisions. How we comply The UK Corporate Governance Code As Barclays PLC is listed on the London Stock Exchange, we apply the principles and provisions of the Code, as set out below. Barclays PLC is reporting against the requirements of the latest version of the Code in this Annual Report, which was published in 2018. A copy of the Code can be found at frc.org.uk. For the year ended 31 December 2020, and as at the date of this report, we are pleased to confirm that Barclays PLC has complied in full with the Code’s principles and provisions. 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 102 to 104. 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’ Form 20-F filing, which can be accessed from the Securities and Exchange Commission’s EDGAR database or on our website, home.barclays. 096 Barclays PLC home.barclays/annualreport Board leadership and company purpose Role of the Board As highlighted earlier in this report, our governance is structured to deliver an effective and entrepreneurial Board which: ■■ is effective in providing challenge, advice and support to management ■■ provides checks and balances and encourages constructive challenge ■■ drives informed, collaborative and accountable decision-making ■■ creates long-term sustainable value for our shareholders, having regard to our other stakeholders. Culture The Barclays Way sets the framework for achieving a dynamic and positive culture. The Board supports The Barclays Way and the Barclays Purpose and Values. It promotes personal accountability and leadership and monitors our culture to satisfy itself as to the alignment of Barclays’ culture to its Purpose, Values and strategy. See page 146 for more details. Our whistleblowing policy enables employees to raise any matters of concern anonymously and is embedded into our business. For more detail please refer to page 78 of the Board Audit Committee report. Relations with shareholders and stakeholders The Board recognises the importance of listening to, and understanding the views of stakeholders in order to inform the Board’s decision-making. You can read more about how we engage with our stakeholders, including what they told us in 2020 and how we responded, including in relation to the Group’s climate change strategy and responding to challenges arising from the COVID-19 pandemic, in our Strategic report on pages 16 to 21. Our comprehensive Investor Relations engagement helps the Board to understand investor views about Barclays, which are communicated regularly to the Board; and our Group Chairman engages with shareholders on governance and related matters. Our Investor Relations programme was adjusted to a virtual format for 2020 which ensured we enjoyed a high level of activity with existing and target investors despite restrictions on face to face meetings. Our shareholder communication guidelines are available on our website at home.barclays/ investorrelations. Institutional investors In 2020, the Directors, in conjunction with the senior executive team and Investor Relations colleagues, participated in a number of virtual investor meetings, seminars and conferences across many locations, given ‘in-person’ meetings were limited due to the COVID-19 pandemic. We held conference calls/webcasts for our quarterly results briefings and an in-person presentation of our 2019 full year results for both our equity and fixed income investors. During 2020, discussions with investors included, but were not limited to: ■■ credit conditions and our ability to manage risk appropriately through the COVID-19 pandemic ■■ the impact of low interest rates and reduced levels of consumer spending on our income generation ■■ regulatory restriction on dividends across all UK banks, to allow continued support for the economy ■■ Barclays’ commitment to tackling climate change. Private shareholders During 2020, we continued to communicate with our private shareholders through shareholder mailings and through the information available on our website and through our AGM. Although shareholders were unable to attend in person due the COVID-19 pandemic, shareholders were able to submit questions ahead of the AGM and all questions were responded to individually and answers to frequently asked questions were published on our website. Shareholders can also choose to sign up to Shareview so that they receive information about Barclays PLC and their shareholding directly by email. We continue to endeavour to trace shareholders who did not take up their share entitlement following the Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Rights Issue in September 2013, and offered a Share Dealing Service aimed at shareholders with relatively small shareholdings for whom it might otherwise be uneconomical to deal in Barclays shares. For more detail, please see pages 54 to 55. Resolution 30 and they explained to Barclays, either in writing or orally, in the course of that engagement their reasons for supporting Resolution 30. Barclays has thus gained a clear understanding of the reasons behind the voting outcome in respect of Resolution 30. The 2020 AGM The Board was disappointed that the 2020 AGM was impacted by the COVID-19 pandemic and shareholders were unable to attend in person. The Board and the senior executive team consider our AGM to be a key opportunity for shareholder engagement, particularly with our private shareholders and for shareholders to ask questions of the Board. A number of Directors, including the Group Chairman, are normally available for informal discussion before or after an AGM. Given that shareholders were unable to attend in person, they were strongly encouraged to submit questions to the Board in advance of the meeting. All questions received were answered individually and answers to frequently asked questions were published on our website. Voting in respect of all of the resolutions proposed by the Board at the 2020 AGM was conducted by way of a poll, thereby giving weight to the number of shares held by shareholders rather than simply attributing a notional one vote to each shareholder voting. With the exception of the shareholder requisitioned Resolution 30, all resolutions were passed with votes ‘For’ ranging from 90.60% to 99.93% of the total votes cast. A climate change resolution (Resolution 30) was requisitioned by a group of shareholders co-ordinated by ShareAction. The resolution was not supported by the Board, which proposed its own climate change resolution (Resolution 29) and recommended that shareholders vote in favour of Resolution 29 and not Resolution 30. After dialogue, ShareAction and many of the co-filers of Resolution 30 recommended that shareholders vote in favour of both Resolution 29 and Resolution 30. Resolution 29 (the resolution recommended by the Board) was duly passed with overwhelming shareholder support (with 99.93% of votes cast, representing 68.8% of the register, being in favour of that resolution). Resolution 30, which was not supported by the Board, was not passed, and the level of shareholder support for it fell well short of the 75% majority required for it to pass. 23.95% of the votes cast were cast ‘For’ Resolution 30, representing 14.35% of the register. Based on its extensive engagement with shareholders prior to the AGM, which involved discussions with shareholders holding a very significant percentage of Barclays’ share capital, Barclays understands from those shareholders spoken to who voted in favour of Resolution 30 why they did so. Those shareholders represent a very large proportion of the votes cast ‘For’ Barclays PLC Annual Report 2020 Following the 2020 AGM, to begin the process of embedding into the business the changes required by Resolution 29, the Board approved the creation of a new ExCo role focused on driving the execution and evolution of Barclays’ climate strategy. On 30 November 2020, Barclays published an update on its climate strategy, detailing the methodology it will follow, the metrics for measuring its progress and the targets against which it will report, all of which were developed with the help of a range of stakeholders. For more information on Barclays’ climate strategy, please see pages 39 to 44 and the Barclays ESG Report. Looking ahead to the 2021 AGM, the Board currently intends to hold the AGM on 5 May 2021 at 11:00am, subject to the ongoing COVID-19 pandemic and any UK Government guidance on social distancing, non-essential travel and/or public gatherings. Guidance on whether physical attendance by shareholders will be possible will be determined nearer the time of the AGM. We will keep the considerable benefits of shareholder engagement in the AGM at the forefront of our planning for the 2021 AGM. Further details will be provided in the Notice of AGM. In the future, and when circumstances permit, the Board expects to alternate AGM venues between London and a venue other than London where Barclays has a significant business or customer presence. Stakeholder engagement The Board continues to seek to understand all stakeholders’ views, and the impact of our behaviour and business on customers and clients, colleagues, suppliers, communities and society more broadly. Accordingly, the Board monitors key indicators across areas such as culture, citizenship, conduct, and customer and client satisfaction on an ongoing basis. In 2020, we engaged extensively with shareholders and other stakeholders (including proxy advisory agencies and investor associations) on key topics including our commitment to tackle climate change and our response to the COVID-19 pandemic. Please see our Section 172 Statement on pages 18 to 21 for further information about our engagement with our four priority stakeholder groups – customers and clients, colleagues, society and investors. We will publish the Barclays ESG Report at the same time as this Report, which will be made available on our website at home.barclays/ annualreport. Throughout 2020, we have engaged with our stakeholders through a variety of means including surveys, participation in forums and global and regional industry initiatives. As a result of COVID-19, many of our events this year have been web based, although where possible we have supported key workers with site visits. This will continue in 2021, subject again to the constraints arising from the pandemic. For further detail about how we engaged with our customers and clients, colleagues, society and investors in 2020, including what they told us and how we responded, please see our Strategic report on pages 16 to 21. Colleague engagement The Group has a long-standing commitment to the importance and value of colleague engagement. Our colleagues make a critical difference to our success, and our investment in them protects and strengthens our culture. In addition to our annual employee survey, in 2020 we ran regular ‘Here to Listen’ surveys to understand how colleagues were feeling during the COVID-19 pandemic with a specific focus on wellbeing, working remotely and work/life balance. You can read more about our commitment to our colleagues and our workforce engagement, including survey results and our support of colleagues during the COVID-19 pandemic, in our People and culture section on pages 33 to 37 and in our Strategic report on pages 16 to 21. Conflicts of interest In accordance with the Companies Act 2006 and Barclays PLC Articles of Association (the Articles), the Board has the authority to authorise conflicts of interest and this ensures that the influence of third parties does not compromise the independent judgement of the Board. 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 Group. The Group Company Secretary maintains a conflicts register, which is a record of actual and potential conflicts, together with any Board authorisation of the conflicts. 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 these authorisations at any time. Barclays PLC home.barclays/annualreport 097 Directors’ report: How we comply continued Division of responsibilities Roles on the Board Executive and Non-Executive Directors share the same duties. However, in line with the principles of the Code, a clear division of responsibilities has been established. The Group Chairman is responsible for: ■■ leading the Board and its overall effectiveness ■■ demonstrating objective judgement ■■ promoting a culture of openness and constructive challenge and debate between all Directors ■■ facilitating constructive board relations and the effective contribution of all Non-Executive Directors ■■ ensuring Directors receive accurate, clear and timely information. Responsibility for the day-to-day management of the Group is delegated to the Group Chief Executive Officer who is supported in this role by the ExCo. Further information on the membership of the ExCo can be found on page 64. 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 Group Chairman, Group Deputy Chairman (to the extent one is required), the SID, Non-Executive Directors, Executive Directors and Committee Chairs. Consistent with our Charter of Expectations, the Non-Executive Directors provide effective oversight and scrutiny, strategic guidance and constructive challenge, while holding the Executive Directors to account against their agreed performance objectives. The Non- Executive Directors, led by the Nominations Committee, have primary responsibility for the appointment and removal of the Executive Directors. The SID provides a sounding board for the Group 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. The Charter of Expectations is reviewed annually to ensure it remains relevant and accurately reflects the requirements of the Code, the Regulations and industry best practice. A copy of the Charter of Expectations can be found at home.barclays/who-we-are/ our-governance/board-responsibilities Information provided to the Board It is the responsibility of the Group Chairman to ensure that Board agendas are focused on key strategy, risk, performance and other value creation issues, and that members of the Board receive timely and high-quality information to enable them to make sound decisions and promote the success of Barclays PLC. Working in collaboration with the Group Chairman, the Group Company Secretary is responsible for ensuring good governance and information flow, to ensure an effective Board. Throughout the year, both the Executive Directors and senior executives kept the Board informed of key business developments through regular 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. Attendance Directors are expected to attend every Board meeting. In 2020, attendance was very strong both at scheduled and additional meetings (including those called at short notice), as reflected in the table below. The Group Chairman met privately with the Non-Executive Directors on at least three occasions. If, owing to exceptional circumstances, a Director was not able to attend a Board meeting, he or she ensured that his or her views were made known to the Group Chairman in advance of the meeting. In addition, the SID met the other Non-Executive Directors individually, without the Group Chairman, to appraise the Group Chairman’s performance, the details of which are included on page 86. Due to the circumstances of the pandemic, the Board met an additional six times during the course of the year. The high level of attendance at these additional meetings, many of which were scheduled at short notice, is a testament to the commitment of each of our current Directors. Board attendance in 2020 Independent/Executive Chairman Nigel Higgins Executive Directors Jes Staley Tushar Morzaria Non-Executive Directors Mike Ashley Tim Breedon Sir Ian Cheshire Mohamed El-Erian Dawn Fitzpatrick Mary Francis Crawford Gillies Brian Gilvary Diane Schueneman Former Directors Mary Anne Citrino On appointmenta Executive Director Executive Director Independent Independent Independent Independent Independent Independent Senior Independent Directorb Independentc Independent Independent Scheduled meetings eligible to attend Scheduled meetings attended % attendance Additional meetings eligible to attend Additional meetings attended 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 5 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 71% 6 4 4 6 6 6 6 6 6 6 6 6 6 6 4 4 6 5 6 6 6 6 6 6 6 5 a As required by the Code, the Chairman was independent on appointment. b Brian Gilvary did not succeed Crawford Gillies as Senior Independent Director until 1 January 2021. c As above. 098 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Board Committee cross-membership The table below shows the number of cross-memberships of the Non-Executive Directors across the Board Committees as at 31 December 2020. Board Audit Committee Board Nominations Committee Board Remuneration Committee Board Risk Committee Board Remuneration Committee Board Nominations Committee 3 1 4 3 2 1 commitment expected for the role of Non- Executive Directors and the other Non- Executive positions on the Board. Time Commitment Role Chairman Expected time commitment Equivalent to up to 80% of full-time position. Senior Independent Director As required to fulfil the role. Non-Executive Director Committee Chairs 35-40 days per year (membership of one Board Committee included, increasing to 50 days a year if member of two Board Committees). At least 80 days per year (including Non- Executive Director time commitment) for Audit and Risk Committee Chairs and at least 60 days for the Remuneration Committee Chair. Where circumstances require it, all Directors are expected to commit additional time as necessary to their work on the Board. The Group Company Secretary maintains a record of each Director’s commitments. For the year ended 31 December 2020 and as at the date of publication, 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. Composition of the Board In line with the requirements of the Code, a majority of the Board is comprised of independent Non-Executive Directors. Our Nominations Committee considers the independence of our Non-Executive Directors annually, having regard to the independence criteria set out in the Code. As part of this process, our Nominations Committee keeps under review the length of tenure of all Directors, which can affect independence, and makes any recommendations to the Board accordingly. The independence of Tim Breedon, Mike Ashley and Crawford Gillies, all of whom have served on the Board for more than six years, was subjected to a more rigorous review. The Nominations Committee remains satisfied that the lengths of their tenure have no impact on their respective levels of independence or the effectiveness of their contributions. The Board considers all of the Non-Executive Directors to be independent. During 2020, both Matthew Lester and Mary Anne Citrino stepped down from the Board. Neither raised any concerns about the operation of the Board or management. You can read more about the changes to Board composition in 2020 and steps taken to further strengthen the Board in the report of our Nominations Committee on pages 82 to 86. Time commitment All potential new Directors are asked to disclose their other significant commitments. The Nominations Committee then takes this into account when considering a proposed appointment to ensure that Directors can discharge their responsibilities to Barclays effectively. This means not only attending and preparing for formal Board and Board Committee meetings, but also making time to understand the business and to undertake training. As stated in our Charter of Expectations, the time commitment is agreed with each Non-Executive Director on an individual basis. In addition, all Directors must seek approval before accepting any significant new commitment. Set out on this page is the average time Barclays PLC Annual Report 2020 Composition, succession and evaluation We have a Nominations Committee, the purpose and activities of which are contained in the Nominations Committee Report on pages 82 to 86. Board appointments All appointments to the Board and senior management are viewed through a diversity lens and are based on merit and objective criteria, which focus on the skills and experience required for the Board’s effectiveness and the delivery of the Group strategy. Board appointments are made following a rigorous and transparent process facilitated by the Nominations Committee, with the aid of an external search consultancy firm. You can read more about the work of the Nominations Committee on pages 82 to 86. Diversity across the Group remains a key area of focus. For more detail on our actions to increase diversity please see our People and culture section on pages 33 to 37. The Nominations Committee regularly reviews the composition of the Board, Board Committees and the ExCo. It frequently considers the skills required for the Board, its Board Committees and the ExCo, identifying the core competencies, diversity and experience required. This, along with the annual evaluation, helps to refresh the thinking on Board, Board Committee and ExCo composition and to determine a timeline for proposed new appointments. For the Board, it is standard practice to appoint any new Non-Executive Director or Chair for an initial three-year term, subject to annual re-election at the AGM, which may be extended for up to a further three-year term. As such, Non-Executive Directors typically serve up to a total of six years. All Directors are subject to election or re- election each year by shareholders at the AGM. Barclays PLC home.barclays/annualreport 099 Directors’ report: How we comply continued Each year we carry out an effectiveness review in order to evaluate our performance, as a Board, as well as the performance of each of the Board Committees and individual Directors. More information on the 2020 Board evaluation and effectiveness review can be found on pages 85 to 86. Our Board members’ biographies showing their relevant skills and experience, Board Committee memberships and other principal appointments can be found on pages 60 to 63. Details of changes to the Board in 2020 and up to the date of this Report are disclosed on page 65. The service contracts for the Executive Directors and the letters of appointment for the Group Chairman and Non-Executive Directors are available for inspection at our registered office and at the AGM. Induction On appointment to the Board, all Directors receive a comprehensive induction that is tailored to the new Director’s individual requirements. The induction schedule is designed to provide the new Director with an understanding of how the Group works and the key issues that it faces. The Group Company Secretary consults the Group Chairman when designing an induction schedule giving consideration to the particular needs of a new Director. When a Director is joining a Board Committee, the schedule includes an induction to the operation of that committee. Following their appointment, Mohamed A. El-Erian and Brian Gilvary have received such inductions. They have each met with the Group Company Secretary, the current Non-Executive Directors, members of the ExCo and certain other senior executives as part of that process. 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 as required. Opportunities for Director training were more limited in 2020 as a result of social distancing guidance and as the Board and senior management focused on the Group’s response to the COVID-19 pandemic. However, training and development was also supported through the Board deep dives, Risk deep dives and Function reviews described on pages 69 to 70. In addition, the Board received its annual briefing on regulatory responsibilities, including the Senior Managers Regime. Audit, Risk and Internal Control Accountability Internal governance processes have been developed to ensure the effective operation of the individual boards and board committees of each of BPLC, BBUKPLC and BBPLC respectively, in recognition of the fact that this is key to the development and execution of the Group’s strategy. Generally, there is one set of rules for the Group. Group-wide frameworks, policies and standards are adopted throughout the Group unless local laws or regulations (for example, the ring-fencing obligations applicable to BBUKPLC) require otherwise, or the ExCo decides otherwise in a particular instance. The Board has a Board Audit Committee and a Board Risk Committee. The purposes and activities of the Board Audit and Board Risk Committees are contained within their respective reports on pages 72 and 87 respectively. Internal and external audit functions The Board, together with the Board Audit Committee, is responsible for ensuring the independence and effectiveness of the internal and external audit functions. For this reason, the Board Audit Committee members met regularly with the Group Chief Internal Auditor and the KPMG lead audit engagement partner, without management present. The appointment and removal of the Group Chief Internal Auditor is a matter reserved to the Board Audit Committee and the appointment, and removal, of the external auditor, is a matter reserved to the Board. Neither task is delegated to management. This is explained in detail on pages 72 to 80 of the Board Audit Committee report. Company’s position and prospects The Board, together with the Board Audit Committee, is responsible for ensuring the integrity of this Annual Report and that the financial statements as a whole present a fair, balanced and understandable assessment of our performance, position and prospects. This is explained in detail on pages 72 to 78 of the Board Audit Committee report. 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 Group is committed to operating within a strong system of internal control. Barclays has an overarching framework that sets out the approach of the Group to internal governance, The Barclays Guide. This establishes the mechanisms, principles and processes through which management implements the strategy set by the Board. Processes are in place for identifying, evaluating and managing the Principal Risks facing the Group in accordance with the ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’, published by the FRC. A key component of The Barclays Guide is the ERMF. The purpose of the ERMF is to identify and set minimum requirements in respect of the main risks to the strategic objectives of the 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 system of risk management and internal control is 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. 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 these assessments, where appropriate, are reported to the Board Audit Committee. The Board Audit Committee oversees the control environment (and remediation of related issues) and you can read more about its work on pages 72 to 80. The Board Audit Committee also reviews annually the risk management and internal control system, which includes the ERMF. It has concluded that, throughout the year ended 31 December 2020 and to date, the Group has operated a sound system of internal control that provides reasonable assurance of financial and operational controls and compliance with laws and regulations. For more details on that evaluation and its conclusions please see pages 72 to 80. 100 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Remuneration The Company has a Board Remuneration Committee, the purpose and activities of which are described in the Board Remuneration Committee report on pages 108 to 142. The Board has delegated responsibility for the consideration and approval of the remuneration arrangements of the Group Chairman, the Executive Directors, other senior executives and certain Group employees to the Board Remuneration Committee. The Board Remuneration Committee, when considering the remuneration policies and practices, seeks to ensure that they support our strategy and promote the long-term success of the business and that they are aligned to the successful delivery of the Group’s strategy. All executive and senior management remuneration policies are developed in accordance with the Group’s formal and transparent procedures (ensuring that no Director is involved in deciding his/her own remuneration outcome) and having regard to workforce remuneration and related policies and the alignment of incentives and rewards with culture. All Board Remuneration Committee members demonstrate independent judgement and discretion when determining and approving remuneration outcomes. The Board as a whole, with the Non-Executive Directors abstaining, considers annually the fees paid to Non- Executive Directors. Information on the purpose of the Board Remuneration Committee and its activities in 2020 can be found in the Remuneration report on pages 108 to 142. 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 2020. 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 2020. 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 232 to 238. Changes in internal control over financial reporting There have been no changes that occurred during the period covered by this Report, which have materially affected or are reasonably likely to materially affect the Group’s internal control over financial reporting. The review of the effectiveness of the system of risk management and internal control is achieved through reviewing the effectiveness of the frameworks, principles and processes contained within The Barclays Guide, the ERMF and the Barclays Control Framework. Regular reports are made by management to the Board Risk Committee and the Board covering significant risks, measurement methodologies and appropriate risk appetite for the Group. Further details of risk management procedures and material existing and emerging risks are given in the Risk review and Risk management sections on pages 143 to 231. Controls over financial reporting A framework of disclosure controls and procedures is in place to support the approval of the financial statements of the 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. Where appropriate, these committees report their conclusions to the Board Audit Committee, which debates such conclusions and provides further challenge. Finally, the Board scrutinises and approves results announcements and the 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 Group and other significant disclosures before they are made public. Management’s report on internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting under the supervision of the principal executive and financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements, in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (IFRSs as adopted by the EU). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 101 Directors’ report: Other statutory information The Directors present their report together with the audited accounts for the year ended 31 December 2020. Other statutory information Other information that is relevant to the Directors’ report, and which is incorporated by reference into this report, can be located as follows: Remuneration policy, including details of the remuneration of each Director and Directors’ interests in shares Governance Statement Risk review Page 114 59 143 Disclosures required pursuant to Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as updated by Companies (Miscellaneous Reporting) Regulations 2018 can be found on the following pages: Engagement with employees (Sch. 7, Para 11 and 11A 2008/2018 Regs) Policy concerning the employment of disabled persons (Sch. 7, para 10 2008 Regs) Engagement with suppliers, customers and others in a business relationship (Sch. 7, Para 11 B 2008/2018 Regs) Financial instruments (Sch. 7, para 6 2008 Regs) Hedge accounting policy (Sch. 7, para 6 2008 Regs) 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 Page 33 to 37 37 18 to 19 and 39 to 43 305 to 327 307 Page 116 142 345 102 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 1 to 43. 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 26 to the Financial Statements, Legal, competition and regulatory matters. Profit and dividends Statutory profit after tax for 2020 was £2,461m (2019: £3,354m). The 2020 full year dividend of 1.0p per share will be paid on 1 April 2021 to shareholders whose names are on the Register of Members at the close of business on 26 February 2021. With no half year dividend paid in 2020, the total distribution for 2020 is 1.0p (2019: 3.0p) per ordinary share. As a result of the cancellation of the 2019 full year dividend in April 2020, no dividends were paid in 2020 (2019: £1,201m). Barclays has decided to cease to offer the scrip dividend programme and will no longer offer a scrip alternative for dividends. For those shareholders who wish to elect to use their cash dividends to purchase additional ordinary shares in the market, rather than receive a cash payment, Barclays has arranged for its registrar, Equiniti, to provide and administer a dividend reinvestment plan (DRIP). Further details regarding the DRIP can be found at www.barclays.com 102 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The nominee company of certain Barclays’ employee benefit trusts holding shares in Barclays in connection with the operation of our share plans has lodged evergreen dividend waivers on shares held by it that have not been allocated to employees. As no dividends were paid in 2020, the total amount of dividends waived during the year ended 31 December 2020 was nil (2019: £1.58m). Board of Directors The names of the current Directors of Barclays PLC, along with their biographical details, are set out on pages 60 to 64 and are incorporated into this Directors’ report by reference. Changes to Directors during the year are set out below. Name Role Effective date of appointment / resignation Mohamed A. El-Erian Non-Executive Director Appointed 1 January 2020 Brian Gilvary Non-Executive Director Appointed 1 February 2020 Matthew Lester Non-Executive Director Resigned 1 January 2020 Mary Anne Citrino Non-Executive Director Resigned 30 September 2020 Appointment and retirement of Directors The appointment and retirement of Directors is governed by our Articles, the Code, the Companies Act 2006 and related legislation. The Articles may be amended only by a special resolution of the shareholders. The Board has the power to appoint additional Directors or to fill a casual vacancy among the Directors and any Director so appointed 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. Other than Sir Ian Cheshire who is stepping down from the Board at the 2021 AGM, all Directors (including Julia Wilson who joins the Board on 1 April 2021) will stand for election or re-election at the 2021 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 2020 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 Group 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 2020 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, 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 connection with the trustee’s activities in relation to the Barclays Bank UK Retirement Fund, Barclays Capital International Pension Scheme (No.1) and Barclays PLC Funded Unapproved Retirement Benefits Scheme. Political donations The Group did not give any money for political purposes in the UK, the EU or outside the EU, nor did it make any political donations to political parties or other political organisations or to any independent election candidates, nor did it 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 2020 totalled $113,500 (2019: $46,000). Country-by-Country reporting The Capital Requirements (Country-by- Country reporting) Regulations 2013 require the Company to publish additional information in respect of the year ended 31 December 2020. This information is available on the Barclays website: home.barclays/annualreport Environment Barclays focuses on addressing environmental issues where we believe we have the greatest potential to make a difference. As part of our ambition to be a net zero bank by 2050, we continue to work towards aligning our financing with the Paris Climate Agreement (see page 44) and continue to reduce our operational carbon footprint. 2020 performance update In line with Barclays’ ambition to be a net zero bank, Barclays remains committed to managing our own operational footprint and transitioning to a low-carbon economy. In 2020, we achieved a 71% scope 1 and 2 emission reduction against our 2018 baseline, and we continue to offset our residual emissions from our operations and business travel. This reduction was principally achieved through the expansion of our renewable electricity purchasing programme across Continental Europe, United Kingdom Hong Kong, Japan, Singapore and the United States. Our current renewable electricity consumption currently stands at 74% against our interim target of procuring 90% of our electricity from renewable sources by 2021. We have disclosed global greenhouse gas (GHG) emissions and energy use data as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. Additional disclosures on (i) financing solutions for the lower carbon economy, (ii) environmental risk management and (iii) management of our carbon and environmental footprint are set out in our Strategic report, Environmental, Social and Governance (ESG) Report and TCFD Report, available on our website at home.barclays/annualreport Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 103 Directors’ report: Other statutory information continued GHG Emissions Table and Notes Group GHG Emissionsb Total CO2e (tonnes) Scope 1 CO2e emissions (tonnes)c Scope 2 CO2e emissions (tonnes)d Scope 3 CO2e emissions (tonnes)e Current Reporting Yeara 2020 Previous Reporting Year 2019 UK & Offshore Area Global GHG Emissions UK & Offshore Area Global GHG Emissions 104,476 197,504 146,050 273,954 12,605 18,839 17,284 23,835 83,303 159,532 98,929 181,983 8,569 19,133 29,837 68,137 Energy consumption used to calculate above Scope 1 and 2 emissions (kWh) 395,742,619 621,694,988 436,114,042 679,310,592 Intensity Ratio Total Full-Time Employees (FTE) Total CO2e per FTE (tonnes)f Market-based emissions 47,700 83,000 47,800 80,800 2.19 2.38 3.06 3.39 Scope 2 CO2e market-based emissions (tonnes)d Total gross Scope 1 and 2 (market-based) emissions (tonnes) 7,172 19,777 64,233 83,071 7,226 89,528 24,509 113,363 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 this Directors’ report. Details of our approach to assurance over the data is set out in the 2020 Barclays ESG Report. b The methodology used to calculate our GHG emissions 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 and Barclays is not responsible for utility costs, these emissions are not included in the Group GHG emission calculations. Where Barclays is responsible for the utility costs, these emissions are included. We continuously review and update our performance data based on updated carbon emission factors, improvements in data quality and updates to estimates previously applied. For 2020 we have applied the latest emission factors available at the time of reporting. Where our performance has changed by more than 1% we have restated these figures. This year 2019 scope 2 emissions have been updated to reflect additional consumption data which was not available at the time of reporting and updates to residual mix factors specifically in the US which is the material contributor to the scope 2 market based emissions restatement. The previously reported figure was 110,017tCO2e (scope 2 market based) & 185,743tCO2e (location based). c Scope 1 covers GHG emissions from activities for which the Group is responsible, including emissions from the direct combustion of fuels and the operation of facilities. In the case of company owned vehicles, emissions are limited to UK vehicles only as this is the only country in which the Group owns vehicles. d Scope 2 covers GHG emissions from electricity, heat, cooling and steam purchased for own use. Market-based emissions have been reported for 2019 and 2020. We have used a zero emission factor where we have renewable contracts already in place in the UK, US, Hong Kong, Japan, Singapore and Continental Europe. e Scope 3 covers indirect emissions from business travel. Business travel for these purposes comprises of: global flights and ground transport within the UK, US and India, however in the case of the US and India ground transport covers onwards car hire only which has been provided directly by the supplier. Ground transportation data (excluding scope 1 emissions from company owned vehicles) covers only countries where robust data is available directly from the supplier. Intensity ratio calculations have been calculated using location-based emission factors only. f g Energy consumption data is captured through utility billing; meter reads or estimates. Principal measures we have undertaken in 2020 to improve energy efficiency include the following: • we have reduced our Group energy consumption by 8% versus 2019 as a result of reduced operating hours of our property portfolio as our global workforce transitioned to remote working as a result of the COVID-19 pandemic. • we continue to work on improving the operational efficiency of our property portfolio and in 2020 conducted energy efficiency projects globally which have achieved a total energy reduction of 8GWhs since implementation. The achieved reductions can be broken down by principal categories such as building optimisation projects saving 3,600 MWh: a 3,100 MWh saving from adjusting our HVAC systems to align with reduced operational hours of our buildings globally; power optimisation improvements in our APAC portfolio saving 1,170 MWh; and end of life asset replacements together with the installation of LED lighting in our buildings which have achieved a combined 450MWh saving. Research and development In the ordinary course of business, the 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 (preference shares). No preference shares have been issued as at 16 February 2021 (the latest practicable date for inclusion in this report). Ordinary shares therefore represent 100% of the total issued 104 Barclays PLC home.barclays/annualreport share capital as at 31 December 2020 and as at 16 February 2021 (the latest practicable date for inclusion in this report). by different members or in one direction by a member while another member has permitted the proxy discretion as to how to vote. Details of the movement in ordinary share capital during the year can be found in Note 28 on page 346. 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 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. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Making a difference for our customers and clients Trusted support when I needed it We are a business at the heart of the local community, with fully booked salons and a flourishing training academy. The challenges of lockdowns have created new opportunities for me to act quickly to protect the future of our skilled stylists and to support my customers. Clients were contacting me for haircare advice, all desperate to get hold of their usual products, so I knew the time was right to launch our online store and offer virtual expertise. It was essential for me to create an excellent service and my strong relationship with Barclays was key to that. The team understands my business. From helping me apply for a BBLS loan, to setting up a secure payment system for my customers’ online purchases, they have remained perfectly placed to respond quickly as my business has adapted. Launching our digital salon opened my eyes to how big the online world is. For us, it’s opened up a whole world of opportunity for our retail and training aspirations. The Barclays team understands my business and quickly responds to new opportunities. Marcello Moccia Owner, Room 97 Creative Hairdressing Wakefield Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 105 Directors’ report: Other statutory information continued 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, dividends or other monies payable on those shares shall be retained by the Company until the direction ceases to have effect and 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. 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 Group 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 the 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 be issued only in registered form. Preference shares shall be transferred in writing in any usual or other form approved by the Group 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 106 Barclays PLC home.barclays/annualreport assets of the Company available for distribution among 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 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 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 documents governing the Plans. 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 EBT 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 2020, the Company had been notified under Rule 5 of the Disclosure Guidance and Transparency Rules of the following holdings of voting rights in its shares. % of total voting rights attaching to issued share capitala Nature of holding (direct or indirect) Number of Barclays Shares 944,022,209 5.78 indirect 1,017,455,690 5.86 direct 943,949,089 5.48 indirect Person interested BlackRock Incb Qatar Holding LLCc Sherborne Investorsd The Capital Group Companies Ince 843,819,487 4.87 indirect Norges Bank 521,031,852 3.00 direct 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, with the exception of Qatar Holding which has been rebased against the issued share capital as at 31 December 2020, because its last disclosure was made on 1 December 2016. b Total shown includes 6,687,206 contracts for difference to which voting rights are attached. Part of the holding is held as American Depositary Receipts. On 28 January 2021, BlackRock, Inc. disclosed by way of a Schedule 13G filed with the SEC beneficial ownership of 1,303,744,297 ordinary shares of the Company as of 31 December 2020, representing 7.5% of that class of shares. c Qatar Holding LLC is wholly owned by Qatar Investment Authority. d 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 of each of the three funds beneficially interested in the Sherborne shares, being Whistle Investors LLC, Whistle Investors II LLC and Whistle Investors III LLC. Amendment No.2 to a Schedule 13D filing, filed on 7 November 2019, also disclosed that certain funded derivative transactions, which were used to purchase 505,086,254 of such shares, have been extended to expire on various dates during the period beginning 14 December 2021 (previously 21 October 2019) and ending 22 July 2022 (previously 16 March 2021). e The Capital Group Companies Inc (CG) holds its shares via CG Management companies. Part of the CG holding is held as American Depositary Receipts. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Between 31 December 2020 and 16 February 2021 (the latest practicable date for inclusion in this report), the Company has not received any additional notifications pursuant to Rule 5 of the Disclosure Guidance and Transparency Rules. 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 2020 AGM. It will be proposed at the 2021 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 2020 (2019: none). As at 16 February 2021 (the latest practicable date for inclusion in this report) the Company had an unexpired authority to repurchase ordinary shares up to a maximum of 1,733m ordinary shares. Distributable Reserves As at 31 December 2020, the distributable reserves of the Company were £24,386m (2019: £22,457m). 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. 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 our auditor is 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 our auditor is 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 pages 260 to 278, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditor in relation to the accounts. Going concern The Group’s business activities and factors likely to affect its future development and performance are disclosed in the Strategic report and Risk Review sections of this report. The financial performance is disclosed within the Financial Review with funding, liquidity and capital details contained within the Risk Performance section. The Group’s objectives and policies in managing the financial risks to which it is exposed are discussed in the Risk Management section. The Directors considered it appropriate to prepare the financial statements on a going concern basis. In preparing each of the Group and Parent company financial statements, the Directors are required to: ■■ assess the Group and Parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; ■■ use 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. Preparation of accounts The Directors are required by the Companies Act 2006 to prepare Group and Company accounts for each financial year and, with regard to Group accounts, in accordance with Article 4 of the IAS Regulation. The Directors have prepared Group and Company accounts: a) in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and b) international financial reporting standards adopted pursuant to Regulation EC No. 1606/2002 as it applies in the European Union. Pursuant to 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 Group and the Company and of their profit or loss for that period. The Directors consider that, in preparing the financial statements, the Group and the Company have used appropriate accounting policies, supported by reasonable judgements and estimates, and that all accounting standards which they consider to be applicable have been followed. 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 Group and Company’s position and performance, business model and strategy. The 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 Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group and which enable them to ensure that the accounts comply with the Companies Act 2006. The Directors are 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 our website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors, whose names and functions are set out on pages 60 to 64, 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 6 to 43, 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. Auditor’s report The Auditor’s report on the Financial Statements of Barclays PLC for the year ended 31 December 2020 was unmodified and its statement under section 496 of the Companies Act 2006 was also unmodified. By order of the Board Stephen Shapiro Company Secretary 17 February 2021 Registered in England. Company No. 48839 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 107 Remuneration report Annual Statement from the Chair of the Board Remuneration Committee Contents ■■ Annual statement ■■ Remuneration philosophy ■■ Fair Pay ■■ Employee remuneration policy ■■ Directors’ remuneration policy ■■ Annual report on Directors’ remuneration 108 112 113 114 115 118 Remuneration Committee Member Meetings attended Crawford Gillies Tim Breedon Mary Francis Brian Gilvary (from 1 March 2020) 10/10 9/10 10/10 6/7 You can find more information on our approach to pay fairness in our Fair Pay Report at home.barclays/annualreport Our UK pay gap figures for 2020 and narrative explaining them are available at home.barclays/diversity Dear Fellow Shareholders I am pleased to present the Directors’ Remuneration Report for 2020, and my last statement to you as Chair of the Remuneration Committee. I know that my successor, Brian Gilvary, will be an excellent replacement and I wish him all the very best when he assumes the chair in March. It has been an exceptionally challenging year for a great many of us, and one with far-reaching consequences for our economy and our society. In this context, the Committee has faced some extremely difficult decisions about the most appropriate way to remunerate colleagues for some outstanding work over the last 12 months. We have taken a number of important considerations into account, including our financial and non-financial performance in both relative and absolute terms, the views and expectations of our stakeholders, and the differing contributions of our businesses to the Group’s financial resilience, which has in turn enabled us to support customers, clients and the communities that we serve. Our deliberations have been extensive, and I want to use this statement to be transparent with you about our decision-making. As ever, we have been guided by the principles of our Fair Pay agenda and, in particular, the importance of properly recognising the contribution of our junior colleagues. You can read more about our approach to fairness in our third annual Fair Pay Report, published alongside this document. Consistent with previous years, we have also published our UK pay gap figures and a narrative explaining them. Performance Rewarding sustainable performance remains a crucial aspect of the way the Committee considers its decisions. We recognise the pandemic’s impact on our financial performance, with reductions in PBT and RoTE following a number of years of sustained annual improvementsa. We are however proud of what we have achieved as an organisation in a truly difficult year. Not only have we remained fully open for business, supporting our customers and clients as they navigate the pandemic, we have demonstrated ourselves to be extremely resilient, remaining profitable in each quarter despite the challenging macroeconomic environment, while continuing to demonstrate a capacity for strong capital generation. Consequently, we have today announced a total payout equivalent to c.5p per share, comprising a 1.0p 2020 full year dividend and the intention to initiate a share buyback of up to £700m which I know will be welcome. We have entered 2021 in a position of strength and stability for the future; well capitalised and importantly well-positioned to support an economic recovery. Our business diversification has meant that our investment banking businesses have been able to benefit from the increased volatility and wider trading margins observed during 2020. This, together with strong relative performance as evidenced particularly by the continued improvement in Markets market shareb, has meant that these businesses have significantly outperformed expectations. Income in our Markets businesses is up 45% year on year and in Banking, income is up 8% year on year – the biggest annual improvements since the reconfiguration of those businesses. As a result, Group income was up on 2019 despite an incredibly challenging year for our Corporate Bank and consumer businesses, impacted as they were by lower income and materially higher impairment charges in the wake of the COVID-19 pandemic. This capacity for one part of the Group’s performance to offset another is an illustration of the benefits of the diversification that is inherent in our universal banking model. This has helped our ability to support the economy and society at a time of acute need. As set out in Nigel Higgins’ and Jes Staley’s letters to shareholders, we have delivered an enormous amount of financial support for our customers and clients this year, including facilitating c.£27bn of finance to British businesses, waiving millions of pounds in fees for customers and helping corporate clients and governments raise billions to strengthen their balance sheets (underwriting c. £1.5 trillion of new issuancec). We have been able to do a significant amount for wider society too, whether through the launch of our £100m COVID-19 Community Aid Package, or in the steps we have taken on the road to becoming a net zero bank by 2050. Notes a Excluding L&C. b Source: Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis based on Barclays internal business structure and internal revenues. c Across Equity and Debt Capital Markets in Q220-Q420. 108 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Colleague remuneration Throughout the pandemic, our colleagues – many of whom were on the front line supporting customers – have worked incredibly hard to keep things running. Our financial resilience has allowed us to help them too, for instance by offering full pay to those unable to work because they were isolating or caring for dependants. We increased overtime rates to support colleagues given their need to work significantly extended hours, to both manage the unprecedented demands from customers and clients as well as the temporary loss of some geographical locations due to local lockdowns. Additionally, we enhanced our benefits where needed, including improving medical benefit provision in India and meeting additional childcare needs where required. We did not put any staff on furlough (indeed hiring additional colleagues, with overall headcount up slightly on 2019), and implemented a temporary moratorium on redundancies. The Committee’s determination of the annual incentive pool includes consideration of a number of factors, such as financial performance, delivery of our strategy, risk and conduct. We consider Barclays’ performance as a Group, but also take into account the performance of individual businesses within that Group, as well as those businesses’ contributions to our strategic targets and vision, and their importance to our future success. Assessing and rewarding performance in this way also means that the Group incentive pool does not always move directly in line with the Group’s overall financial performance. In 2019, while financial performance was up and non-financial performance was also very strong, the incentive pool was reduced to support our continued progression towards our strategic targets in terms of delivering greater returns to shareholders. This year, we have had to consider how we balance the need to maintain our successful universal banking model, with the financial challenges that we and others have faced. For many businesses, such as our Corporate Bank and consumer businesses (including Barclays UK – our ring-fenced bank) profit before tax is down, driven by lower income and higher impairment costs. At the same time, strategic delivery has been very strong, continuing to make progress on our digital agenda and focusing on our customer and client experiences. Balancing these different considerations, the incentive pools for all of these businesses are down this year, reflecting the lower financial performance outcomes. However, consistent with our Fair Pay agenda, we have chosen to protect outcomes for our junior colleagues and, as a result, the greatest reductions in incentives will be observed for more senior colleagues in these businesses. It has been junior colleagues in many businesses who have been on the front line directly supporting customers and clients during the pandemic and the Committee felt it appropriate to reward those efforts. Additionally, the Committee believes it is right to recognise the outstanding work of our investment banking colleagues this year, particularly given the continued financial performance improvements of those businesses and their significant contribution to the Group’s overall financial resilience. Since 2018, the profitabilitya of the Corporate and Investment Bank has increased by 51% (2020 up 31% on 2019), with the associated improvement in returns. This strong performance has been driven by increases in investment banking revenues, specifically in FICC and equities, where we have continued to grow market shareb. We are the only scale British investment bank; we operate globally and, importantly, we have a leading presence in the US (correspondingly, almost three-quarters of the incentive pool for the investment bank businesses relates to populations outside the UK). Our investment banking businesses provide us with a point of strategic advantage as we move into 2021 and beyond, providing an important diversification of income stream, particularly at a time of so much transformation and challenge in the retail banking sector. It is appropriate that we reward the exceptional collective effort of these colleagues, albeit with the appropriate restraint. Taking all of this into account, the Committee has approved a Group incentive pool of £1,580m. This represents a relatively modest increase across the investment banking businesses, reductions for all other businesses and appropriate recognition for the contributions of our more junior colleagues. The unusual dynamic for 2020 is the significantly lower contribution to the Group financial results from our Corporate banking and consumer businesses, driven principally by impairment. While the incentive pools in those areas have been reduced as noted above, they are relatively small in relation to the overall incentive pool. The result is that significant reductions in financial contributions originating from those business areas cannot be directly reflected in proportionate reductions to the overall incentive pool. We believe that this outcome is appropriate given the performance delivered, and that it is consistent with our philosophy of rewarding sustainable performance, which in turn supports our long-term strategy of delivering improved returns to shareholders. As always, a significant portion of the pool is delivered in shares, most of which will be deferred over a number of years. Group income £21,766m 2019: £21,632m 2018: £21,136m Group profit before tax (excluding L&C) £3,218m 2019: £6,206m 2018: £5,701m Group RoTE (excluding L&C) 3.4%2019: 9.0% 2018: 8.5% Cost: income ratio (excluding L&C) c 61% 2019: 62%c 2018: 66% CET1 ratio 15.1%2019: 13.8% 2018: 13.2% Group compensation to income ratio 34.2%2019: 33.9% 2018: 34.1%d Group incentive pool £1,580m 2019: £1,490m 2018:£1,649m Notes a Excluding L&C. b Source: Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis based on Barclays internal business structure and internal revenues. c Excludes £368m of structural cost actions (2019: £150m) and £95m spend to date of Barclays’ Community Aid Package. d 2018 Group compensation to income ratio excludes £140m relating to GMP charge post-retirement benefits. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 109 Remuneration report Annual Statement: Summary of 2020 pay outcomes continued In addition, we are adding a specific Climate measure with a weighting of 10% to the non-financial assessment of the 2021-2023 LTIP, reflecting our ambition to be net zero by 2050, including our commitment to align our financing with the goals of the Paris Climate Agreement. Further details on Executive Director remuneration, including the consideration of windfall gains on the 2020-2022 LTIP, and the full details of the new LTIP to be granted for 2021-2023 are set out in this report. Looking ahead As we move into 2021, the Committee will be ensuring that the new Purpose, Values and Mindset are reflected in our remuneration policies and approaches, as we work to embed them throughout the organisation. I would like to thank my fellow Committee members for their guidance and expertise during my tenure, as well as all of the stakeholders with whom I have been fortunate enough to engage. I look forward to continuing to serve Barclays as the Chair of the Board of Barclays Bank UK PLC. Crawford Gillies Chair, Board Remuneration Committee February 2021 Executive Director remuneration The Executive Directors responded quickly to the pandemic, agreeing to postpone increases to their Fixed Pay which had been proposed as part of the new Directors’ remuneration policy introduced last year. They also took the decision to donate one-third of their Fixed Pay for six months to our COVID-19 Community Aid Package. The Committee also decided to postpone the first instalment of their 2017- 2019 LTIP awards, which had been due to be released in June 2020, until 2021. The Executive Directors requested, and the Committee accepted, that their 2020 Fixed Pay increases (now approved) be postponed again, until at least the second half of this year when the Committee will reconsider the implementation with them, in light of the prevailing external environment. The Committee has considered at length the appropriateness of bonus and LTIP outcomes for the Executive Directors for 2020. Annual bonuses were assessed against the financial, strategic and personal measures that were set out in the Directors’ Remuneration Report for 2019. While Group income was up slightly year on year and costs well controlled, the impact of the pandemic on impairment resulted in significantly reduced 2020 bonus outcomes, 38.6% of maximum for the CEO and GFD, down materially from the outcomes for 2019 (75% and 75.9%, respectively). Similarly, the outcome for the 2018-2020 LTIP was also materially impacted by impairment, with an outcome of 23% of maximum, down from 48.5% for the 2017-2019 LTIP. While the Committee did review the continued appropriateness of the respective plan measures and targets given the exogenous nature of the pandemic, it prioritised the need to ensure appropriate alignment between the outcomes for the Executive Directors with the experience of investors. In particular, this included the sector-wide cancellation of the 2019 dividend in line with UK regulatory expectations and the associated delay in the benefit of that distribution experienced by our shareholders. While this benefit will likely be realised in the future, given the additional capital retained and the recommencement of distributions, the delay was considered by the Committee, alongside the broader challenges facing society as a whole. We believe the outcomes on both bonus and LTIP align appropriately with stakeholder considerations. They take into account financial performance outcomes, very strong non-financial delivery and the exceptional contributions of the Executive Directors – both the outstanding leadership provided during the year, and the positive impact of a multi-year strategy and transformation that has enabled us to continue to deliver so effectively for stakeholders during a time of such challenge. Total variable pay (annual bonus and LTIP) will be primarily delivered in shares for the Executive Directors, aligning more closely to the shareholder experience during this particularly difficult period. The Executive Directors continue to build substantial shareholdings, and neither have sold any shares since their appointments. We have not changed in-flight bonus and LTIP arrangements and have not altered the performance measures or targets for these plans. The Committee has also considered the performance measures for the 2021 bonus and 2021-2023 LTIP very carefully. The bonus measures are unchanged, as they continue to represent relevant building blocks towards our key longer-term financial goals. For the 2021-2023 LTIP, we have decided to broaden the measures on which the financial assessment will be based. As we continue to navigate through a more volatile macroeconomic environment, this will better balance our long-term assessment of the Executive Directors’ financial performance. RoTE and CIR will be maintained as measures, though RoTE will be tested at the end of the cycle, helping to determine how effectively the Executive Directors navigate the financial recovery and steer Barclays back towards our targets over the medium term. In addition to RoTE, we will be adding CET1 and relative Total Shareholder Return (TSR) measures. The addition of a CET1 measure reflects the continued importance of our prudential stability and balance sheet strength, particularly in the coming potentially difficult years. Adding a relative TSR measure acknowledges the challenges associated with calibrating absolute performance targets in the current uncertain environment, providing instead a relative performance lens that is not subject to the same difficulties, while maintaining a 50% total weighting on returns measures. 110 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 2018-2020 LTIP Long Term Incentive Plan Executive Directors: remuneration outcomes Annual bonus Jes Staley £843k 38.6% of maximum Jes Staley £541k 23.0% of maximum 38.6% 23% Tushar Morzaria Tushar Morzaria £573k 38.6% of maximum £364k 23.0% of maximum 38.6% 23% Annual bonus performance measures (% weighting) LTIP performance measures (% weighting) Financial (60%) Profit before tax excluding L&C and other material items (50%) Financial (70%) RoTE excluding material itemsb (50%) 0% 0% Jes Staley £m 2020 2019 Max Fixed Pay Pension and bene�ts Annual bonus LTIP Tushar Morzaria £m 2020 2019 Max Fixed Pay Pension and bene�ts Annual bonus LTIP £4.01m £5.93m £2.77m £3.97m £8.10m £5.53m Cost: income ratio excluding L&C and other material itemsa (10%) Cost: income ratio excluding material itemsa, b (20%) Executive Directors: share ownership 61% 0% Jes Staley Date of appointment: 1 December 2015 £000a Tushar Morzaria Date of appointment: 15 October 2013 £000a Strategic non-financial (20%) Risk Scorecard (15%) 78% 80% 7,268 5,476 5,065 3,696 Personal objectives (20%) Jes Staley Strategic non-financial (15%) Tushar Morzaria 85% 85% 73% Notes a £368m of structural cost actions and £95m spend to date of Barclays’ Community Aid Package are treated as material items and excluded from 2020 CIR. b Material items include litigation and conduct in 2018, 2019 and 2020 (including PPI and settlement with regard to Residential Mortgage-Backed Securities (RMBS)) Actual Requirement Actual Requirement Note a As at 31 December 2020 based on Q4 2020 average share price of £1.2677 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 111 Remuneration report Remuneration philosophy To attract and retain the people who can best deliver for our customers and clients, we must pay fairly and appropriately – balancing the interests of all our stakeholders. Our policies and practices reward sustainable performance in line with our Values and risk expectations. They are fair, transparent and as simple as possible. This is our remuneration philosophy. It’s how we have continued to make remuneration decisions and set remuneration policies during 2020, and it applies to all of our employees globally, as well as our Executive Directors. Philosophy Attract and retain talent needed to deliver Barclays’ strategy 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. Align pay with investor and other stakeholder interests Remuneration should be designed with appropriate consideration of the views, rights and interests of stakeholders. This means listening to our shareholders, other investors, regulators, government, customers and employees and ensuring their views are appropriately considered in remuneration decision-making. Reward sustainable performance Sustainable performance means making a positive contribution to stakeholders, in both the short and longer term, playing a valuable role in society. Support Barclays’ Values and culture Results must be achieved in a manner consistent with our Values. Our Values and culture should drive the way that business is conducted. Align with risk appetite, risk exposure and conduct expectations Designed to reward employees for achieving results in line with the Group’s risk appetite and conduct expectations. Be fair, transparent and as simple as possible We are committed to ensuring pay is fair, simple and transparent for all our stakeholders. This means all employees and stakeholders should understand how we reward our employees and fairness should be a lens through which we make remuneration decisions. Our philosophy in action The pay decisions set out in this report are a result of the application of our remuneration philosophy during 2020. Our philosophy and the way that we approach remuneration is designed to be as simple and clear as possible, while ensuring strong alignment with risk, conduct and our Values. It is closely aligned with Provision 40 of the FRC’s UK Corporate Governance Code, and we have continued to be transparent on the resulting outcomes in this report. Specifically relating to our Executive Directors, we have reviewed the performance measures for the forward-looking incentives, and in particular have updated the financial performance measures for the 2021-2023 Long Term Incentive Plan (LTIP) to ensure that they remain appropriate in light of current circumstances and challenges. Alongside our strategic non-financial performance objectives, this will ensure that the link between the delivery of our strategy (and long-term performance) and individual awards continues to be reinforced. The report sets out minimum and maximum potential outcomes under each plan for reference. Furthermore, the alignment of executive pay to culture is enhanced by the inclusion of the responsibility to embed our updated Purpose, Values and Mindset throughout the organisation in the personal objectives for our Group CEO. We consider the views of all of our stakeholders in remuneration decision- making. In 2020, we have achieved this by meeting with institutional shareholders to understand their views on our new policy (including how it should be implemented), engaging extensively with our regulators to support their actions as a result of the pandemic, and continuing our partnership with Unite in the UK to understand the views of their members and negotiate a new pay deal, delivering an above-inflation increase. We used our 2019 Fair Pay report to share information on our approach to pay with colleagues, including how executive remuneration aligns with wider company pay policy, and are now publishing our third report to help do the same for 2020. 112 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Remuneration report Fair pay Paying fairly and transparently is a priority at Barclays. The Fair Pay agenda brings together the five themes which explain how we think about fair pay at Barclays. We use our Fair Pay Report to engage our employees on pay, explaining our approach to fair pay, including the alignment of the Executive Directors’ and employee pay. We encourage you to read the full Fair Pay Report. Our approach to fair pay helped guide our remuneration decision- making in 2020. In turn, this enhanced the support we were able to provide to our customers and clients, colleagues and society throughout the COVID-19 pandemic. Customers and clients • Our focus was on ensuring that we were available for our customers and clients despite the challenges of COVID-related absences and the temporary loss of some geographical locations due to local lockdowns. We supported this effort by providing Colleagues with additional overtime rates where needed. • A number of actions were taken for customers and clients who needed additional financial support, as well as facilitating the delivery of c.£27bn of lending to British businesses under the UK Government’s schemes. Our Colleagues took on significant extra work during the pandemic to make this happen. Colleagues • Enhanced flexibility was introduced for all colleagues with other commitments e.g. the need to care for dependants, including children, and where it was not possible for them to complete their full hours, we continued to pay them their full salary and benefits. • Separate reporting was implemented for COVID-related sickness absence, extending our existing sick pay provisions. • We did not put any staff on furlough, and placed a moratorium on redundancies in the early months of the pandemic. Society • We have matched donations through our Community Aid Package from our colleagues and our Directors, supporting the communities most impacted by the pandemic • Our Executive Directors and Chairman contributed one third of their fixed pay for six months to charities delivering COVID-19 relief. • In the UK, we supported colleagues who volunteered to support health or social care, with up to four weeks of paid leave. Our approach to fair pay enhanced our support for customers and clients, colleagues and society during COVID-19. As well as using the Fair Pay agenda to guide our approach to remuneration in relation to the pandemic, we have also continued to focus on advancing the agenda as it relates to each of the themes. The key highlights for 2020 are shown below. Fair Pay for the lowest paid • Continued to progress our work on global living wages, reviewing more locations than in 2019. • Worked with Unite to agree a new pay deal, ensuring that it was consistent with our Fair Pay agenda. • Enhanced medical provision for all colleagues in the UK and India, providing access to a range of online services and appointments. Equal opportunities to progress • Implemented a detailed action plan on Race at Work that will open up opportunities to attract, develop and add to our great Black talent. • Further developed our diversity dashboards for senior leaders which now reflect both gender and ethnic diversity. • Our female senior leadership continued to increase and is now 26%, up from 25% at the end of 2019. Listening to employees • We launched our Inclusion Index for the first time to measure our objective to be a truly inclusive organisation. • We engaged with Unite throughout the pandemic, focusing on the physical and mental wellbeing of our colleagues. Equal Pay • We are explicit that pay decisions must not take into account gender, age, ethnicity, disability, sexual orientation or any other protected characteristic. • All grievances raised by employees, including any issues relating to pay are investigated as appropriate. Alignment of employee and executive remuneration • Our pay policies are strongly aligned across the wider workforce, senior employees and Executive Directors. • The Directors’ remuneration policy has been refreshed, aligning Executive Director pension contributions with the wider workforce. Barclays PLC 2020 Fair Pay Report can be found online at home.barclays/annualreport Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 113 Remuneration report Employee remuneration policy As outlined earlier, Barclays has a clearly articulated remuneration philosophy. This continues to drive our thinking in how we structure and determine remuneration for all employees from the most senior (as well as our Executive Directors) to our new apprentices and graduates. As part of our annual review we assessed our remuneration policies and practices for alignment with Barclays’ Purpose and Value, our remuneration philosophy and our Fair Pay agenda, including ensuring appropriate alignment between the Directors’ remuneration policy and remuneration approaches for senior management and the wider workforce. We continue to ensure that we comply with all prevailing regulation. We identify individuals whose roles may expose Barclays to material risk, and assess and structure their pay in a way which encourages alignment of their interests and Barclays. Further information in relation to Material Risk Takers (MRTs) is set out in Appendix E of the Barclays PLC Pillar 3 Report. The table below provides a summary of the remuneration approach for employees below Board level. Element Salary Role Based Pay (RBP) Pension and benefits Annual bonus Operation 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. We have been a real living wage employer in the UK since 2013, and continue to work with the Fair Wage Network to complete an annual review of our pay levels against living wage benchmarks across locations globally. A small number of senior employees (c.1% UK employees) receive a class of Fixed Pay called RBP to recognise the seniority, scale and complexity of their role. This may change where justified by role or responsibility change or a change in the appropriate market rate. The provision of a competitive package of benefits is important to attracting and retaining the talent needed to deliver Barclays’ strategy. Employees have access to a range of country-specific company-funded benefits, including pension schemes, healthcare, life assurance and other voluntary employee funded benefits. Employer pension contributions for the UK workforce are at least at the level of those for the Executive Directors, and are set at a minimum of 10% of salary (a minimum of 12% for more junior colleagues). 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. All employees are considered, subject to eligibility criteria. For senior employees, an appropriate proportion of their annual bonus is deferred to future years. Deferred bonuses are generally delivered in equal portions as deferred cash and shares. They are subject to either a three, five or seven-year deferral period (and further holding periods of six or 12 months for deferrals in shares) in line with regulatory requirements. Consistent with regulation, the remuneration of MRTs is subject to the 2:1 maximum ratio of variable to fixed remuneration. Share plans We encourage wider employee share ownership through the all-employee share plans, with plans available to 99% of colleagues globally. Performance management Performance assessment is based on ‘what’ is achieved in relation to individual, team and business objectives, as well as ‘how’ this is achieved in the context of Barclays’ Values. Both elements are assessed independently of each other with no requirement to have an overall rating. This reinforces the equal importance of the ‘what’ and ‘how’. Risk and conduct Risk and conduct is taken seriously at Barclays and the Committee ensures that there are in-year adjustments, malus or clawback applied to individual remuneration, where appropriate. In addition to individual adjustments, the Committee considers collective adjustments to the incentive pool for risk and conduct. For 2020, the total impact of risk and conduct related collective adjustments is a reduction of c. £80m. More information on our approach to Performance Management, and Risk and Conduct are set out in Appendix E of the Barclays PLC 2020 Pillar 3 Report. For more information go online at home.barclays/annualreport 114 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Remuneration report Directors’ remuneration policy The forward-looking remuneration policy for Executive Directors and Non-Executive Directors was approved at the AGM held on 7 May 2020 and applies for three years from that date. A summary of the policy, including key remuneration elements, is set out below and is provided for information only. The full policy, including recruitment and leaver provisions, can be found on pages 93 to 103 of the 2019 Annual Report. Summary remuneration policy – Executive Directors Element and purpose Operation Fixed Pay To reward skills and experience appropriate for the scale, complexity and responsibilities of the role and to provide the basis for a competitive remuneration package Pension To enable Executive Directors to build long-term retirement savings 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 holding period increases alignment with shareholders Deferred bonuses encourage longer-term focus and retention Fixed Pay is determined based on the individual’s role, skills and experience with reference to market practice and market data (on which the Committee receives independent advice). Delivered 50% in cash (paid monthly) and 50% 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. Increases will normally be aligned to the annual increase for UK employees, and will take into account changes in responsibilities and market conditions. Delivered as an annual cash allowance in lieu of participation in a pension arrangement. The maximum annual cash allowance is 5% of Fixed Pay (equivalent to 10% of fixed cash). A number of benefits are provided including, but not restricted to, private medical cover, annual health check, life and ill health income protection, and use of a Company vehicle and driver when required for business purposes (including any tax liabilities that may arise from this benefit). The maximum value of benefits is determined by the nature of the benefit itself and costs of provision may depend on external factors, e.g. insurance costs. The maximum annual bonus opportunity is 93% of Fixed Pay (cash and shares) for the CEO and 90% of Fixed Pay (cash and shares) for the GFD. Individual bonuses are entirely discretionary (any amount may be awarded from zero to the maximum value) and decisions are based on the Committee’s judgement of Executive Directors’ performance in the year, measured against Group and personal objectives. 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 (currently 60%). 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 subject to a holding period (after the payment of tax) in line with regulations and with release no faster than permitted by regulations (currently one year). Deferred share bonuses are structured so that no deferred shares vest faster than permitted by regulations. Vesting is also subject to the provisions of the plan rules including employment and the malus and clawback provisions. Any shares that vest are subject to an additional holding period (after payment of tax) in line with regulations and release no faster than permitted by regulations (currently one year). The Committee will consider the previously disclosed financial and non-financial (including personal objectives) measures in determining the annual bonus for the Executive Directors. Financial factors will guide at least 60% of the bonus opportunity. The Committee has the discretion to vary the measures and their respective weightings within each category. The measures and weightings will be disclosed annually as part of the annual report on Directors’ remuneration, at the beginning of the performance year (typically February). Barclays PLC 2019 Annual Report can be found online at home.barclays/annualreport Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 115 Remuneration report Directors’ remuneration policy continued Element and purpose Operation Long Term Incentive Plan (LTIP) award To incentivise 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 All-employee share plans To provide an opportunity for Executive Directors to voluntarily invest in the Company through UK HMRC employee tax advantaged share schemes Risk and conduct adjustment, malus and clawback Malus and clawback provisions discourage excessive risk taking and inappropriate behaviours The maximum annual LTIP award for the CEO is 140% of Fixed Pay (cash and shares) and 134% of Fixed Pay (cash and shares) for the GFD. LTIP awards are made by the Committee following discussion of recommendations made by the Chairman (for the Group Chief Executive’s LTIP award) and by the Group Chief Executive (for other Executive Directors’ LTIP awards) based on satisfactory performance over the prior year. 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 (currently 60%). No 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, with restrictions lifting no faster than permitted by regulations (currently one year). Vesting is dependent on performance measures and service. Forward-looking performance measures will be based on financial performance and other long-term strategic measures. Measures and weightings will be set in advance of each grant. The Committee has discretion to change the weightings but financial measures will be at least 70% of the total opportunity. The Committee has discretion, and in line with the plan rules approved by shareholders, in exceptional circumstances to amend targets, measures, or the number of awards if an event happens (for example, a major transaction) that, in the opinion of the Committee, causes the original targets or measures to be no longer appropriate or such adjustment to be reasonable. The Committee also has the discretion to reduce the vesting of any award, including to nil, if it deems that the outcome is not consistent with performance delivered. Executive Directors are entitled to participate in: (i) Barclays Sharesave under which they can make monthly savings out of post-tax pay over a period of three or five years linked to the grant of an option over Barclays’ shares which can be at a discount of up to 20% on the share price set at the start. (ii) Barclays Sharepurchase under which they can make contributions (monthly or lump sum) out of pre-tax pay (if based in the UK) which are used to acquire Barclays’ shares. Any bonus or LTIP awarded is subject to malus and clawback provisions. The malus provisions enable the Committee to reduce the amount of unvested bonus or LTIP (including to nil) prior to vesting in specified circumstances, including, but not limited to: ■■ a participant deliberately misleading Barclays, the market and/or shareholders in relation to the financial performance of the Barclays Group ■■ a participant causing harm to Barclays’ reputation or where his/her actions have amounted to misconduct, incompetence or negligence ■■ a material restatement of the financial statements of the Barclays Group or any subsidiary, or the Group or any business unit suffering a material downturn in its financial performance ■■ a material failure of risk management in the Barclays Group ■■ a significant deterioration in the financial health of the Barclays Group. The clawback provisions enable amounts to be recovered after they have vested (for a period of seven years from grant/10 years in circumstances where a relevant investigation is ongoing at the end of the initial seven-year period) where (i) a participant’s actions or omissions have amounted to misbehaviour or material error and/or (ii) Barclays or the relevant business unit has suffered a material failure of risk management. Outside appointments To encourage self-development Executive Directors may accept one Non-Executive Director Board appointment in another listed company. The Chairman’s approval must be sought before accepting an appointment. Fees may be retained by the Executive Director. 116 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Element and purpose Operation Shareholding requirement To further enhance the alignment of shareholders’ and Executive Directors’ interests in long-term value creation Discretion Executive Directors have a contractual obligation to build up a shareholding equivalent to the maximum variable pay opportunity within five years from the date of appointment as Executive Director. Executive Directors will have a reasonable period to build up to this requirement again if it is not met because of a significant share price depreciation. Executive Directors also have a contractual obligation to maintain their shareholding for two years following the last day of active service. Shares that count towards the requirement are beneficially owned shares including any vested share awards subject only to holding periods (including vested LTIPs, vested deferred share bonuses, Fixed Pay shares, and any legacy RBP shares). Shares from unvested deferred share bonuses and unvested LTIPs do not count towards the requirement during employment, but will count towards post-termination requirements (net of tax) provided that there are no remaining untested performance conditions. Shareholding requirement for the CEO is a minimum of 233% of Fixed Pay and for the GFD is 224% of Fixed Pay. In addition to the various operational discretions that the Committee can exercise in the performance of its duties (including those discretions set out in the Company’s share plans), the Committee reserves the right to make either minor or administrative amendments to the policy to benefit its operation or to make more material amendments in order to comply with new laws, regulations and/or regulatory guidance. The Committee would only exercise this right if it believed it was in the best interests of the Company to do so and where it is not possible, practicable or proportionate to seek or await shareholder approval in a General Meeting. Summary remuneration policy – 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 Benefits To provide a competitive and cost-effective benefits package appropriate to the role and location The Chairman is paid an all-inclusive fee for all Board responsibilities. The Chairman has a time commitment equivalent of up to 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 and some Non-Executive Directors may also receive fees as directors of subsidiary companies of Barclays PLC. Fees are periodically reviewed by the Board against those for Non-Executive Directors in companies of similar size and complexity. 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 (including settlement of any tax liabilities that may arise from this benefit). Benefits which are minor in nature and in any event do not exceed a cost of £500 may be provided to Non-Executive Directors in specific circumstances. Non-Executive Directors are not eligible to join Barclays’ pension plans. Shareholding requirement Chairman: £100,000 (Non-Executive Directors: £30,000) gross before deduction of tax and other statutory deductions 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 117 Remuneration report Annual report on Directors’ remuneration This section explains how our Directors’ remuneration policy was implemented for 2020 Executive Directors Single total figure for 2020 remuneration (audited) The following table shows a single total figure for 2020 remuneration in respect of qualifying service for each Executive Director together with comparative figures for 2019. Jes Staley Tushar Morzaria 1) Fixed Pay £000 2,350a 2,350 1,650a 1,650 2) Pension £000 215 396 123 200 2020 2019 2020 2019 3) Taxable benefits £000 64 58 58 53 Total Fixed Pay £000 2,629 2,804 1,831 1,903 4) Annual bonus £000 843 1,647 573 1,123 5) LTIP £000 541b 1,478c 364b 942c Total variable pay £000 1,384 3,125 937 2,065 Total £000 4,013 5,929 2,768 3,968 Notes a Fixed Pay is reflected before contributions made by the Executive Directors to COVID-19 charitable causes, equal to one-third of Fixed Pay for six months. b The LTIP amounts include a 29% share price depreciation between date of grant and vesting date (based on Q4 2020 average share price). c The LTIP amounts include a 14% share price depreciation between date of grant and estimated value at vest based on Q4 2019 average share price. The release of the first tranche of the LTIP vest was delayed from June 2020 to March 2021 and as such the amount has not been restated. Additional information in respect of each element of pay for the Executive Directors (audited) 1) Fixed Pay Fixed Pay is delivered 50% in cash and 50% in shares (subject to a five-year holding period lifting pro-rata). 2) Pension Executive Directors are paid cash in lieu of pension contributions. The pension cash allowance in 2020 was £396,000 per annum until 6 May 2020 and £117,500 thereafter for Jes Staley and £200,000 per annum until 6 May 2020 and £82,500 per annum thereafter for Tushar Morzaria. No other benefits were received by the Executive Directors from any Barclays’ pension plan. 3) Taxable benefits Taxable benefits include private medical cover, life assurance, income protection, tax advice, car allowance and the use of a Company vehicle and driver when required for business purposes. 4) Annual bonus The bonus amount included in the single total figure is the value awarded or scheduled to be awarded in Q1 following the financial year to which it relates. 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 2020. Performance against their individual personal objectives (20% weighting) was assessed on an individual basis. 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. A summary of the assessment is provided in the following table: Performance measure Profit before tax excluding L&C and other material items with CET1 ratio underpin Cost: income ratio excluding L&C and other material itemsa Strategic non-financial Personal Total Final outcome following Committee discretion Weighting Threshold (20%) Maximum (100%) 2020 Actual 2020 Outcome Jes Staley Tushar Morzaria 50% 10% 20% 20% 100% £6.2bn £7.1bn £3.2bn 62.5% 61.0% 59.6% Performance against strategic measures, organised around three main categories: customers and clients, colleagues and society Individual performance against each of the Executive Directors’ personal objectives assessed by the Committee 0% 6.1% 0% 6.1% 15.5% 15.5% 17% 38.6% 38.6% 17% 38.6% 38.6% Note a £368m of structural cost actions and £95m spend to date of Barclays’ Community Aid Package are treated as material items and excluded from the 2020 CIR. 118 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Strategic non-financial (20% weighting) Progress in relation to each of the strategic non-financial measures, organised around three main categories, was assessed by the Committee. Within each of the three categories, the overall outcome was assessed based on the following scale: 0% to 1% Behind track on most measures, 1.5% to 3% Slightly behind track on most measures, 3.5% to 5.5% On track or slightly ahead of track for most measures, and 6% or 7% Ahead of track on most measures. On this basis, the Committee agreed an overall outcome of 15.5% out of a maximum of 20%. The detail supporting this assessment is provided in the table below: Performance Commentary Outcome Customers and clients Measure Net promoter scores® (NPS) Criteria Improve Barclays UK: +19 Barclaycard UK: +12 US Consumer Bank: +35 Complaints Reduce UK customer complaints Barclays UK: +15 (2019: +18) ■■ Relative position improved to 5th (2019: 7th) Barclaycard UK: +8 (2019: +11) ■■ Relative position improved to joint 3rd (2019: 4th) US Consumer Bank: +35 (2019: +33) (Source; NICE Satmetrix Survey) Down 32% excluding PPI in Barclays UK Digital Increase digital engagement Barclays app users: 9.2m (2019: 8.4m) Consumer, Cards & Payments US digital engagement: 71.4% (2019: 71.0%) ■■ NPS scores across the UK market have softened during On track the pandemic ■■ While reduced, Barclays UK NPS is less impacted than for the majority of peers with relative position for Barclays UK and Barclaycard UK improving ■■ The NPS for the US Consumer Bank in 2020 was +35, demonstrating an increase on our 2019 score ■■ Reduction in customer complaints observed before and during the pandemic – driven by both by the pandemic itself and by robust management actions On track ■■ Made significant improvements to our Barclays apps, On track including enhanced payment alerts and the ability to see itemised receipts ■■ Designed and executed a digital application system to facilitate delivery of UK Government’s business support schemes within days ■■ Consumer, Cards & Payments US digital engagement up slightly from 2019 Global Markets revenue ranking and share Global Banking fee ranking and share 6th (maintained since 2019) ■■ Global revenue ranking maintained at 6th Fee share increased to 4.9% (2019:4.3%) (Source: Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis based on Barclays internal business structure and internal revenues.) ■■ Fee share increased during the year Ahead of track Fee share 3.6% (down from 4.2% in 2019) 7th (down from 6th in 2019) ■■ Strongest Banking fees since 2014 ■■ Decrease in Global Fee Rank largely attributable to decline in activity in historically strong sectors for Barclays Slightly behind track Maintain client rankings and increase market share Supporting customers and clients during COVID-19 Put financial resilience to use in supporting customers and clients Facilitated c.£27bn in lending to British businesses Over 650 branches remained open throughout the pandemic More than 680,000 payment holidays provided to customers Note a Across Equity and Debt Capital Markets in Q220-Q420. (Source: Dealogic for the period covering 1 January to 31 December 2020) ■■ Barclays UK lent equivalent of four years of traditional lending volumes in less than 12 months to British businesses under the Bounce Back Loan and Coronavirus Business Interruption Loan Schemes ■■ Helped corporate clients in Barclays International raise in excess of £15.1bn under the UK Government’s lending schemes ■■ Helped corporate clients and governments raise billions to strengthen their balance sheets (underwriting c. £1.5 trillion of new issuancea) Ahead of track Total customers and clients: 5% Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 119 Remuneration report Annual report on Directors’ remuneration continued Criteria Performance Commentary Colleagues Measure Diversity Inclusion Engagement 28% females at Managing Director and Director level by 2021 Improve key metrics Maintain engagement at healthy levels; improve scores relating to tools and resources Conduct and Culture Performance assessed in light of broader context Supporting Colleagues during COVID-19 Put financial resilience to use in supporting colleagues 26.5%a in 2020, increasing slightly more than 1.5 percentage points from 2019 87% of respondents in our Your View survey would recommend Barclays as a good place to work (2019: 80%) Overall engagement score from Your View survey 83% (2019: 77%) 77% of colleagues believe they have the work tools and resources needed to achieve excellent performance, up 21 percentage points on last year 90% of colleagues believe strongly in the goals and objectives of Barclays (2019: 87%) 94% of employees in Your View survey believe that they and their teams role-model the Values (2019: 92%) Supported colleagues with full pay for COVID-related absence and enhanced overtime rates for customer-facing colleagues early in the pandemic Announced a moratorium on restructuring for the earlier months of the pandemic ■■ Strong progress towards target of 28% ■■ For the UK, the equivalent is 29% at the end of 2020 ■■ Overall Inclusion Index score 76% (new for 2020), while 89% of colleagues say they feel included in their team (2019: 85%) ■■ 82% of colleagues told us that they believe leaders are committed to building a diverse workforce (2019: 76%) ■■ Significant increases in engagement and scores relating to tools and resources, supported by a successful move to remote working for over 70,000 colleagues at its peak ■■ 83% of colleagues said that Barclays supports employee efforts to enhance their wellbeing (2019: 74%) Outcome On track Slightly ahead of track Ahead of track ■■ Good improvement in most relevant survey scores, though “safe to speak up at Barclays” is down one percentage point on 2019 ■■ 84% of colleagues believe we are all in this together at Barclays (new for 2020) On track ■■ Responded quickly at the onset of the pandemic, developing principles to support colleagues ■■ Ensured that those unable to work as a result of COVID-related illness, self-isolation, shielding or caring responsibilities continued to received full pay ■■ Supported UK key workers with their additional childcare needs in the height of the pandemic Ahead of track Total Colleague: 5% Note a Represented to 1dp for the purposes of the assessment, rounded for simplicity in the Strategic Report. Actual outcome 26.46%. 120 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Criteria Performance Commentary £60.9bn (£34.8bn in 2019) ■■ Significant increase, up 75% from 2019, with a total of £124.2bn of environmental and social financing provided since 2018 Outcome Ahead of track 71% reduction against the 2018 baseline ■■ Further progress towards the 80% reduction by 2021 ■■ In 2020, we continued our work on improving the operational efficiency of our property portfolio, achieving a total of 8GWh of energy savings On track 74% (2019: 60%) ■■ On track to meet 2021 target ■■ 74% renewable electricity across operations in the UK, continental Europe, Hong Kong, Japan, Singapore and the US 2.33 million people upskilled ■■ Strong progress under more challenging circumstances, 6.9m people upskilled since 2018 On track Ahead of track Society Measure Social and environmental financing Global carbon emissions reduction Renewable electricity LifeSkills Connect with Work Grow social and environmental financing (£150bn by 2025) Reduce carbon footprint (80% reduction by 2021, accelerated from 2025) 90% renewable electricity by 2021; 100% by 2030 at the latest 10 million people upskilled 2018-2022 250,000 people placed into work 2019-2022 By the end of 2020 more than 116,000 people helped into work (2020: 49,700; 2019: 66,600) Unreasonable Impact (partnership with the Unreasonable Group) Support 250 businesses solving social and environmental challenges (2016-2022) 163 growth-stage ventures had joined the programme by the end of 2020 Supporting Society during COVID-19 Put financial resilience to use in supporting society Adapted and enhanced programmes throughout the year, supporting Society through the pandemic ■■ Despite a very challenging environment, good progress was delivered and while target is still 250,000 by 2022 there is some catching up to do Slightly behind track ■■ Successfully adapted programmes to more effectively support job seekers and our partners facing a new employment landscape in light of the COVID-19 pandemic ■■ Continued to make good progress towards the 2022 On track target ■■ Barclays and Unreasonable Group launched the Unreasonable Impact COVID-19 Response – a US$2m fund for entrepreneurial solutions addressing challenges resulting from the pandemic ■■ In the UK, we supported colleagues who volunteered to support health or social care, with up to four weeks of paid leave ■■ Nine new charity partnerships announced for LifeSkills to help tackle key issues facing UK labour market as well as continued support for groups and individuals most in need during the Covid-19 outbreak Ahead of track Overall (out of a maximum possible 20%): 15.5% Total Society: 5.5% Further details on our approach to Key Performance Indicators are included in the Strategic report. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 121 Remuneration report Annual report on Directors’ remuneration continued 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 115 of the 2019 Annual Report). The below summarises their performance against the shared personal objectives. Shared objectives for Jes Staley and Tushar Morzaria Outcomes Continue to deliver improving shareholder returns, including a focus on delivering a RoTE improvement versus 2019 Maintain robust capital ratios across the Group and within the main operating entities Seek opportunities for further cost efficiencies, enabling reinvestment into strategic priorities and growth initiatives Continue to drive our technology agenda across the Group, to support improving customer and client experience Continue to focus on external societal and environmental stewardship ■■ Benefits of the diversification inherent in universal banking model provided resilience through the economic cycle ■■ Remained profitable in every quarter, capital accretive overall ■■ While Group RoTE has reduced, returns in the Corporate and Investment Bank have continued to improve year-on-year ■■ Overall performance has enabled us to continue to support customers, clients, colleagues and society, to be well-positioned to deliver a dividend in 2020, and to further improve shareholder returns going forward ■■ Strong capital position has been maintained throughout the pandemic ■■ Group CET1 is strong at 15.1%, similarly, strong capital ratios prevail in all main operating entities ■■ Operating expenses increased 1% from 2019 as a result of structural cost actions and COVID-related costs ■■ Absent structural cost actions and Barclays’ Community Aid Package, cost: income ratio would have been 61% (down 1 percentage point on the equivalent for 2019), advancing towards the target of below 60% over time ■■ Continued focus on automation to enhance customer experience and reach ■■ Continued investment in iPortal, our digital self-service platform in Corporate Banking ■■ Scale of network and platforms in the Markets business continues to increase, including BARX and options offerings ■■ Successfully moved 70,000 colleagues to working remotely ■■ Adopted an ambition to become net zero by 2050 and to align all our financing activities with the goals of the Paris Climate Agreement ■■ Developed BlueTrack™ to measure financed emissions and track them over time against a decreasing ‘carbon limit’ on the activity we finance ■■ Launched Sustainable Impact Capital Initiative to invest £175m over the next five years in the equity of innovative and environmentally focused private companies ■■ Ensured access to banking for those who wouldn’t otherwise qualify for accounts with 614,000 Barclays Basic Current accounts ■■ Provided free banking to over 134,000 not-for-profit organisations through our Community Accounts ■■ Strong focus on supporting communities throughout the pandemic In addition to the shared personal objectives described above, the table below summarises Jes Staley’s performance against the objectives specific to him. Jes Staley’s objectives Outcomes Oversee the effective management of the risk and controls agenda, including cyber risks Ensure continued focus on customer and client outcomes, in particular further reductions in complaints ■■ Control Environment continues to strengthen, with an increase in satisfactory Control Environment ratings across the Group ■■ Continued investment in Cyber protection, benchmarking ourselves using the NIST+ framework (Industry recognised Framework for Cyber Security) ■■ Significantly enhanced cyber control profile to support increased remote working with no significant risk events or change in security posture, despite the expanded attack surface rendering colleagues more vulnerable to exploitation ■■ Strong progress in relation to Barclays UK complaints reduction, and while some reduction relates to lower volumes and more favourable customer sentiment, complaints were also down in Q1 and in the period after the initial lockdown when volumes increased ■■ Focus on supporting customers and clients through the pandemic, including more than 680,000 payments holidays for individuals, and facilitating c.£27bn of financing through the UK Government’s schemes ■■ Jes has enhanced focus on personal client engagement with significant increase in participation in client meetings and events 122 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Jes Staley’s objectives Outcomes Continue to develop a high-performing culture in line with our Values, with a focus on employee engagement, succession planning, talent and diversity Drive growth in fee-based, technology-led annuity businesses with lower capital intensity Effectively manage relationships with all external stakeholders ■■ Employee engagement is significantly up at 83% (2019: 77%), with the annual YourView survey showing many positive results ■■ Jes has driven continued progress towards our female senior leadership target of 28% by the end of 2021 (up to 26.5%a), driven by increased focus on measurement and accountability at a business and function level ■■ Put in place a Race at Work Steering Committee and supported the launch of a detailed action plan to emphasise our commitment to attract, develop and retain Black professionals at Barclays ■■ Jes has strengthened the CIB leadership team, laying strong foundations for future talent pipelines ■■ Launched Plan & Invest, a new digital investment service that provides customers with a simpler way to invest for the future without needing to be an expert ■■ New value-added services introduced around core payments products (including digital receipts) ■■ Completion of pan-European transaction banking capability build across nine key EU markets ■■ Jes has collaborated proactively with UK regulators throughout the year, working to support the broader UK economy ■■ High level of engagement with UK Government throughout the year in support of the UK economy ■■ Engaged extensively with shareholders Recognising his very strong performance against both his individual and shared personal objectives during 2020, and his exceptional leadership of the organisation through the pandemic, the Committee assessed that an outcome of 17% out of a maximum of 20% was appropriate. The Committee reflected on the aggregate outcome for Jes Staley under the formulaic components of the annual bonus framework which delivered 38.6% of the maximum opportunity, being £843,000, of which 53% will be deferred under the Share Value Plan. The Committee believes this overall bonus outcome for Jes is aligned appropriately with stakeholder considerations. It takes into account the financial outcomes, the very strong non- financial delivery and Jes’ exceptional contribution and outstanding leadership during the year, and appropriately reflects the transformation that has enabled us to continue to deliver for stakeholders during these challenging times. The table below summarises Tushar Morzaria’s performance against the objectives specific to him. Tushar Morzaria’s objectives Outcomes Continue to optimise financial management and reporting (particularly through technology) to drive benefits across the Group ■■ Finance technology transformation three-year plan is on track, including the delivery of general ledger migration to centralise global financial reporting, driving cost savings and reducing operational risk ■■ Technology enhancements accelerated both the financial and regulatory close processes, delivering critical management information more quickly and allowing senior executives to focus on forward-looking business execution Further improve capital productivity through enhancing capital allocation and the measurement of capital returns ■■ Prioritised the focus on robust capitalisation to ensure that Barclays could continue to serve customers and clients whilst maintaining strong capital levels to ensure the bank remained secure throughout the crisis and is in a position to return capital to shareholders ■■ Capital Returns Forum continued to review business returns for the medium term to ensure appropriate capital allocation and productivity across the Group Oversee the effective management of the risk and controls agenda in Group Finance, Strategy, Tax and Treasury Continue to focus on employee engagement, talent and diversity in Group Finance, Strategy, Tax and Treasury Effectively manage relationships with key stakeholders including regulators and investors ■■ Control Environment and Management Control Approach rated satisfactory for Finance (including Strategy, Tax and Treasury) as part of the annual internal audit process ■■ Employee engagement across Finance, (including Treasury, Tax, Strategy and Investor Relations) increased from 76% in 2019 to 82% in 2020 ■■ Continued improvement in gender diversity at senior levels within Finance (including Treasury, Tax, Strategy and Investor Relations), now at 31% compared to 26% at the end of 2019 ■■ Ongoing focus on talent development and succession planning using a mix of external recruitment and internal mobility, resulted in improved bench strength and experience across all functions ■■ Strong reputation among peers and regulators has led to appointment and continued service as Chair of the Sterling Risk Free Reference Rates Working Group ■■ Continued to maintain effective and open relationships with regulators and the investment community Note a Represented to 1dp for the purposes of the assessment, rounded for simplicity in the Strategic Report. Actual outcome 26.46%. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 123 Remuneration report Annual report on Directors’ remuneration continued The Committee also recognised Tushar Morzaria’s very strong performance against both his individual and shared personal objectives during 2020, assessing that an outcome of 17% out of a maximum of 20% was appropriate. In aggregate, this results in an overall formulaic outcome for Tushar of 38.6% or £573,000, of which 30% will be deferred under the Share Value Plan. 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. 2020 bonuses are subject to clawback provisions and, additionally, unvested deferred 2020 bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil). 5) LTIP The LTIP amount included in the single total figure is the value of the amount scheduled to be released in relation to the LTIP award granted in 2018 in respect of the performance period 2018-2020 (by reference to Q4 2020 average share price). Release is dependent on, among other things, performance over the period from 1 January 2018 to 31 December 2020 with straight-line vesting applied between the threshold and maximum points for the financial measures. The performance achieved against the performance targets is as follows: Performance measure Average return on tangible equity (RoTE) excluding material itemsa, b Average cost: income ratio excluding material itemsb, c Weighting Threshold Maximum vesting Actual % of award vesting 50% 10% of award vests for RoTE of 7.75% RoTE of 10.25% 7.0% 0% A CET1 underpin also applied 20% 4% of award vests for average cost: income ratio of 62.5% Average cost: income ratio of 58% 63.4% 0% Risk Scorecard 15% (detailed on page 125) 15% Strategic non-financial (detailed on pages 126 and 127) Total 100% 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 Performance is measured against the strategic non-financial measures. The Committee determined the percentage of the award that may vest between 0% and 15%. The measures are organised around three equally weighted categories: customers and clients, colleagues and society Final outcome approved by the Committee Notes a Based on an assumed CET1 ratio of c.13-13.5%. b Material items include litigation and conduct in 2018, 2019 and 2020 (including PPI and settlement with regard to RMBS). c £368m of structural cost actions and £95m spend to date of Barclays’ Community Aid Package are treated as material items and excluded from the 2020 CIR. 12.0% 11.0% 23.0% 23.0% 124 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements A summary of the Committee’s assessment against the Risk Scorecard performance measure over the three-year performance period is provided below. Each category is equally weighted at 5%. Category Performance Outcome Capital and Liquidity Control Environment Conduct Total ■■ Group CET1 ratio grew from 13.3% to 15.1% over the period, and remained comfortably above 4.5% the regulatory minimum throughout ■■ Stress tests show that the bank is positioned to withstand a protracted recession triggered by COVID-19, and potential prolonged impact of the exit of the UK from the European Union ■■ Our Liquidity Coverage Ratio was significantly above the 100% regulatory requirement throughout the period ■■ The Barclays Internal Control Environment Programme (BICEP), which commenced in January 2017 and was focused on strengthening the internal control environment across the Group, successfully completed in March 2020. The Group’s control environment is now in a much stronger position, which helped to deal with the operational challenges presented by the COVID-19 pandemic ■■ Effective 25 June 2020, the Federal Reserve Board (FRB) announced the termination of its enforcement action against Barclays Bank PLC with regard to certain business practices, having been satisfied with remediation actions taken to enhance compliance systems and controls in those areas 4% ■■ Barclays is committed to continuing to drive the right culture throughout the organisation. Senior- level conduct breaches are viewed as a proxy for a good culture led ‘from the top’. These remained low throughout the period 3.5% ■■ Barclays operated at the overall set tolerance for Conduct Risk throughout the period, and remains focused on making continuous improvements to manage Conduct Risk effectively 12% Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 125 Remuneration report Annual report on Directors’ remuneration continued A summary of the Committee’s assessment against the Strategic non-financial performance measures over the three-year performance period is provided below. Each category is equally weighted at 5%. Category Customers and clients Outcome 3.5% Criteria Performance Barclays UK NPS® Improve Barclaycard UK NPS® BUK complaints reduction (ex PPI) Reduce complaints Increase digital engagement Barclays App users Digitally active customers CCP US Customer Digital Engagement Global Markets ranking Global Markets fee share Maintain client rankings and increase market share Global Banking ranking Global Banking fee share ■■ Barclays UK and Barclaycard UK NPS scores improved from 2017 to 2019, with substantial improvement in particular in Barclays UK NPS, up from +14 in 2017 to +18 in 2019 ■■ While NPS scores reduced in 2020, Barclays UK NPS is less impacted than for the majority of peers ■■ Relative scores improved over the period from joint 6th to 5th for Barclays UK and from 6th to joint 3rd for Barclaycard UK over the period ■■ Solid progress in Complaints reduction in Barclays UK since 2017 ■■ In 2020, reduction in customer complaints observed before and during the pandemic ■■ Significant increase in the number of Barclays App users from 5.5m in 2017 to 9.2m in 2020 with many new features introduced in the app over this period ■■ Steady increase in BUK digitally active customers over the period ■■ CCP US Customer Digital Engagement increased to 71.4% ■■ Global Markets ranking improved from 8th in 2017 to 6th in 2020 ■■ Global Markets fee share increased from 3.6% in 2017, to 4.9% in 2020 (Source: Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis based on Barclays internal business structure and internal revenues.) ■■ There was an increase in our Global Banking Fee Rank from 7th in 2017 to 6th in 2019 ■■ While 2020 was a very strong year in revenues, ranking fell back to 7th largely due to a decline in activity in the sectors where we are strongest ■■ As a result, fee share was down slightly over the period (Source: Dealogic for the period covering 1 January to 31 December 2020) 126 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Category Criteria Performance 2021 target of 28% ■■ Women in senior leadership (Managing Directors and Directors) increased from 23.2% in 2017 to 26.5%a in 2020, making steady progress towards the 2021 target of 28% ■■ Equivalent figure for the UK is now 29% Outcome 3.5% Colleagues Diversity % of females at Managing Director and Director level Inclusion “I would recommend Barclays as a good place to work” Improve from 2017 Employee engagement Maintain engagement at healthy levels “My team actively seeks feedback to understand customer and client expectations” Improve from 2017 Society Environmental and social financing Facilitate £150bn over 2018-2025 Carbon emissions reduction People upskilled Reduce operational carbon emissions -80% by 2021 (accelerated from 2025) Renewable electricity -90% by 2021 Upskill 10 million from 2018-2022 Place 250,000 people into work 2019-2022 ■■ The percentage of colleagues who would recommend Barclays as a good place to work has increased over the period to 87% (2017: 82%) ■■ By 2020, 94% of colleagues believed that they and their teams do a good job of role-modelling the Values – above 90% scored throughout the period ■■ Engagement levels across Barclays are now at 83% – 5 points up on 2017 ■■ Significant improvement observed during 2020, with corresponding increases in the number of employees saying that they have the tools and resources to achieve excellent performance – a key deliverable for 2019 and 2020 ■■ The percentage of colleagues who believe that their team actively seeks feedback to understand customer and client expectations has been maintained at a strong level throughout the period ■■ Consistently exceeded targets, a total of £124.2bn of 4.0% financing delivered between 2018 and 2020 against a target of £150bn by 2025 ■■ Environmental financing increased year on year during the period ■■ Carbon emissions reduced by 38% by 2018 (over 2015 baseline), exceeding the 2018 target. Further reduction of 71% against the 2018 baseline to date ■■ Renewable electricity now at 74%, very good progress towards target of 90% by 2021 ■■ 6.9m people upskilled between 2018 and 2020, making excellent progress towards our aspiration of helping 10m people by 2022 ■■ Good progress toward Connect with Work target, with more than 116,000 people placed into work in two years, despite the challenges of the pandemic during 2020 Total 11.0% 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 vest at 23.0% of the maximum number of shares under the total award, to be released in five equal tranches annually, starting from March 2021. After release, the shares are subject to an additional 12-month holding period. Note a Represented to 1dp for the purposes of the assessment, rounded for simplicity in the Strategic Report. Actual outcome 26.46%. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 127 Remuneration report Annual report on Directors’ remuneration continued LTIP awards granted during 2020 An award was made to Jes Staley and Tushar Morzaria on 9th March 2020 under the 2020-2022 LTIP at a share price of £0.8003, 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 number of shares below. % of Total Fixed Pay Number of shares Face value at grant Performance period Jes Staley Tushar Morzaria 120% 120% 4,117,455 2,773,959 £3,295,200 £2,220,000 2020-2022 2020-2022 The performance measures for the 2020-2022 LTIP awards are as follows: Performance measure Weighting Threshold 50% 10% of award vests for RoTE of 9% (based on an assumed CET1 ratio at the target of c.13.5%) Maximum vesting RoTE of 10.5% Vesting of this element will depend on CET1 levels during the performance period: ■■ In line with regulatory requirements, if the CET1 ratio goes below the MDR hurdle during the performance period, the Committee will consider what part, if any, of this element should vest. 20% 4% of award vests for cost: income ratio of 60% Cost: income ratio of 58.5% Average return on tangible equity (RoTE) ex litigation and conduct and other material items Average cost: income ratio ex litigation and conduct and other material items Risk Scorecard 15% Strategic non-financial 15% 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 2022 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, colleagues and society. Each of the three main categories has equal weighting. Measures will likely include, but not be limited to, the following: ■■ Customers and clients: Improve Net Promoter Scores, reduce UK customer complaints, increase digital engagement, maintain client rankings and increase market shares within CIB ■■ Colleagues: Continue to increase the % of women in leadership roles, maintain engagement at healthy levels, improve key metrics from 2019, including Enable scores ■■ Society: Grow social and environmental financing, reduce carbon footprint and increase use of renewable energy, continue investing in our communities. Straight-line vesting applies between the threshold and maximum points in respect of the financial measures. The award of the 2020-2022 LTIP was made in March 2020 at a time following share price depreciation following the onset of the COVID-19 pandemic. The market share price was 22% down on the market share price at the prior year grant due to various global factors, which we believe were mostly not specific to Barclays. Under the LTIP, the Committee has full discretion to ensure that the final outcomes are warranted based on the performance of the Group in light of all relevant factors and that there have not been any windfall gains. The factors considered in making this assessment will be described at the time of vest. 128 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Executive Directors: Statement of implementation of remuneration policy in 2021 An overview of how the remuneration policy will be implemented for Executive Directors in 2021 is set out in the subsequent sections. The following chart provides an illustrative indication of how 2021 remuneration will be delivered to the Executive Directors. 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Implementation in 2021 Fixed Pay Cash Shares Pension Cash in lieu of pension Annual bonus LTIP P e r f o r m a n c e p e r i o d p e r f o r m a n c e p e r i o d P r e l i i m n a r y Released in equal tranches over 5 years Cash Shares Holding period Shares Holding period Shares P e r f o r m a n c e p e r i o d Holding period Shares Holding period Shares Holding period Shares Holding period Shares Holding period Shares Holding period ■■ ■■ ■■ ■■ ■■ ■■ ■■ ■■ Jes Staley £2,350,0001 Tushar Morzaria £1,650,0001 Jes Staley £117,5001 Tushar Morzaria £82,5001 Jes Staley 93% of Fixed Pay Tushar Morzaria 90% of Fixed Pay Jes Staley 140% of Fixed Pay Tushar Morzaria 134% of Fixed Pay 1 Fixed pay increases for the Executive Directors agreed under the new Directors’ remuneration policy in 2020 have been further postponed until at least H2 2021. Should the increases take effect in H2 2021, the Fixed Pay for Jes Staley would increase to £2,400,000 and for Tushar Morzaria it would increase to £1,725,000, and cash in lieu of pension would also increase to £120,000 and £86,250, respectively. 2021 Fixed Pay At the onset of the pandemic, the Executive Directors requested that the Fixed Pay increases proposed as part of the Directors’ remuneration policy be postponed until at least 2021. Given the current macroeconomic environment, the Executive Directors have asked that these increases continue to be postponed until at least H2 2021. The increases will be reviewed again with the Committee towards the end of H1 2021. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 129 Remuneration report Annual report on Directors’ remuneration continued 2021 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 Drive a profitable diversified banking model that is resilient through economic cycles Profit before tax (excluding material items) (50% weighting) Strategic non-financial (20% weighting) The evaluation will focus on a range of key metrics across stakeholder groups, with a detailed retrospective narrative on progress throughout the period against each category. Performance against the measures will be assessed by the Committee to determine the percentage of the award that may vest between 0% and 20%. Each of the three main categories has equal weighting. Payout of this element will depend on the CET1 ratio at the end of the performance year. In line with regulatory requirements, if the CET1 ratio is below the MDR hurdle at the end of the performance year, the Committee will consider what part if any of this element should pay out Cost: income ratio (excluding material items) (10% weighting) The measures are organised around three main categories: customers and clients, colleagues and society. Measures will likely include, but not be limited to: Customers and clients: Drive world class outcomes for customers and clients and continue to support them through the pandemic: ■■ Improve Net Promoter Scores ■■ Reduce BUK customer complaints and improve resolution time ■■ Maintain client ranking and market share within CIB ■■ Increase digital engagement Colleagues: Protect and strengthen our culture through our Purpose, Values and Mindset ■■ Continue to improve diversity in leadership roles ■■ Improve inclusion indicators ■■ Maintain engagement at healthy levels ■■ Maintain culture and conduct indicators Society: Drive a focus on the sustainable impact of our business ■■ Progress towards our 2030 £100bn green financing commitment ■■ Deliver against our near term financing emissions targets (2025) ■■ Reduce carbon footprint and increase use of renewable energy ■■ Continue investing in our communities 130 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Personal (20% weighting) Joint personal objectives: Lead the investment proposition for Barclays and ensure a strong balance sheet which underpins returns potential ■■ Deliver improving shareholder returns, with a focus on RoTE ■■ Maintain robust capital ratios across the Group and within the main operating entities ■■ Seek opportunities for further cost efficiencies, enabling reinvestment into strategic priorities and growth initiatives ■■ Optimise partnerships within the Group to deliver the whole of Barclays to our clients ■■ Continue to drive our technology agenda across the Group to support improving customer and client experience ■■ Drive growth in fee-based, technology-led annuity businesses with lower capital intensity Jes Staley: ■■ Embed the new Purpose, updated Values and Mindset across the organisation ■■ Continue to develop a high-performing culture in line with our Values, with a focus on employee engagement, succession planning, talent and diversity ■■ Ensure a continued focus on customer and client outcomes ■■ Empower the effective management of the risk and controls agenda, including cyber risks ■■ Continue to focus on external societal and environmental stewardship ■■ Effectively manage relationships with key external stakeholders and society more broadly Tushar Morzaria: ■■ Continue to optimise financial management and reporting (particularly through technology) to drive benefits across the Group ■■ Further improve capital productivity through enhancing capital allocation and the measurement of capital returns ■■ Oversee the effective management of the risk and controls agenda across Group Finance, Strategy, Tax and Treasury ■■ Retain focus on colleague agenda across Group Finance, Strategy, Tax and Treasury ■■ Effectively manage relationships with key external stakeholders including regulators and investors Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 131 Remuneration report Annual report on Directors’ remuneration continued 2021-2023 LTIP The Committee decided to make an award under the 2021-2023 LTIP cycle to Jes Staley and Tushar Morzaria with a face value at grant of 140% of Fixed Pay for the CEO and 134% of Fixed Pay for the GFD. This maximum award was determined following a detailed review of their individual performance throughout 2020 and significant personal contribution to the resilience of the Group, and the Committee was comfortable that this is commensurate with performance delivered. This share based award ensures alignment with future performance over the three-year assessment period, as well as, shareholder alignment over the long release period (up to eight years from initial award). The objective of the LTIP is to incentivise the Executive Directors to deliver on the long-term strategy, without encouraging excessive risk-taking. In its deliberations on the appropriate financial performance measures for the 2021-2023 LTIP cycle, the Committee reflected on the significant remaining macroeconomic uncertainty. Given the challenges that such uncertainty introduces to the calibration of absolute financial targets, the Committee decided to introduce a relative performance measure, in the form of 25% relative Total Shareholder Return. The weighting of the RoTE measure will be correspondingly reduced to 25% (from 50% in the previous cycle) to retain a total of 50% on returns-type measures. It will be tested in 2023, the final year of the performance period, to help in determining how effectively the Executive Directors navigate the financial recovery and steer Barclays back towards our targets over the medium term. An additional challenge arising from such uncertainty going into 2021 and beyond will be to ensure that the Group remains appropriately focused on prudential stability and balance sheet strength, while continuing to be able to support our customers and clients, and the economies in which we operate. Given this focus, the Committee decided to introduce a standalone CET1 measure for 10% of the award. CIR is also maintained as an average measure over the performance period, with its weighting slightly reduced to 10%. As noted above, the unique societal and resulting macroeconomic circumstances have created significant challenges in calibrating absolute longer-term plan targets. Given the inherent uncertainty, and the desire to avoid setting targets that in retrospect turn out to be much more challenging or simpler than intended, the Committee wanted to ensure that the performance targets for RoTE and CIR appropriately reflect the full range of potential outcomes around the current forecasts (acknowledging that the various potential macroeconomic risks and opportunities are largely outside the direct control of the Executive Directors). This will ensure that the LTIP has the desired effect of continuing to motivate and retain the executives throughout the performance period, whilst still requiring a very strong performance for full vesting. Given this basis for the calibration of the ranges, the vesting proportion for attaining threshold performance has been correspondingly reduced from the previous 20% to 0%. This does not impact the TSR or CET1 measures. The Committee retains ultimate discretion to ensure that the outcomes are appropriate in light of all relevant factors at the end of the performance period. The Committee also considered how our ambition to be net zero by 2050 should be reflected in pay for the Executive Directors. The decision was to include a standalone Climate measure within the LTIP, providing clear alignment between the LTIP outcome, up to a maximum of 10%, and progress towards our targets which will help us to become net zero by 2050. To accommodate the addition of the Climate measure, the weighting for the Risk Scorecard and Strategic non-financial measures (excluding Climate) will be reduced to 10% each. Performance against the Risk Scorecard has improved over the last three years, giving an outcome of 12% out of 15% for the 2018-2020 LTIP. While it is very important that the Executive Directors focus on maintaining performance in this area, the Committee felt comfortable that a lower weighting could be applied. The 2021-2023 LTIP award will be subject to the following forward-looking performance measures. Performance measure Weighting Threshold 2023 return on tangible equity (RoTE) ex material itemsa Average cost: income ratio ex material items Maintain CET1 ratio within the target range 25% 10% 10% 0% of award vests for RoTE of 6.0% rising on a straight-line basis 0% of award vests for average cost: income ratio of 65.0% rising on a straight-line basis If CET1 is below MDA hurdleb +180bps during the period, the Committee will consider what portion of this element should vest, based on the causes of the CET1 reduction. If CET1 is above MDA hurdle +280bps but does not make progress towards the range over the period, the Committee will consider what portion of this element should vest, based on the reasons for the elevated levels of CET1 versus target range and the associated impacts. Maximum vesting RoTE of 12.0% Average cost: income ratio of 62.0% CET1 ratio between 180bps and 280bps above MDA hurdle throughout the period. Relative Total Shareholder Return (TSR) 25% 6.25% vests for performancec at median of the peer groupd rising on a straight-line basis Performance at the upper quartile 132 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Performance measure Weighting Threshold Maximum vesting Risk Scorecard 10% Climate 10% Strategic non-financial 10% 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 2023 Remuneration Report, subject to commercial sensitivity no longer remaining. The evaluation will focus on progress towards our ambition to be a net zero bank by 2050 including: ■■ our commitment to align our financing with the goals of the Paris Climate Agreement; and ■■ our commitment to £100bn of green financing by 2030. There will be detailed retrospective narrative on progress over the period, including consideration of progress towards other relevant targets. Performance will be assessed by the Committee to determine the percentage of the award that may vest between 0% and 10%. 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 10%. The measures are organised around three main categories: Customer and Client, Colleagues and Society (Citizenship). Each of the three main categories has equal weighting. Measures will likely include, but not be limited to, the following: ■■ Customers and Clients: Drive world class outcomes for customers and clients and continue to support them through the pandemic: improve Net Promoter Scores, reduce BUK customer complaints and improve resolution time, maintain client ranking and market share within CIB, increase digital engagement. ■■ Colleagues: Protect and strengthen our culture through our Purpose, Values and Mindset: continue to improve diversity in leadership roles, improve inclusion indicators, maintain engagement at healthy levels and maintain culture and conduct indicators. ■■ Society (Citizenship): Drive a focus on the sustainable impact of our business: continue investing in our communities, including LifeSkills, Connect with Work and Unreasonable Impact. Notes a Based on an assumed CET1 ratio at the mid-point of the Group target range, 13-14%. b Currently 11.2%. c Performance assessed over the period from 1 January 2021 to 31 December 2023. Start and end TSR data will be the Q4 average for 2020 and 2023 respectively and will be measured in GBP for each company. d The peer group is comprised of multinational banks in Europe and North America of comparable size to Barclays and whose TSR has a high degree of correlation with Barclays’. The constituents of the comparator group are reviewed annually, prior to each new LTIP grant. The peer group for the 2021-23 award is: Banco Santander, Bank of America, BBVA, BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, HSBC, ING Groep, Lloyds Banking Group, Morgan Stanley, NatWest Group, Societe Generale, Standard Chartered, UBS, Unicredit. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 133 Remuneration report Annual report on Directors’ remuneration continued Illustrative scenarios for Executive Directors’ remuneration The charts below show the potential value of the current Executive Directors’ 2021 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 2021 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. In line with reporting requirements, we have provided an indication of the maximum remuneration receivable, assuming share price appreciation of 50% on the LTIP. Total remuneration opportunity: Group Chief Executive £m Minimum Total 2.53 93% 7% Mid-point Total 5.27 45% 3% 21% 31% Group Finance Director £m Minimum Total 1.79 92% 8% Mid-point Total 3.64 45% 4% 21% 30% Maximum 30% 2% Maximum with share price increase 24% 0 2% 2 27% 23% Total 8.01 41% Maximum 30% 3% 27% Total 5.49 40% Total 9.65 Maximum with share price increase Total 6.59 34% 17% 25% 2% 22% 34% 17% 4 6 8 10 0 2 4 6 8 10 Fixed Pay Pension and bene�ts Annual bonus LTIP Potential outcome of a 50% share price increase Fixed Pay Pension and bene�ts Annual bonus LTIP Potential outcome of a 50% share price increase The illustrative scenarios are based on current Fixed Pay for the Executive Directors. Should the postponed 2020 Fixed Pay increases be implemented during H2 2021, the Maximum Opportunity will be £8.15m for the Group Chief Executive and £5.69m for the Group Finance Director. 134 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Additional remuneration disclosures Group performance graph and Group CEO remuneration The performance graph below illustrates the performance of Barclays over the financial years from 2011 to 2020 in terms of Total Shareholder Return compared with that of the companies comprising the FTSE100 index. The index has been selected because it represents a cross-section of leading UK companies. Total Shareholder Return – rebased to 100 in 2010 Year ended 31 December 108 105 128 121 129 111 127 103 100 100 98 69 151 108 169 99 154 75 181 94 160 77 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Barclays FTSE 100 The table below presents the single figure for remuneration and annual incentive and long-term incentive plan outcomes for the Group Chief Executive over the past 10 years. Year Group Chief Executive Single total remuneration figure CEO Annual bonus award as a % of maximum Long-term incentive plan vesting as a % of maximum 2012 2011 Robert Robert Diamond Diamond 11,070a 1,892 0% 80% Antony Jenkins 529 0% 2013 2014 Antony Antony Jenkins Jenkins 1,602 5,467c Antony Jenkins 3,399 0% 57% 48% 2015 John McFarlane 305 N/A Jes Staley 277 N/A 2017 Jes Staley 3,873 2016 2018 2020 Jes Jes Jes Staley Staley Staley 4,233 4,013 3,362 60% 48.5% 48.3% 75% 38.6% 2019 Jes Staley 5,929 N/Ab 0% N/Ab N/Ab 30% 39% N/Ab N/Ab N/Ab N/Ab N/Ab 48.5% 23% Notes a This figure includes £5,745k tax equalisation as set out in the 2011 Remuneration Report. Robert Diamond was tax equalised on tax above the UK rate where that could not be offset by a double tax treaty. b Not a participant in a long-term incentive award which vested in the period. c 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. Group CEO pay ratio The table below shows the ratios of the Group Chief Executive’s total remuneration to the remuneration of UK employees since 2018. The change in the pay ratios for 2020 is explained in more detail below. 2020 2019 2018 Option 25th percentile Median 75th percentile A A A 137 x 213 x 126 x 90 x 140 x 85 x 51 x 77 x 45x The regulations provide three options which may be used to calculate total pay for the employees at the 25th percentile, median and 75th percentile. Following guidance issued by some proxy advisers and institutional shareholders, we have selected Option A to calculate total pay for each calendar year using the employee population on the 31st of December of each respective year. Option A calculates total pay for all employees on the same basis as the single figure for remuneration is calculated for Executive Directors. Total pay for each employee includes earned Fixed Pay, which is made up of salary, Role Based Pay (RBP) and relevant allowances, annual incentives awarded for the 2020 calendar year, and an estimate of pension and benefits for 2020. Other elements of pay such as overtime and shift allowances have been excluded as previously. The estimate of pension for each employee is based on the percentage currently available to new hires in the UK (between 10% for the more senior and 12% for the more junior Corporate Grades). The estimate of benefits is based on the cost of core benefits available at each Corporate Grade, including private medical insurance, income protection and life assurance. Calculations use full-time equivalent pay data taken from our HR systems for all employees. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 135 Remuneration report Annual report on Directors’ remuneration continued Total pay and Fixed Pay for the employees at the 25th percentile, median and 75th percentile are set out in the table below. 2020 2019a 2018a 25th percentile Median 75th percentile Total pay £29,380 £27,875 £26,587 Fixed Pay £24,706 £23,348 £21,899 Total pay £44,631 £42,362 £39,390 Fixed Pay £37,460 £35,158 £32,202 Total pay £79,324 £77,488 £74,685 Fixed Pay £64,272 £62,263 £60,000 Notes a Fixed Pay figures for 2018 and 2019 have been restated to also include relevant allowances (such as the London mobility allowance and legacy supplementary cash allowances) in additional to earned salary. 2020 fixed pay figures include earned salary and the London mobility allowance. 2020 total pay also includes increases to employer funded pension contributions (up to 12% for junior colleagues) where relevant. The pay ratios have decreased between 2019 and 2020, largely due to a decrease in the CEO total single figure of remuneration, although employee total pay has also increased by 5% at the LQ and median, and by 2% at the UQ. The decrease in the CEO single figure of remuneration from 2019 to 2020 is a result of lower outcomes on the CEO’s annual bonus and LTIP due to reduced performance against financial measures during the COVID-19 pandemic, as well as the decrease in Executive Director pension contributions which were reduced as part of the new DRP in May 2020. The impact of the reduced financial performance on pay for the median employee is minimal, given the comparatively higher proportion of fixed pay, and the Company’s approach to protecting annual incentives outcomes for the more junior colleagues, in line with our approach to fair pay and to reward their contributions to supporting customers and clients during the pandemic. Barclays remuneration philosophy is set out earlier in this report, and all remuneration decisions for Executive Directors and the wider workforce are made within this framework. The CEO pay ratio is one of the outcomes of all of these decisions, which are explained in more detail in the Chairman’s statement. Total remuneration of the employees in the Barclays Bank Group The table shows the number of employees in the Barclays Bank Group as at 31 December 2019 and 2020 in bands by reference to total remuneration. Total remuneration comprises salary, RBP, other allowances, bonus and the value at award of LTIP awards. Barclays is a global business and particularly within the investment banking businesses a large proportion of our business and employees are based outside of the UK, with a strong presence in the US. Of those employees earning above £1m in total remuneration for 2020 in the table below, 59% are based in the US, and only 33% in the UK and 8% in the rest of the world. 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 2020 27,446 27,815 18,799 11,534 2,217 882 325 71 31 10 8 3 2019 26,706 26,989 18,266 11,428 2,259 884 290 68 23 5 11 2 136 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Annual percentage change in remuneration of Directors’ and employees The table below shows the percentage change in the Executive Directors’ Fixed Pay, benefits and bonus between 2019 and 2020 compared with the percentage change in each of those components of pay for UK-based employees, and employees of the Barclays PLC (BPLC) the Parent company of the Group. 2019/2020 Group CEO Group FD Median UK employee Median employee of BPLC Fixed Pay 0% 0% 7% 7% Benefits 10% 9% 20% 26% Annual bonus -49% -49% -16% -16% For the Executive Directors, percentage change figures are calculated using the single total figure for 2020 remuneration table. Their increases in benefits from 2019 to 2020 are due to increased costs of the provision of private medical cover, life assurance and income protection. Similarly, for the UK employees and employees of BPLC, the increase in median benefits value between 2019 and 2020 is also due to an increase in the costs of the provision of private medical cover, life assurance and income protection. For the UK employees, in addition to typical salary increases, the 7% increase in median Fixed Pay also reflects the impact of the Barclays UK Reward Strategy changes (effective July 2019). This amended how pay is structured for c.19,500 employees in line with our approach to fair pay. For the impacted employees, a portion of previous bonus opportunity was transferred into Fixed Pay, ensuring a larger proportion of their overall pay package is fixed, pensionable and is not impacted by business performance. These increases in Fixed Pay and reductions in bonus opportunity are reflected in pay for the second half of 2019 and full year for 2020, also contributing to the 16% decrease in median bonus. BPLC only employs a very small number of Head Office employees (56 for 2020). Between 2019 and 2020, BPLC experienced significant headcount movement with around half the 2019 BPLC employees, predominantly at more junior levels, moving to other Legal employing entities in 2020. In order to make a meaningful year on year comparison, the figures are therefore based on all individuals employed by BPLC in both years. The table below shows the percentage change in fees for the Chairman and the Non-Executive Directors’ between 2019 and 2020. Non-Executive Directors who joined on or after 1 January 2020 are not included. As set out in the 2019 Directors’ Remuneration Report, all Non-Executive Directors other than the Chairman received an increase of £10,000 to their basic Board fee from 1 January 2020 – the first increase to this fee since 2011. The Chairman receives an all-inclusive fee which was not increased. Fees were also increased by £10,000 for the Chairs of the Audit and Risk Committees (the first increases since 2011 and 2017, respectively) and by £5,000 for members of the Risk Committee (last increased in 2011). Other increases relate to set fees for additional responsibilities taken on by the Non-Executive Directors in 2020. 2019/2020 Nigel Higginsa Mike Ashleyb Tim Breedonb Sir Ian Cheshire Mary Anne Citrinoa, b Dawn Fitzpatricka, c Mary Francisb Crawford Gillies Diane Schuenemanb Fees 0% 19% 24% 2% 33% 36% −3% 4% 3% Notes a For those who were appointed during 2019 or who stood down during 2020, fees are pro-rated up for the purposes of this comparison. b These Non-Executive Directors joined the Board of BBPLC in September 2019 and received a pro-rata fee for that year. For 2020, the full year fee of £30,000 was paid. The same applies to the Board fees for BCSL for Mike Ashley and Tim Breedon, for which an annual fee of £20,000 is paid. A significant portion of the change in fees relates to these additional responsibilities. c Dawn Fitzpatrick joined the Risk Committee on 1 January 2020 and received the fee of £30,000 for this additional responsibility from that date. This accounts for 27% of the increase. 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 shareholdersa £m 2020 2019 7,437 2020 0 7,343 2019 1,201 Note a Dividends reflected are those paid during the year i.e. for 2019, the figure represents the 2018 full year dividend paid in April 2019, and the 2019 half year dividend which was paid in September 2019. The distributions announced on 18 February 2021 are therefore not reflected in this table Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 137 Remuneration report Annual report on Directors’ remuneration continued 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. Fees are pro-rated for periods of service. Non-Executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays. Chairman and Non-Executive Directors: Single total figure for 2020 fees (audited) Chairman Nigel Higginsa John McFarlane Non-Executive Directors Mike Ashleyb, c Tim Breedonb, c Sir Ian Cheshired Mary Anne Citrinob Mohamed A. El-Erianb Dawn Fitzpatrickb Mary Francisb Crawford Gillies Brian Gilvary Sir Gerry Grimstone Reuben Jeffery III Matthew Lester Dambisa Moyo Diane Schuenemanb, e Mike Turner Total Fees 2020 £000 800 265 295 490 113 135 150 150 241 108 – – – – 390 – 2019 £000 541 272 222 238 480 113 – 29 155 231 – 80 41 143 46 377 36 3,137 3,004 Benefits 2020 £000 2019 £000 6 – – – – – – – – – – – – – – – – 6 3 6 – – – – – – – – – – – – – – – 9 Total 2020 £000 806 265 295 490 113 135 150 150 241 108 – – – – 390 – 2019 £000 544 278 222 238 480 113 – 29 155 231 – 80 41 143 46 377 36 3,143 3,013 Notes a Nigel Higgins does not receive a fee in respect of his role as Chairman of Barclays Bank PLC. During 2020, Nigel donated one-third of his fees for a six month period to charitable causes supporting the response to COVID-19. b These Non-Executive Directors are appointed to the Board of Barclays Bank PLC. They receive an additional annual fee of £30,000, paid by Barclays Bank PLC in respect of this appointment (pro-rata for service in 2019). c These Non-Executive Directors received an additional annual fee of £20,000 for their services to Barclays Capital Securities Limited (pro-rata for service in 2019). d Sir Ian Cheshire’s figures include fees of £400,000 for his role as Chairman of Barclays Bank UK PLC. e Diane Schueneman is Chair of Barclays Execution Services Limited (the Group Service Company) and is a member of the Barclays US LLC (the US Intermediate Holding Company) Board. The 2020 figure includes fees of £70,000 for her role on the Barclays Execution Services Limited Board and $180k (£140k) for her role on the Barclays US LLC Board. Chairman and Non-Executive Directors: Statement of implementation of remuneration policy in 2021 Fees for the Chairman and Non-Executive Directors for 2021 are shown below. The fees were last reviewed in 2019 and revised for 2020, there have been no subsequent amendments. Chairmana Board member Additional responsibilities Senior Independent Director Chairman of Board Audit or Risk Committee Chairman of the Board Remuneration Committee Membership of Board Audit, Remuneration or Risk Committee Membership of Board Nominations Committee Notes a The Chairman does not receive any fees in addition to the Chairman fees. 1 January 2021 £000 800 90 1 January 2020 £000 800 90 36 80 70 30 15 36 80 70 30 15 138 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Directors’ shareholdings and share interests Interests in Barclays PLC shares (audited) The table below shows shares owned beneficially by all the Directors (including any shares owned beneficially by their connected persons) 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. The total shares at 16 February 2021 were the same for all Directors in service as at 31 December 2020. Executive Directors Jes Staley Tushar Morzaria Chairman Nigel Higgins Non-Executive Directors Mike Ashley Tim Breedon Sir Ian Cheshire Mary Anne Citrino Mohamed A. El-Erian Dawn Fitzpatrick Mary Francis Crawford Gillies Brian Gilvary Diane Schueneman Owned outright as at 31 December 2020 (or date of retirement from the Board, if earlier) Unvested Subject to performance measures Not subject to performance measures Total as at 31 December 2020 (or date of retirement from the Board, if earlier) 5,733,176 3,995,583 9,470,652 6,350,669 1,901,952 1,135,548 17,105,780 11,481,800 1,550,900 1,550,900 360,527 180,641 117,183 27,696 119,777 923,380 46,332 200,146 138,794 75,804 – – – – – – – – – – – – – – – – – – – – 360,527 180,641 117,183 27,696 119,777 923,380 46,332 200,146 138,794 75,804 Executive Directors’ shareholdings and share interests (audited) The chart below shows the value of Barclays’ shares held beneficially by Jes Staley and Tushar Morzaria that count towards the shareholding requirement as at 31 December 2020 using the Q4 2020 Barclays’ ordinary share price of £1.2677. The shareholding requirement is 233% of Fixed Pay for Jes Staley and 224% of Fixed Pay for Tushar Morzaria. The current Executive Directors have five years from their respective dates of appointment to meet this requirement. Jes Staley £000 Requirement Actual Tushar Morzaria £000 5,476 Requirement 3,696 7,268 Actual 5,065 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 139 Remuneration report Annual report on Directors’ remuneration continued 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, the Chairman and 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. Chairman Nigel Higgins Executive Directors Jes Staley Tushar Morzaria Non-Executive Directors Mike Ashley Tim Breedon Sir Ian Cheshire Mohamed A. El-Erian Dawn Fitzpatrick Mary Francis Crawford Gillies Brian Gilvary Diane Schueneman Effective date of appointment 1 March 2019 (Non-Executive Director) 2 May 2019 (Chairman) 1 December 2015 15 October 2013 18 September 2013 1 November 2012 3 April 2017 1 January 2020 25 September 2019 1 October 2016 1 May 2014 1 February 2020 25 June 2015 Payments to former Directors (audited) Former Group Finance Director: Chris Lucas In 2020, 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 2020. Former Non-Executive: Reuben Jeffery III Reuben Jeffery III was appointed as a member of the Barclays US LLC (the US Intermediate Holding Company) Board until 28 August 2020. He received fees of $150,000 per annum for this role on the Barclays US LLC Board, pro-rated for his period of service in line with policy. Previous AGM voting outcomes The table below shows the voting result in respect of our remuneration report and Directors’ remuneration policy at the AGM held on 7 May 2020. Shareholder votes on remuneration For % of votes cast Number Against % of votes cast Number Withheld Number Vote on the 2019 Remuneration Report at the 2020 AGM 95.78% 4.22% 11,354,434,198 500,456,293 90,893,005 Vote on the Directors’ remuneration policy at the 2020 AGM 96.29% 3.71% 11,308,670,932 436,091,600 201,020,969 At the AGM held on 24 April 2014, 96.02% (10,364,453,159 votes) of shareholders of Barclays PLC voted 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. 140 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Barclays Board Remuneration Committee The 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); and ■■ 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 fair and 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 BX, periodically reviews (at least annually) all material matters of retirement benefit design and governance, and exercises judgement in the application of remuneration policies to promote the long-term success of the Group for the benefit of shareholders. The Committee and its members work as necessary with other Board Committees, and is authorised to select and appoint its own advisers as required. Committee effectiveness in 2020 The 2020 Committee effectiveness review was conducted in accordance with the Code. This internal review involved completion of a tailored questionnaire by Committee members and senior management, in line with the approach adopted for all Board Committees in 2020. The review is an important part of the way Barclays monitors and improves Committee performance and effectiveness, maximising strengths and highlighting areas for further development. The results confirm that the Committee is operating effectively. The Committee continues to be well constituted and provides an effective level of challenge and oversight of the areas within its remit. In particular, feedback indicates that the Committee continued to operate effectively during the year in the context of the COVID-19 pandemic, notwithstanding the need to convene remotely. It was also noted that the Committee spends time on key judgement areas, which was of particular importance during 2020. Consideration will be given to adding an additional member of the Committee, in light of Crawford Gillies stepping down as Committee Chair at the end of February 2021. The Committee’s interaction with the Board, Board Committees and senior management is considered effective, with continued positive engagement and dialogue with senior management. It was also noted that the natural overlay with the Board Risk Committee had been reflected formally in the Committee’s Terms of Reference during the year. In response to a request to provide feedback on interaction with subsidiary committees, the Committee’s interaction with the principal subsidiary remuneration committees was also considered effective, and in line with regulatory requirements. Following the consolidation of the membership of the Committee with the BBPLC Board Remuneration Committee in September 2019 (with the exception of the Committee Chair and Brian Gilvary, who attend as observers only for matters relating to BBPLC), coverage of BBPLC matters within aligned meetings was considered adequate. Advisers to the Committee The Committee appointed PricewaterhouseCoopers (PwC) as the independent adviser in October 2017. The Committee considered the independence and objectivity of advice provided by PwC during the year to the Committee and was satisfied that it is independent and objective. PwC is a signatory to the voluntary UK Code of Conduct for executive remuneration consultants. PwC was paid £121,000 (excluding VAT) in fees for their advice to the Committee in 2020 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 2020, 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 and benefits advice, insurance brokerage 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 Group Chief Risk Officer provide regular updates on Group and business financial performance and risk profiles, 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 141 Remuneration report Annual report on Directors’ remuneration continued Committee activity in 2020 The following provides a summary of the Committee’s activity during 2020 and at the January and February 2021 meetings at which 2020 remuneration decisions were finalised. The Committee is also provided with updates at each scheduled meeting on: operation of the Committee’s Control Framework on hiring, retention and termination, headcount and employee attrition, and extant LTIP performance. January 2020 February 2020 July 2020 October 2020 December 2020 January 2021 February 2021 Overall remuneration Incentive funding proposals including risk adjustments 2019 Remuneration Report Group Fixed Pay budgets Finance and Risk updates Incentive funding approach Barclays’ Fair Pay agenda and Report 2020 Remuneration Report Wider workforce considerations Executive Directors’ and senior executives’ bonus outcomes Review of Directors’ remuneration policy Annual bonus and LTIP performance measures and target calibration Executive Directors’ and senior executives’ remuneration Governance Regulatory and stakeholder matters Discussion with independent adviser Remuneration Review Panel update Review of Committee effectiveness There were five additional Remuneration Committee meetings during the course of 2020. The Committee met in February, April (two meetings), June and September to consider regulatory matters, Executive Directors’ remuneration in the context of COVID-19 and leadership changes across the organisation. 142 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review The management of risk is a critical underpinning to the execution of Barclays’ strategy. The material risks and uncertainties the Group faces across its business and portfolios are key areas of management focus. Risk management strategy Overview of Barclays’ approach to risk management. A detailed overview together with more specific information on policies that the Group determines to be of particular significance in the current operating environment can be found in the Barclays PLC Pillar 3 Report 2020 or at barclays.com 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. Climate change risk management Overview of Barclays’ approach to managing climate change risk. 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 Group from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the Group, including the whole and timely payment of principal, interest, collateral and other receivables. ■■ Enterprise Risk Management Framework (ERMF) ■■ Segregation of duties – the ‘Three Lines of Defence’ model ■■ Principal risks ■■ Risk appetite for the principal risks ■■ Risk committees ■■ Frameworks, policies and standards ■■ Assurance ■■ Effectiveness of risk management arrangements ■■ Learning from our mistakes ■■ Barclays’ risk culture ■■ Group-wide risk management tools ■■ Risk management in the setting of strategy ■■ 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 ■■ Overview, organisation and structure ■■ Risk management policy ■■ 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 ■■ The 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 Annual Report Pillar 3 Report 145 145 146 146 146 n/a n/a n/a n/a 146 n/a n/a 147 152 153 153 154 156 157 157 158 159 160 161 n/a 162 n/a 163 164 165 166 166 166 168 168 171 175 180 181 189 191 195 198 200 201 150 150 151 151 152 153 153 153 154 154 154 158 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 159 177 180 189 193 201 205 208 210 212 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 143 Risk review Market risk: The risk of a loss arising from potential adverse changes in the value of the Group’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. Treasury and capital risk – Liquidity: The risk that the Group 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. ■■ Market risk overview and summary of performance ■■ Balance sheet view of trading and banking books ■■ Review of management measures ■■ Review of regulatory measures ■■ Liquidity risk overview and summary of performance ■■ Liquidity risk stress testing ■■ Liquidity pool ■■ Funding structure and funding relationships ■■ Contractual maturity of financial assets and liabilities ■■ Asset encumbrance Treasury and capital risk – Capital: The risk that the Group 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 Group’s pension plans. ■■ 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 ■■ Minimum requirement for own funds and eligible liabilities ■■ Foreign exchange risk ■■ Pension risk review Treasury and capital risk – Interest rate risk in the banking book: The risk that the Group is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. ■■ Interest rate risk in the banking book overview and summary of performance ■■ Net interest income sensitivity ■■ Analysis of equity sensitivity ■■ Volatility of the fair value through other comprehensive income (FVOCI) portfolio in the liquidity pool ■■ Operational risk overview and summary of performance ■■ Operational risk profile Annual Report Pillar 3 Report 202 n/a 202 n/a 206 206 209 210 213 n/a 217 217 219 221 222 223 224 224 226 226 227 227 228 228 124 125 126 127 n/a n/a n/a n/a n/a 221 n/a 8 17 25 30 n/a 40 41 42 42 43 43 145 147 Operational risk: The risk of loss to the Group 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, effective 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, event, decision, or business relationship will reduce trust in the Group’s integrity and/or competence. Legal risk: The risk of loss or imposition of penalties, damages or fines from the failure of the Group to meet its legal obligations including regulatory or contractual requirements. Supervision and regulation The 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. ■■ Model risk overview and summary of performance 231 n/a ■■ Conduct risk overview and summary of performance 231 n/a ■■ Reputation risk overview and summary of performance 231 n/a ■■ Legal risk overview and summary of performance 231 n/a ■■ Supervision of the Group ■■ Global regulatory developments ■■ Financial regulatory framework ■■ 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 232 232 234 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 3 6 15 45 108 124 132 145 144 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review Risk management Barclays’ risk management strategy This section introduces the Group’s approach to managing and identifying risks, and for fostering a strong risk culture. Enterprise Risk Management Framework (ERMF) The ERMF sets the strategic approach for risk management by defining standards, objectives and responsibilities for all areas of the Group. It is then approved by the Barclays PLC Board on recommendation of the Group Chief Risk Officer. It supports senior management in effective risk management and developing a strong risk culture. The ERMF sets out: ■■ segregation of duties: The ERMF defines a Three Lines of Defence model. ■■ principal risks faced by the Group. This list guides the organisation of the risk management function, and the identification, management and reporting of risks ■■ risk appetite requirements. This helps define the level of risk we are willing to undertake in our business ■■ roles and responsibilities for risk management: The ERMF sets out the accountabilities of the Group CEO and other senior managers, as well as Barclays PLC committees. The ERMF is complemented by frameworks, policies and standards which are mainly aligned to individual principal risks: ■■ frameworks cover the management approach for a collection of related activities and define the associated policies used to govern them ■■ policies set out principles and other core requirements for the activities of the Group. Policies describe ‘what’ must be done ■■ standards set out the key control objectives that describe how the requirements set out in the policy are met, and who needs to carry them out. Standards describe ‘how’ controls should be undertaken. Segregation of duties – the ‘Three Lines of Defence’ model The ERMF sets out a clear lines of defence model. All colleagues are responsible for understanding and managing risks within the context of their individual roles and responsibilities, as set out below: ■■ first line comprises all employees engaged in the revenue generating and client-facing areas of the Group and all associated support functions, including Finance, Treasury, and Human Resources. The first line is responsible for identifying and managing the risks they generate, establishing a control framework, and escalating risk events to Risk and Compliance ■■ second line is comprised of the Risk and Compliance functions. 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 the Group, and to monitor the performance of the first line against these limits and constraints. Note that limits for a number of first line activities, related to operational risk, will be set by the first line and overseen by the Chief Controls Office. These will remain subject to supervision by the second line ■■ third line of defence is Internal Audit, who are responsible for providing independent assurance over the effectiveness of governance, risk management and control over current, systemic and evolving risks ■■ the Legal function provides support to all areas of the bank and is not formally part of any of the three lines. However, it is subject to second line oversight. Board Committees Barclays PLC Board Barclays PLC Board Risk Committee Barclays PLC Board Audit Committee Management Level Committees/ Forums Business Level Committees/ Forums Barclays Group ExCo Group Risk Committee Barclays Group Product/ Risk Type Committees Barclays PLC Board Remuneration Committee Group Remuneration Review Panel Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 145 Risk review Risk management continued Principal risks The ERMF identifies eight principal risks and sets out associated responsibilities and expectations around risk management standards. The principal risks are: credit risk, market risk, treasury and capital risk, operational risk, model risk, conduct risk, reputation risk and legal risk. Each of the principal risks is overseen by an accountable executive within the Group who is responsible for the framework, policies and standards that detail the related requirements. Risk reports to executive and Board committees are clearly organised by principal risk. In addition, certain risks span more than one principal risk; these are also subject to the ERMF and are reported to executive and Board committees. Risk appetite for the principal risks Risk appetite is defined as the level of risk which the Group’s businesses are prepared to accept in the conduct of their activities. It provides a basis for ongoing dialogue between management and Board with respect to the Group’s current and evolving risk profile, allowing strategic and financial decisions to be made on an informed basis. Risk appetite is approved by the Barclays PLC Board and disseminated across legal entities. Total Group risk appetite is supported by limits to control exposures and activities that have material concentration risk implications. Risk committees Various committees also fulfil important roles and responsibilities. Barclays business level 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 the Barclays PLC Board Committees and the Barclays PLC Board. In addition to setting the risk appetite of the Group, the Board is responsible for approving the ERMF, and reviewing all reputation risk matters. It receives regular information on the risk profile of the bank, and has ultimate responsibility for risk appetite and capital plans. Further, there are two Board-level committees which oversee the application of the ERMF and implementation of key aspects, the Barclays PLC Board Risk Committee (BRC) and the Barclays PLC Board Audit Committee (BAC). Membership of these committees is comprised solely of Non-Executive Directors providing independent oversight and challenge. Additionally, the Barclays PLC Board Remuneration Committee oversee pay practices focusing on aligning pay to sustainable performance. ■■ The Barclays PLC Board Risk Committee (BRC): the BRC monitors the 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. The BRC also reviews certain key risk methodologies, the effectiveness of risk management, and the 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 Group CRO or senior risk managers. ■■ 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, quarterly papers on accounting judgements (including impairment), and a quarterly review of the adequacy of impairment allowances, relative to the risk inherent in the portfolios, the business environment, and Barclays policies and methodologies. ■■ The Barclays PLC Board Remuneration Committee (RemCo): the RemCo receives a 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 the Barclays website at: home.barclays/about- barclays/barclays-corporate-governance.html. The GRC is the most senior executive body responsible for reviewing and monitoring the risk profile of the Group. This includes coverage of all principal risks, and any other material risks, to which the Group is exposed. The GRC reviews and recommends the proposed risk appetite and relative limits to the BRC. The committee covers all business units and legal entities with the Group and incorporates specific coverage of Barclays Bank Group. Barclays’ risk culture Risk culture can be defined as the norms, attitudes and behaviours related to risk awareness, risk taking and risk management. This is reflected in how the Group identifies, escalates and manages risk matters. Barclays is committed to maintaining a robust risk culture in which: ■■ management expect, model and reward the right behaviours from a risk and control perspective ■■ colleagues identify, manage and escalate risk and control matters, and meet their responsibilities around risk management. Specifically, all employees regardless of their positions, functions or locations must play their part in the Group’s risk management. Employees are required to be familiar with risk management policies which are relevant to their responsibilities, know how to escalate actual or potential risk issues, and have a role-appropriate level of awareness of the risk management process as defined by the ERMF. Our Code of Conduct – the Barclays Way Globally, all colleagues must attest to the ‘Barclays Way’, our Code of Conduct, and comply with 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 employees, customers and clients, governments and regulators, business partners, suppliers, competitors and the broader community. 146 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review Material existing and emerging risks Material existing and emerging risks to the Group’s future performance The Group has identified a broad range of risks to which its businesses are exposed. Material risks are those to which senior management pay particular attention and which could cause the delivery of the Group’s strategy, results of operations, financial condition and/or prospects to differ materially from expectations. Emerging risks are those which have unknown components, the impact of which could crystallise over a longer time period. In addition, certain other factors beyond the Group’s control, including escalation of terrorism or global conflicts, natural disasters, pandemics and similar events, although not detailed below, could have a similar impact on the Group. Material existing and emerging risks potentially impacting more than one principal risk i) Risks relating to the impact of COVID-19 The COVID-19 pandemic has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. There are a number of factors associated with the pandemic and its impact on global economies that could have a material adverse effect on (among other things) the profitability, capital and liquidity of financial institutions such as Barclays. The COVID-19 pandemic has caused disruption to the Group’s customers, suppliers and staff globally. Most jurisdictions in which the Group operates have implemented severe restrictions on the movement of their respective populations, with a resultant significant impact on economic activity in those jurisdictions. These restrictions are being determined by the governments of individual jurisdictions (including through the implementation of emergency powers) and impacts (including the timing of implementation and any subsequent lifting or extension of restrictions) may vary from jurisdiction to jurisdiction and/or within jurisdictions. It remains unclear how the COVID-19 pandemic will evolve through 2021 (including whether there will be further waves of the COVID-19 pandemic, whether COVID-19 vaccines approved for use by regulatory authorities will be deployed successfully with desired results, whether further new strains of COVID-19 will emerge and whether, and in what manner, additional restrictions will be imposed and/or existing restrictions extended) and the Group continues to monitor the situation closely. However, despite the COVID-19 contingency plans established by the Group, the ability to conduct business may be adversely affected by disruptions to infrastructure, business processes and technology services, resulting from the unavailability of staff due to illness or the failure of third parties to supply services. This may cause significant customer detriment, costs to reimburse losses incurred by the Group’s customers, potential litigation costs (including regulatory fines, penalties and other sanctions), and reputational damage. In many of the jurisdictions in which the Group operates, schemes have been initiated by central banks, national governments and regulators to provide financial support to parts of the economy most impacted by the COVID-19 pandemic. These schemes have been designed and implemented at pace, meaning lenders (including Barclays) continue to address operational issues which have arisen in connection with the implementation of the schemes, including resolving the interaction between the schemes and existing law and regulation. In addition, the full extent of how these schemes will impact the Group’s customers and therefore the impact on the Group remains uncertain at this stage. However, certain actions (such as the introduction of payment holidays for various consumer lending products or the cancellation or waiver of fees associated with certain products) may negatively impact the effective interest rate earned on the Group’s portfolios and may reduce fee income being earned on certain products and negatively impact the Group’s profitability. Furthermore, the introduction of, and participation in, central-bank supported loan and other financing schemes introduced as a result of the COVID-19 pandemic may negatively impact the Group’s RWAs, level of impairment and, in turn, capital position (particularly when any transitional relief applied to the calculation of RWAs and impairment expires). This may be exacerbated if the Group is required by any government or regulator to offer forbearance or additional financial relief to borrowers or if the Group is unable to rely on guarantees provided by governments in connection with financial support schemes as a result of the Group’s failure to comply with scheme requirements or otherwise. As these schemes and other financial support schemes provided by national governments (such as job retention and furlough schemes) expire, are withdrawn or are no longer supported, economic growth may be negatively impacted which may impact the Group’s results of operations and profitability. In addition, the Group may experience a higher volume of defaults and delinquencies in certain portfolios and may initiate collection and enforcement actions to recover defaulted debts. Where defaulting borrowers are harmed by the Group’s conduct, this may give rise to civil legal proceedings, including class actions, regulatory censure, potentially significant fines and other sanctions, and reputational damage. Other legal disputes may also arise between the Group and defaulting borrowers relating to matters such as breaches or enforcement of legal rights or obligations arising under loan and other credit agreements. Adverse findings in any such matters may result in the Group’s rights not being enforced as intended. For further details, refer to ‘viii) Legal risk and legal, competition and regulatory matters’ below. The actions taken by various governments and central banks, in particular in the United Kingdom and the United States, may indicate a view on the potential severity of any economic downturn and post-recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. The COVID-19 pandemic has led to a weakening in gross domestic product (GDP) in most jurisdictions in which the Group operates and an expectation of higher unemployment in those same jurisdictions. These factors all have a significant impact on the modelling of expected credit losses (ECLs) by the Group. As a result, the Group experienced higher ECLs in 2020 compared to prior periods and this trend may continue in 2021. The economic environment remains uncertain and future impairment charges may be subject to further volatility (including from changes to macroeconomic variable forecasts) depending on the longevity of the COVID-19 pandemic and related containment measures and the efficacy of any COVID-19 vaccines, as well as the longer term effectiveness of central bank, government and other support measures. For further details on macroeconomic variables used in the calculation of ECLs, refer to the credit risk performance section. In addition, ECLs may be adversely impacted by increased levels of default for single name exposures in certain sectors directly impacted by the COVID-19 pandemic (such as the oil and gas, retail, airline, and hospitality and leisure sectors). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 147 Risk review Material existing and emerging risks continued Furthermore, the 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 and assessing capital adequacy. 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 and/or misused. This may be exacerbated when dealing with unprecedented scenarios, such as the COVID-19 pandemic, due to the lack of reliable historical reference points and data. For further details on model risk, refer to ‘v) Model risk’ below. The disruption to economic activity globally caused by the COVID-19 pandemic could adversely impact the Group’s other assets such as goodwill and intangibles, and the value of Barclays PLC’s investments in subsidiaries. It could also impact the Group’s income due to lower lending and transaction volumes due to volatility or weakness in the capital markets. Other potential risks include credit rating migration which could negatively impact the Group’s RWAs and capital position, and potential liquidity stress due to (among other things) increased customer drawdowns, notwithstanding the significant initiatives that governments and central banks have put in place to support funding and liquidity. Furthermore, a significant increase in the utilisation of credit cards by Barclaycard customers could have a negative impact on the Group’s RWAs and capital position. Furthermore, in order to support lending activity to promote economic growth, governments and/or regulators may limit management’s flexibility in managing its business, require the deployment of capital in particular business lines or otherwise restrict or limit capital distributions and capital allocation. Any and all such events mentioned above could have a material adverse effect on the Group’s business, financial condition, results of operations, prospects, liquidity, capital position and credit ratings (including potential credit rating agency changes of outlooks or ratings), aswell as on the Group’s customers, employees and suppliers. ii) Business conditions, general economy and geopolitical issues The Group’s operations are subject to potentially unfavourable global and local economic and market conditions, as well as geopolitical developments, which may have a material effect on the Group’s business, results of operations, financial condition and prospects. A deterioration in global or local economic and market conditions may lead to (among other things): (i) deteriorating business, consumer or investor confidence and lower levels of fixed asset investment and productivity growth, which in turn may lead to lower client activity, including lower demand for borrowing from creditworthy customers; (ii) higher default rates, delinquencies, write-offs and impairment charges as borrowers struggle with the burden of additional debt; (iii) subdued asset prices and payment patterns, including the value of any collateral held by the Group; (iv) mark-to-market losses in trading portfolios resulting from changes in factors such as credit ratings, share prices and solvency of counterparties; and (v) revisions to calculated ECLs leading to increases in impairment allowances. In addition, the Group’s ability to borrow from other financial institutions or raise funding from external investors may be affected by deteriorating economic conditions and market disruption. Geopolitical events may lead to further financial instability and affect economic growth. In particular: ■■ global GDP growth weakened sharply in the first half of 2020 as a result of the COVID-19 pandemic. Whilst a number of central banks and governments implemented financial stimulus packages to counter the economic impact of the pandemic, recovery has been slower than anticipated and concerns remain as to whether (a) there will be subsequent waves of the COVID-19 pandemic, (b) further financial stimulus will be required and/or (c) governments will be required to significantly increase taxation to fund these commitments. All of these factors could adversely affect economic growth, affect specific industries or countries or affect the Group’s employees and business operations in affected countries. See ‘i) Risks relating to the impact of COVID-19’ above for further details ■■ in the UK, the decision to leave the European Union (EU) may give rise to further economic and political consequences including for investment and market confidence in the UK and the remainder of EU. See ‘(iii) The UK’s withdrawal from the European Union’ below for further details ■■ a significant proportion of the Group’s portfolio is located in the US, including a major credit card portfolio and a range of corporate and investment banking exposures. The possibility of significant continued changes in US policy in certain sectors (including trade, healthcare and commodities) may have an impact on the Group’s associated portfolios. Stress in the US economy, weakening GDP and the associated exchange rate fluctuations, heightened trade tensions (such as the current dispute between the US and China), 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 the Group’s profitability ■■ an escalation in geopolitical tensions or increased use of protectionist measures may negatively impact the Group’s business in the affected regions ■■ in China the pace of credit growth remains a concern, given the high level of leverage and despite government and regulatory action. A stronger than expected slowdown could result if authorities fail to appropriately manage growth during the transition from manufacturing towards services and the end of the investment and credit-led boom. Deterioration in emerging markets could affect the Group if it results in higher impairment charges via sovereign or counterparty defaults. iii) The UK’s withdrawal from the European Union There are a number of factors associated with the UK’s withdrawal from the EU, which could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. Trade and economic activity between the EU and UK The EU-UK Trade and Cooperation Agreement (TCA), which provides a new economic and social partnership between the EU and UK (including zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin) came into force provisionally on 1 January 2021. The TCA is a new, unprecedented arrangement between the EU and the UK, and there is some uncertainty as to its operation and the manner in which trading arrangements will be enforced by both the EU and the UK. 148 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Furthermore, the EU and/or the UK can invoke trade remedies (such as tariffs and non-tariff barriers) against each other in certain circumstances under the TCA. Resultant trading disruption may have a significant impact on economic activity in the EU and the UK which (in turn) could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. Unstable economic conditions could result in (among other things): ■■ a recession in the UK and/or one or more member states of the EEA in which it operates, with lower growth, higher unemployment and falling property prices, which could lead to increased impairments in relation to a number of the Group’s portfolios (including, but not limited to, its UK mortgage portfolio, unsecured lending portfolio (including credit cards) and commercial real estate exposures) ■■ increased market volatility (in particular in currencies and interest rates), which could impact the Group’s trading book positions and affect the underlying value of assets in the banking book and securities held by the Group for liquidity purposes ■■ a credit rating downgrade for one or more members of the Group (either directly or indirectly as a result of a downgrade in the UK sovereign credit ratings), which could significantly increase the Group’s cost of and/or reduce its access to funding, widen credit spreads and materially adversely affect the Group’s interest margins and liquidity position and/or ■■ a widening of credit spreads more generally or reduced investor appetite for the Group’s debt securities, which could negatively impact the Group’s cost of and/or access to funding. Current provision of financial services The TCA does not cover financial services regulation. Accordingly, UK-based entities within the Group (such as Barclays Bank PLC and Barclays Bank UK PLC) are no longer able to rely on the European passporting framework for financial services. Barclays Bank PLC and Barclays Capital Securities Limited have put in place new arrangements in the provision of cross-border banking and investment services to customers and counterparties in the EEA (including by servicing EEA clients through the Group’s EEA hub (Barclays Bank Ireland PLC), whilst Barclays Bank UK PLC remains focused on UK customers. The TCA was accompanied by a Joint Declaration on Financial Services, requiring the parties to agree a Memorandum of Understanding (MoU), by March 2021, establishing the framework for cooperation in financial services. The MoU will also cover how to move forward on equivalence determinations between the EU and the UK. There can be no assurance that the EU and the UK will reach further agreement on equivalence decisions. As a result, equivalence decisions which would enable UK firms to access EEA clients on a cross-border basis for certain markets product, cannot be relied upon to allow UK-based entities within the Group to meet all of the needs of customers and clients based in the EEA. However, there are certain other types of equivalence decisions which are material to the operations of the Group. To date, the EU and the UK have only agreed a temporary position on mutual equivalence in relation to clearing and settlement (CCP equivalence). If the current mutual, temporary equivalence decision in relation to CCP equivalence expires and is not replaced, this could have a material adverse effect on the Group’s business as well as its clients. In addition, HM Treasury has made certain unilateral equivalence decisions, (including under the Capital Requirements Regulation (CRR) and the removal of such decisions could have a material impact on the operations of the Group. The Group provides the majority of its cross-border banking and investment services to EEA clients via Barclays Bank Ireland PLC. Additionally, in certain EEA Member States, Barclays Bank PLC and Barclays Capital Securities Limited (BCSL) have applied for and received cross-border licences to enable them to continue to conduct a limited range of activities, including accessing EEA trading venues and interdealer trading. As a result of the onshoring of EU legislation in the UK and the exercise of the UK regulators’ Temporary Transitional Powers, UK-based entities within the Group are currently subject to substantially the same rules and regulations as prior to the UK’s withdrawal from the EU. It is the UK’s intention eventually to recast onshored EU legislation as part of UK legislation and PRA and FCA rules, which could result in changes to regulatory requirements in the UK. If the regulatory regimes for EU and UK financial services change further, or if temporary permissions and equivalence decisions expire, and are not replaced, the provision of cross- border banking and investment services across the Group may become more complex and costly which could have a material adverse effect on the Group’s business and results of operations and could result in the Group modifying its legal entity, capital and funding structures and business mix, exiting certain business activities altogether or not expanding in areas despite otherwise attractive potential returns. This may also be exacerbated if, Barclays Bank Ireland PLC expands further and, as a result of its growth and importance to the Group and the EEA banking system as a whole, Barclays Bank Ireland PLC is made subject to higher capital requirements or restrictions are imposed by regulators on capital allocation and capital distributions by Barclays Bank Ireland PLC. iv) The impact of interest rate changes on the Group’s profitability Changes to interest rates are significant for the Group, especially given the uncertainty as to the direction of interest rates and the pace at which they may change particularly in the Group’s main markets of the UK and the US. A continued period of low interest rates and flat yield curves, including any further rate cuts and/or negative interest rates, may affect and continue to put pressure on the Group’s net interest margins (the difference between its lending income and borrowing costs) and could adversely affect the profitability and prospects of the Group. Interest rate rises could positively impact the Group’s profitability as retail and corporate business income increases due to margin decompression. However, further increases in interest rates, if larger or more frequent than expected, could lead to generally weaker than expected growth, reduced business confidence and higher unemployment. This, in turn, could cause stress in the lending portfolio and underwriting activity of the Group with resultant higher credit losses driving an increased impairment charge which would most notably impact retail unsecured portfolios and wholesale non-investment grade lending and could have a material effect on the Group’s business, results of operations, financial condition and prospects. In addition, changes in interest rates could have an adverse impact on the value of the securities held in the Group’s liquid asset portfolio. Consequently, this could create more volatility than expected through the Group’s Fair Value through Other Comprehensive Income (FVOCI) reserves. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 149 Risk review Material existing and emerging risks continued v) Competition in the banking and financial services industry The Group operates in a highly competitive environment (in particular, in the UK and US) in which it must evolve and adapt to the significant changes as a result of financial regulatory reform, technological advances, increased public scrutiny and current economic conditions. The Group expects that competition in the financial services industry will continue to be intense and may have a material adverse effect on the Group’s future business, results of operations and prospects. New competitors in the financial services industry continue to emerge. For example, technological advances and the growth of ecommerce have made it possible for non- banks to offer products and services that traditionally were banking products. This has allowed financial institutions and other companies to provide electronic and internet- based financial solutions, including electronic securities trading, payments processing and online automated algorithmic-based investment advice. Furthermore, both financial institutions and their non-banking competitors face the risk that payments processing and other services could be significantly disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have required and could require the Group to spend more to modify or adapt its products or make additional capital investments in its businesses to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies. Ongoing or increased competition may put pressure on the pricing for the Group’s products and services, which could reduce the Group’s revenues and profitability, or may cause the Group to lose market share, particularly with respect to traditional banking products such as deposits, bank accounts and mortgage lending. This competition may be on the basis of quality and variety of products and services offered, transaction execution, innovation, reputation and price. The failure of any of the Group’s businesses to meet the expectations of clients and customers, whether due to general market conditions, under-performance, a decision not to offer a particular product or service, changes in client and customer expectations or other factors, could affect the Group’s ability to attract or retain clients and customers. Any such impact could, in turn, reduce the Group’s revenues. vi) Regulatory change agenda and impact on business model The 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. Furthermore, a more intensive regulatory approach and enhanced requirements together with the potential lack of international regulatory co-ordination as enhanced supervisory standards are developed and implemented may adversely affect the Group’s business, capital and risk management strategies and/or may result in the Group deciding to modify its legal entity, capital and funding structures and business mix, or to exit certain business activities altogether or not to expand in areas despite otherwise attractive potential. There are several significant pieces of legislation and areas of focus which will require significant management attention, cost and resource, including: ■■ changes in prudential requirements 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 the Group’s business mix or exiting other businesses and/or – undertaking other actions to strengthen the Group’s position. ■■ 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. These regulations may increase costs for market participants, as well as reduce liquidity in the derivatives markets, in particular, if there are areas of overlapping or conflicting regulation. More broadly, changes to the regulatory framework (in particular, the review of the second Markets in Financial Instruments Directive and the implementation of the Benchmarks Regulation) could entail significant costs for market participants and may have a significant impact on certain markets in which the Group operates ■■ the Group and certain of its members are subject to supervisory stress testing exercises in a number of jurisdictions. These exercises currently include the programmes of the Bank of England, the European Banking Authority (EBA), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB). Failure to meet the requirements of regulatory stress tests, or the failure by regulators to approve the stress test results and capital plans of the Group, could result in the Group or certain of its members being required to enhance their capital position, limit capital distributions or position additional capital in specific subsidiaries. For further details on the regulatory supervision of, and regulations applicable to, the Group, see the Supervision and regulation section. vii) The impact of climate change on the Group’s business The risks associated with climate change are subject to rapidly increasing societal, regulatory and political focus, both in the UK and internationally. Embedding climate risk into the Group’s risk framework in line with regulatory expectations, and adapting the Group’s operations and business strategy to address the financial risks resulting from both: (i) the physical risk of climate change; and (ii) the risk from the transition to a low-carbon economy, could have a significant impact on the Group’s business. Physical risks from climate change arise from a number of factors and relate to specific weather events and longer-term shifts in the climate. The nature and timing of extreme weather events are uncertain but they are increasing in frequency and their impact on the economy is predicted to be more acute in the future. 150 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The potential impact on the economy includes, but is not limited to, lower GDP growth, higher unemployment and significant changes in asset prices and profitability of industries. Damage to the properties and operations of borrowers could impair asset values and the creditworthiness of customers leading to increased default rates, delinquencies, write-offs and impairment charges in the Group’s portfolios. In addition, the Group’s premises and resilience may also suffer physical damage due to weather events leading to increased costs for the Group. As the economy transitions to a low-carbon economy, financial institutions such as the Group may face significant and rapid developments in stakeholder expectations, policy, law and regulation which could impact the lending activities the Group undertakes, as well as the risks associated with its lending portfolios, and the value of the Group’s financial assets. As sentiment towards climate change shifts and societal preferences change, the Group may face greater scrutiny of the type of business it conducts, adverse media coverage and reputational damage, which may in turn impact customer demand for the Group’s products, returns on certain business activities and the value of certain assets and trading positions resulting in impairment charges. In addition, the impacts of physical and transition climate risks can lead to second order connected risks, which have the potential to affect the Group’s retail and wholesale portfolios. The impacts of climate change may increase losses for those sectors sensitive to the effects of physical and transition risks. Any subsequent increase in defaults and rising unemployment could create recessionary pressures, which may lead to wider deterioration in the creditworthiness of the Group’s clients, higher ECLs, and increased charge-offs and defaults among retail customers. If the Group does not adequately embed risks associated with climate change into its risk framework to appropriately measure, manage and disclose the various financial and operational risks it faces as a result of climate change, or fails to adapt its strategy and business model to the changing regulatory requirements and market expectations on a timely basis, it may have a material and adverse impact on the Group’s level of business growth, competitiveness, profitability, capital requirements, cost of funding, and financial condition. For further details on the Group’s approach to climate change, see the climate change risk management section. viii) Impact of benchmark interest rate reforms on the Group For several years, global regulators and central banks have been driving international efforts to reform key benchmark interest rates and indices, such as the London Interbank Offered Rate (LIBOR), which are used to determine the amounts payable under a wide range of transactions and make them more reliable and robust. This has resulted in significant changes to the methodology and operation of certain benchmarks and indices, the adoption of alternative ‘risk-free’ reference rates and the proposed discontinuation of certain reference rates (including LIBOR), with further changes anticipated, including UK, EU and US legislative proposals to deal with ‘tough legacy’ contracts that cannot convert into or cannot add fall-back risk-free reference rates. The consequences of reform are unpredictable and may have an adverse impact on any financial instruments linked to, or referencing, any of these benchmark interest rates. Uncertainty as to the nature of such potential changes, the availability and/or suitability of alternative ‘risk-free’ reference rates and other reforms may adversely affect a broad range of transactions (including any securities, loans and derivatives which use LIBOR to determine the amount of interest payable that are included in the Group’s financial assets and liabilities) that use these reference rates and indices and introduce a number of risks for the Group, including, but not limited to: ■■ Conduct risk: in undertaking actions to transition away from using certain reference rates (such as LIBOR) to new alternative, risk-free rates, the Group faces conduct risks. These may lead to customer complaints, regulatory sanctions or reputational impact if the Group is considered to be (among other things) (i) undertaking market activities that are manipulative or create a false or misleading impression, (ii) misusing sensitive information or not identifying or appropriately managing or mitigating conflicts of interest, (iii) providing customers with inadequate advice, misleading information, unsuitable products or unacceptable service, (iv) not taking a consistent approach to remediation for customers in similar circumstances, (v) unduly delaying the communication and migration activities in relation to client exposure, leaving them insufficient time to prepare or (vi) colluding or inappropriately sharing information with competitors ■■ Financial risks: the valuation of certain of the Group’s financial assets and liabilities may change. Moreover, transitioning to alternative ‘risk-free’ reference rates may impact the ability of members of the Group to calculate and model amounts receivable by them on certain financial assets and determine the amounts payable on certain financial liabilities (such as debt securities issued by them) because currently alternative ‘risk-free’ reference rates (such as the Sterling Overnight Index Average (SONIA) and the Secured Overnight Financing Rate (SOFR)) are look-back rates whereas term rates (such as LIBOR) allow borrowers to calculate at the start of any interest period exactly how much is payable at the end of such interest period. This may have a material adverse effect on the Group’s cash flows ■■ Pricing risk: changes to existing reference rates and indices, discontinuation of any reference rate or indices and transition to alternative ‘risk-free’ reference rates may impact the pricing mechanisms used by the Group on certain transactions ■■ Operational risk: changes to existing reference rates and indices, discontinuation of any reference rate or index and transition to alternative ‘risk-free’ reference rates may require changes to the Group’s IT systems, trade reporting infrastructure, operational processes, and controls. In addition, if any reference rate or index (such as LIBOR) is no longer available to calculate amounts payable, the Group may incur additional expenses in amending documentation for new and existing transactions and/or effecting the transition from the original reference rate or index to a new reference rate or index and ■■ Accounting risk: an inability to apply hedge accounting in accordance with IFRS could lead to increased volatility in the Group’s financial results and performance. Any of these factors may have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. For further details on the impacts of benchmark interest rate reforms on the Group, see Note 41. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 151 Risk review Material existing and emerging risks continued The SRR consists of five stabilisation options: (i) private sector transfer of all or part of the business or shares of the relevant entity, (ii) transfer of all or part of the business of the relevant entity to a ‘bridge bank’ established by the Bank of England, (iii) transfer to an asset management vehicle wholly or partly owned by HM Treasury or the Bank of England, (iv) the cancellation, transfer or dilution of the relevant entities’ equity (including Barclays PLC’s ordinary share capital) and write-down or conversion of the relevant entity’s capital instruments and liabilities (the bail-in tool) and (v) temporary public ownership (i.e. nationalisation). In addition, the relevant UK resolution authority may, in certain circumstances, in accordance with the Banking Act require the permanent write-down or conversion into equity of any outstanding Tier 1 capital instruments, Tier 2 capital instruments and internal MREL prior to the exercise of any stabilisation option (including the bail-in tool). Any such action could result in the dilution of Barclays PLC’s ordinary share capital. Shareholders should assume that, in a resolution situation, public financial support will only be available to a relevant entity as a last resort after the relevant UK resolution authorities have assessed and used, to the maximum extent practicable, the resolution tools, including the bail-in tool (the Bank of England’s preferred approach for the resolution of the Group is a bail-in strategy with a single point of entry at Barclays PLC). The exercise of any of such powers under the Banking Act or any suggestion of any such exercise could materially adversely affect the value of Barclays PLC ordinary shares and could lead to shareholders losing some or all of their investment. In addition, any safeguards within the Banking Act (such as the ‘no creditor worse off’ principle) may not result in compensation to shareholders that is equivalent to the full losses incurred by them in the resolution and there can be no assurance that shareholders would recover such compensation promptly. ix) Holding company structure of Barclays PLC and its dependency on distributions from its subsidiaries Barclays PLC is a holding company and its principal sources of income are, and are expected to continue to be, distributions (in the form of dividends and interest payments) from operating subsidiaries which also hold the principal assets of the Group. As a separate legal entity, Barclays PLC relies on such distributions in order to be able to meet its obligations as they fall due (including its payment obligations with respect to its debt securities) and to create distributable reserves for payment of dividends to ordinary shareholders. The ability of Barclays PLC’s subsidiaries to pay dividends and interest and Barclays PLC’s ability to receive such distributions from its investments in its subsidiaries and other entities will be subject not only to such subsidiaries’ and other entities’ financial performance and macroeconomic conditions but also to applicable local laws and other restrictions (including restrictions imposed by governments and/or regulators, such as those imposed as part of the UK Government’s response to the COVID-19 pandemic, which limit management’s flexibility in managing the business and taking action in relation to capital distributions and capital allocation). These laws and restrictions could limit the payment of dividends and distributions to Barclays PLC by its subsidiaries and any other entities in which it holds an investment from time to time, which could restrict Barclays PLC’s ability to meet its obligations and/or to pay dividends to ordinary shareholders. x) Application of resolution measures and stabilisation powers under the Banking Act Under the Banking Act 2009, as amended (Banking Act), substantial powers are granted to the Bank of England (or, in certain circumstances, HM Treasury), in consultation with the PRA, the FCA and HM Treasury, as appropriate, as part of a special resolution regime (SRR). These powers enable the relevant UK resolution authority to implement resolution measures and stabilisation options with respect to a UK bank or investment firm and certain of its affiliates (currently including Barclays PLC) (each, a relevant entity) in circumstances in which the relevant UK resolution authority is satisfied that the resolution conditions are met. Material existing and emerging risks impacting individual principal risks i) Credit risk Credit risk is the risk of loss to the Group from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to members of the Group, including the whole and timely payment of principal, interest, collateral and other receivables. a) Impairment The introduction of the impairment requirements of IFRS 9 Financial Instruments, resulted in impairment loss allowances that are recognised earlier, on a more forward-looking basis and on a broader scope of financial instruments, and may continue to have a material impact on the Group’s business, results of operations, financial condition and prospects. Measurement involves complex judgement and impairment charges could be volatile, particularly under stressed conditions. Unsecured products with longer expected lives, such as 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 the Group’s regulatory capital ratios. In addition, the move from incurred losses to ECLs has the potential to impact the Group’s performance under stressed economic conditions or regulatory stress tests. For more information, refer to Note 1. b) Specific sectors and concentrations The Group is subject to risks arising from changes in credit quality and recovery rates of loans and advances due from borrowers and counterparties in any specific portfolio. Any deterioration in credit quality could lead to lower recoverability and higher impairment in a specific sector. The following are areas of uncertainties to the Group’s portfolio which could have a material impact on performance: ■■ UK retail, hospitality and leisure. Softening demand, rising costs and a structural shift to online shopping is fuelling pressure on the UK High Street and other sectors heavily reliant on consumer discretionary spending. As these sectors continue to reposition themselves, the trend represents a potential risk in the Group’s UK corporate portfolio from the perspective of its interactions with both retailers and their landlords 152 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements ■■ consumer affordability has remained a ■■ Oil & Gas sector. The Group’s corporate key area of focus, particularly in unsecured lending. Macroeconomic factors, such as rising unemployment, that impact a customer’s ability to service debt payments could lead to increased arrears in both unsecured and secured products ■■ UK real estate market. UK property represents a significant portion of the overall Group retail and corporate credit exposure. In 2020, property prices fluctuated significantly. In the first half of 2020 the Group’s retail exposure experienced a suppressed UK real estate market due to the impact of the COVID-19 pandemic, whilst the second half of 2020 saw increased activity as financial support schemes and a temporary stamp duty cut took effect. However, there can be no assurance that the recovery in the UK real estate market will continue in 2021 especially as the longer term macroeconomic effects of the COVID-19 pandemic are felt, financial support schemes are withdrawn and stamp duty cuts are reversed, and growth across the UK has slowed, particularly in London and the South East where the Group has a high exposure. The Group’s corporate exposure is vulnerable to the impacts of the ongoing COVID-19 stress, with particular weakness in retail property as a result of reduced rent collections and residential development. The Group is at risk of increased impairment from a material fall in property prices ■■ leverage finance underwriting. The Group takes on sub-investment grade underwriting exposure, including single name risk, particularly in the US and Europe. The Group is exposed to credit events and market volatility during the underwriting period. Any adverse events during this period may potentially result in loss for the Group, or an increased capital requirement should there be a need to hold the exposure for an extended period ■■ Italian mortgage and wholesale exposure. The 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 was severely impacted by the COVID-19 pandemic in 2020 and recovery has been slower than anticipated. Should the Italian economy deteriorate further or any recovery take longer to materialise, there could be a material adverse effect on the Group’s results of operations including, but not limited to, increased credit losses and higher impairment charges credit exposure includes companies whose performance is dependent on the oil and gas sector. Weaker demand for energy products, in particular as a result of the COVID-19 pandemic, combined with a sustained period of lower energy prices has led to the erosion of balance sheet strength, particularly for higher cost producers and those businesses who supply goods and services to the oil and gas sector. Any recovery from the drop in demand is likely to remain volatile and energy prices could remain subdued at low levels for the foreseeable future, below the break-even point for some companies. Furthermore, in the longer term, costs associated with the transition towards renewable sources of energy may place great demands on companies that the Group has exposure to globally. These factors could have a material adverse effect on the Group’s business, results of operations and financial condition through increased impairment charges. The 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 the Group’s results due to, for example, increased credit losses and higher impairment charges. For further details on the Group’s approach to credit risk, see the credit risk management and credit risk performance sections. ii) Market risk Market risk is the risk of loss arising from potential adverse change in the value of the Group’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. Economic and financial market uncertainties remain elevated, as the path of the COVID-19 pandemic is inherently difficult to predict. Further waves of the COVID-19 pandemic, deployment of COVID-19 vaccines not being as successful as desired, intensifying social unrest that weighs on market sentiment, and deteriorating trade and geopolitical tensions are some of the factors that could heighten market risks for the Group’s portfolios. In addition, the 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 the Group’s ability to execute client trades and may also result in lower client flow-driven income and/or market-based losses on its existing portfolio of market risks. These can include having to absorb higher hedging costs from rebalancing risks that need to be managed dynamically as market levels and their associated volatilities change. It is difficult to predict changes in market conditions, and such changes could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. For further details on the Group’s approach to market risk, see the market risk management and market risk performance sections. iii) Treasury and capital risk There are three primary types of treasury and capital risk faced by the Group: a) Liquidity risk Liquidity risk is the risk that the Group 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 could cause the Group to fail to meet regulatory liquidity standards or be unable to support day-to-day banking activities. Key liquidity risks that the Group faces include: ■■ the stability of the 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 the Group failing to preserve the current level of customer and investor confidence. The Group also regularly accesses the money and capital markets to provide short-term and long-term funding to support its operations. Several factors, including adverse macroeconomic conditions, adverse outcomes in conduct and legal, competition and regulatory matters and loss of confidence by investors, counterparties and/or customers in the Group, can affect the ability of the Group to access the capital markets and/or the cost and other terms upon which the Group is able to obtain market funding Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 153 Risk review Material existing and emerging risks continued ■■ credit rating changes and the impact on funding costs: rating agencies regularly review credit ratings given to Barclays PLC and certain members of the Group. Credit ratings are based on a number of factors, including some which are not within the Group’s control (such as political and regulatory developments, changes in rating methodologies, macroeconomic conditions and the sovereign credit ratings of the countries in which the Group operates). Whilst the impact of a credit rating change will depend on a number of factors (including the type of issuance and prevailing market conditions), any reductions in a credit rating (in particular, any downgrade below investment grade) may affect the Group’s access to the money or capital markets and/or terms on which the Group is able to obtain market funding, increase costs of funding and credit spreads, reduce the size of the Group’s deposit base, trigger additional collateral or other requirements in derivative contracts and other secured funding arrangements or limit the range of counterparties who are willing to enter into transactions with the Group. Any of these factors could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. b) Capital risk Capital risk is the risk that the Group 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 stress testing purposes). This includes the risk from the Group’s pension plans. Key capital risks that the Group faces include: ■■ failure to meet prudential capital requirements: this could lead to the Group being unable to support some or all of its business activities, a failure to pass regulatory stress tests, increased cost of funding due to deterioration in investor appetite or credit ratings, restrictions on distributions including the ability to meet dividend targets, and/or the need to take additional measures to strengthen the Group’s capital or leverage position ■■ adverse changes in FX rates impacting capital ratios: the Group has capital resources, risk weighted assets and leverage exposures denominated in foreign currencies. Changes in foreign currency exchange rates may adversely impact the Sterling equivalent value of these items. As a result, the Group’s regulatory capital ratios are sensitive to foreign currency movements. Failure to appropriately manage the Group’s balance sheet to take account of foreign currency movements could result in an adverse impact on the Group’s regulatory capital and leverage ratios ■■ 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 the 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 the Group’s defined benefits schemes would be adversely affected by a prolonged fall in the discount rate due to a persistent low interest 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. c) Interest rate risk in the banking book Interest rate risk in the banking book is the risk that the Group is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. The Group’s hedge programmes for interest rate risk in the banking book rely on behavioural assumptions and, as a result, the success of the hedging strategy cannot be guaranteed. A potential mismatch in the balance or duration of the hedge assumptions could lead to earnings deterioration. A decline in interest rates in G3 currencies may also compress net interest margin on retail portfolios. In addition, the Group’s liquid asset portfolio is exposed to potential capital and/or income volatility due to movements in market rates and prices. For further details on the Group’s approach to treasury and capital risk, see the treasury and capital risk management and treasury and capital risk performance sections. iv) Operational risk Operational risk is the risk of loss to the Group from inadequate or failed processes or systems, human factors or due to external events where the root cause is not due to credit or market risks. Examples include: a) Operational resilience The Group functions in a highly competitive market, with market participants that expect consistent and smooth business processes. The loss of or disruption to business processing is a material inherent risk within the Group and across the financial services industry, whether arising through impacts on the Group’s technology systems, real estate services including its retail branch network, or availability of personnel or services supplied by third parties. Failure to build resilience and recovery capabilities into business processes or into the services of technology, real estate or suppliers on which the Group’s business processes depend, may result in significant customer detriment, costs to reimburse losses incurred by the Group’s customers, and reputational damage. b) Cyberattacks Cyberattacks continue to be a global threat that is inherent across all industries, with a spike in both number and severity of attacks observed recently. The financial sector remains a primary target for cybercriminals, hostile nation states, opportunists and hacktivists. The Group, like other financial institutions, experiences numerous attempts to compromise its cybersecurity. The Group dedicates significant resources to reducing cybersecurity risks, but it cannot provide absolute security against cyberattacks. Malicious actors are increasingly sophisticated in their methods, seeking to steal money, gain unauthorised access to, destroy or manipulate data, and disrupt operations, and some of their attacks may not be recognised until launched, such as zero-day attacks that are launched before patches and defences can be readied. Cyberattacks can originate from a wide variety of sources and target the Group in numerous ways, including attacks on networks, systems, or devices used by the Group or parties such as service providers and other suppliers, counterparties, employees, contractors, customers or clients, presenting the Group with a vast and complex defence perimeter. Moreover, the Group does not have direct control over the cybersecurity of the systems of its clients, customers, counterparties and third-party service providers and suppliers, limiting the Group’s ability to effectively defend against certain threats. 154 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements A failure in the Group’s adherence to its cybersecurity policies, procedures or controls, employee malfeasance, and human, governance or technological error could also compromise the Group’s ability to successfully defend against cyberattacks. Furthermore, certain legacy technologies that are at or approaching end-of-life may not be able to be able to maintained to acceptable levels of security. The Group has experienced cybersecurity incidents and near-misses in the past, and it is inevitable that additional incidents will occur in the future. Cybersecurity risks will continue to increase, due to factors such as the increasing demand across the industry and customer expectations for continued expansion of services delivered over the Internet; increasing reliance on Internet- based products, applications and data storage; and changes in ways of working by the Group’s employees, contractors, and third party service providers and suppliers and their sub- contractors in response to the COVID-19 pandemic. Bad actors have taken advantage of remote working practices and modified customer behaviours during the COVID-19 pandemic, exploiting the situation in novel ways that may elude defences. Common types of cyberattacks include deployment of malware, including destructive ransomware; denial of service and distributed denial of service (DDoS) attacks; infiltration via business email compromise, including phishing, or via social engineering, including vishing and smishing; automated attacks using botnets; and credential validation or stuffing attacks using login and password pairs from unrelated breaches. A successful cyberattack of any type has the potential to cause serious harm to the Group or its clients and customers, including exposure to potential contractual liability, litigation, regulatory or other government action, loss of existing or potential customers, damage to the Group’s brand and reputation, and other financial loss. The impact of a successful cyberattack also is likely to include operational consequences (such as unavailability of services, networks, systems, devices or data) remediation of which could come at significant cost. Regulators worldwide continue to recognise cybersecurity as an increasing systemic risk to the financial sector and have highlighted the need for financial institutions to improve their monitoring and control of, and resilience to cyberattacks. A successful cyberattack may, therefore, result in significant regulatory fines on the Group. For further details on the Group’s approach to cyberattacks, see the operational risk performance section. c) New and emergent technology Technology is fundamental to the Group’s business and the financial services industry. Technological advancements present opportunities to develop new and innovative ways of doing business across the Group, with new solutions being developed both in-house and in association with third party companies. For example, payment services and securities, futures and options trading are increasingly occurring electronically, both on the Group’s own systems and through other alternative systems, and becoming automated. Whilst increased use of electronic payment and trading systems and direct electronic access to trading markets could significantly reduce the Group’s cost base, it may, conversely, reduce the commissions, fees and margins made by the Group on these transactions which could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. Introducing new forms of technology, however, has the potential to increase inherent risk. Failure to evaluate, actively manage and closely monitor risk exposure during all phases of business development could introduce new vulnerabilities and security flaws and have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. d) External fraud The nature of fraud is wide-ranging and continues to evolve, as criminals continually seek opportunities to target the Group’s business activities and exploit changes to customer behaviour and product and channel use (such as the increased use of digital products and enhanced online services) or exploit new products (such as loans provided under the UK Government’s Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme, which have been designed to support customers and clients during the COVID-19 pandemic). Fraud attacks can be very sophisticated and are often orchestrated by highly organised crime groups who use ever more sophisticated techniques to target customers and clients directly to obtain confidential or personal information that can be used to commit fraud. The UK market has also seen significant growth in ‘scams’ where the Group takes increased levels of liability as part of a voluntary code to provide additional safeguards to customers and clients who are tricked into making payments to fraudsters. The impact from fraud can lead to customer detriment, financial losses (including the reimbursement of losses incurred by customers), loss of business, missed business opportunities and reputational damage, all of which could have a material adverse impact on the Group’s business, results of operations, financial condition and prospects. e) Data management and information protection The Group holds and processes large volumes of data, including personally identifiable information, intellectual property, and financial data and the Group’s businesses are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals, including Regulation (EU) 2016/679 (General Data Protection Regulation (GDPR)). The protected parties can include: (i) the Group’s clients and customers, and prospective clients and customers; (ii) clients and customers of the Group’s clients and customers; (iii) employees and prospective employees; and (iv) employees of the Group’s suppliers, counterparties and other external parties. The international nature of both the Group’s business and its IT infrastructure also means that personal information may be available in countries other than those from where it originated. Accordingly, the Group needs to ensure that its collection, use, transfer and storage of personal information complies with all applicable laws and regulations in all relevant jurisdictions, which could: (i) increase the Group’s compliance and operating costs; (ii) impact the development of new products or services, impact the offering of existing products or services, or affect how products and services are offered to clients and customers; (iii) demand significant oversight by the Group’s management; and (iv) require the Group to review some elements of the structure of its businesses, operations and systems in less efficient ways. Concerns regarding the effectiveness of the Group’s measures to safeguard personal information, or even the perception that those measures are inadequate, could expose the Group to the risk of loss or unavailability of data or data integrity issues and/or cause the Group to lose existing or potential clients and customers, and thereby reduce the Group’s revenues. Furthermore, any failure or perceived failure by the Group to comply with applicable privacy or data protection laws and regulations may subject it to potential contractual liability, litigation, regulatory or other government action (including significant regulatory fines) and require changes to certain operations or practices which could also inhibit the Group’s development or marketing of certain products or services, or increase the costs of offering them to customers. Any of these events could damage the Group’s reputation and otherwise materially adversely affect its business, results of operations, financial condition and prospects. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 155 Risk review Material existing and emerging risks continued f ) 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 erroneous or duplicated transactions, a system outage, or impact the Group’s pricing abilities, which could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects and reputation. g) Processing error The Group’s businesses are highly dependent on its ability to process and monitor, on a daily basis, a very large number of transactions, many of which are highly complex and occur at high volumes and frequencies, across numerous and diverse markets in many currencies. As the Group’s customer base and geographical reach expand and the volume, speed, frequency and complexity of transactions, especially electronic transactions (as well as the requirements to report such transactions on a real-time basis to clients, regulators and exchanges) increase, developing, maintaining and upgrading operational systems and infrastructure becomes more challenging, and the risk of systems or human error in connection with such transactions increases, as well as the potential consequences of such errors due to the speed and volume of transactions involved and the potential difficulty associated with discovering errors quickly enough to limit the resulting consequences. Furthermore, events that are wholly or partially beyond the Group’s control, such as a spike in transaction volume, could adversely affect the Group’s ability to process transactions or provide banking and payment services. Processing errors could result in the Group, among other things, (i) failing to provide information, services and liquidity to clients and counterparties in a timely manner; (ii) failing to settle and/or confirm transactions; (iii) causing funds transfers, capital markets trades and/or other transactions to be executed erroneously, illegally or with unintended consequences; and (iv) adversely affecting financial, trading or currency markets. Any of these events could materially disadvantage the Group’s customers, clients and counterparties (including them suffering financial loss) and/or result in a loss of confidence in the Group which, in turn, could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. h) Supplier exposure The Group depends on suppliers for the provision of many of its services and the development of technology. Whilst the Group depends on suppliers, it remains fully accountable for any risk arising from the actions of suppliers. The dependency on suppliers and sub-contracting of outsourced services introduces concentration risk where the failure of specific suppliers could have an impact on the Group’s ability to continue to provide material services to its customers. Failure to adequately manage supplier risk could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. i) Estimates and judgements relating to critical accounting policies and capital disclosures The preparation of financial statements requires the application of accounting policies and judgements to be made in accordance with IFRS. Regulatory returns and capital disclosures are prepared in accordance with the relevant capital reporting requirements and also require assumptions and estimates to be made. 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, taxes, fair value of financial instruments, goodwill and intangible assets, pensions and post-retirement benefits, and provisions including conduct and legal, competition and regulatory matters (see the notes to the audited financial statements for further details). 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 material losses to the Group, beyond what was anticipated or provided for. Further development of accounting standards and capital interpretations could also materially impact the Group’s results of operations, financial condition and prospects. j) Tax risk The Group is required to comply with the domestic and international tax laws and practice of all countries in which it has business operations. There is a risk that the Group could suffer losses due to additional tax charges, other financial costs or reputational damage as a result of failing to comply with such laws and practice, or by failing to manage its tax affairs in an appropriate manner, with much of this risk attributable to the international structure of the Group. In addition, increasing reporting and disclosure requirements around the world and the digitisation of the administration of tax has potential to increase the Group’s tax compliance obligations further. 156 Barclays PLC home.barclays/annualreport k) Ability to hire and retain appropriately qualified employees As a regulated financial institution, the Group requires diversified and specialist skilled colleagues. The 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 have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. Additionally, this may result in disruption to service which could in turn lead to disenfranchising certain customer groups, customer detriment and reputational damage. For further details on the Group’s approach to operational risk, see the operational risk management and operational risk performance sections. v) Model risk Model risk is the risk of potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports. The 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 and/or misused. This may be exacerbated when dealing with unprecedented scenarios, such as the COVID-19 pandemic, due to the lack of reliable historical reference points and data. For instance, the quality of the data used in models across the Group has a material impact on the accuracy and completeness of its risk and financial metrics. Model errors or misuse may result in (among other things) the Group making inappropriate business decisions and/or inaccuracies or errors being identified in the Group’s risk management and regulatory reporting processes. This could result in significant financial loss, imposition of additional capital requirements, enhanced regulatory supervision and reputational damage, all of which could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. For further details on the Group’s approach to model risk, see the model risk management and model risk performance sections. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements vi) Conduct risk Conduct risk is the risk of detriment to customers, clients, market integrity, effective competition or the Group 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) Employee misconduct The Group’s businesses are exposed to risk from potential non-compliance with its policies and standards and instances of wilful and negligent misconduct by employees, all of which could result in potential customer and client detriment, enforcement action (including regulatory fines and/or sanctions), increased operation and compliance costs, redress or remediation or reputational damage which in turn could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. Examples of employee misconduct which could have a material adverse effect on the Group’s business include (i) employees improperly selling or marketing the Group’s products and services; (ii) employees engaging in insider trading, market manipulation or unauthorised trading; or (iii) employees misappropriating confidential or proprietary information belonging to the Group, its customers or third parties. These risks may be exacerbated in circumstances where the Group is unable to rely on physical oversight and supervision of employees (such as during the COVID-19 pandemic where employees have worked remotely). b) Customer engagement The Group must ensure that its customers, particularly those that are vulnerable, are able to make well-informed decisions on how best to use the Group’s financial services and understand that they are appropriately protected if something goes wrong. Poor customer outcomes can result from the failure to: (i) communicate fairly and clearly with customers; (ii) provide services in a timely and fair manner; and (iii) undertake appropriate activity to address customer detriment, including the adherence to regulatory and legal requirements on complaint handling. The Group is at risk of financial loss and reputational damage as a result. c) Product design and review risk Products and services must meet the needs of clients, customers, markets and the Group throughout their life cycle, However, there is a risk that the design and review of the Group’s products and services fail to reasonably consider and address potential or actual negative outcomes, which may result in customer detriment, enforcement action (including regulatory fines and/or sanctions), redress and remediation and reputational damage. Both the design and review of products and services are a key area of focus for regulators and the Group, and this focus is set to continue in 2021. d) Financial crime The 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, breaches of economic and financial sanctions, bribery and corruption, and the facilitation of tax evasion). UK and US regulations covering financial institutions continue to focus on combating financial crime. Failure to comply may lead to enforcement action by the Group’s regulators, including severe penalties, which may have a material adverse effect on the Group’s business, financial condition and prospects. e) Regulatory focus on culture and accountability Regulators around the world continue to emphasise the importance of culture and personal accountability and enforce the adoption of adequate internal reporting and whistleblowing procedures to help to promote appropriate conduct and drive positive outcomes for customers, colleagues, clients and markets. The requirements and expectations of the UK Senior Managers Regime, Certification Regime and Conduct Rules have reinforced additional accountabilities for individuals across the Group with an increased focus on governance and rigour. Failure to meet these requirements and expectations may lead to regulatory sanctions, both for the individuals and the Group. For further details on the Group’s approach to conduct risk, see the conduct risk management and conduct risk performance sections. vii) Reputation risk Reputation risk is the risk that an action, transaction, investment, event, decision or business relationship will reduce trust in the Group’s integrity and/or competence. Any material lapse in standards of integrity, compliance, customer service or operating efficiency may represent a potential reputation risk. Stakeholder expectations constantly evolve, and so reputation risk is dynamic and varies between geographical regions, groups and individuals. A risk arising in one business area can have an adverse effect upon the Group’s overall reputation and any one transaction, investment or event (in the perception of key stakeholders) can reduce trust in the Group’s integrity and competence. The Group’s association with sensitive topics and sectors has been, and in some instances continues to be, an area of concern for stakeholders, including (i) the financing of, and investments in, businesses which operate in sectors that are sensitive because of their relative carbon intensity or local environmental impact; (ii) potential association with human rights violations (including combating modern slavery) in the Group’s operations or supply chain and by clients and customers; and (iii) the financing of businesses which manufacture and export military and riot control goods and services. Reputation risk could also arise from negative public opinion about the actual, or perceived, manner in which the Group conducts its business activities, or the Group’s financial performance, as well as actual or perceived practices in banking and the financial services industry generally. Modern technologies, in particular, online social media channels and other broadcast tools that facilitate communication with large audiences in short time frames and with minimal costs, may significantly enhance and accelerate the distribution and effect of damaging information and allegations. Negative public opinion may adversely affect the Group’s ability to retain and attract customers, in particular, corporate and retail depositors, and to retain and motivate staff, and could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. 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 the Group (see ‘iv) Operational risk’ above). For further details on the Group’s approach to reputation risk, see the reputation risk management and reputation risk performance sections. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 157 Risk review Material existing and emerging risks continued The outcome of legal, competition and regulatory matters, both those to which the Group is currently exposed and any others which may arise in the future, is difficult to predict. In connection with such matters, the Group may incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Group to any of the following 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 the Group’s business operations including the withdrawal of authorisations; increased regulatory compliance requirements or changes to laws or regulations; suspension of operations; public reprimands; loss of significant assets or business; a negative effect on the Group’s reputation; loss 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 (including formerly active matters or those arising after the date of this Annual Report) will not have a material adverse effect on the Group’s business, results of operations, financial condition and prospects. viii) Legal risk and legal, competition and regulatory matters The Group conducts activities in a highly regulated global market which exposes it and its employees to legal risk arising from (i) the multitude of laws and regulations that apply to the businesses it operates, which are highly dynamic, may vary between jurisdictions, and are often unclear in their application to particular circumstances especially in new and emerging areas; and (ii) the diversified and evolving nature of the Group’s businesses and business practices. In each case, this exposes the Group and its employees to the risk of loss or the imposition of penalties, damages or fines from the failure of members of the Group to meet their respective legal obligations, including legal or contractual requirements. Legal risk may arise in relation to any number of the material existing and emerging risks identified above. A breach of applicable legislation and/or regulations by the Group or its employees could result in criminal prosecution, regulatory censure, potentially significant fines and other sanctions in the jurisdictions in which the Group operates. Where clients, customers or other third parties are harmed by the Group’s conduct, this may also give rise to civil legal proceedings, including class actions. Other legal disputes may also arise between the Group and third parties relating to matters such as breaches or enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in the Group being liable to third parties or may result in the Group’s rights not being enforced as intended. Details of legal, competition and regulatory matters to which the Group is currently exposed are set out in Note 26. In addition to matters specifically described in Note 26, the Group is engaged in various other legal proceedings which arise in the ordinary course of business. The Group is also subject to requests for information, investigations and other reviews by regulators, governmental and other public bodies in connection with business activities in which the Group is, or has been, engaged. 158 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review Climate change risk management Organisation and structure On behalf of the Board, the BRC reviews and approves the Group’s approach to managing the financial and operational risks associated with climate change. Reputation risk is the responsibility of the Board, which directly handles the most material issues facing the Group. Broader sustainability matters and other reputation risk issues associated with climate change are co-ordinated by the Sustainability team. Two new roles were introduced in 2020: a Group Head of Public Policy and Corporate Responsibility, reporting to the CEO; and a Group Head of Climate Risk appointed to develop Barclays’ climate risk methodologies and manage climate risk in the portfolio. Working groups have been established to support management of climate risk at Barclays International and Barclays Bank UK Group. Overview The Group has a long-standing commitment to Environmental Risk Management (ERM) and its approach, aided by regulatory initiatives, has continued to evolve, incorporating climate change in recent years as the understanding of associated risks has grown. A dedicated Sustainability team considers how the Group approaches wider sustainability and environmental, social and governance (ESG) matters, working closely with the ERM function. In 2020 the bank has implemented a Financial and Operational Risks of Climate Change Plan built around three main pillars: 1. 2. 3. Embedding climate risk into Enterprise Risk Management Framework (ERMF), via the Climate Change Financial and Operational Risk Policy Developing methodologies and including climate in stress testing (see Barclays PLC Climate-related financial disclosures 2020, Risk management section) Developing a carbon methodology to assess risk within high emitting sectors (see Barclays PLC Climate-related financial disclosures 2020, Strategy section). For more detail on how climate change risks arise and their impact on the Group, refer to the ‘material existing and emerging risks’ section. Governance Enterprise Risk Management Framework (ERMF) Board Risk Committee Board Credit, market, treasury & capital and operational risks Sustainability matters and reputation risk associated with climate change Ownership Group Chief Risk Officer Global Head of Public Policy and Corporate Responsibility Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 159 Risk review Climate change risk management continued Risk management – Policy Financial and Operational Risks: The Group’s ‘Climate Change Financial Risk and Operational Risk Policy’ considers climate change as an overarching risk impacting certain principal risks: credit risk, market risk, treasury & capital risk and operational risk. The policy is jointly owned by the relevant Principal Risk Delegates with oversight by the BRC. The policy was implemented in 2020, including being embedded across 28 policies and standards. Each relevant Principal Risk Delegate has developed a methodology and implementation plan for quantifying climate change risk. Risk Credit risk Measurement approach Credit Risk Materiality Matrix (Climate Lens): assesses the climate change risk of wholesale counterparties to which the Group is exposed across risk sectors. Scenario Analysis: a first generation cash flow model has been developed to analyse how the entities’ business performance varies according to climate change. It applies Physical and Transition Risk variables to corporate counterparty earning over a scenario horizon. Flood Risk: the impact of flooding on the BUK Mortgage credit risk is based on house price expectations in locations that are at risk of increased flooding in the future due to climate change. These updated house prices are then incorporated within existing stress testing and planning models to estimate potential future credit losses and capital requirements. Sovereigns: a risk factor matrix, incorporating Physical, Transitional and Connected risk factors, has been developed to assess a sovereign’s ability and capacity to respond to climate-related challenges. Carbon Emissions Model – BlueTrack™ has been developed to support Barclays’ portfolio transition in line with the Paris Climate Agreement. Market risk Stress tests are used to assess and aggregate exposures arising from climate related risks. Stress test scenarios are applied to a range of assets, reflecting the impact of climate change across sectors, countries and regions. Treasury and capital risk Exposures within the oversight of the Treasury and Capital Risk function are assessed and informed by analysis and stress testing for understanding of how they are impacted by climate change. Operational risk The Risks associated with Climate Change are relevant to the following Operational Risk Categories/Themes which are managed throughout the Operational Risk Framework: Resilience Risk Theme, which includes Barclays supply chain requirements, and Premises Risk. Climate Change has been included in the Strategic Risk Assessment to understand exposure on a forward-looking basis across the five-year business planning cycle. Linking with ESG and Reputation Risk: The Group has developed an internal standard to reflect its net zero carbon ambition in more detail and together with other climate-related Standards (such as the Forestry & Palm Oil Standard), these now determine the approach to climate change and relevant sensitive sectors. These standards sit under the management of reputation risk within the ERMF and are enforced through an existing transaction origination, review and approval process. 160 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review Principal risk management 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 review and validation of credit risk measurement models. The credit risk management teams in each legal entity are accountable to the relevant Legal Entity CRO, who reports to the Group CRO. For wholesale portfolios, credit risk managers are organised in sanctioning teams by geography, industry and/or product. In 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 Group Credit Risk Committee, attended by legal entity Senior Credit Officers, provides a formal mechanism for the Group Senior Credit Officer to exercise the highest level of credit authority over the most material Group single name exposures. Credit risk mitigation The 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 Credit risk exposures can be reduced by applying netting and set-off. For derivative transactions, the 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 The 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 ■■ wholesale lending: a fixed charge over commercial property and other physical assets, in various forms ■■ other retail lending: includes charges over motor vehicles and other physical assets; second lien charges over residential property; and finance lease receivables ■■ derivatives: the Group also often seeks to enter into a margin agreement (e.g. Credit Support Annex) with counterparties with which the 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 ■■ reverse repurchase agreements: collateral typically comprises highly liquid securities which have been legally transferred to the Group subject to an agreement to return them for a fixed price and ■■ financial guarantees and similar off- balance sheet commitments: cash collateral may be held against these arrangements. Credit risk management (audited) The risk of loss to the Group from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the Group, including the whole and timely payment of principal, interest, collateral and other receivables. Overview The credit risk that the 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 (Fair Value through Other Comprehensive Income) 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 the 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, roles and responsibilities The first line of defence has primary responsibility for managing credit risk within the risk appetite and limits set by the Risk function, supported by a defined set of policies, standards and controls. In the entities, business risk committees (attended by the first line) monitor and review the credit risk profile of each business unit where the most material issues are escalated to the Retail Credit Risk Management Committee, Wholesale Credit Risk Management Committee and Group Risk Committee. 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 161 Risk review Principal risk management continued 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 177 to 179 of the Barclays PLC Pillar 3 Report 2020 (unaudited). Governance and oversight of ECLs under IFRS 9 The 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. 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 the 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: ■■ model maintenance: monitoring of model performance including backtesting by comparing predicted ECL versus flow into stage 3 and coverage ratios; proposing material changes for independent IVU approval; and recalibrating model parameters on more timely data 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 where related to a model deficiency. The most material PMAs are also approved by the CRO. 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 the Group’s medium-term planning exercise, but also if the external consensus of the UK or US economy materially worsen. 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. iii) The Group Impairment Committee, formed of members from both Finance and Risk and attended by both the Group Finance Director and the Group CRO, is responsible for overseeing impairment policy and practice across the Group and will approve impairment results. Reported results and key messages are communicated to the BAC, which has an oversight role and provides challenge of key assumptions, including the basis of the scenarios adopted. Impairment results are then factored into management decision making, including but not limited to, business planning, risk appetite setting and portfolio management. Market risk management (audited) The risk of loss arising from potential adverse changes in the value of the Group’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, the 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. Organisation, roles and responsibilities Market risk in the businesses resides primarily in Barclays International and Treasury. These businesses have the mandate to assume market risk. The front office and Treasury trading desks are responsible for managing market risk on a day-to-day basis, where they are required to understand and adhere to all limits applicable to their businesses. The Market Risk team supports the trading desks with the day-to-day limit management of market risk exposures through governance processes which are outlined in supporting market risk policies and standards. Market risk oversight and challenge is provided by business committees and Group committees, including the Market Risk Committee (MRC). 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. To meet the above objectives, a governance structure is in place to manage these risks consistent with the ERMF. 162 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The BRC recommends market risk appetite to the 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 Group CRO, agrees with the business CROs a limit framework within the context of the approved market risk appetite. The MRC reviews and makes recommendations concerning the 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. In addition to MRC, the Corporate and Investment Bank Risk Committee (‘CIBRC’) is the main forum in which market risk exposures are discussed and reviewed with senior business heads. The Committee is chaired by the CRO of Barclays International and meets weekly, covering current market events, notable market risk exposures, and key risk topics. New business initiatives are generally socialised at CIBRC before any changes to risk appetite or associated limits are considered in other governance committees. 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 2020 (unaudited). Management value at risk (VaR) 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. 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. See the market risk performance section for a review of management VaR in 2020. Treasury and capital risk management This comprises: Liquidity risk: the risk that the Group 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 Group 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 Group’s pension plans. Interest rate risk in the banking book: the risk that the Group is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. The Treasury function manages treasury and capital risk exposure on a day-to-day basis with the Group Treasury Committee acting as the principal management body. The Treasury and Capital Risk function is responsible for oversight and provide insight into key capital, liquidity, interest rate risk in the banking book (IRRBB) and pension risk management activities. Liquidity risk management (audited) Overview The efficient management of liquidity is essential to the Group in order to retain the confidence of the financial markets and maintain the sustainability of the business. The liquidity risk control framework is used to manage all liquidity risk exposures under both typical and stressed conditions. The framework is designed to maintain liquidity resources that are sufficient in amount, quality and funding tenor profile to support the liquidity risk appetite as expressed by the Barclays PLC Board. The liquidity risk appetite is monitored against both internal and regulatory liquidity metrics. Organisation, roles and responsibilities Treasury has the primary responsibility for managing liquidity risk within the set risk appetite. Both Risk and Treasury contribute to the production of the Internal Liquidity Adequacy Assessment Process (ILAAP). The Treasury and Capital Risk function is responsible for the management and governance of the liquidity risk mandate, as defined by the Board. The liquidity risk control framework 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 the Group’s balance sheet, 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 Group’s obligations as they fall due. The Board approves the Group funding plan, internal stress tests, regulatory stress test results, recovery plan and Liquidity Risk Appetite. The Group Treasury Committee is responsible for monitoring and managing liquidity risk in line with the Group’s funding management objectives, funding plan and risk appetite. 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 Board Risk Committee reviews the risk profile, and annually reviews risk appetite and the impact of stress scenarios on the Group funding plan/forecast in order to agree the Group’s projected funding abilities. 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. The objectives of the framework are to maintain adequate capital for the Group and legal entities to withstand the impact of the risks that may arise under normal and stressed conditions, and maintain adequate capital to cover current and forecast business needs and associated risks to provide a viable and sustainable business offering. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 163 Risk review Principal risk management continued Organisation, roles and responsibilities Treasury has the primary responsibility for managing and monitoring capital. The Treasury and Capital Risk function provides oversight of capital risk and is an independent risk function that reports to the Group CRO. Production of the Barclays PLC Internal Capital Adequacy Assessment Process (ICAAP) is the responsibility of Treasury. Capital risk management is underpinned by a control framework and policy. The capital management strategy, outlined in the 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 the Group’s objectives. The Board approves the Group capital plan, internal stress tests and results of regulatory stress tests, and the Group recovery plan. The Group Treasury Committee is responsible for monitoring and managing capital risk in line with the Group’s capital management objectives, capital plan and risk frameworks. The 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 BRC reviews the risk profile, and annually reviews risk appetite and the impact of stress scenarios on the Group capital plan/forecast in order to agree the 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 (ALCOs) with oversight by the Group Treasury Committee, as required. In 2020, Barclays complied with all regulatory minimum capital requirements. Pension risk The Group maintains a number of defined benefit pension schemes for past and current employees. The ability of schemes to meet pension payments is achieved with investments and contributions. Pension risk arises because the market value of pension fund assets might decline; investment returns might reduce; or the estimated value of pension liabilities might increase. The Group monitors the pension risks arising from its defined benefit pension schemes and works with Trustees to address shortfalls. In these circumstances, the Group could be required or might choose to make extra contributions to the pension fund. The Group’s main defined benefit scheme was closed to new entrants in 2012. Interest rate risk in the banking book management (IRRBB) Overview Interest rate risk in the banking book is driven by customer deposit taking and lending activities, investments in the liquid asset portfolio and funding activities. As per the Group’s policy to remain within the defined risk appetite, hedging strategies are executed to mitigate the risks. However, the Group remains susceptible to interest rate risk and other non-traded market risks from key sources: ■■ interest rate and repricing risk: the risk that net interest income could be adversely impacted by a change in interest rates, differences in the timing of interest rate changes between assets and liabilities, and other constraints on interest rate changes as per product terms and conditions ■■ customer behavioural risk: the risk that net interest income could be adversely impacted by the discretion that customers and counterparties may have in respect of being able to vary their contractual obligations with Barclays. This risk is often referred to by industry regulators as ‘embedded option risk’ ■■ investment risks in the liquid asset portfolio: the risk that the fair value of assets held in the liquid asset portfolio and associated risk management portfolios could be adversely impacted by market volatility, creating volatility in capital directly. Organisation, roles and responsibilities The entity ALCOs, together with the Group Treasury Committee, are responsible for monitoring and managing IRRBB risk in line with the Group’s management objectives and risk frameworks. The GRC and Treasury and Capital Risk Committee monitors and reviews the IRRBB risk profile and control environment, providing second line oversight of the management of IRRBB. The BRC 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 Group’s banking books. In addition, the Group’s IRRBB policy sets out the processes and key controls required to identify all IRRBB risks arising from banking book operations, to monitor the risk exposures via a set of metrics with a frequency in line with the risk management horizon, and to manage these risks within agreed risk appetite and limits. Operational risk management The risk of loss to the Group 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. Overview The management of operational risk has three key objectives: ■■ deliver an operational risk capability owned and used by business leaders to enable sound risk decisions over the long term ■■ provide the frameworks, policies and standards to enable management to meet their risk management responsibilities while the second line of defence provides robust, independent, and effective oversight and challenge and ■■ 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 the Group’s strategy, the stated risk appetite and stakeholder needs. The Group operates within a system of internal controls that enables business to be transacted and risk taken without exposing it to unacceptable potential losses or reputational damages. Organisation, roles and responsibilities The prime responsibility for the management of operational risk and the compliance with control requirements rests within the business and functional units where the risk arises. The operational risk profile and control environment is reviewed by management through business risk committees and control committees. 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 Operational Risk Committee, the BRC or the BAC. In addition, specific reports are prepared by Operational Risk on a regular basis for the GRC and the BRC. 164 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The function reports to the Group CRO and operates a global framework. Implementation of best practice standards is a central objective of the Group. The key model risk management activities include: ■■ correctly identifying models across all relevant areas of the Group, and recording models in the Group Models Database (GMD), the Group-wide 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 and 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 ■■ defining model risk appetite in terms of risk tolerance, and qualitative metrics which are used to track and report model risk. 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 Group Head of Operational Risk is responsible for establishing, owning and maintaining an appropriate Group-wide Operational Risk Framework and for overseeing the portfolio of operational risk across the Group. The Operational Risk function acts in a second line of defence capacity, and is responsible for defining and overseeing the implementation of the framework and monitoring the Group’s operational risk profile. The Operational Risk function 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 categories Operational risks are grouped into risk categories to support effective risk management, measurement and reporting. These comprise: Data Management Risk; Financial Reporting Risk; Fraud Risk; Information Security Risk; Operational Resilience Planning Risk; Payments Process Risk; People Risk; Premises Risk; Physical Security Risk; Strategic Investment Change Management Risk; Supplier Risk; Tax Risk; Technology Risk; and Transaction Operations Risk. 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, provide regulatory submissions; or monitor and manage adherence to new prudential regulatory requirements. Risk themes Barclays also recognises that there are certain threats/risk drivers that are more thematic and have the potential to impact the Group’s strategic objectives. These are risk themes which require an overarching and integrated risk management approach. The Group’s risk themes include Cyber, Data, and Resilience. For definitions of the Group’s operational risk categories and risk themes, refer to the management of operational risk section in the Barclays PLC Pillar 3 Report 2020. Model risk management The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports. Overview The 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 and misuse are the primary sources of model risk. Organisation, roles and responsibilities The Group has a dedicated Model Risk Management (MRM) function that consists of four teams: (i) Independent Validation Unit (IVU), responsible for model validation and approval; (ii) Model Governance and Controls (MGC), responsible for regulatory, audit, policy, standards, conformance and controls; (iii) Strategy and Transformation responsible for inventory, strategy, communications and business management and (iv) Model Risk Measurement and Quantification (MRMQ), responsible for the design of the framework and methodology to accurately measure and quantify model risk. 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 PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 165 Risk review Principal risk management continued Conduct risk management 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 The Group defines, manages and mitigates conduct risk with the objective of providing good customer and client outcomes, protecting market integrity and promoting effective competition. Conduct risk incorporates risks associated with the maintenance of Market Integrity, Customer Protection and Product and Services Life Cycle Governance and the prevention of Financial Crime. Organisation, roles and responsibilities The Conduct Risk Management Framework (CRMF) outlines how the Group manages and measures its conduct risk profile. The Group Chief Compliance Officer is accountable for developing, maintaining and overseeing a Group-wide CRMF. This includes defining and owning the relevant conduct risk policies which detail the control objectives, principles and other core requirements for the activities of the Group. It is the responsibility of the first line of defence to establish controls to manage its performance and assess conformance to these policies and controls. Senior managers are accountable within their areas of responsibility for owning and managing conduct risk in accordance with the CRMF, as defined within their regulatory Statement of Responsibilities. Compliance as an independent second line function is designed to help prevent, detect and manage breaches of applicable laws, rules, regulations and procedures and has a key role in helping Barclays achieve the right conduct outcomes and evolve a conduct- focused culture. The governance of conduct risk within the 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 and Barclays Bank Group Risk Committee and the Barclays Bank UK Group Risk Committee are the primary second line governance committees for the oversight of the Conduct Risk Profile. The risk committees’ responsibilities include the identification and discussion of any emerging conduct risks exposures in their respective entities. 166 Barclays PLC home.barclays/annualreport Reputation risk management The risk that an action, transaction, investment, event, decision, or business relationship will reduce trust in the Group’s integrity and/or competence. Legal risk management The risk of loss or imposition of penalties, damages or fines from the failure of the Group to meet its legal obligations including regulatory or contractual requirements. Overview A reduction of trust in the Group’s integrity and competence may reduce the attractiveness of the 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, roles and responsibilities Barclays Group ExCo is the most senior executive body responsible for reviewing and monitoring the effectiveness of the Group’s management of reputation risk. The Group Chief Compliance Officer is accountable for developing a Reputation Risk Management Framework (RRMF), and the Group Head of Corporate Relations is responsible for developing a reputation risk policy and associated standards, including tolerances against which data is monitored, reported on and escalated, as required. The RRMF sets out what is required to manage reputation risk across the Group. 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 Barclays Group ExCo and the Board. Overview The Group has no tolerance for wilful breaches of laws, regulations or other legal obligations. 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 high level of inherent legal risk which the Group seeks to mitigate through the operation of a Group-wide legal risk management framework, including the implementation of Group-wide legal risk policies requiring the engagement of legal professionals in situations that have the potential for legal risk. Notwithstanding these mitigating actions, the Group operates with a level of residual legal risk, for which the Group has limited tolerance. Organisation, roles and responsibilities The Group’s businesses and functions have primary responsibility for identifying and escalating legal risk in their area as well as responsibility for adherence to minimum control requirements. The Legal Function organisation and coverage model aligns legal expertise to businesses, functions, products, activities and geographic locations so that the Group receives support from appropriate legal professionals, working in partnership to manage legal risk. The senior management of the Legal Function oversees, challenges and monitors the legal risk profile and effectiveness of the legal risk control environment across the Group. The Legal Function does not sit in any of the Three Lines of Defence but supports them all. The Group General Counsel is responsible for maintaining a Group-wide legal risk management framework. This includes defining the relevant legal risk policies and oversight of the implementation of controls to manage and escalate legal risk. The legal risk profile and control environment is reviewed by management through business risk committees and control committees. The Group Risk Committee is the most senior executive body responsible for reviewing and monitoring the effectiveness of risk management across the Group. Escalation paths from this committee exist to the Barclays PLC Board Risk Committee. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review: Credit risk 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. ■■ 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 for loans and advances at amortised cost – Stage 2 decomposition – Stage 3 decomposition ■■ Management adjustments to models for impairment ■■ Measurement uncertainty and sensitivity analysis The Group reviews and monitors risk concentrations in a variety of ways. This section outlines performance against key concentration risks. ■■ 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 ■■ Analysis of specific portfolios and asset types – Secured home loans – Credit cards, unsecured loans and other retail lending – Exposure to UK commercial real estate ■■ Forbearance – Retail forbearance programmes – Wholesale forbearance programmes Credit risk monitors exposure performance across a range of significant portfolios. The 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 the 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 Page 168 168 171 171 173 175 179 179 180 181 189 189 190 191 191 191 191 193 195 195 196 197 198 199 200 200 201 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 167 Risk review: Credit risk Risk performance continued Credit risk All disclosures in this section are unaudited unless otherwise stated. Overview Credit risk represents a significant risk to the 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. Credit risk disclosures include many of the recommendations of the Taskforce on Disclosures about Expected Credit Losses (DECL) and it is expected that relevant disclosures will continue to be developed in future periods. The impact of the COVID-19 pandemic has increased the level of judgement that management have been required to exercise over the course of 2020. Customer and client default rates have remained relatively stable despite the impact of the pandemic and volatile macroeconomic environment. In retail cards, credit profiles improved or were stable versus pre-pandemic levels as a result of government support measures and customer deleveraging. In wholesale, furlough and liquidity funding schemes are supporting businesses through the pandemic, with limited credit deterioration. This lack of deterioration, combined in some cases with improving economics, is leading to large scale credit loss stock releases on a modelled basis in pockets of the portfolio. Given this backdrop, management has applied COVID-19 specific adjustments to modelled outputs to ensure the full potential impacts of stress are provided for. These adjustments address the temporary nature of ongoing government support, the uncertainty in relation to the timing of stress and the degree to which economic consensus has yet captured the range of economic uncertainty, particularly in the UK. Refer to the Management adjustment to models for impairment section on page 180 for further details. Further detail can be found in the Financial statements section in Note 7 Credit impairment charges. Descriptions of terminology can be found in the glossary, available at home.barclays/annualreport Key metrics Increase in impairment allowances of £2,769m Impairment allowances on loans and advances at amortised cost, including off-balance sheet elements of the allowance, increased by £2,769m to £9,399m (2019: £6,630m). The increase is driven by Barclays International £1,828m, Barclays UK £855m, and Head Office £86m. Refer to the Expected Credit Losses section for further details. Summary of performance in the period Credit impairment charges increased to £4,838m (2019: £1,912m) due to the deterioration in economic outlook driven by the COVID-19 global pandemic. The current year charge is broadly driven by £2,323m of non-default provision for potential future customer and client stress and £800m of single name deterioration. The Expected Credit Loss (ECL) provision remains highly uncertain as the economic impact of the global pandemic continues to evolve. The Group loan loss rate was 138bps (2019: 55bps). Refer to the credit risk management section 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 its 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 Group would have to pay if the guarantees were to be called upon. For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure is the full amount of the committed facilities. This and subsequent analyses of credit risk exclude other financial assets not subject to credit risk, mainly equity securities. The Group mitigates the credit risk to which it is exposed through netting and set-off, collateral and risk transfer. Further detail on the Group’s policies to each of these forms of credit enhancement is presented on pages 177 to 179 of the Barclays PLC Pillar 3 Report 2020 (unaudited). Overview As at 31 December 2020, the Group’s net exposure to credit risk, after taking into account credit risk mitigation, increased by 10% to £876.8bn. Overall, the extent to which the Group holds mitigation against its total exposure increased to 46% (2019: 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. The increase in the Group’s net exposure to credit risk is driven by increases in cash held at central banks, cash collateral and settlement balances, trading portfolio assets, derivative financial instruments, financial assets at fair value through other comprehensive income, and off-balance sheet loan commitments. 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. Further analysis on the credit quality of assets is presented in the approach to management and representation of credit quality section. Collateral obtained Where collateral has been obtained in the event of default, the 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 Group as at 31 December 2020, as a result of the enforcement of collateral, was £6m (2019: £6m). 168 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 2020 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 loans and other retail lending Wholesale loans Total loans and advances at amortised cost Of which credit-impaired (Stage 3): Home loans Credit cards, unsecured loans and other retail lending Wholesale 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 Off-balance sheet: Contingent liabilities Loan commitments Total off-balance sheet Total 191,127 101,367 159,647 40,813 142,172 342,632 1,813 921 2,525 5,259 9,031 56,482 8,348 64,830 30,879 1,693 137,616 343 170,531 302,446 77,927 850 1,260,741 21,609 333,049 354,658 – – – – (6,988) (6,988) – – – – – – – – – – – – – – 191,127 101,367 (284) (967) (62) (1,313) (159,203) (3,825) (37,103) (200,131) (85) (195) (23,963) (24,243) 75 35,826 74,056 109,957 (14) (14) (4) (32) – – – – (1,796) (237) (872) (2,905) (9,031) (391) (374) (765) – (2) (232) (234) – – – – – – – – – (233,080) – – (240,068) (9) – (672) – (681) (43,291) – – (45,285) (23,677) (292) (136,537) – (160,506) (4,773) (106) – (375,312) – – – – – (6,409) (1,385) – (32,037) 3 668 1,417 2,088 – 56,091 7,974 64,065 7,193 1,401 407 343 9,344 14,893 76,436 850 568,039 – – – (1,095) (128) (1,223) (2,135) (40,714) (42,849) (282) (1,520) (1,802) 18,097 290,687 308,784 1,615,399 (240,068) (46,508) (418,161) (33,839) 876,823 Off-balance sheet exposures are shown gross of provisions of £1,064m (2019: £322m). See Note 25 for further details. In addition to the above, the Group holds forward starting reverse repos with notional contract amounts of £34.6bn (2019: £31.1bn). The balances are fully collateralised. Wholesale loans and advances at amortised cost include £12.1bn of BBLs, CBILs and CLBILs extended in 2020 and supported by UK Government guarantees of £11.5bn, which are included within the Risk transfer column in the table. For further information on credit risk mitigation techniques, refer to the Credit risk management section. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 169 Risk review: Credit risk Risk performance continued Maximum exposure and effects of netting, collateral and risk transfer (audited) As at 31 December 2019 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 loans and other retail lending Wholesale loans Total loans and advances at amortised cost Of which credit-impaired (Stage 3): Home loans Credit cards, unsecured loans and other retail lending Wholesale 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 Off-balance sheet: Contingent liabilities Loan commitments Total off-balance sheet Total 150,258 83,256 154,479 55,296 129,340 339,115 1,809 1,074 1,812 4,695 3,379 52,739 5,378 58,117 22,692 5,249 96,887 763 125,591 229,236 64,727 1,375 1,055,054 24,527 334,455 358,982 Maximum exposure £m Netting and set-off £m Cash collateral £m Non-cash collateral £m Risk transfer £m Net exposure £m – – – – (7,636) (7,636) – – – – – – – – – – – – – – 150,258 83,256 (294) (778) (148) (1,220) (153,939) (5,283) (39,981) (199,203) (70) (258) (12,071) (12,399) 176 48,977 69,504 118,657 (2) (12) (9) (23) – – – – (1,785) (250) (909) (2,944) (3,379) (423) (134) (557) (14) (2) (20) (36) – – – – – – – – – (175,998) – – (183,634) (14) – (1,132) – (1,146) (33,411) – – (35,777) (16,580) – (95,736) – (112,316) (5,511) (305) – (321,271) (57) – – – (57) (5,564) (1,051) – (19,071) 8 810 874 1,692 – 52,316 5,244 57,560 6,041 5,249 19 763 12,072 8,752 63,371 1,375 495,301 – – – (400) (84) (484) (4,412) (47,008) (51,420) (159) (1,950) (2,109) 19,556 285,413 304,969 1,414,036 (183,634) (36,261) (372,691) (21,180) 800,270 170 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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, impairment charge and coverage ratio by stage allocation and business segment as at 31 December 2020. 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 2020. 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. Loans and advances at amortised cost by stage (audited) As at 31 December 2020 Barclays UK Barclays Internationala Head Office Total Barclays Group retail Barclays UK Barclays Internationala Head Office Total Barclays Group wholesaleb Total loans and advances at amortised cost Off-balance sheet loan commitments and financial guarantee contractsc Totald As at 31 December 2020 Barclays UK Barclays Internationala Head Office Total Barclays Group retail Barclays UK Barclays Internationala Head Office Total Barclays Group wholesaleb Total loans and advances at amortised cost Off-balance sheet loan commitments and financial guarantee contractsc Other financial assets subject to impairmentd Totale Gross exposure Impairment allowance Stage 1 £m 153,250 21,048 4,267 178,565 31,918 79,911 570 112,399 Stage 2 £m 23,896 5,500 720 30,116 4,325 16,565 – 20,890 Stage 3 £m 2,732 1,992 844 5,568 1,126 2,270 33 3,429 Total £m 179,878 28,540 5,831 214,249 37,369 98,746 603 136,718 Stage 1 £m 332 396 4 732 13 288 – 301 Stage 2 £m 1,509 1,329 51 2,889 129 546 – 675 Stage 3 £m 1,147 1,205 380 2,732 116 859 31 1,006 Total £m 2,988 2,930 435 6,353 258 1,693 31 1,982 Net exposure £m 176,890 25,610 5,396 207,896 37,111 97,053 572 134,736 290,964 51,006 8,997 350,967 1,033 3,564 3,738 8,335 342,632 289,939 580,903 52,891 103,897 2,330 11,327 345,160 696,127 256 1,289 758 4,322 50 3,788 1,064 9,399 344,096 686,728 Coverage ratio Stage 2 % 6.3 24.2 7.1 9.6 3.0 3.3 – 3.2 Stage 3 % 42.0 60.5 45.0 49.1 10.3 37.8 93.9 29.3 7.0 41.5 Loan impairment charge and loan loss rate Loan impairment charge £m 1,070 1,680 91 2,841 154 914 – 1,068 Loan loss rate bps 59 589 156 133 41 93 – 78 3,909 111 Total % 1.7 10.3 7.5 3.0 0.7 1.7 5.1 1.4 2.4 1.4 2.1 0.3 776 Stage 1 % 0.2 1.9 0.1 0.4 – 0.4 – 0.3 0.4 0.1 0.2 4.2 33.4 1.4 153 4,838 Notes a Private Banking have refined the methodology to classify £5bn of their exposure between Wholesale and Retail during the year. b Includes Wealth and Private Banking exposures measured on an individual customer exposure basis, and excludes Business Banking exposures that are managed on a collective basis. The net impact is a difference in total exposure of £7,551m of balances reported as wholesale loans in the Loans and advances at amortised cost by product disclosure. c Excludes loan commitments and financial guarantees of £9.5bn carried at fair value. d 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 £180.3bn and impairment allowance of £165m. This comprises £11m ECL on £175.7bn Stage 1 assets, £9m on £4.4bn Stage 2 fair value through other comprehensive income assets, other assets, cash collateral and settlement assets and £145m on £154m Stage 3 other assets. e The loan loss rate is 138bps after applying the total impairment charge of £4,838m. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 171 Risk review: Credit risk Risk performance continued Loans and advances at amortised cost by stage (audited) As at 31 December 2019 Barclays UK Barclays International Head Office Total Barclays Group retail Barclays UK Barclays International Head Office Total Barclays Group wholesalea Total loans and advances at amortised cost Off-balance sheet loan commitments and financial guarantee contractsb Totalc As at 31 December 2019 Barclays UK Barclays International Head Office Total Barclays Group retail Barclays UK Barclays International Head Office Total Barclays Group wholesalea Total loans and advances at amortised cost Off-balance sheet loan commitments and financial guarantee contractsb Other financial assets subject to impairmentc Totald Gross exposure Impairment allowance Stage 1 £m 143,097 27,886 4,803 175,786 27,891 92,615 2,974 123,480 Stage 2 £m 23,198 4,026 500 27,724 2,397 8,113 – 10,510 Stage 3 £m 2,446 1,875 826 5,147 1,124 1,615 37 2,776 Total £m 168,741 33,787 6,129 208,657 31,412 102,343 3,011 136,766 Stage 1 £m 198 352 5 555 16 136 – 152 Stage 2 £m 1,277 774 36 2,087 38 248 – 286 Stage 3 £m 974 1,359 305 2,638 108 447 35 590 Total £m 2,449 2,485 346 5,280 162 831 35 1,028 Net exposure £m 166,292 31,302 5,783 203,377 31,250 101,512 2,976 135,738 299,266 38,234 7,923 345,423 707 2,373 3,228 6,308 339,115 321,140 620,406 19,185 57,419 935 8,858 341,260 686,683 97 804 170 2,543 55 3,283 322 6,630 340,938 680,053 Coverage ratio Stage 1 % 0.1 1.3 0.1 0.3 0.1 0.1 – 0.1 Stage 2 % 5.5 19.2 7.2 7.5 1.6 3.1 – 2.7 Stage 3 % 39.8 72.5 36.9 51.3 9.6 27.7 94.6 21.3 0.2 6.2 40.7 – 0.9 5.9 0.1 4.4 37.1 Loan impairment charge and loan loss rate Loan impairment charge £m 661 999 27 1,687 33 113 – 146 Loan loss rate bps 39 296 44 81 11 11 – 11 1,833 53 71 8 1,912 Total % 1.5 7.4 5.6 2.5 0.5 0.8 1.2 0.8 1.8 0.1 1.0 Notes a Included in the above analysis are Wealth and Private Banking exposures measured on an individual customer exposure basis, and excludes Business Banking exposures that are managed on a collective basis. The net impact is a difference in total exposure of £6,434m of balances reported as wholesale loans in the Loans and advances at amortised cost by product disclosure. b Excludes loan commitments and financial guarantees of £17.7bn carried at fair value. c 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 £149.3bn and impairment allowance of £24m. This comprises £12m ECL on £148.5bn Stage 1 assets £2m on £0.8bn Stage 2 fair value through other comprehensive income assets, cash collateral and settlement balances and £10m on £10m Stage 3 other assets. d The loan loss rate is 55bps after applying the total impairment charge of £1,912m. 172 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Loans and advances at amortised cost by product (audited) 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 2020 Gross exposure Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Impairment allowance Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Net exposure Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Coverage ratio Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total As at 31 December 2019 Gross exposure Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Impairment allowance Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Net exposure Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Coverage ratio Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Stage 1 £m 138,639 33,021 119,304 290,964 Not past due £m 16,651 9,470 19,501 45,622 33 680 320 1,033 57 2,382 650 3,089 138,606 32,341 118,984 289,931 16,594 7,088 18,851 42,533 % – 2.1 0.3 0.4 £m 135,713 46,012 117,541 299,266 22 542 143 707 135,691 45,470 117,398 298,559 % – 1.2 0.1 0.2 % 0.3 25.2 3.3 6.8 £m 14,733 9,759 9,374 33,866 37 1,597 284 1,918 14,696 8,162 9,090 31,948 % 0.3 16.4 3.0 5.7 Stage 2 <=30 days past due £m 1,785 544 1,097 3,426 >30 days past due £m 876 306 776 1,958 13 180 50 243 1,772 364 1,047 3,183 % 0.7 33.1 4.6 7.1 £m 1,585 496 374 2,455 14 159 9 182 1,571 337 365 2,273 % 0.9 32.1 2.4 7.4 14 207 11 232 862 99 765 1,726 % 1.6 67.6 1.4 11.8 £m 725 504 684 1,913 13 251 9 273 712 253 675 1,640 % 1.8 49.8 1.3 14.3 Total £m 19,312 10,320 21,374 51,006 84 2,769 711 3,564 19,228 7,551 20,663 47,442 % 0.4 26.8 3.3 7.0 £m 17,043 10,759 10,432 38,234 64 2,007 302 2,373 16,979 8,752 10,130 35,861 % 0.4 18.7 2.9 6.2 Stage 3 £m 2,234 3,172 3,591 8,997 421 2,251 1,066 3,738 1,813 921 2,525 5,259 % 18.8 71.0 29.7 41.5 £m 2,155 3,409 2,359 7,923 346 2,335 547 3,228 1,809 1,074 1,812 4,695 % 16.1 68.5 23.2 40.7 Total £m 160,185 46,513 144,269 350,967 538 5,700 2,097 8,335 159,647 40,813 142,172 342,632 % 0.3 12.3 1.5 2.4 £m 154,911 60,180 130,332 345,423 432 4,884 992 6,308 154,479 55,296 129,340 339,115 % 0.3 8.1 0.8 1.8 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 173 Risk review: Credit risk Risk performance continued Loans and advances at amortised cost by selected sectors The table below presents a breakdown of loans and advances at amortised cost and the impairment allowance, with gross exposure and stage allocation for selected industry sectors within the wholesale loans portfolio. The industry sectors have been selected based upon the level of management focus they have received following the onset of the COVID-19 pandemic. The credit risk industry concentration disclosure in the Analysis of the concentration of credit risk section represents all the industry categories and the below only covers a subset of that table. The gross loans and advances to selected sectors have increased over the year as a result of additional drawdowns on committed credit lines provided by the bank. Overall limits and exposures have remained broadly stable over the year whilst provisions have increased in light of the heightened stress. The wholesale portfolio also benefits from a hedge protection programme that enables effective risk management against systemic losses. Loans and advances at amortised cost by selected sectors Gross exposure Impairment allowance As at 31 December 2020 Air travel Hospitality and leisure Oil and gas Retail Shipping Transportation Total Total of Wholesale exposures As at 31 December 2019 Air travel Hospitality and leisure Oil and gas Retail Shipping Transportation Total Total of Wholesale exposures Stage 1 £m 367 4,440 1,754 3,907 308 1,148 11,924 10% Stage 1 £m 194 4,321 2,539 3,395 357 873 11,679 10% Stage 2 £m 525 2,387 854 1,153 389 253 5,561 26% Stage 3 £m 56 313 465 283 12 125 1,254 35% Gross exposure Stage 2 £m 31 851 612 777 52 82 2,405 23% Stage 3 £m 26 199 136 207 7 89 664 28% Total £m 948 7,140 3,073 5,343 709 1,526 18,739 13% Total £m 251 5,371 3,287 4,379 416 1,044 14,748 11% Stage 1 £m 9 53 31 78 2 19 192 60% Stage 1 £m – 8 8 11 1 5 33 23% Stage 2 £m 27 115 27 51 30 10 260 37% Stage 3 £m 23 61 140 108 1 57 390 37% Impairment allowance Stage 2 £m – 18 24 24 – 5 71 24% Stage 3 £m 24 29 47 85 3 54 242 44% Total £m 59 229 198 237 33 86 842 40% Total £m 24 55 79 120 4 64 346 35% A £0.2bn adjustment has been applied to selected sectors in Stage 1 to increase the ECL coverage on these names in line with the average Stage 2 coverage of the respective sector. This adjustment is materially in response to the increased stress in these sectors not captured through the ECL models. An additional £0.1bn adjustment is held against undrawn exposure which does not appear in the table. The coverage ratio for selected sectors has increased from 2.3% as at 31 December 2019 to 4.5% as at 31 December 2020. 174 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Movement in gross exposures and impairment allowance including provisions for loan commitments and financial guarantees 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 in Note 7. Transfers between stages in the tables have been reflected as if they had taken place at the beginning of the year. The movements are measured over a 12-month period. Loans and advances at amortised cost (audited) Stage 1 Stage 2 Stage 3 Home loans As at 1 January 2020 Transfers from Stage 1 to Stage 2 Transfers from Stage 2 to Stage 1 Transfers to Stage 3 Transfers from Stage 3 Business activity in the year Changes to models used for calculationa Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes Final repayments Disposalsc Write-offsd As at 31 December 2020e Credit cards, unsecured loans and other retail lending As at 1 January 2020 Transfers from Stage 1 to Stage 2 Transfers from Stage 2 to Stage 1 Transfers to Stage 3 Transfers from Stage 3 Business activity in the year Changes to models used for calculationa Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changesb Final repayments Disposalsc Write-offsd As at 31 December 2020e Wholesale loans As at 1 January 2020 Transfers from Stage 1 to Stage 2 Transfers from Stage 2 to Stage 1 Transfers to Stage 3 Transfers from Stage 3 Business activity in the year Changes to models used for calculationa Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes Final repayments Disposalsc Write-offsd As at 31 December 2020e Gross exposure £m 135,713 (8,724) 4,618 (308) 47 22,548 – (6,195) (9,060) – – 138,639 46,012 (6,571) 3,080 (712) 76 5,598 – (9,678) (3,291) (1,493) – 33,021 117,541 (12,531) 4,121 (1,137) 471 27,863 – 13,828 (28,458) (2,394) – 119,304 ECL £m 22 (1) 14 – 1 7 – (9) (1) – – 33 542 (134) 482 (25) 39 67 13 (229) (67) (8) – 680 143 (35) 40 (4) 22 46 – 130 (22) – – 320 Gross exposure £m 17,043 8,724 (4,618) (420) 219 714 – (841) (1,509) – – 19,312 10,759 6,571 (3,080) (1,162) 67 324 – (2,706) (270) (183) – 10,320 10,432 12,531 (4,121) (875) 247 2,336 – 3,811 (2,977) (10) – 21,374 ECL £m 64 1 (14) (10) 2 2 – 42 (3) – – 84 2,007 134 (482) (398) 12 83 296 1,174 (37) (20) – 2,769 302 35 (40) (58) 13 149 – 339 (29) – – 711 Gross exposure £m 2,155 – – 728 (266) 4 – (57) (308) – (22) 2,234 3,409 – – 1,874 (143) 59 – (10) (204) (204) (1,609) 3,172 2,359 – – 2,012 (718) 634 – (64) (299) – (333) 3,591 Total Gross exposure £m 154,911 – – – – 23,266 – (7,093) (10,877) – (22) 160,185 60,180 – – – – 5,981 – (12,394) (3,765) (1,880) (1,609) 46,513 130,332 – – – – 30,833 – ECL £m 432 – – – – 9 – 138 (19) – (22) 538 4,884 – – – – 178 309 2,298 (188) (172) (1,609) 5,700 992 – – – – 280 – ECL £m 346 – – 10 (3) – – 105 (15) – (22) 421 2,335 – – 423 (51) 28 – 1,353 (84) (144) (1,609) 2,251 547 – – 62 (35) 85 – 799 (59) – (333) 1,066 17,575 (31,734) (2,404) (333) 144,269 1,268 (110) – (333) 2,097 Notes a Changes to models used for calculation include a £309m adjustment which largely represents model remediation to correct for over recovery of debt in UK unsecured lending. Barclays continually review the output of models to determine accuracy of the ECL calculation including review of model monitoring, external benchmarking and experience of model operation over an extended period of time. This ensures that the models used continue to reflect the risks inherent across the businesses. b Transfers and risk parameters change has seen an ECL increase which is materially driven by stage migration in response to the macroeconomic scenario updates, partially offset by a net release in ECL of £0.6bn due to a reclassification of £2bn gross loans and advances from Stage 2 to Stage 1 in credit cards and unsecured loans. The reclassification followed a review of back-testing of results which indicated that origination probability of default characteristics were unnecessarily moving Stage 1 accounts into Stage 2. c The £1.9bn disposals reported within Credit cards, unsecured loans and other retail lending portfolio include £1.7bn sale of motor financing business within the Barclays Partner Finance d business and £0.2bn relate to debt sales undertaken during the year. The £2.4bn disposal reported within Wholesale loans include sale of debt securities as part of Group Treasury Operations. In 2020, gross write-offs amounted to £1,964m (2019: £1,883m) and post write-off recoveries amounted to £35m (2019: £124m). Net write-offs represent gross write-offs less post write-off recoveries and amounted to £1,929m (2019: £1,759m). e 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 £180.3bn (December 2019: £149.3bn) and impairment allowance of £165m (December 2019: £24m). This comprises £11m ECL (December 2019: £12m) on £175.7bn Stage 1 assets (December 2019: £148.5bn), £9m (December 2019: £2m) on £4.4bn Stage 2 fair value through other comprehensive income assets, cash collateral and settlement assets (December 2019: £0.8bn) and £145m (December 2019: £10m) on £154m Stage 3 other assets (December 2019: £10m). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 175 Risk review: Credit risk Risk performance continued Reconciliation of ECL movement to impairment charge/(release) for the period Home loans Credit cards, unsecured loans and other retail lending Wholesale loans ECL movement excluding assets derecognised due to disposals and write-offs Recoveries and reimbursementsa Exchange and other adjustmentsb Impairment charge on loan commitments and financial guarantees Impairment charge on other financial assetsc Income statement charge for the period £m 128 2,597 1,438 4,163 (399) 145 776 153 4,838 Notes a Recoveries and reimbursements includes £364m for reimbursements expected to be received under the arrangement where Group has entered into financial guarantee contracts which provide credit protection over certain loans assets with third parties. Cash recoveries of previously written off amounts to £35m. Includes foreign exchange and interest and fees in suspense. b c 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 £180.3bn (December 2019: £149.3bn) and impairment allowance of £165m (December 2019: £24m). This comprises £11m ECL (December 2019: £12m) on £175.7bn Stage 1 assets (December 2019: £148.5bn), £9m (December 2019: £2m) on £4.4bn Stage 2 fair value through other comprehensive income assets, cash collateral and settlement assets (December 2019: £0.8bn) and £145m (December 2019: £10m) on £154m Stage 3 other assets (December 2019: £10m). Loan commitments and financial guarantees (audited) Stage 1 Stage 2 Stage 3 Total Home loans As at 1 January 2020 Net transfers between stages Business activity in the year Net drawdowns, repayments, net re-measurement and movement due to exposure and risk parameter changes Limit management and final repayments As at 31 December 2020 Credit cards, unsecured loans and other retail lending As at 1 January 2020 Net transfers between stages Business activity in the year Net drawdowns, repayments, net re-measurement and movement due to exposure and risk parameter changes Limit management and final repayments As at 31 December 2020 Wholesale loans As at 1 January 2020 Net transfers between stages Business activity in the year Net drawdowns, repayments, net re-measurement and movement due to exposure and risk parameter changes Limit management and final repayments As at 31 December 2020 Gross exposure £m 9,542 (82) 7,975 (5,332) (242) 11,861 125,759 (5,477) 5,214 1,298 (12,423) 114,371 185,839 (28,325) 42,917 13,637 (50,361) 163,707 ECL £m Gross exposure £m ECL £m Gross exposure £m – – – – – – 35 43 2 (22) (3) 55 62 67 32 500 78 – (27) (35) 516 6,238 4,725 158 1,636 (640) 12,117 12,447 27,319 4,708 47 (7) 201 (44) (4,172) 40,258 – – – – – – 71 (40) 3 272 (1) 305 99 (72) 102 338 (14) 453 4 4 – (2) (1) 5 250 752 2 (671) (104) 229 681 1,006 774 (69) (296) 2,096 ECL £m – – – – – – 14 (3) 1 15 (4) 23 41 5 2 Gross exposure £m 10,046 – 7,975 (5,361) (278) 12,382 132,247 – 5,374 2,263 (13,167) 126,717 198,967 – 48,399 (20) (1) 27 13,524 (54,829) 206,061 ECL £m – – – – – – 120 – 6 265 (8) 383 202 – 136 365 (22) 681 176 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Loans and advances at amortised cost (audited) Stage 1 Gross exposure £m Home loans As at 1 January 2019 Transfers from Stage 1 to Stage 2 Transfers from Stage 2 to Stage 1 Transfers to Stage 3 Transfers from Stage 3 Business activity in the year Changes to models used for calculationa Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes Final repayments Disposalsb Write-offsc As at 31 December 2019d Credit cards, unsecured loans and other retail lending As at 1 January 2019 Transfers from Stage 1 to Stage 2 Transfers from Stage 2 to Stage 1 Transfers to Stage 3 Transfers from Stage 3 Business activity in the year Changes to models used for calculationa Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes Final repayments Disposalsb Write-offsc As at 31 December 2019d Wholesale loans As at 1 January 2019 Transfers from Stage 1 to Stage 2 Transfers from Stage 2 to Stage 1 Transfers to Stage 3 Transfers from Stage 3 Business activity in the year Changes to models used for calculationa Net drawdowns, repayments, net re-measurement and movements due to exposure and risk parameter changes Final repayments Disposalsb Write-offsc As at 31 December 2019d 130,066 (9,051) 8,000 (199) 43 24,935 – (6,931) (10,427) (723) – 135,713 45,785 (3,604) 4,522 (857) 144 9,664 – (5,975) (3,667) – – 46,012 105,375 (3,419) 5,213 (501) 473 40,837 – 5,929 (34,081) (2,285) – 117,541 Stage 2 Gross exposure £m 18,206 9,051 (8,000) (510) 294 734 – (843) (1,827) (62) – 17,043 12,229 3,604 (4,522) (1,264) 28 704 – 351 (371) – – 10,759 13,012 3,419 (5,213) (650) 205 1,757 – 321 (2,419) – – 10,432 ECL £m 82 1 (28) (15) 3 2 – 27 (4) (4) – 64 2,304 72 (701) (448) 14 123 (110) 806 (53) – – 2,007 329 11 (84) (19) 25 27 (19) 85 (53) – – 302 Stage 3 Gross exposure £m 2,476 – – 709 (337) 3 – (214) (454) (2) (26) 2,155 3,760 – – 2,121 (172) 89 – 373 (290) (777) (1,695) 3,409 2,267 – – 1,151 (678) 31 – 122 (372) – (162) 2,359 Total Gross exposure £m 150,748 – – – – 25,672 – (7,988) (12,708) (787) (26) 154,911 61,774 – – – – 10,457 – (5,251) (4,328) (777) (1,695) 60,180 120,654 – – – – 42,625 – 6,372 (36,872) (2,285) (162) 130,332 ECL £m 464 – – – – 5 – 13 (19) (5) (26) 432 5,343 – – – – 282 (101) 1,863 (181) (627) (1,695) 4,884 963 – – – – 78 (28) 315 (174) – (162) 992 ECL £m 351 – – 15 (5) – – 24 (13) – (26) 346 2,511 – – 469 (117) 39 (7) 1,836 (74) (627) (1,695) 2,335 505 – – 21 (60) – – 334 (91) – (162) 547 ECL £m 31 (1) 28 – 2 3 – (38) (2) (1) – 22 528 (72) 701 (21) 103 120 16 (779) (54) – – 542 129 (11) 84 (2) 35 51 (9) (104) (30) – – 143 Notes a Changes to models used for calculation include a £101m movement in Credit cards, unsecured loans and other retail lending and a £28m movement in Wholesale loans. These reflect methodology changes made during the year. Barclays continually review the output of models to determine accuracy of the ECL calculation including review of model monitoring, external benchmarking and experience of model operation over an extended period of time. This ensures that the models used continue to reflect the risks inherent across the businesses. b The £787m movement of gross loans and advances disposed of across Home loans relates to the sale of a portfolio of mortgages from the Italian loan book. The £777m disposal reported within Credit cards, unsecured loans and other retail lending portfolio relates to debt sales undertaken during the year. Finally, disposals of £2,285m within Wholesale loans relate to the sale of debt securities as part of the Group’s Treasury operations. In 2019, gross write-offs amounted to £1,883m (2018: £1,891m) and post write-off recoveries amounted to £124m (2018: £195m). Net write-offs represent gross write-offs less post write-off recoveries and amounted to £1,759m (2018: £1,696m). c d 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 £149.3bn (December 2018: £129.9bn) and impairment allowance of £24m (December 2018: £12m). This comprises £12m ECL (December 2018: £10m) on £148.5bn Stage 1 assets (December 2018: £129.3bn), £2m (December 2018: £2m) on £0.8bn Stage 2 fair value through other comprehensive income assets, cash collateral and settlement assets (December 2018: £0.6bn) and £10m (December 2018: £nil) on £10m Stage 3 other assets (December 2018: £nil). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 177 Risk review: Credit risk Risk performance continued Reconciliation of ECL movement to impairment charge/(release) for the period Home loans Credit cards, unsecured loans and other retail lending Wholesale loans ECL movement excluding assets derecognised due to disposals and write-offs Recoveries and reimbursements Exchange and other adjustmentsa Impairment charge on loan commitments and financial guarantees Impairment charge on other financial assetsb Income statement charge for the period £m (1) 1,863 191 2,053 (124) (96) 71 8 1,912 Includes foreign exchange and interest and fees in suspense. Notes a 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 £149.3bn (December 2018: £129.9bn) and impairment allowance of £24m (December 2018: £12m). This comprises £12m ECL (December 2018: £10m) on £148.5bn Stage 1 assets (December 2018: £129.3bn), £2m (December 2018: £2m) on £0.8bn Stage 2 fair value through other comprehensive income assets, cash collateral and settlement assets (December 2018: £0.6bn) and £10m (December 2018: £nil) on £10m Stage 3 other assets (December 2018: £nil). Loan commitments and financial guarantees (audited) Stage 1 Stage 2 Stage 3 Gross exposure £m ECL £m Gross exposure £m ECL £m Gross exposure £m Home loans As at 1 January 2019 Net transfers between stages Business activity in the year Net drawdowns, repayments, net re-measurement and movement due to exposure and risk parameter changes Limit management and final repayments As at 31 December 2019 Credit cards, unsecured loans and other retail lending As at 1 January 2019 Net transfers between stages Business activity in the year Net drawdowns, repayments, net re-measurement and movement due to exposure and risk parameter changes Limit management and final repayments As at 31 December 2019 Wholesale loans As at 1 January 2019 Net transfers between stages Business activity in the year Net drawdowns, repayments, net re-measurement and movement due to exposure and risk parameter changes Limit management and final repayments As at 31 December 2019 6,948 (39) 2,848 1 (216) 9,542 124,611 117 14,619 (1,151) (12,437) 125,759 178,430 (875) 53,685 (487) (44,914) 185,839 – – – – – – 41 44 2 (48) (4) 35 58 7 22 (1) (24) 62 546 47 – (40) (53) 500 9,016 (1,082) 218 (1,172) (742) 6,238 12,564 580 2,779 1,190 (4,666) 12,447 – – – – – – 65 (43) 1 54 (6) 71 85 (8) 22 36 (36) 99 13 (8) – – (1) 4 267 965 6 (874) (114) 250 404 295 16 232 (266) 681 Total Gross exposure £m 7,507 – 2,848 (39) (270) 10,046 133,894 – 14,843 (3,197) (13,293) 132,247 ECL £m – – – – – – 20 (1) 6 (9) (2) 14 2 1 – 191,398 – 56,480 41 (3) 41 935 (49,846) 198,967 ECL £m – – – – – – 126 – 9 (3) (12) 120 145 – 44 76 (63) 202 178 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Stage 2 decomposition Loans and advances at amortised costa As at 31 December Quantitative test Qualitative test 30 days past due backstop Total Stage 2 2020 2019 Gross exposure £m 36,754 11,865 2,387 51,006 Impairment allowance £m 3,252 273 39 3,564 Gross exposure £m 24,034 12,733 1,467 38,234 Impairment allowance £m 2,059 278 36 2,373 Note a Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross 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 during the year driven by changes in macroeconomic variables. This is augmented by inclusion of accounts meeting the designated high risk criteria (including watchlist) for the portfolio under the qualitative test. Qualitative tests predominantly include £8.5bn (2019: £9.3bn) in Barclays UK of which £7.1bn (2019: £7.4bn) relates to UK Home Finance, £1.0bn (2019: £1.1bn) relates to Business Banking and £0.1bn (2019: £0.4bn) relates to Barclaycard UK. A further £3.3bn (2019: £3.4bn) relates to Barclays International of which £2bn (2019: £1.7bn) relates to Corporate and Investment Bank, £0.3bn (2019: £0.9bn) relates to Barclaycard International and £0.7bn (2019: £0.7bn) relates to Private Bank. A small number of other accounts (1% of impairment allowances and 5% of gross 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 these backstop criteria is a measure of the effectiveness of the Stage 2 criteria in identifying deterioration prior to delinquency. These balances include items in the Corporate and Investment Bank for reasons such as outstanding interest and fees rather than principal balances. For further detail on the three criteria for determining a significant increase in credit risk required for Stage 2 classification, refer to Note 7. Stage 3 decomposition Loans and advances at amortised cost As at 31 December Exposures not charged-off including within cure perioda Exposures individually assessed or in recovery bookb Total Stage 3 2020 2019 Gross exposure £m 3,773 5,224 8,997 Impairment allowance £m 831 2,907 3,738 Gross exposure £m 3,540 4,383 7,923 Impairment allowance £m 857 2,371 3,228 Notes a b Exposures individually assessed or in recovery book cannot cure out of Stage 3. Includes £2.6bn (2019: £2.5bn) of gross exposure in a cure period that must remain in Stage 3 for a minimum of 12 months before moving to Stage 2. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 179 Risk review: Credit risk Risk performance continued 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. Total management adjustments to impairment allowance are presented by product below. Management adjustments to models for impairment (audited)a As at 31 December Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total Management adjustments to models for impairment charges (audited)a As at 31 December 2020 Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Total 2020 2019 Management adjustments to impairment allowances £m 131 1,234 23 1,388 Proportion of total impairment allowances % 24.3 20.3 0.8 14.8 Management adjustments to impairment allowances £m 57 308 (25) 340 Proportion of total impairment allowancesb % 13.2 6.2 (2.1) 5.1 Impairment allowance pre management adjustmentsc £m 407 4,849 2,755 8,011 Economic uncertainty adjustments £m 21 1,625 421 2,067 Other adjustments £m 110 (391) (398) (679) Total impairment allowance £m 538 6,083 2,778 9,399 Notes a Positive values relate to an increase in impairment allowance. b The 2019 comparative figures have been restated to include impairment allowance on both drawn and undrawn exposures. c Includes £6.8bn of modelled ECL, £0.9bn of individually assessed impairments and £0.3bn ECL from non-modelled exposures. Economic uncertainty adjustments The pandemic impacted the global economy throughout 2020 and macroeconomic forecasts indicate longer-term impacts will result in higher unemployment levels and customer and client stress. However, to date, little real credit deterioration has occurred, largely as a result of government and bank support. Observed 30-day arrears rates in consumer loans in particular have remained stable in both US cards (2020: 2.5%; 2019: 2.7%) and UK cards (2020: 1.7%; 2019: 1.7%). A similar phenomenon is observed in wholesale, where the average risk profile of the portfolio has broadly remained stable during the year and has not deteriorated in line with the macroeconomic crisis. Given this backdrop, management has applied COVID-19 specific adjustments to modelled outputs to ensure the full potential impacts of stress are provided for. These adjustments address the temporary nature of ongoing government support, the uncertainty in relation to the timing of stress and the degree to which economic consensus has not yet captured the range of economic uncertainty. The COVID-19 adjustments of £2.1bn broadly comprised the following: ■■ Use of expert judgement to adjust the probability of default £0.7bn to pre-COVID levels to reflect the impact of temporary support measures on underlying customer behaviour, partially offset by government guarantees £(0.1)bn which are materially against BBLs; ■■ Adjusting macroeconomic variables deemed temporarily influenced by support measures, enabling models to consume the expected stress £1.2bn; ■■ A £0.3bn adjustment has been applied to selected sectors in Stage 1 to increase the ECL coverage on these names in line with the average Stage 2 coverage. This adjustment is materially in response to the increased stress in these sectors not captured through the ECL models. Other adjustments Home loans: The low average LTV nature of the UK Home Loans portfolio means that modelled ECL estimates are low in all but the most severe economic scenarios. An adjustment is held to maintain an appropriate level of ECL. Credit cards, unsecured loans and other retail lending: Includes a net release in ECL of £0.6bn due to a reclassification of £2bn gross loans and advances from Stage 2 to Stage 1 in credit cards and unsecured loans. The reclassification followed a review of back-testing of results which indicated that origination probability of default characteristics were unnecessarily moving Stage 1 accounts into Stage 2. Wholesale loans: Adjustments include a release in the Investment Bank to limit excessive ECL sensitivity to the macroeconomic variable for Federal Tax Receipts and a correction to Corporate and Investment Bank ECL to adjust for model inaccuracies informed by back-testing. Management adjustments of £340m in 2019 largely comprises a £210m PMA to compensate for over-recovery of debt in UK unsecured lending, and subsequently fixed within the underlying model; and £150m for UK economic uncertainty, now subsumed within managements broader approach to economic uncertainty. 180 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Measurement uncertainty and sensitivity analysis The measurement of ECL involves 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. The Group uses a five-scenario model to calculate ECL. An external consensus forecast is assembled from key sources, including HM Treasury (short and medium-term forecasts), Bloomberg (based on median of economic forecasts) and the Urban Land Institute (for US House Prices), 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 broadly similar severity to Barclays’ internal stress tests and stress scenarios provided by regulators whilst also considering IFRS 9 specific sensitivities and non-linearity. Downside 2 is benchmarked to the Bank of England’s stress 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 reflect upside risks to the Baseline scenario to the extent that is broadly consistent with recent favourable benchmark scenarios. All scenarios are regenerated at a minimum semi-annually. The scenarios include eight economic variables, (GDP, unemployment, House Price Index (HPI) and base rates in both the UK and US markets), and expanded variables using statistical models based on historical correlations. The upside and downside shocks are designed to evolve over a five-year stress horizon, with all five scenarios converging to a steady state after approximately eight years. Scenarios used to calculate the Group’s ECL charge were reviewed and updated regularly throughout 2020, following the outbreak of the COVID-19 pandemic in the first quarter. The current Baseline scenario reflects the latest consensus economic forecasts with a steady recovery in GDP in the UK and the US, and unemployment continuing to decrease in the US and peaking at Q221 in the UK followed by a steady decline. In the downside scenarios, an economic downturn in early 2021 in the UK and the US begins to recover later in the year, with unemployment increasing to the end of 2021. In the upside scenarios, the strong rebound in UK and US GDP continues into 2021, following the bounce-back in growth in Q320 and, subsequently, the projections stay above the year on year growth rates seen in the Baseline for a prolonged period of time before finally reverting to the long-term run rate. This reflects the assumption of approved vaccines being successfully rolled out throughout 2021 and pent up savings being deployed into a more certain consumer environment to drive significant growth. Scenario weights have been updated to reflect the latest economics. As a result of government and bank support measures, significant credit deterioration has not yet occurred. This delay increases uncertainty on the timing of the stress and the realisation of defaults. Management has applied COVID-19 specific adjustments to modelled outputs to reflect the temporary nature of ongoing government support, the uncertainty in relation to the timing of stress and the degree to which economic consensus has yet captured the range of economic uncertainty, particularly in the UK. As a result, ECL is higher than would be the case if it were based on the forecast economic scenarios alone. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 181 Risk review: Credit risk Risk performance continued Scenario weights (audited) The methodology for estimating probability weights for each of the scenarios involves a comparison of the distribution of key historical 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. This is reflected in the table below where the probability weights of the scenarios are shown. 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 credit cards and unsecured consumer loans are highly sensitive to unemployment. The range of forecast paths generated in the calculation of the weights at 31 December 2020 is much wider than in previous periods due to the uncertainty caused by COVID-19, thus the Upside and Downside scenarios are further away from the tails of the distribution than previously, resulting in a more even spread of weights than at 31 December 2019. The economic environment remains uncertain and future impairment charges may be subject to further volatility (including from changes to macroeconomic variable forecasts) depending on the longevity of the COVID-19 pandemic and related containment measures, as well as the longer term effectiveness of central bank, government and other support measures. The tables below show the key consensus macroeconomic variables used in the baseline scenario (3-year annual paths), the probability weights applied to each scenario and the macroeconomic variables by scenario using ‘specific bases’ i.e. the most extreme position of each variable in the context of the scenario, for example, the highest unemployment for downside scenarios and the lowest unemployment for upside scenarios. 5-year average tables and movement over time graphs provide additional transparency. Annual paths show quarterly averages for the year (unemployment and base rate) or change in the year (GDP and HPI). Expected worst point is the most negative quarter in the relevant 3 year period, which is calculated relative to the start point for GDP and HPI. Baseline average macroeconomic variables used in the calculation of ECL As at 31 December 2020 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate As at 31 December 2019 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate 2021 % 6.3 6.7 2.4 – 3.9 6.9 2.8 0.3 2020 % 1.3 4.1 1.9 0.6 2.1 3.6 3.4 1.7 2022 % 3.3 6.4 2.3 (0.1) 3.1 5.7 4.7 0.3 2021 % 1.5 4.2 3.1 0.5 1.9 3.9 2.9 1.5 2023 % 2.6 5.8 5.0 – 2.9 5.6 4.7 0.3 2022 % 1.6 4.2 3.6 0.8 1.9 4.0 2.8 1.7 Expected Worst Point % 1.2 7.4 0.6 (0.1) 1.0 7.5 0.7 0.3 Expected Worst Point % 0.3 4.2 0.3 0.5 0.5 4.0 1.0 1.5 Notes a Average Real GDP seasonally adjusted change in year; expected worst point is the minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. b Average UK unemployment rate 16-year+; expected worst point is the highest rate in the 12-quarter period starting Q121 (2019: Q120). c Change in year end UK HPI = Halifax All Houses, All Buyers index, relative to prior year end; worst point is based on minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. d Average US civilian unemployment rate 16-year+; expected worst point is the highest rate in the 12-quarter period starting Q121 (2019: Q120). e Change in year end US HPI = FHFA house price index, relative to prior year end; worst point is based on minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. 182 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Downside 2 average macroeconomic variables used in the calculation of ECL As at 31 December 2020 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate As at 31 December 2019 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate Downside 1 average macroeconomic variables used in the calculation of ECL As at 31 December 2020 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate As at 31 December 2019 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate 2021 % (3.9) 8.0 (13.6) (0.2) (2.4) 13.4 (17.2) 0.3 2020 % 1.3 4.1 1.9 0.6 2.1 3.6 3.4 1.7 2021 % 0.1 7.3 (6.7) (0.1) 0.4 11.0 (5.9) 0.3 2020 % 0.6 4.7 (2.6) 1.7 1.2 4.0 1.2 2.6 2022 % 6.5 9.3 (10.8) (0.2) 3.6 11.9 (0.7) 0.3 2021 % 1.5 4.2 3.1 0.5 1.9 3.9 2.9 1.5 2022 % 6.6 8.0 (3.5) (0.1) 3.6 8.9 1.8 0.3 2021 % 0.3 5.7 (4.1) 2.8 0.4 5.1 0.5 3.0 2023 % 2.6 7.8 0.5 (0.1) 2.1 10.1 0.6 0.3 2022 % 1.6 4.2 3.6 0.8 1.9 4.0 2.8 1.7 2023 % 3.2 6.9 1.7 – 2.3 6.9 2.6 0.3 2022 % 0.6 5.7 (1.7) 2.8 0.8 5.3 0.8 3.0 Expected Worst Point % (11.0) 10.1 (23.0) (0.2) (6.0) 13.7 (17.8) 0.3 Expected Worst Point % 0.3 4.2 0.3 0.5 0.5 4.0 1.0 1.5 Expected Worst Point % (7.0) 8.4 (10.0) (0.1) (3.0) 11.5 (5.9) 0.3 Expected Worst Point % 0.1 5.8 (8.2) 0.8 0.2 5.4 0.5 2.0 Notes a Average Real GDP seasonally adjusted change in year; expected worst point is the minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. b Average UK unemployment rate 16-year+; expected worst point is the highest rate in the 12-quarter period starting Q121 (2019: Q120). c Change in year end UK HPI = Halifax All Houses, All Buyers index, relative to prior year end; worst point is based on minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. d Average US civilian unemployment rate 16-year+; expected worst point is the highest rate in the 12-quarter period starting Q121 (2019: Q120). e Change in year end US HPI = FHFA house price index, relative to prior year end; worst point is based on minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 183 Risk review: Credit risk Risk performance continued Upside 2 average macroeconomic variables used in the calculation of ECL As at 31 December 2020 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate As at 31 December 2019 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate Upside 1 average macroeconomic variables used in the calculation of ECL As at 31 December 2020 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate As at 31 December 2019 UK GDPa UK unemploymentb UK HPIc UK bank rate US GDPa US unemploymentd US HPIe US federal funds rate 2021 % 12.2 6.2 6.6 0.1 7.1 5.5 8.8 0.3 2020 % 3.0 3.7 6.8 0.6 3.4 3.3 7.4 1.7 2021 % 9.3 6.4 4.6 0.1 5.5 6.0 6.8 0.3 2020 % 2.2 3.9 5.0 0.6 2.8 3.5 5.1 1.7 2022 % 5.3 5.5 10.4 0.3 4.6 4.3 9.1 0.4 2021 % 4.0 3.4 10.8 0.5 4.2 3.0 7.6 1.5 2022 % 3.9 6.0 6.1 0.1 4.0 4.8 6.7 0.3 2021 % 2.8 3.8 7.0 0.5 3.3 3.6 4.7 1.5 2023 % 3.9 4.8 10.8 0.3 4.0 4.1 8.9 0.6 2022 % 3.4 3.5 9.9 0.5 3.6 3.0 7.2 1.5 2023 % 3.4 5.2 6.1 0.3 3.7 4.6 6.3 0.5 2022 % 2.5 3.9 6.8 0.5 2.9 3.7 4.4 1.5 Expected Worst Point % 5.0 7.4 1.1 0.1 3.4 6.1 1.7 0.3 Expected Worst Point % 0.9 3.9 1.0 0.5 1.0 3.5 1.6 1.5 Expected Worst Point % 3.5 7.4 0.8 0.1 2.1 6.7 1.4 0.3 Expected Worst Point % 0.6 4.0 0.7 0.5 0.8 3.7 1.4 1.5 Notes a Average Real GDP seasonally adjusted change in year; expected worst point is the minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. b Average UK unemployment rate 16-year+; expected worst point is the highest rate in the 12-quarter period starting Q121 (2019: Q120). c Change in year end UK HPI = Halifax All Houses, All Buyers index, relative to prior year end; worst point is based on minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. d Average US civilian unemployment rate 16-year+; expected worst point is the highest rate in the 12-quarter period starting Q121 (2019: Q120). e Change in year end US HPI = FHFA house price index, relative to prior year end; worst point is based on minimum growth relative to Q420 (2019: Q419) based on a 12-quarter period. 184 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Scenario probability weighting (audited) As at 31 December 2020 Scenario probability weighting As at 31 December 2019 Scenario probability weighting Upside 2 % Upside 1 % Baseline % Downside 1 % Downside 2 % 20.2 10.1 24.2 23.1 24.7 40.8 15.5 22.7 15.4 3.3 Specific bases shows the most extreme position of each variable in the context of the scenario, for example, the highest unemployment for downside scenarios, average unemployment for baseline scenarios and lowest unemployment for upside scenarios. GDP and HPI downside and upside scenario data represents the lowest and highest points relative to the start point in the 20 quarter period. Macroeconomic variables used in the calculation of ECL (specific bases)a (audited) As at 31 December 2020 UK GDPb UK unemploymentc UK HPId UK bank ratec US GDPb US unemploymentc US HPId US federal funds ratec As at 31 December 2019 UK GDPb UK unemploymentc UK HPId UK bank ratec US GDPb US unemploymentc US HPId US federal funds ratec Upside 2 % Upside 1 % Baseline % Downside 1 % Downside 2 % 14.2 4.0 48.2 0.1 15.7 3.8 42.2 0.1 15.4 3.4 41.1 0.5 17.9 3.0 35.8 1.5 8.8 4.0 30.8 0.1 12.8 3.8 30.9 0.1 11.7 3.8 28.8 0.5 14.9 3.5 23.7 1.5 0.7 5.7 3.6 – 1.6 6.4 3.8 0.3 1.5 4.1 2.8 0.7 2.1 3.9 3.2 1.8 (22.1) 8.4 (4.5) 0.6 (10.6) 13.0 (3.7) 1.3 0.2 5.8 (6.3) 2.8 0.5 5.4 0.3 3.0 (22.1) 10.1 (18.3) 0.6 (10.6) 13.7 (15.9) 1.3 (4.6) 8.8 (31.1) 4.0 (3.0) 8.5 (16.7) 3.5 Average basis represents the average quarterly value of variables in the 20 quarter period with GDP and HPI based on yearly average and quarterly CAGRs respectively. Macroeconomic variables used in the calculation of ECL (5-year averages)a (audited) As at 31 December 2020 UK GDPe UK unemploymentf UK HPIg UK bank ratef US GDPe US unemploymentf US HPIg US federal funds ratef As at 31 December 2019 UK GDPe UK unemploymentf UK HPIg UK bank ratef US GDPe US unemploymentf US HPIg US federal funds ratef Upside 2 % Upside 1 % Baseline % Downside 1 % Downside 2 % 2.5 5.0 8.2 0.3 2.9 5.3 7.3 0.5 2.9 3.6 7.1 0.6 3.4 3.2 6.3 1.7 1.6 5.3 5.5 0.2 2.4 5.7 5.5 0.5 2.2 3.9 5.2 0.6 2.9 3.7 4.3 1.7 0.7 5.7 3.6 – 1.6 6.4 3.8 0.3 1.5 4.1 2.8 0.7 2.1 3.9 3.2 1.8 0.1 6.5 (0.2) – 0.8 8.3 0.8 0.3 0.8 5.1 (1.1) 2.1 1.3 4.7 1.6 2.8 (0.9) 7.2 (3.6) (0.1) 0.1 10.4 (3.0) 0.3 (0.6) 7.0 (6.9) 3.1 (0.1) 6.6 (3.4) 3.2 Notes a UK GDP = Real GDP growth seasonally adjusted; UK unemployment = UK unemployment rate 16-year+; UK HPI = Halifax All Houses, All Buyers Index; US GDP = Real GDP growth seasonally adjusted; US unemployment = US civilian unemployment rate 16-year+; US HPI = FHFA house price index. b Maximum growth relative to Q419 (2019: Q418), based on 20 quarter period in Upside scenarios; 5-year yearly average CAGR in Baseline; minimum growth relative to Q419 (2019: Q418), based on 20 quarter period in Downside scenarios. c Lowest quarter in Upside scenarios; 5-year average in Baseline; highest quarter in Downside scenarios. Period based on 20 quarters from Q120 (2019: Q119). d Maximum growth relative to Q419 (2019: Q418), based on 20 quarter period in Upside scenarios; 5-year quarter end CAGR in Baseline; minimum growth relative to Q419 (2019: Q418), based on 20 quarter period in Downside scenarios. e 5-year yearly average CAGR, starting 2019 (2019: 2018). f 5-year average, Period based on 20 quarters from Q120 (2019: Q119). g 5-year quarter end CAGR, starting Q419 (2019: Q418). 2019 data presented on a revised, simplified basis for ease of comparison. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 185 Risk review: Credit risk Risk performance continued The graphs below plot the historical data for GDP growth rate and unemployment rate in the UK and US as well as the forecasted data under each of the five scenarios. UK GDP % 30 20 10 0 -10 -20 -30 UK unemployment % 12 10 8 6 4 2 0 2017 2019 2021 2023 2025 2027 2029 2017 2019 2021 2023 2025 2027 2029 Downside 2 Downside 1 Baseline Upside 1 Upside 2 Downside 2 Downside 1 Baseline Upside 1 Upside 2 US GDP % 15 10 5 0 -5 -10 -15 US unemployment % 16 14 12 10 8 6 4 2 0 2017 2019 2021 2023 2025 2027 2029 2017 2019 2021 2023 2025 2027 2029 Downside 2 Downside 1 Baseline Upside 1 Upside 2 Downside 2 Downside 1 Baseline Upside 1 Upside 2 GDP growth based on year on year growth each quarter (Q/(Q-4)). ECL under 100% weighted scenarios for modelled portfolios (audited) The table below shows the ECL assuming scenarios have been 100% weighted. Model exposures are allocated to a stage based on the individual scenario rather than through a probability-weighted approach as required for Barclays reported impairment allowances. As a result, it is not possible to back solve to the final reported weighted ECL from the individual scenarios as a balance may be assigned to a different stage dependent on the scenario. Model exposure uses exposure at default (EAD) values and is not directly comparable to gross exposure used in prior disclosures. For Credit cards, unsecured loans and other retail lending, an average EAD measure is used (12-month or lifetime, depending on stage allocation in each scenario). Therefore, the model exposure movement into Stage 2 is higher than the corresponding Stage 1 reduction. All ECL using a model is included, with the exception of Treasury assets (£13m of ECL), providing additional coverage as compared to the 2019 year-end disclosure. Non-modelled exposures and management adjustments are excluded. Management adjustments can be found in the Management adjustments to models for impairment section. Model exposures 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 2020 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 UK markets rises towards 10% and US markets rises towards 14% and there are substantial falls in asset prices including housing. Under the Downside 2 scenario, model exposure moves between stages as the economic environment weakens. This can be seen in the movement of £27bn of model 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. 186 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements As at 31 December 2020 Stage 1 Model Exposure (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 1 Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 1 Coverage (%) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 2 Model Exposure (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 2 Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 2 Coverage (%) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 3 Model Exposure (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Stage 3 Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Stage 3 Coverage (%) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Total Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Total ECL Weighted Upside 2 Upside 1 Baseline Downside 1 Downside 2 Scenarios 131,422 51,952 149,099 134,100 53,271 155,812 133,246 52,932 154,578 132,414 51,995 152,141 130,547 50,168 144,646 128,369 48,717 131,415 6 392 262 – 0.8 0.2 4 316 242 – 0.6 0.2 5 340 258 – 0.6 0.2 6 372 249 – 0.7 0.2 14 415 278 – 0.8 0.2 42 415 290 – 0.9 0.2 19,180 13,399 32,677 16,502 10,572 25,963 17,356 11,579 27,198 18,188 13,176 29,635 20,055 16,477 37,130 22,233 19,322 50,361 37 2,207 1,410 0.2 16.5 4.3 1,778 2,585 2,211 307 2,003 146 17.3 77.5 6.6 350 4,602 1,818 6,770 31 1,618 952 0.2 15.3 3.7 1,778 2,585 2,211 282 1,947 128 15.9 75.3 5.8 317 3,881 1,322 5,520 32 1,837 1,047 0.2 15.9 3.8 1,778 2,585 2,211 286 1,972 134 16.1 76.3 6.1 323 4,149 1,439 5,911 33 2,138 1,223 0.2 16.2 4.1 1,778 2,585 2,211 290 2,001 141 16.3 77.4 6.4 329 4,511 1,613 6,453 42 2,865 1,771 0.2 17.4 4.8 1,778 2,585 2,211 318 2,055 157 17.9 79.5 7.1 374 5,335 2,206 7,915 63 3,564 2,911 0.3 18.4 5.8 1,778 2,585 2,211 386 2,078 184 21.7 80.4 8.3 491 6,057 3,385 9,933 Note a Material wholesale loan defaults are individually assessed across different recovery strategies. As a result, ECL of £902m is reported as individually assessed impairments in the table below. Reconciliation to total ECL Total model ECL ECL from individually assessed impairments ECL from non-modelled and other management adjustmentsa Total ECL Note a Includes £1.4bn of post-model adjustments and £0.3bn ECL from non-modelled exposures. £m 6,770 902 1,727 9,399 The dispersion of results around the Baseline is an indication of uncertainty around the future projections. The disclosure highlights the results of the alternative scenarios enabling the reader to understand the extent of the impact on exposure and ECL from the upside/downside scenarios. Consequently, the use of five scenarios with associated weightings results in a total weighted ECL uplift from the Baseline ECL of 5%, largely driven by credit card losses which have more linear loss profiles than UK home loans and wholesale loan positions. Home loans: Total weighted ECL of £350m represents a 6% increase over the Baseline ECL (£329m), and coverage ratios remain steady across the Upside scenarios, Baseline and Downside 1 scenario. However, total ECL increases in the Downside 2 scenario to £491m, driven by a significant fall in UK HPI (18.3%) reflecting the non-linearity of the UK portfolio. Credit cards, unsecured loans and other retail lending: Total weighted ECL of £4,602m represents a 2% increase over the Baseline ECL (£4,511m) reflecting the range of economic scenarios used, mainly impacted by Unemployment and other key retail variables. Total ECL increases to £6,057m under Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 187 Risk review: Credit risk Risk performance continued the Downside 2 scenario, mainly driven by Stage 2, where coverage rates increase to 18.4% from a weighted scenario approach of 16.5% and circa £6bn increase in model exposure that meets the Significant Increase in Credit Risk criteria and transitions from Stage 1 to Stage 2. Wholesale loans: Total weighted ECL of £1,818m represents a 13% increase over the Baseline ECL (£1,613m) reflecting the range of economic scenarios used, with exposures in the Investment Bank particularly sensitive to the Downside 2 scenario. As at 31 December 2019 Stage 1 Model Exposure (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 1 Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 1 Coverage (%) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 2 Model Exposure (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 2 Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 2 Coverage (%) Home loans Credit cards, unsecured loans and other retail lending Wholesale loans Stage 3 Model Exposure (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Stage 3 Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Stage 3 Coverage (%) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Total Model ECL (£m) Home loans Credit cards, unsecured loans and other retail lending Wholesale loansa Total ECL Weighted Upside 2 Upside 1 Baseline Downside 1 Downside 2 Scenarios 137,929 68,619 160,544 139,574 69,190 162,717 138,992 69,012 162,058 138,249 68,388 161,111 136,454 68,309 157,720 132,505 67,015 143,323 6 505 209 – 0.7 0.1 4 490 162 – 0.7 0.1 5 495 174 – 0.7 0.1 5 495 188 – 0.7 0.1 7 511 271 – 0.7 0.2 19 528 297 – 0.8 0.2 16,889 13,406 15,947 15,245 11,449 13,773 15,826 12,108 14,433 16,570 13,075 15,380 18,364 15,663 18,770 22,314 19,615 33,168 41 1,844 414 0.2 13.8 2.6 1,670 3,008 1,489 268 2,198 118 16.0 73.1 7.9 315 4,547 741 5,603 33 1,412 285 0.2 12.3 2.1 1,670 3,008 1,489 262 2,154 111 15.7 71.6 7.4 299 4,056 558 4,913 34 1,562 323 0.2 12.9 2.2 1,670 3,008 1,489 264 2,174 114 15.8 72.3 7.6 303 4,231 611 5,145 36 1,771 374 0.2 13.5 2.4 1,670 3,008 1,489 266 2,195 117 15.9 73.0 7.9 307 4,461 679 5,447 47 2,384 579 0.3 15.2 3.1 1,670 3,008 1,489 272 2,235 127 16.3 74.3 8.5 326 5,130 977 6,433 170 4,285 1,427 0.8 21.8 4.3 1,670 3,008 1,489 316 2,292 128 18.9 76.2 8.6 505 7,105 1,852 9,462 Note a Material wholesale loan defaults are individually assessed across different recovery strategies. As a result, ECL of £419m is reported as individually assessed impairments in the table below. Reconciliation to total ECLa Total model ECL ECL from individually assessed impairments ECL from non-modelled and other management adjustments Total ECL £m 5,603 419 608 6,630 Note a The table has been re-presented to separately show the impact of individually assessed impairments of £419m. This was included in the Barclays PLC Annual Report 2019 with non-modelled and other adjustments of £268m. Non-modelled and other adjustments are now disclosed within the other management adjustments category of £608m. 188 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Staging sensitivity (audited) An increase of 1% (£3,510m) of total gross exposure into Stage 2 (from Stage 1), would result in an increase in ECL impairment allowance of £232m 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). 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. The 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. Further detail on the Group policies with regard to managing concentration risk is presented in the Barclays PLC Pillar 3 Report 2020 (unaudited). Geographic concentrations As at 31 December 2020, the geographic concentration of the Group’s assets remained broadly consistent with 2019. Exposure is concentrated in the UK 39% (2019: 40%), in the Americas 33% (2019: 34%) and Europe 21% (2019: 20%). Americas £m Europe £m Asia £m Africa and Middle East £m Total £m Credit risk concentrations by geography (audited) As at 31 December 2020 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 United Kingdom £m 66,459 33,893 262,231 10 9,829 34,229 93,430 10,672 608 511,361 36,063 27,287 41,094 152 31,000 88,327 90,801 27,504 185 342,413 69,963 30,121 24,949 373 17,107 25,709 101,102 28,607 57 297,988 Off-balance sheet: Contingent liabilities Loan commitments Total off-balance sheet Total As at 31 December 2019 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 Barclays PLC Annual Report 2020 5,876 112,561 118,437 629,798 10,122 175,926 186,048 528,461 3,809 38,836 42,645 340,633 51,477 27,431 257,459 1,005 11,550 29,001 69,844 9,444 1,170 458,595 28,273 23,595 46,569 15 27,621 70,849 63,344 23,052 126 283,267 54,632 26,008 25,599 1,056 13,397 11,286 83,165 24,443 79 239,628 7,539 105,350 112,889 571,484 10,838 188,109 198,947 482,214 3,862 36,033 39,895 279,523 17,987 9,558 10,728 8,285 5,948 14,742 14,532 11,006 – 92,786 1,222 4,169 5,391 98,177 15,130 5,385 6,275 470 4,786 12,534 11,189 7,665 – 63,434 1,562 3,166 4,728 68,162 655 508 3,630 211 946 7,524 2,581 138 – 191,127 101,367 342,632 9,031 64,830 170,531 302,446 77,927 850 16,193 1,260,741 580 1,557 2,137 21,609 333,049 354,658 18,330 1,615,399 746 837 3,213 833 763 1,921 1,694 123 – 150,258 83,256 339,115 3,379 58,117 125,591 229,236 64,727 1,375 10,130 1,055,054 726 1,797 2,523 24,527 334,455 358,982 12,653 1,414,036 Barclays PLC home.barclays/annualreport 189 Risk review: Credit risk Risk performance continued Industry concentrations The concentration of the Group’s assets by industry remained broadly consistent year on year. As at 31 December 2020, total assets concentrated in banks and other financial institutions was 40% (2019: 36%), predominantly within derivative financial instruments. The proportion of the overall balance concentrated in governments and central banks was 21% (2019: 19%), cards, unsecured loans and other personal lending was 10% (2019: 10%) and in home loans remained stable at 11% (2019: 12%). Further details on material and emerging risks can be found on pages 147 to 158. 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 Energy and water £m Banks £m Whole- sale and retail distri- bution and leisure £m Cards, unsecured loans and other personal lending £m Business and other services £m Home loans £m Other £m Total £m As at 31 December 2020 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 As at 31 December 2019 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 56 84 – – 190,981 – 17,986 67,305 375 35 13,946 871 – 30 6 575 – – – – – 191,127 244 101,367 8,133 22,062 8,142 26,125 28,445 4,722 12,569 19,538 159,647 41,312 11,937 342,632 706 7,964 2,743 11,464 – 4,104 – 361 516 35,902 – 3,052 – 1,883 – 2,625 21,824 131,943 155,767 116,526 608 4,126 5,668 5,530 2,725 11,649 13 3,288 64 1,235 3,712 2,361 – – 971 – – – – – – 2,541 198 4,769 18,829 439 141 8 226,483 363,415 17,362 35,506 338,770 11,956 15,799 29,648 160,618 41,346 19,838 425 51,955 1 5,843 224 733 98 – 34 – 10 – 18 1 6 – – 12 3,187 5,501 1,150 1,260 1,813 53,936 39,638 14,002 2,963 59,437 42,825 15,262 1,678 2,167 2,283 1,398 25,780 17,165 24,554 12,385 119,807 22,571 3,076 29,003 18,170 26,837 12,385 119,962 24,738 229,446 422,852 60,187 50,768 341,846 40,959 33,969 56,485 173,003 161,308 44,576 1,005 3,223 155 – 9,031 64,830 170,531 302,446 77,927 850 1,260,741 21,609 333,049 354,658 1,615,399 7 73 – – 150,178 – – – 16,599 55,262 516 64 9,251 536 51 642 – – – – – 150,258 335 83,256 8,788 20,473 8,323 24,403 23,847 5,346 10,031 17,125 154,479 55,232 11,068 339,115 1,172 2,872 2,134 9,049 – 2,787 – 73 1,053 33,092 – 2,996 10,747 97,849 125,323 83,285 634 2,049 6,909 2,273 5,353 7,811 45 3,077 – 842 – 562 – 3,158 3,569 1,520 – – 358 – – – – 2 – 2,268 127 3,334 18,596 897 282 12 185,001 272,817 14,310 34,993 270,370 12,007 11,488 26,553 154,837 55,252 17,426 286 40,763 2 4,370 322 430 109 – 18 – 1 – 7 – 2 – – 5 8,043 3,549 1,250 703 1,909 47,815 42,148 14,358 3,159 55,858 45,697 15,061 1,981 1,671 2,831 1,704 29,877 14,711 22,932 10,060 124,841 24,100 3,685 33,195 15,783 25,763 10,060 124,950 25,771 188,160 328,675 60,007 50,054 274,055 45,202 27,271 52,316 164,897 180,202 43,197 1,072 3,318 109 – 3,379 58,117 125,591 229,236 64,727 1,375 1,055,054 24,527 334,455 358,982 1,414,036 190 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 to ensure comparability with other ECL disclosures in the Expected Credit Losses section. 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 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 <10% 10 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. For loans that are not past due, these 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 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. Loans that are past due are monitored closely, with impairment allowances raised as appropriate and in line with the Group’s impairment policies. 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 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 Group will use its own internal ratings for the securities. Balance sheet credit quality The following tables present the credit quality of the Group’s assets exposed to credit risk. Overview As at 31 December 2020, the ratio of the Group’s on-balance sheet assets classified as strong (0.0 to <0.60%) remained stable at 87% (2019: 86%) 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 in the Analysis of debt securities section and Analysis of derivatives section. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 191 Risk review: Credit risk Risk performance continued Balance sheet credit quality (audited) As at 31 December 2020 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 Wholesale 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 As at 31 December 2019 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 Wholesale 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 192 Barclays PLC home.barclays/annualreport 0.0 to <0.60% £m PD range 0.60 to <11.35% £m 11.35 to 100% £m Total £m 0.0 to <0.60% % PD range 0.60 to <11.35% % 11.35 to 100% % 191,127 90,633 150,748 15,870 105,968 272,586 – 10,725 6,310 22,427 31,538 60,275 – 9 191,127 101,367 2,589 2,516 4,666 9,771 159,647 40,813 142,172 342,632 100 89 94 39 75 79 9,019 12 – 9,031 100 51,395 704 52,099 4,871 5,107 9,978 216 2,537 2,753 56,482 8,348 64,830 16,467 1,126 95,376 330 113,299 282,617 14,369 521 41,566 13 56,469 19,352 43 46 674 – 763 477 30,879 1,693 137,616 343 170,531 302,446 77,919 778 1,090,077 8 68 156,887 – 4 77,927 850 13,777 1,260,741 150,258 73,122 146,269 20,750 97,854 264,873 – 10,134 5,775 31,425 28,150 65,350 – – 150,258 83,256 2,435 3,121 3,336 8,892 154,479 55,296 129,340 339,115 3,290 89 – 3,379 3,479 3,219 6,698 7,993 413 34,232 6 42,644 13,012 143 1,295 1,438 52,739 5,378 58,117 232 30 180 – 442 121 22,692 5,249 96,887 763 125,591 229,236 49,117 864 49,981 14,467 4,806 62,475 757 82,505 216,103 64,727 1,242 906,101 – 133 138,060 – – 64,727 1,375 10,893 1,055,054 100 90 86 91 9 81 53 66 70 96 67 94 100 92 87 100 88 94 38 75 78 97 93 16 86 64 91 65 99 66 94 – 11 4 55 22 18 – 9 61 15 47 31 30 4 33 6 – 8 12 – 12 4 56 22 19 3 7 60 12 35 8 35 1 34 6 – 10 13 – – 2 6 3 3 – – 30 4 – 3 – – – – – – 1 – – 2 6 3 3 – – 24 2 1 1 – – – – – – 1 Total % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Credit exposures by internal PD grade The below tables represents credit risk profile by PD grade for loans and advances at amortised cost, contingent liabilities and loan commitments. 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), including relative movement in probability of default since initial recognition. There is therefore no direct relationship between credit quality and IFRS 9 stage classification. Credit risk profile by internal PD grade for loans and advances at amortised cost (audited) PD range % Credit quality description Stage 1 £m Gross carrying amount Stage 3 £m Stage 2 £m Total £m Stage 1 £m Allowance for ECL Stage 2 £m Stage 3 £m Total £m Net exposure £m Coverage ratio % Grading As at 31 December 2020 1-3 4-5 6-8 9-11 12-14 15-19 19 20-21 22 Total 0.0 to <0.05% Strong 0.05 to <0.15% Strong 0.15 to <0.30% Strong 0.30 to <0.60% Strong 0.60 to <2.15% Satisfactory 2.15 to <10% Satisfactory 10 to <11.35% Satisfactory 11.35 to <100% Higher Risk 100% Credit Impaired As at 31 December 2019 1-3 4-5 6-8 9-11 12-14 15-19 19 20-21 22 Total 0.0 to <0.05% Strong 0.05 to <0.15% Strong 0.15 to <0.30% Strong 0.30 to <0.60% Strong 0.60 to <2.15% Satisfactory 2.15 to <10% Satisfactory 10 to <11.35% Satisfactory 11.35 to <100% Higher Risk 100% Credit Impaired 82,312 101,309 30,697 34,601 29,498 8,125 3,505 917 – 290,964 91,993 92,668 29,187 34,515 35,690 9,041 5,235 937 – 299,266 3,095 9,715 6,263 5,093 8,399 9,136 4,437 4,868 – 51,006 1,615 7,704 4,444 2,932 4,341 9,190 3,629 4,379 – 38,234 – 85,407 – 111,024 36,960 – 39,694 – 37,897 – 17,261 – 7,942 – 5,785 – 8,997 8,997 8,997 350,967 93,608 – – 100,372 33,631 – 37,447 – 40,031 – 18,231 – 8,864 – 5,316 – 7,923 7,923 7,923 345,423 6 34 47 120 379 302 73 72 – 1,033 13 12 23 91 210 232 62 64 – 707 35 25 64 168 593 1,283 195 1,201 – 3,564 13 12 5 16 187 981 104 1,055 – 2,373 – – – – – – – – 3,738 3,738 – – – – – – – – 3,228 3,228 41 85,366 59 110,965 36,849 111 39,406 288 36,925 972 15,676 1,585 7,674 268 4,512 1,273 3,738 5,259 8,335 342,632 93,582 26 24 100,348 33,603 28 37,340 107 39,634 397 17,018 1,213 8,698 166 4,197 1,119 3,228 4,695 6,308 339,115 – 0.1 0.3 0.7 2.6 9.2 3.4 22.0 41.5 2.4 – – 0.1 0.3 1.0 6.7 1.9 21.0 40.7 1.8 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 193 Risk review: Credit risk Risk performance continued Credit risk profile by internal PD grade for contingent liabilities (audited)a PD range % Credit quality description Stage 1 £m Gross carrying amount Stage 3 £m Stage 2 £m Total £m Stage 1 £m Allowance for ECL Stage 2 £m Stage 3 £m 6,178 2,765 1,468 3,524 2,712 305 264 40 – 17,256 6,947 4,199 2,953 4,551 2,529 663 421 117 – 22,380 189 428 165 552 546 398 423 769 – 3,470 118 40 103 136 654 244 172 282 – 1,749 – – – – – – – – 654 654 – – – – – – – – 355 355 6,367 3,193 1,633 4,076 3,258 703 687 809 654 21,380 7,065 4,239 3,056 4,687 3,183 907 593 399 355 24,484 1 3 3 5 8 7 17 – – 44 3 1 1 2 7 4 9 – – 27 – 2 3 33 25 21 83 61 – 228 – – – 2 8 8 9 30 – 57 – – – – – – – – 10 10 – – – – – – – – 5 5 Total £m 1 5 6 38 33 28 100 61 10 282 3 1 1 4 15 12 18 30 5 89 Net exposure £m Coverage ratio % 6,366 3,188 1,627 4,038 3,225 675 587 748 644 21,098 7,062 4,238 3,055 4,683 3,168 895 575 369 350 24,395 – 0.2 0.4 0.9 1.0 4.0 14.6 7.5 1.5 1.3 – – – 0.1 0.5 1.3 3.0 7.5 1.4 0.4 Credit risk profile by internal PD grade for loan commitments (audited)a PD range % Credit quality description Stage 1 £m Gross carrying amount Stage 3 £m Stage 2 £m Total £m Stage 1 £m Allowance for ECL Stage 2 £m Stage 3 £m Total £m Net exposure £m Coverage ratio % Grading As at 31 December 2020 1-3 4-5 6-8 9-11 12-14 15-19 19 20-21 22 Total 0.0 to <0.05% Strong 0.05 to <0.15% Strong 0.15 to <0.30% Strong 0.30 to <0.60% Strong 0.60 to <2.15% Satisfactory 2.15 to <10% Satisfactory 10 to <11.35% Satisfactory 11.35 to <100% Higher Risk 100% Credit Impaired As at 31 December 2019 1-3 4-5 6-8 9-11 12-14 15-19 19 20-21 22 Total 0.0 to <0.05% Strong 0.05 to <0.15% Strong 0.15 to <0.30% Strong 0.30 to <0.60% Strong 0.60 to <2.15% Satisfactory 2.15 to <10% Satisfactory 10 to <11.35% Satisfactory 11.35 to <100% Higher Risk 100% Credit Impaired Grading As at 31 December 2020 1-3 4-5 6-8 9-11 12-14 15-19 19 20-21 22 Total 0.0 to <0.05% Strong 0.05 to <0.15% Strong 0.15 to <0.30% Strong 0.30 to <0.60% Strong 0.60 to <2.15% Satisfactory 2.15 to <10% Satisfactory 10 to <11.35% Satisfactory 11.35 to <100% Higher Risk 100% Credit Impaired As at 31 December 2019 1-3 4-5 6-8 9-11 12-14 15-19 19 20-21 22 Total 0.0 to <0.05% Strong 0.05 to <0.15% Strong 0.15 to <0.30% Strong 0.30 to <0.60% Strong 0.60 to <2.15% Satisfactory 2.15 to <10% Satisfactory 10 to <11.35% Satisfactory 11.35 to <100% Higher Risk 100% Credit Impaired 60,525 74,860 51,255 43,650 30,994 5,702 4,886 811 – 272,683 85,908 70,112 53,340 44,097 36,112 4,913 3,662 616 – 298,760 5,525 6,322 6,719 6,950 9,908 4,971 5,129 3,897 – 49,421 1,025 1,889 1,019 1,592 3,955 3,857 2,106 1,993 – 17,436 66,050 – 81,182 – 57,974 – 50,600 – 40,902 – 10,673 – 10,015 – 4,708 – 1,676 1,676 1,676 323,780 86,933 – 72,001 – 54,359 – 45,689 – 40,067 – 8,770 – 5,768 – 2,609 – 580 580 580 316,776 4 12 17 17 119 27 11 5 – 212 2 5 8 13 30 8 4 – – 70 2 16 47 72 131 113 25 124 – 530 1 1 1 1 26 55 7 21 – 113 – – – – – – – – 40 40 – – – – – – – – 50 50 6 28 64 89 250 140 36 129 40 66,044 81,154 57,910 50,511 40,652 10,533 9,979 4,579 1,636 782 322,998 3 6 9 14 56 63 11 21 50 86,930 71,995 54,350 45,675 40,011 8,707 5,757 2,588 530 233 316,543 – – 0.1 0.2 0.6 1.3 0.4 2.7 2.4 0.2 – – – – 0.1 0.7 0.2 0.8 8.6 0.1 Note a Excludes loan commitments and financial guarantees of £9.5bn (2019: £17.7bn) carried at fair value. 194 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 93% (2019: 92%) of the Group’s total home loan balances. Home loans principal portfolios As at 31 December Gross loans and advances (£m) 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 (%)a Note a 2019 numbers have been restated to factor in Wealth accounts to align with 2020 figures. Barclays UK 2020 148,343 0.2 0.6 0.6 3.2 2019 143,259 0.2 0.6 0.5 5.2 Within the UK home loans portfolio: ■■ gross loans and advances increased by £5.1bn (3.6%) following increases across both Residential (3.1%) and Buy to Let (BTL) (6.6%) books ■■ owner-occupied interest-only home loans comprised 22.1% (2019: 23.4%) of total balances ■■ the average balance weighted LTV on owner occupied loans dropped to 49.9% (2019: 50.2%). The primary driver of the decrease in the LTV of the portfolio was strong UK house price growth through 2020 particularly following the buoyant purchase market in Q3 and Q4. In addition, new high LTV lending was greatly reduced ■■ BTL home loans comprised 14.0% (2019: 13.6%) of total balances. In BTL, the average balance weighted LTV dropped to 55.3% (2019: 56.5%) primarily driven by positive house price growth in 2020. Home loans principal portfolios – distribution of balances by LTVa Stage 1 % Distribution of balances Stage 3 % Stage 2 % Distribution of impairment allowance Coverage ratio Total % Stage 1 % Stage 2 % Stage 3 % Total % Stage 1 % Stage 2 % Stage 3 % Total % Barclays UK As at 31 December 2020 <=75% >75% and <=90% >90% and <=100% >100% As at 31 December 2019 <=75% >75% and <=90% >90% and <=100% >100% 75.7 10.8 0.4 0.1 76.0 10.4 1.3 0.1 11.6 0.8 – – 10.7 0.7 0.1 – 0.6 – – – 0.7 – – – 87.9 11.6 0.4 0.1 87.4 11.1 1.4 0.1 17.9 9.7 0.8 0.7 4.2 2.7 0.8 0.2 15.0 14.8 1.5 3.4 15.4 11.5 2.5 4.1 19.0 7.6 2.2 7.4 28.5 12.6 4.9 12.6 51.9 32.1 4.5 11.5 48.1 26.8 8.2 16.9 – 0.1 0.1 0.7 – – – 0.2 0.1 1.2 2.6 10.3 0.1 0.9 1.8 8.7 1.8 16.0 35.7 69.1 2.2 19.7 54.4 107.4 Note a Portfolio marked 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 2020. Home loans principal portfolios – average LTV As at 31 December Overall portfolio LTV (%): Balance weighted Valuation weighteda For >100% LTVs: Balances (£m) Marked to market collateral (£m) Average LTV: balance weighted (%) Average LTV: valuation weighted (%) Balances in recovery book (%) Barclays UK 2020 50.7 37.6 129 112 138.2 120.6 10.8 – 0.2 0.7 8.0 – 0.1 0.3 9.0 2019 51.1 37.9 160 140 133.5 119.7 10.0 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 195 Risk review: Credit risk Risk performance continued 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 (%)a Note a 2019 numbers have been restated to factor in Wealth accounts to align with 2020 figures. Barclays UK 2020 22,776 2.6 67.5 59.6 2019 25,530 4.2 67.9 59.8 New bookings reduced by 10.8% with a decrease in new flows across both portfolios: 6.1% decrease in owner occupied and 34.8% decrease in the BTL portfolio. This decrease was driven by supply and demand effects of the COVID-19 pandemic. Demand was impacted by a significant shrinking of the market in Q2 although this was partially offset by a resurgent Q3 and Q4. High LTV supply was reduced by credit management actions. During 2020, a total of 128,000 payment holidays were provided to customers. At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £2.2bn, representing 1.5% of the portfolio. Head Office: Italian home loans and advances at amortised cost reduced to £5.7bn (2019: £6.0bn) 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 62.1% (2019: 64.4%). 90-day arrears remained broadly stable at 1.7% (2019: 1.8%) and gross charge-off rate increased to 1.0% (2019: 0.8%). At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £181.7m, representing 3.2% of the portfolio. Credit cards, unsecured loans and other retail lending The principal portfolios listed below accounted for 84% (2019: 87%) of the 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 2020 Barclays UK UK cards UK personal loans Barclays Partner Financea Barclays International US cards Germany consumer lending As at 31 December 2019 Barclays UK UK cards UK personal loans Barclays International US cards Barclays Partner Financea Germany consumer lendingb Gross loans and advances £m 11,911 4,591 2,469 16,845 3,458 16,457 6,139 22,041 4,134 3,683 30-day arrears, excluding recovery book % 90-day arrears, excluding recovery book % Annualised gross write-off rate % Annualised net write-off rate % 1.7 2.3 0.5 2.5 1.9 1.7 2.1 2.7 0.9 1.8 0.8 1.2 0.3 1.4 0.8 0.8 1.0 1.4 0.3 0.7 2.9 3.4 1.1 5.6 1.2 1.6 3.2 4.5 1.7 1.1 2.9 3.1 1.1 5.6 1.1 1.6 2.9 4.4 1.7 1.0 Notes a On 1 April 2020, the Barclays Partner Finance business moved from Barclays International to Barclays UK. The 2019 comparative figures have not been restated. b 2019 Germany consumer lending numbers have been restated to include the Fundy unsecured portfolio and other adjustments to write-off rates. 196 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements UK cards: 30 and 90-day arrears rates remained stable at 1.7% and 0.8% respectively, despite balances reducing by c.£4.5bn. Delinquency rates initially increased as some customers missed payments prior to payment holidays being initiated. Subsequently payment holidays and government support schemes were introduced which, coupled with significantly lower spend and balance growth activities, resulted in suppressed flows into delinquency cycles. Upon exit from payment holidays the majority of customers were able to resume making payments. During 2020, a total of 178,000 payment holidays were provided to customers. At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £93m, representing 0.8% of the portfolio. UK personal loans: 30 and 90-day arrears rates both increased by 0.2% to 2.3% and 1.2% respectively driven by a 25% reduction in overall balances, coupled with a higher flow in to delinquency of customers previously granted a payment holiday. During 2020, a total of 84,000 payment holidays were provided to customers. At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £85.4m, representing 1.9% of the portfolio. Barclays Partner Finance: 30-day arrears rate reduced to 0.5% (2019: 0.9%) due to the sale of the motor financing business and the impact of payment holidays however the vast majority of these were exited and customers resumed making payments. A total of 17,000 payment holidays were provided to customers and 18,000 payment holidays were provided to motor financing business customers in the year. At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £6.6m, representing 0.3% of the portfolio. US cards: 30-day arrears rate decreased to 2.5% (2019: 2.7%) due to government support schemes and payment holidays resulting in fewer accounts entering into delinquency. 90-day arrears rate remained stable at 1.4%. Write-off rates were in line with seasonal trends. A total of 251,000 payment holidays were provided to customers in the year. At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £54.7m, representing 0.3% of the portfolio. Germany consumer lending: Increases in 30- and 90-days arrear rates were primarily driven by the drop in the overall balances. A total of 9,000 payment holidays were provided to customers in the year. At 31 December 2020, the book value of the portfolio where payment holidays remain in place was £0.24m, representing 0.01% of the portfolio. Exposure to UK commercial real estate (CRE) The UK CRE portfolio includes property investment, development, trading and house builders but excludes social housing and contractors. UK CRE summary As at 31 December UK CRE loans and advances (£m) Stage 3 balances (£m) Stage 3 balances as % of UK CRE balances (%) Impairment allowances (£m) Stage 3 coverage ratio (%) Total collateral (£m)a Year ended 31 December Impairment charge (£m) Note a Based on the most recent valuation assessment. Maturity analysis of exposure to UK CRE As at 31 December 2020 2019 2020 2019 9,969 384 3.9 99 19.7 26,240 9,051 254 2.8 52 7.5 26,876 47 6 Contractual maturity of UK CRE loans and advances at amortised cost Stage 3 balances £m 384 254 Not more than six months £m 171 146 Over six months but not more than one year £m 132 111 Over one year but not more than two years £m 398 377 Over two years but not more than five years £m 3,227 3,088 Over five years but not more than ten years £m 4,357 3,687 Over ten years £m 1,299 1,388 Total loans and advances £m 9,969 9,051 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 197 Risk review: Credit risk Risk performance continued 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 programmesa Gross balances Impairment allowances As at 31 December 2020 Barclays UK Barclays International Head Office Total retail Barclays UK Barclays International Head Office Total wholesale Group total As at 31 December 2019 Barclays UK Barclays International Head Office Total retail Barclays UK Barclays International Head Office Total wholesale Group total Stage 1 £m 59 1 – 60 – – – – 60 – – – – – – – – – Stage 2 £m 144 2 – 146 48 1,373 – 1,421 1,567 147 2 – 149 47 918 – 965 1,114 Stage 3 £m 374 350 126 850 534 1,460 – 1,994 2,844 298 225 130 653 449 1,016 – 1,465 2,118 Total £m Stage 1 £m Stage 2 £m Stage 3 £m 577 353 126 1,056 582 2,833 – 3,415 4,471 445 227 130 802 496 1,934 – 2,430 3.232 3 – – 3 – – – – 3 – – – – – – – – – 77 1 – 78 3 86 – 89 167 35 1 – 36 4 37 – 41 77 106 198 18 322 54 564 – 618 940 92 158 8 258 31 226 – 257 515 Total £m 186 199 18 403 57 650 – 707 1,110 127 159 8 294 35 263 – 298 592 Note a For 2020 year end, there has been a standardisation of the definition of forbearance across the Group. 2019 balances have not been restated. Balances on forbearance programmes increased 38% as a limited range of clients across Corporate and Investment Bank, some impacted by the COVID-19 pandemic, proceeded through restructuring. Retail balances on forbearance increased 32%, reflecting an increase in Barclays UK and Barclays International. Wholesale balances subject to forbearance rose to £3.4bn (2019: £2.4bn) with higher exposure in Corporate Bank and Investment Bank of £624m and £312m respectively. Impairment allowances rose to £707m (2019: £298m) following a small number of material single name charges in the year. Barclays International accounted for 83% of wholesale forbearance with corporate cases representing 82% of all forborne balances. 198 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Retail forbearance programmes Forbearance on the Group’s principal retail portfolios is presented below. The principal portfolios account for 100% (2019: 100%) of total retail forbearance balances. Analysis of key portfolios in forbearance programmesa Gross balances on forbearance programmes As at 31 December 2020 Barclays UK UK home loans UK cards UK personal loans Barclays partner financeb Barclays International US cards Germany consumer lending Head Office Italian home loans As at 31 December 2019 Barclays UK UK home loans UK cards UK personal loans Barclays International US cards Barclays partner financeb Germany consumer lending Head Office Italian home loans % of gross retail loans and advances % 0.1 3.2 1.2 0.1 1.7 1.9 2.2 0.1 1.5 0.9 0.8 0.1 1.0 2.2 Total £m 135 384 54 4 286 67 126 137 254 54 183 3 37 130 Marked to market LTV of forbearance balances: balance weighted % Marked to market LTV of forbearance balances: valuation weighted % Impairment allowances marked against balances on forbearance programmes £m Total balances on forbearance programmes coverage ratio % 40.2 n/a n/a n/a n/a n/a 59.2 42.7 n/a n/a n/a n/a n/a 29.0 n/a n/a n/a n/a n/a 43.2 31.0 n/a n/a n/a n/a n/a 60.6 44.9 2 151 31 2 155 44 18 - 97 30 131 2 23 8 1.4 39.3 57.6 49.0 54.2 65.0 14.5 - 38.2 55.3 71.6 66.7 60.9 5.9 Notes a For 2020 year end, there has been a standardisation of the definition of forbearance across the Group. 2019 balances have not been restated. b On 1 April 2020, the Barclays Partner Finance business moved from Barclays International to Barclays UK. The 2019 comparative figures have not been restated. UK home loans: forbearance balances reduced to £135m (2019: 137m) due to availability of payment holidays for those in short term financial difficulties due to the COVID-19 pandemic. The use of payment holidays does not necessitate the reclassification of assets as forborne. UK cards: gross balances on forbearance programmes increased to £384m (2019: £254m) due to increasing numbers of customers utilising breathing space during the pandemic and £101m due to the impact of the standardisation of the definition of forbearance. UK personal loans: gross balances on forbearance programmes remained stable at £54m (2019: £54m) due to the impact of customers utilising temporary COVID-19 relief instead of longer term forbearance options offset by £9m due to the impact of the standardisation of the definition of forbearance. Barclays partner finance: gross balances on forbearance programmes remained broadly stable. US cards: forbearance balances increased to £286m (2019: £183m) due to the impact of the standardisation of the definition of forbearance of £143m partially offset by the impact of fewer forbearance enrolments. Germany consumer lending: forbearance balances increased to £67m (2019: £37m) due to the impact of the standardisation of the definition of forbearance. Italian home loans: forbearance balances reduced to £126m (2019: £130m) due to a natural exit from forbearance status as the portfolio is in run-off. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 199 Risk review: Credit risk Risk performance continued Wholesale forbearance programmes The tables below detail balance information for wholesale forbearance cases. Analysis of wholesale balances in forbearance programmesa As at 31 December 2020 Barclays UK Barclays International Total As at 31 December 2019 Barclays UK Barclays International Total Gross balances on forbearance programmes Total balances £m % of gross wholesale loans and advances % Impairment allowances marked against balances on forbearance programmes £m Total balances on forbearance programmes coverage ratio % 582 2,833 3,415 496 1,934 2,430 1.6 2.9 2.5 1.6 1.9 1.8 57 650 707 35 263 298 9.8 22.9 20.7 7.1 13.6 12.3 Note a For 2020 year end, there has been a standardisation of the definition of forbearance across the Group. 2019 balances have not been restated. Analysis of debt securities Debt securities include government securities held as part of the Group’s treasury management portfolio for liquidity and regulatory purposes, and are for use on a continuing basis in the activities of the Group. The following tables provide an analysis of debt securities held by the Group for trading and investment purposes by issuer type, and where the Group held government securities exceeding 10% of shareholders’ equity. Further information on the credit quality of debt securities is presented in the Balance sheet credit quality section. 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 Japan 2020 £m 105,496 39,733 8,742 5,745 159,716 % 66.0 24.9 5.5 3.6 100.0 2019 £m 91,058 39,231 4,480 5,084 139,853 Fair value 2020 £m 30,363 23,873 16,258 % 65.1 28.1 3.2 3.6 100.0 2019 £m 32,145 28,010 6,679 200 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 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 Balance sheet assets £m 85,115 172,334 4,605 38,972 1,420 302,446 2020 Counterparty netting £m 68,108 128,072 3,584 32,183 1,133 233,080 Balance sheet assets £m 56,606 142,468 8,215 20,806 1,141 229,236 2019 Counterparty netting £m 44,284 106,589 6,589 17,517 1,019 175,998 Net exposure £m 17,007 44,262 1,021 6,789 287 69,366 43,291 26,075 Net exposure £m 12,322 35,879 1,626 3,289 122 53,238 33,411 19,827 Derivative asset exposures would be £276bn (2019: £209bn) 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 £276bn (2019: £212bn) lower reflecting counterparty netting and collateral placed. In addition, non-cash collateral of £5bn (2019: £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 Total unilateral in favour of Barclays Unilateral in favour of counterparty Foreign exchange Interest rate Credit derivatives Equity and stock index 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 28,431 6,580 227 860 36,098 16,420 36,973 287 451 54,131 5,154,176 13,267,129 365,757 453,990 4,235 19,245,287 269,417 250,857 18,629 10,850 9 549,762 19,885,278 2020 Fair value Assets £m 618 982 2 17 1,619 545 3,524 – 146 4,215 79,337 161,909 3,348 15,376 89 260,059 4,277 4,583 324 3,268 – 12,452 278,345 Liabilities £m (532) (10) – (77) (619) (1,003) (4,543) – (22) (5,568) (77,919) (155,453) (3,490) (18,399) (100) (255,361) (4,589) (2,131) (419) (7,596) (10) (14,745) (276,293) Notional contract amount £m 32,441 5,202 338 158 38,139 11,230 44,360 116 494 56,200 4,484,380 12,303,652 390,790 210,267 7,269 17,396,358 379,741 284,168 8,142 21,131 58 693,240 18,183,937 2019 Fair value Assets £m 398 859 3 5 1,265 424 3,094 – 298 3,816 51,571 131,700 5,034 8,925 294 197,524 4,117 4,697 216 1,400 9 10,439 213,044 Liabilities £m (422) (13) (1) (27) (463) (1,206) (4,210) (1) (40) (5,457) (51,001) (128,096) (4,923) (11,178) (210) (195,408) (4,216) (1,668) (474) (4,540) (46) (10,944) (212,272) Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 201 Risk review: Market risk Risk performance continued Summary of contents Outlines key measures used to summarise the market risk profile of the bank such as value at risk (VaR). The 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 the Group’s risk management framework. ■■ Market risk overview and summary of performance ■■ Traded market risk ■■ Review of management measures – The daily average, maximum and minimum values of management VaR – Business scenario stresses Page 202 202 202 203 203 Market risk All disclosures in this section are unaudited unless otherwise stated. Overview This section contains key statistics describing the market risk profile of the Group. The market risk management section provides a description of management VaR. 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 of the Barclays PLC Pillar 3 Report 2020 (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 Treasury and it is calculated with a one-day holding period. 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. Measures of market risk in the 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 marked to market values as at the reporting date ■■ VaR measures also take account of current marked 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. Summary of performance in the period Average management VaR increased to £32m in 2020 (2019: £23m), driven by an increase in market volatility in late Q1 and Q2 during the initial phase of the COVID-19 pandemic. Management VaR stabilised and declined in the second half of the year. 202 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The daily average, maximum and minimum values of management VaR Management VaR (95%, one day) (audited) For the year ended 31 December Credit risk Interest rate risk Equity risk Basis risk Spread risk Foreign exchange risk Commodity risk Inflation risk Diversification effecta Total management VaR 2020 2019 Average £m 20 10 13 10 5 5 1 2 (34) 32 Higha £m 38 17 35 16 9 7 1 3 n/a 57 Lowa £m 10 6 6 7 3 2 – 1 n/a 18 Average £m 12 6 10 8 4 3 1 2 (23) 23 Higha £m 17 11 22 11 5 5 2 3 n/a 29 Lowa £m 8 3 5 6 3 2 – 1 n/a 17 Note a 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. Group Management VaR £m 60 40 20 0 Jan 2019 Jan 2020 Dec 2020 Business scenario stresses As part of the 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 2020, the scenario analyses showed that the largest market risk related impacts would be due to a severe deterioration in financial liquidity and an associated global recession. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 203 Risk review: Treasury and Capital risk Risk performance continued 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 the Group’s liquidity risk. The liquidity pool is held unencumbered and is intended to offset stress outflows. ■■ 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 The basis for sound liquidity risk management is a funding structure that reduces the probability of a liquidity stress leading to an inability to meet funding obligations as they fall due. ■■ Funding structure and funding relationships – Deposit funding – Wholesale funding Provides details on the contractual maturity of all financial instruments and other assets and liabilities. ■■ Contractual maturity of financial assets and liabilities 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 the Group’s capital position providing information on both capital resources and capital requirements. It also provides details of the leverage ratios and exposures. This section outlines the Group’s capital ratios, capital composition, and provides information on significant movements in CET1 capital during the year. This section outlines risk weighted assets by risk type, business and macro drivers. This section outlines the Group’s leverage ratios, leverage exposure composition, and provides information on significant movements in the IFRS and leverage balance sheet. This section outlines the Group’s Minimum requirement for own funds and Eligible Liabilities (MREL) position and ratios. The Group discloses the two sources of foreign exchange risk that it is exposed to. ■■ Capital risk overview and summary of performance ■■ Regulatory minimum capital and leverage requirements – Capital – Leverage ■■ Analysis of capital resources ■■ Capital ratios – Capital resources – Movement in CET1 capital ■■ 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 ■■ Minimum Requirement for own funds and Eligible Liabilities ■■ Foreign exchange risk – Transactional foreign currency exposure – Translational foreign exchange exposure – Functional currency of operations Page 206 206 206 208 208 209 209 209 209 209 210 210 210 213 217 217 218 218 219 219 219 220 221 221 221 222 222 223 224 224 224 224 204 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Treasury and Capital risk: summary of contents A review focusing on the UK retirement fund, which represents the majority of the Group’s total retirement benefit obligation. ■■ Pension risk review – Assets and liabilities IAS 19 position – – Risk measurement ■■ Net interest income sensitivity – by business unit – by currency ■■ Analysis of equity sensitivity ■■ Volatility of the FVOCI portfolio in the liquidity pool Interest rate risk in the banking book performance A description of the non-traded market risk framework is provided. The 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. The Group measures some non-traded market risks, in particular prepayment, recruitment, and residual risk using an economic capital methodology. The Group discloses the overall impact of a parallel shift in interest rates on other comprehensive income and cash flow hedges. The Group measures the volatility of the value of the FVOCI instruments in the liquidity pool through non-traded market risk VaR. Page 224 224 225 225 226 226 226 227 227 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 205 Risk review: Treasury and Capital risk Risk performance continued Summary of performance The liquidity pool at £266bn (December 2019: £211bn) reflects the Group’s prudent approach to liquidity management. The Liquidity Coverage Ratio (LCR) remained well above the 100% regulatory requirement at 162% (December 2019: 160%), equivalent to a surplus of £99bn (December 2019: £78bn). The increase in the liquidity pool, LCR and surplus over the year was driven by a 16% growth in deposits, which was largely a consequence of government and central bank policy response to the COVID-19 pandemic. The reduction in Q420 reflects actions taken to manage down surplus liquidity proactively as the prevailing uncertainty from earlier in the year abated. During the year, the Group issued £7.9bn of minimum requirement for own funds and eligible liabilities (MREL) instruments in a range of tenors and currencies. Barclays Bank PLC continued to issue in the shorter-term and medium-term notes markets and Barclays Bank UK PLC continued to issue in the shorter-term markets and maintains an active secured funding programme. This funding capacity enables the respective entities maintain their stable and diversified funding bases. The Group’s reliance on short-term wholesale funding, as measured by the proportion of wholesale funding maturing in less than one year was broadly flat year on year. At 31 December 2020, it was 29% (December 2019: 28%). Liquidity risk stress testing Under the Liquidity Framework, the 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 Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The Group sets its internal liquidity risk appetite based on internal liquidity risk assessments and, external regulatory requirements namely the Capital Requirements Regulation (CRR) LCR as amended by CRR II. 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 should a stress occur. As part of the LRA, the 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. Liquidity risk All disclosures in this section are unaudited unless otherwise stated. Overview The Group has a comprehensive key risk control framework for managing the Group’s 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 Group’s: (i) summary of performance, (ii) liquidity risk stress testing, iii) liquidity pool, (iv) funding structure and funding relationships, (v) credit ratings, and (vi) contractual maturity of financial assets and liabilities. For further detail on liquidity risk governance and framework, refer to page 194 to 197 of the Barclays PLC Pillar 3 Report 2020 (unaudited). Key metrics Liquidity Coverage Ratio 162% 206 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Key LRA assumptions For the year ended 31 December 2020 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 buyback 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 to meet increased intraday liquidity usage due to payment and receipts volatility, loss of unsecured credit lines and haircuts applied to collateral values used to back secured credit lines, in 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 ■■ Deterioration in FX market capacity that may result in restriction in net currency positions 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 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 to enable the firm to meet select non-contractual obligations to ensure market confidence in the firm is maintained, including debt buy-backs, swap tear-ups and increased prime brokerage margin debits Funding Concentration Risk ■■ Liquidity held against largest wholesale funding counterparty refusing to roll As at 31 December 2020, the 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 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 2020, the Group remained compliant with this internal metric. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 207 Risk review: Treasury and Capital risk Risk performance continued Liquidity regulation The Group monitors its position against the LCR, and the Net Stable Funding Ratio (NSFR) as defined in the CRR as amended by CRR IIb. 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 been developed to promote a sustainable maturity structure of assets and liabilities. The original LCR Delegated Act underwent a revision in April 2020a. The key areas which were updated include rules around the recognition of securitisations as High Quality Liquid Assets (requiring them to be simple, transparent and standardised) as well as an update to the stressed inflow/ outflow rates for repurchase agreements, reverse repurchase agreements and collateral swaps. These revisions were consistent with the requirements of the Basel standards. Detailed NSFR provisions were contained in CRR II. Barclays expects all its entities in scope of NSFR requirements to be compliant at their respective date of implementation. Regulatory developments and impact of the UK’s withdrawal from the European Union LCR The European Union (Withdrawal) Act 2018c ensures ‘direct EU legislation’ operative in the UK immediately before ‘exit day’ (31 December 2020) continues to be in force unless otherwise specified. This ensures that the LCR provisions operative in the UK before ‘exit day’ contained in the CRR (as amended by CRR II) and LCR Delegated Act continue to apply in the UK subject to the temporary transitional powers (TTP) available to UK regulators to delay or phase-in onshoring changes. The relief made available under the TTP extends to the recognition of EU member states’ sovereign debt as Level 1 HQLAd up to 31 March 2022 unless the relevant equivalence decision is made earlier. NSFR The NSFR rules were not operative in the UK prior to ‘exit day’ and therefore they were not automatically onshored into UK domestic law and the UK is under no direct obligation to align to the requirements contained in CRR II. Instead the NSFR will be subject to implementation by the UK’s PRA. In November 2020 the PRA published a joint statement with HM Treasury and the Financial Conduct Authoritye that the implementation of the outstanding provisions of CRR II in the UK would be moved from June 2021 to January 2022. The PRA intends to consult during the course of 2021 which will determine how closely implementation of the NSFR in the UK will align with the EU requirements of CRR II. This does not apply to Barclays Bank Ireland (BBI) which remains subject to the NSFR requirements as set out in CRR II due to be implemented in June 2021. Notes a Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 of the European Parliament and Council with regard to liquidity coverage requirement for Credit Institutions, as it forms part of domestic law by virtue of section 3 of the European Union (Withdrawal) Act 2018, and as amended from time to time. b Capital Requirements Regulation II (CRRII): Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/87. c Section 3 of the European Union (Withdrawal) Act 2018. d Part 15 of ‘Capital Requirements Regulation: Guidance on the PRA’s use of the transitional direction’. e Joint statement on the implementation of prudential reforms in the Financial Services Bill. 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 2020 £bn 258 (159) 99 162% 2019 £bn 206 (128) 78 160% As part of the LRA, Barclays also establishes the minimum LCR limit. The Group plans to maintain its surplus to the internal and regulatory stress requirements at an efficient level, while continuously assessing risks to market funding conditions and its liquidity position and taking actions to manage the size of the liquidity pool as appropriate. 208 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Liquidity pool The Group liquidity pool as at 31 December 2020 was £266bn (2019: £211bn). During 2020, the month-end liquidity pool ranged from £218bn to £332bn (2019: £211bn to £256bn), and the month-end average balance was £287bn (2019: £235bn). The liquidity pool is held unencumbered and is intended to offset stress outflows. It comprises the following cash and unencumbered assets. Composition of the Group liquidity pool as at 31 December 2020 Cash and deposits with central banksa Government bondsb AAA to AA- A+ to A- BBB+ to BBB- Total government bonds Other Government guaranteed issuers, PSEs and GSEs International organisations and MDBs Covered bonds Other Total other Total as at 31 December 2020 Total as at 31 December 2019 Liquidity pool of which CRR LCR eligiblec Liquidity pool £bn 197 Cash £bn 192 Level 1 £bn – Level 2A £bn – 2019 Liquidity pool £bn 153 31 13 1 45 10 6 8 – 24 266 211 – – – – – – – – – 192 150 29 6 1 36 8 5 6 – 19 55 50 1 7 – 8 1 – 2 – 3 11 3 31 2 3 36 9 7 6 – 22 211 Notes a Includes cash held at central banks and surplus cash at central banks related to payment schemes. Of which over 98% (2019: over 98%) was placed with the Bank of England, US Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank. b Of which over 78% (2019: over 79%) comprised UK, US, French, German, Japanese, Swiss and Dutch securities. c The LCR eligible liquidity pool is adjusted for trapped liquidity and other regulatory deductions. It also incorporates other CRR (as amended by CRR II) qualifying assets that are not eligible under Barclays’ internal risk appetite. The Group liquidity pool is well diversified by major currency and the Group monitors LRA stress scenarios for major currencies. Liquidity pool by currency Liquidity pool as at 31 December 2020 Liquidity pool as at 31 December 2019 USD £bn 60 52 EUR £bn 50 42 GBP £bn 80 67 Other £bn 76 50 Total £bn 266 211 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 returns generated by these highly liquid assets, the risk and reward profile is continuously managed. As at 31 December 2020, 64% (2019: 67%) of the liquidity pool was located in Barclays Bank PLC, 23% (2019: 20%) in Barclays Bank UK PLC and 7% (2019: 6%) in Barclays Bank Ireland 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 local regulatory requirements. To the extent the use of this portion of the liquidity pool is restricted due to local regulatory requirements, it is assumed to be unavailable to the rest of the Group in calculating the LCR. Contingent liquidity In addition to the Group liquidity pool, the 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 their 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 significantly elevated prices, the Group could generate liquidity via central bank facilities. To this end, as at 31 December 2020, the Group had £99.2bn (December 2019: £79.7bn) of assets prepositioned at various central banks. For more detail on the Group’s other unencumbered assets, see pages 221 to 223 of the Barclays PLC Pillar 3 Report 2020 (unaudited). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 209 Risk review: Treasury and Capital risk Risk performance continued Funding structure and funding relationships The basis for sound liquidity risk management is a funding structure that reduces the probability of a liquidity stress leading to an inability to meet funding obligations as they fall due. The 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 Group aims to align the sources and uses of funding. As such, retail and corporate loans and advances are largely funded by deposits in the relevant entities, with the surplus primarily funding the liquidity pool. 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 when netted against cash collateral received and paid. Wholesale debt and equity is used to fund residual assets. These funding relationships are summarised below: Assets Loans and advances at amortised costa Group liquidity pool Reverse repurchase agreements, trading portfolio assets, cash collateral and settlement balances Derivative financial instruments Other assetsb 2020 £bn 335 266 376 302 71 2019 £bn 335 211 298 229 67 Total assets 1,350 1,140 Liabilities Deposits at amortised cost <1 Year wholesale funding >1 Year wholesale funding Repurchase agreements, trading portfolio liabilities, cash collateral and settlement balances Derivative financial instruments Other liabilities Equity Total liabilities Notes a Adjusted for liquidity pool debt securities reported at amortised costs of £8bn (December 2019: £4bn). b Other assets include fair value assets that are not part of reverse repurchase agreements or trading portfolio assets, and other asset categories. Deposit funding (audited) Funding of loans and advances As at 31 December 2020 Barclays UK Barclays International Head Office Barclays Group Loans and advances at amortised cost £bn 214 123 6 343 2020 Deposits at amortised cost £bn 240 241 – 481 2020 £bn 481 43 102 324 301 32 67 1,350 Loan: deposit ratioa % 89% 51% 2019 £bn 416 41 106 247 229 35 66 1,140 2019 Loan: deposit ratio % 96% 63% 71% 82% Note a The loan: deposit ratio is calculated as loans and advances at amortised cost divided by deposits at amortised cost. As at 31 December 2020, £209bn (2019: £181bn) of total customer deposits were insured through the UK Financial Services Compensation Scheme (FSCS) and other similar schemes. In addition to these customer deposits £2bn (2019: £4bn) of other liabilities are insured by other governments. Contractually current accounts are repayable on demand and savings accounts at short notice. In practice, 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 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 Group’s broad base of customers, numerically and by depositor type, helps protect against unexpected fluctuations in balances and hence provides a stable funding base for the Group’s operations and liquidity needs. 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. 210 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Key sources of wholesale funding for Barclays Bank UK Group include money markets, certificates of deposit, commercial paper, covered bonds and other securitisations. The 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. During the year, the Group issued £7.9bn of 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 and medium-term notes markets including a $1.75bn two year senior bond issuance in May, and repurchased $1.5bn 7.625% Contingent Capital Notes in December. Barclays Bank UK PLC continued to issue in the shorter-term markets and maintains an active secured funding programme. This funding capacity enables the respective entities maintain their stable and diversified funding bases. As at 31 December 2020, the Group’s total wholesale funding outstanding (excluding repurchase agreements) was £145.0bn (2019: £147.1bn), of which £17.1bn (2019: £19.6bn) was secured funding and £127.9bn (2019: £127.5bn) unsecured funding. Unsecured funding includes £54.8bn (2019: £51.1bn) of privately placed senior unsecured notes issued through a variety of distribution channels including intermediaries and private banks. Wholesale funding of £42.7bn (2019: £40.6bn matures in less than one year, representing 29% (December 2019: 28%) of total wholesale funding outstanding. This includes £20.3bn (2019: £16.3bn) related to term fundingb. Although not a requirement, the liquidity pool exceeded the wholesale funding maturing in less than one year by £223bn (2019: £170bn). Barclays Bank Group and Barclays Bank UK Group also support various central bank monetary initiatives, such as the Bank of England’s Term Funding Scheme (TFS) and Term Funding Scheme with additional incentives for SMEs (TFSME), and the European Central Bank’s Targeted Long-Term Refinancing Operations (TLTRO). These are reported under ‘repurchase agreements and other similar secured borrowing’ on the balance sheet. In 2020, Barclays repaid £11.2bn of TFS drawings early, reducing the outstanding drawn balance under TFS to £1.4bn as at 31 December 2020. Additionally £6.6bn of TFSME and £2.2bn of TLTRO drawings during the year were outstanding at the year-end. Maturity profile of wholesale fundinga,b <1 month £bn 1-3 months £bn 3-6 months £bn 6-12 months £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 Barclays Bank UK PLC (including subsidiaries) Certificates of deposit and commercial paper Senior unsecured (Public benchmark) Covered bonds Total as at 31 December 2020 Of which secured Of which unsecured Total as at 31 December 2019 Of which secured Of which unsecured 1.1 0.1 – – 1.4 – 0.8 – 1.4 – – 0.9 5.7 2.3 3.4 4.5 1.6 2.9 1.1 – – 5.4 5.0 0.5 2.3 – 0.2 0.9 – – 15.4 5.0 10.4 11.6 5.3 6.3 – – – 3.1 0.7 0.1 2.2 – 3.2 0.2 – – 9.5 0.7 8.8 9.4 2.3 7.1 1.2 0.1 – 5.6 – 0.1 4.2 0.5 0.3 0.1 – – 12.1 0.5 11.6 15.1 0.5 14.6 <1 year £bn 3.4 0.2 – 14.1 7.1 0.7 9.5 0.5 5.1 1.2 – 0.9 42.7 8.5 34.2 40.6 9.7 30.9 1-2 years £bn 1.4 – – 0.5 – 1.3 7.1 0.8 2.2 – – 2.3 15.6 3.1 12.5 19.8 0.9 18.9 2-3 years £bn 7.7 0.2 – 0.1 – 0.1 6.4 0.4 – – – 1.8 16.7 2.2 14.5 12.1 2.5 9.6 3-4 years £bn 5.6 0.2 0.9 – – 1.1 3.9 0.5 0.1 – – – 12.3 0.5 11.8 15.1 2.4 12.7 4-5 years £bn 5.1 – – – – – 4.9 0.2 – – – – 10.2 0.2 10.0 11.6 0.9 10.7 >5 years £bn 13.5 0.7 6.8 – – 0.9 21.7 1.4 1.2 – 0.1 1.2 47.5 2.6 44.9 47.9 3.2 44.7 Total £bn 36.7 1.3 7.7 14.7 7.1 4.1 53.5 3.8 8.6 1.2 0.1 6.2 145.0 17.1 127.9 147.1 19.6 127.5 Notes a The composition of wholesale funds comprises the balance sheet reported financial liabilities at fair value, debt securities in issue and subordinated liabilities. It does not include participation in the central bank facilities reported within repurchase agreements and other similar secured borrowing. b Term funding comprises public benchmark and privately placed senior unsecured notes, covered bonds, asset backed securities and subordinated debt where the original maturity of the instrument was more than one year. Includes structured notes of £45.4bn, of which £8.7bn matures within one year. c Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 211 Risk review: Treasury and Capital risk Risk performance continued Currency composition of wholesale debt As at 31 December 2020, 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 2020 Total as at 31 December 2019 USD % 44 78 57 71 34 52 61 60 EUR % 38 13 21 12 29 25 20 22 GBP % 17 9 15 7 37 21 13 13 Other % 1 – 7 10 – 2 6 5 To manage cross currency refinancing risk, the Group manages to currency mismatch, which limit risk at specific maturities. Credit ratings In addition to monitoring and managing key metrics related to the financial strength of the 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 Group, its subsidiaries and its 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 2020 Barclays Bank PLC Long term Short term Barclays Bank UK PLC Long term Short term Barclays PLC Long term Short term Note a Rating Watch Negative Standard & Poor’s Moody’s Fitch A / Negative A-1 A1 / Stable P-1 A+ / Negativea F1 A / Negative A-1 A1 / Negative A+ / Negative P-1 F1 BBB / Negative Baa2 /Stable A-2 P-2 A / Negative F1 In January 2020 Moody’s upgraded the long-term ratings of Barclays PLC and Barclays Bank PLC by one notch to Baa2 and A1 respectively, due to their view that the earnings profile of the entities has improved. This followed the positive outlooks that had been placed on these entities in May 2019 and the outlooks reverted to stable in the most recent action. In April 2020, Fitch revised the outlooks of Barclays PLC and Barclays Bank PLC to Rating Watch Negative (RWN) from stable, while the outlook for Barclays Bank UK PLC was revised to negative from stable, alongside UK peers, to reflect the downside risks to their credit profiles resulting from the economic and financial market implications of the COVID-19 outbreak. In October 2020, Fitch removed the RWNs on the ratings of Barclays PLC and Barclays Bank PLC and revised the outlook to Negative, whilst affirming the rating of Barclays Bank UK PLC. In April 2020, S&P affirmed all ratings for Barclays PLC, Barclays Bank PLC and Barclays Bank UK PLC, whilst revising the outlooks for Barclays and its subsidiaries to negative from stable, alongside many European peers, to reflect economic and market stress triggered by the COVID-19 pandemic. 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 November 2020 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 £2bn and £4bn respectively, and are provided for in determining an appropriate liquidity pool size given the Group’s liquidity risk appetite. 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. 212 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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) As at 31 December 2020 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 assets at fair value through other comprehensive income Other financial assets Total financial assets Other assets 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 Other financial liabilities Total financial liabilities Other liabilities Total liabilities Cumulative liquidity gap 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 Total £m 190,347 182 598 1,177 100,190 – – – – – – – – – – – – – – – 191,127 101,367 14,098 11,970 8,388 4,956 5,234 25,392 22,133 36,286 47,944 166,231 342,632 150 127,950 8,698 – – – – – – – – – 183 – – – – – – – 9,031 127,950 17,377 123,044 23 301,880 7,548 – 6,960 – 4,151 – 4,911 70 1,346 55 2,431 310 2,345 87 5,038 21 175,151 302,446 – 357 9,655 451 653,336 254,213 3,517 19 20,070 1,393 22 13,331 948 – 10,333 6,469 1 36,843 5,566 – 29,283 17,552 – 56,579 24,450 – 9,138 – 74,826 180,428 78,688 850 1,329,242 20,272 1,349,514 410,894 41,468 15,886 5,073 3,082 2,264 625 601 764 379 481,036 1,900 83,523 – – – – – – – – 85,423 4 – – 47,405 3,276 16,344 1,589 – – 4,048 3,209 – – 5,100 294 – 299,795 101 15,555 172,153 1 2,915 775,654 321,269 8,677 49 49 31,918 5,067 – 46 15,580 – 1,937 – – 2,938 – 45 8,002 1,400 5,780 2,192 – 8,594 79 738 21,047 2,329 10,402 14 – 6,939 67 156 20,532 7,073 13,608 989 – 8,580 185 273 31,309 – 12,721 6,915 – 8,344 196 436 29,376 92 5,856 1,139 – 12,918 403 210 20,997 (122,318) (189,374) (201,222) (203,471) (201,140) (185,344) (176,593) (151,323) (105,873) 53,558 14,174 75,796 16,341 47,405 249,765 300,775 4,969 1,275,684 6,948 1,282,632 66,882 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 213 Risk review: Treasury and Capital risk Risk performance continued Contractual maturity of financial assets and liabilities (audited) Contractual maturity of financial assets and liabilities (audited) As at 31 December 2019 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 assets at fair value through other comprehensive income Other financial assets Total financial assets Other assets 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 Other financial liabilities Total financial liabilities Other liabilities Total liabilities Cumulative liquidity gap 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 Total £m 149,383 766 109 2,022 81,231 3 – – – – – – – – – – – – – – 150,258 83,256 14,824 10,944 13,108 7,738 7,031 21,771 22,478 37,408 40,702 163,111 339,115 13 114,195 3,097 – – – – – 14,279 229,063 89,355 30 13,979 – 3,443 – – 895 6,694 441 524,674 192,558 3,241 25 30,465 1,164 – 12,345 – – 1,317 – 1,159 14 9,521 77 – 1,664 7 190 – 512 24 – – – – 2 – 3,379 114,195 953 9 2,302 79 5,282 24 133,086 229,236 7,711 – 31,230 6,521 – 29,725 11,896 – 50,266 21,195 – 6,169 – 64,278 174,588 65,750 1,375 1,119,650 20,579 1,140,229 348,337 42,357 10,671 3,861 4,067 3,935 930 530 545 554 415,787 3,053 64,275 13 – – – – – – – 67,341 7 – – 36,916 2,755 12,795 207 – 228,617 251 13,952 127,939 1 2,361 631,133 252,690 10 6,560 78 – 10,890 – 55 28,277 – 4,147 75 – 6,519 8 52 14,662 – 3,123 832 – 3,798 – 50 11,870 10,007 8,387 4,979 – 6,981 36 1,110 35,435 1,201 3,325 3,266 – 6,235 42 138 15,137 470 18,189 1,075 – 7,706 42 242 28,254 – 14,342 5,979 – 7,127 88 351 28,432 67 5,501 1,665 – 13,179 370 409 21,745 (106,459) (166,591) (164,403) (166,720) (169,069) (173,274) (158,686) (136,674) (100,828) 52,015 14,517 76,369 18,156 36,916 204,326 229,204 5,019 1,067,635 6,934 1,074,569 65,660 Expected maturity date may differ from the contractual dates, to account for: ■■ trading portfolio assets and liabilities and derivative financial instruments, which may not be held to maturity as part of the Group’s trading strategies ■■ corporate and retail deposits, reported under deposits at amortised cost, are repayable on demand or at short notice on a contractual basis. In practice, their behavioural maturity is typically longer than their contractual maturity, and therefore these deposits provide stable funding for the 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. 214 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Contractual maturity of financial liabilities on an undiscounted basis The table below presents the cash flows payable by the 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) As at 31 December 2020 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 2019 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 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 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 410,894 41,468 15,886 8,156 2,893 599 768 385 481,049 1,900 83,523 – – – – – – 85,423 4 – – 47,405 15,555 299,795 101 775,654 3,276 16,368 1,597 – 172,186 1 2,929 321,348 – 4,058 3,328 – 8,683 49 62 32,066 – 7,061 311 – 8,007 – 116 23,651 3,729 16,684 2,498 – 15,604 147 981 42,536 7,089 14,715 1,152 – 8,586 187 338 32,666 – 14,882 8,578 – 8,369 204 557 33,358 154 9,852 1,587 – 14,245 83,620 19,051 47,405 20,835 443 248 257,825 300,826 5,332 33,504 1,294,776 348,337 42,369 10,682 7,946 4,869 532 554 595 415,884 3,053 64,297 13 – – – – – 67,363 7 – – 36,916 13,952 228,617 251 631,133 2,758 12,850 207 – 128,064 2 2,372 252,919 10 6,589 78 – 11,020 – 65 28,457 – 7,305 950 – 10,609 8 126 26,944 11,300 12,330 9,822 – 13,507 80 1,337 53,245 485 19,132 1,286 – 8,054 45 351 29,885 – 16,657 7,192 – 7,519 99 565 32,586 149 9,398 3,025 – 14,709 84,261 22,560 36,916 19,392 378 448 212,117 229,229 5,515 33,385 1,088,554 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 215 Risk review: Treasury and Capital risk Risk performance continued Maturity of off-balance sheet commitments received and given The table below presents the maturity split of the 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 Total £m As at 31 December 2020 Guarantees, letters of credit and credit insurance Other commitments received Total off-balance sheet commitments received As at 31 December 2019 Guarantees, letters of credit and credit insurance Other commitments received Total off-balance sheet commitments received 26,368 92 26,460 13,091 91 13,182 86 – 86 106 – 106 37 – 37 22 – 22 68 – 68 81 – 81 8 – 8 – – – 18 – 18 11 – 11 14 – 14 12 – 12 47 – 47 21 – 21 40 – 40 12 – 12 25 – 26,711 92 25 26,803 34 – 13,390 91 34 13,481 Maturity analysis of off-balance sheet commitments given (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 Total £m As at 31 December 2020 Contingent liabilities Documentary credits and other short-term trade related transactions Standby facilities, credit lines and other commitments Total off-balance sheet commitments given 21,307 213 1,084 330,499 352,890 1 564 778 As at 31 December 2019 Contingent liabilities Documentary credits and other short-term trade related transactions Standby facilities, credit lines and other commitments Total off-balance sheet commitments given 23,586 366 1,287 3 328,623 1,133 792 973 353,496 1,502 879 1,098 57 1 93 151 86 1 6 – 123 129 1 – 95 96 25 – 160 185 125 140 143 – – 639 779 – 269 412 – – 199 199 42 – 98 140 – – 202 202 28 – 273 301 – – 21 21 3 – – – 21,609 1,086 7 331,963 7 354,658 8 – 24,527 1,291 139 142 225 333,164 233 358,982 216 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Summary of performance in the period The Group continues to be in excess of overall capital requirements, minimum leverage requirements and MREL requirements. The CET1 ratio increased to 15.1% (December 2019: 13.8%). CET1 capital increased by £5.5bn to £46.3bn reflecting resilient capital generation through £7.9bn of profit before tax, excluding credit impairment charges of £4.8bn, and a £1.0bn increase due to the cancellation of the full year 2019 dividend. These increases were partially offset by £0.9bn of AT1 coupons paid and the announced 1.0p full year 2020 dividend. The CET1 capital increase also reflects regulatory measures for IFRS 9 transitional relief, prudent valuation and qualifying software assets. RWAs increased by £11.1bn to £306.2bn primarily due to higher market volatility, increased client activity and a reduction in credit quality within CIB, partially offset by lower consumer lending. The average UK leverage ratio increased to 5.0% (December 2019: 4.5%) primarily driven by the increase in T1 capital. The average leverage exposure increased to £1,147bn (December 2019: £1,143bn) primarily driven by an increase in Securities Financing Transactions (SFTs) and Trading Portfolio Assets (TPAs) largely driven by an increase in secured lending and client activity within CIB, partially offset by the PRA’s early adoption of CRR II settlement netting. Minimum capital requirements The Group’s Overall Capital Requirement for CET1 is 11.2% 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 and a 0.0% Countercyclical Capital Buffer (CCyB). The Group’s CCyB is based on the buffer rate applicable for each jurisdiction in which the Group has exposures. On 11 March 2020, the Financial Policy Committee (FPC) set the CCyB rate for UK exposures at 0% with immediate effect. The buffer rates set by other national authorities for non-UK exposures are not currently material. Overall, this results in a 0.0% CCyB for the Group. The Group’s Pillar 2A requirement as per the PRA’s Individual Capital Requirement is 4.8% of which at least 56.25% needs to be met with CET1 capital, equating to approximately 2.7% of RWAs. The Pillar 2A requirement is subject to at least annual review and has been set as a nominal capital amount. This is based on a point in time assessment and the requirement (when expressed as a proportion of RWAs) will change depending on the total RWAs at each reporting period. Capital risk All disclosures in this section are unaudited unless otherwise stated. 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 overall regulatory capital requirement, to withstand the impact of the risks that may arise under normal and stressed conditions, and to cover current and forecast business needs and associated risks to provide a viable and sustainable business offering. This section provides an overview of the Group’s: (i) CET1 capital, leverage and own funds and eligible liabilities requirements; (ii) capital resources; (iii) risk weighted assets (RWAs); (iv) leverage ratios and exposures; and (v) own funds and eligible liabilities. More details on monitoring and managing capital risk may be found in the risk management sections of the Barclays PLC Pillar 3 Report 2020 (unaudited). Key metrics Common Equity Tier 1 ratio 15.1% Average UK leverage ratio 5.0% UK leverage ratio 5.3% Own funds and eligible liabilities ratio as a percentage of CRR leverage exposuresa 8.2% Own funds and eligible liabilities ratio as a percentage of RWAs 33.6% Note a Fully loaded CRR leverage exposure is calculated without applying the transitional arrangements of the CRR as amended by CRR II. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 217 Risk review: Treasury and Capital risk Risk performance continued Significant regulatory updates in the period Under the withdrawal agreement between the UK and the EU, the 11-month transition period expired at 11pm on 31 December 2020. Any references to CRR as amended by CRR II mean, unless otherwise specified, CRR as amended by CRR II, as it forms part of UK law pursuant to the European Union (Withdrawal) Act 2018 and subject to the TTP available to UK regulators to delay or phase-in onshoring changes to UK regulatory requirements arising at the end of the transition period until 31 March 2022, as at the applicable reporting date. Throughout the TTP period, the BoE and PRA are expected to review the UK legislation framework and any disclosures made by the Group will be subject to any resulting guidance. The following regulatory updates formed part of CRR as amended by CRR II prior to 31 December 2020 and subsequently form part of UK law as defined above. On 22 April 2020, the regulatory technical standards on prudent valuation were amended to include an increase to diversification factors applied to certain additional valuation adjustments. The amendments temporarily reduced the additional value adjustment deduction (PVA) and were applied until 31 December 2020 inclusive. Minimum leverage requirements The Group is subject to a leverage ratio requirement of 3.8% as at 31 December 2020. This comprises the 3.25% minimum requirement, a G-SII additional leverage ratio buffer (G-SII ALRB) of 0.53% and a countercyclical leverage ratio buffer of 0.0%. 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 must be covered solely with CET1 capital. The CET1 capital held against the 0.53% G-SII ALRB was £6.0bn. Minimum requirements for own funds and eligible liabilities The Group is required to meet the higher of: (i) the requirements set by the BoE based on RWAs and the higher of average and UK leverage exposures; and (ii) the requirements in CRR as amended by CRR II based on RWAs and CRR leverage exposures. The MREL requirements are subject to phased implementation and will be fully implemented by 1 January 2022. On 19 January 2021 the BoE published indicative MREL requirements that show the Group’s highest requirement in 2022 will be 7.70% of CRR leverage exposure, based on 30 September 2020 exposures. The BoE is currently reviewing the MREL calibration and intends to make any policy changes by the end of 2021. Separately, the FPC intends to review the UK leverage framework in 2021 and this, along with any MREL policy changes, may result in a different MREL requirement from 1 January 2022 than that which is currently proposed. CET1 capital cannot be counted towards both MREL and the capital buffers, meaning that the buffers will effectively be applied above MREL requirements. On 27 June 2020, CRR as amended by CRR II, was further amended to accelerate specific CRR II measures and implement a new IFRS 9 transitional relief calculation. Previously due to be implemented in June 2021, the accelerated measures primarily relate to non-deduction of prudently valued software assets from CET1 capital, the CRR leverage calculation to include additional settlement netting and limited changes to the calculation of RWAs. For UK leverage calculations, the PRA early adopted the CRR II settlement netting measure in April 2020. The IFRS 9 transitional arrangements have been extended by two years and a new modified calculation has been introduced. 100% relief will be applied to increases in stage 1 and stage 2 provisions from 1 January 2020 throughout 2020 and 2021; 75% in 2022; 50% in 2023; 25% in 2024 with no relief applied from 2025. The phasing out of transitional relief on the ‘day 1’ impact of IFRS 9 as well as increases in stage 1 and stage 2 provisions between 1 January 2018 and 31 December 2019 under the modified calculation remain unchanged and continue to be subject to 70% transitional relief throughout 2020; 50% for 2021; 25% for 2022 and with no relief applied from 2023. On 23 December 2020, a new regulatory technical standard on the prudential treatment of qualifying software assets was adopted into EU law replacing the CET1 capital deduction with prudential amortisation up to a 3-year period. Intangible assets that are no longer deducted are subject to 100% risk weight instead. Following its stated intention to consult, on 12 February 2021 the PRA launched a consultation on certain items within the Basel standards that remain to be implemented in the UK as well as setting out proposed new PRA CRR rules. The proposals include reverting to the previous treatment of 100% CET1 capital deduction for qualifying software assets by the end of 2021, meaning the benefit in the CET1 ratio is likely to be reversed in future periods. 218 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Capital resources Capital ratiosa,b,c As at 31 December CET1 Tier 1 (T1) Total regulatory capital 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 and other equity coupons 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 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 Other regulatory adjustments 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 T1 capital T2 capital Capital instruments and related share premium accounts Qualifying T2 capital (including minority interests) issued by subsidiaries Credit risk adjustments (excess of impairment over expected losses) Other regulatory adjustments and deductions Total regulatory capital 2020 15.1% 19.0% 22.1% 2019 13.8% 17.7% 21.6% 2020 £m 65,797 (11,172) (204) 2019 £m 64,429 (10,871) (1,096) (1,146) (6,914) (595) (1,575) 870 (1,326) (50) 2,556 55 46,296 11,172 646 (80) 11,738 (1,746) (8,109) (479) (1,002) 260 (1,594) (50) 1,126 (55) 40,813 10,871 687 (130) 11,428 58,034 52,241 7,836 1,893 57 (160) 67,660 7,650 3,984 16 (250) 63,641 Notes a CET1, T1 and T2 capital, and RWAs are calculated applying the transitional arrangements of the CRR as amended by CRR II. This includes IFRS 9 transitional arrangements and the grandfathering of CRR and CRR II non-compliant capital instruments. b The fully loaded CET1 ratio, as is relevant for assessing against the conversion trigger in Barclays PLC AT1 securities, was 14.3%, with £43.7bn of CET1 capital and £305.3bn of RWAs calculated without applying the transitional arrangements of the CRR as amended by CRR II. c The Group’s CET1 ratio, as is relevant for assessing against the conversion trigger in Barclays Bank PLC 7.625% Contingent Capital Notes, was 15.1%. For this calculation CET1 capital and RWAs are calculated applying the transitional arrangements under the CRR as amended by CRR II, 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 219 Risk review: Treasury and Capital risk Risk performance continued Movement in CET1 capital Opening balance as at 1 January Profit for the period attributable to equity holders Own credit relating to derivative liabilities Dividends and other equity coupons 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 Adjustment under IFRS 9 transitional arrangements Other regulatory adjustments Increase in regulatory capital due to adjustments and deductions Closing balance as at 31 December 2020 £m 40,813 2,383 29 35 2,447 115 192 (473) (48) (214) (111) 268 157 600 1,195 (116) 1,430 (16) 3,093 46,296 CET1 capital increased £5.5bn to £46.3bn (December 2019: £40.8bn). £2.4bn of capital generated from profits, and a £1.0bn increase due to the cancellation of the full year 2019 dividend were partially offset by £0.9bn of AT1 coupons paid and £0.2bn dividends foreseen for the announced 2020 full year dividend. Other significant movements in the period were: ■■ a £0.5bn decrease in the currency translation reserve mainly driven by the depreciation of period end USD against GBP ■■ a £0.6bn increase due to a reduction in PVA which includes the temporary increase to diversification factors applied to certain additional valuation adjustments ■■ a £1.2bn increase due to a reduction in the goodwill and intangible assets deduction driven by a new regulatory technical standard replacing the deduction with prudential amortisation up to a 3-year period on qualifying software assets ■■ a £1.4bn increase in the IFRS 9 transitional relief after tax, following new impairment charges and the implementation of new regulatory measures which allow for 100% relief on increases in stage 1 and stage 2 impairment throughout 2020 and 2021. 220 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk weighted assets Risk weighted assets (RWAs) by risk type and business Credit risk Counterparty credit risk Market risk Operational risk Total RWAs Std £m 7,360 IRB £m 54,340 Std £m 394 IRB £m – Settlement Risk £m – CVA £m 136 Std £m 72 IMA £m – £m 11,359 £m 73,661 24,660 73,792 12,047 20,280 246 2,351 13,123 22,363 23,343 192,205 As at 31 December 2020 Barclays UK Corporate and Investment Bank Consumer, Cards and Payments Barclays International Head Office Barclays Group As at 31 December 2019 Barclays UK Corporate and Investment Bank Consumer, Cards and Payments Barclays International Head Office Barclays Group 19,754 44,414 4,153 55,927 3,041 76,833 6,869 138,042 177 12,224 – 12,618 45 20,325 – 20,325 5,189 57,455 235 – 25,749 62,177 12,051 16,875 27,209 52,958 5,104 63,251 2,706 64,883 5,754 128,092 92 12,143 – 12,378 37 16,912 – 16,912 – 246 – 246 – 276 – 276 – 276 Movement analysis of risk weighted assets Risk weighted assets As at 31 December 2019 Book size Acquisitions and disposals Book quality Model updates Methodology and policy Foreign exchange movementa Total RWA movements As at 31 December 2020 31 2,382 – 2,518 – 13,123 – 13,195 71 22,434 – 22,434 6,996 30,339 (800) 40,898 30,115 222,320 10,222 306,203 23 178 – 11,821 74,901 2,470 12,854 17,626 21,475 171,553 11 2,481 – 2,504 – 12,854 – 13,032 Credit risk £m 191,343 (6,573) (165) 9,081 2,796 (851) (1,662) 2,626 193,969 Counterparty credit risk £m 32,070 2,232 – 1,365 150 (110) – 3,637 35,707 103 17,729 – 17,729 Market risk £m 30,761 9,188 – – – (4,320) – 4,868 35,629 7,532 29,007 129 40,957 37,690 209,243 10,987 295,131 Operational risk £m 40,957 (59) – – – – – (59) 40,898 Total RWAs £m 295,131 4,788 (165) 10,446 2,946 (5,281) (1,662) 11,072 306,203 Note a Foreign exchange movement does not include foreign exchange for counterparty credit risk or market risk. Overall RWAs increased £11.1bn to £306.2bn (December 2019: £295.1bn). Significant movements in the period were: Credit risk RWAs increased £2.6bn: ■■ a £6.6bn decrease in book size primarily due to lower consumer lending partially offset by growth in mortgages within BUK ■■ a £9.1bn increase in book quality due to a reduction in credit quality primarily within CIB ■■ a £2.8bn increase in model updates primarily due to modelled risk weight recalibrations ■■ a £0.9bn decrease in methodology and policy primarily due the application of revised SME discount factors under CRR II, partially offset by an increase due to the risk weighting of qualifying software assets that are no longer deducted from CET1 capital ■■ a £1.7bn decrease due to the depreciation of period end USD against GBP. Counterparty credit risk RWAs increased £3.6bn: ■■ a £2.2bn increase in book size primarily due to an increase in trading activities across SFTs and derivatives ■■ a £1.4bn increase in book quality primarily due to a reduction in credit quality within CIB. Market risk RWAs increased £4.9bn: ■■ a £9.2bn increase in book size primarily due to an increase in trading activities and higher market volatility ■■ a £4.3bn decrease in methodology and policy primarily due to the removal of a Risk Not In VaR (RNIV) and a reduction in pre COVID-19 VaR backtesting exceptions. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 221 Risk review: Treasury and Capital risk Risk performance continued Leverage ratios and exposures The Group 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. The Group 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 and include the PRA’s early adoption of CRR II settlement netting. The FPC intends to review the UK leverage framework in 2021. Leverage ratiosa,b As at 31 December Average UK leverage ratio Average T1 capitalc Average UK leverage exposure UK leverage ratio CET1 capital AT1 capital T1 capitalc UK leverage exposure 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 Settlement netting UK leverage exposure 2020 £m 5.0% 57,069 2019 £m 4.5% 51,823 1,146,919 1,142,819 5.3% 5.1% 46,296 11,092 57,388 40,813 10,741 51,554 1,090,907 1,007,721 2020 £m 2019 £m 302,446 64,798 164,034 818,236 229,236 56,589 111,307 743,097 1,349,514 1,140,229 (1,144) (1,170) (272,275) (57,414) 14,986 117,010 (197,693) (207,756) (48,464) 13,784 119,118 (123,318) 21,114 18,339 (17,469) (11,984) 113,704 105,289 (155,890) (119,664) (21,229) – 1,090,907 1,007,721 Notes a Fully loaded average UK leverage ratio was 4.8%, with £54.6bn of T1 capital and £1,144bn of leverage exposure. Fully loaded UK leverage ratio was 5.0%, with £54.8bn of T1 capital and £1,088bn of leverage exposure. Fully loaded UK leverage ratios are calculated without applying the transitional arrangements of the CRR as amended by CRR II. b Capital and leverage measures are calculated applying the transitional arrangements of the CRR as amended by CRR II. c The T1 capital is calculated in line with the PRA Handbook. 222 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The average UK leverage ratio increased to 5.0% (December 2019: 4.5%) primarily driven by the increase in T1 capital. The average leverage exposure increased to £1,147bn (December 2019: £1,143bn) primarily driven by an increase in SFTs and TPAs largely driven by an increase in secured lending and client activity within CIB, partially offset by the PRA’s early adoption of CRR II settlement netting. The UK leverage ratio increased to 5.3% (December 2019: 5.1%) primarily driven by an increase of £5.8bn in Tier 1 capital partially offset by an increase in the UK leverage exposure of £83.2bn. The UK leverage exposure increase of £83.2bn was primarily driven by: ■■ a £52.7bn increase in SFTs and £75.1bn of loans advances and other; partially offset by ■■ a £36.2bn decrease due to the exemption of qualifying central bank claims and ■■ a £21.2bn decrease due to the PRA’s adoption of CRR II settlement netting. The Group also discloses a CRR leverage ratioa within its additional regulatory disclosures prepared in accordance with EBA guidelines on disclosure under Part Eight of the CRR (see Barclays PLC Pillar 3 Report 2020, due to be published on 18 February 2021 and which will be available at home.barclays/investor-relations/reports-and-events/latest-financial-results). Note a CRR leverage ratio as amended by CRR II. Minimum requirement for own funds and eligible liabilities Own funds and eligible liabilities ratiosa,b As at 31 December Total Barclays PLC (the Parent company) own funds and eligible liabilities Total own funds and eligible liabilities, including eligible Barclays Bank PLC instrumentsc Own funds and eligible liabilitiesa,b CET1 capital AT1 capital instruments and related share premium accountsd T2 capital instruments and related share premium accountsd Eligible liabilities Total Barclays PLC (the Parent company) own funds and eligible liabilities Qualifying AT1 capital (including minority interests) issued by subsidiaries Qualifying T2 capital (including minority interests) issued by subsidiaries Total own funds and eligible liabilities, including eligible Barclays Bank PLC instrumentsc Total RWAs Total CRR leverage exposuree As a percentage of RWAs 2020 32.7% 33.6% 2019 31.2% 32.8% As a percentage of CRR leverage exposure 2020 8.0% 8.2% 2020 £m 46,296 11,092 7,733 35,086 100,207 646 1,893 102,746 2019 8.2% 8.6% 2019 £m 40,813 10,741 7,416 33,025 91,995 687 3,984 96,666 306,203 295,131 1,254,157 1,126,259 Notes a CET1, T1 and T2 capital, and RWAs are calculated applying the transitional arrangements of the CRR as amended by CRR II. This includes IFRS 9 transitional arrangements and the grandfathering of CRR and CRR II non-compliant capital instruments. b The BoE has set external MREL based on the higher of RWAs and CRR or UK leverage exposures which could result in the binding measure changing in future periods. The 31 December 2020 Barclays PLC (the Parent company) own funds and eligible liabilities ratio as a percentage of the UK leverage exposure was 9.2% and as a percentage of the average UK leverage exposure was 8.7%. c Own funds instruments issued by subsidiaries will not be counted towards MREL from 1 January 2022. d Includes other AT1 capital regulatory adjustments and deductions of £80m (December 2019: £130m), and other T2 credit risk adjustments and deductions of £103m (December 2019: £234m). e Fully loaded CRR leverage exposure is calculated without applying the transitional arrangements of the CRR as amended by CRR II. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 223 Risk review: Treasury and Capital risk Risk performance continued Foreign exchange risk (audited) The 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 Group’s risk management policies are designed to 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 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 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 Group’s foreign currency RWA exposures. Functional currency of operations (audited) As at 31 December 2020 USD EUR JPY Other currencies Total As at 31 December 2019 USD EUR JPY Other currencies Total Foreign currency net investments £m Borrowings which hedge the net investments £m Derivatives which hedge the net investments £m Structural currency exposures pre-economic hedges £m 24,204 5,275 582 2,020 32,081 25,607 3,068 533 2,001 31,209 (7,666) (952) – (42) (8,660) (10,048) (3) – – (10,051) (764) (3) – (24) (791) (1,111) – – (34) (1,145) 15,774 4,320 582 1,954 22,630 14,448 3,065 533 1,967 20,013 Remaining structural currency exposures £m 9,581 4,034 582 1,954 16,151 9,109 1,943 533 1,967 13,552 Economic hedges £m (6,193) (286) – – (6,479) (5,339) (1,122) – – (6,461) Economic hedges relate to exposures arising on foreign currency denominated preference share and AT1 instruments. These are accounted for at historical cost under IFRS and do not qualify as hedges for accounting purposes. The gain or loss arising from changes in the GBP value of these instruments is recognised on redemption in retained earnings. During 2020, total structural currency exposure net of hedging instruments increased by £2.6bn to £16.2bn (2019: £13.6bn). Foreign currency net investments increased by £0.9bn to £32.1bn (2019: £31.2bn) driven predominantly by a £2.2bn increase in EUR, £0.1bn increase in other currencies offset by a £1.4bn decrease in USD. The hedges associated with these investments decreased by £1.7bn to £9.5bn (2019: £11.2bn). Pension risk review The UK Retirement Fund (UKRF) represents approximately 97% (2019: 97%) of the 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 the Management of pension risk section in the Barclays PLC Pillar 3 Report 2020 (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 two largest 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 £33.9bn as at 31 December 2020 (2019: £31.4bn). 224 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 (GBP 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 the 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 2020 that takes account of the future inflation indexing of payments to beneficiaries. The majority of the cash flows (approximately 95%) 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 Proportion of liability cash flows % 2020 27.5 31.1 23.9 12.2 4.7 0.7 0-10 years 11-20 years 21-30 years 31-40 years 41-50 years 51+ years Net IAS 19 position £bn UKRF surplus/de�cit (£bn) 5 4 3 2 1 0 £1.7bn £2.1bn £1.8bn Dec 2018 Dec 2019 Dec 2020 The graph above shows the evolution of the UKRF’s net IAS 19 position over the last two years. During 2020 the reduction in the IAS 19 position was driven by the net effect of bank contributions and a structured transaction agreed between the Bank and the Trustee which deferred the regulatory capital impact of the contributions until 2023-2025. Credit spreads tightening during the year had a negative impact which was broadly offset by changes in other market levels, in particular equity prices and interest rates, and updates to the discount rate methodology and demographic assumptions. Refer to Note 33 for the sensitivity of the UKRF to changes in key assumptions and further information on the structured transaction. 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). To mitigate part of this risk the UKRF has entered into a longevity swap hedging approximately a quarter of current pensioner liabilities. In addition, the impact of pension risk to the 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 the 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 the 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 the 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 the Group’s Overall Capital Requirement for CET1 capital, Tier 1 capital and total capital. More detail on minimum regulatory requirements can be found in the Overall capital requirements section. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 225 Risk review: Treasury and Capital risk Risk performance continued Interest rate risk in the banking book All disclosures in this section are unaudited unless otherwise stated. Overview The treasury and capital risk framework covers interest rate sensitive exposures held 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 Barclays PLC Board Risk Committee as part of the limit monitoring framework. For further detail on the interest rate risk in the banking book governance and framework refer to pages 199 to 200 of the Barclays PLC Pillar 3 Report 2020 (unaudited). Key metrics AEaR -£408m AEaR across the Group from a negative 25bps shock to forward interest rate curves. Summary of performance in the period NII sensitivity to a -25bp shock to rates has increased year on year due to additional margin compression exposure driven by central bank rate cuts and growth in customer deposit balances through the year. The increased margin compression exposure is partially mitigated by hedging and potential margin decompression benefit on variable rate loans. Net interest income sensitivity The table below shows a sensitivity analysis on pre-tax net interest income for non-traded financial assets and liabilities, including the effect of any hedging. NII sensitivity uses the Annual Earnings at Risk (AEaR) metric as described on page 199 of the Barclays PLC Pillar 3 Report 2020 (unaudited). Note that this metric assumes an instantaneous parallel change to forward interest rate curves. The model does not apply floors to shocked market rates, but does recognise contractual product specific interest rate floors where relevant. The main model assumptions are: (i) one-year ahead time horizon; (ii) balance sheet is held constant; (iii) balances are adjusted for assumed behavioural profiles (i.e. considers that customers may prepay the mortgages before the contractual maturity); and (iv) behavioural assumptions are kept unchanged in all rate scenarios. Net interest income sensitivity (AEaR) by business unita (audited) As at 31 December 2020 +25bps -25bps As at 31 December 2019 +25bps -25bps Barclays UK £m Barclays International £m Head Office £m 10 (141) 86 (263) 16 (57) 25 (74) 4 (4) 4 (4) Total £m 100 (408) 45 (135) Note a The Group’s customer banking book hedging activity is risk reducing from an NII sensitivity perspective. The hedges in place remove interest rate risk and smooth income over the medium term. The NII sensitivity for the Group at 31 December 2020 without hedging in place for +/-25bp rate shocks would be £177m/£(485)m respectively. NII sensitivity asymmetry arises due to the current low level of interest rates as some customer products have embedded floors. NII sensitivity to a -25bp shock to rates has increased year on year due to additional margin compression exposure driven by central bank rate cuts and growth in customer deposit balances through the year. NII Sensitivity to a +25bps shock has increased year on year primarily driven by the growth in customer deposit balances. Net interest income sensitivity (AEaR) by currency (audited) As at 31 December GBP USD EUR Other currencies Total 2020 2019 +25 basis points £m 48 48 10 (6) 100 -25 basis points £m (313) (63) (34) 2 (408) +25 basis points £m 38 29 (10) (12) 45 -25 basis points £m (93) (32) (20) 10 (135) 226 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Analysis of equity sensitivity Equity sensitivity measures the overall impact of a +/- 25bps movement in interest rates on retained earnings, fair value through other comprehensive income (FVOCI), cash flow hedge reserves and pensions. For non-NII items a DV01 metric is used, which is an indicator of the shift in value for a 1 basis point movement 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 2020 2019 +25 basis points £m 100 (27) 73 3.0% 73 (437) (570) 272 (662) (1.0%) -25 basis points £m (408) 110 (298) (12.1%) (298) 453 570 (276) 449 0.7% +25 basis points £m 45 (11) 34 1.0% 34 (321) (534) 214 (608) (0.9%) -25 basis points £m (135) 34 (101) (3.0%) (101) 329 534 (216) 546 0.8% Movements in the FVOCI reserve impact CET1 capital. However, movements in the pensions remeasurement reserve recognised in FVOCI only affect CET1 capital if there is an IAS 19 pension deficit. Movements in the cash flow hedge reserve do not affect 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. 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. 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 52 2020 High £m 68 Low £m 36 Average £m 45 2019 High £m 53 Low £m 35 DVaR trended upwards in H1 2020 due to an increase in time series volatility caused by the COVID-19 pandemic stress. Risk in the liquidity pool was reduced at the start of Q3, which caused a downward trend in DVaR, and was stable in Q4. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 227 Risk review: Operational risk Risk performance continued Summary of performance in the period During 2020, total operational risk lossesa increased to £212m (2019: £184m) while the number of recorded events for 2020 (2,381) increased slightly from the level for 2019 (2,165). The total operational risk losses for the year were mainly driven by events falling within the Execution, Delivery & Process Management and External Fraud categories, which tend to be high volume but low impact events. Operational risk profile Within operational risk, there are a large number of smaller value risk events. In 2020, 79% (2019: 83%) of the Group’s reportable operational risk events by volume had a value of less than £50,000 each. Cumulatively, events under this £50,000 threshold accounted for only 17% (2019: 18%) of the Group’s total net operational risk losses. A small proportion of operational risk events have a material impact on the financial results of the Group. Operational risk All disclosures in this section are unaudited unless otherwise stated. Overview Operational risks are inherent in the Group’s business activities and it is not cost effective or possible to attempt to eliminate all operational risks. The Operational Risk Framework is therefore focused on identifying operational risks, assessing them and managing them within the Group’s approved risk appetite. The Operational Risk principal risk comprises the following risks: Data Management Risk; Financial Reporting Risk; Fraud Risk; Information Security Risk, Operational Resilience Planning Risk, Payments Process Risk; People Risk; Physical Security Risk; Premises Risk; Supplier Risk; Tax Risk; Technology Risk and Transaction Operations Risk. The operational risk profile is also informed by a number of risk themes: Cyber, Data, and Resilience. These represent threats to the Group that extend across multiple risk types, and therefore require an integrated risk management approach. For definitions of these risks refer to pages 202 to 203 of the Barclays PLC Pillar 3 Report 2020. In order to provide complete coverage of the potential adverse impacts on the 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 the Group’s operational risk profile, including events above the Group’s reportable threshold, which have had a financial impact in 2020. The 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, Information Security and Technology continue to be highlighted as key operational risk exposures. For information on conduct risk events, see the conduct risk section. Key metrics 79% of the Group’s net reportable operational risk events had a loss value of £50,000 or less 72% of events by number are due to External Fraud 68% of losses are from events aligned to Execution, Delivery and Process Management 228 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements ■■ Execution, Delivery and Process Management impacts remain the highest contributor to total losses increasing to £144m (2019: £111m) and accounting for 68% (2019: 60%) 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, mapping mainly to Barclays Transaction Operations risk type. The overall frequency of events in this category remained broadly stable year-on-year at 24% of total events by volume (2019: 27%). ■■ External Fraud remains the category with the highest frequency of events at 72% of total events in 2020 (2019: 68%). In this category, high volume, low value events are driven by transactional fraud often related to debit and credit card usage. Ratio of losses in this category remained stable at 26% of total 2020 losses (2019: 30%). ■■ Business Disruption and System Failures accounted for a reduced share of total impacts at 5% (2019: 9%), with actual losses down to £10m (2019: £17m) and volume of events fell down to 51 (2019: 93). The analysis below presents the Group’s operational risk events by Basel event category: Operational risk events by BASEL event categorya % of total risk events by count % of total risk events by value Internal fraud 2020 0.2% 2019 0.2% External fraud 2020 2019 71.5% 67.8% Internal fraud 2020 0.1% 2019 0.1% External fraud 2020 2019 25.7% 29.6% Execution delivery and process management Execution delivery and process management 2020 2019 24.4% 26.7% 2020 2019 68.2% 60.1% Employment practices and workplace safety Employment practices and workplace safety 2020 1.4% 2019 0.7% 2020 1.0% 2019 0.4% Damage to physical assets Damage to physical assets 2020 0.1% 2019 0.2% 2020 0.1% 2019 0.5% Clients, products and business practices Clients, products and business practices 2020 0.1% 2019 0.0% Business disruption and system failures 2020 2.1% 2019 4.3% 2020 0.0% 2019 0.0% Business disruption and system failures 2020 4.9% 2019 9.2% Note a The data disclosed includes operational risk losses for reportable events 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 have been updated. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 229 Risk review: Operational risk Risk performance continued Likewise, operational risk associated with cybersecurity remains a top focus for the Group. The sophistication of threat actors continues to grow as noted by multiple external risk events observed throughout the year. Multiple ransomware attacks across the global Barclays supplier base were observed and we worked closely with the affected suppliers to manage potential impacts to the Group and its clients and customers. The Group’s cybersecurity events were managed within its risk tolerances and there were limited to no loss events associated with cyber-security recorded within the event categories above. For additional information on the Bank’s cybersecurity risk exposure, see the operational risk management section. For further information, refer to the operational risk management section. Investment continues to be made in improving the control environment across the 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 the Group continues to work closely with external partners on various prevention initiatives. Operational Resilience is and has been a key area of focus for the Group. The COVID-19 pandemic is the most severe global health emergency the World Health Organization (WHO) has ever declared. While overall, the Group proved to be resilient, the COVID-19 pandemic has caused disruption to the Group’s customers, suppliers, and staff globally. The COVID-19 pandemic has reinforced our continued focus on resilience risk. Due to the COVID-19 pandemic, the Group experienced operational disruptions primarily during the Group’s and its suppliers’ transition to a Work-from-Home environment and in response to high market volatility. Further, the prolonged nature of the event identified the need to enhance our resilience planning programme to improve our response to similar events with an extreme and prolonged impact. Despite these issues, the early activation of our Crisis Leadership Team facilitated swift and decisive actions to limit and manage the impacts which resulted in normal risk exposures as reported above. For additional information on the risk exposure due to the COVID-19 pandemic, see the operational risk management  section. 230 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Risk review: Model risk, Conduct risk, Reputation risk and Legal risk Model risk, Conduct risk, Reputation risk and Legal risk All disclosures in this section are unaudited unless otherwise stated. Model risk Since the inception of model risk as a principal risk, key achievements to date include creating a firm-wide model inventory, design and roll out of a robust Model Risk Management (MRM) framework and the validation of high materiality models. In 2020, the framework and governance of model risk was further improved by: ■■ strengthening the model inventory management infrastructure by moving onto a new strategic technology platform, which will enable future enhancements and automation of controls ■■ progressing the validation of low materiality models to achieve 95% target for models under governance ■■ enhancing model risk management oversight with the establishment of dedicated MRM forums which bring together model developers, model owners and model validators. In 2021, MRM will continue to focus on the validation of low materiality models, further embedding of validation and governance activities and on expanding the coverage of the MRM framework to new model types. Conduct risk Barclays is committed to continuing to drive the right culture throughout all levels of the organisation. The Group 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, alongside other relevant business and control management information, the Trading Entity Conduct Risk Dashboards are a key component of this. The Group continues to review the role and impact of conduct risk events and issues in remuneration decisions at both the individual and business level. During 2020, the coronavirus pandemic created new risks and heightened existing ones. To date, the Group has focused on managing the heightened inherent conduct risks and continues to monitor these as the pandemic continues. Barclays PLC Annual Report 2020 Businesses have continued to assess the potential customer, client and market impacts of strategic change. As part of the 2020 medium- term planning process, material conduct risks associated with strategic and financial plans were assessed. Throughout 2020, conduct risks were raised by each business area for consideration by relevant Board level committees. These committees reviewed the risks raised and whether management’s proposed actions were appropriate to mitigate the risks effectively. The Group continued to incur costs in relation to litigation and conduct matters, refer to Note 26 Legal, competition and regulatory matters and Note 24 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 the Group’s strategy and an ongoing commitment to improve oversight of culture and conduct. Trading Entity Conduct Risk Dashboards, setting out key indicators in relation to Conduct and Financial Crime, are provided to the respective Board Risk Committees and senior management. 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 2020. The tolerance adherence is assessed by the business areas through key indicators, which are aggregated to provide an overall risk profile rating and reported to the relevant Trading Entity Board level Committees as part of the Conduct Risk Dashboard. The Group remains focused on the continuous improvements being made to manage risk effectively with an emphasis on enhancing governance and management information to identify risk at earlier stages. Reputation risk Barclays is committed to identifying reputation risks and issues as early as possible and managing them appropriately. At a Group level throughout 2020, reputation risks and issues were overseen by the Board which reviews the processes and policies by which Barclays identifies and manages reputation risk. Within the Barclays Bank UK Group and the Barclays Bank Group reputation risks and issues were overseen by the respective risk and Board risk committees. The top live and emerging reputation risks and issues within the Barclays Bank UK Group and the Barclays Bank Group are included within an over-arching quarterly report at the respective Board level. The Board 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. The Board also received regular updates with regard to key reputation risks and issues, including: Barclays’ response to the pandemic; Barclays’ association with sensitive sectors; access to banking; lending practices and the resilience of key Barclays systems and processes. The Group continued to incur costs in relation to litigation and conduct matters, refer to Note 26 Legal, competition and regulatory matters and Note 24 Provisions for further details. Costs include customer redress and remediation, as well as fines and settlements. Resolution of these matters remains an ongoing commitment to improve oversight of culture and conduct and management of reputation. In 2020, Corporate Relations received 695 referrals from across the businesses (498 referrals in 2019) for consideration. These referrals covered a variety of potentially controversial sectors and topics including, but not limited to, environmental and social risks. As part of Barclays 2020 Medium Term Planning process, material reputation risks associated with strategic and financial plans were also assessed. Legal risk The Group remains committed to continuous improvements to manage legal risk effectively. A number of enhancements have been implemented during 2020, including a refresh of the Group-wide legal risk management framework and a review and update of the supporting legal risk policies, legal risk tolerances and risk appetite. Legal risk reporting has been enhanced both in terms of format and content. There has also been a re-write of the Group- wide legal risk mandatory training, reinforced by ongoing engagement with and education of the Group’s businesses and functions by Legal Function colleagues. Throughout 2020, the Group has operated within set tolerances for legal risk. Tolerance adherence is assessed through key indicators, which are also used to evaluate the legal risk profile and are reviewed, at least annually, through the relevant risk and control committees. Minimum mandatory controls to manage legal risks are set out in the legal risk standards and are subject to ongoing monitoring. Barclays PLC home.barclays/annualreport 231 Risk review Supervision and regulation Supervision of the Group The 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 authorisation to conduct banking and financial services business in each of the jurisdictions in which the 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. Regulatory developments impact the Group globally. We focus particularly on UK, US and EU regulation due to the location of the Group’s principal areas of business. Regulations elsewhere may also have a significant impact on the 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 the Group, including regulatory change, see the material existing and emerging risk entitled ‘Regulatory Change agenda and impact on Business Model’ in the Material existing and emerging risks section. Supervision in the UK In the UK, day-to-day regulation and supervision of the Group is divided between the Prudential Regulation Authority (PRA) (a division of the Bank of England (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 credit institutions and subject to prudential supervision by the PRA and subject to conduct regulation and supervision by the FCA. The Group is also subject to prudential supervision by the PRA on a group consolidated basis. Barclays Capital Securities Limited is authorised and supervised by the PRA as a PRA-designated investment firm and subject to conduct regulation and supervision by the FCA. Barclays Execution Services Limited is an appointed representative of Barclays Bank PLC, Barclays Bank UK PLC and Clydesdale Financial Services Limited. The 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. The PRA’s supervision of the Group is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns or cross-firm reviews, reports obtained from skilled persons, regular supervisory visits to firms and regular meetings with management and Directors to discuss issues such as strategy, governance, financial resilience, operational resilience, risk management, and recovery and resolution. Both the PRA and the FCA apply 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’s supervision of the UK firms in the 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. The FCA and the PRA also apply the Senior Managers and Certification Regime (the SMCR) which imposes a regulatory approval, individual accountability and fitness and propriety framework in respect of senior or key individuals within relevant firms. FCA supervision has focused on conduct risk and customer/client outcomes, including product design, customer behaviour, market operations, LIBOR transition, fair pricing, affordability, access to cash, and fair treatment of vulnerable customers. PRA supervision has focused on capital management, credit risk management, Board effectiveness, operational resilience and resolvability. Both the PRA and the FCA have assessed the impact of COVID-19 and Brexit on UK financial markets and customers. Supervision in the EU The Group’s operations in Europe are authorised and regulated by a combination of its home regulators and host regulators in the European countries where the Group operates. Barclays Bank Ireland PLC is licensed as a credit institution by the Central Bank of Ireland (CBI) and is designated as a significant institution falling under direct supervision on a solo basis by the European Central Bank (ECB) for prudential purposes. Barclays Bank Ireland PLC’s EU branches are supervised by the ECB and are also subject to direct supervision for local conduct purposes by national supervisory authorities in the jurisdictions where they are established. Barclays Bank Ireland PLC is also subject to supervision by the CBI as home state or competent authority under various EU financial services directives and regulations. Brexit The EU-UK Trade and Cooperation Agreement (TCA), which provides a new economic and social partnership between the EU and UK, came into force provisionally on 1 January 2021. The TCA does not cover the provision of financial services into the EU and there is no agreement on passporting, equivalence or regulatory cooperation. Therefore, UK-based entities within the Group (such as Barclays Bank PLC and Barclays Bank UK PLC) are no longer able to rely on the EU passporting framework for the provision of financial services to EU clients. Accordingly, Barclays Bank PLC and Barclays Capital Securities Limited have put in place new arrangements in the provision of cross-border banking and investment services to customers and counterparties in the EEA, including by servicing EEA clients through the Group’s EEA hub (Barclays Bank Ireland PLC). As a ring-fenced bank, Barclays Bank UK Group products are designed for customers within the UK. In light of the UK leaving the EU, Barclays Bank UK Group has continued to review the services offered to customers in the EEA, taking into account a number of factors, including the regulatory landscape across the EEA and, where relevant, feedback from EEA regulators. As a result, it has made the decision to exit certain products and services offered to EEA customers and closure processes are ongoing. Barclays Bank UK Group continues to keep its strategy under review for its remaining EEA customers. 232 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements The EU and the UK have agreed to establish structured regulatory cooperation on financial services, with the aim of establishing a durable and stable relationship, based on a shared commitment to preserve financial stability, market integrity, and the protection of investors and consumers. The EU and the UK have committed to agreeing a Memorandum of Understanding setting out a ‘framework’ for regulatory cooperation in financial services by March 2021. We anticipate that consideration will be given to equivalence determinations as part of the discussions. Mutual equivalence decisions between the UK and EU relating to market access would allow UK-based entities within the Group to offer a restricted number of financial products and services to customers and clients based in the EEA, including permanent access to EU trading venues as well as allowing EEA based clients to access some UK originated products and services, including permanent access to UK trading venues. However, the EU equivalence regime is very different to benefiting from passporting rights; the equivalence regimes that facilitate access to customers and clients based in the EEA under EU law differ significantly in their scope, operation and impact. Equivalence decisions do not cover services to retail customers, for example. Under the current framework, equivalence decisions can be revoked at any time. To date, the EU and UK have only agreed a temporary position on mutual equivalence in relation to clearing and settlement (CCPs). In addition, HM Treasury has made certain unilateral equivalence decisions, including under the Capital Requirements Regulation (CRR) and European Market Infrastructure Regulation (EMIR). ‘Onshoring’ was the process of amending EU legislation and regulatory requirements in the UK so that they work in a UK-only context, including directly applicable EU legislation such as EU regulations and decisions that form part of UK law by virtue of the European Union (Withdrawal) Act 2018, now that the Brexit transition period has ended. The onshoring process means that there are some areas where the requirements on UK firms and other regulated persons have changed. To help UK firms adapt to their new requirements, HM Treasury gave UK financial regulators the power to make transitional provisions to financial services legislation for a temporary period. This is known as the Temporary Transitional Power (TTP). The FCA has applied the TTP on a broad basis from the end of the transition period until 31 March 2022. This means UK firms and other regulated persons do not generally need to adjust to the changes to their UK regulatory obligations brought about by onshoring straightaway, although there are some exceptions to this and obligations which have changed and which took effect from 1 January 2021 include reporting obligations under various EU financial services directives and regulations, certain requirements under the Market Abuse Regulation, issuer rules, contractual recognition of bail-in, securitisation, use of credit ratings, mortgage lending after the transition period against land in the EEA, payments services and certain other matters. On 31 December, the FCA published a statement on its use of the TTP to modify the UK’s derivatives trading obligation (the UK DTO). Without mutual equivalence, some firms and EEA clients will be caught by a conflict of law between the EU DTO and the UK DTO. The FCA is therefore using the TTP to modify the application of the UK DTO. Where firms that are subject to the UK DTO trade with, or on behalf of, EU clients that are subject to the EU DTO, they will be able to transact or execute those trades on EU venues providing that: (i) firms take reasonable steps to be satisfied the client does not have arrangements in place to execute the trade on a trading venue to which both the UK and EU have granted equivalence (for example, a US venue such as a swap execution facility); and (ii) the EU venue has the necessary regulatory status to do business in the UK (such venues include those that are a Recognised Overseas Investment Exchange, have been granted the relevant temporary permission, or are certain that they benefit from the Overseas Person Exclusion). This modification of the application of the UK DTO applies to UK firms, EU firms using the UK’s temporary permissions regime, and branches of overseas firms in the UK. Transactions concluded by an EEA UCITS fund or an EEA AIF are currently outside the scope of the UK DTO. The relief under the TTP does not apply to trades with non-EU clients, proprietary trading conducted, for example, to hedge a firm’s own risk exposure, and trades between UK branches of EU firms. These trades remain subject to the UK DTO and firms are required to take reasonable steps to ensure compliance during Q1 2021. The FCA will consider by 31 March 2021 whether market or regulatory developments warrant a review of its approach. On 28 December 2020, the PRA published a policy statement (PS30/20) on changes to its rules, as well as the use of temporary transitional directions. The PRA’s transitional direction and the majority of the provisions in the rulebook instrument came into force at the end of the transition period on 31 December 2020. The transitional direction delays onshoring changes that fall within the PRA’s remit. The PRA TTP will apply until 31 March 2022, unless otherwise stated in the direction or it is varied or revoked before then. As a result of the onshoring of EU legislation in the UK and the exercise of the TTPs, UK firms in the Group are currently subject to substantially the same rules and regulations as before Brexit. The UK intends to recast onshored EU legislation into PRA and FCA rules and to complete UK implementation of the remaining Basel III reforms. The regulatory regimes for EU and UK financial services may change further, and temporary permissions and equivalence decisions may expire, and not be replaced, which would result in further adjustments to the UK regulatory landscape. Supervision in the US Barclays PLC, Barclays Bank PLC and its New York branch, and Barclays Bank PLC’s US subsidiaries are subject to a comprehensive regulatory framework involving numerous statutes, rules and regulations in the US. For example, the Group’s US activities and operations are subject to supervision and regulation 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 self-regulatory organisations (SROs). In some cases, US requirements may impose restrictions on the Group’s global activities, in addition to its activities in the US. Barclays PLC, Barclays Bank PLC, Barclays US Holdings Limited (BUSHL), Barclays US LLC (BUSL), and Barclays Group US Inc. (BGUS) are regulated as bank holding companies (BHCs) by the FRB. BUSL is the Group’s top-tier US holding company that holds substantially all of the Group’s US subsidiaries (including Barclays Capital Inc. and Barclays Bank Delaware). BUSL is subject to requirements in respect of capital adequacy, capital planning and stress testing, risk management and governance, liquidity, leverage limits, large exposure limits, activities restrictions and financial regulatory reporting. Barclays Bank PLC’s New York branch is also subject to enhanced prudential standards relating to, among other things, liquidity and risk management. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 233 Risk review Supervision and regulation continued Barclays PLC, Barclays Bank PLC, BUSHL and BUSL have elected to be treated as financial holding companies (FHCs) under the Bank Holding Company Act of 1956. FHC 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 FHC status could result in increasingly stringent penalties and, ultimately, in the closure or cessation of certain operations in the US. In addition to oversight by the FRB, Barclays Bank PLC’s New York branch and many of the Group’s subsidiaries are regulated by additional authorities based on the location or activities of those entities. The New York branch of Barclays Bank PLC is subject to supervision and regulation by the New York State Department of Financial Services (NYSDFS). Barclays Bank Delaware, a Delaware chartered bank, is subject to supervision and regulation by the Delaware Office of the State Bank Commissioner, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Bank of New York and the Consumer Financial Protection Bureau (CFPB). The deposits of Barclays Bank Delaware are insured by the FDIC. Barclays PLC, Barclays Bank PLC, BUSHL, BUSL, and BGUS are required to act as a source of strength for Barclays Bank Delaware. This could, among other things, require these entities to inject capital into Barclays Bank Delaware if it fails to meet applicable regulatory capital requirements. The Group’s US securities broker/dealer and investment banking operations, are conducted primarily through Barclays Capital Inc., and 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 under US federal and state securities laws. The Group’s US futures, options and swaps- related activities, including 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 a US registered swap dealer and is subject to the FRB swaps rules with respect to margin and capital requirements. Supervision in Asia Pacific The Group’s operations in Asia Pacific are supervised and regulated by a broad range of national banking and financial services regulators. Prudential regulation Certain Basel III standards were implemented in EU law through the Capital Requirements Regulation (CRR) and the Capital Requirements Directive IV (CRD IV), as amended by CRR II and CRD V. Under the terms of the EU-UK Withdrawal Agreement of 24 January 2020, the Group remained subject to the EU regulatory framework until the end of the transition period on 31 December 2020. Beyond the minimum standards required by CRR, the PRA has expected the 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. Global systemically important banks (G-SIBs), such as the Group, 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 Financial Stability Board (FSB) according to a bank’s systemic importance and can range from 1% to 3.5% of risk weighted assets (RWAs). The G-SIB buffer must be met with CET1. In November 2020, the FSB published an update to its list of G-SIBs, maintaining the 1.5% G-SIB buffer that applies to the Group. The Group is also subject to a ‘combined buffer requirement’ consisting of (i) a capital conservation buffer, and (ii) a countercyclical capital buffer (CCyB). The CCyB is based on rates determined by the regulatory authorities in each jurisdiction in which the Group maintains exposures. In March 2020, the FPC cut the UK CCyB rate to 0% with immediate effect in order to support the supply of credit expected as a result of the COVID-19 pandemic. The PRA requires UK firms to hold additional capital to cover risks which the PRA assesses are not fully captured by the Pillar 1 capital requirement. The PRA sets this additional capital requirement (Pillar 2A) at least annually, derived from each firm’s individual capital guidance. Under current PRA rules, the Pillar 2A must be met with at least 56% CET1 capital and no more than 25% Tier 2 capital. In addition, the capital that firms use to meet their minimum requirements (Pillar 1 and Pillar 2A) cannot be counted towards meeting the combined buffer requirement. As part of its approach to ring fencing, the FPC established a framework to apply a firm-specific systemic risk buffer (SRB) which could be set between 0% and 3% of RWAs and which must be met solely with CET1 capital. The purpose of the SRB was to increase the capacity of ring-fenced bodies, such as Barclays Bank UK PLC, to absorb stress. The buffer rate applicable to the Group’s ring-fenced sub-group was set at 1% with effect from August 2019. In response to the economic shock from COVID-19, the PRA and FPC held firms’ SRB rates at their existing levels until December 2021. With the implementation of CRD V, the Other Systemically Important Institutions Buffer (O-SII buffer) replaced the SRB. As part of the implementation of CRD V, the PRA and FPC confirmed that the Barclays Bank UK PLC O-SII buffer would be held at the historic SRB rate of 1% until reassessment in December 2021, with any future adjustment to the O-SII buffer applicable from January 2023. The PRA may also impose a ‘PRA buffer’ to cover risks over a forward-looking planning horizon, including with regard to firm-specific stresses or management and governance weaknesses. If the PRA buffer is imposed on a specific firm, it must be met separately to the combined buffer requirement, and must be met fully with CET1 capital. In the US, in October 2019, the FRB and other US regulatory agencies released final rules to tailor the applicability of prudential requirements for large domestic US banking organisations, foreign banking organisations and their intermediate holding companies (IHCs), including BUSL. BUSL is a ‘Category III’ IHC. BUSL (and Barclays Bank Delaware) is therefore subject to reduced (calibrated at 85%) standardised liquidity requirements, including the liquidity coverage ratio, which has been implemented by the US regulatory agencies, and the NSFR, which will become effective on 1 July 2021. 234 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements In addition, the BoE has the power to permanently write-down, or convert into equity, Tier 1 capital instruments, Tier 2 capital instruments and eligible liabilities at the point of non-viability of the bank. The BoE’s preferred approach for the resolution of the 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 capital instruments and eligible liabilities would be written down or converted to equity in order to recapitalise the Group and allow for the continued provision of services and operations throughout the resolution. The order in which the bail-in tool is applied reflects the hierarchy of capital instruments under CRD IV and otherwise respecting the hierarchy of claims in an ordinary insolvency. Accordingly, the more subordinated the claim, the more likely losses will be suffered by owners of the claim. 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. Removal of potential impediments to an orderly resolution of a banking 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. The Group currently provides the PRA with a recovery plan annually and with a resolution pack as requested. In July 2019, the BoE and PRA published final policies on the Resolvability Assessment Framework (RAF), designed to increase transparency and accountability and clarify the responsibilities on firms with respect to resolution. Firms are required to develop capabilities by 1 January 2022 covering three resolvability outcomes: (i) adequate financial resources; (ii) being able to continue to do business through resolution and restructuring; and (iii) being able to communicate and co-ordinate within the firm and with authorities. The first self-assessment report on these capabilities is expected to be submitted to the PRA/BoE by October 2021 with public disclosures by both firms and the PRA/BoE in June 2022 (and every two years thereafter). While regulators in many jurisdictions have indicated a preference for single point of entry resolution for the Group, additional resolution or bankruptcy provisions may apply to certain Group entities or branches. In June 2018 and October 2019, the FRB finalised rules regarding single counterparty credit limits (SCCL). The SCCL apply to the largest US BHCs and foreign banks’ (including the Group’s) US operations. The SCCL creates two separate limits for foreign banks, the first on combined US operations (CUSO) and the second on the US IHC (BUSL). The SCCL for US BHCs, including BUSL, requires that exposure to an unaffiliated counterparty of BUSL not exceed 25% of BUSL’s Tier 1 capital. With respect to the CUSO, the SCCL rule allows certification to the FRB that a foreign bank complies with comparable home country regulation. Barclays Bank PLC is not required to comply with the CUSO requirement until 1 July 2021. Stress testing The Group and certain of its members are subject to supervisory stress testing exercises in a number of jurisdictions, 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 such elements as data provision, stress testing capability including model risk management and internal management processes and controls. Recovery and Resolution Stabilisation and resolution framework The UK framework for recovery and resolution was established by the Banking Act 2009, as amended. The EU framework was established by the 2014 Bank Recovery and Resolution Directive (BRRD), as amended by BRRD II. The BoE, as the UK resolution authority, has the power to resolve a UK financial institution that is failing or likely to fail by exercising several stabilisation options, including transferring such institution’s business or securities to a commercial purchaser or a ‘bridge bank’ owned by the BoE or transferring the institution into temporary public ownership. 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 in insolvency. 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, or override events of default or termination rights that might otherwise be invoked as a result of a resolution action and modify contractual arrangements in certain circumstances (including a variation of the terms of any securities). HM Treasury may also amend the law for the purpose of enabling it to use its powers under this regime effectively, potentially with retrospective effect. Barclays PLC Annual Report 2020 In the US, BUSL is subject to the Orderly Liquidation Authority established by Title II of the Dodd-Frank Act (DFA), a regime for the orderly liquidation of systemically important financial institutions by the FDIC, as an alternative to proceedings under the US Bankruptcy Code. In addition, the licensing authorities of Barclays Bank PLC New York branch and of Barclays Bank Delaware have the authority to take possession of the business and property of the applicable branch or entity they license and/or to revoke or suspend such licence. In the US, Title I of the DFA, as amended, and the implementing regulations issued by the FRB and the FDIC require each bank holding company with assets of $250bn or more, including those within the 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. The Group’s next submission of the US Resolution Plan in respect of its US operations will be a ‘targeted plan’ due on 17 December 2021. Barclays Bank Ireland PLC, as a significant institution under the Single Resolution Mechanism Regulation (SRMR), is subject to the powers of the Single Resolution Board (SRB) as the Eurozone resolution authority. The CBI and the ECB require 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 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 Group is subject to a Minimum Requirement for own funds and Eligible Liabilities (MREL), which includes a component reflecting the FSB’s standards on total loss absorbency capacity (TLAC). The MREL requirements will be fully implemented by 1 January 2022, at which time G-SIBs with resolution entities incorporated in the UK will be required to meet an MREL equivalent to the higher of: (i) two times the sum of their Pillar 1 and Pillar 2A requirements; or (ii) the higher of two times their leverage ratio or 6.75% of leverage exposures. Internal MREL for operating subsidiaries is subject to a scalar in the 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 is 90% for ring-fenced bank sub-groups. Barclays PLC home.barclays/annualreport 235 Risk review Supervision and regulation continued Barclays Bank Ireland PLC is subject to the SRB’s MREL policy, as issued in May 2020, in respect of the internal MREL that it will be required to issue to the Group. The SRB’s current calibration of internal MREL for non-resolution entities is expressed as two ratios that have to be met in parallel: (a) two times the sum of: (i) the firm’s Pillar 1 requirement; (ii) its Pillar 2 requirement; and (b) two times the leverage ratio. The SRB’s policy does not envisage the application of any scalar in respect of the internal MREL requirement. In the US, the FRB’s TLAC rule includes provisions that require BUSL 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 prohibits BUSL, for so long as the Group’s overall resolution plan treats BUSL as a non-resolution entity, from issuing TLAC to entities other than those within the Group. Bank Levy and FSCS The BRRD established a requirement for EU member states to set up 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. The UK has implemented this requirement 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 authorised financial services firms. Structural reform In the UK, the Financial Services (Banking Reform) Act 2013 put in place a framework for ring-fencing certain operations of large banks. Ring-fencing requires, among other things, the separation of the retail and smaller deposit-taking business activities of UK banks into a legally distinct, operationally separate and economically independent entity, which is not permitted to undertake a range of activities. US regulation places further substantive limits on the activities that may be conducted by banks and holding companies, including foreign banking organisations such as the 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, the 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). Market infrastructure regulation In recent years, regulators as well as global- standard setting bodies such as the International Organisation of Securities Commissions (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 pre-trade and post-trade information. The European Market Infrastructure Regulation (EMIR) has introduced requirements designed to improve transparency and reduce the risks associated with the derivatives market. EMIR has potential operational and financial impacts on the Group, including by imposing new collateral requirements. Over the coming months alterations to the existing derivative margin rules are expected to be finalised. The Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation (collectively referred to as MiFID II) have affected many of the markets in which the Group operates, the instruments in which it trades and the way it transacts with market counterparties and other customers. MiFID II is currently undergoing a review process, including as part of the EU’s ongoing focus on the development of a stronger Capital Markets Union. The EU Regulation on Sustainability-Related Disclosures introduces disclosure obligations requiring financial institutions to explain how they integrate environmental, social and governance factors in their investment decisions for certain financial products. In addition, the EU Taxonomy Regulation provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities. Finally, the UK and EU regulators are consulting on, amongst other things, proposals for regulatory measures to enhance climate and environmental disclosures and climate risk assessments, which will have an impact on the Group’s existing practices in these areas. The EU Benchmarks Regulation applies to the administration, contribution and use of benchmarks within the EU. Financial institutions within the EU are prohibited from using benchmarks unless their administrators are authorised, registered or otherwise recognised in the EU, subject to transitional provisions expiring on 1 January 2022 (or 31 December 2022 under the UK onshored Benchmarks Regulation). Amendments to extend these provisions are underway for both the EU and UK Benchmarks Regulations. The FCA has stated that it does not intend to support LIBOR after the end of 2021. International initiatives in conjunction with global regulators are therefore underway to develop alternative benchmarks and risk-free rate fallback arrangements, including updates to existing, as well as new, applicable legislation. 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 finalised certain aspects of 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 cross-border applicability. 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. In November 2020, the CFTC extended temporary relief that would permit trading venues and market participants located in the UK to continue to rely on this mutual recognition framework following the withdrawal of the UK from the EU. 236 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Certain participants in US swap markets are required to register with the CFTC as ‘swap dealers’ or ‘major swap participants’ and/or, beginning in November 2021, with the SEC as ‘security-based swap dealers’ or ‘major security-based swap participants’. Such registrants are subject to CFTC, and will 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. Barclays Bank PLC is subject to regulation by the FRB, and has provisionally registered with the CFTC as a swap dealer. Accordingly, Barclays Bank PLC is subject to CFTC rules on business conduct, record- keeping and reporting and to FRB rules on capital and margin. The CFTC has approved certain comparability determinations that permit substituted compliance with non-US regulatory regimes for certain swap regulations. Substituted compliance is permitted for certain transaction-level requirements, where applicable, only with respect to transactions between a non-US swap dealer and a non-US counterparty, whereas entity-level determinations generally apply on an entity- wide basis regardless of counterparty status. In November 2020, the CFTC extended temporary relief that would permit swap dealers located in the UK to continue to rely on existing CFTC substituted compliance determinations with respect to EU requirements in the event of a withdrawal of the UK from the EU. In addition, the CFTC has issued guidance 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. The CFTC has provided temporary no-action relief from application of the guidance. In July 2020 the CFTC adopted rules that, for certain CFTC requirements, codify on a permanent basis, the temporary no-action relief for transactions that are arranged, negotiated or executed in the US. The final rules also codify certain aspects of the CFTC’s current cross-border framework with respect to internal and external business conduct requirements, and it is expected that the CFTC will introduce additional rules addressing the application of the cross-border framework to mandatory clearing, trading and reporting requirements. In October 2017, the CFTC issued an order permitting substituted compliance with EU margin rules for certain uncleared derivatives. However, as the 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. The SEC has finalised the rules governing security based swap dealer registration in 2015, and registration of security-based swap dealers, as well as compliance with applicable security based swap dealer requirements, is expected to begin in November 2021. It is anticipated that Barclays Bank PLC and/or one or more of its affiliates will be required to register as a security-based swap dealer and 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. As with similar CFTC rules, it is expected that substituted compliance will be available for certain security-based swap dealer requirements; however, the SEC is currently considering applications for substituted compliance but has only issued a final comparability determination for Germany, and the ultimate scope and applicability of other determinations, including in respect of the UK, remains unclear. Other regulation Culture Our regulators have 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. Data protection and PSD2 Most countries where the Group operates have comprehensive laws requiring openness and transparency about the collection and use of personal information, and protection against loss and unauthorised or improper access. The EU’s General Data Protection Regulation (GDPR) created a broadly harmonised privacy regime across EU member states, introducing mandatory breach notification, enhanced individual rights, a need to openly demonstrate compliance, and significant penalties for breaches. The extraterritorial effect of the GDPR means entities established outside the EU may fall within the Regulation’s ambit when offering goods or services to European based customers or clients. Following the UK’s withdrawal from the EU, the UK continues to apply the GDPR framework (as onshored into UK law and hence now referred to as the ‘UK GDPR’ – this sits alongside an amended version of the UK Data Protection Act 2018). Two years after its introduction the GDPR has become the global touchstone as countries around the world either usher in or contemplate similar data privacy laws, or align their existing legislation. During 2020 new privacy laws have been passed in Switzerland, took effect in Brazil and Dubai, and were proposed in India and China. Barclays PLC Annual Report 2020 In the US, Barclays US Consumer Bank is subject to the US Federal Gramm-Leach-Bliley Act (GLBA) and the California Consumer Privacy Act of 2018, which came into effect on 1 January 2020 (CCPA). The GLBA limits the use and disclosure of non-public personal information to non-affiliated third parties and requires financial institutions to provide written notice of their privacy policies and practices. Any violations of the GLBA could subject the US Consumer Bank to additional reporting requirements or regulatory investigation or audits by the financial regulators. The CCPA only applies to personal information that is not collected, processed, sold or disclosed pursuant to the GLBA, and it requires the US Consumer Bank to provide California consumers with additional disclosures regarding the collection, use and sharing of personal information, and grants California consumers access, deletion, and other rights with respect to their personal information. The CCPA subjects the US Consumer Bank to enforcement penalties by the Attorney General of the State of California, and grants a private right of action with respect to certain data breaches. From 14 September 2019, new rules apply under the revised Payment Services Directive (PSD2) that affect the way banks and other payment services providers check that the person requesting access to an account or trying to make a payment is permitted to do so. This is referred to as strong customer authentication (SCA). In April 2020, the FCA provided an additional six months (to 14 September 2021) for the industry to implement SCA for e-commerce. Cyber security and operational resilience Regulators in the UK, the EU and the US continue to focus on cyber security risk management, organisational operational resilience and overall soundness across all financial services firms, with customer and market expectations of continuous access to financial services at an all-time high. This is evidenced by the publication of a number of proposed laws and changes to regulatory frameworks. For example, the UK regulators published for consultation a new framework for operational resilience that focuses on the identification of important business services, setting impact tolerances for them, and then testing against them. The European Commission has proposed legislation on cyber security and operational resilience for the financial services sector, including oversight of third party service providers. The regulatory focus has been further heightened by the COVID-19 pandemic. The existing and anticipated requirements for increased controls will serve to improve industry standardisation and resilience capabilities, enhancing our ability to deliver services during periods of potential disruption. However, such measures are likely to result in increased technology and compliance costs for the Group. Barclays PLC home.barclays/annualreport 237 Risk review Supervision and regulation continued In the US, the Bank Secrecy Act, the USA PATRIOT Act 2001, the Anti-Money Laundering Act of 2020 and regulations thereunder contain numerous anti-money laundering and anti-terrorist financing requirements for financial institutions. In addition, the Group is subject to the US Foreign Corrupt Practices Act, which prohibits, among other things, corrupt payments to foreign government officials. It is also subject to various economic sanctions laws, regulations and executive orders administered by the US government, which prohibit or restrict some or all business activities and other dealings with or involving certain individuals, entities, groups, countries and territories. In some cases, US state and federal regulations addressing sanctions, money laundering and other financial crimes may impact entities, persons or activities located or undertaken outside the US, including Barclays PLC and its subsidiaries. US government authorities have aggressively enforced these laws against financial institutions in recent years. Failure of a financial institution to ensure compliance with such laws could have serious legal, financial and reputational consequences for the institution. 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 Criminal Finances Act 2017 introduced new corporate criminal offences of failing to prevent the facilitation of UK and overseas tax evasion. Both pieces of legislation have broad application and in certain circumstances may have extraterritorial impact on entities, persons or activities located outside the UK, including Barclays PLC’s subsidiaries outside the UK. The UK Bribery Act requires the Group to have adequate procedures to prevent bribery which, due to the extraterritorial nature of the Act, makes this both complex and costly. Additionally, the Criminal Finances Act requires the Group to have reasonable prevention procedures in place to prevent the criminal facilitation of tax evasion by persons acting for, or on behalf of, the Group. In May 2018, the Sanctions and Anti-Money Laundering Act became law in the UK. The Act allows for the adoption of an autonomous UK sanctions regime, as well as a more flexible licensing regime post-Brexit. On 6 July 2020, the UK Government announced the first sanctions that have been implemented independently by the UK outside the auspices of the UN and EU. The autonomous UK sanctions regime came into force on 1 January 2021. Those sanctions apply within the UK and in relation to the conduct of all UK persons wherever they are in the world; they also apply to overseas branches of UK companies. 238 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Financial review A review of the Group’s performance, including the key performance indicators, and the contribution of each of our businesses to the overall performance of the 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 ■■ Non-IFRS performance measures 240 242 243 244 245 246 253 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 239 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 continues to target greater than 10% RoTE over time. However, given the COVID-19 pandemic, a meaningful improvement in returns versus 2019 was not possible due to the challenging operating environment. Cost discipline remains a priority and management continues to target a cost: income ratio below 60% over time. Non-IFRS performance measures The Group’s 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 Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by 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 the non-IFRS performance measures section for further information and calculations of non-IFRS performance measures included throughout this section and the most directly comparable IFRS measures. Definition Why is it important and how the Group performed 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 defined by the CRR, as amended by CRR II. CET1 ratio 15.1% 2019: 13.8% 2018: 13.2% The Group’s capital management objective is to maximise shareholder value by prudently managing the level and mix of its capital to: ensure the Group and all of its subsidiaries are appropriately capitalised relative to their regulatory minimum and stressed capital requirements, 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 CET1 ratio increased to 15.1% (2019: 13.8%), reflecting headroom of 3.9% above the MDA hurdle of 11.2%. CET1 capital increased by £5.5bn to £46.3bn reflecting resilient capital generation through £7.9bn of profit before tax, excluding credit impairment charges of £4.8bn and a £1.0bn increase due to the cancellation of the full year 2019 dividend. These increases were partially offset by £0.9bn of AT1 coupons paid and the announced 1.0p full year 2020 dividend. The CET1 capital increase also reflects regulatory measures for IFRS 9 transitional relief, prudent valuation and qualifying software assets. RWAs increased by £11.1bn to £306.2bn primarily due to higher market volatility, increased client activity and a reduction in credit quality within CIB, partially offset by lower consumer lending. Group target: a CET1 ratio in the range of 13-14%. 240 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Definition Why is it important and how the Group performed Operating expenses Operating expenses excluding litigation and conduct. Cost: income ratio Operating expenses divided by total income. Return on average tangible shareholders’ equity RoTE is calculated as profit after tax attributable to ordinary shareholders, as a proportion of average shareholders’ equity excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill. 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. Group operating expenses increased 1% to £13.7bn, including structural cost actions and additional COVID-19 related costs, resulting in a cost: income ratio, excluding litigation and conduct, of 63% (2019: 63%). Excluding structural cost actions of £0.4bn (2019: £0.1bn) and £0.1bn spend to date of Barclays’ Community Aid Package, operating expenses would have been £13.3bn (2019: £13.4bn), reflecting disciplined cost management and efficiencies, resulting in a cost: income ratio of 61% (2019: 62%). Group total operating expenses decreased 10% to £13.9bn. The reduction reflected the non-recurrence of a £1.4bn PPI provision in the prior year. 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 Group cost: income ratio, excluding litigation and conduct, was stable at 63% (2019: 63%), as favourable income was offset by £0.4bn of structural cost actions and additional COVID-19 related costs. The Group cost: income ratio, including litigation and conduct, reduced to 64% (2019: 71%) due to favourable income and the prior year including a PPI provision of £1.4bn. Group target: a cost: income ratio below 60% over time. 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. RoTE for the Group, excluding litigation and conduct, was 3.4% (2019: 9.0%) due to lower profit before tax including materially higher credit impairment charges relating to the COVID-19 pandemic and higher operating expenses, partially offset by favourable income. RoTE for the Group was 3.2% (2019: 5.3%) due to attributable profit of £1.5bn (2019: £2.5bn). The prior year included a PPI provision of £1.4bn. Group target: RoTE of greater than 10% over time. Operating expenses £13.7bn 2019: £13.6bn 2018: £13.9bna Total operating expenses £13.9bn 2019: £15.4bn 2018: £16.2bn Cost: income ratio excluding litigation and conduct 63% 2019: 63% 2018: 66% Cost: income ratio 64% 2019: 71% 2018: 77% Group RoTE excluding litigation and conduct 3.4% 2019: 9.0% 2018: 8.5% Group RoTE 3.2% 2019: 5.3% 2018: 3.6% Note a Group operating expenses, excluding litigation and conduct, and a GMP charge of £140m. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 241 Financial review Consolidated summary 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 Other income Total income 2020 £m 2019 £m 2018 £m 2017 £m 2016 £m 11,892 (3,770) 8,122 8,641 (2,070) 6,571 7,073 21,766 15,456 (6,049) 9,407 9,122 (2,362) 6,760 5,465 21,632 14,541 (5,479) 9,062 8,893 (2,084) 6,809 5,265 21,136 13,631 (3,786) 9,845 8,751 (1,937) 6,814 4,417 21,076 14,541 (4,004) 10,537 8,570 (1,802) 6,768 4,146 21,451 Credit impairment charges (4,838) (1,912) (1,468) (2,336) (2,373) Operating costs UK bank levy Operating expenses GMP charge Litigation and conduct Total operating expenses Other net income Profit before tax Tax charge Profit 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 holders Attributable profit/(loss) Selected financial statistics Basic earnings/(loss) per share Diluted earnings/(loss) per share Return on average tangible shareholders’ equity Cost: income ratio Performance measures excluding litigation and conducta Profit before tax Attributable profit/(loss) Return on average tangible shareholders’ equity Cost: income ratio (13,434) (299) (13,733) – (153) (13,886) (13,359) (226) (13,585) – (1,849) (15,434) (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) 23 71 69 257 490 3,065 (604) 2,461 – (78) – (857) 1,526 8.8p 8.6p 3.2% 64% 3,218 1,638 3.4% 63% 4,357 (1,003) 3,354 – (80) – (813) 2,461 14.3p 14.1p 5.3% 71% 6,206 4,194 9.0% 63% 3,494 (911) 2,583 – (234) – (752) 1,597 9.4p 9.2p 3.6% 77% 5,701 3,733 8.5% 66% 3,541 (2,066) 1,475 (2,195) (249) (140) (639) (1,748) (10.3p) (10.1p) (3.6%) 73% 4,748 (598) (1.2%) 68% 3,230 (865) 2,365 591 (346) (402) (457) 1,751 10.4p 10.3p 3.6% 76% 4,593 3,036 6.2% 70% Note a Refer to the Non-IFRS performance measures section 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. 242 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Financial review Income statement commentary Operating expenses increased 1% to £13,733m, including structural cost actions and additional COVID-19 related costs, resulting in a cost: income ratio, excluding litigation and conduct, of 63% (2019: 63%). Excluding structural cost actions of £368m (2019: £150m) and £95m spend to date of Barclays’ COVID-19 Community Aid Package, operating expenses would have been £13,270m (2019: £13,435m), reflecting disciplined cost management and efficiencies, resulting in a cost: income ratio of 61% (2019: 62%). Attributable profit was £1,526m (2019: £2,461m). Excluding litigation and conduct, attributable profit was £1,638m (2019: £4,194m), generating a RoTE of 3.4% (2019: 9.0%) and EPS of 9.5p (2019: 24.4p). 2020 compared to 2019 Statutory RoTE was 3.2% (2019: 5.3%) and statutory EPS was 8.8p (2019: 14.3p). Profit before tax was £3,065m (2019: £4,357m). Excluding litigation and conduct, profit before tax was £3,218m (2019: £6,206m). Pre-provision profitsa were broadly stable at £8,056m despite the pandemic, benefiting from the Group’s diversified business model, which included a strong performance in CIB offset by headwinds in Barclays UK and CC&P. Total income increased to £21,766m (2019: £21,632m). Barclays UK income decreased 14%. Barclays International income increased 8%, with CIB income up 22% and CC&P income down 22%. Credit impairment charges increased to £4,838m (2019: £1,912m) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The current year charge is broadly driven by £2,323m of non-default provision for expected future customer and client stress and £800m of single name wholesale loan charges. The expected credit loss (ECL) provision remains highly uncertain as the economic impact of the global pandemic continues to evolve. Note a Excluding litigation and conduct. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 243 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 issuea 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 Note a Debt securities in issue include covered bonds of £6.2bn (2019: £7.0bn). 2020 £m 2019 £m 2018 £m 2017 £m 2016 £m 191,127 101,367 342,632 9,031 127,950 175,151 302,446 – 78,688 – 21,122 102,353 90,135 345,900 13,454 80,240 78,608 346,626 63,317 – 71,454 21,039 1,349,514 1,140,229 1,133,283 1,133,248 1,213,126 150,258 83,256 339,115 3,379 114,195 133,086 229,236 – 65,750 – 21,954 171,082 77,168 324,048 12,546 113,760 116,281 237,669 58,915 – 1,193 20,586 177,069 77,222 326,406 2,308 104,187 149,648 222,538 – 52,816 – 21,089 481,036 85,423 14,174 75,796 16,341 47,405 249,765 300,775 – 11,917 390,744 80,648 19,760 75,932 23,383 34,687 96,031 340,487 65,292 14,797 1,282,632 1,074,569 1,069,504 1,067,232 1,141,761 415,787 67,341 14,517 76,369 18,156 36,916 204,326 229,204 – 11,953 394,838 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 4,637 11,172 4,461 45,527 65,797 1,085 66,882 21,842 6,449 6,051 30,531 64,873 6,492 71,365 1,349,514 1,140,229 1,133,283 1,133,248 1,213,126 22,045 8,941 5,383 27,536 63,905 2,111 66,016 4,311 9,632 5,153 43,460 62,556 1,223 63,779 4,594 10,871 4,760 44,204 64,429 1,231 65,660 315p 269p 17,359 1.37 1.11 309p 262p 17,322 1.32 1.18 309p 262p 17,133 1.28 1.12 322p 276p 17,060 1.35 1.13 344p 290p 16,963 1.23 1.17 244 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Financial review Balance sheet commentary Total shareholders’ equity Total shareholders’ equity increased £1.4bn to £65.8bn. Other equity instruments increased £0.3bn to £11.2bn due to the issuance of a $1.5bn AT1 instrument, partially offset by a redemption of a €1.0bn AT1 instrument. AT1 securities are perpetual subordinated contingent convertible securities structured to qualify as AT1 instruments under prevailing capital rules applicable as at the relevant issue date. The cash flow hedging reserve increased £0.6bn to £1.6bn as a result of fair value movements on interest rate swaps held for hedging purposes due to a decrease in major interest rate curves. The currency translation reserve decreased £0.4bn to £2.9bn due to strengthening of GBP against USD of 4%, when comparing year-end closing rates. The own credit reserve decreased £0.6bn to £1.0bn debit, principally reflecting Barclays’ lower cost of funding. Retained earnings increased £1.3bn to £45.5bn, mainly due to profits of £1.5bn. Tangible net asset value per share increased 7p to 269p as 9p earnings per share were offset by net negative reserve movements of 2p. Total assets Total assets increased £210bn to £1,350bn. Cash and balances at central banks increased by £41bn to £191bn and financial assets at fair value through other comprehensive income increased £13bn to £79bn, due to an increase in the liquidity pool predominantly driven by an increase in customer deposits. Derivative financial instrument assets increased £73bn to £302bn, driven by a decrease in major interest rate curves and increased client activity. Cash collateral and settlement balances increased by £18bn to £101bn, predominantly due to increased activity. Loans and advances at amortised cost increased £4bn to £343bn, which reflected £12bn of lending under the government-backed loan schemes and £5bn of mortgage growth, partially offset by lower unsecured lending balances. Trading portfolio assets increased £14bn to £128bn due to increased client activity and financial assets at fair value through the income statement increased £42bn to £175bn due to reverse repurchase agreements and similar secured lending. Total liabilities Total liabilities increased £208bn to £1,283bn. Deposits at amortised cost increased £65bn to £481bn primarily due to CIB clients increasing liquidity, and lower consumer spending levels. Derivative financial instruments liabilities increased £72bn to £301bn, driven by a decrease in major interest rate curves and increased client activity. This is consistent with the movement in derivative financial instrument assets. Cash collateral and settlement balances increased by £18bn to £85bn predominantly due to increased activity. Trading portfolio liabilities increased £10bn due to increased client activity to £47bn and financial liabilities designated at fair value increased by £45bn due to repurchase agreements and similar secured borrowing. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 245 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 Net operating income Operating costs UK bank levy Operating expenses Litigation and conduct Total operating expenses Other net income 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 portfolioa Average LTV of new mortgage lendinga Number of branches Mobile banking active customers 30-day arrears rate – Barclaycard Consumer UK Number of employees (full time equivalent) Performance measures Return on average allocated tangible equity Average allocated tangible equity Cost: income ratio Loan loss rate (bps) Net interest margin Performance measures excluding litigation and conductb Profit before tax Attributable profit Return on average allocated tangible equity Cost: income ratio 2020 £m 2019 £m 2018 £m 5,234 1,113 6,347 (1,467) 4,880 (4,270) (50) (4,320) (32) (4,352) 18 546 325 5,888 1,465 7,353 (712) 6,641 (3,996) (41) (4,037) (1,582) (5,619) – 1,022 281 6,028 1,355 7,383 (826) 6,557 (4,075) (46) (4,121) (483) (4,604) 3 1,956 1,198 £205.4bn £289.1bn £240.5bn 89% £73.7bn £9.7bn £193.7bn £257.8bn £205.5bn 96% £74.9bn £10.3bn £187.6bn £249.7bn £197.3bn 96% £75.2bn £10.2bn 51% 68% 859 9.2m 1.7% 21,300 51% 68% 963 8.4m 1.7% 21,400 49% 65% 1,058 7.3m 1.8% 22,600 3.2% £10.1bn 69% 68 2.61% 2.7% £10.3bn 76% 36 3.09% 11.9% £10.0bn 62% 43 3.23% 578 343 3.4% 68% 2,604 1,813 17.5% 55% 2,439 1,670 16.7% 56% Notes a Average Loan to Value of mortgages is balance weighted and reflects both residential and BTL mortgage portfolios within the Home Loans portfolio. b Refer to the Non-IFRS performance measures section for further information and calculations of performance measures excluding litigation and conduct. 246 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Analysis of Barclays UK Analysis of total income Personal Banking Barclaycard Consumer UK Business Banking Total income Analysis of credit impairment charges Personal Banking Barclaycard Consumer UK Business Banking Total credit impairment charges Analysis of loans and advances to customers at amortised cost Personal Banking Barclaycard Consumer UK Business Banking Total loans and advances to customers at amortised cost Analysis of customer deposits at amortised cost Personal Banking Barclaycard Consumer UK Business Banking Total customer deposits at amortised cost 2020 £m 3,522 1,519 1,306 6,347 (380) (881) (206) (1,467) 2019 £m 4,009 1,992 1,352 7,353 (195) (472) (45) (712) 2018 £m 4,006 2,104 1,273 7,383 (173) (590) (63) (826) £157.3bn £9.9bn £38.2bn £205.4bn £151.9bn £14.7bn £27.1bn £193.7bn £146.0bn £15.3bn £26.3bn £187.6bn £179.7bn £0.1bn £60.7bn £240.5bn £159.2bn – £46.3bn £205.5bn £154.0bn – £43.3bn £197.3bn 2020 compared to 2019 Profit before tax, excluding litigation and conduct, decreased 78% to £578m. RoTE was 3.4% (2019: 17.5%) reflecting a challenging operating environment and materially higher credit impairment charges. Total income decreased 14% to £6,347m. Net interest income reduced 11% to £5,234m with a net interest margin of 2.61% (2019: 3.09%). Net fee, commission and other income decreased 24% to £1,113m. Personal Banking income decreased 12% to £3,522m, reflecting deposit margin compression from lower interest rates, lower unsecured lending balances, and COVID-19 customer support actions, partially offset by balance growth in deposits and mortgages, as well as the transfer of Barclays Partner Finance (BPF) from Barclays International in Q220. Barclaycard Consumer UK income decreased 24% to £1,519m as reduced borrowing and spend levels by customers resulted in a lower level of interest earning lending (IEL) balances, as well as lower debt sales. Business Banking income decreased 3% to £1,306m due to deposit margin compression from lower interest rates, lower transactional fee volumes as a result of COVID-19 and related customer support actions, partially offset by lending and deposit balance growth from continued support for SMEs through £11.0bn of BBLS and CBILS loans. Credit impairment charges increased to £1,467m (2019: £712m) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The current year charge is broadly driven by £847m of non-default provision for expected future customer and client stress. As at 31 December 2020, 30- and 90-day arrears rates in UK cards were 1.7% (Q419: 1.7%) and 0.8% (Q419: 0.8%) respectively. Operating expenses increased 7% to £4,320m, reflecting investment spend including structural cost actions, higher servicing and financial assistance costs, and the transfer of BPF, partially offset by efficiency savings. Loans and advances to customers at amortised cost increased 6% to £205.4bn, predominantly from continued support for SMEs through £11.0bn of BBLS and CBILS lending, £5.1bn of mortgage growth following a strong flow of new applications as well as strong customer retention and the £2.4bn transfer of BPF, partially offset by £6.6bn lower unsecured lending balances. Customer deposits at amortised cost increased 17% to £240.5bn, reflecting an increase of £20.5bn and £14.4bn in Personal Banking and Business Banking respectively, further strengthening the liquidity position and contributing to a loan: deposit ratio of 89% (2019: 96%). RWAs decreased to £73.7bn (December 2019: £74.9bn) driven by lower unsecured lending balances, partially offset by growth in mortgages and the transfer of BPF. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 247 Financial review Analysis of results by business continued Barclays International Income statement information Net interest income Net trading income Net fee, commission and other income Total income Credit impairment charges Net operating income Operating costs UK bank levy Operating expenses 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 Financial assets at fair value through the income statement Cash collateral and settlement balances Other assets Total assets Deposits at amortised cost Derivative financial instrument liabilities Loan: deposit ratio Risk weighted assets Period end allocated tangible equity Key facts Number of employees (full time equivalent) Performance measures Return on average allocated tangible equity Average allocated tangible equity Cost: income ratio Loan loss rate (bps) Net interest margin Performance measures excluding litigation and conducta Profit before tax Attributable profit Return on average allocated tangible equity Cost: income ratio 2020 £m 2019 £m 2018 £m 3,282 6,920 5,719 15,921 (3,280) 12,641 (8,765) (240) (9,005) (48) (9,053) 28 3,616 2,220 3,941 4,199 6,535 14,675 (1,173) 13,502 (9,163) (174) (9,337) (116) (9,453) 69 4,118 2,816 3,815 4,450 5,761 14,026 (658) 13,368 (9,324) (210) (9,534) (127) (9,661) 68 3,775 2,599 £122.7bn £127.7bn £301.8bn £170.7bn £97.5bn £221.4bn £1,041.8bn £240.5bn £300.4bn 51% £222.3bn £30.2bn £132.8bn £113.3bn £228.9bn £128.4bn £79.4bn £178.6bn £861.4bn £210.0bn £228.9bn 63% £209.2bn £29.6bn £127.2bn £104.0bn £222.1bn £144.7bn £74.3bn £189.8bn £862.1bn £197.2bn £219.6bn 65% £210.7bn £29.9bn 10,800 11,200 12,400 7.1% £31.5bn 57% 257 3.64% 9.0% £31.2bn 64% 86 4.07% 8.4% £31.0bn 69% 50 4.11% 3,664 2,258 7.2% 57% 4,234 2,906 9.3% 64% 3,902 2,705 8.7% 68% Note a Refer to the Non-IFRS performance measures section for further information and calculations of performance measures excluding litigation and conduct. 248 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Analysis of Barclays International Corporate and Investment Bank Income statement information FICC Equities Markets Advisory Equity capital markets Debt capital markets Banking fees Corporate lending Transaction banking Corporate Othera Total income Credit impairment (charges)/releases Net operating income Operating costs UK bank levy Operating expenses 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 Financial assets at fair value through the income statement Cash collateral and settlement balances Other assets Total assets Deposits at amortised cost Derivative financial instrument liabilities Risk weighted assets Performance measures Return on average allocated tangible equity Average allocated tangible equity Cost: income ratio Performance measures excluding litigation and conductb Profit before tax Attributable profit Return on average allocated tangible equity Cost: income ratio 2020 £m 2019 £m 2018 £m 5,138 2,471 7,609 561 473 1,697 2,731 590 1,546 2,136 – 12,476 (1,559) 10,917 (6,689) (226) (6,915) (4) (6,919) 6 4,004 2,554 3,364 1,887 5,251 776 329 1,430 2,535 765 1,680 2,445 – 10,231 (157) 10,074 (6,882) (156) (7,038) (109) (7,147) 28 2,955 1,980 2,863 2,037 4,900 708 300 1,523 2,531 878 1,627 2,505 (171) 9,765 150 9,915 (7,093) (188) (7,281) (68) (7,349) 27 2,593 1,781 £92.4bn £127.5bn £301.7bn £170.4bn £96.7bn £194.9bn £983.6bn £175.2bn £300.3bn £192.2bn £92.0bn £113.3bn £228.8bn £127.7bn £78.5bn £155.3bn £795.6bn £146.2bn £228.9bn £171.5bn £86.4bn £104.0bn £222.1bn £144.2bn £73.4bn £160.4bn £790.5bn £136.3bn £219.6bn £170.9bn 9.5% £27.0bn 55% 7.6% £25.9bn 70% 6.9% £26.0bn 75% 4,008 2,556 9.5% 55% 3,064 2,064 8.0% 69% 2,661 1,843 7.1% 75% Notes a From 2019, treasury items previously included in Other have been allocated to businesses. b Refer to the Non-IFRS performance measures section for further information and calculations of performance measures excluding litigation and conduct. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 249 Financial review Analysis of results by business continued Analysis of Barclays International continued Consumer, Cards and Payments Income statement information Net interest income Net fee, commission, trading and other income Total income Credit impairment charges Net operating income Operating costs UK bank levy Operating expenses Litigation and conduct Total operating expenses Other net income (Loss)/profit before tax Attributable (loss)/profit Balance sheet information Loans and advances at amortised cost Total assets Deposits at amortised cost Risk weighted assets Key facts 30-day arrears rates – Barclaycard US US cards customer FICO score distribution <660 >660 Total number of Barclaycard payments clients Value of payments processeda Performance measures Return on average allocated tangible equity Average allocated tangible equity Cost: income ratio Loan loss rate (bps) Performance measures excluding litigation and conductb (Loss)/profit before tax Attributable (loss)/profit Return on average allocated tangible equity Cost: income ratio 2020 £m 2019 £m 2018 £m 2,198 1,247 3,445 (1,721) 1,724 (2,076) (14) (2,090) (44) (2,134) 22 (388) (334) 2,822 1,622 4,444 (1,016) 3,428 (2,281) (18) (2,299) (7) (2,306) 41 1,163 836 2,731 1,530 4,261 (808) 3,453 (2,231) (22) (2,253) (59) (2,312) 41 1,182 818 £30.3bn £58.2bn £65.3bn £30.1bn £40.8bn £65.8bn £63.8bn £37.7bn £40.8bn £71.6bn £60.9bn £39.8bn 2.5% 2.7% 2.7% 13% 87% c.365,000 £274bn 14% 86% c.376,000 £354bn 14% 86% c.374,000 £344bn (7.5%) £4.5bn 62% 517 (344) (298) (6.7%) 61% 15.8% £5.3bn 52% 234 1,170 842 15.9% 52% 16.5% £5.0bn 54% 185 1,241 862 17.3% 53% Notes a b Refer to the Non-IFRS performance measures section for further information and calculations of performance measures excluding litigation and conduct. Includes £268bn (2019: £272bn; 2018: £268bn) of merchant acquiring payments. 250 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 2020 compared to 2019 Profit before tax, excluding litigation and conduct, decreased 13% to £3,664m with a RoTE of 7.2% (2019: 9.3%), reflecting a RoTE of 9.5% (2019: 8.0%) in CIB and (6.7)% (2019: 15.9%) in CC&P. Total income increased to £15,921m (2019: £14,675m). CIB income increased 22% to £12,476m, driven by Markets and Banking which both had their best ever year on a comparable basisa. Markets income increased 45% to £7,609m reflecting gains in market share as well as an increase in market sizeb. FICC income increased 53% to £5,138m driven by strong performances in macro and credit, mainly reflecting wider spreads. Equities income increased 31% to £2,471m driven by derivatives and cash due to higher levels of client activity and volatility. Banking fees income increased 8% to £2,731m as a strong performance in equity and debt capital markets, driven by market size, was offset by lower fee income in advisory, which was impacted by a reduced fee poolc. Within Corporate, Transaction banking income decreased 8% to £1,546m as deposit balance growth was more than offset by margin compression. Corporate lending income decreased by 23% to £590m, reflecting c.£210m of losses on the mark to market of lending and related hedge positions, and the carry costs of those hedges. CC&P income decreased 22% to £3,445m reflecting lower cards balances, margin compression and reduced payments activity, which were impacted by the COVID-19 pandemic, and the transfer of BPF to Barclays UK in Q220. Q220 included a c.£100m valuation loss on Barclays’ preference shares in Visa Inc. resulting from the impact of the Supreme Court ruling concerning charges paid by merchants. Credit impairment charges increased to £3,280m (2019: £1,173m). CIB credit impairment charges increased to £1,559m (2019: £157m) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The current year charge is broadly driven by £711m of non-default provision for future expected customer and client stress and c.£800m of single name wholesale loan charges. CC&P credit impairment charges increased to £1,721m (2019: £1,016m) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The current year charge is broadly driven by £752m of non-default provisions for future expected customer and client stress. As at 31 December 2020, 30 and 90-day arrears in US cards were 2.5% (Q419: 2.7%) and 1.4% (Q419: 1.4%) respectively. Operating expenses decreased 4% to £9,005m. CIB operating expenses decreased 2% to £6,915m due to cost efficiencies and discipline in the current environment, partially offset by a higher bank levy charge mainly due to the non-recurrence of prior year adjustments. CC&P operating expenses decreased 9% to £2,090m reflecting cost efficiencies, lower marketing spend due to the impacts of the COVID-19 pandemic and the transfer of BPF. Loans and advances at amortised cost decreased £10.1bn to £122.7bn due to lower unsecured lending balances in CC&P. Trading portfolio assets increased £14.4bn to £127.7bn due to increased client activity. Derivative financial instruments assets increased £72.9bn and liabilities increased £71.5bn to £301.8bn and £300.4bn respectively, driven by a decrease in major interest rate curves and increased client activity. Financial assets at fair value through the income statement increased £42.3bn to £170.7bn, driven by reverse repurchase agreements and similar secured lending. Cash collateral and settlements increased £18.1bn to £97.5bn, predominantly due to increased activity. Other assets increased £42.8bn to £221.4bn due to an increase in cash at central banks and securities within the liquidity pool. Deposits at amortised cost increased £30.5bn to £240.5bn due to CIB clients increasing liquidity. RWAs increased to £222.3bn (December 2019: £209.2bn) primarily due to increased market volatility, client activity and a reduction in credit quality within CIB, partially offset by lower CC&P balances. Notes a Period covering Q114 – Q420. Pre-2014 financials were not restated following re-segmentation in Q116. b Data source: Coalition Greenwich, Preliminary FY20 Competitor Analysis. Market share represents Barclays share of the Global Industry Revenue Pool. Analysis is based on Barclays internal business structure and internal revenues. c Data source: Dealogic for the period covering 1 January to 31 December 2020. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 251 Financial review Analysis of results by business continued Head Office Income statement information Net interest income Net fee, commission and other income Total income Credit impairment (charges)/releases Net operating expenses Operating costs UK bank levy Operating expenses GMP charge Litigation and conduct Total operating expenses Other net (expenses)/income Loss before tax Attributable loss Balance sheet information Total assets Risk weighted assets Period end allocated tangible equity Key facts Number of employees (full time equivalent) Performance measures Average allocated tangible equity Performance measures excluding litigation and conducta Loss before tax Attributable loss 2020 £m (393) (109) (502) (91) (593) (399) (9) (408) – (73) (481) (23) (1,097) (1,019) 2019 £m (422) 26 (396) (27) (423) (200) (11) (211) – (151) (362) 2 (783) (636) 2018 £m (781) 508 (273) 16 (257) (228) (13) (241) (140) (1,597) (1,978) (2) (2,237) (2,200) £18.6bn £10.2bn £6.8bn £21.0bn £11.0bn £5.6bn £21.5bn £26.0bn £4.9bn 50,900 48,200 48,500 £6.7bn £5.1bn £3.1bn (1,024) (963) (632) (525) (640) (642) Note a Refer to the Non-IFRS performance measures section for further information and calculations of performance measures excluding litigation and conduct. Operating expenses were £408m (2019: £211m), which included c.£150m of cost actions, principally related to the discontinued use of certain software assets and £95m of charitable donations from Barclays’ COVID-19 Community Aid Package. Other net expenses were £23m (2019: income of £2m), which included a fair value loss on an investment in an associate. RWAs decreased to £10.2bn (December 2019: £11.0bn) driven by the reduction in value of Barclays’ stake in Absa Group Limited. 2020 compared to 2019 Loss before tax, excluding litigation and conduct, was £1,024m (2019: £632m). Total income was an expense of £502m (2019: £396m), which reflected treasury items and hedge accounting, mark to market losses on legacy investments and funding costs on legacy capital instruments, including £85m from repurchases of some of the Barclays Bank PLC 7.625% Contingent Capital Notes. This was partially offset by the recognition of dividends on Barclays’ stake in Absa Group Limited. Credit impairment increased to £91m (2019: £27m) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The current year charge is broadly driven by provision for future expected customer stress in the Italian home loan portfolio. 252 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Financial review Non-IFRS performance measures The Group’s 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 Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by 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 Definition Loan: deposit ratio Loans and advances at amortised cost divided by deposits at amortised cost. The components of the calculation have been included on page 210. Period end allocated tangible equity Allocated tangible equity is calculated as 13.0% (2019: 13.0%) of RWAs for each business, adjusted for capital deductions, excluding goodwill and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. Head Office allocated tangible equity represents the difference between the Group’s tangible shareholders’ equity and the amounts allocated to businesses. Average tangible shareholders’ equity 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. Average allocated tangible equity 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. Return on average tangible shareholders’ equity Statutory profit after tax attributable to ordinary equity holders of the parent, 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 pages 255. Return on average allocated tangible equity Statutory profit after tax attributable to ordinary equity holders of the parent, as a proportion of average allocated tangible equity. The components of the calculation have been included on page 255. Cost: income ratio Loan loss rate Net interest margin Tangible net asset value per share 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 page 171. Net interest income divided by the sum of average customer assets. The components of the calculation have been included on page 254. 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 258. 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 256 to 258. Pre-provision profits Calculated by excluding credit impairment charges from profit before tax. The components of the calculation have been included on pages 256 to 258. Pre-provision profits excluding litigation and conduct Calculated by excluding credit impairment charges, and litigation and conduct charges from profit before tax. The components of the calculation have been included on pages 256 to 258. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 253 Financial review Non-IFRS performance measures continued Margins analysis For the year ended 31 December Barclays UK Barclays Internationala,b Total Barclays UK and Barclays International Otherc Total Barclays Group 2020 Average customer assets £m 200,317 92,909 293,226 Net interest margin % 2.61 3.64 2.94 Net interest income £m 5,888 4,021 9,909 (502) 9,407 Net interest income £m 5,234 3,382 8,616 (494) 8,122 2019 Average customer assets £m 190,849 98,824 289,673 Net interest margin % 3.09 4.07 3.42 Notes a Barclays International margins include IEL balances within the investment banking business. b Barclays has amended the presentation of the premium paid for purchased financial guarantees which are embedded in notes it issues directly to the market. From Q420 onwards, the full note coupon is presented as interest expense within net interest income. The financial guarantee element of the coupon, for these notes, had previously been recognised in net investment income. The reclassification of £99m in 2020 has caused a reduction in the 2020 Barclays International and Total Barclays UK and Barclays International net interest margins of 0.11% and 0.03% respectively. Had the equivalent 2019 expenses been recognised in net interest income, the Barclays International and Total Barclays UK and Barclays International net interest margins would have been 4.04% and 3.41% respectively. c Other includes Head Office and non-lending related investment banking businesses not included in Barclays International margins. The Group net interest margin decreased 48bps to 2.94%. Barclays UK net interest margin decreased 48bps to 2.61%, reflecting the impact of lower UK interest rates, COVID-19 customer support actions, as well as the mix impact of strong mortgage growth and lower unsecured lending balances. Barclays International net interest margin decreased 43bps to 3.64%, mainly reflecting lower cards balances. The Group combined product and equity structural hedge notional as at 31 December 2020 was £188bn, with an average duration of 2.5 to 3 years. Group net interest income includes gross structural hedge contributions of £1.7bn (2019: £1.8bn) and net structural hedge contributions of £1.2bn (2019: £0.5bn). Gross structural hedge contributions represent the absolute level of interest earned from the fixed receipts on the basket of swaps in the structural hedge, while the net structural hedge contributions represent the net interest earned on the difference between the structural hedge rate and prevailing floating rates. 254 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Returns Return on average tangible equity is calculated as profit for the period attributable to ordinary equity holders of the parent as a proportion of average tangible equity for the period, excluding non-controlling and other equity interests for businesses. Allocated tangible equity has been calculated as 13.0% (2019: 13.0%) of RWAs for each business, adjusted for capital deductions, excluding goodwill and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. Head Office average allocated tangible equity represents the difference between the Group’s average tangible shareholders’ equity and the amounts allocated to businesses. For the year ended 31 December 2020 Barclays UK Corporate and Investment Bank Consumer, Cards and Payments Barclays International Head Office Barclays Group For the year ended 31 December 2019 Barclays UK Corporate and Investment Bank Consumer, Cards and Payments Barclays International Head Office Barclays Group For the year ended 31 December 2018 Barclays UK Corporate and Investment Bank Consumer, Cards and Payments Barclays International Head Office Barclays Group Profit/(loss) attributable to ordinary equity holders of the parent £m Average tangible equity £bn Return on average tangible equity % 325 2,554 (334) 2,220 (1,019) 1,526 281 1,980 836 2,816 (636) 2,461 1,198 1,781 818 2,599 (2,200) 1,597 10.1 27.0 4.5 31.5 6.7 48.3 10.3 25.9 5.3 31.2 5.1 46.6 10.0 26.0 5.0 31.0 3.1 44.1 3.2 9.5 (7.5) 7.1 n/m 3.2 2.7 7.6 15.8 9.0 n/m 5.3 11.9 6.9 16.5 8.4 n/m 3.6 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 255 Financial review Non-IFRS performance measures continued 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 2020 Corporate and Investment Bank £m (6,919) 4 (6,915) Barclays UK £m (4,352) 32 (4,320) Consumer, Cards and Payments £m (2,134) 44 (2,090) Barclays International £m (9,053) 48 (9,005) Head Office £m (481) 73 (408) Barclays Group £m (13,886) 153 (13,733) Total income 6,347 12,476 3,445 15,921 (502) 21,766 Cost: income ratio excluding litigation and conduct 68% 55% 61% 57% n/m 63% 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 Profit/(loss) attributable to ordinary equity holders of the parent excluding litigation and conduct Return on average tangible shareholders’ equity Average shareholders’ equity Average goodwill and intangibles Average tangible shareholders’ equity 546 32 578 325 18 343 4,004 4 4,008 2,554 2 (388) 44 (344) 3,616 48 3,664 (1,097) 73 (1,024) 3,065 153 3,218 (334) 36 2,220 38 (1,019) 56 1,526 112 2,556 (298) 2,258 (963) 1,638 £13.7bn (£3.6bn) £10.1bn £27.0bn – £27.0bn £5.1bn (£0.6bn) £4.5bn £32.1bn (£0.6bn) £31.5bn £10.6bn (£3.9bn) £6.7bn £56.4bn (£8.1bn) £48.3bn Return on average tangible shareholders’ equity excluding litigation and conduct 3.4% 9.5% (6.7%) 7.2% n/m 3.4% Basic earnings per ordinary share Basic weighted average number of shares Basic earnings per ordinary share excluding litigation and conduct Pre-provision profits Profit before tax excluding credit impairment charges and litigation and conduct Profit before tax Impact of credit impairment charges Profit before tax excluding credit impairment charges Impact of litigation and conduct Profit before tax excluding credit impairment charges and litigation and conduct 17,300m 9.5p £m 3,065 4,838 7,903 153 8,056 256 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Cost: income ratio Total operating expenses Impact of litigation and conduct Operating expenses For the year ended 31 December 2019 Corporate and Investment Bank £m (7,147) 109 (7,038) Barclays UK £m (5,619) 1,582 (4,037) Consumer, Cards and Payments £m (2,306) 7 (2,299) Barclays International £m (9,453) 116 (9,337) Head Office £m (362) 151 (211) Barclays Group £m (15,434) 1,849 (13,585) Total income 7,353 10,231 4,444 14,675 (396) 21,632 Cost: income ratio excluding litigation and conduct 55% 69% 52% 64% n/m 63% 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 Profit/(loss) attributable to ordinary equity holders of the parent excluding litigation and conduct Return on average tangible shareholders’ equity Average shareholders’ equity Average goodwill and intangibles Average tangible shareholders’ equity 1,022 1,582 2,604 2,955 109 3,064 1,163 7 1,170 281 1,532 1,980 84 1,813 2,064 836 6 842 4,118 116 4,234 2,816 90 (783) 151 (632) 4,357 1,849 6,206 (636) 111 2,461 1,733 2,906 (525) 4,194 £13.9bn (£3.6bn) £10.3bn £25.9bn – £25.9bn £6.3bn (£1.0bn) £5.3bn £32.2bn (£1.0bn) £31.2bn £8.5bn (£3.4bn) £5.1bn £54.6bn (£8.0bn) £46.6bn Return on average tangible shareholders’ equity excluding litigation and conduct 17.5% 8.0% 15.9% 9.3% n/m 9.0% Basic earnings per ordinary share Basic weighted average number of shares Basic earnings per ordinary share excluding litigation and conduct Pre-provision profits Profit before tax excluding credit impairment charges and litigation and conduct Profit before tax Impact of credit impairment charges Profit before tax excluding credit impairment charges Impact of litigation and conduct Profit before tax excluding credit impairment charges and litigation and conduct 17,200m 24.4p £m 4,357 1,912 6,269 1,849 8,118 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 257 Financial review Non-IFRS performance measures continued 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 Profit/(loss) attributable to ordinary equity holders of the parent excluding litigation and conduct Return on average tangible shareholders’ equity Average shareholders’ equity Average goodwill and intangibles Average tangible shareholders’ equity 1,956 483 2,439 2,593 68 2,661 1,182 59 1,241 3,775 127 3,902 (2,237) 1,597 (640) 3,494 2,207 5,701 1,198 472 1,781 62 1,670 1,843 818 44 862 2,599 106 (2,200) 1,558 1,597 2,136 2,705 (642) 3,733 £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% Basic earnings per ordinary share Basic weighted average number of shares Basic earnings per ordinary share excluding litigation and conduct Pre-provision profits Profit before tax excluding credit impairment charges and litigation and conduct Profit before tax Impact of credit impairment charges Profit before tax excluding credit impairment charges Impact of litigation and conduct Profit before tax excluding credit impairment charges and litigation and conduct Tangible net asset value per share Total equity excluding non-controlling interests Other equity instruments Goodwill and intangibles Tangible shareholders’ equity attributable to ordinary shareholders of the parent Shares in issue Tangible net asset value per share 258 Barclays PLC home.barclays/annualreport 17,075m 21.9p £m 3,494 1,468 4,962 2,207 7,169 2020 £m 65,797 (11,172) (7,948) 46,677 2019 £m 64,429 (10,871) (8,119) 45,439 2018 £m 62,556 (9,632) (7,973) 44,951 17,359m 17,322m 17,133m 269p 262p 262p Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Financial statements Detailed analysis of our statutory accounts, independently audited and providing in-depth disclosure on the financial performance of the Group. Barclays has adopted the British Bankers’ Association (BBA) Code for Financial Reporting Disclosure as adopted by UK Finance in 2017 and has prepared the 2020 Annual Report in compliance with the BBA Code. Barclays is committed to continuously reflect the objectives of reporting set out in the BBA Code. Page Note Consolidated financial statements Notes to the financial statements Financial performance and returns Assets and liabilities held at fair value Assets at amortised cost and other investments Accruals, provisions, contingent liabilities and legal proceedings Capital instruments, equity and reserves Employee benefits Scope of consolidation Other disclosure matters Barclays PLC Annual Report 2020 ■■ 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 ■■ Operating expenses ■■ Tax ■■ Earnings per share ■■ Dividends on ordinary shares ■■ Trading portfolio ■■ Financial assets at fair value through the income statement ■■ Derivative financial instruments ■■ Financial assets at fair value through other comprehensive income ■■ 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 ■■ Property, plant and equipment ■■ Leases ■■ Goodwill and intangible assets ■■ 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 ■■ Staff costs ■■ Share-based payments ■■ Pensions and post-retirement benefits ■■ Principal subsidiaries ■■ Structured entities ■■ Investments in associates and joint ventures ■■ Securitisations ■■ Assets pledged, collateral received and assets transferred ■■ Related party transactions and Directors’ remuneration ■■ Auditor’s remuneration ■■ Interest rate benchmark reform ■■ Barclays PLC (the Parent company) ■■ Related undertakings 260 279 280 281 282 283 284 286 290 292 293 295 295 296 300 300 304 304 305 305 306 314 314 315 326 327 327 329 332 336 336 337 337 342 345 347 347 349 350 352 357 358 361 361 365 365 367 367 371 373 n/a n/a n/a n/a n/a n/a n/a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Barclays PLC home.barclays/annualreport 259 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC 2. Overview of our audit Factors driving our view of risks Following our FY19 audit and considering the developments affecting the Barclays PLC Group since then, we have updated our risk assessment. Our assessment of the risks that are of most significance to our audit has changed since our FY19 audit. In 2020 the Group’s performance has been affected by COVID-19 which has driven a significant increase in expected credit loss (“ECL”) provisions compared to 2019 and impacted income due to COVID-19 customer support actions and changing customer behaviour. Income in the markets business has grown versus the prior year due to wider spreads and market share gains but the low interest rate environment has continued to impact interest margins in BBUK. We have considered the impact of COVID-19, (including the FRC guidance for auditors) in our risk assessment and have adjusted our audit procedures accordingly. This has included increased focus on future economic assumptions used by the Group in estimates such as the carrying value of goodwill and intangibles (for which we have identified a new Key Audit Matter) and ECL. We have increased our focus on the post model adjustments used in the determination of the ECL provisions, increased the level of testing we perform over many of the ECL models and brought a greater number of ECL models into our audit scope. We have introduced a Key Audit Matter relating to the UK Pension scheme which considers both the assumptions used to value the liability and the valuation of certain of the level 3 assets of the scheme. We have assessed whether COVID-19 has led to changes in financial reporting controls (either through the introduction of new controls or changes to the design and operating effectiveness of existing controls). Where this is the case, we have adapted our audit testing. 1. Our opinion is unmodified In our opinion: ■■ the financial statements of Barclays PLC give a true and fair view of the Group’s and of the Parent Company’s affairs as at 31 December 2020, and of the Group’s profit for the year then ended; ■■ the Group and Parent Company financial statements have been properly prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Group financial statements, International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (“IFRSs as adopted by the EU”); ■■ the Group and Parent Company financial statements 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 to the extent applicable. What our opinion covers We have audited the Group and Parent Company financial statements of Barclays PLC for the year ended 31 December 2020 (FY20) included in the Annual Report and Accounts, which comprise: Group (Barclays PLC and its subsidiaries) ■■ Consolidated income statement ■■ Consolidated statement of comprehensive income ■■ Consolidated balance sheet ■■ Consolidated statement of changes in equity ■■ Consolidated cash flow statement ■■ Notes 1 to 43 of the Consolidated Financial Statements, including the summary of significant accounting policies Parent Company (Barclays PLC) ■■ Statement of comprehensive income ■■ Balance sheet ■■ Statement of changes in equity ■■ Cash flow statement ■■ Note 42 to the Financial Statements, including the summary of significant accounting policies 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 and matters included in this report are consistent with those discussed and included in our reports to the Board Audit Committee. 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. 260 Barclays PLC home.barclays/annualreport Key Audit Matters Item Impairment allowance on loans and advance at amortised cost Valuation of financial instruments held at fair value → 4.1 ↔ 4.2 Impairment of goodwill and intangible assets NEW 4.3 UK Pension scheme valuation NEW 4.4 User access management ↔ 4.5 → 4.6 Recoverability of Parent Company’s investment in subsidiaries Newly identified risk Similar risk to FY19 Decreased risk since FY19 Increased risk since FY19 NEW ↔ → → Our use of specialists and innovation Using the work of specialists: We used KPMG specialists to assist us in various aspects of our audit. This includes, for example:: ■■ Credit risk modelling specialists for our testing of the ECL models. ■■ Economics specialists for our work related to the macro economic variables and scenarios used in the determination of the ECL provisions ■■ Valuation specialists for our independent repricing of samples of financial instruments ■■ Corporate finance valuation specialists for our work over the methodology underpinning and certain of the assumptions used in the impairment assessment of goodwill and intangibles ■■ Actuarial pensions specialists for our work on the valuation of the defined benefit obligation. Incorporating unpredictability into our audit: A requirement of the auditing standards is that we undertake procedures which are deliberately unexpected and could not have reasonably been predicted by Barclays’ management. As an example, we extended our testing of IFRS 9 models to include expanded testing on a number of lower risk models. We also increased the population of Level 3 financial instruments which we perform independent re-pricing over. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Measures of independence Total audit fee Other audit related fees Other services Date first appointed Uninterrupted audit tenure £47m £10m £2m 31 March 2017 4 years Next financial period which require a tender 31 December 2027 Tenure of Group lead engagement partner Average tenure of key audit partners 3 years 3 years Materiality (Item 6) The scope of our work is influenced by our view of materiality and our assessed risk of material misstatement. We have determined overall materiality for the Barclays PLC Group to be £230m (FY19: £250m). The reduction in materiality is due to the reduction in the Group’s normalised profit before tax which is the benchmark upon which materiality is based. A key judgment in determining materiality (and performance materiality) is the appropriate benchmark to select, based on our perception of the needs of shareholders. We considered which benchmarks and key performance indicators have the greatest bearing on shareholder decisions. Consistent with FY19, we determined that normalised profit before tax from continuing operations remains the key benchmark for the Barclays PLC Group. For FY20 we have normalised this benchmark by £2.1bn to adjust for the impact of the post model adjustments made to the ECL allowance by the Group, to reflect COVID-19 related economic uncertainty, as disclosed on page 180. For FY19 we normalised this benchmark by £1.4bn to exclude charges related to certain conduct matters. As such, for FY20 we based our materiality on normalised profit before tax, of which it represents 4.4% (FY19: 4.3%). We have determined overall materiality for the Parent Company to be £225m (FY19: £245m). Materiality for the Parent Company financial statements was determined with reference to a benchmark of net assets of which it represents 0.4% (FY19: 0.4%). Our procedures on individual account balances and disclosures were performed to performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Normalised profit before tax from continuing operations £5,132m (2019: £5,757m) Innovation in the audit: Our audit is committed to driving innovation and the increased use of technology. In 2020 we have continued to deploy a large number of data and analytics tools across our audit. We used our Clara IT control analytics to perform some of our IT audit procedures over complete populations. Board audit Committee (“BAC”) interaction During the year, the BAC met 10 times. KPMG are invited to attend all BAC meetings and are provided an opportunity to meet with the BAC in private sessions without the Executive Directors being present. For each Key Audit Matter, we have set out communications with the BAC in section 4 and have highlighted those matters that required particular judgement. In addition, our audit team includes a senior partner who has specific responsibility for ensuring audit quality (our “Audit Quality partner”). The Board Audit Committee met with the Audit Quality Partner, without the audit team present, to receive a report on his assessment of audit quality. The matters included in the BAC Chair’s report on page 72 are consistent with our observations of those meetings. Our independence 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. We have not performed any non-audit services during FY20 or subsequently, which are prohibited by the FRC Ethical Standard. We were first appointed as auditor by the shareholders for the year ended 31 December 2017. The period of total uninterrupted engagement is for the four financial years ended 31 December 2020. The Group lead engagement partner rotates every five years. As these are the third set of Barclays PLC financial statements signed by Michelle Hinchliffe, she will be required to rotate after the FY22 audit. The average tenure of key audit partners who are responsible for component audits as set out in section 7 below is three years, with the shortest being their second year of involvement and longest being four years. Our procedures on individual account balances and disclosures were performed to performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 261 496A £230mWhole �nancial statements materiality(2019: £250m)B £170mBiggest component materialityRange of materiality for the three components(£75m–£170m)(2019: £100m to £135m)C £11mMisstatements reported to the Board Audit Committee(2018: £12m)ABCPro�t before tax fromcontinuing operationsGroup materiality Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued Coverage of Group financial statements Group total income 92% (2019: 93%) Group total assets 94% (2019: 93%) Group scope (Item 7) We have performed top down risk assessment and planning to determine the Group’s components that require involvement from component auditors around the world for the purpose of our opinion on the consolidated financial statements. We have also considered the extent to which the Group has established central hubs in shared service centre structures in India. The outputs from these hubs are included in the financial information of the reporting components and so the India operations are not considered to be a separate component. We have performed audit procedures centrally across the Group, set out in more detail in Section 7. In addition, we have performed Group level analysis on the remaining components to determine whether further risks of material misstatement exist in those components. Due to the travel restrictions imposed by COVID-19 the Group audit team did not visit the overseas components. A virtual communication and oversight strategy was implemented between the Group audit team and the components and certain other participating locations. Further details are set out in section 7. We consider the scope of our audit, as agreed with the Board Audit Committee, to be an appropriate basis for our audit opinion. The impact of climate change on our audit In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements. The Group has set out its commitments under the Paris Accord to be a net zero bank by 2050. Further information is provided in the Group’s Environment, Social and Governance report, the link to which is on page 41. Climate change risk could have a significant impact on the Group’s business as the operations and strategy of the Group are adapted to address the potential financial risks which could arise from both the physical and transition risks associated with climate change. Climate change initiatives and commitments impact the Group in a variety of ways including credit risk and market risk and greater narrative and disclosure of the impact of climate change risk is also incorporated into the annual report. As a part of our audit we have made enquiries of management to understand the extent of the potential impact of climate change risk on the Group’s financial statements and the Group’s preparedness for this. We have performed a risk assessment of how the impact of commitments made by Barclays in respect of climate change (including those considered during the 2020 AGM) may affect the financial statements and our audit. There was no impact of this on our key audit matters. We have assessed how the Group considers the impact of climate change risk on the credit rating of certain counterparties and the valuation of loan collateral. We have also incorporated a consideration of the climate change impact on the valuation of certain hard to price financial instruments in elevated risk sectors. We have not been engaged to provide assurance over the accuracy of the climate risk disclosures set out on pages 39 – 41 in the Annual Report. We have been engaged to provide assurance over the accuracy of certain disclosures in the separate Environment, Social and Governance report which is referred to on page 41 of the Annual Report. 262 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 9293872019 Full scope audit2020 Full scope audit9493672019 Full scope audit2020 Full scope audit Strategic report Shareholder information Governance Risk review Financial review Financial statements ■■ the Principal Risks and Uncertainties disclosures describing these risks 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 also required to review the Viability Statement. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge. 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 judgments 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 Parent Company’s longer-term viability. For example, the longer-term impact of COVID-19 on the markets in which the Group operates, its customers and the wider economy is unclear. Our reporting ■■ We have nothing material to add or draw attention to in relation to these disclosures. ■■ We have concluded that these disclosures are materially consistent with the financial statements and our audit knowledge. 3. Going concern, viability and principal risks and uncertainties The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Parent Company or the Group or to cease their operations, and as they have concluded that the Parent 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”). Going concern We used our knowledge of the Group and Parent Company, the financial services industry, and the general economic environment to identify the inherent risks to the business model and analysed how those risks might affect the Group’s and Parent Company’s financial resources or ability to continue operations over the going concern period. The risks that management considered most likely to adversely affect the Group’s and Parent Company’s available financial resources, and we challenged on over this period were: ■■ the availability of funding and liquidity in the event of a market wide stress scenario including the impact in which the global COVID-19 pandemic continues to unfold and the manner in which the UK continues its withdrawal from the European Union; and ■■ the impact on regulatory capital requirements in the event of an economic slowdown or recession. We considered whether these risks could plausibly affect the availability of financial resources in the going concern period by comparing severe, but plausible downside scenarios that could arise from these risks individually and collectively against the level of available financial resources indicated by the Group’s financial forecasts. Our procedures also included an assessment of whether the going concern disclosure in note 1 to the financial statements gives a complete and accurate description of the Directors’ assessment of going concern. Accordingly, we found the use of the going concern basis of preparation without any material uncertainty for the Group and Parent Company to be acceptable. 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 above conclusions are not a guarantee that the Group or the Parent Company will continue in operation. Our conclusions ■■ We consider that the Directors’ use of the going concern basis of accounting in the preparation of the Group’s and Parent Company’s financial statements is appropriate ■■ We have not identified, and concur with the Directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or Parent Company’s ability to continue as a going concern for the going concern period ■■ We have nothing material to add or draw attention to in relation to the Directors’ statement in 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 Parent Company’s use of that basis for the going concern period, and we found the going concern disclosure in note 1 to be acceptable ■■ The related statement under the Listing Rules set out on page 102 is materially consistent with the financial statements and our audit knowledge. Disclosures of emerging and principal risks and longer-term viability Our responsibility We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. Based on the knowledge we acquired during our financial statements audit, we have nothing further to add or draw attention to in relation to: ■■ the Directors’ confirmation within the viability statement that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 263 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 4. Key audit matters What we mean Key Audit Matters are those matters that, in our professional judgment, 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 include below the Key Audit Matters in decreasing order of audit significance together with our key audit procedures to address those matters and our results from those procedures. These matters were addressed, and our results are based on procedures undertaken for the purpose of our audit of the financial statements as a whole. We do not provide a separate opinion on these matters. We continue to perform procedures over the provision for conduct redress costs (PPI) and the provisions for legal, competition and regulatory related matters. However, following the resolution of certain matters, and developments in those still open, the level of judgement and estimation uncertainty relating to these matters has reduced since the previous year, we have not assessed either of these as being one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year. 4.1 Impairment allowances on loans and advances at amortised cost, including off-balance sheet elements Financial statement elements Impairment allowances on loans and advances at amortised cost, including off-balance sheet elements FY20 FY19 £9.4bn £6.6bn Our assessment of risk vs FY19 → Our assessment is the risk increased since FY19. This is due to the increased uncertainty around credit risk and global economic environments brought about by COVID-19 Our results FY20: Acceptable FY19: Acceptable Description of the key audit matter Our response to the risk Subjective estimate The estimation of expected credit losses (“ECL”) on financial instruments, involves significant judgement and estimates. The key areas where we identified greater levels of management judgement and therefore increased levels of audit focus in the Group’s estimation of ECLs are: ■■ Model estimations – Inherently judgemental modelling is used to estimate ECL which involves determining Probabilities of Default (“PD”), Probabilities of Survival (“PS”), Loss Given Default (“LGD”), and Exposures at Default (“EAD”). The PD and revolving PS models are the key drivers of complexity in the ECL and also impact the staging of assets and as a result are considered the most significant judgemental aspect of the Group’s ECL modelling approach. ■■ Economic scenarios – IFRS 9 requires the Group to measure ECLs on an unbiased forward- looking basis reflecting a range of future economic conditions. Significant management judgement is applied in determining the economic scenarios used and the probability weightings applied to them especially when considering the current uncertain economic environment as a result of COVID-19. Our procedures to address the risk included: Controls testing: We performed end to end process walkthroughs to identify the key systems, applications and controls used in the ECL processes. We tested the relevant manual, general IT and application controls over key systems used in the ECL process. Key aspects of our controls testing involved the following: ■■ Testing the design and operating effectiveness of the key controls over the completeness and accuracy of the key inputs, data and assumptions into the IFRS 9 impairment models; ■■ Testing the design and operating effectiveness of the key controls over the application of the staging criteria; ■■ Evaluating controls over validation, implementation and model monitoring; ■■ Evaluating controls over authorisation and calculation of post model adjustments and management overlays; and ■■ Testing key controls relating to selection and implementation of material macro-economic variables and the controls over the scenario selection and probabilities. Our financial risk modelling expertise: We involved our own financial risk modelling specialists in the following: ■■ Evaluating the appropriateness of the Group’s IFRS 9 impairment methodologies (including the staging criteria used); ■■ Reperforming and inspecting model code for the calculation of certain components of the ECL model (including the staging criteria); 264 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Description of the key audit matter Our response to the risk ■■ Qualitative adjustments – Adjustments to the ■■ For a sample of models which were changed or updated during the year, evaluating model-driven ECL results are raised by management to address known impairment model limitations or emerging trends as well as risks not captured by models. They represent approximately 14.8% net of the ECL. These adjustments are inherently uncertain and significant management judgement is involved in estimating these amounts especially in relation to economic uncertainty as a result of COVID-19. The effect of these matters is that, as part of our risk assessment, we determined that the impairment of loans and advances to customers including off balance sheet elements 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 (pages 181-189) disclose the sensitivities estimated by the Group. Disclosure quality The disclosures regarding the Group’s application of IFRS 9 are key to explaining the key judgements and material inputs to the IFRS 9 ECL results. whether the changes (including the updated model code) were appropriate by assessing the updated model methodology; ■■ For a sample of models evaluating the model output by inspecting the corresponding model functionality and independently implementing the model by rebuilding the model code; and ■■ For a sample of material models, assessing the reasonableness of the model predictions by comparing them against actual results and evaluating the resulting differences. 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; ■■ The key economic variables which included agreeing samples of economic variables to external sources; ■■ The overall reasonableness of the economic forecasts by comparing the Group’s forecasts to our own modelled forecasts; and ■■ The reasonableness of the Group’s considerations of the ECL impact of the current economic environment due to COVID-19. Test of details: Key aspects of our testing in addition to those set out above involved: ■■ Sample testing over key inputs, data and assumptions impacting ECL calculations to assess the reasonableness of economic forecasts, weights, and model assumptions applied; and ■■ Selecting a sample of post model adjustments, considering the size and complexity of management overlays with a focus on COVID-19 related overlays, in order to assess the reasonableness of the adjustments by challenging key assumptions, inspecting the calculation methodology and tracing a sample of the data used back to source data. Assessing transparency: We assessed whether the disclosures appropriately disclose and address the uncertainty which exists when determining the ECL. As 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. Communications with the Barclays PLC Board Audit Committee We discussed with and reported to the Board Audit Committee: ■■ Our approach to the audit of the ECL provisions including details of the way we responded through our audit to the impact of COVID-19 on the ECL calculation. This included details of our controls and substantive procedures. ■■ Our conclusions on the appropriateness of Barclays’ ECL methodology, models, qualitative adjustments and macro- economic assumptions (Including associated probability weightings) and related disclosures. Areas of particular auditor judgement We identified the following as the areas of particular auditor judgement: ■■ The appropriateness of the model estimations and adjustments recorded to the modelled driven ECL calculations to reflect the current uncertain economic environment as a result of COVID-19. This included the appropriateness of macro- economic forecasts and selection of probability weights used in the ECL calculations. Based on the risk identified and our procedures performed we considered the ECL charge, provision recognised and the related disclosures to be acceptable (2019 result: acceptable). Further information in the Annual Report and Accounts: See the Board Audit Committee Report on page 72 for details on how the Board Audit Committee considered impairment as an area of focus, page 296 for the accounting policy on accounting for the impairment of financial assets under IFRS 9, page 167 for the credit risk disclosures, and page 296 for the financial disclosure note 7; Credit Impairment charges and other provisions. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 265 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 4.2 Valuation of financial instruments held at fair value Financial statement elements FY20 FY19 Our assessment of risk vs FY19 Level 2 assets at fair value* (note 17) Level 2 liabilities at fair value* (note 17) Level 3 assets at fair value (note 17) £575.1bn £432.9bn £558.0bn £439.7bn £15.0bn £14.4bn ↔ Our assessment is that the risk is similar to FY19. Our results FY20: Acceptable FY19: Acceptable Level 3 liabilities at fair value (note 17) * The key audit matter identified relates to one derivatives portfolio within this balance which we considered to be harder-to-value. £6.6bn £4.4bn Description of the key audit matter Our response to the risk Subjective valuation The fair value of the Group’s financial instruments is determined through the application of valuation techniques which can involve the exercise of significant judgement by the Group in relation to the choice of the valuation models, pricing inputs and post-model pricing adjustments, including fair value adjustments (FVAs) and credit and funding adjustments (together referred to as XVAs). Where significant pricing inputs are unobservable, management has limited 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. Our significant audit risk is therefore primarily over significant Level 3 portfolios. In addition, there may also be valuation complexity associated with Level 2 portfolios, specifically where valuation modelling techniques result in significant limitations or where there is greater uncertainty around the choice of an appropriate pricing methodology, and consequently more than one valuation methodology could be used for that product across the market. We identified one derivatives portfolio that we considered to be harder to value Level 2 due to an element of modelling complexity associated with the product. The effect of these matters is that, as part of our risk assessment, we determined that the subjective estimates in fair value measurement of certain portfolios, as detailed above, 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. The financial statements (note 17) disclose the sensitivity estimated by the Group. Disclosure quality The disclosures are key to explaining the valuation techniques, key judgements, assumptions and material inputs. 266 Barclays PLC home.barclays/annualreport Our procedures to address the risk included: Risk assessment: We performed risk assessment procedures over the entirety of Level 1, 2 and Level 3 balances within the Group’s financial statements (i.e. all of the fair value financial instruments held by the Group). 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, see left for more explanation. Control testing: We performed end to end process walk-throughs to identify the key systems, applications and controls used in the valuations processes We tested the design and operating effectiveness of key controls relating specifically to these portfolios. These included controls over: ■■ Independent price verification (IPV), performed by a control function, of key market pricing inputs, including completeness of positions and valuation inputs subject to the IPV process; ■■ FVAs, including exit adjustments (to mark the portfolio to bid or offer prices), model shortcoming reserves to address model limitations and XVAs; ■■ The validation, completeness, implementation and usage of valuation models. This included controls over assessment of model limitations and assumptions; and ■■ The assessment of the observability of a product and their unobservable inputs. Our valuations expertise: We involved our own valuations specialists in the following: ■■ Independently re-pricing a selection of trades and challenging management on the valuations where they were outside our tolerance; and ■■ Challenging the appropriateness of significant models and methodologies used in calculating fair values, risk exposures and in calculating FVAs, including comparison to industry practice. Comparing valuations: For a selection of material collateral disputes identified through management’s control we challenged management’s valuation where significant fair value differences were observable with the market participant on the other side of the trade. Methodology choice: For a subset of portfolios that are subject to collateralisation, we assessed the valuation methodology, and independently re-priced a selection of trades that are subject to material collateral disputes where significant fair value differences were identified with the market counterparty through independent, external datasets. Inspection of movements: We inspected trading revenue arising on level 3 positions to assess whether material gains or losses generated were in line with the accounting standards. Historical comparison: We performed a retrospective review by inspecting significant gains and losses on a selection of new trades, trade exits, novations and restructurings and evaluated whether these data points indicated elements of fair value not incorporated in the current valuation methodologies. We also inspected movements in unobservable inputs throughout the period to challenge whether any gain or loss generated was appropriate. Assessing transparency: We assessed the adequacy of the Group’s financial statements disclosures in the context of the relevant accounting standards. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Based on the risk identified and our procedures performed, we consider the fair value of Level 3 and harder-to-value Level 2 financial instrument assets and liabilities recognised to be acceptable (2019 result: acceptable). Further information in the Annual Report and Accounts: See the Board Audit Committee Report on page 72 for details on how the Board Audit Committee considered Valuations as an area of focus, page 315 for the accounting policy on financial assets and liabilities, and page 315 for the financial disclosure note 17; Fair value of financial instruments. Communications with the Barclays PLC Board Audit Committee We discussed with and reported to the Board Audit Committee: ■■ Our approach to the audit of the fair value of Level 3 and harder-to-value Level 2 financial instrument assets and liabilities. This included details of our controls and substantive procedures. ■■ Our conclusions on the appropriateness of Barclays’ fair value methodology, models, pricing inputs, and fair value adjustments. Areas of particular auditor judgement We identified the following as the areas of particular auditor judgement: ■■ The appropriateness of the valuation of harder to value level 2 and level 3 financial instruments, and particularly the selection of market data inputs and valuation models. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 267 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 4.3 Recoverability of goodwill and intangible assets Financial statement elements FY20 FY19 Our assessment of risk vs FY19 Goodwill and intangible assets (note 22) Impairment of goodwill and intangible assets (note 22) £7.9bn £0bn £0bn £8.1bn NEW  This is the first year we have considered the risk to be a Key Audit Matter. This is due to the impact of COVID-19 and the low interest rate environment on the current and projected performance of the respective businesses within the Group which increases the judgement involved in the recoverability assessment. Our results FY20: Acceptable FY19: Acceptable Description of the key audit matter Our response to the risk Subjective assessment Goodwill and intangible assets may be misstated if the carrying values of these assets in the balance sheet are not supported by the estimated discounted future cash flows of the underlying businesses (the value in use). The preparation of the estimate of the carrying value and value in use (‘VIU’) involves subjective judgement and uncertainties. The methodology for the determination of the tangible equity of the individual cash generating units’ (‘CGUs’) utilises a capital allocation rate that reflects the relative risk profile of the CGU. The CGU-specific goodwill and intangible assets are subsequently added to the CGU-specific tangible equity to arrive at the carrying value subject to the impairment test. The group applies judgement in allocating carrying values to specific CGUs for impairment testing purposes. In particular, the determination of an appropriate allocation rate is subjective and can significantly affect the outcome of the impairment test. The calculation of VIU is dependent on certain key assumptions around the future cash flows which have been forecasted using the Group’s Medium Term Plan (‘MTP’), adjustments from those MTP cash flows to reflect developments in macro- economic conditions and business developments, the discount rates and the terminal growth rates. These assumptions, which are judgemental, are derived from a combination of management estimates, market data and other information obtained from external sources. Our work focused on CGUs which have low or significantly reduced headroom and a high sensitivity to the key assumptions including: ■■ Personal banking ■■ Business banking The effect of these matters is that, as part of our risk assessment, we determined that the recoverability of goodwill and intangible assets 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 The disclosures are key to explaining the sensitivity of the outcome of the impairment assessment to changes in key assumptions. 268 Barclays PLC home.barclays/annualreport Our procedures to address the risk included: Control testing: We performed end to end process walkthroughs to identify the key systems, applications and controls used in the process of estimating value in use and allocating carrying values to specific CGUs for impairment testing purposes. We tested the design and operating effectiveness of key controls relating to the process. These included controls over application of the impairment methodology, preparation of the estimated future cash flows and review of the key assumptions in determining the value in use. Methodology assessment: We assessed (relative to the requirements of the accounting standard) the appropriateness of Group’s impairment methodology, including the allocation of carrying values utilising the tangible equity of the individual CGU and the capital allocation rate. Sensitivity analysis: We performed breakeven analysis on the discount rate, terminal growth rate and the future cash flows to understand which CGUs were most sensitive to changes in the key assumptions. Benchmarking assumptions: We compared key assumptions including those underlying certain estimated future cash flows, the discount rate and the terminal growth rate to externally derived data including analyst broker reports, peer bank data and projected economic growth. Our valuations expertise: We involved our own valuations specialists in the following: ■■ Evaluating the appropriateness of the discount rate used by independently developing discount rate ranges using external data sources and peer bank data; and ■■ Assessing whether the methodology over the determination of the carrying value of each CGU on the basis of capital allocation as well as management’s calculation of the VIU are compliant with the requirements of the accounting standard. Our business understanding: We used our business understanding to evaluate the reasonableness of certain key assumptions and considerations made when (1) determining the capital allocation rate to reflect the relative risk profile of the CGU, (2) developing the Group’s MTP estimated future cash flows and (3) adjusting from these forecasts for supportable circumstances that did not exist when the MTP was developed. Historical comparison: We performed a retrospective review by comparing the MTP from previous years to actual results to assess the Group’s ability to accurately prepare cash flow forecasts at the individual CGU level. Consistency comparison: We assessed the consistency of pre-adjusted forecasted future cash flows used within management’s impairment assessment to the Board approved MTP. Assessing transparency: We assessed whether the group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill and intangible assets as well as the resulting impact on headroom of the adjustments made to the Group’s MTP for purposes of the impairment assessment. As set out in the disclosures on page 335, the available headroom for Personal Banking CGU has been adversely impacted by changes in the operating environment, resulting in a material reduction compared to the prior year. This has significantly increased the sensitivity of the impairment assessment to certain key assumptions such that a small movement in the key assumptions could have a material impact on the carrying value of the Personal Banking CGU. We therefore exercised judgement, based on our assessment of reasonably possible assumptions, as to whether it is acceptable or not to record an impairment, and we exercised judgement to determine the appropriateness of disclosures of the risk that a reasonable change in assumptions could lead to an impairment. Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Based on our procedures performed, we consider the goodwill and intangible assets balance and the related disclosures to be acceptable (2019 result: acceptable). Further information in the Annual Report and Accounts: See the Board Audit Committee Report on page 72 for details on how the Board Audit Committee considered the impairment of non-financial assets as an area of focus, page 332 for the accounting policy on the impairment of goodwill and intangibles, and page 332 for the financial disclosure note 22; Goodwill and intangibles. Communications with the Barclays PLC Board Audit Committee We discussed with and reported to the Board Audit Committee: ■■ The identification of a new Key Audit Matter relating to the recoverability of goodwill and intangible assets and the rationale for identifying this; ■■ Our audit response to the Key Audit Matter which included the use of specialists to challenge key aspects of management’s impairment assessment; ■■ Our analysis of management’s impairment methodology and certain adjustments made by management from the Group’s MTP cash flows while performing the impairment assessment, including the resulting impact on the VIU of the Personal Banking and Business Banking CGUs and our audit response to these adjustments; and ■■ The identified CGUs are highly sensitive to certain key assumptions, including the allocation of carrying values to specific CGUs for impairment testing purposes, the CGU-specific discount rate, the interest rate environment and management’s projected forecasts. Changes in these assumptions, including management not meeting the estimated future cash flows estimated in the Group MTP, may result in impairment. Areas of particular auditor judgement We identified the allocation of carrying values to specific CGUs for impairment testing purposes, together with the reasonableness of the assumptions underlying the estimated future cash flows and appropriateness of the discount rate and terminal growth rate, each of which were used in the impairment assessment, and the appropriateness of not recording an impairment in the Personal Banking CGU, as the areas of particular judgement. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 269 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 4.4 Valuation of the defined benefit pension obligation and certain difficult-to-value pension assets in respect of The UK Retirement Fund (‘UKRF’) Financial statement elements FY20 FY19 Our assessment of risk vs FY19 Benefit obligation related to UKRF (note 33) Fair value of unquoted scheme private equities related to UKRF (note 33) £32.1bn £29.3bn NEW  This is the first year we have considered the risk to be a Key £2.2bn £2.1bn Audit Matter. This reflects the expansion of our significant risk in this area to include the valuation of level 3 assets held by the pension scheme and the level and nature of the involvement of specialists in our audit Our results FY20: Acceptable FY19: Acceptable Fair value of unquoted scheme property related to UKRF* (note 33) * The key audit matter identified relates to certain difficult-to-value £1.4bn £1.6bn level 3 property within this balance. Description of the key audit matter Our response to the risk Subjective valuation The valuation of the defined benefit obligation in respect of the UKRF is dependent on key actuarial assumptions, including the discount rates, mortality assumptions and the impact of volatility in the retail price index (‘RPI’) on pension increases, as well as the methodology used by the Group to determine these assumptions. Small changes have a significant impact on the measurement of the defined benefit pension obligation. In addition, the valuation of certain difficult-to-value level 3 pension plan assets, specifically property and private equity investments, is determined through the application of valuation techniques which often involve the exercise of significant judgement by management due to the subjective nature of judgements required and the measurement uncertainty associated with the use of lagged prices. The effect of these matters is that, as part of our risk assessment, we determined that the defined benefit pension obligation and certain difficult-to- value level 3 pension assets had 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. At 31 December 2020, the Group reported a pension asset surplus of £1.8bn relating to UKRF. Disclosure quality The defined benefit plan disclosures are key to explaining the sensitivity of the outcome of the impairment assessment to changes in key assumptions. Our procedures to address the risk included: Control testing: We performed end to end process walk-throughs to identify the key systems, applications and controls used in the defined benefit obligation process. We tested the design and operating effectiveness of key controls relating to the process. These included: ■■ Controls over management’s review of IAS19 assumptions including discount rate, mortality assumptions and the RPI volatility impact on pension increases as well as the methodology used; ■■ Reconciliation controls of the IAS19 disclosures to underlying data; ■■ Investment reconciliation controls including property valuation; and ■■ Private equity retrospective review controls. Our actuarial expertise: we involved our own actuarial specialists in the audit of the obligation in the following: ■■ Assessing the appropriateness of the methodology used by the Group for determining the assumptions; ■■ Evaluating the reasonableness of selected assumptions against publicly available benchmark information. Our property valuation expertise: We involved our own property specialists in evaluating the fair value of the property portfolio by analysing the year on year movement assessing the property valuation on the basis of equivalent yields and challenging the returns per the Company’s expert for a sample of specific properties within the portfolio. Independent reperformance: We performed an independent assessment to assess the reasonableness of the Group’s best estimate of the fair value of its private equity interests. We challenged management’s assessment of indicators of movement to the fair value with reference to their specific portfolio and their associated market exposure. Assessing transparency: We assessed the adequacy of the Group’s financial statements disclosures in the context of the relevant accounting standards 270 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Communications with the Barclays PLC Board Audit Committee We discussed with and reported to the Board Audit Committee: ■■ The identification of a new Key Audit Matter relating to the valuation of the defined benefit pension obligation and certain difficult to value pension assets and the rationale for identifying this. ■■ We also discussed our audit response to the key audit matter which included the use of specialists to challenge key aspects of management’s actuarial valuation. Areas of particular auditor judgement ■■ Subjective and complex auditor judgement was required in evaluating the key actuarial assumptions used by the Group (including the discount rate, pension increases and mortality assumptions), as well as the methodology used by Group to determine them. ■■ In addition, specialist skills and knowledge were required in assessing the valuation of certain difficult-to-value pension plan assets due to the subjective nature of judgements required of management to determine key actuarial assumptions and the measurement uncertainty associated with the use of lagged prices. Based on the risk identified and our procedures performed we consider the valuation of the defined benefit pension obligation and certain difficult-to-value pension assets in respect of UKRF to be acceptable (2019 result: acceptable). Further information in the Annual Report and Accounts: See page 352 for the accounting policy on defined benefit schemes, and page 352 for the financial disclosure note 33; Pensions and post-retirement benefits. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 271 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 4.5 User Access Management Financial statement elements User access management has a potential impact throughout the financial statements. Our assessment of risk vs FY19 Our results ↔ Our assessment is the risk is similar to FY19. FY20 and FY19: Our testing did not identify unauthorised user activities in the systems relevant to financial reporting which would have required us to significantly expand the extent of our planned detailed testing. Description of the key audit matter Our response to the risk Our procedures to address the risk included: Control testing: We tested the design and operating effectiveness of the relevant controls over user access management including: ■■ Authorising access rights for new joiners; ■■ Timely removal of user access rights; ■■ Logging and monitoring of user activities; ■■ Privileged user and developer access to production systems, the procedures to assess granting, potential use, and the removal of these access rights; ■■ Segregation of duties including access to multiple systems that could circumvent segregation controls; ■■ Re-certification of user access rights. We tested the implementation and operating effectiveness of management’s remediated Access Management controls and found them to be effective in 2020. Control re-performance: To assess whether additional detective compensating controls adequately address the risk of unauthorised access, we re-performed on a sample basis management’s assessment of potential unauthorised access by privileged accounts and users that were not managed by the strategic access management tools, or whose database level activities were not logged and monitored. 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 does not impact the effective operation of the automated controls in the financial reporting processes. Some user access management controls continue to be reported as not consistently implemented and effectively operated across the Group. Ineffective controls included privileged access management and monitoring of privileged database activities on certain technology types. A series of remediation programmes were in place during the year to address previously identified control deficiencies. The Group has also enhanced compensating controls to address the issues raised, 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 reliance on automated and IT dependent controls in our audit. Communications with the Barclays PLC Board Audit Committee We discussed with and reported to the Board Audit Committee: ■■ Our response to the Key Audit Matter which included the use of IT specialists to perform the testing. Areas of particular auditor judgement ■■ The Key Audit Matter relates to determining whether user access management controls were designed and implemented and operated effectively. Limited auditor judgement was required relative to the other Key Audit Matters which have been identified. Based on the risk identified and our procedures performed, we did not identify unauthorised user activities in the systems relevant to financial reporting which would have required us to significantly expand the extent of our planned detailed testing (2019: Our testing did not identify unauthorised user activities in the systems relevant to financial reporting which would have required us to significantly expand the extent of our planned detailed testing). 272 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 4.6 Recoverability of Parent Company’s investment in subsidiaries Financial statement elements FY20 FY19 Investment in subsidiaries (Parent company accounts and note 42) £58.9bn £59.5bn Impairment of investment in BBUK PLC (note 42) £2.6bn £0bn Our assessment of risk vs FY19 → Our assessment is the risk increased since FY19. This is due to the impact of COVID-19 and the low interest rate environment on the current and projected performance of the retail bank which increases the judgement involved in the recoverability assessment. Our results FY20: Acceptable FY19: Acceptable Description of the key audit matter Our response to the risk Subjective assessment The Company’s investment in subsidiaries may be misstated if the carrying value of the investment in the balance sheet is not supported by the future cash flows of the underlying business (the value in use). The calculation of VIU is dependent on certain key assumptions around the future cash flows which have been forecasted using the Group’s Medium Term Plan (‘MTP’), adjustments from those MTP cash flows to reflect developments in macro-economic conditions and business developments, the discount rates and the terminal growth rates. These assumptions, which are judgemental, are derived from a combination of management estimates, market data and other information obtained from external sources. In 2020 an impairment of £2.6bn was recognised against the Parent Company’s investment in BBUK PLC. This was due to the impact of COVID-19 on the macro-economic environment which led to a reduction in the forecast cashflows used in the value in use calculation. Our work focused on the Parent Company’s investment in BBUK PLC as the quantum of the impairment recognised has a high sensitivity to the key assumptions. We have also continued to consider the Group’s current market capitalisation. While any impairment of the carrying value of subsidiaries does not affect the consolidated results of the Group, it does impact distributable reserves. The effect of these matters is that, as part of our risk assessment, we determined that the recoverability of the Parent Company’s investment in subsidiaries had 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 The disclosures are key to explaining the sensitivity of the outcome of the impairment assessment to changes in key assumptions. Our procedures to address the risk included: Control testing: We performed end to end process walkthroughs to identify the key systems, applications and controls used in the process of estimating value in use. We tested the design and operating effectiveness of key controls relating to the process. These included controls over application of the impairment methodology, preparation of the estimated future cash flows and review of the key assumptions in determining the value in use. ■■ Methodology assessment: We assessed (relative to the requirements of the accounting standard) the appropriateness of Group’s impairment methodology for the determination of the VIU. Benchmarking assumptions: We compared key assumptions including those underlying certain estimated future cash flows, the discount rate and the terminal growth rate to externally derived data including analyst broker reports, peer bank data and projected economic growth. Our valuations expertise: We involved our own valuations specialists in the following: ■■ Evaluating the appropriateness of the discount rate used by independently developing discount rate ranges using external data sources and peer bank data; and ■■ Assessing whether the methodology over management’s calculation of the VIU is compliant with the requirements of the accounting standard. Our business understanding: We used our business understanding to evaluate the reasonableness of certain key assumptions and considerations made when (1) developing the Group’s MTP estimated future cash flows and (2) adjusting from these forecasts for supportable circumstances that did not exist when the MTP was developed. Historical comparison: We performed a retrospective review by comparing the MTP from previous years to actual results to assess the Group’s ability to accurately prepare cash flow forecasts at the individual subsidiary level. Consistency comparison: We assessed the consistency of pre-adjusted forecasted future cash flows used within management’s impairment assessment to the Board approved MTP. Assessing transparency: We assessed whether the group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the assessment of recoverable amount of the Parent Company’s investment in subsidiaries. Communications with the Barclays PLC Board Audit Committee We discussed with and reported to the Board Audit Committee: ■■ The rationale for increasing the level of risk associated with this Key Audit Matter for the previous period, specifically with regards to the retail bank; Barclays PLC Annual Report 2020 ■■ Our audit response to the Key Audit Matter which included the use of specialists to challenge key aspects of management’s impairment assessment; ■■ Our analysis of management’s impairment methodology and certain adjustments made by management from the Group’s MTP cash flows while performing the impairment assessment, including the resulting impact on the VIU of the investment in BBUK PLC and our audit response to these adjustments; Areas of particular auditor judgement We identified the reasonableness of the assumptions underlying the estimated future cash flows and appropriateness of the discount rate and terminal growth rate, each of which were used in the impairment assessment, as the areas of particular judgement. Based on our procedures performed, we consider the Parent Company’s investment in subsidiaries balance and the related disclosures to be acceptable (2019 result: acceptable). . Barclays PLC home.barclays/annualreport 273 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued Fraud risk communication We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group to component audit teams of relevant fraud risks identified at the Group level. Fraud risks and our procedures to address them We have identified six fraud risks which were communicated to specific component audit teams. The nature of these fraud risks is substantially unchanged from the prior year but the allocation of certain fraud risks to components has been updated. The fraud risks we identified are set out below: 1) Judgemental qualitative adjustments made to the ECL provision 2) The recognition and measurement of ECL impairment of individually assessed loans 3) The valuation of unobservable pricing inputs used in used to price level 3 fair value instruments 4) Cut-off of the recognition of revenue from investment banking advisory fees 5) Existence and accuracy of unconfirmed over-the-counter bilateral trades 6) The risk of management override of controls, common with all audits under ISAs (UK). As required by auditing standards and taking into account our overall knowledge of the control environment, we perform procedures to address the above risks and the risk that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements. Our audit procedures included evaluating the design and implementation and operating effectiveness of relevant internal controls, assessing significant accounting estimates for bias, as well as substantive procedures to address the fraud risks. These procedures also included identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation. Incorporating unpredictability into our audit: A requirement of the auditing standards is that we undertake procedures which are deliberately unexpected and could not have reasonably been predicted by Barclays’ management. As an example, we extended our testing of IFRS 9 models to include expanded testing on a number of lower risk models. We also increased the population of Level 3 financial instruments which we perform independent re-pricing over. Link to key audit matters Further detail in respect of the testing we perform over the fraud risks we have identified for ECL and fair value of financial instruments is included in the respective key audit matters sections 4.1 and 4.2 of this report, as the procedures relating to those estimates also address the risk of fraud. Laws and regulations – Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations Risk assessment We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements. For this risk assessment, matters considered included the following: ■■ our general commercial and sector experience; ■■ discussion with the directors and other management (as required by auditing standards); ■■ inspection of the Group’s regulatory and legal correspondence; ■■ inspection of the policies and procedures regarding compliance with laws and regulations; ■■ relevant discussions with the Group’s external legal counsel; and ■■ relevant discussions with the Group’s key regulatory supervisors including the Prudential Regulation Authority, Financial Conduct Authority, Federal Reserve Board, Federal Deposit Insurance Corporation and the Joint Supervisory Team. 5. Our ability to detect irregularities, and our response Fraud – identifying and responding to risks of material misstatement due to fraud Fraud risk assessment To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. In this risk assessment we considered the following: ■■ Our meetings throughout the year with the Group Head of Risk, Group Head of Compliance and Group Head of Legal and reviews of Barclays’ internal ethics and compliance reporting summaries, including those concerning investigations; ■■ Enquiries of operational managers, internal audit, and the Board Audit Committee, including obtaining and reviewing supporting documentation, concerning the Group’s policies and procedures relating to: – detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and – the internal controls established to mitigate risks related to fraud, including the appropriateness and impact of changes made to these controls in response to COVID-19; ■■ The Group’s remuneration policies, key drivers for remuneration and bonus levels; ■■ Discussions among the engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. The engagement team includes audit partners and staff who have extensive experience of working with banks, and this experience was relevant to the discussion about where fraud risks may arise. The discussions also involved our own forensic specialists to assist us in identifying fraud risks based on discussions of the circumstances of the Group and Company, including consideration of fraudulent schemes that had arisen in similar sectors and industries. The forensic specialists participated in the initial fraud risk assessment discussions and were consulted throughout the audit where further guidance was deemed necessary. 274 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements In respect of regulatory matters relating to conduct risk our procedures included inspection of regulatory correspondence, independent enquiry of the Group’s main regulators and performing audit procedures to respond to risks of material misstatement identified in recognised conduct provisions. Context of the ability of the audit to detect fraud or breaches of law or regulation 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 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 fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. As the Group operates in a highly regulated environment, our assessment of risks of material misstatement also considered the control environment, including the entity’s higher-level procedures for complying with regulatory requirements. Our assessment included inspection of key frameworks, policies and standards in place, understanding and evaluating the role of the compliance function in establishing these and monitoring compliance and testing of related controls around whistleblowing and complaints. Risk communication Our communication of identified laws and regulations risks was made throughout our team and we 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 Group level. Direct laws context and link to audit 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 impact the financial statements including: ■■ financial reporting legislation (including related companies’ legislation); ■■ distributable profits legislation; and ■■ taxation legislation (direct and indirect). We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Most significant indirect law/regulation areas 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 permission to operate in countries where the non-adherence to laws could prevent trading in such countries. We identified the following areas as those most likely to have such an effect: ■■ Specific aspects of regulatory capital and liquidity ■■ Customer conduct rules ■■ Money laundering ■■ Sanctions list and financial crime ■■ Market abuse regulations ■■ 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. If a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Audit response In relation to the legal, competition and regulatory matters disclosed in note 26 we performed audit procedures which included making enquiries of Barclays internal counsel and inspection of minutes of meetings and regulatory correspondence. For a subset of these matters which we deem to be more significant we also made enquiries of external counsel and obtained legal confirmations from Barclays’ external counsel. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 275 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 6. Our determination of materiality The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative considerations to help us determine the scope of our audit and the nature, timing and extent of our procedures, and in evaluating the effect of misstatements, both individually and in the aggregate, on the financial statements as a whole. Materiality for the financial statements as a whole 2020: £230m 2019: £250m What we mean This is the amount representing the total magnitude of misstatements that we expect to influence the economic decisions of the users of these financial statements. Basis for determining materiality and judgements applied Consistent with FY19, we determined that profit before tax from continuing operations, normalised using our professional judgement, remains the key benchmark for the Barclays PLC Group to use in setting auditor’s materiality. For FY20 we have normalised profit before tax from continuing operations by £2.1bn to adjust for the impact of COVID-19 on the ECL charge. For FY 19 we normalised this benchmark by £1.4bn to exclude charges related to conduct. We normalise profit before tax by excluding certain items which significantly distort results in any one particular year. In our view, the use of a normalised profit before tax in which, for 2020, we have excluded the identified impact of COVID-19 on the ECL charge, provides a more appropriate amount to use as a benchmark for setting our materiality level. In FY 19 we excluded material charges related to PPI provisions which was recognised in response to a significant increase in complaints ahead of the time-bar for new complaints which was implemented in August 2019. In determining the materiality benchmark, we had regard to investor commentary on the group, and the process followed by investors who also typically remove charges of this nature as they seek to derive a profit before tax amount to use as the basis for investment appraisal. Our materiality of £230m was determined by applying a percentage to the normalised Profit Before Tax. When using a profit-related measure to determine overall materiality, KPMG’s approach is to apply a percentage between 3–5% to the pre-tax measure. In setting overall materiality, we applied a rate of 4.4% (2019: 4.3%) which is lower than the top end of the allowable percentage range. Our materiality of £230m was lower than the prior year reflecting the increased risks arising from COVID-19. Materiality for the Parent Company financial statements was set at £225m (2019: £245m), determined with reference to a benchmark of Parent Company net assets (of which it represents 0.3% (2019: 0.4%)). Performance materiality 2020: £170m 2019: £185m What we mean Our procedures on individual account balances and disclosures were performed to performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Basis for determining performance materiality and judgements applied We have considered performance materiality at a level of 74% (2019: 74%) of materiality for Barclays PLC Group’s financial statements as a whole to be appropriate. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. The company performance materiality was set at £160m (2019: £184m). Audit misstatement posting threshold 2020: £11m 2019: £12m What we mean This is the amount below which identified misstatements are considered to be clearly trivial from a quantitative point of view. We may become aware of differences below this threshold which could alter the nature, timing and scope of our audit procedures, for example if we identify smaller differences which are indicators of fraud. This is also the amount above which all differences identified are communicated to Barclays PLC’s Board Audit Committee Basis for determining the audit misstatement reporting threshold and judgements applied The audit misstatement posting threshold has been set at a level of 5% of materiality for Barclays PLC’s Group financial statements. We consider this appropriate based on the number and nature of audit differences (adjusted and unadjusted) identified during previous audits. The overall materiality for the Group of £230m (2019: £250m) determined with reference to a benchmark of normalised PBT of which it represents 4.4% (2019: 4.3%), compares as follows to the other main financial statement elements amounts. The overall materiality for the Group of £230m (2019: £250m), determined with reference to a benchmark of normalised PBT of which it represents 4.4% (2019: 4.3%), compares as follows to the other main financial statement elements amounts. Group Materiality as % of caption Total Revenue 2020 £21,776m 1.06% Total Assets 2020 2019 2019 £21,632m £1,349,514m £1,140,229m 0.02% 0.02% 1.16% Net Assets 2020 £65,797m 0.34% 2019 £65,660m 0.38% 276 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements This included: ■■ A virtual global planning conference led by the Group audit team to discuss key audit risks and obtain input from component teams and other participating locations; ■■ Instructions issued by the Group audit team to component auditors setting out the significant areas to be covered, including the relevant key audit matters identified above and the information to be reported back to the Group audit team; ■■ Review and approval by the Group audit team of the component materiality for all components; ■■ Risk assessment and challenge sessions with each component audit team led by the Group engagement partner and audit quality partner; ■■ Fortnightly video conferences with the partners and directors of the Group and component audit teams along with regular ad hoc contact via video calls and email exchanges to challenge the component audit approach and findings; ■■ Michelle Hinchliffe, the Group Lead Engagement Partner, attended each Board Audit Committee for Barclays Bank PLC and at least one Board Audit Committee for each of Barclays Bank UK, Barclays Capital Inc. and  Barclays Bank Delaware and Barclays Bank Ireland; ■■ Review of key working papers within component audit files (using remote technology capabilities) to understand and challenge the audit approach and audit findings of each component. 7. The scope of our audit Group scope What we mean We perform our planning and risk assessment procedures to identify balances where there is a risk of material misstatement and we include these in the scope of our audit. We have subjected three of the Group’s components to full scope audits for Group purposes. Our approach to scoping the three components was as follows: for two components, Barclays Bank UK PLC and Barclays Execution Services Limited Solus, we directly instructed the component audit teams to conduct and report to us on full scope audits; and for the other component, Barclays Bank PLC Group, we have specified four further components within that group. Within the Barclays Bank PLC Group we have specified the components as follows; Barclays Bank Solus to be subject to a full scope audit carried out by us; Barclays Bank Delaware and Barclays Capital Inc to be subject to a full scope audit overseen by us; and Barclays Bank Ireland PLC to be subject to an audit of certain account balances as instructed by us. In the prior year, we subjected two of the Group’s components to full scope audits. We instructed the Barclays Bank UK PLC audit team to conduct and report to us on a full scope audit. We instructed the Barclays Bank PLC audit team to conduct and report to us on their own full scope group audit and we specified three components within that group that were overseen by the Barclays Bank PLC team; Barclays Bank Delaware, Barclays Capital Inc and Barclays Bank Ireland PLC. The components within the scope of our work accounted for the percentages illustrated in section 2 – Group scope. Barclays PLC 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 is not a separate reporting component. These Group-wide procedures 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 risks not covered by the work performed over these Group-wide processes in India. The Group audit team have also performed audit procedures centrally across the Group, and again beyond the component scope set out above, in the following areas: ■■ Testing of IT systems and configurations; ■■ Consolidation of the financial information; and ■■ Operating expenses and Group recharges. In addition, outside of the components subject to audit procedures set out above, we have performed Group level analysis on the remaining components to determine whether further risks of material misstatement exist in those components. Group audit team oversight What we mean The Group audit team is required to instruct the component teams about their responsibilities in relation to the consolidated Group audit and to understand the approach taken by the components to meet these responsibilities. The Group audit team is also required to understand the conclusions reached by the component teams and to review and challenge the work they have performed to reach these conclusions. Due to the travel restrictions imposed by COVID-19 the Group audit team did not visit the overseas components. A virtual communication and oversight strategy was implemented between the Group audit team and the components. Scope Number of components Range of materiality applied Full scope audit 3 £75m – £170m Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 277 Independent auditor’s report Independent auditor’s report to the members of Barclays PLC continued 8. Other information in the annual report All other information Our responsibility 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. Our results Based solely on that work we have not identified material misstatements in the other information. Strategic report and directors’ report Our responsibility 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 Our responsibility We are required to form an opinion as to whether the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Our reporting In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Corporate governance disclosures Our responsibility We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ corporate governance disclosures, the financial statements and our audit knowledge, 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; 278 Barclays PLC home.barclays/annualreport ■■ the section of the annual report describing the work of the Board Audit Committee, including the significant issues that the Board Audit Committee considered in relation to the financial statements, and how these issues were addressed; and ■■ the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal control systems. Our reporting Based on those procedures, we have concluded that each of these disclosures is materially consistent with the financial statements and our audit knowledge. We are also required to review the part of Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this regard. Other matters on which we are required to report by exception Our responsibility 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. Our reporting We have nothing to report in these repsects. 9. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 107, 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, 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 www.frc.org.uk/auditorsresponsibilities. 10. 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 and the terms of our engagement by the Company. 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 the further matters we are required to state to them in accordance with the terms agreed with the Company, 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 17 February 2021 Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Consolidated financial statements Consolidated income statement For the year ended 31 December Interest and similar income Interest and similar 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 Net operating income Staff costs Infrastructure costs Administration and general expenses Litigation and conduct 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 Attributable to: Equity holders of the Parent Other equity instrument holders Total equity holders of the Parent Non-controlling interests Profit after tax Earnings per share Basic earnings per ordinary share Diluted earnings per share Notes 3 3 4 4 5 6 7 31 8 8 8 8 9 30 10 10 2020 £m 11,892 (3,770) 8,122 8,641 (2,070) 6,571 7,029 13 31 21,766 (4,838) 16,928 (8,097) (3,323) (2,313) (153) (13,886) 6 17 3,065 (604) 2,461 1,526 857 2,383 78 2,461 p 8.8 8.6 2019 £m 15,456 (6,049) 9,407 9,122 (2,362) 6,760 4,235 1,131 99 21,632 (1,912) 19,720 (8,315) (2,970) (2,300) (1,849) (15,434) 61 10 4,357 (1,003) 3,354 2,461 813 3,274 80 3,354 p 14.3 14.1 2018 £m 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 (911) 2,583 1,597 752 2,349 234 2,583 p 9.4 9.2 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 279 Consolidated financial statements Consolidated statement of comprehensive income For the year ended 31 December Profit after tax Other comprehensive income/(loss) that may be recycled to profit or loss: Currency translation reserve Currency translation differencesa Fair value through other comprehensive income reserve movements relating to debt securities Net gains/(losses) from changes in fair value Net (gains)/losses transferred to net profit on disposal Net losses due to impairment Net (losses)/gains due to fair value hedging Other movements Tax Cash flow hedging reserve Net gains/(losses) 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 Other comprehensive income/(loss) not recycled to profit or loss: Retirement benefit remeasurements Fair value through other comprehensive income reserve movements relating to equity instruments Own credit Tax Other comprehensive income/(loss) not recycled to profit or loss Other comprehensive income/(loss) for the year Total comprehensive income for the year Attributable to: Equity holders of the Parent Non-controlling interests Total comprehensive income for the year Note a Includes £17m gain (2019: £15m gain; 2018: £41m loss) on recycling of currency translation differences. 2020 £m 2,461 2019 £m 3,354 2018 £m 2,583 (473) (544) 834 2,902 (295) 2 (2,000) – (155) 1,299 (510) (216) 5 559 (80) (262) (810) 198 (954) 2,901 (502) 1 (2,172) (5) (57) 724 (277) (105) 16 (20) (280) (95) (316) 150 (541) (553) 48 4 236 (26) 65 (344) (332) 175 30 137 412 (260) 77 (118) 111 (395) (561) 248 2,066 2,793 2,831 1,988 78 2,066 2,713 80 2,793 2,597 234 2,831 280 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 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 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 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 The Board of Directors approved the financial statements on pages 279 to 376 on 17 February 2021. Nigel Higgins Group Chairman James E Staley Group Chief Executive Tushar Morzaria Group Finance Director Barclays PLC Annual Report 2020 Notes 2020 £m 2019 £m 19 12 13 14 15 36 22 20 9 33 19 27 12 16 14 9 33 23 24 28 28 29 30 191,127 101,367 342,632 9,031 127,950 175,151 302,446 78,688 781 7,948 4,036 477 3,444 1,814 2,622 150,258 83,256 339,115 3,379 114,195 133,086 229,236 65,750 721 8,119 4,215 412 3,290 2,108 3,089 1,349,514 1,140,229 481,036 85,423 14,174 75,796 16,341 47,405 249,765 300,775 645 15 291 8,662 2,304 415,787 67,341 14,517 76,369 18,156 36,916 204,326 229,204 313 23 348 8,505 2,764 1,282,632 1,074,569 4,637 11,172 4,461 45,527 65,797 1,085 66,882 4,594 10,871 4,760 44,204 64,429 1,231 65,660 1,349,514 1,140,229 Barclays PLC home.barclays/annualreport 281 Consolidated financial statements Consolidated statement of changes in equity Called up share capital and share premiuma £m 4,594 – – – – – – – – 43 – – – – – – 4,637 Other equity instrumentsa £m 10,871 857 – – – – – – 857 – 311 (857) – – – (10) 11,172 4,311 – – – – – – – – 182 101 – – – – – – 4,594 9,632 813 – – – – – – 813 – – 1,238 (813) – – – 1 10,871 Total equity excluding non- controlling interests £m 64,429 2,383 (473) 192 573 (111) (581) 5 1,988 346 256 (857) (207) (150) – (8) 65,797 62,556 3,274 (544) 71 342 (194) (252) 16 2,713 182 579 832 (813) (224) (190) (1,201) (5) 64,429 Retained earnings £m 44,204 1,526 – – – (111) – 5 1,420 303 (55) – – (347) – 2 45,527 43,460 2,461 – – – (194) – 16 2,283 – 478 (406) – – (404) (1,201) (6) 44,204 Non- controlling interests £m 1,231 78 – – – – – – 78 – (158) – – – (79) 13 1,085 1,223 80 – – – – – – 80 – – – – – – (80) 8 1,231 Total equity £m 65,660 2,461 (473) 192 573 (111) (581) 5 2,066 346 98 (857) (207) (150) (79) 5 66,882 63,779 3,354 (544) 71 342 (194) (252) 16 2,793 182 579 832 (813) (224) (190) (1,281) 3 65,660 Other reservesb £m 4,760 – (473) 192 573 – (581) – (289) – – – (207) 197 – – 4,461 5,153 – (544) 71 342 – (252) – (383) – – – – (224) 214 – – 4,760 Balance as at 1 January 2020 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 Employee share schemes and hedges thereof Issue and exchange of other equity instruments Other equity instruments coupons paid Increase in treasury shares Vesting of shares under employee share schemes Dividends paid Other reserve movements Balance as at 31 December 2020 Balance as at 1 January 2019 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 Employee share schemes Issue and exchange of other equity instruments Other equity instruments coupons paid Increase in treasury shares Vesting of shares under employee share schemes Dividends paid Other reserve movements Balance as at 31 December 2019 Notes a For further details refer to Note 28. b For further details refer to Note 29. 282 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Consolidated financial statements Consolidated 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: Credit impairment charges Depreciation, amortisation and impairment of property, plant, equipment and intangibles Other provisions, including pensions Net loss on disposal of investments and property, plant and equipment Other non-cash movements including exchange rate movementsc Changes in operating assets and liabilities: Net decrease/(increase) in cash collateral and settlement balancesb Net increase in loans and advances to banks and customersc Net increase in reverse repurchase agreements and other similar lending Net increase in deposits Net (decrease)/increase in debt securities in issue Net (increase)/decrease in repurchase agreements and other similar borrowing Net (increase)/decrease in derivative financial instruments Net (increase)/decrease in trading assets Net increase/(decrease) in trading liabilities Net decrease/(increase) 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 debt securities at amortised costc Proceeds from sale or redemption of debt securities at amortised costc Purchase of financial assets at fair value through other comprehensive income Proceeds from sale or redemption of financial assets at fair value through other comprehensive income Purchase of property, plant and equipment and intangibles Proceeds from sale of property, plant and equipment and intangibles 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 Issue of shares and other equity instruments Repurchase of shares and other equity instruments Issuance of debt securitiesd Net purchase of treasury shares Net cash from financing activities Effect of exchange rates on cash and cash equivalents Net increase/(decrease) 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 balances with central banks with original maturity less than three monthsb Treasury and other eligible bills with original maturity less than three months Notes 2020 £m 2019a £m 2018a £m 3,065 4,357 3,494 4,838 1,734 1,365 47 (2,977) 4,321 (4,365) (5,652) 65,249 (6,309) (343) (1,845) (13,755) 10,489 3,374 452 (1,500) (683) 57,505 (14,671) 8,480 (91,744) 80,895 (1,324) – (12) (18,376) (936) 1,438 (3,258) 1,165 (1,056) 5,736 (357) 2,732 1,668 43,529 166,613 210,142 191,127 5,955 12,204 856 210,142 1,912 1,520 2,336 7 (280) (6,436) (2,255) (1,071) 20,949 (9,911) (4,061) 2,863 (10,008) (966) 4,054 (412) (2,872) (228) (502) (14,729) 3,590 (92,365) 81,202 (1,793) 46 84 (23,965) (1,912) 1,352 (3,248) 3,582 (2,668) 3,994 (410) 690 (3,347) (27,124) 193,737 166,613 150,258 8,021 7,854 480 166,613 1,468 1,261 2,594 28 (4,488) 680 (11,049) (1,711) 14,996 8,972 3,525 (3,571) 9,958 531 (12,686) 489 (4,755) (548) 9,188 (4,539) 5,109 (106,669) 107,539 (1,402) 18 1,191 1,247 (1,658) 221 (3,246) 1,964 (3,582) – (486) (6,787) 4,160 7,808 185,929 193,737 177,069 7,676 8,075 917 193,737 27 27 28 Notes a 2019 and 2018 comparative figures have been restated to make the cash flow statement more relevant following a review of the disclosure and the accounting policies applied. Amendments have been made to the classification of cash collateral reported within cash and cash equivalents and to the presentation of items within net cash flows from operating and investing activities. Footnotes b and c below quantify the impact of the changes to the respective cash flow categories in prior periods and provide further detail. ‘Cash collateral balances with central banks with original maturity less than three months’ was previously labelled ‘Cash collateral and settlement balances with banks with original maturity less than three months’. This line item has been restated to include only balances that the Group holds at central banks related to payment schemes. Previously, cash collateral and settlement balances with non-central bank counterparties were also classified as cash equivalents and included within this balance. Comparatives have been restated. The effect of this change decreased cash and cash equivalents by £16,774m as at 31 December 2019, £17,429m as at 31 December 2018 and £18,683 as at 31 December 2017. As a result, net cash from operating activities increased by £655m in 2019 and £1,254m in 2018 representing the net decrease/(increase) in the cash collateral and settlement balances line item in those periods. b c Movements in cash and cash equivalents relating to debt securities at amortised cost were previously shown within loans and advances to banks and customers in operating activities. These debt securities holdings are now considered to be part of the investing activity performed by the Group following a change in accounting policy and have been presented within investing activities in 2020. Comparatives have been restated. The effect of this change was to reclassify £11,139m of net cash outflows from operating activities to investing activities in 2019 and inflows of £570m in 2018. Issuance of debt securities included in financing activities relate to instruments that qualify as eligible liabilities and satisfy regulatory requirements for MREL instruments which came into effect during 2019. d Interest received was £18,748m (2019: £34,061m; 2018: £26,254m) and interest paid was £9,577m (2019: £23,186m; 2018: £16,124m). The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £3,392m (2019: £4,893m; 2018: £4,717m). 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 283 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)/income Other income Impairment of subsidiary Operating expenses (Loss)/profit before tax Taxation (Loss)/profit after tax Other comprehensive income Total comprehensive (loss)/income (Loss)/profit after tax attributable to: Ordinary equity holders Other equity instrument holders (Loss)/profit after tax Total comprehensive (loss)/income attributable to: Ordinary equity holders Other equity instrument holders Total comprehensive (loss)/income Notes 42 42 42 2020 £m 763 (175) 1,192 (2,573) (241) (1,034) 16 (1,018) – (1,018) (1,875) 857 (1,018) (1,875) 857 (1,018) 2019 £m 1,560 214 1,760 – (267) 3,267 (86) 3,181 – 3,181 2,368 813 3,181 2,368 813 3,181 2018 £m 15,360 (101) 923 – (312) 15,870 79 15,949 – 15,949 15,197 752 15,949 15,197 752 15,949 For the year ended 31 December 2020, loss after tax was £1,018m (2019: profit £3,181m) and total comprehensive loss was £1,018m (2019: income £3,181m). The Company has 60 members of staff (2019: 79). Balance sheet As at 31 December Assets Investment in subsidiaries Loans and advances to subsidiaries 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 Financial liabilities designated at fair value 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 42 42 42 42 42 28 28 28 2020 £m 2019 £m 58,886 24,710 17,521 7 65 101,189 482 7,724 28,428 9,507 176 46,317 4,340 297 11,169 394 38,672 54,872 101,189 59,546 28,850 10,348 58 2 98,804 500 7,656 30,564 3,498 119 42,337 4,331 263 10,865 394 40,614 56,467 98,804 The financial statements on pages 284 to 285 and the accompanying note on pages 371 to 372 were approved by the Board of Directors on 17 February 2021 and signed on its behalf by: Nigel Higgins Group Chairman James E Staley Group Chief Executive Tushar Morzaria Group Finance Director 284 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Statement of changes in equity Balance as at 1 January 2020 Profit/(loss) after tax and other comprehensive income 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 Balance as at 31 December 2020 Balance as at 1 January 2019 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 Balance as at 31 December 2019 Notes 11 11 Called up share capital and share premium £m 4,594 – 43 – – – – 4,637 Other equity instruments £m 10,865 857 – 304 – – (857) 11,169 4,311 – 182 101 – – – – 4,594 9,633 813 – – 1,232 – – (813) 10,865 Cash flow statement For the year ended 31 December Reconciliation of profit before tax to net cash flows from operating activities: (Loss)/profit before tax Adjustment for non-cash items: Impairment of subsidiary 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 Other reserves £m 394 – – – – – – 394 394 – – – – – – – 394 Retained earnings £m 40,614 (1,875) 20 (73) (14) – – 38,672 39,842 2,368 – 20 (396) (19) (1,201) – 40,614 Total equity £m 56,467 (1,018) 63 231 (14) – (857) 54,872 54,180 3,181 182 121 836 (19) (1,201) (813) 56,467 2020 £m 2019 £m 2018 £m (1,034) 3,267 15,870 2,573 – 528 – 2,067 (393) (393) 1,175 (898) (4,732) 3,720 158 – (857) (1,434) 240 – 240 – – (582) 87 2,772 (1,187) (1,187) 3,597 (2,668) (4,464) 2,588 1,194 (1,019) (813) (1,585) – – – – (14,294) 653 55 2,284 (2,680) (2,680) 1,953 (1,532) (7,767) 9,174 – (680) (752) 396 – – – 763 (175) 1,560 214 1,066 (101) The Parent company’s principal activity is to hold the investment in its wholly-owned subsidiaries, Barclays Bank PLC, Barclays Bank UK PLC, Barclays Execution Services Limited and Barclays Principal Investments Limited. Dividends received are treated as operating income. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 285 Notes to the financial statements For the year ended 31 December 2020 This section describes the 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 Group) under Section 399 of the Companies Act 2006. The 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, separate financial statements have been presented for the holding company. 2. Compliance with International Financial Reporting Standards The consolidated financial statements of the Group, and the separate financial statements of Barclays PLC, have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) as issued by the IASB and adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These standards have also been endorsed by the UK. The principal accounting policies applied in the preparation of the consolidated and separate 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 early adoption of Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS16) which was applied from 1 January 2020. 3. Basis of preparation The consolidated and separate 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. The financial statements are prepared on a going concern basis, as the Board is satisfied that the Group and the parent company have the resources to continue in business for a period of at least 12 months from approval of the financial statements. In making this assessment, the Board has considered a wide range of information relating to present and future conditions and includes a review of a working capital report (WCR). The WCR is used by the Directors to assess the future performance of the business and that it has the resources in place that are required to meet its ongoing regulatory requirements. The assessment is based upon business plans which contain future projections of profitability taken from the Group’s three year medium-term plan as well as projections of regulatory capital requirements and business funding needs. The WCR also includes an assessment of the impact of internally generated stress testing scenarios on the liquidity and capital requirement forecasts. The stress tests used were based upon an assessment of reasonably possible downside economic scenarios that the Group could experience. The WCR showed that the Group had sufficient capital in place to support its future business requirements and remained above its regulatory minimum requirements in the stress scenarios. Accordingly, the Directors concluded that there was a reasonable expectation that the Group and parent company has adequate resources to continue as a Going Concern for a period of at least 12 months from the date of approval of the financial statements. 4. Accounting policies The Group prepares financial statements in accordance with IFRS. The 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 The 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 Group has control over another entity when the 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 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 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 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. 286 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 1 Significant accounting policies continued (ii) Foreign currency translation The 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 in relation to items measured in terms of historical cost are carried at historical transaction date exchange rates. Non-monetary foreign currency balances in relation to items measured at fair value are translated using the exchange rate at the date when the fair value was measured. The 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 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. (iii) Financial assets and liabilities The 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 Group applies the requirements of IAS 39 Financial Instruments: Recognition and Measurement for hedge accounting purposes. Recognition The 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 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 are 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 are 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 the impairment requirements of IFRS 9 do not apply. The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for determining the fair values of the assets and liabilities are set out in Note 17. Derecognition The 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 derecognised 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% or more 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 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 Group’s exposure to variability in asset cash flows before the transfer with its retained exposure after the transfer. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 287 Notes to the financial statements For the year ended 31 December 2020 continued 1 Significant accounting policies continued 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 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 Group obtains such loans or cash collateral, in exchange for the transfer of collateral. The 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 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 or mandatorily at fair value through profit and loss. The 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 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. (iv) Issued debt and equity instruments The 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 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 early adoption of Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) which was applied from 1 January 2020. IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Amendments relating to Interest Rate Benchmark Reform (Phase 2 amendments) IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were amended in August 2020, which are effective for periods beginning on or after 1 January 2021 with earlier adoption permitted. The Group elected to early adopt the amendments with effect from 1 January 2020. The amendments have been endorsed by the EU and by the UK. IFRS 9 allows companies when they first apply IFRS 9, to make an accounting policy choice to continue to apply the hedge accounting requirements of IAS 39. The Group made the election to continue to apply the IAS 39 hedge accounting requirements, and consequently, the amendments to IAS 39 in respect of hedge accounting have been adopted by the Group. The objective of the amendments is to provide certain reliefs to companies when changes are made to the contractual cash flows or hedging relationships resulting from interest rate benchmark reform. The reliefs adopted by the Group have been described below. Changes in the basis for determining contractual cash flows A change in the basis of determining the contractual cash flows of a financial instrument that are required by the reform is accounted for by updating the effective interest rate, without the recognition of an immediate gain or loss. This practical expedient is only applied where (1) the change to the contractual cash flows is necessary as a direct consequence of the reform and (2) the new basis for determining the contractual cash flows is economically equivalent to the previous basis. For changes made in addition to those required by the reform, the practical expedient is applied first, after which the normal IFRS 9 requirements for modifications of financial instruments is applied. Hedge accounting The IAS 39 requirements in respect of hedge accounting have been amended in two phases. The Phase 1 amendments, which were adopted by the Group in 2019, provide relief to the hedge accounting requirements prior to changing a hedge relationship due to the interest rate benchmark reform (refer to Note 14). The Phase 2 amendments provide relief when changes are made to hedge relationships as a result of the interest rate benchmark reform. The Phase 2 amendments adopted by the Group are described below. ■■ Under a temporary exception, changes to the hedge designation and hedge documentation due to the interest rate benchmark reform would not constitute the discontinuation of the hedge relationship nor the designation of a new hedging relationship. ■■ In respect of the retrospective hedge effectiveness assessment, the Group may elect on a hedge-by-hedge basis to reset the cumulative fair value changes to zero when the exception to the retrospective assessment ends (Phase 1 relief). Any hedge ineffectiveness will continue to be measured and recognised in full in profit or loss. ■■ Amounts accumulated in the cash flow hedge reserve would be deemed to be based on the alternative benchmark rate (on which the hedge future cash flows are determined) when there is a change in basis for determining the contractual cash flows. 288 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 1 Significant accounting policies continued ■■ For hedges of groups of items (such as those forming part of a macro cash flow hedging strategy), the amendments provide relief for items within a designated group of items that are amended for changes directly required by the reform. ■■ In respect of whether a risk component of a hedged item is separately identifiable, the amendments provide temporary relief to entities to meet this requirement when an alternative risk free rate (RFR) financial instrument is designated as a risk component. These amendments allow entities upon designation of the hedge to assume that the separately identifiable requirement is met if the entity reasonably expects the RFR risk will become separately identifiable within the next 24 months. This relief applies to each RFR on a rate-by-rate basis and starts when the entity first designates the RFR as a non-contractually specified risk component. The amendments to IFRS 7 require certain disclosures to be made to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. Refer to Note 41 where these disclosures have been included. Future accounting developments The following accounting standards have been issued by the IASB but are not yet effective: 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. In June 2020, the IASB published amendments to IFRS 17. The amendments that are relevant to the Group are the scope exclusion for credit card contracts and similar contracts that provide insurance coverage, the optional scope exclusion for loan contracts that transfer significant insurance risk, and the clarification that only financial guarantees issued are in the scope of IFRS 9. The amendments also defer the effective date of IFRS 17, including the above amendments, to annual reporting periods beginning on or after 1 January 2023. IFRS 17, including the amendments to IFRS 17, has not yet been endorsed by the EU as of the date that the financial statements are authorised for issue. Following the UK’s withdrawal from the EU on 31 December 2020, the UK-adopted international accounting standards will be applicable. IFRS 17, including the amendments to IFRS 17, has not yet been endorsed by the UK. The Group is currently assessing the expected impact of adopting this standard. 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 296 ■■ Tax on page 300 ■■ Fair value of financial instruments on page 315 ■■ Goodwill and intangible assets on page 332 ■■ Pensions and post-retirement benefits – obligations on page 352 ■■ Provisions including conduct and legal, competition and regulatory matters on page 337. 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 161 to 162 and 168 to 201 ■■ Market risk on pages 162 to 163 and 202 to 203 ■■ Treasury and capital risk – liquidity on pages 163 and 206 to 216 ■■ Treasury and capital risk – capital on pages 163 to 164 and 217 to 225. These disclosures are covered by the Audit opinion (included on pages 260 to 278) where referenced as audited. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 289 Notes to the financial statements Financial performance and returns The notes included in this section focus on the results and performance of the 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). 2 Segmental reporting Presentation of segmental reporting The 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. The Group is a British universal bank diversified by business, geography and income type, serving consumer and wholesale customers and clients globally and for segmental reporting purposes it defines its two operating divisions as Barclays UK and Barclays International. ■■ Barclays UK comprises our UK Personal Banking, UK Business Banking and Barclaycard Consumer UK businesses. These businesses are carried on by our UK ring-fenced bank (Barclays Bank UK PLC) and certain other entities within the Group. ■■ Barclays International comprises our Corporate and Investment Bank and Consumer, Cards and Payments businesses. These businesses are carried on by our non ring-fenced bank (Barclays Bank PLC) and its subsidiaries, as well as by certain other entities within the Group. The below table also includes Head Office which comprises head office, Barclays Execution Services FTE and legacy businesses. Analysis of results by business For the year ended 31 December 2020 Total income Credit impairment charges Net operating income/(expenses) Operating costs UK bank levy Litigation and conduct Total operating expenses Other net income/(expenses)a Profit/(loss) before tax Total assets (£bn) Number of employees (full time equivalent) Average number of employees (full time equivalent) Barclays UK £m Barclays International £m Head Office £m Group results £m 6,347 (1,467) 4,880 (4,270) (50) (32) (4,352) 18 546 289.1 21,300 15,921 (3,280) 12,641 (8,765) (240) (48) (9,053) 28 3,616 1,041.8 10,800 (502) (91) (593) (399) (9) (73) (481) (23) (1,097) 18.6 50,900 21,766 (4,838) 16,928 (13,434) (299) (153) (13,886) 23 3,065 1,349.5 83,000 81,800 Note 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. On 1 April 2020, assets of £2.2bn relating to the Barclays Partner Finance business were moved from Barclays International to Barclays UK, with net operating income of £19m and loss before tax of £5m subsequently recognised in Barclays UK for the rest of 2020. The 2019 and 2018 comparative figures have not been restated. 290 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 2 Segmental reporting continued For the year ended 31 December 2019 Total income Credit impairment charges Net operating income/(expenses) Operating costs UK bank levy Litigation and conduct Total operating expenses Other net incomea Profit/(loss) before tax Total assets (£bn) Number of employees (full time equivalent) Average number of employees (full time equivalent) Barclays UK £m Barclays International £m Head Office £m Group results £m 7,353 (712) 6,641 (3,996) (41) (1,582) (5,619) – 1,022 257.8 21,400 14,675 (1,173) 13,502 (9,163) (174) (116) (9,453) 69 4,118 861.4 11,200 (396) (27) (423) (200) (11) (151) (362) 2 (783) 21.0 48,200 21,632 (1,912) 19,720 (13,359) (226) (1,849) (15,434) 71 4,357 1,140.2 80,800 82,700 Note 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. Analysis of results by business For the year ended 31 December 2018 Total income Credit impairment (charges)/releases Net operating income/(expenses) Operating costs UK bank levy GMP charge Litigation and conduct Total operating expenses Other net income/(expenses)a Profit/(loss) before tax Total assets (£bn) Number of employees (full time equivalent) 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 Note 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. Income by geographic regiona For the year ended 31 December 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 United Kingdom United States Note a The geographical analysis is based on the location of the office where the transactions are recorded. 2020 £m 11,211 2,059 7,425 36 1,035 21,766 2020 £m 11,211 7,318 2019 £m 11,809 1,754 7,064 59 946 21,632 2019 £m 11,809 6,939 2018 £m 11,529 1,617 7,058 43 889 21,136 2018 £m 11,529 6,911 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 291 Notes to the financial statements Financial performance and returns continued 3 Net interest income Accounting for interest income and expenses Interest income on loans and advances at amortised cost and financial assets at fair value through other comprehensive income, 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 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. The 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) and incremental to the origination of credit card balances, 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 Fair value through other comprehensive income Negative interest on liabilities Other Interest and similar income Deposits at amortised cost Debt securities in issueb Subordinated liabilities Negative interest on assets Other Interest and similar expense Net interest income 2020 £m 275 10,180 776 68 593 11,892 (1,030) (1,360) (670) (344) (366) (3,770) 8,122 2019a £m 1,091 12,450 1,032 13 870 15,456 (2,449) (1,906) (1,068) (278) (348) (6,049) 9,407 2018a £m 1,123 12,073 1,029 35 281 14,541 (2,250) (1,677) (1,223) (270) (59) (5,479) 9,062 Notes a Comparatives for negative interest income on liabilities and negative interest expense on assets have been re-presented from Other interest income and Other interest expense. b Barclays has amended the presentation of the premium paid for purchased financial guarantees which are embedded in notes it issues directly to the market. From 2020 onwards, the full note coupon (£99m) is presented as interest expense within net interest income. The financial guarantee element of the coupon had previously been recognised in net investment income (2019: £25m; 2018: £1m). The comparatives have not been restated. Interest and similar income presented above represents interest revenue calculated using the effective interest method. Costs to originate credit card balances of £698m (2019: £697m; 2018: £596m) have been amortised to interest and similar income during the year. Interest and similar income includes £40m (2019: £48m; 2018: £53m) accrued on impaired loans. Other interest expense includes £70m (2019: £76m) relating to IFRS 16 lease interest expenses. 292 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 4 Net fee and commission income Accounting for net fee and commission income The Group applies IFRS 15 Revenue from Contracts with Customers. IFRS 15 establishes a five-step model governing revenue recognition. The five-step model requires the 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. The Group recognises fee and commission income charged for services provided by the Group as the services are provided, for example, on completion of the underlying transaction. Where the contractual arrangements also result in the Group recognising financial instruments in scope of IFRS 9, such financial instruments are initially recognised at fair value in accordance with IFRS 9 before applying the provisions of IFRS 15. Fee and commission income is disaggregated below by fee types that reflect the nature of the services offered across the Group and operating segments, in accordance with IFRS 15. The below table 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 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 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 Barclays PLC Annual Report 2020 2020 Barclays UK £m Barclays International £m Head Office £m Total £m 810 159 212 – 71 1,252 – 1,252 (308) 944 2,353 693 1,173 2,867 173 7,259 119 7,378 (1,754) 5,624 – 2 – – 9 11 – 11 (8) 3 3,163 854 1,385 2,867 253 8,522 119 8,641 (2,070) 6,571 2019 Barclays UK £m Barclays International £m Head Office £m Total £m 1,074 177 208 – 92 1,551 – 1,551 (365) 1,186 2,809 903 1,131 2,358 242 7,443 116 7,559 (1,990) 5,569 – – – – 12 12 – 12 (7) 5 3,883 1,080 1,339 2,358 346 9,006 116 9,122 (2,362) 6,760 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 Barclays PLC home.barclays/annualreport 3,716 1,059 1,226 2,462 312 8,775 118 8,893 (2,084) 6,809 293 Notes to the financial statements Financial performance and returns continued 4 Net fee and commission income continued Fee types Transactional Transactional fees are service charges on deposit accounts, cash management services and transactional processing fees. These include 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. Interchange and merchant fees are recognised upon settlement of the card transaction payment. The Group incurs certain card related costs including those related to cardholder reward programmes and payments to co-brand partners. Cardholder reward programmes costs related to customers that settle their outstanding balance each period (transactors) are expensed when incurred and presented in fee and commission expense while costs related to customers that 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 related to transactor accounts are deferred as costs to obtain a contract under IFRS 15, while 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 life of the customer 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 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 are 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 the closing of an acquisition or another 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 have been resolved and therefore the fee revenue is deferred until the uncertainty is resolved. Included in the underwriting and syndication fees are loan commitment fees which are not presented as part of the carrying value of the loan in accordance with IFRS 9. Such commitment fees are recognised over time through to the contractual maturity of the commitment. Contract assets and contract liabilities The Group had no material contract assets or contract liabilities as at 31 December 2020 (2019: nil; 2018: nil). Impairment of fee receivables and contract assets During 2020, there have been no material impairments recognised in relation to fees receivable and contract assets (2019: nil; 2018: nil). 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 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 Group has a right to consideration that corresponds directly with the value of the service provided to the client or customer. Costs incurred in obtaining or fulfilling a contract The 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 £141m at 31 December 2020 (2019: £159m; 2018: £125m). 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 2020, the amount of amortisation was £36m (2019: £30m; 2018: £30m) and there was no impairment loss recognised in connection with the capitalised contract costs (2019: nil; 2018: nil). 294 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 Net trading income 6 Net investment income 2020 £m 5,342 700 987 7,029 2019 £m 2,941 256 1,038 4,235 2018 £m 3,292 267 1,007 4,566 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 (losses)/gains from financial instruments mandatorily at fair value Net gains from disposal of debt instruments at fair value through other comprehensive income Net (losses)/gains from disposal of financial assets and liabilities measured at amortised costa Dividend income Net (losses)/gains on other investmentsb Net investment income 2020 £m (50) 295 (61) 37 (208) 13 2019 £m 510 502 257 76 (214) 1,131 2018 £m 226 158 38 91 72 585 Notes a Included within the 2020 balance are losses of £115m relating to the partial redemption of contingent capital notes. Included within the 2019 balance are gains of £170m relating to the sale of debt securities as part of the Group’s Treasury operations. b Barclays has amended the presentation of the premium paid for purchased financial guarantees which are embedded in notes it issues directly to the market. From 2020 onwards, the full note coupon is presented as interest expense within net interest income. The financial guarantee element of the coupon had previously been recognised in net investment income. The reclassification into interest expense is £99m for 2020 (2019: £25m; 2018: £1m). The comparatives have not been restated. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 295 Notes to the financial statements Financial performance and returns continued 7 Credit impairment charges Accounting for the impairment of financial assets Impairment In accordance with IFRS 9, the 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 and lifetime ECLs are calculated by multiplying the respective 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 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 portfolio’s risk profile against a common set of principles and performance metrics (consistent across both retail and wholesale businesses), incorporating expert credit judgement where appropriate. Application of quantitative PD floors does not represent the use of the low credit risk exemption as exposures can separately move into Stage 2 via the qualitative route described below. 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 Group policy and typically apply minimum relative thresholds of 50-100% and a maximum 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 This is 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 This is 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. The criteria for determining a significant increase in credit risk for assets with bullet repayments follows the same principle as all other assets, i.e. quantitative, qualitative and backstop tests are all applied. 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. 296 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 7 Credit impairment charges continued Exposures are only removed from Stage 3 and re-assigned to Stage 2 once the original default trigger event no longer applies. Exposures being removed from Stage 3 must no longer qualify as credit impaired, and: a) the obligor will also have demonstrated consistently good payment behaviour over a 12-month period, by making all consecutive contractual payments due and, for forborne exposures, the relevant EBA defined probationary period has also been successfully completed or; b) (for non-forborne exposures) the performance conditions are defined and approved within an appropriately sanctioned restructure plan, including 12 months’ payment history have been met. Management overlays and other exceptions to model outputs are applied only if consistent with the objective of identifying significant increases in credit risk. 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. The Group uses a five-scenario model to calculate ECL. An external consensus forecast is assembled from key sources, including HM Treasury (short and medium term forecasts), Bloomberg (based on median of economic forecasts) and the Urban Land Institute (for US House Prices), 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 eight economic 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. The upside and downside shocks are designed to evolve over a five-year stress horizon, with all five scenarios converging to a steady state after approximately eight years. The methodology for estimating probability weights for each of the scenarios involves a comparison of the distribution of key historical 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 same scenarios and weights that are used in the estimation of expected credit losses are also used for the Group 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, 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 at the time when they are purchased or originated interest income is calculated on the carrying value net of the impairment allowance. An asset is considered credit impaired when one or more events occur that have a detrimental impact on the estimated future cash flows of the financial asset. This comprises assets defined as defaulted and other individually assessed exposures where imminent default or actual loss is identified. Uncollectable loans are written off against the related allowance for loan impairment on completion of the 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. Accounting for purchased financial guarantee contracts The Group may enter into a financial guarantee contract which requires the issuer of such contract to reimburse the Group for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. For these separate financial guarantee contracts, the Group recognises a reimbursement asset aligned with the recognition of the underlying ECLs, if it is considered virtually certain that a reimbursement would be received if the specified debtor fails to make payment when due in accordance with the terms of the debt instrument. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 297 Notes to the financial statements Financial performance and returns continued 7 Credit impairment charges continued 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. In respect of payment holidays granted to borrowers which are not due to forbearance, if the revised cash flows on a present value basis (based on the original EIR) are not substantially different from the original cash flows, the loan is not considered to be substantially modified. Where terms are substantially different, the existing loan will be derecognised and a new loan will be recognised at fair value, with any difference in valuation recognised immediately within the income statement, subject to observability criteria. 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. Note 1 sets out details for changes in the basis of determining the contractual cash flows of a financial instrument that are required by interest rate benchmark reform. 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 the 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. 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, the Group’s risk models are used to determine the PD, LGD and EAD. For Stage 2 and 3, the 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 have 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. 298 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 7 Credit impairment charges continued 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 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 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 £3,116m (2019: £1,696m; 2018: £1,598m) of the total impairment charge on loans and advances and off balance sheet loan commitments and financial guarantee contracts. 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 particularly subjective and can include the business prospects for the customer, the realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. 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 charge of £1,569m (2019: £208m charge; 2018: £133m release) of the total impairment charge on loans and advances and off balance sheet loan commitments and financial guarantee contracts. Further information on impairment allowances, impairment charges, measurement uncertainty, sensitivity analysis and related credit information is set out within the Credit risk performance section. Temporary adjustments to calculated IFRS 9 impairment allowances may be applied in limited circumstances to account for situations where known or expected risk factors or information have not been considered in the ECL assessment or modelling process. For further information please see page 171 in the Credit risk performance section. 2020 Recoveries and reimburse- mentsa £m (399) Impairment charges £m 4,308 Total £m 3,909 Impairment charges £m 1,957 2019 Recoveries and reimburse- mentsa £m (124) Total £m 1,833 Impairment charges £m 1,785 2018 Recoveries and reimburse- mentsa £m (195) Total £m 1,590 776 5,084 – (399) 776 4,685 71 2,028 – (124) 71 1,904 (125) 1,660 – (195) (125) 1,465 2 2 – – 2 2 1 1 – – 1 1 (1) 4 – – (1) 4 149 5,237 – (399) 149 4,838 6 2,036 – (124) 6 1,912 – 1,663 – (195) – 1,468 Loans and advances Provision for undrawn contractually committed facilities and guarantees provided Loans impairment Cash collateral and settlement balances Financial assets at fair value through other comprehensive income Other financial assets measured at cost Credit impairment charges Note a Recoveries and reimbursements includes £364m for reimbursements expected to be received under the arrangement where Group has entered into financial guarantee contracts which provide credit protection over certain loans assets with third parties. Cash recoveries of previously written off amounts to £35m. Write-offs subject to enforcement activity The contractual amount outstanding on financial assets that were written off during the year and that are still subject to enforcement activity is £1,246m (2019: £1,660m). This is lower than the write-offs presented in the movement in gross exposures and impairment allowance table due to assets sold during the year post write-offs and post write-off recoveries. Modification of financial assets Financial assets with a loss allowance measured at an amount equal to lifetime ECL of £4,275m (2019: £1,383m) were subject to non-substantial modification during the year, with a resulting loss of £34m (2019: £22m). The gross carrying amount of financial assets for which the loss allowance has changed to a 12 month ECL during the year amounts to £1,194m (2019: £401m). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 299 Notes to the financial statements Financial performance and returns continued 8 Operating expenses Infrastructure costs Property and equipment Depreciation and amortisationa Lease paymentsa Impairment of property, equipment and intangible assets Total infrastructure costs Administration and general expenses Consultancy, legal and professional fees Marketing and advertising UK bank levy Other administration and general expenses Total administration and general expenses Staff costs Provisions for litigation and conduct Operating expenses 2020 £m 1,556 1,539 34 194 3,323 567 330 299 1,117 2,313 8,097 153 13,886 2019 £m 1,409 1,487 41 33 2,970 590 425 226 1,059 2,300 8,315 1,849 15,434 2018 £m 1,360 1,252 329 9 2,950 729 495 269 964 2,457 8,629 2,207 16,243 Note a Following the adoption of IFRS 16 from 1 January 2019, the depreciation charge associated with right of use assets is reported within the depreciation and amortisation charge for 2019 and 2020. For further details on staff costs including accounting policies, refer to Note 31. 9 Tax Accounting for income taxes The 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 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 Group’s tax returns. The Group accounts for provisions in respect of uncertain tax positions in two different ways. 300 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 9 Tax continued 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 Group ultimately expects to pay the tax authority to resolve the position. Effective from 1 January 2019, the Group changed its accounting policy on the accrual of interest and penalty amounts in respect of uncertain income tax positions and now recognises such amounts as an expense within profit before tax and will continue to do so in future periods. The prior periods’ tax charges have not been restated because the accrual for interest and penalties in those periods in respect of uncertain tax positions was not material. 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. The 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, the 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 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 are 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 2020 £m 2019 £m 1,255 31 1,286 (830) 148 (682) 604 1,037 (45) 992 86 (75) 11 1,003 2018 £m 689 (214) 475 442 (6) 436 911 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 301 Notes to the financial statements Financial performance and returns continued 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 Group’s profit before tax. Profit before tax Tax charge based on the standard UK corporation tax rate of 19% (2019: 19%; 2018: 19%) Impact of profits/losses earned in territories with different statutory rates to the UK (weighted average tax rate is 25.1% (2019: 24.2%; 2018: 21.9%)) Recurring items: Adjustments in respect of prior years Non-creditable taxes including withholding taxes Impact of UK bank levy being non-deductible Non-deductible expenses Tax adjustments in respect of share-based payments Impact of Barclays Bank PLC’s overseas branches being taxed both locally and in the UK Banking surcharge and other items Changes in recognition of deferred tax and effect of unrecognised tax losses AT1 tax credit Non-taxable gains and income Non-recurring items: Remeasurement of UK deferred tax assets due to cancellation of rate change Non-deductible provisions for UK customer redress Non-deductible provisions for investigations and litigation Total tax charge 2019 £m 4,357 828 227 (120) 150 43 45 (6) 15 57 (82) (157) (260) 2019 % 19.0% 5.2% (2.7%) 3.4% 1.0% 1.0% (0.1%) 0.3% 1.3% (1.9%) (3.6%) (6.0%) 2020 £m 3,065 2020 % 582 19.0% 188 6.1% 5.8% 3.5% 1.9% 1.6% 0.8% 0.8% 0.2% (4.0%) (5.4%) (6.8%) 179 109 57 48 26 25 6 (123) (165) (208) (118) (7) 5 604 (3.8%) (0.2%) 0.2% 19.7% – 263 – 1,003 – 6.1% – 23.0% 2018 £m 3,494 664 100 (220) 156 51 81 17 16 104 (104) (148) (245) – 93 346 911 2018 % 19.0% 2.9% (6.3%) 4.5% 1.5% 2.3% 0.5% 0.5% 2.9% (3.0%) (4.3%) (7.0%) – 2.7% 9.9% 26.1% Factors driving the effective tax rate The effective tax rate of 19.7% 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, adjustments in respect of prior years, non-creditable taxes and non-deductible expenses including UK bank levy. These factors, which have each increased the effective tax rate, are largely offset by the impact of non-taxable gains and income, tax relief on payments made under AT1 instruments, the use of unrecognised tax losses in the period and adjustments for the remeasurement of UK deferred tax assets as a result of the UK corporation tax rate being maintained at 19%. The Group’s future tax charge will be sensitive to the geographic mix of profits earned, the tax rates in force and changes to the tax rules in the jurisdictions that the Group operates in. Tax in the consolidated statement of comprehensive income The tax relating to each component of other comprehensive income can be found in the consolidated statement of comprehensive income which includes within Other a tax credit of £5m (2019: £16m) on other items including share-based payments. Deferred tax assets and liabilities The deferred tax amounts on the balance sheet were as follows: US Intermediate Holding Company Tax Group (‘IHC Tax Group’) US Branch Tax Group UK Tax Group Other (outside the UK and US tax groups) Deferred tax asset Deferred tax liability Net deferred tax 2020 £m 1,001 1,048 886 509 3,444 (15) 3,429 2019 £m 1,037 1,015 818 420 3,290 (23) 3,267 302 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 9 Tax continued US deferred tax assets in the IHC and US Branch Tax Groups The deferred tax asset in the IHC Tax Group of £1,001m (2019: £1,037m) relates entirely to temporary differences and includes £nil (2019: £54m) relating to tax losses and the deferred tax asset in Barclays Bank PLC’s US Branch Tax Group of £1,048m (2019: £1,015m) also relates entirely to temporary differences and includes £nil (2019: £84m) relating to tax losses. The deferred tax asset in the IHC Tax Group of £1,001m (2019: £1,037m) also includes £330m (2019: £359m) arising from prior net operating loss conversion. Under New York State and City tax rules the amounts can be carried forward and will expire in 2034. Business profit forecasts indicate these amounts will be fully recovered before expiry. They are included within the other temporary differences category in the table below. UK Tax Group deferred tax asset The deferred tax asset in the UK Tax Group of £886m (2019: £818m) includes £565m (2019: £268m) relating to tax losses, with the balance relating to temporary differences. There is no time limit on utilisation of UK tax losses and business profit forecasts indicate that these will be fully recovered. Other deferred tax assets (outside the UK and US tax groups) The deferred tax asset of £509m (2019: £420m) in other entities within the Group includes £170m (2019: £117m) relating to tax losses. 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 those deferred tax assets will be fully recovered. Of the deferred tax asset of £509m (2019: £420m), an amount of £8m (2019: £10m) relates to entities which have suffered a loss in either the current or prior year and for which the utilisation of the deferred tax is dependent on future taxable profits. This has been taken into account in reaching the above conclusion that these deferred tax assets will be fully recovered in the future. 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 119 (18) 101 – Fixed asset timing differences £m 1,338 (31) 1,307 129 Cash flow hedges £m – (181) (181) – Retirement benefit obligations £m 38 (640) (602) 6 Loan impairment allowance £m 501 – 501 156 Share-based payments and deferred compensation £m 344 – 344 20 Other provisions £m 128 – 128 22 Other temporary differences £m 1,458 (312) 1,146 134 Tax losses carried forward £m 523 – 523 215 – (12) 1,424 1,465 (41) 1,424 1,292 (16) 1,276 51 – (20) 1,307 1,338 (31) 1,307 (137) (2) (38) – (38) (38) 180 (35) 145 – (42) (2) 101 119 (18) 101 (377) (8) (566) – (566) (566) 39 (10) 29 – (210) – (181) – (181) (181) (191) 4 (783) 43 (826) (783) 46 (435) (389) (4) (205) (4) (602) 38 (640) (602) – 9 666 666 – 666 601 – 601 (49) (40) (11) 501 501 – 501 – (7) 143 143 – 143 112 – 112 23 2 (9) 128 128 – 128 5 (6) 363 363 – 363 359 – 359 (19) 9 (5) 344 344 – 344 238 (33) 1,485 1,564 (79) 1,485 1,377 (262) 1,115 (31) 72 (10) 1,146 1,458 (312) 1,146 – (3) 735 735 – 735 529 – 529 18 – (24) 523 523 – 523 Total £m 4,449 (1,182) 3,267 682 (462) (58) 3,429 4,979 (1,550) 3,429 4,535 (758) 3,777 (11) (414) (85) 3,267 4,449 (1,182) 3,267 Assets Liabilities At 1 January 2020 Income statement Other comprehensive income and reserves Other movements Assets Liabilities At 31 December 2020 Assets Liabilities At 1 January 2019 Income statement Other comprehensive income and reserves Other movements Assets Liabilities At 31 December 2019 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 assets expected to be recovered after more than 12 months is £4,544m (2019: £3,945m). The amount of deferred tax liability expected to be settled after more than 12 months is £1,510m (2019: £1,199m). 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 303 Notes to the financial statements Financial performance and returns continued 9 Tax continued Unrecognised deferred tax Tax losses and temporary differences Deferred tax assets have not been recognised in respect of gross deductible temporary differences of £125m (2019: £213m), unused tax credits of £236m (2019: £247m), and gross tax losses of £20,913m (2019: £19,582m). The tax losses include capital losses of £3,947m (2019: £3,980m). Of these tax losses, £139m (2019: £41m) expire within five years, £236m (2019: £239m) expire within six to 10 years, £7,271m (2019: £5,178m) expire within 11 to 20 years and £13,267m (2019: £14,124m) 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 Group’s investments in subsidiaries, branches and associates where the 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 £0.8bn (2019: £0.7bn). 10 Earnings per share Profit attributable to ordinary equity holders of the parent Basic weighted average number of shares in issue Number of potential ordinary shares Diluted weighted average number of shares Earnings per ordinary share 2020 £m 1,526 2020 million 17,300 368 17,668 2019 £m 2,461 2019 million 17,200 282 17,482 Basic earnings per share Diluted earnings per share 2020 p 8.8 2019 p 14.3 2018 p 9.4 2020 p 8.6 2019 p 14.1 2018 £m 1,597 2018 million 17,075 308 17,383 2018 p 9.2 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 expected dilutive potential ordinary shares held in respect of Barclays PLC, totalling 368m (2019: 282m) shares. The total number of share options outstanding, under schemes considered to be potentially dilutive, was 719m (2019: 533m). These options have strike prices ranging from £0.84 to £2.27. Of the total number of employee share options and share awards at 31 December 2020, 69m (2019: 43m) were anti-dilutive. The 100m (2019: 125m) increase in the basic weighted average number of shares are primarily due to shares issued under employee share schemes. 11 Dividends on ordinary shares In response to a request from the PRA, and to preserve additional capital for use in serving Barclays customers and clients through the extraordinary challenges presented by the COVID-19 pandemic, the Board agreed to cancel the 6.0p per ordinary share full year 2019 dividend. The Directors have approved a total dividend in respect of 2020 of 1.0p per ordinary share of 25p each. The full year dividend for 2020 of 1.0p per ordinary share will be paid on 1 April 2021 to shareholders on the Share Register on 26 February 2021. On 31 December 2020, there were 17,359m ordinary shares in issue. The financial statements for the year ended 31 December 2020 do not reflect this dividend, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2021. Dividends are funded out of distributable reserves. The Directors have confirmed their intention to initiate a share buyback of up to £700m after the balance sheet date. The share buyback is expected to commence in the first quarter of 2021. The financial statements for the year ended 31 December 2020 do not reflect the impact of the proposed share buyback, which will be accounted for as and when shares are repurchased by the Company. 304 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Assets and liabilities held at fair value The notes included in this section focus on assets and liabilities the 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 orderly transaction between market participants at the measurement date, 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 Group’s approach to managing market risk can be found in the Market risk management section. 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 Trading portfolio liabilities 2020 £m 56,482 62,192 8,348 928 127,950 2019 £m 52,739 56,000 5,378 78 114,195 2020 £m (30,102) (17,303) – – (47,405) 2019 £m (23,741) (13,175) – – (36,916) 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. Loans and advances Debt securities Equity securities Reverse repurchase agreements and other similar secured lending Other financial assets Financial assets at fair value through the income statement Designated at fair value Mandatorily at fair value Total 2020 £m 5,600 292 – 19 – 5,911 2019 £m 4,900 3,995 – 40 – 8,935 2020 £m 25,279 1,401 4,620 2019 £m 17,792 1,254 7,495 2020 £m 30,879 1,693 4,620 2019 £m 22,692 5,249 7,495 137,597 343 169,240 96,847 763 124,151 137,616 343 175,151 96,887 763 133,086 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 305 Notes to the financial statements Assets and liabilities held at fair value continued 13 Financial assets at fair value through the income statement continued Credit risk of financial assets 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 for loans and advances. The table does not include debt securities and reverse repurchase agreements and other similar secured lending designated at FV as they have minimal exposure to credit risk. Reverse repurchase agreements are collateralised and debt securities are primarily relating to high quality sovereigns. Loans and advances designated at fair value, attributable to credit risk Value mitigated by related credit derivatives 14 Derivative financial instruments Maximum exposure as at 31 December 2020 £m 5,600 795 2019 £m 4,900 – Changes in fair value during the year ended 2020 £m (47) 3 2019 £m 4 – Cumulative changes in fair value from inception 2020 £m (73) 3 2019 £m (26) – 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 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, credit risk, inflation risk, exchange rate, commodity 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 assets 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 Group applies the requirements of IAS 39 Financial Instruments: Recognition and Measurement for hedge accounting purposes. The 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 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. The Group has applied the ‘Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform’ issued in September 2019. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting period or were designated thereafter, and to the amount accumulated in the cash flow hedge reserve at that date. The amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR (‘Interbank Offered Rates’) reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness continues to be recorded in the income statement. Furthermore, the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform no longer being present. In summary, the reliefs provided by the amendments that apply to the Group are: ■■ When considering the ‘highly probable’ requirement, the Group has assumed that the IBOR interest rates upon which our hedged items are based do not change as a result of IBOR reform. ■■ In assessing whether the hedge is expected to be highly effective on a forward-looking basis the Group has assumed that the IBOR interest rates upon which the cash flows of the hedged items and the interest rate swaps that hedge them are based are not altered by IBOR reform. ■■ The Group will not discontinue hedge accounting during the period of IBOR-related uncertainty solely because the retrospective effectiveness falls outside the required 80–125% range. ■■ The Group has not recycled the cash flow hedge reserve relating to the period after the reforms are expected to take effect. ■■ The Group has assessed whether the hedged IBOR risk component is a separately identifiable risk only when it first designates a hedged item in a fair value hedge and not on an ongoing basis. 306 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 14 Derivative financial instruments continued The Group has elected to early adopt the ‘Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2’ issued in August 2020. The Phase 2 amendments provide relief when changes are made to hedge relationships as a result of the interest rate benchmark reform. The Phase 2 amendments adopted by the Group are: ■■ under a temporary exception, the Group has considered that changes to the hedge designation and hedge documentation due to the interest rate benchmark reform would not constitute the discontinuation of the hedge relationship nor the designation of a new hedging relationship ■■ in respect of the retrospective hedge effectiveness assessment, the Group may elect, on a hedge-by-hedge basis, to reset the cumulative fair value changes to zero when the exception to the retrospective assessment ends (Phase 1 relief). Any hedge ineffectiveness will continue to be measured and recognised in full in profit or loss ■■ the Group has deemed the amounts accumulated in the cash flow hedge reserve to be based on the alternative benchmark rate (on which the hedge future cash flows are determined) when there is a change in basis for determining the contractual cash flows ■■ for hedges of groups of items (such as those forming part of a macro cash flow hedging strategy), the amendments provide relief for items within a designated group of items that are amended for changes directly required by the reform ■■ in respect of whether a risk component of a hedged item is separately identifiable, the amendments provide temporary relief to entities to meet this requirement when an alternative risk free rate (RFR) financial instrument is designated as a risk component. These amendments allow the Group upon designation of the hedge to assume that the separately identifiable requirement is met if the Group reasonably expects the RFR risk will become separately identifiable within the next 24 months. The Group applies this relief to each RFR on a rate-by-rate basis and starts when the Group first designates the RFR as a non-contractually specified risk component. 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 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 Group’s investment in the operation. Total derivatives 2020 2019 Total derivative assets/(liabilities) held for trading Total derivative assets/(liabilities) held for risk management Derivative assets/(liabilities) Notional contract amount £m 43,169,971 189,784 43,359,755 Fair value Assets £m 301,880 566 302,446 Liabilities £m Notional contract amount £m (299,795) 42,111,110 181,375 (300,775) 42,292,485 (980) Fair value Assets £m 229,063 173 229,236 Liabilities £m (228,617) (587) (229,204) Further information on netting arrangements of derivative financial instruments can be found within Note 18. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 307 Notes to the financial statements Assets and liabilities held at fair value continued 14 Derivative financial instruments continued The fair values and notional amounts of derivative instruments held for trading and held for risk management are set out in the following table: Derivatives held for trading and held for risk management Derivatives held for trading Foreign exchange derivatives OTC derivatives Derivatives cleared by central counterparty Exchange traded derivatives Foreign exchange derivatives Interest rate derivatives OTC derivatives Derivatives cleared by central counterparty Exchange traded derivatives Interest rate derivatives Credit derivatives OTC derivatives Derivatives cleared by central counterparty Credit derivatives Equity and stock index derivatives OTC derivatives Exchange traded derivatives Equity and stock index derivatives Commodity derivatives OTC derivatives Exchange traded derivatives Commodity derivatives Derivative assets/(liabilities) held for trading Total OTC derivatives Total derivatives cleared by central counterparty Total exchange traded derivatives Derivative assets/(liabilities) held for trading Derivatives held for risk management Derivatives designated as cash flow hedges OTC foreign exchange derivatives OTC interest rate derivatives Interest rate derivatives cleared by central counterparty Derivatives designated as cash flow hedges Derivatives designated as fair value hedges OTC interest rate derivatives Interest rate derivatives cleared by central counterparty Derivatives designated as fair value hedges Derivatives designated as hedges of net investments OTC foreign exchange derivatives Derivatives designated as hedges of net investments Derivative assets/(liabilities) held for risk management Total OTC derivatives Total derivatives cleared by central counterparty Derivative assets/(liabilities) held for risk management 2020 2019 Notional contract amount £m Fair value Assets £m Liabilities £m Notional contract amount £m Fair value Assets £m Liabilities £m 5,461,057 78,946 14,034 5,554,037 84,401 335 3 84,739 (84,043) (335) (3) (84,381) 4,906,647 74,698 18,520 4,999,865 56,480 84 12 56,576 (56,845) (145) (31) (57,021) 13,547,990 18,737,415 2,971,966 35,257,371 170,808 965 371 172,144 (161,157) 12,627,808 (885) 17,428,460 5,041,948 (360) (162,402) 35,098,216 140,207 867 1,251 142,325 (133,401) (1,093) (1,265) (135,759) 384,900 462,945 847,845 466,151 927,114 1,393,265 4,244 113,209 117,453 43,169,971 19,864,342 19,279,306 4,026,323 43,169,971 3,674 931 4,605 18,807 20,165 38,972 89 1,331 1,420 301,880 277,779 2,231 21,870 301,880 (3,909) (1,095) (5,004) 399,386 426,130 825,516 (26,094) (20,521) (46,615) 232,050 841,994 1,074,044 (110) (1,283) (1,393) 7,327 106,142 113,469 (299,795) 42,111,110 (275,313) 18,173,218 (2,315) 17,929,288 6,008,604 (299,795) 42,111,110 (22,167) 5,253 2,962 8,215 10,628 10,178 20,806 303 838 1,141 229,063 212,871 3,913 12,279 229,063 (5,399) (2,687) (8,086) (15,785) (10,849) (26,634) (256) (861) (1,117) (228,617) (211,686) (3,925) (13,006) (228,617) 6,596 2,433 65,408 74,437 11,116 103,440 114,556 791 791 189,784 20,936 168,848 189,784 351 35 – 386 155 – 155 25 25 566 566 – 566 – – – – (980) – (980) – – (980) (980) – (980) – 1,195 66,578 67,773 8,379 104,078 112,457 1,145 1,145 181,375 10,719 170,656 181,375 – 7 – 7 136 – 136 30 30 173 173 – 173 – (1) – (1) (586) – (586) – – (587) (587) – (587) 308 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 14 Derivative financial instruments continued Hedge accounting Hedge accounting is applied predominantly for the following risks: ■■ interest rate risk – 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 ■■ 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 ■■ contractually linked inflation risk – arises from financial instruments within contractually specified inflation risk. The Group does not hedge inflation risk that arises from other activities. In order to hedge these risks, the Group uses the following hedging instruments: ■■ interest rate derivatives to swap interest rate exposures into either fixed or variable rates ■■ currency derivatives to swap foreign currency exposures into the entity’s functional currency, and net investment exposure to local currency ■■ inflation derivatives to swap inflation exposure into either fixed or variable interest rates. 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. In some hedging relationships, the Group designates risk components of hedged items as follows: ■■ benchmark interest rate risk as a component of interest rate risk, such as the LIBOR or Risk Free Rate (RFR) component ■■ inflation risk as a contractually specified component of a debt instrument ■■ spot exchange rate risk for foreign currency financial assets or financial liabilities ■■ 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. In respect of many of the 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 Group applies hedge accounting to dynamic scenarios, predominantly in relation to interest rate risk, with a combination of hedged items in order for its financial statements to reflect as closely as possible the economic risk management undertaken. In some cases, if the hedge accounting objective changes, the relevant hedge accounting relationship is de-designated and 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 Group mitigates this by matching the CET1 capital movements to the revaluation of the foreign currency RWA exposures. Net investment hedges are designated where necessary to reduce the exposure to movement in a particular exchange rate to within limits mandated by Risk. As far as possible, existing external currency liabilities are designated as the hedging instruments. The hedging instruments share the same risk exposures as the hedged items. Hedge effectiveness is determined with reference to quantitative tests, predominantly regression testing, 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. Sources of ineffectiveness include the following: ■■ mismatches between the contractual terms of the hedged item and hedging instrument, including basis differences ■■ changes in credit risk of the hedging instruments ■■ if a hedging relationship becomes over-hedged, for example 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 ■■ cash flow hedges using external swaps with non-zero fair values ■■ the effects of the forthcoming reforms to IBOR because these might take effect at a different time and have a different impact on hedged items and hedging instruments. Across all benchmarks which Barclays is materially exposed to, there is still uncertainty regarding the precise timing and effects of IBOR reform. There is yet to be full consensus regarding methodologies for converging existing IBORs to their final benchmark rates. As such, Barclays has not incorporated any change in assumptions for affected benchmarks into its expectations or calculations. Barclays does, however, assume sufficient liquidity in IBOR linked benchmarks to provide reliable valuation calculations of both hedged items and hedging instruments (notwithstanding reliefs already applied within the financial reporting). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 309 Notes to the financial statements Assets and liabilities held at fair value continued 14 Derivative financial instruments continued The following table summarises the significant hedge accounting exposures impacted by the IBOR reform (see Note 41 for further updates) as at 31 December 2020: Current benchmark rate GBP London Interbank Offered rate (LIBOR) USD LIBOR Euro Overnight Index Average (EONIA) JPY LIBOR CHF LIBOR All Other IBORs Total Hedged items in fair value hedges Expected convergence to RFR Reformed Sterling Overnight Index Average (SONIA) Secured Overnight Financing Rate (SOFR) Euro Short-Term Rate (€STR) Tokyo Overnight Average (TONA) Swiss Average Rate Overnight (SARON) Various Other RFRs Accumulated fair value adjustment included in carrying amount Nominal amount of hedged items directly impacted by IBOR reform £m 15,740 29,154 5,128 1,262 145 111 51,540 Nominal amount of hedging instruments directly impacted by IBOR reform £m 14,276 28,832 5,128 1,262 145 111 49,754 Hedged item statement of financial position classification and risk category 2020 Assets Loans and advances at amortised cost – Interest rate risk – Inflation risk Debt securities classified at amortised cost – Interest rate risk – Inflation risk Financial assets at fair value through other comprehensive income – Interest rate risk – Inflation risk Total assets Liabilities Debt securities in issue – Interest rate risk Total liabilities Total hedged items 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 statementa £m (638) – – – 351 (9) (296) (24) (24) (320) 1,583 25 18 453 825 307 3,211 (1,466) (1,466) 1,745 111 3 (7) 3 (13) 1 98 (56) (56) 42 Carrying amount £m Total £m 9,858 545 1,440 4,071 41,544 10,821 68,279 2,289 345 23 (43) 1,284 367 4,265 (50,438) (50,438) 17,841 (2,859) (2,859) 1,406 310 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 14 Derivative financial instruments continued Hedged items in fair value hedges Accumulated fair value adjustment included in carrying amount 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 statementa £m Hedged item statement of financial position classification and risk category 2019 Assets Loans and advances at amortised cost – Interest rate risk – Inflation risk Debt securities classified at amortised cost – Interest rate risk – Inflation risk Financial assets at fair value through other comprehensive income – Interest rate risk – Inflation risk Total assets Liabilities Debt securities in issue – Interest rate risk Total liabilities Total hedged items Note a Hedge ineffectiveness is recognised in net interest income. Carrying amount £m 8,442 525 2,974 2,258 32,169 7,811 54,179 Total £m 694 325 (1) (41) 922 87 1,986 (55,589) (55,589) (1,410) (1,574) (1,574) 412 (643) – – – 494 – (149) (75) (75) (224) 1,030 (2) (1) (41) 2,046 111 3,143 (1,445) (1,445) 1,698 For items classified as fair value through other comprehensive income, the hedge accounting adjustment is not included in the carrying amount, but rather adjusts other comprehensive income. The following table shows the fair value hedging instruments which are carried on the Group’s balance sheet: Hedge type As at 31 December 2020 Fair value As at 31 December 2019 Fair value Risk category Interest rate risk Inflation risk Total Interest rate risk Inflation risk Total Carrying value Derivative assets £m Derivative liabilities £m Loan liabilities £m Nominal amount £m 120 35 155 110 26 136 (166) (815) (980) (44) (542) (586) – – – – – – 103,623 10,933 114,556 104,568 7,889 112,457 Change in fair value used as a basis to determine ineffectiveness £m (925) (778) (1,703) (1,571) (82) (1,653) 76 1 – 1 (4) (16) 58 (13) (13) 45 Nominal amount directly impacted by IBOR reform £m 30,072 1,487 31,559 55,552 6,101 61,653 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 311 Notes to the financial statements Assets and liabilities held at fair value continued 14 Derivative financial instruments continued 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 (outstanding notional amount) Inflation risk (outstanding notional amount) 2020 £m 2021 £m 2022 £m 2023 £m 2024 £m 2025 £m 2026 and later £m 103,623 10,933 94,402 10,128 81,916 8,817 72,281 7,966 58,001 6,051 47,244 5,062 40,243 4,348 There are 1,906 (2019: 2,308) interest rate risk fair value hedges with an average fixed rate of 1.87% (2019: 2.13%) across the relationships and 104 (2019: 117) inflation risk fair value hedges with an average rate of 0.63% (2019: 0.70%) across the relationships. Hedged items in cash flow hedges 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 hedging reserve for continuing hedges £m Balance in currency translation reserve for continuing hedges £m Balances remaining in cash flow hedging reserve for which hedge accounting is no longer applied £m Balances remaining in 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 statementa £m (1,124) (598) (70) (278) (41) (1,513) (240) (17) (9) (266) (15) (65) (65) (743) – – – – – – – – – 857 (2) 47 902 (1,370) – – – (1,370) – – – – (696) (223) (29) (725) 215 70 3 288 (26) (249) – – – – – – – (1,072) – (1,072) 1,087 (1) 1 1,087 – – – – – – – – – – – 186 186 – – – – 16 240 256 (1,124) (70) (278) (41) (1,513) (240) (17) (9) (266) (706) (25) (731) 215 70 3 288 27 – – 1 28 – – – – 43 2 45 – – – – Description of hedge relationship and hedged risk 2020 Cash flow hedge of: Interest rate risk Loans and advances at amortised cost Foreign exchange risk Loans and advances at amortised cost Debt securities classified at amortised cost Inflation risk Debt securities classified at amortised cost Total cash flow hedge Hedge of net investment in foreign operations USD foreign operations EUR foreign operations Other foreign operations Total foreign operations 2019 Cash flow hedge of: Interest rate risk Loans and advances at amortised cost Inflation risk Debt securities classified at amortised cost Total cash flow hedge Hedge of net investment in foreign operations USD foreign operations EUR foreign operations Other foreign operations Total foreign operations Note a Hedge ineffectiveness is recognised in net interest income. 312 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 14 Derivative financial instruments continued The following table shows the cash flow and net investment hedging instruments which are carried on the Group’s balance sheet: Hedge type As at 31 December 2020 Cash flow Net investment As at 31 December 2019 Cash flow Net investment Risk category Interest rate risk Foreign exchange risk Inflation risk Total Foreign exchange risk Interest rate risk Inflation risk Total Foreign exchange risk Carrying value Derivative assets £m Derivative liabilities £m Loan liabilities £m Nominal amount £m 33 351 2 386 25 3 4 7 30 – – – – – (1) – (1) – – – – – (8,660) – – – (10,051) 65,042 6,596 2,799 74,437 9,451 66,515 1,258 67,773 11,196 Change in fair value used as a basis to determine ineffectiveness £m 1,151 348 42 1,541 265 739 31 770 288 Nominal amount directly impacted by IBOR reform £m 18,195 – – 18,195 – 15,223 – 15,223 – There are 29 (2019: nil) foreign exchange risk cash flow hedges with an average foreign exchange rate of 135.29 JPY: 1 GBP (2019: nil) across the relationships. The Group’s risk exposure is directly affected by interest rate benchmark reform, across both its cash flow hedge accounting activities; where IBOR-linked derivatives are designated as a cash flow hedge of IBOR-linked cash flows, and its fair value hedge accounting activities; where IBOR-linked derivatives are designated as a fair value hedge of fixed interest rate assets and liabilities. Further information on the group’s risk exposure and response can be found in Note 41. 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 net interest income Cash flow hedge of foreign exchange risk Recycled to net interest income Hedge of net investment in foreign operations Recycled to other income 2020 2019 Amount recycled from other comprehensive income due to hedged item affecting income statement £m Amount recycled from other comprehensive income due to sale of investment, or cash flows no longer expected to occur £m Amount recycled from other comprehensive income due to hedged item affecting income statement £m Amount recycled from other comprehensive income due to sale of investment, or cash flows no longer expected to occur £m 489 268 – 17 – (4) 259 – – 18 – 15 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 313 Notes to the financial statements Assets and liabilities held at fair value continued 15 Financial assets at fair value through other comprehensive income Accounting for financial assets at fair value through other comprehensive income (FVOCI) 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 remeasured 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 (Note 6). 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 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 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 derecognition 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 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. Debt securities and other eligible bills Equity securities Loans and advances Financial assets at fair value through other comprehensive income 16 Financial liabilities designated at fair value 2020 £m 77,736 761 191 78,688 2019 £m 64,103 1,023 624 65,750 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, unless the effects of changes in the liability’s credit risk would create or enlarge an accounting mismatch in P&L. In these scenarios, all gains and losses on that liability (including the effects of changes in the credit risk of the liability) are presented in P&L. On derecognition of the financial liability no amount relating to own credit risk are recycled to the income statement. The 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 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 at 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 £954m (2019: £373m loss). 2020 2019 Contractual amount due on maturity £m 57,650 22,107 177,389 251 257,397 Fair value £m 50,437 21,706 177,371 251 249,765 Contractual amount due on maturity £m 56,891 25,725 128,706 694 212,016 Fair value £m 49,559 25,526 128,547 694 204,326 314 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 subsequent classification of the financial 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 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 323. 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 315 Notes to the financial statements Assets and liabilities held at fair value continued 17 Fair value of financial instruments continued The following table shows the 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 Financial assets at fair value through other comprehensive income Investment property Total assets 2020 Valuation technique using 2019 Valuation technique using Level 1 £m 60,671 Level 2 £m 65,416 4,503 9,155 162,142 288,822 19,792 – 94,121 58,743 – 575,123 Level 3 £m 1,863 8,506 4,469 153 10 15,001 Total £m 127,950 175,151 302,446 78,688 10 684,245 Level 1 £m 60,352 Level 2 £m 51,579 10,445 5,439 114,141 220,642 18,755 – 94,991 46,566 – 432,928 Level 3 £m 2,264 8,500 3,155 429 13 14,361 Total £m 114,195 133,086 229,236 65,750 13 542,280 Trading portfolio liabilities Financial liabilities designated at fair value Derivative financial liabilities Total liabilities (24,391) (159) (8,762) (33,312) (22,986) (249,251) (285,774) (558,011) (28) (355) (6,239) (6,622) (47,405) (249,765) (300,775) (597,945) (20,977) (82) (5,305) (26,364) (15,939) (203,882) (219,910) (439,731) – (362) (3,989) (4,351) (36,916) (204,326) (229,204) (470,446) The following table shows the Group’s Level 3 assets and liabilities that are held at fair value disaggregated by product type: Level 3 assets and liabilities held at fair value by product type Interest rate derivatives Foreign exchange derivatives Credit derivatives Equity derivatives Commodity derivatives Corporate debt Reverse repurchase and repurchase agreements Non-asset backed loans Asset backed securities Equity cash products Private equity investments Othera Total 2020 2019 Assets £m 1,613 144 196 2,498 18 698 – 6,394 767 542 873 1,258 15,001 Liabilities £m (1,615) (143) (351) (4,112) (18) (3) (174) – (24) – (14) (168) (6,622) Assets £m 605 291 539 1,711 9 521 – 6,811 756 1,228 899 991 14,361 Liabilities £m (812) (298) (342) (2,528) (9) – (167) – – – (19) (176) (4,351) Note a Other includes commercial real estate loans, asset backed loans, funds and fund-linked products, issued debt, government sponsored debt 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, observability and sensitivity analysis for material products within Level 3, are described below. 316 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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. 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. 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 total return swaps (TRS). 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. 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. 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. 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. 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 317 Notes to the financial statements Assets and liabilities held at fair value continued 17 Fair value of financial instruments continued 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. 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. 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. Private equity investments Description: Includes investments in equity holdings in operating companies not quoted on a public exchange. 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. 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 (2019: there were no material transfers between Level 1 and Level 2). Level 3 movement analysis The following table summarises the movements in the Level 3 balances during the period. The table shows gains and losses and includes amounts for all financial assets and liabilities that are held at fair value transferred to and from Level 3 during the period. Transfers have been reflected as if they had taken place at the beginning of the year. Asset and liability transfers between Level 2 and Level 3 are primarily due to i) an increase or decrease in observable market activity related to an input or ii) a change in the significance of the unobservable input, with assets and liabilities classified as Level 3 if an unobservable input is deemed significant. 318 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 17 Fair value of financial instruments continued Analysis of movements in Level 3 assets and liabilities Corporate debt Non-asset backed loans Asset backed securities Equity cash products Other Trading portfolio assets Non-asset backed loans Equity cash products Private equity investments Other Financial assets at fair value through the income statement Non-asset backed loans Asset backed securities Financial assets at fair value through other comprehensive income Investment property Trading portfolio liabilities As at 1 January 2020 £m 120 974 656 392 122 2,264 Purchases £m 77 1,955 458 5 – 2,495 5,494 835 900 1,271 1,102 15 84 3,718 Sales £m (6) (2,182) (428) (149) – (2,765) (283) (404) (54) (3,606) 8,500 4,919 (4,347) 343 86 429 13 – – – – – (27) – (35) (35) (2) – Total gains and losses in the period recognised in the income statement Trading income £m (35) (10) (25) (41) (21) (132) Other income £m – – – – – – Total gains or losses recognised in OCI £m – – – – – – Issues £m – – – – – – Settlements £m – (12) (40) – – (52) – – – – – – – – – – (706) – (3) (32) 426 (93) – 32 – (36) (56) (43) (741) 365 (135) (237) – (237) – – 1 – – – – (1) 20 – – – (1) – 4 – – – – – Transfers In £m 12 39 90 11 2 154 – 9 15 386 As at 31 December 2020 £m 151 709 686 214 103 1,863 5,580 326 874 1,726 Out £m (17) (55) (25) (4) – (101) (453) – (12) – 410 (465) 8,506 – – – – – – – – – – 106 47 153 10 (28) (38) 38 (355) (18) (19) (21) (13) 23 22 116 (44) (2) 1 (155) (1,614) (71) 117 (1,770) – – – – – – (4) (4) – – – – – – – – Financial liabilities designated at fair value (362) – 3 (21) Interest rate derivatives Foreign exchange derivatives Credit derivatives Equity derivatives Net derivative financial instrumentsa (206) (7) 198 (819) 17 – (125) (699) (12) – 24 (43) (834) (807) (31) – – – – – 85 21 (371) 105 109 (16) 24 (101) (160) 16 Total 10,010 6,580 (7,177) (21) (1,189) 268 (132) (4) 455 (411) 8,379 Note a The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £4,469m (2019: £3,155m) and derivative financial liabilities are £6,239m (2019: £3,989m). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 319 Notes to the financial statements Assets and liabilities held at fair value continued 17 Fair value of financial instruments continued Analysis of movements in Level 3 assets and liabilities Corporate debt Non-asset backed loans Asset backed securities Equity cash products Other Trading portfolio assets Non-asset backed loans Equity cash products Private equity investments Other Financial assets at fair value through the income statement Non-asset backed loans Asset backed securities Equity cash products Other Financial assets at fair value through other comprehensive income Investment property Trading portfolio liabilities As at 1 January 2019 £m 388 2,263 664 136 162 3,613 Purchases £m 126 1,844 202 62 – 2,234 5,688 559 1,071 2,064 235 66 45 5,719 Sales £m (52) (2,799) (166) (40) – (3,057) – – (121) (5,720) 9,382 6,065 (5,841) – – 2 353 283 116 – – – (30) (1) – 355 399 (31) 9 (3) 5 – – – Total gains and losses in the period recognised in the income statement Trading income £m 1 24 (30) (31) (24) (60) Other income £m – – – – – – Total gains or losses recognised in OCI £m – – – – – – Issues £m – – – – – – Settlements £m (311) (134) – – (1) (446) – – – – – – – – – – – – (755) (2) (28) (9) 343 3 – 12 (1) 209 55 (15) (794) 358 248 – – – (135) (135) – – – – – – – – – – – – – – (1) – (2) – – – – – Transfers In £m 45 200 16 293 – 554 – – 41 24 65 – – – – – – – As at 31 December 2019 £m 120 974 656 392 122 2,264 5,494 835 900 1,271 Out £m (77) (424) (30) (28) (15) (574) (16) – (163) (804) (983) 8,500 – – – (218) 343 86 – – (218) 429 – 3 13 – (362) – (206) (7) 198 (819) (27) 50 (177) (32) (9) (37) (38) 5 3 454 – – – – – 60 – (1) – 59 – – – – – – – – (255) 424 (834) Financial liabilities designated at fair value (280) (179) 10 (42) 41 67 Interest rate derivatives Foreign exchange derivatives Credit derivatives Equity derivatives Net derivative financial instruments 22 7 1,050 (607) (9) – (59) (296) 472 (364) – – 3 (35) (32) – – – – – 88 25 (866) (2) (92) (12) 76 (296) (755) (324) Total 13,548 8,160 (8,951) (42) (2,089) 41 245 59 337 (1,298) 10,010 320 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 2020 2019 As at 31 December Trading portfolio assets Financial assets at fair value through the income statement Fair value through other comprehensive income Investment property Trading portfolio liabilities Financial liabilities designated at fair value Net derivative financial instruments Total Income statement Trading income £m (114) Other income £m – Other compre- hensive income £m – 399 – – – 20 (91) 214 (89) – (1) – (1) – (91) – (1) – – – – (1) Income statement Trading income £m (57) Other income £m – Other compre- hensive income £m – 346 – – – 64 (459) (106) 246 – (1) – – – 245 – 60 – – – – 60 Total £m (114) 310 (1) (1) – 19 (91) 122 Total £m (57) 592 60 (1) – 64 (459) 199 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 2020 Range Min Max 2019 Range Min Max Unitsa Derivative financial instrumentsb Interest rate derivatives Credit derivatives Equity derivatives Non-derivative financial instruments Non-asset backed loans Asset backed securities Private equity investments Corporate debt Otherd Discounted cash flows Comparable pricing Option model Discounted cash flows Comparable pricing Option model Discounted cash flow Discounted cash flows Comparable pricing Comparable pricing EBITDA multiple Earnings multiple Discounted cash flow Comparable pricing Discounted cash flows Inflation forwards Credit spread Price Inflation volatility Interest rate volatility FX – IR correlation IR – IR correlation Credit spread Price Equity volatility Equity – equity correlation Discounted margin Loan spread Credit spread Price Yield Price Price EBITDA multiple Earnings multiple Discount margin Price Credit spread 1 17 – 31 6 (30) (20) 5 – 1 (45) (225) 31 200 – 5 – – 14 3 1 – 146 3 1,831 84 227 489 78 99 480 100 110 100 3,000 1,518 300 104 8 137 112 16 28 10 127 483 1 41 – 47 8 (30) (30) 72 – 1 (20) (500) 31 180 – 6 – – 5 – 8 – 126 3 1,620 37 190 431 78 100 200 155 200 100 1,100 1,884 1,223 133 12 123 99 16 27 10 100 649 % bps points bps vol bps vol % % bps points % % bps bps bps points % points points Multiple Multiple % points 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 17-1831bps (2019: 41-1,620bps). 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 321 Notes to the financial statements Assets and liabilities held at fair value continued 17 Fair value of financial instruments continued 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. 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 near zero defaults since inception. While the overall loan spread range is from 31bps to 1,518bps (2019: 31bps to 1,884bps), the vast majority of spreads are concentrated towards the bottom end of this range, with 97% 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. EBITDA multiple EBITDA multiple is the ratio of the valuation of the investment to the earnings before interest, taxes, depreciation and amortisation. 322 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 17 Fair value of financial instruments continued In general, a significant increase in the multiple will result in a fair value increase for an investment. Sensitivity analysis of valuations using unobservable inputs Interest rate derivatives Foreign exchange derivatives Credit derivatives Equity derivatives Commodity derivatives Corporate debt Non-asset backed loans Equity cash products Private equity investments Othera Total 2020 2019 Favourable changes Income statement £m 82 6 55 174 2 16 190 158 199 21 903 Equity £m – – – – – – 3 – – – 3 Unfavourable changes Income statement £m (123) (11) (44) (179) (2) (14) (409) (141) (227) (21) (1,171) Equity £m – – – – – – (3) – – – (3) Favourable changes Income statement £m 44 5 73 114 – 11 214 123 205 1 790 Equity £m – – – – – – 8 – – – 8 Unfavourable changes Income statement £m (127) (7) (47) (119) – (16) (492) (175) (235) (1) (1,219) Equity £m – – – – – – (8) – – – (8) Note a Other includes commercial real estate loans and asset backed loans. 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 £906m (2019: £798m) or to decrease fair values by up to £1,174m (2019: £1,227m) with substantially all the potential effect impacting profit and loss rather than reserves. 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 2020 £m (493) (115) (268) 113 2019 £m (429) (57) (135) 155 Exit price adjustments derived from market bid-offer spreads The 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 £64m to £493m as a result of movements in market bid offer spreads. 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 £115m 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 £58m to £115m as a result of moves in input funding spreads and an update to methodology. 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 2020 was to reduce FFVA by £115m (2019: £170m). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 323 Notes to the financial statements Assets and liabilities held at fair value continued 17 Fair value of financial instruments continued 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 £32m (2019: £36m) increase in CVA. CVA increased by £133m to £268m as a result of an increased uncollateralised and partially collateralised derivative asset and widening input counterparty credit spreads. DVA decreased by £42m to £113m as a result of an update to methodology partially offset by widening input own credit spreads. 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. Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains appropriate. Portfolio exemptions The 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 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 £116m (2019: £113m) for financial instruments measured at fair value and £247m (2019: £255m) for financial instruments carried at amortised cost. There are additions of £27m (2019: £41m), and amortisation and releases of £24m (2019: £69m) for financial instruments measured at fair value and additions of £6m (2019: £7m) and amortisation and releases of £14m (2019: £14m) 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 £1,494m (2019: £3,218m). 324 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 Group’s balance sheet: As at 31 December Financial assets Loans and advances at amortised cost Reverse repurchase agreements and other similar secured lending Financial liabilities Deposits at amortised cost Repurchase agreements and other similar secured borrowing Debt securities in issue Subordinated liabilities 2020 2019 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 342,632 340,516 8,824 81,322 250,370 339,115 337,510 11,145 73,378 250,985 9,031 9,031 – 9,031 – 3,379 3,379 – 3,379 – (481,036) (481,106) (396,124) (82,874) (2,108) (415,787) (415,807) (327,329) (78,659) (9,819) (14,174) (75,796) (16,341) (14,174) (77,813) (16,918) – – – (14,174) (75,957) (16,918) – (1,856) – (14,517) (76,369) (18,156) (14,517) (78,512) (18,863) – – – (14,517) (76,142) (18,863) – (2,370) – 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. Reverse repurchase agreements and other similar secured borrowing The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised. 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. Repurchase agreements and other similar secured borrowing The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated. 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. 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 325 Notes to the financial statements Assets and liabilities held at fair value continued 18 Offsetting financial assets and financial liabilities In accordance with IAS 32 Financial Instruments: Presentation, the 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 ‘Net amounts’ presented are not intended to represent the Group’s actual exposure to credit risk, as a variety of credit mitigation strategies are employed in addition to netting and collateral arrangements. As at 31 December 2020 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 2019 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 Amounts subject to enforceable netting arrangements 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 amount £m Amounts not subject to enforceable netting arrangementsc £m Balance sheet totald £m 342,649 (44,305) 298,344 (233,080) (48,064) 17,200 4,102 302,446 448,134 790,783 (333,943) (306,398) (350,703) 41,982 141,736 440,080 (291,961) – (233,080) 233,080 (141,352) (189,416) 46,804 384 17,584 (12,077) 4,911 9,013 (8,814) 146,647 449,093 (300,775) (476,912) (810,855) 306,398 348,380 (170,514) (462,475) – 233,080 170,514 217,318 – (12,077) (21,031) (29,845) (191,545) (492,320) 260,206 (32,546) 227,660 (175,998) (38,922) 12,740 1,576 229,236 374,274 634,480 (255,269) (276,021) (308,567) 31,180 98,253 325,913 (224,089) – (175,998) 175,998 (98,253) (137,175) 38,632 – 12,740 (9,459) 2,013 3,589 (5,115) 100,266 329,502 (229,204) (406,081) (661,350) 276,021 307,201 (130,060) (354,149) – 175,998 130,058 168,690 (2) (9,461) (13,004) (18,119) (143,064) (372,268) Notes a Amounts offset for derivative financial assets additionally includes cash collateral netted of £4,990m (2019: £4,099m). Amounts offset for derivative financial liabilities additionally includes cash collateral netted of £7,313m (2019: £5,465m). Settlements assets and liabilities have been offset amounting to £18,143m (2019: £14,079m). b Financial collateral of £48,064m (2019: £38,922m) was received in respect of derivative assets, including £43,291m (2019: £33,411m) of cash collateral and £4,773m (2019: £5,511m) of non-cash collateral. Financial collateral of £46,804m (2019: £38,632m) was placed in respect of derivative liabilities, including £42,730m (2019: £35,712m) of cash collateral and £4,074m (2019: £2,920m) 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 Reverse repurchase agreements and other similar secured lending of £146,647m (2019: £100,266m) is split by fair value £137,616m (2019: £96,887m) and amortised cost £9,031m (2019: £3,379m). Repurchase agreements and other similar secured borrowing of £191,545m (2019: £143,064m) is split by fair value £177,371m (2019: £128,547m) and amortised cost £14,174m (2019: £14,517m). 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 the Group are further explained in the Credit risk management section. 326 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Notes to the financial statements Assets at amortised cost and other investments The notes included in this section focus on the Group’s loans and advances and deposits at amortised cost, leases, property, plant and equipment and goodwill and intangible assets. Details regarding the Group’s liquidity and capital position can be found in the Treasury and capital risk section. 19 Loans and advances and deposits at amortised cost Accounting for loans and advances and deposits held at amortised cost 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 the Group is required to hold the financial assets until maturity. When determining if the business model objective is to collect contractual cash flows the Group will consider past sales and expectations about future sales. Loans and advances and deposits at amortised cost As at 31 December Loans and advances at amortised cost to banks Loans and advances at amortised cost to customers Debt securities at amortised cost Total loans and advances at amortised cost Deposits at amortised cost from banks Deposits at amortised cost from customers Total deposits at amortised cost 20 Property, plant and equipment 2020 £m 8,900 309,927 23,805 342,632 17,343 463,693 481,036 2019 £m 9,624 311,739 17,752 339,115 15,402 400,385 415,787 Accounting for property, plant and equipment The 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 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 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 327 Notes to the financial statements Assets at amortised cost and other investments continued 20 Property, plant and equipment continued Cost As at 1 January 2020 Additions Disposals Exchange and other movements As at 31 December 2020 Accumulated depreciation and impairment As at 1 January 2020 Depreciation charge Impairment Disposals Exchange and other movements As at 31 December 2020 Net book value Cost As at 1 January 2019 Additions Disposals Exchange and other movements As at 31 December 2019 Accumulated depreciation and impairment As at 1 January 2019 Depreciation charge Impairment Disposals Exchange and other movements As at 31 December 2019 Net book value Investment property £m Property £m Equipment £m Leased assets £m Right of use assets a £m 13 – (1) (2) 10 – – – – – – 10 9 5 – (1) 13 – – – – – – 13 3,938 193 (96) (33) 4,002 (1,901) (187) (25) 82 18 (2,013) 1,989 3,684 377 (73) (50) 3,938 (1,792) (178) (11) 56 24 (1,901) 2,037 2,977 246 (100) (41) 3,082 (2,306) (223) (2) 92 27 (2,412) 670 2,956 337 (251) (65) 2,977 (2,322) (229) (1) 205 41 (2,306) 671 9 – – – 9 (9) – – – – (9) – 9 – – – 9 (9) – – – – (9) – 1,826 85 (14) 37 1,934 (332) (231) (15) 2 9 (567) 1,367 1,748 95 (10) (7) 1,826 (104) (226) (2) – – (332) 1,494 Total £m 8,763 524 (211) (39) 9,037 (4,548) (641) (42) 176 54 (5,001) 4,036 8,406 814 (334) (123) 8,763 (4,227) (633) (14) 261 65 (4,548) 4,215 Note a Right of use (ROU) asset balances relate to property leases under IFRS 16. Refer to Note 21 for further details. Property rentals of £11m (2019: £22m) have been included in other income. 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. 328 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 21 Leases Accounting for leases under IFRS 16 effective from 1 January 2019 IFRS 16 applies 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. IFRS 16 includes an accounting policy choice for a lessee to elect not to apply IFRS 16 to remaining assets within the scope of IAS 38 Intangible Assets which the Group has decided to apply. When the Group is the lessee, it is 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. 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 lease liability is remeasured when there is a change in one of the following: ■■ future lease payments arising from a change in an index or rate ■■ the Group’s estimate of the amount expected to be payable under a residual value guarantee, or ■■ the Group’s assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded in the income statement if the carrying amount of the ROU asset has been reduced to nil. On the balance sheet, the ROU assets are included within property, plant and equipment and the lease liabilities are included within other liabilities. The Group applies the recognition exemption in IFRS 16 for leases with a term not exceeding 12 months. For these leases the lease payments are recognised as an expense on a straight line basis over the lease term unless another systematic basis is more appropriate. When the Group is the lessor, the lease must be classified as either a finance lease or an operating lease. A finance lease is a lease which confers substantially all the risks and rewards of the leased assets on the lessee. An operating lease is a lease where substantially all of the risks and rewards of the leased asset remain with the lessor. When the lease is deemed a finance lease, 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. When the lease is deemed an operating lease, the lease income is recognised on a straight-line basis over the period of the lease unless another systematic basis is more appropriate. The Group holds the leased assets on-balance sheet within property, plant and equipment. Accounting for finance leases under IAS 17 for 2018 Under IAS 17, a finance lease is a lease which confers substantially all the risks and rewards of the leased assets on the lessee. Where the 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 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. Accounting for operating leases under IAS 17 for 2018 An operating lease under IAS 17 is a lease where substantially all of the risks and rewards of the leased assets remain with the lessor. Where the 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 Group holds the leased assets on-balance sheet within property, plant and equipment. Where the 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 329 Notes to the financial statements Assets at amortised cost and other investments continued 21 Leases continued As a Lessor Finance lease receivables are included within loans and advances at amortised cost. The Group specialises in the provision of leasing and other asset finance facilities across a broad range of asset types to business and individual customers. The following table sets out a maturity analysis of lease receivables, showing the lease payments to be received after the reporting date. Gross investment in finance lease receivables £m 535 312 215 107 52 24 1,245 2020 2019 Present value of minimum lease payments receivable £m 509 297 203 101 49 23 1,182 Unguaranteed residual values £m 70 45 52 27 18 13 225 Gross investment in finance lease receivables £m 1,403 909 593 354 123 115 3,497 Future finance income £m (26) (15) (12) (6) (3) (1) (63) Present value of minimum lease payments receivable £m 1,288 833 544 326 115 98 3,204 Unguaranteed residual values £m 77 53 45 43 19 22 259 Future finance income £m (115) (76) (49) (28) (8) (17) (293) Not more than one year One to two year Two to three year Three to four year Four to five year Over five years Total As a part of a strategic review, Barclays Partner Finance sold its motor point of sale finance portfolio that led to a decrease in gross investment in finance lease receivables. The Group does not have any material operating leases as a lessor. The impairment allowance for finance lease receivables amounted to £29m (2019: £55m). Finance lease income Finance lease income is included within interest income. The following table shows amounts recognised in the income statement during the year. Finance income from net investment in lease (Loss)/profit on sales 2020 £m 55 (25) 2019 £m 141 6 As a Lessee The Group leases various offices, branches and other premises under non-cancellable lease arrangements to meet its operational business requirements. In some instances, Barclays will sublease property to third parties when it is no longer needed to meet business requirements. Currently, Barclays does not have any material subleasing arrangements. ROU asset balances relate to property leases only. Refer to Note 20 for a breakdown of the carrying amount of ROU assets. The total expenses recognised during the year for short term leases were £4m (2019: £14m). The portfolio of short term leases to which Barclays is exposed at the end of the year is not dissimilar to the expenses recognised in the year. Lease liabilities As at 1 January Interest expense New leases Disposals Cash payments Exchange and other movements As at 31 December (see Note 23) 2020 £m 1,563 70 85 (15) (306) 47 1,444 2019 £m 1,696 76 94 (19) (289) 5 1,563 330 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 21 Leases continued The below table sets out a maturity analysis of undiscounted lease liabilities, showing the lease payments to be paid after the reporting date. Undiscounted lease liabilities maturity analysis Not more than one year One to two years Two to three years Three to four years Four to five years Five to ten years Greater than ten years Total undiscounted lease liabilities as at 31 December 2020 £m 255 221 198 176 162 557 248 1,817 2019 £m 296 252 208 186 165 565 310 1,982 In addition to the cash flows identified above, Barclays is exposed to: ■■ variable lease payments: This variability will typically arise from either inflation index instruments or market based pricing adjustments. Currently, Barclays has 809 (2019: 939) leases out of the total 1,329 (2019: 1,467) leases which have variable lease payment terms based on market based pricing adjustments. Of the gross cash flows identified above, £1,096m (2019: £1,526m) is attributable to leases with some degree of variability predominately linked to market based pricing adjustments ■■ extension and termination options: The table above represents Barclays best estimate of future cash out flows for leases, including assumptions regarding the exercising of contractual extension and termination options. The above gross cash flows have been reduced by £446m (2019: £474m) for leases where Barclays is highly expected to exercise an early termination option. However, there is no significant impact where Barclays is expected to exercise an extension option. The Group currently does not have any significant sale and lease back transactions. The Group does not have any restrictions or covenants imposed by the lessor on its property leases which restrict its businesses. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 331 Notes to the financial statements Assets at amortised cost and other investments continued 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 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 a cash generating unit (CGU) including goodwill with the present value of the pre-tax cash flows, discounted at a rate of interest that reflects the inherent risks, of the 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. For internally generated intangible assets, only costs incurred during the development phase are capitalised. Expenditures in the research phase are expensed when it is incurred. 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 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 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. Intangible assets are reviewed for impairment when there are indications that impairment may have occurred. Intangible assets not yet available for use are reviewed annually for impairment. 332 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 22 Goodwill and intangible assets continued Intangible assets Internally generated software £m Goodwill £m Other software £m Customer lists £m Licences and other £m Total £m 2020 Cost As at 1 January 2020 Additions and disposals Exchange and other movements As at 31 December 2020 Accumulated amortisation and impairment As at 1 January 2020 Disposals Amortisation charge Impairment charge Exchange and other movements As at 31 December 2020 Net book value 2019 Cost As at 1 January 2019 Additions and disposals Exchange and other movements As at 31 December 2019 Accumulated amortisation and impairment As at 1 January 2019 Disposals Amortisation charge Impairment charge Exchange and other movements As at 31 December 2019 Net book value 4,760 (37) (7) 4,716 (861) 37 – – (1) (825) 3,891 4,768 – (8) 4,760 (861) – – – – (861) 3,899 6,643 646 (42) 7,247 (2,989) 97 (771) (147) 31 (3,779) 3,468 5,835 857 (49) 6,643 (2,362) 67 (716) (17) 39 (2,989) 3,654 505 131 3 639 (279) 10 (51) (6) (2) (328) 311 389 120 (4) 505 (254) 25 (52) (2) 4 (279) 226 1,465 – (46) 1,419 (1,250) – (43) – 41 (1,252) 167 1,630 (124) (41) 1,465 (1,359) 124 (49) – 34 (1,250) 215 489 22 (21) 490 (364) 3 (33) – 15 (379) 111 558 (39) (30) 489 (371) 37 (37) – 7 (364) 125 Goodwill Goodwill and intangible assets are allocated to business operations according to business segments as follows: Barclays UK Barclays International Head Office Total Goodwill £m 3,560 289 42 3,891 2020 Intangibles £m 1,618 2,435 4 4,057 Total £m 5,178 2,724 46 7,948 Goodwill £m 3,526 329 44 3,899 2019 Intangibles £m 1,520 2,686 14 4,220 13,862 762 (113) 14,511 (5,743) 147 (898) (153) 84 (6,563) 7,948 13,180 814 (132) 13,862 (5,207) 253 (854) (19) 84 (5,743) 8,119 Total £m 5,046 3,015 58 8,119 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 333 Notes to the financial statements Assets at amortised cost and other investments continued 22 Goodwill and intangible assets continued Critical accounting estimates and judgements Goodwill Testing goodwill for impairment involves a significant amount of judgement. Goodwill is allocated to CGUs for the purpose of impairment testing. The review of goodwill for impairment involves calculating a value in use (VIU) valuation which is compared to the carrying value of a CGU associated with the goodwill to determine whether any impairment has occurred. This includes the identification of independent CGUs across the organisation and the allocation of goodwill to those CGUs. The calculation of a value in use contains a high degree of uncertainty in estimating the future cash flows and the rates used to discount them. Key judgements include determining the carrying value of the CGU, the cash flows and discount rates used in the calculation. ■■ The cash flow forecasts used by management involve judgement and are based upon a view of the future prospects of the business and market conditions at the point in time the assessment is prepared. 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. ■■ The discount rates applied to the future cash flows also involve judgement as they can have a significant impact on the valuation. The discount rates used are compared to market participants to ensure that they are appropriate and based on an estimated cost of equity for each CGU. ■■ The choice of a terminal growth rate used to determine the present value of the future cash flows of the CGUs is also a judgement that can impact the outcome of the assessment. The terminal growth rate and discount rates used may vary due to external market rates and economic conditions that are beyond management’s control. Further details of some of the key judgements are set out below. 2020 impairment review The 2020 impairment review was performed during Q4 2020. Given the change in the macroeconomic and interest rate outlook, this review was performed across all material CGUs. The review identified that a number of the CGUs have been adversely impacted by changes in their operating environment, in particular retail and business banking activity. A detailed assessment has been performed, with the approach and results of this analysis set out below. Determining the carrying value of CGUs The carrying value for each CGU is the sum of the tangible equity, goodwill and intangible balances associated with that CGU. The Group manages the assets and liabilities of its CGUs with reference to tangible equity of the respective businesses. That tangible equity is derived from the level of risk weighted assets (RWAs) and capital required to be deployed in the CGU and therefore reflects its relative risk, as well as the level of capital management consider a market participant would require to hold and retain to support business growth. The goodwill held across the group has been allocated to the CGU where it originated, based upon historical records. The intangible balances are allocated to the CGUs based upon their expected usage of these assets. Cash flows The five-year cash flows used in the calculation are based on the formally agreed medium term plans approved by the Board. These are prepared using macroeconomic assumptions which management consider reasonable and supportable, and reflect business agreed initiatives for the forecast period. The macroeconomic assumptions underpinning the medium term plan were determined in August 2020 and management has considered whether there are subsequent significant changes in those assumptions which would adversely impact the results of the impairment review. As required by IAS 36, all estimates of future cash flows exclude cash inflows or outflows that are expected to arise from restructuring initiatives where a constructive obligation to carry out the plan does not yet exist. The Education, Social Housing and Local Authority (ESHLA) portfolio has been excluded from the Business Banking CGU cash flows. This is a legacy loan portfolio which was previously within the Non-Core bank and was not part of the business to which the goodwill relates. As such, the cash flows relating to this portfolio have been excluded from the Business Banking VIU calculation. The Personal Banking CGU cash flows have been extended to a sixth year (prior to the calculation of terminal values below) to reflect an observed 15bp inflexion point in the yield curve which was beyond the period of the medium term plan. Discount rates IAS 36 requires that the discount rate used in a value in use calculation reflects the pre-tax rate an investor would require if they were to choose an investment that would generate similar cash flows to those that the entity expects to generate from the asset. In determining the discount rate, management have identified the cost of equity associated with market participants that closely resemble our cash generating units and adjusted them for tax to arrive at the pre-tax equivalent rate. A range of discount rates have been used across the CGUs ranging from 12.0% to 16.3% (2019: 11.0% to 13.3%). Terminal growth rate The terminal growth rate is used to estimate the effect of projecting cash flows to the end of an asset’s useful economic life. It is management’s judgement that the cash flows associated with the CGUs will grow in line with the major economies in which we operate. In prior years, the growth rate used had been based upon estimated economic growth rates (GDP). Given macroeconomic uncertainty, inflation rates are now considered a better approximation of future growth rates and are therefore the basis of terminal growth rates applied. The terminal growth rate used is 2.0% (2019:1.5%). 334 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 22 Goodwill and intangible assets continued Outcome of goodwill and intangibles review The Personal Banking and Business Banking retail banking CGUs carry the majority of the Group’s goodwill balance, predominantly as a consequence of the Woolwich acquisition. The goodwill within Personal Banking was £2,752m (2019: £2,718m), of which £2,501m (2019: £2,501m) was attributable to Woolwich, and within Business Banking was £629m (2019: £629m), fully attributable to Woolwich. The outcome of the impairment review for Personal Banking and Business Banking are set out below: Cash generating unit Personal Banking Business Banking Total Tangible equity £m 4,650 1,353 6,003 Goodwill £m 2,752 629 3,381 Intangibles £m 1,407 190 1,597 Carrying value £m 8,809 2,172 10,981 Value in use £m 8,932 2,912 11,844 Value in use exceeding carrying value £m 123 740 863 Value in use exceeding carrying value 2019 £m 2,570 1,981 4,551 Based on management’s plans and assumptions the value in use exceeds the carrying value of the CGUs and no impairment has been indicated. However, the extent to which the recoverable amounts exceed the carrying values for the Personal Banking and Business Banking CGUs has reduced significantly in comparison to the 2019 impairment review, reflective of the challenging macroeconomic and interest rate outlook. Intangible assets During the year internally generated software assets related to the discontinuation of obsolete applications resulted in these assets being impaired by £153m. Sensitivity of key judgements The CGUs are sensitive to possible adverse changes in the key assumptions that support the recoverable amount: Cash flows: The medium term plans used to determine the cash flows used in the VIU calculation rely on macroeconomic forecasts, including interest rates, GDP and unemployment, and forecast levels of market and client activity. Interest rate assumptions impact planned cash flows from both customer income and structural hedge contributions and therefore cash flow expectations are highly sensitive to movements in the yield curve. The cash flows also contain assumptions with regards to the prudential and financial conduct regulatory environment which may be subject to change. Given the current level of economic uncertainty, a 10% reduction in cash flows has been provided to show the sensitivity of the outcome to a change in these key assumptions. Discount rate: The discount rate should reflect the market risk free rate adjusted for the inherent risks of the business it is applied to. Management have identified discount rates for comparable businesses and consider these to be a reasonable estimate of a suitable market rate for the profile of the business unit being tested. The risk that these discount rates may not be appropriate is quantified below and show the impact of a 100 bps change in the discount rate. Terminal growth rate: The terminal growth rate is used to estimate the cash flows into perpetuity based on the expected longevity of the CGU’s businesses. The terminal growth rate is sensitive to uncertainties in the macroeconomic environment. The risk that using inflation data may not be appropriate for its determination is quantified below and shows the impact of a 100 bps change in the terminal value. Allocated capital rate: Tangible equity is allocated based on the level of risk weighted assets (RWAs) and capital required to be deployed in the CGU which is dependent on the relative risk of businesses. The capital ratio used in determining the level of tangible equity allocated to the CGU and its capital cash flows could move over time. The impact of a 50 bps increase in capital ratio is quantified below. The sensitivity of the value in use to key judgements in the calculations is set out below: Cash generating unit Personal Banking Business Banking Total Carrying value £m 8,809 2,172 Value in use £m 8,932 2,912 10,981 11,844 Value in use exceeding carrying value £m 123 740 863 Discount rate % 13.51 13.81 Terminal growth rate % 2.0 2.0 Reduction in headroom 100 bps increase in the discount rate £m (893) (205) 100 bps decrease in terminal growth rate £m (623) (128) 50 bps increase to allocated capital rate £m (220) (60) 10% reduction in forecasted cash flows £m (972) (206) Change required to reduce headroom to zero Discount rate % 0.1 4.6 Terminal growth rate % (0.2) (9.7) Allocated capital rate % 0.3 6.2 Cash flows % (1.3) (35.9) The sensitivity analysis highlights that there could be an impairment in the recoverable value of the goodwill associated with Personal Banking if there were to be a change in management cash flow forecasts, discount rate or allocated capital rate. Management continue to review the recoverability of its goodwill positions as the macroeconomic conditions remain uncertain. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 335 Notes to the financial statements Accruals, provisions, contingent liabilities and legal proceedings The notes included in this section focus on the 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. 23 Other liabilities Accruals and deferred income Other creditors Items in the course of collection due to other banks Lease liabilities (refer to Note 21) Other liabilities 24 Provisions 2020 £m 3,683 3,447 88 1,444 8,662 2019 £m 3,472 3,257 213 1,563 8,505 Accounting for provisions The 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 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. 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 26 for more detail of legal, competition and regulatory matters. As at 1 January 2020 Additions Amounts utilised Unused amounts reversed Exchange and other movements As at 31 December 2020 Onerous contracts £m 42 24 (13) (25) – 28 Redundancy and restructuring £m 143 194 (109) (60) (10) 158 Undrawn contractually committed facilities and guaranteesª £m 322 806 – (30) (34) 1,064 Customer redress Payment Protection Insurance £m 1,155 – (979) (47) – 129 Other customer redress £m 420 186 (195) (44) 1 368 Legal, competition and regulatory matters £m 376 106 (171) (45) 2 268 Sundry provisions £m 306 192 (118) (92) 1 289 Total £m 2,764 1,508 (1,585) (343) (40) 2,304 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 2020 were £1,751m (2019: £2,457m). 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. 336 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 24 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. For further information, refer to the Credit risk section for loan commitments and financial guarantees on page 176. 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 the Group’s business activities. Other than Payment Protection Insurance, there are no significant individual customer redress provisions at 31 December 2020. Legal, competition and regulatory matters The Group is engaged in various legal proceedings, both in the UK and a number of other overseas jurisdictions, including the US. For further information in relation to legal proceedings and discussion of the associated uncertainties, refer to Note 26. 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 (PPI) redress As at 31 December 2020 Barclays had recognised cumulative provisions totalling £10.9bn (December 2019: £11bn), including a £55m release in Q4 2020 on resolution of the items received in Q3 2019 and claims from the Official Receiver with whom we reached agreement in Q3 2020, against the cost of PPI redress and associated processing costs. Utilisation of the cumulative provisions to date is £10.8bn (December 2019: £9.8bn), leaving a residual provision of £0.1bn (December 2019: £1.2bn) to be utilised in 2021. This represents Barclays best estimate as at 31 December 2020 based on information available. 25 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 commitments Total commitments Of which: Loan commitments carried at fair value 2020 £m 15,665 5,944 21,609 229 2019 £m 17,606 6,921 24,527 43 1,086 331,963 333,049 9,269 1,291 333,164 334,455 17,679 Expected credit losses held against contingent liabilities and commitments equal £1,064m (2019: £322m) and are reported in Note 24. Further details on contingent liabilities relating to legal and competition and regulatory matters can be found in Note 26. 26 Legal, competition and regulatory matters The Group faces legal, competition and regulatory challenges, many of which are beyond our control. The extent of the impact 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 24, Provisions. We have not disclosed an estimate of the potential financial impact or effect on the Group of contingent liabilities where it is not currently practicable to do so. Various matters detailed in this note seek damages of an unspecified amount. While certain matters specify the damages claimed, such claimed amounts do not necessarily reflect the Group’s potential financial exposure in respect of those matters. Matters are ordered under headings corresponding to the financial statements in which they are disclosed. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 337 Notes to the financial statements Accruals, provisions, contingent liabilities and legal proceedings continued 26 Legal, competition and regulatory matters continued 1. Barclays PLC and Barclays Bank PLC Investigations into certain advisory services agreements and related civil action FCA proceedings In 2008, Barclays Bank PLC and Qatar Holdings LLC entered into two advisory service agreements (the Agreements). The Financial Conduct Authority (FCA) conducted an investigation into whether the Agreements may have related to Barclays PLC’s capital raisings in June and November 2008 (the Capital Raisings) and therefore should have been disclosed in the announcements or public documents relating to the Capital Raisings. In 2013, the FCA issued warning notices (the Notices) finding that Barclays PLC and Barclays Bank PLC acted recklessly and in breach of certain disclosure-related listing rules, and that Barclays PLC was also in breach of Listing Principle 3. The financial penalty provided in the Notices is £50m. Barclays PLC and Barclays Bank PLC continue to contest the findings. Following the conclusion of the Serious Fraud Office (SFO) proceedings against certain former Barclays executives resulting in their acquittals, the FCA proceedings, which were stayed, have resumed. All charges brought by the SFO against Barclays PLC and Barclays Bank PLC in relation to the Agreements were dismissed in 2018. Civil action PCP Capital Partners LLP and PCP International Finance Limited (PCP) are seeking damages of up to approximately £819m from Barclays Bank PLC 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. The trial took place in 2020 and the High Court has indicated that judgment is imminent. The outcome of the judgment, and any financial impact on the Group, is unknown. Barclays Bank PLC is defending the claim. Investigations into LIBOR and other benchmarks and related civil actions Regulators and law enforcement agencies, including certain competition authorities, from a number of governments have conducted investigations relating to Barclays Bank PLC’s involvement in allegedly manipulating certain financial benchmarks, such as LIBOR. The SFO closed its investigation with no action to be taken against the Group. Various individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group and other banks in relation to the alleged manipulation of LIBOR and/or other benchmarks. USD LIBOR civil actions The majority of the USD LIBOR cases, which have been filed in various US jurisdictions, have been consolidated for pre-trial purposes in the US District Court in the Southern District of New York (SDNY). The complaints are substantially similar and allege, among other things, that Barclays PLC, Barclays Bank PLC, Barclays Capital Inc. (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. Putative class actions and individual actions seek unspecified damages with the exception of three lawsuits, in which the plaintiffs are seeking a combined total of approximately $900m in actual damages and additional punitive damages against all defendants, including Barclays Bank PLC. Some of the lawsuits also seek trebling of damages under the Antitrust Act and RICO. Barclays Bank PLC has previously settled certain claims. Two class action settlements where Barclays Bank PLC has respectively paid $7.1m and $20m have received final court approval. Sterling LIBOR civil actions In 2016, two putative class actions filed in the SDNY against Barclays Bank PLC, BCI and other Sterling LIBOR panel banks alleging, among other things, that the defendants manipulated the Sterling LIBOR rate in violation of the Antitrust Act, CEA and RICO, were consolidated. The defendants’ motion to dismiss the claims was granted in 2018. The plaintiffs have appealed the dismissal. Japanese Yen LIBOR civil actions In 2012, a putative class action was filed in the SDNY against Barclays Bank PLC and other Japanese Yen LIBOR panel banks by a lead plaintiff involved in exchange-traded derivatives and members of the Japanese Bankers Association’s Euroyen Tokyo Interbank Offered Rate (Euroyen TIBOR) panel. The complaint alleges, among other things, manipulation of the Euroyen TIBOR and Yen LIBOR rates and breaches of the CEA and the Antitrust Act. In 2014, the court dismissed the plaintiff’s antitrust claims, and, in 2020, the court dismissed the plaintiff’s remaining CEA claims. The plaintiff has appealed the lower court’s dismissal of such claims. In 2015, a second putative class action, making similar allegations to the above class action, was filed in the SDNY against Barclays PLC, Barclays Bank PLC and BCI. The plaintiffs filed an amended complaint in 2020, and the defendants have filed a motion to dismiss. SIBOR/SOR civil action 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). In 2018, the court dismissed all claims against Barclays PLC, Barclays Bank PLC and BCI. The plaintiffs have appealed the dismissal. ICE LIBOR civil actions In 2019, several putative class actions were filed in the SDNY against Barclays PLC, Barclays Bank PLC, BCI, other financial institution defendants and Intercontinental Exchange Inc. and certain of its affiliates (ICE), asserting antitrust claims that defendants manipulated USD LIBOR through defendants’ submissions to ICE. These actions have been consolidated. The defendants’ motion to dismiss was granted in 2020. The plaintiffs have appealed the dismissal. In August 2020, an ICE LIBOR-related action was filed in the US District Court for the Northern District of California on behalf of individual borrowers and consumers of loans and credit cards with variable interest rates linked to USD ICE LIBOR. Non-US benchmarks civil actions Legal proceedings (which include the claims referred to below in ‘Local authority civil actions concerning LIBOR’) have been brought or threatened against Barclays Bank PLC (and, in certain cases, Barclays Bank UK PLC) in the UK in connection with alleged manipulation of LIBOR, EURIBOR and other benchmarks. Proceedings have also been brought in a number of other jurisdictions in Europe and Israel. Additional proceedings in other jurisdictions may be brought in the future. 338 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 26 Legal, competition and regulatory matters continued Foreign Exchange investigations and related civil actions In 2015, the Group reached settlements totalling approximately $2.38bn with various US federal and state authorities and the FCA in relation to investigations into certain sales and trading practices in the Foreign Exchange market. Under the related plea agreement with the US Department of Justice (DoJ), which received final court approval in January 2017, the Group agreed to a term of probation of three years, which expired in January 2020. The Group also continues to provide relevant information to certain authorities. The European Commission is one of a number of authorities still conducting an investigation into certain trading practices in Foreign Exchange markets. The European Commission announced two settlements in May 2019 and the Group paid penalties totalling approximately €210m. In June 2019, the Swiss Competition Commission announced two settlements and the Group paid penalties totalling approximately CHF 27m. The financial impact of the ongoing matters is not expected to be material to the Group’s operating results, cash flows or financial position. Various individuals and corporates in a range of jurisdictions have threatened or brought civil actions against the Group and other banks in relation to alleged manipulation of Foreign Exchange markets. FX opt out civil action In 2018, Barclays Bank PLC and BCI settled a consolidated action filed in the SDNY, alleging manipulation of Foreign Exchange markets (Consolidated FX Action), for a total amount of $384m. Also in 2018, a group of plaintiffs who opted out of the Consolidated FX Action filed a complaint in the SDNY against Barclays PLC, Barclays Bank PLC, BCI and other defendants. Some of the plaintiff’s claims were dismissed in 2020. Retail basis civil action In 2015, a putative class action was filed against several international banks, including Barclays PLC and BCI, on behalf of a proposed class of individuals who exchanged currencies on a retail basis at bank branches (Retail Basis Claims). The SDNY 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 the Group and all other defendants. The plaintiffs have filed an amended complaint. State law FX civil action In 2017, the SDNY dismissed consolidated putative class actions brought under federal and various state laws on behalf of proposed classes of (i) stockholders of Exchange Traded Funds and others who purportedly were indirect investors in FX instruments, and (ii) investors who traded FX instruments through FX dealers or brokers not alleged to have manipulated Foreign Exchange Rates. Barclays Bank PLC and BCI have settled the claim, which has received final court approval. The financial impact of the settlement is not material to the Group’s operating results, cash flows or financial position. Non-US FX civil actions Legal proceedings have been brought or are threatened against Barclays PLC, Barclays Bank PLC, BCI and Barclays Execution Services Limited (BX) in connection with alleged manipulation of Foreign Exchange in the UK, a number of other jurisdictions in Europe, Israel and Australia and additional proceedings may be brought in the future. These include two purported class actions filed against Barclays PLC, Barclays Bank PLC, BX, BCI and other financial institutions in the UK Competition Appeal Tribunal in 2019 following the settlements with the European Commission described above. Also in 2019, a separate claim was filed in the UK in the High Court of Justice by various banks and asset management firms against Barclays Bank PLC and other financial institutions alleging breaches of European and UK competition laws related to FX trading. Metals investigations and related civil actions Barclays Bank PLC previously provided information to the DoJ, the US Commodity Futures Trading Commission and other authorities in connection with investigations into metals and metals-based financial instruments. A number of US 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 Antitrust Act and other federal laws. This consolidated putative class action remains pending. A separate US civil complaint by a proposed class of plaintiffs against a number of banks, including Barclays Bank PLC, BCI and BX, alleging manipulation of the price of silver in violation of the CEA, the Antitrust Act and state antitrust and consumer protection laws, has been dismissed as against the Barclays entities. The plaintiffs have the option to seek the court’s permission to appeal. Civil actions have also been filed in Canadian courts against Barclays PLC, Barclays Bank PLC, Barclays Capital Canada Inc. and BCI on behalf of proposed classes of plaintiffs alleging manipulation of gold and silver prices. US residential mortgage related civil actions There are various pending civil actions relating to US Residential Mortgage-Backed Securities (RMBS), including four actions arising from unresolved repurchase requests submitted by Trustees for certain RMBS, alleging breaches of various loan-level representations and warranties (R&Ws) made by Barclays Bank PLC and/or a subsidiary acquired in 2007 (the Acquired Subsidiary). The unresolved repurchase requests had an original principal balance of approximately $2.1bn. The Trustees have also alleged that the relevant R&Ws may have been breached with respect to a greater (but unspecified) amount of loans than previously stated in the unresolved repurchase requests. These repurchase actions are ongoing. In one repurchase action, the New York Court of Appeals held that claims related to certain R&Ws are time- barred. Barclays Bank PLC has reached a settlement to resolve two of the repurchase actions, which is subject to final court approval. The financial impact of the settlement is not expected to be material to the Group’s operating results, cash flows or financial position. The remaining two repurchase actions are pending. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 339 Notes to the financial statements Accruals, provisions, contingent liabilities and legal proceedings continued 26 Legal, competition and regulatory matters continued In 2020, a civil litigation claim was filed in the New Mexico First Judicial District Court by the State of New Mexico against seven banks, including BCI, on behalf of two New Mexico state pension funds and the New Mexico State Investment Council relating to legacy RMBS purchases. As to BCI, the complaint alleges that the funds purchased approximately $22m in RMBS underwritten by BCI. The plaintiffs have asserted claims under New Mexico state law, which provides for the ability to claim treble damages and civil penalties. Government and agency securities civil actions and related matters Certain governmental authorities have conducted investigations into activities relating to the trading of certain government and agency securities in various markets. The Group provided information in cooperation with such investigations. In January 2021, the Mexican Competition Authority concluded its investigation into activities relating to the trading of Mexican government bonds and granted Barclays Bank Mexico S.A. immunity from fines. Civil actions have also been filed on the basis of similar allegations, as described below. Treasury auction securities civil actions Consolidated putative class action complaints filed in US federal court against Barclays Bank PLC, BCI and other financial institutions under the Antitrust Act and state common law allege 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, alleging that defendants conspired to fix and manipulate the US Treasury securities market in violation of the Antitrust Act, the CEA and state common law. Supranational, Sovereign and Agency bonds civil actions Civil antitrust actions have been filed in the SDNY and Federal Court of Canada in Toronto against Barclays Bank PLC, BCI, BX, Barclays Capital Securities Limited and, with respect to the civil action filed in Canada only, Barclays Capital Canada, Inc. and other financial institutions alleging that the defendants conspired to fix prices and restrain competition in the market for US dollar-denominated Supranational, Sovereign and Agency bonds. In one of the actions filed in the SDNY, the court granted the defendants’ motion to dismiss the plaintiffs’ complaint, which the plaintiffs have appealed. The plaintiffs have voluntarily dismissed the other SDNY action. Variable Rate Demand Obligations civil actions Civil actions have been filed against Barclays Bank PLC and BCI and other financial institutions alleging the defendants conspired or colluded to artificially inflate interest rates set for Variable Rate Demand Obligations (VRDOs). VRDOs are municipal bonds with interest rates that reset on a periodic basis, most commonly weekly. Two actions in state court have been filed by private plaintiffs on behalf of the states of Illinois and California. Two putative class action complaints, which have been consolidated, have been filed in the SDNY. In the SDNY class action, certain of the plaintiff’s claims were dismissed in November 2020. Government bond civil actions In a putative class action filed in the SDNY in 2019, plaintiffs alleged that BCI and certain other bond dealers conspired to fix the prices of US government sponsored entity bonds in violation of US antitrust law. BCI agreed to a settlement of $87m, which received final court approval in 2020. Separately, various entities in Louisiana, including the Louisiana Attorney General and the City of Baton Rouge, have commenced litigation against Barclays Bank PLC and other financial institutions making similar allegations as the SDNY class action plaintiffs. In 2018, a separate putative class action against various financial institutions including Barclays PLC, Barclays Bank PLC, BCI, Barclays Bank Mexico, S.A., and certain other subsidiaries of the Group was consolidated in the SDNY. The plaintiffs asserted antitrust and state law claims arising out of an alleged conspiracy to fix the prices of Mexican Government bonds. Barclays PLC has settled the claim for $5.7m, which is subject to final court approval. Odd-lot corporate bonds antitrust class action In 2020, BCI, together with other financial institutions, were named as defendants in a putative class action. The complaint alleges a conspiracy to boycott developing electronic trading platforms for odd-lots and price fixing. Plaintiffs demand unspecified money damages. The defendants have filed a motion to dismiss. 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) 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. In 2018, trueEX LLC filed an antitrust class action in the SDNY against a number of financial institutions including Barclays PLC, Barclays Bank PLC and BCI based on similar allegations with respect to trueEX LLC’s development of an IRS platform. In 2017, Tera Group Inc. filed a separate civil antitrust action in the SDNY claiming that certain conduct alleged in the IRS cases also caused the plaintiff to suffer harm with respect to the Credit Default Swaps market. In 2018 and 2019, respectively, the court dismissed certain claims in both cases for unjust enrichment and tortious interference but denied motions to dismiss the federal and state antitrust claims, which remain pending. BDC Finance L.L.C. In 2008, BDC Finance L.L.C. (BDC) filed a complaint in the NY Supreme Court, demanding damages of $298m, 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). Following a trial, the court ruled in 2018 that Barclays Bank PLC was not a defaulting party, which was affirmed on appeal. In October 2020, the trial court granted Barclays Bank PLC’s motion for summary judgment on its counterclaims against BDC. BDC has appealed. 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. This case is currently stayed. 340 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 26 Legal, competition and regulatory matters continued Civil actions in respect of the US Anti-Terrorism Act There are a number of civil actions, on behalf of more than 4,000 plaintiffs, filed in US federal courts in the US District Court in the Eastern District of New York (EDNY) and SDNY against Barclays Bank PLC and a number of other banks. The complaints generally allege that Barclays Bank PLC and those banks engaged in a conspiracy to facilitate US dollar-denominated transactions for the Government of Iran and various Iranian banks, which in turn funded acts of terrorism that injured or killed plaintiffs or plaintiffs’ family members. The plaintiffs seek to recover damages for pain, suffering and mental anguish under the provisions of the US Anti-Terrorism Act, which allow for the trebling of any proven damages. The court granted the defendants’ motion to dismiss three actions in the EDNY. Plaintiffs have appealed in one action. The court also granted the defendants’ motion to dismiss another action in the SDNY. The remaining actions are stayed pending decisions in these cases. Shareholder derivative action A purported Barclays shareholder filed a putative derivative action in New York state court against BCI and a number of current and former members of the Board of Directors of Barclays PLC and senior executives or employees of the Group. The shareholder filed the claim on behalf of Barclays PLC, alleging that the individual defendants harmed the company through breaches of their duties under the Companies Act 2006. The plaintiff seeks damages for the losses that Barclays PLC allegedly suffered. 2. Barclays PLC, Barclays Bank PLC and Barclays Bank UK PLC Investigation into collections and recoveries relating to unsecured lending Since 2018, the FCA has been investigating whether the Group implemented effective systems and controls with respect to collections and recoveries and whether it paid due consideration to the interests of customers in default and arrears. In December 2020, Barclays Bank UK PLC and Barclays Bank PLC settled with the FCA and agreed to pay a total penalty of £26m. Investigation into UK cards’ affordability The FCA is investigating certain aspects of the affordability assessment process used by Barclays Bank UK PLC and Barclays Bank PLC for credit card applications made to Barclays’ UK credit card business. Barclays is providing information in cooperation with the investigation. 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. HMRC’s decision has been appealed to the First Tier Tribunal (Tax Chamber). 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 and related civil actions’, in the UK, certain local authorities have brought claims against Barclays Bank PLC and Barclays Bank UK PLC asserting that they entered into loans in reliance on misrepresentations made by Barclays Bank PLC in respect of its conduct in relation to LIBOR. Barclays Bank PLC and Barclays Bank UK PLC have applied to strike out the claims. 3. Barclays PLC Alternative trading systems Barclays PLC has been named as a defendant in a claim brought in the UK in the High Court of Justice by various shareholders regarding Barclays PLC’s share price based on the allegations contained within a complaint by the New York State Attorney General (NYAG) in 2014. The NYAG complaint was filed against Barclays PLC and BCI in the Supreme Court of the State of New York alleging, among other things, that Barclays PLC and BCI engaged in fraud and deceptive practices in connection with LX, BCI’s SEC-registered alternative trading system. Such claim was settled in 2016, as previously disclosed. This new shareholder claim is seeking unquantified damages, although Barclays PLC has not yet been served. General The Group 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 the Group 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, intellectual property, money laundering, financial crime, employment, environmental and other statutory and common law issues. The Group 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 the Group is or has been engaged. The Group 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 PLC does not expect the ultimate resolution of any of these other matters to have a material adverse effect on the Group’s 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 PLC’s results, operations or cash flow for a particular period, depending on, among other things, the amount of the loss resulting from the matter(s) and the amount of profit otherwise reported for the reporting period. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 341 Notes to the financial statements Capital instruments, equity and reserves The notes included in this section focus on the 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 Group maintains sufficient capital to meet our regulatory requirements refer to the Capital risk management section. 27 Subordinated liabilities Accounting for subordinated liabilities Subordinated liabilities are measured at amortised cost using the effective interest method under IFRS 9. As at 1 January Issuances Redemptions Other As at 31 December 2020 £m 18,156 1,438 (3,464) 211 16,341 2019 £m 20,559 1,352 (3,248) (507) 18,156 Issuances of £1,438m comprise £782m USD 3.564% Fixed Rate Resetting Subordinated Callable Notes and £500m 3.75% Fixed Rate Resetting Subordinated Callable Notes, both issued externally by Barclays PLC and £156m USD Floating Rate Notes issued externally by a Barclays subsidiary. Redemptions of £3,464m comprise a £1,126m partial redemption of USD 7.625% Contingent Capital Notes issued externally by Barclays Bank PLC and full redemptions of £1,124m EUR 2.625% Fixed Rate Subordinated Callable Notes issued externally by Barclays PLC, £842m USD 5.14% Lower Tier 2 Notes issued externally by Barclays Bank PLC and £342m USD Floating Rate Notes and £30m USD Fixed Rate Notes, both issued externally by Barclays subsidiaries. Other movements predominantly include foreign exchange movements and fair value hedge adjustments. 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 Group’s subordinated liabilities are secured. Undated subordinated liabilitiesª 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) 5.3304% Step-up Callable Perpetual Reserve Capital Instruments Undated Notes Junior Undated Floating Rate Notes (USD 38m) Total undated subordinated liabilities Note a Instrument values are disclosed to the nearest million. 2020 £m 308 16,033 16,341 2019 £m 303 17,853 18,156 2020 £m 17 205 56 28 308 2019 £m 16 203 53 29 303 Initial call date 2032 2032 2036 Any interest payment date 342 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 27 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; followed by TONs and RCIs ranking pari passu with each other. Interest The Junior Undated Notes are floating rate notes where rates are fixed periodically in advance based on the related market rate. The TONs and RCIs 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 TONs and RCIs will bear interest at rates fixed periodically in advance based on market rates. Payment of interest No payment of principal or any interest may be made in relation to the TONs and RCIs 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, and (ii) the coupon payment date falling on or nearest to the tenth anniversary of the date of deferral of such payment. Whilst such deferral is continuing, (i) 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 and (ii) certain restrictions on the redemption, purchase or reduction of their respective share capital and certain other securities also apply. 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, (i) neither Barclays Bank PLC nor Barclays PLC may 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. 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 consent of the PRA. Other All issues of undated subordinated liabilities are non-convertible. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 343 Notes to the financial statements Capital instruments, equity and reserves continued 27 Subordinated liabilities continued Dated subordinated liabilitiesª 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) 3.75% Fixed Rate Resetting Subordinated Callable Notes (GBP 500m) 5.20% Fixed Rate Subordinated Notes (USD 2,050m) 4.836% Fixed Rate Subordinated Callable Notes (USD 2,000m) 5.088% Fixed-to-Floating Rate Subordinated Callable Notes (USD 1,500m) 3.564% Fixed Rate Resetting Subordinated Callable Notes (USD 1,000m) Barclays Bank PLC issued 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 Note a Instrument values are disclosed to the nearest million. Initial call date Maturity date 2020 2023 2025 2025 2027 2029 2030 2025 2028 2024 2030 2030 2026 2028 2030 2035 2020 2021 2021 2021 2021 2021 2022 2022 2022 2023 2026 2027 2032 2040 2025 2020 £m – 1,384 990 119 504 1,610 1,627 1,213 703 – 1,427 221 90 2,108 1,101 45 982 1,132 45 351 108 64 61 146 16,033 2019 £m 1,072 1,309 995 116 – 1,561 1,578 1,152 – 832 1,375 239 85 2,157 1,123 43 957 2,284 42 350 105 62 58 358 17,853 344 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 27 Subordinated liabilities continued Dated subordinated liabilities Dated subordinated liabilities are issued by Barclays PLC, Barclays Bank PLC and its 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 market rates. Interest on Fixed Rate Notes is set by reference to market rates at the time of issuance and fixed until maturity. Interest on the 4.836% Fixed Rate Subordinated Callable Notes, 2% Fixed Rate Subordinated Callable Notes 3.75% SGD Fixed Rate Resetting Subordinated Callable Notes, 3.75% GBP Fixed Rate Resetting Subordinated Callable Notes and the 3.564% 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. Interest on the 5.088% Fixed-to-Floating Rate Subordinated Callable Notes are fixed until the call date. After the call date, in the event that they are not redeemed, the interest rate will reset periodically in advance based on market rates. 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 2020 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 consent 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 Group) for nil consideration in the event the Barclays PLC transitional CET1 ratio falls below 7%. 28 Ordinary shares, share premium, and other equity Called up share capital, allotted and fully paid As at 1 January 2020 Issued to staff under share incentive plans AT1 securities issuance AT1 securities redemption Other movements As at 31 December 2020 As at 1 January 2019 Issued to staff under share incentive plans Issuances relating to Scrip Dividend Programme AT1 securities issuance AT1 securities redemption Other movements As at 31 December 2019 Number of shares m 17,322 37 – – – 17,359 17,133 76 113 – – – 17,322 Ordinary share capital £m 4,331 9 – – – 4,340 4,283 19 29 – – – 4,331 Ordinary share premium £m 263 34 – – – 297 28 82 153 – – – 263 Total share capital and share premium £m 4,594 43 – – – 4,637 Other equity instruments £m 10,871 – 1,142 (831) (10) 11,172 4,311 101 182 – – – 4,594 9,632 – – 3,500 (2,262) 1 10,871 Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 345 Notes to the financial statements Capital instruments, equity and reserves continued 28 Ordinary shares, share premium, and other equity continued Called up share capital Called up share capital comprises 17,359m (2019: 17,322m) ordinary shares of 25p each. Share repurchase At the 2020 AGM on 7 May 2020, Barclays PLC was authorised to repurchase up to an aggregate of 1,733m of its ordinary shares of 25p. The authorisation is effective until the AGM in 2021 or the close of business on 30 June 2021, whichever is the earlier. No share repurchases were made during either 2020 or 2019. Other equity instruments Other equity instruments of £11,172m (2019: £10,871m) 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 prevailing capital rules applicable as at the relevant issue date. In 2020, there was one issuance of AT1 instruments, in the form of Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities (2019: three issuances), totalling £1,142m (2019: £3,500m) which includes issuance costs of £4m (2019: £11m). There was also one redemption in 2020 (2019: three redemptions), totalling £831m (2019: £2,262m). AT1 equity instruments AT1 equity instruments - Barclays PLC 8.0% Perpetual Subordinated Contingent Convertible Securities (EUR 1,000m) 7.875% Perpetual Subordinated Contingent Convertible Securitiesa 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 8% Perpetual Subordinated Contingent Convertible Securities (USD 2,000m) 7.125% Perpetual Subordinated Contingent Convertible Securitiesa 6.375% Perpetual Subordinated Contingent Convertible Securities 6.125% Perpetual Subordinated Contingent Convertible Securities (USD 1,500m) Total AT1 equity instruments Note a Reported net of securities held by the Group. Initial call date 2020 £m 2019 £m 2020 2022 2022 2023 2023 2024 2024 2025 2025 2025 – 986 1,131 1,245 1,925 1,244 1,509 994 996 1,142 11,172 830 995 1,131 1,245 1,925 1,244 1,509 996 996 – 10,871 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 are undated and are redeemable, at the option of Barclays PLC, in whole on (i) the initial call date, or on any fifth anniversary after the initial call date or (ii) any day falling in a named period ending on the initial reset date, or on any fifth anniversary after the initial reset 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. ■■ AT1 securities bear a fixed rate of interest until the initial call date or the initial reset date, as the case may be. After the initial call date or the initial reset date, as the case may be, 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. 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 Group fall below 7%. 346 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 29 Reserves Currency translation reserve The currency translation reserve represents the cumulative gains and losses on the retranslation of the Group’s net investment in foreign operations, net of the effects of hedging. 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 Group. Treasury shares relate to Barclays PLC shares held in relation to the 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 Fair value through other comprehensive income reserve Cash flow hedging reserve Own credit reserve Other reserves and treasury shares Total 30 Non-controlling interests Barclays Bank PLC issued: – Preference shares – Upper Tier 2 instruments Other non-controlling interests Total 2020 £m 2,871 5 1,575 (954) 964 4,461 2019 £m 3,344 (187) 1,002 (373) 974 4,760 Profit attributable to non-controlling interest Equity attributable to non-controlling interest Dividends paid to non-controlling interest 2020 £m 42 37 (1) 78 2019 £m 41 39 – 80 2020 £m 529 533 23 1,085 2019 £m 529 691 11 1,231 2020 £m 42 37 – 79 2019 £m 41 39 – 80 In 2020, there were no issuances (2019: none) and one redemption of £158m (2019: none) relating to the 7.125% Undated Subordinated Notes. Barclays Bank PLC and protective rights of non-controlling interests Barclays PLC holds 100% of the voting rights of Barclays Bank PLC. As at 31 December 2020, Barclays Bank PLC has in issue preference shares and Upper Tier 2 instruments. These are non-controlling interests to the Group. A fixed coupon rate is attached to all Upper Tier 2 instruments until the initial call date, with the exception of the 9% Bonds, which are fixed for the life of the issue and the Series 1, Series 2 and Series 3 Undated Notes, which are floating rate at rates fixed periodically in advance based on market rates. After the initial call date, in the event they are not redeemed, coupon payments in relation to the 6.125% Undated Notes, and the 9.25% Bonds are fixed periodically in advance for five-year periods based on market rates. Coupon payments for all other Upper Tier 2 instruments are at rates fixed periodically in advance based on market rates. The payment of preference share dividends and Upper Tier 2 coupons 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, or in certain cases, any class of preference shares, in the preceding six-month period. 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. Coupons not paid becomes payable in each case if such a dividend is subsequently paid or in certain other circumstances. No dividend or coupon payments may be made unless Barclays Bank PLC satisfies a specified solvency test. Under the terms of these instruments, Barclays PLC may not pay dividends on ordinary shares until a dividend or coupon 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 347 Notes to the financial statements Capital instruments, equity and reserves continued 30 Non-controlling interests continued Preference share redemptions are typically at the discretion of Barclays Bank PLC. Upper Tier 2 instruments are repayable, at the option of Barclays Bank PLC generally in whole at the initial call date and on any subsequent coupon payment date or, in the case of the 6.125% Undated Notes and the 9.25% Perpetual Bonds, on any fifth anniversary after the initial call date. In addition, each issue of Upper Tier 2 instruments 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 or redemptions require the prior consent of the PRA, and in respect of the preference shares, any such redemption will be subject to the Companies Act 2006 and the Articles of Barclays Bank PLC. Instrument Preference Shares: US Dollar Preference Shares Euro Preference Shares Total Barclays Bank PLC Preference Shares 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 Loan (JPY8bn) 5.0% Reverse Dual Currency Undated Subordinated Loan (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 Subordinated Bonds (ex Woolwich) (£150m) Total Upper Tier 2 Instruments 2020 £m 318 211 529 93 179 39 53 20 40 – 34 75 533 2019 £m 318 211 529 93 179 39 53 20 40 158 34 75 691 348 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Notes to the financial statements Employee benefits The notes included in this section focus on the costs and commitments associated with employing our staff. 31 Staff costs Accounting for staff costs The 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 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 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 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. Incentive awards granted: Current year bonus Deferred bonus 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 differences between incentive awards granted and income statement charge Income statement charge for performance costs Other income statement charges: Salaries Social security costs Post-retirement benefitsª Other compensation costs Total compensation costsb Other resourcing costs: Outsourcing Redundancy and restructuring Temporary staff costs Other Total other resourcing costs Total staff costs 2020 £m 1,090 490 1,580 (335) 293 (34) 1,504 4,322 613 519 479 7,437 342 102 102 114 660 2019 £m 1,058 432 1,490 (293) 308 (48) 1,457 4,332 573 501 480 7,343 433 132 256 151 972 2018 £m 1,131 518 1,649 (359) 299 (33) 1,556 4,200 558 619 413 7,346 594 133 386 170 1,283 8,097 8,315 8,629 Notes a Post-retirement benefits charge includes £279m (2019: £270m; 2018: £236m) in respect of defined contribution schemes and £240m (2019: £231m; 2018: £383m) in respect of defined benefit schemes. b £451m (2019: £439m; 2018: £296m) of Group compensation was capitalised as internally generated software. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 349 Notes to the financial statements Employee benefits continued 32 Share-based payments Accounting for share-based payments The 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: Deferred Share Value Plan and Share Value Plan Others Total equity settled Cash settled Total share-based payments The terms of the main current plans are as follows: Charge for the year 2020 £m 245 184 429 2 431 2019 £m 272 206 478 3 481 2018 £m 262 187 449 1 450 Share Value Plan (SVP) The SVP was introduced in March 2010. SVP awards have been 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. For awards granted before December 2017, 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 a Share Incentive Award (Holding Period). 350 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 were as follows: 2020 2019 Weighted average fair value per award granted in year £ 1.06 Weighted average share price at exercise/ release during year £ 1.24 0.23-1.24 1.04-1.68 Weighted average remaining contractual life in years 1 0-3 Number of options/ awards outstanding (000s) 416,941 356,033 Weighted average fair value per award granted in year £ 1.43 0.40-1.60 Weighted average share price at exercise/ release during year £ 1.60 1.57-1.70 Weighted average remaining contractual life in years 1 0-3 Number of options/ awards outstanding (000s) 331,491 232,259 DSVP and SVPa,b Othersa Notes a Options/award granted over Barclays PLC shares. b Weighted average exercise price is not applicable for SVP and DSVP awards as these are not share option schemes. 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. Sharesave has a contractual life of 3 and 5 years, the expected volatility is 32.17% for 3 years and 30.32% for 5 years. The risk free interest rates used for valuations are 0.02% and 0.08% for 3 and 5 years respectively. 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: DSVP and SVPa,b Othersa,c Number (000s) 2020 331,491 232,379 (132,376) (14,553) – 416,941 – 2019 274,469 219,392 (145,324) (17,046) – 331,491 – Number (000s) 2020 232,259 365,166 (123,042) (105,068) (13,282) 356,033 30,833 2019 217,952 215,694 (151,827) (42,331) (7,229) 232,259 32,376 Weighted average ex. price (£) 2019 1.41 1.19 1.21 1.51 2.08 1.29 1.32 2020 1.29 0.84 1.22 1.24 1.35 0.96 1.66 Notes a Options/award granted over Barclays PLC shares. b Weighted average exercise price is not applicable for SVP and DSVP awards as these are not share option schemes. 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 11,677,049). The weighted average exercise price relates to Sharesave. Awards and options granted under the Group’s share plans may be satisfied using new issue shares, treasury shares and market purchase shares. Awards granted under the DSVP may be satisfied using market purchase shares only. There were no significant modifications to the share-based payments arrangements in 2020 and 2019. As at 31 December 2020, the total liability arising from cash-settled share-based payments transactions was £2m (2019: £3m). Holdings of Barclays PLC shares and hedges Various employee benefit trusts established by the Group hold shares in Barclays PLC to meet obligations under the Barclays share-based payment schemes. The total number of Barclays shares held in these employee benefit trusts at 31 December 2020 was 17.1m (2019: 13.1m). 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 £1.27 (2019: £1.80) was £22m (2019: £24m). For accounting of treasury shares, see Note 29. The Group has entered into physically settled forward contracts to hedge the settlement of certain share-based payment schemes. The fixed forward price to be paid under these contracts is £126m and has been recorded in retained earnings. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 351 Notes to the financial statements Employee benefits continued 33 Pensions and post-retirement benefits Accounting for pensions and post-retirement benefits The Group operates a number of pension schemes and post-employment benefit schemes. Defined contribution schemes – the 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 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 Group, using a methodology similar to that for defined benefit pension schemes. Pension schemes UK Retirement Fund (UKRF) The UKRF is the Group’s main scheme, representing 97% of the 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. 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) The BPSP is a defined contribution scheme providing benefits for all new UK hires from 1 October 2012, 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 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, deferred 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 Group’s other pension schemes, depending on local legislation. 352 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 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 Balance sheet reconciliation Benefit obligation at beginning of the year Current service cost Interest costs on scheme liabilities Past service cost Remeasurement (loss)/gain – 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 2020 £m 243 (40) (4) 1 200 2019 £m 231 (48) – 2 185 2020 2019 Total £m (30,333) (243) (573) 4 (3,439) (281) 244 (5) 1,406 30 (33,190) 32,093 613 265 3,411 5 (1,406) (268) 34,713 1,523 1,814 (291) 1,523 Of which relates to UKRF £m (29,304) (217) (549) – (3,358) (286) 237 (1) 1,370 – (32,108) 31,362 595 248 3,328 1 (1,370) (249) 33,915 1,807 1,807 – 1,807 Total £m (28,269) (231) (747) – (3,087) 223 277 (5) 1,459 47 (30,333) 29,722 795 755 2,312 5 (1,459) (37) 32,093 1,760 2,108 (348) 1,760 2018 £m 243 (24) 134 5 358 Of which relates to UKRF £m (27,301) (210) (718) – (2,964) 214 266 (1) 1,410 – (29,304) 29,036 774 731 2,230 1 (1,410) – 31,362 2,058 2,058 – 2,058 Included within the benefit obligation was £867m (2019: £759m) relating to overseas pensions and £215m (2019: £202m) relating to other post- employment benefits. As at 31 December 2020, the UKRF’s scheme assets were in surplus versus IAS 19 obligations by £1,807m (2019: £2,058m). The movement for the UKRF was driven by a net decrease in the discount rate and changes to pension increase assumptions, offset partially by higher than assumed asset returns. During the year the UKRF invested in non-transferable listed senior gilt-backed notes for £750m, partially financed by £500m deficit contributions (the “Heron 2” transaction). The net impact of £250m on plan assets is shown as an outflow under “Exchange and other movements”; further details of Heron 2 can be found on page 356. The weighted average duration of the benefit payments reflected in the defined benefit obligation for the UKRF is 17 years. The UKRF expected benefits are projected to be paid out for in excess of 50 years, although 25% of the total benefits are expected to be paid in the next 10 years; 30% in years 11 to 20 and 25% in years 20 to 30. The remainder of the benefits are expected to be paid beyond 30 years. Of the £1,370m (2019: £1,410m) UKRF benefits paid out, £520m (2019: £580m) 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 Group expects to be able to recover any surplus. Similarly, a liability in respect of future minimum funding requirements is not recognised. 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 Group or termination of contributions by the Group. The application of the asset ceiling to other plans and recognition of additional liabilities in respect of future minimum funding requirements are considered on an individual plan basis. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 353 Notes to the financial statements Employee benefits continued 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) 2020 % p.a. 1.29 2.99 2019 % p.a. 1.92 3.02 The UKRF discount rate assumption for 2020 was based on a standard Willis Towers Watson RATE Link model. The UKRF discount rate assumption for 2019 was based on a variant of the standard Willis Towers Watson RATE Link model that included all bonds rated AA by at least one of the four major ratings agencies, and assumed that forward rates after year 30 were flat. The change in discount rate methodology as at 31 December 2020 led to a remeasurement gain of £1.2bn. The RPI inflation assumption for 2020 was set by reference to the Bank of England’s implied inflation curve. The inflation assumption incorporates a deduction of 20 basis points as an allowance for an inflation risk premium. The methodology used to derive the 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 2019 of the UKRF’s 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 2019 core projection model published by the Continuous Mortality Investigation Bureau subject to a long-term trend of 1.5% per annum in future improvements. The methodology used is consistent with the prior year end, except that the 2018 core projection model was used at 2019. 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 2020 2019 2018 27.2 29.4 29.0 31.2 27.1 29.3 28.9 31.1 27.7 29.4 29.2 31.0 On 11 December 2020, the UKRF entered into a £5bn longevity swap to hedge around a quarter of current pensioner liabilities against unexpected increases in life expectancy. The swap will form part of the UKRF’s investment portfolio and provide income in the event that pensions are paid out for longer than expected. The UKRF Trustee established a Guernsey-based captive insurer (Barclays UKRF No.1 IC Limited) to act as an insurance intermediary between the UKRF and swap provider. The swap is not included directly within the balance sheet of Barclays PLC as it is an asset of the UKRF. At 31 December 2020, the swap is valued at nil fair value as it is considered to remain at fair market value for both parties over the very limited period from 11 December 2020 to 31 December 2020. 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 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 354 Barclays PLC home.barclays/annualreport 2020 (Decrease)/ Increase in UKRF defined benefit obligation £bn 2019 (Decrease)/ Increase in UKRF defined benefit obligation £bn (2.5) (1.3) 1.4 2.9 1.8 0.9 (0.9) (1.8) 1.2 (1.2) (2.3) (1.2) 1.2 2.6 1.5 0.8 (0.7) (1.4) 1.0 (1.0) Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 33 Pensions and post-retirement benefits continued 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. 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 2020 Equities Private equities Bonds – fixed government Bonds – index-linked government Bonds – corporate and other Property Infrastructure Cash and liquid assets Mixed investment funds Other Fair value of scheme assets As at 31 December 2019b Equities Private equities Bonds – fixed government Bonds – index-linked government Bonds – corporate and other Property Infrastructure Cash and liquid assets Mixed investment funds Other Fair value of scheme assets Total Of which relates to UKRF Quoteda £m Unquoteda £m Value £m % of total fair value of scheme assets % Quoteda £m Unquoteda £m Value £m % of total fair value of scheme assets % 567 – 4,205 10,706 7,439 10 – 64 9 14 23,014 942 – 3,574 10,355 6,260 11 – 596 – – 21,738 1,498 2,233 110 1,014 1,678 1,416 1,812 1,830 – 108 11,699 1,568 2,083 300 681 2,297 1,633 1,558 170 – 65 10,355 2,065 2,233 4,315 11,720 9,117 1,426 1,812 1,894 9 122 34,713 2,510 2,083 3,874 11,036 8,557 1,644 1,558 766 – 65 32,093 5.9 6.4 12.4 33.8 26.3 4.1 5.2 5.5 – 0.4 100.0 7.8 6.5 12.1 34.4 26.6 5.1 4.9 2.4 – 0.2 100.0 378 – 3,932 10,697 7,214 – – 46 – – 22,267 768 – 3,303 10,345 6,069 – – 576 – – 21,061 1,498 2,233 110 1,014 1,678 1,416 1,812 1,830 – 57 11,648 1,568 2,083 299 682 2,295 1,633 1,558 169 – 14 10,301 1,876 2,233 4,042 11,711 8,892 1,416 1,812 1,876 – 57 33,915 2,336 2,083 3,602 11,027 8,364 1,633 1,558 745 – 14 31,362 5.5 6.6 11.9 34.6 26.2 4.2 5.3 5.5 – 0.2 100.0 7.4 6.6 11.5 35.2 26.7 5.2 5.0 2.4 – – 100.0 Notes a Valuations on unquoted assets are provided by the underlying managers or qualified independent valuers. Valuations on complex instruments are based on UKRF custodian valuations. All valuations are determined in accordance with relevant industry guidance. b Analysis of scheme assets for 2019 is restated with a quoted/unquoted split. Included within the fair value of scheme assets were nil (2019: nil) relating to shares in Barclays PLC and nil (2019: nil) 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 assets above do not include the Senior Notes asset referred to in the section below on Triennial Valuation, as these are non-transferable instruments and not recognised under IAS 19. Approximately 45% 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. Triennial valuation The latest annual update as at 30 September 2020 showed the funding deficit had improved to £0.9bn from the £2.3bn shown at the 30 September 2019 triennial valuation. The improvement was mainly due to £1.0bn of deficit reduction contributions paid over the year. The main differences between the funding and accounting assumptions are a different approach to setting the discount rate and a more conservative longevity assumption for funding. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 355 Notes to the financial statements Employee benefits continued 33 Pensions and post-retirement benefits continued The deficit reduction contributions agreed with the UKRF Trustee as part of the 30 September 2019 triennial valuation recovery plan are shown in the table below. Year Cash paid: 2020 Future commitments: 2021 2022 2023 2024 to 2026 Deficit reduction contributions under the 30 September 2019 valuation £m 500 700 294 286 – On 12 June 2020, Barclays Bank PLC paid the £500m deficit reduction contribution agreed for 2020 and at the same time the UKRF subscribed for non-transferable listed senior fixed rate notes for £750m, backed by UK gilts (the Senior Notes). These Senior Notes entitle the UKRF to semi-annual coupon payments for five years, and full repayment in cash in three equal tranches in 2023, 2024, and at final maturity in 2025. The Senior Notes were issued by Heron Issuer Number 2 Limited (Heron 2), an entity that is consolidated within the Group under IFRS 10. As a result of the investment in Senior Notes, the regulatory capital impact of the £500m deficit reduction contribution paid on 12 June 2020 takes effect in 2023, 2024 and 2025 on maturity of the notes. As the UKRF’s investment in the Senior Notes does not qualify as a plan asset under IAS 19, the £500m deficit reduction contribution does not appear in the IAS19 plan assets nor as an employer contribution as at 31 December 2020, and the additional £250m scheme investment appears as an outflow in the balance sheet reconciliation under ‘Exchange and other movements’. The £250m additional investment by the UKRF in the Senior Notes has a positive capital impact in 2020 which is reduced equally in 2023, 2024 and 2025 on the maturity of the notes. Heron 2 acquired a total of £750m of gilts from Barclays Bank PLC for cash to support payments on the senior notes. A transaction with a similar structure was agreed as part of the 2019 triennial actuarial valuation. On 11 December 2019, Barclays Bank PLC paid the £500m deficit reduction contribution agreed for 2019 and at the same time the UKRF subscribed for non-transferrable listed senior fixed rate notes for £500m, backed by UK gilts (the Senior Notes). These Senior Notes entitle the UKRF to semi-annual coupon payments for five years, and full repayment in cash at maturity in 2024. As the UKRF’s investment in these Senior Notes does not qualify as a plan asset under IAS 19, the 2019 £500m deficit reduction contribution does not appear in the IAS 19 plan assets. No liability is recognised under IAS 19 for the obligation to make deficit reduction contributions or to repay the Senior Notes, as settlement gives rise to both a reduction in cash and a corresponding increase in net defined benefit assets. The deficit reduction contributions are in addition to the regular contributions to meet the 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 2023 with an effective date of 30 September 2022. Other support measures agreed which remain in place 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. The collateral pool is currently made up of government securities, and agreement was made with the Trustee to cover at least 100% of the funding deficit with an overall cap of £9bn. 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 Assets pledged, collateral received and assets transferred. Support from Barclays PLC – In the event of Barclays Bank PLC not paying a deficit reduction contribution payment required 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). Defined benefit contributions paid with respect to the UKRF were as follows: Contributions paid 2020 2019 2018 £m 748 1,231 741 There were nil (2019: nil; 2018: nil) Section 75 contributions included within the Group’s contributions paid as no participating employers left the UKRF in 2020. The Group’s expected contribution to the UKRF in respect of defined benefits in 2021 is £959m (2020: £743m). In addition, the expected contributions to UK defined contribution schemes in 2021 is £35m (2020: £33m) to the UKRF and £209m (2020: £185m) to the BPSP. 356 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements Notes to the financial statements Scope of consolidation The notes included in this section present information on the Group’s investments in subsidiaries, joint ventures and associates and its interests in structured entities. Detail is also given on securitisation transactions the Group has entered into and arrangements that are held off-balance sheet. 34 Principal subsidiaries The Group applies IFRS 10 Consolidated Financial Statements. The consolidated financial statements combine the financial statements of the Group and all its subsidiaries. Subsidiaries are entities over which the Group has control. Under IFRS 10, this is when the 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 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 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 Group are set out below. This includes those subsidiaries that are most significant in the context of the Group’s business, results or financial position. Company name Barclays Bank PLC Barclays Bank UK PLC Barclays Bank Ireland PLC Barclays Execution Services Limited Barclays Capital Inc. Barclays Capital Securities Limited Barclays Securities Japan Limited Barclays US LLC Barclays Bank Delaware Principal place of business or incorporation United Kingdom United Kingdom Ireland United Kingdom United States United Kingdom Japan United States United States Nature of business Banking, holding company Banking, holding company Banking Service company Securities dealing Securities dealing Securities dealing Holding company Credit card issuer Non- controlling interests – proportion of ownership interests % 2 – – – – – – – – Percentage of voting rights held % 100 100 100 100 100 100 100 100 100 Non- controlling interests proportion of voting interests % – – – – – – – – – 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 30 for more information. Determining whether the 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 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 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 Group has control of an entity. However, the entity set out below is excluded from consolidation because the 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 Group. Interests relating to this entity are included in Note 35. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 357 Notes to the financial statements Scope of consolidation continued 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 £1,795bn (2019: £1,474bn) and £1,703bn (2019: £1,388bn) respectively. Certain of these 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 27 and Note 28 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 Group are required to meet applicable PRA or local regulatory requirements pertaining to liquidity. Some of the regulated subsidiaries include Barclays Bank PLC and Barclays Capital Securities Limited (which are regulated on a combined basis under a Domestic Liquidity Sub-Group (DoLSub) arrangement), Barclays Bank UK PLC, Barclays Bank Ireland PLC, Barclays Capital Inc. and Barclays Bank Delaware. Refer to the Liquidity risk section for further details of liquidity requirements, including those of the Group’s significant subsidiaries. Statutory requirements The 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. Asset encumbrance The 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 Group. The assets typically affected are disclosed in Note 38. Other restrictions The Group is required to maintain balances with central banks and other regulatory authorities, and these amounted to £3,392m (2019: £4,893m). 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 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 Group has contractual arrangements which may require it to provide financial support to the following types of consolidated structured entities: ■■ Securitisation vehicles: The Group uses securitisation as a source of financing and a means of risk transfer. Refer to Note 37 for further detail. ■■ Commercial paper (CP) and medium-term conduits: The Group provided £11.7bn (2019: £8.3bn) in undrawn contractual backstop liquidity facilities to CP conduits. ■■ Employee benefit trusts: The Group provides capital contributions to employee benefit trusts to enable them to meet obligations to employees in relation to share-based remuneration arrangements. ■■ Other trusts: During 2020, the Group provided undrawn liquidity facilities of £2.9bn (2019: £2.5bn) to certain trusts. Unconsolidated structured entities in which the 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 Group. Such interests include holdings of debt or equity securities, derivatives that transfer financial risks from the entity to the Group, lending, loan commitments, financial guarantees and investment management agreements. Interest rate swaps, foreign exchange derivatives that are not complex and which expose the 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. 358 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 35 Structured entities continued The nature and extent of the Group’s interests in structured entities is summarised below: Summary of interests in unconsolidated structured entities As at 31 December 2020 Assets Trading portfolio assets Financial assets at fair value through the income statement Derivative financial instruments Financial assets at fair value through other comprehensive income Loans and advances at amortised cost Reverse repurchase agreements and other similar secured lending Other assets Total assets Liabilities Derivative financial instruments As at 31 December 2019 Assets Trading portfolio assets Financial assets at fair value through the income statement Derivative financial instruments Financial assets at fair value through other comprehensive income 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 – 56,265 – – – 10 – 56,275 11,361 – – – – – – 11,361 – – 2,968 – – – – 2,968 – 2,864 – 153 20,946 – 16 23,979 11,361 59,129 2,968 153 20,946 10 16 94,583 – – 7,075 – 7,075 – 32,859 – – – 77 – 32,936 9,585 – – – – – – 9,585 – – 2,369 – – – – 2,369 76 2,659 – 391 19,061 – 28 22,215 9,661 35,518 2,369 391 19,061 77 28 67,105 – – 3,171 2,437 5,608 Secured financing arrangements, short-term traded interests and traded derivatives are typically managed under market risk management policies described in the Market risk management section 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 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 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 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 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 2020, £10,682m (2019: £8,903m) of the Group’s £11,361m (2019: £9,585m) short-term traded interests were comprised of debt securities issued by asset securitisation vehicles. Traded derivatives The 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 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 Group is mainly exposed to settlement risk on these derivatives which is mitigated through daily margining. Total notional contract amounts were £153,894m (2019: £314,170m). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 359 Notes to the financial statements Scope of consolidation continued 35 Structured entities continued 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 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 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 2020 Trading portfolio assets Financial assets at fair value through the income statement Financial assets at fair value through other comprehensive income 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 2019 Trading portfolio assets Financial assets at fair value through the income statement Financial assets at fair value through other comprehensive income 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 Lending £m Other £m Total £m – – – 5,146 8 5,154 11,750 16,904 87,004 – – – 5,930 17 5,947 8,649 14,596 78,716 – 98 106 12,721 3 12,928 7,555 20,483 159,804 – 159 – 8,132 4 8,295 3,751 12,046 145,181 – 2,766 47 3,079 5 5,897 – 5,897 36,083 76 2,500 391 4,999 7 7,973 1,621 9,594 34,099 – 2,864 153 20,946 16 23,979 19,305 43,284 282,891 76 2,659 391 19,061 28 22,215 14,021 36,236 257,996 Maximum exposure to loss Unless specified otherwise below, the 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 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 Group is protected from loss through overcollateralisation, seller guarantees, or other credit enhancements provided to the conduit. Lending The portfolio includes lending provided by the 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 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 Group incurred an impairment of £23m (2019: £7m) against such facilities. 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. In addition, other includes investment funds with interests restricted to management fees based on performance of the fund and trusts held on behalf of beneficiaries with interests restricted to unpaid fees. Assets transferred to sponsored unconsolidated structured entities Assets transferred to sponsored unconsolidated structured entities were £730m (2019: £471m). 360 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 36 Investments in associates and joint ventures Accounting for associates and joint ventures The Group applies IAS 28 Investments in Associates and IFRS 11 Joint Arrangements. Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies. Generally the Group holds more than 20%, but less than 50%, of their voting shares. Joint ventures are arrangements where the Group has joint control and rights to the net assets of the entity. The Group’s investments in associates and joint ventures are initially recorded at cost and increased (or decreased) each year by the Group’s share of the post acquisition profit/(loss). The 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 Group. Equity accounted Held at fair value through profit or loss Total Associates £m 464 – 464 2020 Joint ventures £m 317 437 754 Total £m 781 437 1,218 Associates £m 457 – 457 2019 Joint ventures £m 264 516 780 Total £m 721 516 1,237 Summarised financial information for the Group’s equity accounted associates and joint ventures is set out below. The amounts shown are the Group’s share of the net income of the investees for the year ended 31 December 2020, 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/(loss) from continuing operations Other comprehensive income/(expense) Total comprehensive income/(loss) from continuing operations Associates 2020 £m (24) (3) (27) 2019 £m 10 – 10 Joint ventures 2020 £m 24 (6) 18 2019 £m 43 2 45 Unrecognised shares of the losses of individually immaterial associates and joint ventures were nil (2019: nil). The Barclays commitments and contingencies to its associates and joint ventures comprised unutilised credit facilities provided to customers of £1,897m (2019: £1,726m). In addition, the Group has made commitments to finance or otherwise provide resources to its joint ventures and associates of £443m (2019: £403m). 37 Securitisations Accounting for securitisations The 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 Group’s continuing involvement in those assets or lead 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 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 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 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: Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 361 Notes to the financial statements Scope of consolidation continued 37 Securitisations continued Transfers of financial assets that do not result in derecognition Securitisations The Group was party to securitisation transactions involving its credit card balances and other personal lending. 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 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: 2020 2019 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 Loans and advances at amortised cost Credit cards, unsecured and other retail lending 1,033 1,121 (1,019) (1,033) 3,516 3,678 (2,918) (2,922) 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 Group. 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. For transfers of assets in relation to repurchase agreements, refer to Note 38. Continuing involvement in financial assets that have been derecognised In some cases, the 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 Group’s involvement with asset backed securities, residential mortgage backed securities and 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 2020 Asset backed securities Residential mortgage backed securities Commercial mortgage backed securities Total 2019 Commercial mortgage backed securities Total 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 56 49 243 348 189 189 56 49 237 342 188 188 56 49 243 348 189 189 1 1 2 4 1 1 1 1 6 8 4 4 Note a Assets which represent the Group’s continuing involvement in derecognised assets are recorded in Loans and advances at amortised cost and Debt securities at FVTP&L. 362 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 38 Assets pledged, collateral received and assets transferred Assets are pledged or transferred as collateral to secure liabilities under repurchase agreements, securitisations and stock lending agreements or as security deposits relating to derivatives. Assets transferred are non-cash assets transferred to a third party that do not qualify for derecognition from the Group balance sheet, for example because Barclays retains substantially all the exposure to those assets under an agreement to repurchase them in the future for a fixed price. Assets pledged or transferred as collateral include all assets categorised as encumbered in the disclosure on pages 222 to 223 of the Barclays PLC Pillar 3 Report 2020 (unaudited), other than those held in commercial paper conduits. In these transactions, the Group will be required to step in to provide financing itself under a liquidity facility if the vehicle cannot access the commercial paper market. Where non-cash assets are pledged or transferred as collateral for cash received, the asset continues to be recognised in full, and a related liability is also recognised on the balance sheet. Where non-cash assets are pledged or transferred as collateral in an exchange for non-cash assets, the transferred asset continues to be recognised in full, and there is no associated liability as the non-cash collateral received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the transaction and remains exposed to interest rate risk and credit risk on these pledged assets. Unless stated, the counterparty’s recourse is not limited to the transferred assets. The following table summarises the nature and carrying amount of the assets pledged as security against these liabilities: Cash collateral and settlements Loans and advances at amortised cost Trading portfolio assets Financial assets at fair value through the income statement Financial assets at fair value through other comprehensive income Assets pledged The following table summarises the transferred financial assets and the associated liabilities: At 31 December 2020 Derivatives Repurchase agreements Securities lending arrangements Other At 31 December 2019 Derivatives Repurchase agreements Securities lending arrangements Other 2020 £m 72,042 37,257 77,198 5,584 22,185 214,266 2019 £m 64,400 39,354 65,532 10,104 9,278 188,668 Transferred assets £m Associated liabilities £m 77,574 65,673 61,183 9,836 214,266 (77,574) (44,076) – (7,408) (129,058) 68,609 52,840 49,106 18,113 188,668 (68,609) (35,708) – (12,005) (116,322) Included within Other are agreements where a counterparty’s recourse is limited to the transferred assets. 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. 2020 Recourse to transferred assets only 2019 Recourse to transferred assets only Carrying value Transferred assets £m Associated liabilities £m Transferred assets £m Fair value Associated liabilities £m Net position £m 1,033 (1,019) 1,121 (1,033) 88 3,516 (2,918) 3,678 (2,922) 756 The Group has an additional £6.3bn (2019: £12bn) 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. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 363 Notes to the financial statements Scope of consolidation continued 38 Assets pledged, collateral received and assets transferred continued Collateral held as security for assets Under certain transactions, including reverse repurchase agreements and stock borrowing transactions, the 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 or transferred to others was as follows: Fair value of securities accepted as collateral Of which fair value of securities re-pledged/transferred to others 2020 £m 793,573 685,300 2019 £m 656,598 554,988 Additional disclosure has been included in collateral and other credit enhancements in the Risk review section. Assets pledged as collateral include all assets categorised as encumbered in the disclosure on pages 222 to 223 of the Barclays PLC Pillar 3 Report 2020 (unaudited). 364 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 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 Group’s financial statements. Transactions between Barclays PLC and its subsidiaries are fully disclosed in Barclays PLC’s financial statements. A list of the Group’s principal subsidiaries is shown in Note 34. Associates, joint ventures and other entities The Group provides banking services to its associates, joint ventures and the 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. Group companies also provide investment management and custodian services to the Group pension schemes. All of these transactions are conducted on the same terms as third party transactions. Summarised financial information for the Group’s investments in associates and joint ventures is set out in Note 36. Amounts included in the Group’s financial statements, in aggregate, by category of related party entity are as follows: For the year ended and as at 31 December 2020 Total income Credit impairment charges Operating expenses Total assets Total liabilities For the year ended and as at 31 December 2019 Total income Credit impairment charges Operating expenses Total assets Total liabilities Associates £m Joint ventures £m Pension funds £m – – (26) – 66 – – (46) – – 10 – – 1,388 – 12 – – 1,303 – 5 – (1) 4 69 5 – – 3 75 Total liabilities includes derivatives transacted on behalf of the pension funds of £13m (2019: £6m). 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. The 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 2020 £m 7.2 2.3 (0.3) 9.2 2019 £m 7.2 4.8 (4.8) 7.2 Notes a b Includes loans issued to existing Key Management Personnel and new or existing loans issued to newly appointed Key Management Personnel. Includes loan repayments by existing Key Management Personnel and loans to former Key Management Personnel. No allowances for impairment were recognised in respect of loans to Key Management Personnel (or any connected person). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 365 Notes to the financial statements Other disclosure matters continued 39 Related party transactions and Directors’ remuneration continued Deposits outstanding As at 1 January Deposits received during the yeara Deposits repaid during the yearb As at 31 December 2020 £m 12.1 41.6 (43.3) 10.4 2019 £m 6.9 36.0 (30.8) 12.1 Notes a b Includes deposits received from existing Key Management Personnel and new or existing deposits received from newly appointed Key Management Personnel. 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 2020 were £0.9m (2019: £0.8m). All loans to Key Management Personnel (and persons connected to them) were made in the ordinary course of business; 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 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 in the Directors’ Remuneration report. 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 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 2020 £m 41.6 – 8.2 13.2 7.2 70.2 (7.2) - 1.1 64.1 2020 £m 8.4 - 8.4 2019 £m 38.5 0.1 8.7 13.4 7.4 68.1 (7.4) (0.6) 2.2 62.3 2019 £m 8.5 0.8 9.3 Notes a The aggregate emoluments include amounts paid for the 2020 year. In addition, deferred share awards for 2020 with a total value at grant of £0.6m (2019: £2m) will be made to James E Staley and Tushar Morzaria which will only vest subject to meeting certain conditions. b No LTIP amounts were received by the Executive Directors in 2020 as the release of the first tranche of the 2017-2019 LTIP was delayed from June 2020 to March 2021. The LTIP figure in the single total figure table for Executive Directors’ 2020 remuneration in the Directors’ Remuneration report relates to the 2018-2020 LTIP cycle. There were no pension contributions paid to defined contribution schemes on behalf of Directors (2019: nil). There were no notional pension contributions to defined contribution schemes. As at 31 December 2020, there were no Directors accruing benefits under a defined benefit scheme (2019: nil). 366 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 39 Related party transactions and Directors’ remuneration continued 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 26 persons) at 31 December 2020 amounted to 27,470,067 (2019: 22,789,126) ordinary shares of 25p each (0.16% of the ordinary share capital outstanding). As at 31 December 2020, Executive Directors and Officers of Barclays PLC (involving 16 persons) held options to purchase a total of 78,495 (2019: 40,428) Barclays PLC ordinary shares of 25p each at a weighted average price of 101p 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 2020 to persons who served as Directors during the year was £0.1m (2019: £0.3m). The total value of guarantees entered into on behalf of Directors during 2020 was nil (2019: nil). 40 Auditor’s remuneration Auditor’s 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 services Total Auditor’s remuneration 2020 £m 9 38 10 2 59 2019 £m 10 35 9 2 56 2018 £m 8 32 9 2 51 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 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. 41 Interest rate benchmark reform Following the financial crisis, the reform and replacement of benchmark interest rates such as IBOR has become a priority for global regulators. The UK’s Financial Conduct Authority (FCA) and other global regulators have instructed market participants to prepare for the cessation of LIBOR after the end of 2021, and to adopt ‘near Risk-Free Rates’ (RFRs). While it is expected that most reforms affecting the Group will be completed by the end of 2021, consultations and possible regulatory changes are in progress. This may mean that some LIBORs continue to be published beyond that date. The Group’s risk exposure is predominately to GBP, USD, JPY and CHF LIBOR and Euro Overnight Index Average (EONIA) with the vast majority concentrated in derivatives within the Corporate and Investment Bank. Some additional exposure resides on floating rate loans and advances, repurchase agreements and debt securities held and issued within the Corporate and Investment Bank. Retail lending and mortgage exposure in Barclays UK is minimal. The Group does not consider there to be risk in respect of the Euro Interbank Offered Rate (EURIBOR) arising from IBOR reform as at 31 December 2020. This is because the calculation methodology of EURIBOR changed during 2019 and the reform of EURIBOR is complete. In July 2019, the Belgian Financial Services and Markets Authority (as the administrator of EURIBOR) granted authorisation with respect to EURIBOR under the European Union Benchmarks Regulation. This allows market participants to continue to use EURIBOR after 1 January 2021 for both existing and new contracts. The EUR Risk Free Rate Working Group has not contemplated the cessation of EURIBOR. The Group expects that EURIBOR will continue to exist as a benchmark rate for the foreseeable future. There are key differences between IBORs and RFRs. IBORs are ‘term rates’, which means that they are published for a borrowing period (for example three months), and they are ‘forward-looking’, because they are published at the beginning of a borrowing period, based upon an estimated inter-bank borrowing cost for the period. RFRs are based upon overnight rates from actual transactions, and are therefore published after the end of the overnight borrowing period. Furthermore, IBORs include a credit spread over the RFRs. Therefore, to transition existing contracts and agreements to RFRs, adjustments for term and credit differences may need to be applied to RFR-linked rates. The methodologies for determining these adjustments are undergoing in-depth consultations by industry working groups, on behalf of the respective global regulators and related market participants. How the Group is managing the transition to alternative benchmark rates Barclays has established a Group-wide LIBOR Transition Programme, with oversight from the Group Finance Director. The Programme spans all business lines and has cross-functional governance which includes Legal, Conduct Risk, Client Engagement and Communications, Risk, and Finance. The Transition Programme aims to drive strategic execution, and identify, manage and resolve key risks and issues as they arise. Accountable Executives are in place within key working groups across businesses and work streams. Barclays’ transition plans primarily focus on G5 currencies while providing quarterly updates on progress and exposures to the PRA/FCA and other regulators as required. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 367 Notes to the financial statements Other disclosure matters continued 41 Interest rate benchmark reform continued The Transition Programme follows a risk based approach, using recognised ‘change delivery’ control standards, to drive strategic execution, and identify, manage and resolve key risks and issues as they arise. Accountable Executives are in place within key working groups, with overall Board oversight delegated to the Board Risk Committee and the Group Finance Director. Barclays performs a prominent stewardship role to drive orderly transition via our representation on official sector and industry working groups across all major jurisdictions and product classes. Additionally, the Group Finance Director is Chair of the UK’s ‘Working Group on Sterling Risk-Free Reference Rates’, whose mandate is to catalyse a broad-based transition to using SONIA (‘Sterling Overnight Index Average’) as the primary sterling interest rate benchmark in bond, loan and derivatives markets. Approaches to transition exposure expiring post the expected end dates for LIBOR vary by product and nature of counterparty. The Group is actively engaging with the counterparties to transition or include appropriate fallback provisions and transition mechanisms in its floating rate assets and liabilities with maturities after 2021, when most IBORs are expected to cease to be published. For the derivative population, adherence to the ISDA IBOR Fallbacks Protocol now provides Barclays with an efficient mechanism to amend outstanding trades to incorporate fallbacks. Beyond the ISDA IBOR Fallbacks Protocol, there will be options to terminate or bilaterally agree new terms with counterparties. Barclays expects derivative contracts facing central clearing counterparties to follow a market-wide, standardised approach to reform. Market participants are currently awaiting publication of the results of ICE Benchmark Administration’s consultation on plans to cease publication of most LIBORs at end 2021, with certain, actively used USD LIBOR tenors continuing to be provided until end June 2023. The FCA expects to enable publication of a synthetic LIBOR rate for at least certain actively used GBP LIBOR tenors to facilitate roll-off of relevant contracts that cannot be actively transitioned by end 2021. Progress made during 2020 During 2020, the Group has successfully delivered Alternative RFR product capabilities and alternatives to LIBOR across loans, bonds and derivatives. Good progress has been made in relation to client outreach and we have been actively engaging with customers and counterparties to transition or include the appropriate fallback provisions. The Group has in place detailed plans, processes and procedures to support the transition of the remainder during 2021. Barclays has adhered to the ISDA IBOR Fallbacks Protocol for its major derivative dealing entities and we continue to track progress and engage with clients on their own adherence. Following the progress made during 2020, the Group continues to deliver technology and business process changes to ensure operational readiness in preparation for LIBOR cessation and transitions to RFRs that will be necessary during 2021 in line with official sector expectations and milestones. Risks to which the Group is exposed as a result of the transition IBOR reform exposes the Group to various risks, which are being managed through the LIBOR Transition Programme. The material risks identified include those set out below: ■■ Conduct and Litigation Risk: This is the risk that poor customer outcomes are brought about as a direct result of inappropriate or negligent conduct on the part of Barclays, in connection with IBOR transition. ■■ Operational Risk: The LIBOR Transition Programme cuts across all businesses and functions. There are a number of implementation challenges arising from transition, including technology, operations, client communication and the measurement of valuation, giving rise to additional operational risks. ■■ Market Risk: Changes to Barclays Market Risk profile are expected due to IBOR transition. These changes are expected to be managed within risk appetite. IBOR transition will also impact the basis risk profile both at the cessation event (when broadly all LIBOR contracts fall back to alternatives) as well as in the interim period when alternative rates are referenced in contracts. ■■ Counterparty Credit Risk: LIBOR replacement presents an increased risk of clients wishing to renegotiate the terms of existing transactions. This is dependent on client behaviour and the outcome of resulting negotiations and could change the credit risk profile of client exposure. ■■ Financial Risk: There is a risk to Barclays and its clients that markets are disrupted due to IBOR reform. This could give rise to financial losses should Barclays be unable to operate effectively in financial markets. ■■ Accounting Risk: This would occur if the hedged items and hedging instruments of Barclays hedging relationships were to transition away from IBORs: at different times; to different benchmarks; or using divergent methodologies resulting in significant volatility to the income statement either through hedge accounting ineffectiveness or failure of the hedge accounting relationships. A disorderly cessation of LIBOR would carry substantial economic, legal, regulatory, reputational and operational risks for Barclays and the industry in general. Barclays’ expectation is that the transition away from LIBOR will be carefully managed and that measures including the broad adoption of ISDA IBOR Fallbacks Protocol, the approach the Central Clearing Counterparties are expected to follow, proactive client engagement, regulatory action and/or terminating or bilaterally amending contracts where clients do not wish to adopt new conventions (e.g. ISDA IBOR Fallbacks Protocol), can mitigate the risks associated with a disorderly cessation. The Group does not expect material changes to its risk management approach and strategy as a result of interest rate benchmark reform. 368 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 41 Interest rate benchmark reform continued The following table summarises the significant exposures impacted by interest rate benchmark reform as at 31 December 2020: Non-derivative financial assets Loans and advances at amortised cost Reverse repurchase agreements and other similar secured lending Financial assets at fair value through the income statement Financial assets at fair value through other comprehensive income Non-derivative financial assets Non-derivative financial liabilities Debt securities in issue Subordinated liabilities Financial liabilities designated at fair value Non-derivative financial liabilities Equity Other equity instruments Standby facilities, credit lines and other commitments GBP LIBOR £m USD LIBOR £m JPY LIBOR £m CHF LIBOR £m 30,179 – 3,496 186 33,861 18,109 334 6,373 114 24,930 173 – – – 173 (1,023) (71) (149) (1,243) (10,718) (1,592) (1,273) (13,583) (1,201) – (759) (1,960) (3,500) 18,944 (3,131) 74,011 – – 18 – 283 – 301 – – – – – 74 Others £m 1,725 – 209 8 1,942 Total £m 50,204 334 10,361 308 61,207 – – (139) (139) (12,942) (1,663) (2,320) (16,925) – 15,951 (6,631) 108,980 The table above represents the exposures to interest rate benchmark reform by balance sheet account, which have yet to transition. The exposure disclosed is for positions with contractual maturities after 31 December 2021. Balances reported at amortised cost are disclosed at their gross carrying value and do not include any expected credit losses that may be held against them. Balances reported at fair value are disclosed at their fair value on the balance sheet date. The Group also has exposure to interest rate benchmark reform in respect of its cash collateral balances across some of its Credit Support Annex agreements, predominantly in EONIA. This exposure is not included within the table above due to its short dated nature. GBP LIBOR £m USD LIBOR £m EONIA £m JPY LIBOR £m CHF LIBOR £m Others £m Total £m Derivative notional contract amount OTC interest rate derivatives 592,827 2,832,802 OTC interest rate derivatives – cleared by central counterparty 1,684,553 2,891,029 333,705 Exchange traded interest rate derivatives 589,334 OTC foreign exchange derivatives 7,946 OTC equity and stock index derivatives Derivative notional contract amount 457,844 754,206 638,202 1,091,479 – 93,108 1,929 2,734,692 6,654,816 1,096,590 1,940,722 300,182 155,285 1,845 – – 544 25,681 119,382 2,494 31,257 491 179,305 41,782 4,705,142 198,113 6,622,758 636,381 870,905 14,896 243,957 12,850,082 – 1,921 2,141 The table above represents the derivative exposures to interest rate benchmark reform, which have yet to transition. The exposure disclosed is for positions with contractual maturities after 31 December 2021. Derivatives are reported by using the notional contract amount and where derivatives have both pay and receive legs with exposure to benchmark reform such as cross currency swaps, the notional contract amount is disclosed for both legs. As at 31 December 2020, there were £264bn of cross currency swaps where both the pay and receive legs are impacted by interest rate benchmark reform. The Group also had £28bn of Barclays issued debt retained by the group, impacted by the interest rate benchmark reform, predominately in GBP and USD LIBOR. Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 369 Notes to the financial statements Other disclosure matters continued 41 Interest rate benchmark reform continued The table below provides detail on the contractual maturity of the above exposures: Current benchmark rate Non-derivative financial assets GBP LIBOR USD LIBOR JPY LIBOR CHF LIBOR Other Non-derivative financial assets Non-derivative financial liabilities GBP LIBOR USD LIBOR JPY LIBOR CHF LIBOR Other Non-derivative financial liabilities Equity GBP LIBOR USD LIBOR Equity Derivative notional contract amount GBP LIBOR USD LIBOR EONIA JPY LIBOR CHF LIBOR Other Derivative notional contract amount Standby facilities, credit lines and other commitments GBP LIBOR USD LIBOR CHF LIBOR Other Standby facilities, credit lines and other commitments Over one year but not more than two years £m Over two years but not more than five years £m Over five years but not more than ten years £m Over ten years £m 15,372 172 18 116 238 15,916 (72) (257) (285) – (122) (736) 2,409 1,715 – 90 60 4,274 – (4,174) (241) – – (4,415) – – - (3,500) (3,131) (6,631) Total £m 33,861 24,930 173 301 1,942 61,207 (1,243) (13,583) (1,960) – (139) (16,925) (3,500) (3,131) (6,631) 4,771 8,389 11 22 931 14,124 (1,055) (5,529) (1,289) – (12) (7,885) – – - 11,309 14,654 144 73 713 26,893 (116) (3,623) (145) – (5) (3,889) – – - 890,497 491,063 767,769 2,020,529 2,572,716 1,350,762 212,185 421,460 731,942 582,200 46,010 73,792 72,127 96,657 585,363 2,734,692 710,809 6,654,816 64,956 1,096,590 298,911 1,940,722 179,305 243,957 3,734,327 4,514,594 2,904,089 1,697,072 12,850,082 397,989 327,669 46,868 50,775 12,635 24,398 5,134 15,368 – 2,897 23,399 12,016 56,300 74 12,170 80,560 505 735 – 862 2,102 1,289 1,608 – 22 2,919 18,944 74,011 74 15,951 108,980 370 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 42 Barclays PLC (the Parent company) Total income Dividends received from subsidiaries Dividends received from subsidiaries of £763m (2019: £1,560m, 2018: £15,360m) largely relates to dividends received from Barclays Bank PLC £263m, Barclays Execution Services Limited £250m and Barclays Bank UK PLC £220m. The dividends received in 2018 included both a dividend in specie, representing the transfer of the holding in Barclays Bank UK PLC from Barclays Bank PLC to Barclays PLC, and ordinary dividends from subsidiaries. The dividends received from its banking subsidiaries were paid up to Barclays PLC prior to the announcement made by the PRA on 31 March 2020 that capital be preserved for use in serving Barclays customers and clients through the extraordinary challenges presented by the COVID-19 pandemic. As part of a response to this announcement, Barclays PLC took steps to provide additional capital to its banking subsidiaries. Further detail can be found in the notes below. Other income Other income of £1,192m (2019: £1,760m, 2018: £923m) includes £857m (2019: £813m, 2018: £752m) of income received from gross coupon payments on Barclays Bank PLC and Barclays Bank UK PLC issued AT1 securities and £248m (2019: £947m) of fair value and foreign exchange losses on other positions with subsidiaries. Total assets and liabilities Investment in subsidiaries The investment in subsidiaries of £58,886m (2019: £59,546m) predominantly relates to investments in Barclays Bank PLC of £44,015m (2019: £42,363m) and Barclays Bank UK PLC of £14,245m (2019: 16,595m) which includes holdings of their AT1 securities of £10,995m (2019: £10,843m). The decrease of £660m during the year was predominantly driven by a £2,573m impairment in the cost of investment of Barclays Bank UK PLC and the redemption of AT1 holdings of €1,000m, partially offset by capital contributions to Barclays Bank PLC totalling £1,500m and Barclays Bank UK PLC totalling £220m, as well as additional AT1 holdings of $1,500m in Barclays Bank PLC. At the end of each reporting period an impairment review is undertaken in respect of investment in the ordinary shares of subsidiaries. Impairment is indicated where the investment exceeds the recoverable amount. The recoverable amount is calculated as a value in use (VIU) which is derived from the present value of future cash flows expected to be received from the investment. The VIU calculations use forecast attributable profit based on financial budgets approved by management, covering a five-year period as an approximation of future cash flows discounted using a pre-tax discount rate appropriate to the subsidiary being tested. A terminal growth rate has then been applied to the cash flows thereafter which is based upon expectations of future inflation rates. The review identified an impairment in the investment in Barclays Bank UK PLC (see below). For the other investment in subsidiaries the value in use calculated was higher than the carrying value. Impairment in subsidiaries Due to the impact of the COVID-19 pandemic on the macroeconomic environment, the review identified impairment of the investment in Barclays Bank UK PLC of £2,573m, reducing its carrying value to £11,672m. The VIU calculation uses five-year profit before tax forecasts based on the formally agreed medium term plans approved by the Board as an approximation of future cash flows. The Personal Banking cash flows specific to Barclays Bank UK PLC contained in the calculation have been extended to a sixth year (prior to the calculation of terminal values) to reflect an observed 15bp inflexion point in the yield curve which was beyond the period of the medium term plan. A discount rate of 13.8% (2019: 13.7%) has been applied to the cash flow forecast. In determining the discount rate, management have identified a cost of equity associated with a market participant that closely resemble the subsidiary and adjusted for tax to arrive at the pre-tax equivalent rate. A terminal growth rate of 2.0% (2019: 1.6%) has been used to calculate a terminal value for the investment. In prior years the terminal growth rate used has been based on estimated economic growth rates (GDP). Due to the macroeconomic uncertainties management now consider inflation rates to provide a better approximation of future long-term growth. A 1% increase in the discount rate or terminal growth rate would increase the impairment amount in Barclays Bank UK by £1,056m and £714m respectively. A reduction in the forecasted cash flows by 10% per annum would increase impairment by £1,061m. Loans and advances in subsidiaries During the year, loans and advances to subsidiaries decreased by £4,140m to £24,710m (2019: £28,850m). The decrease was driven by the maturity of £1,200m dated subordinated loans and waiving £1,000m of dated subordinated loans in relation to Barclays Bank PLC, the maturity of £1,100m dated subordinated notes in relation to Barclays Bank UK PLC, the £900m partial buy back of dated subordinated loans from Barclays Bank PLC and Barclays Bank UK PLC and a £220m reduction used to fund a capital contribution to Barclays Bank UK PLC. This was partially offset by c.£1,300m new issuances of dated subordinated notes by Barclays Bank UK PLC to Barclays PLC. Financial assets and liabilities designated at fair value Financial liabilities designated at fair value of £9,507m (2019: £3,498m) includes new issuances during the year of $2,500m Fixed Rate Resetting Senior Callable Notes, $1,750m Fixed-to-Floating Rate Senior Callable Notes, €2,000m Reset Notes, £400m Reset Notes and $300m Zero Coupon Callable Notes. The proceeds raised through these transactions were used to invest in subsidiaries of Barclays PLC and are included within the financial assets designated at fair value through the income statement balance of £17,521m (2019: £10,348m). The effect of changes in the liabilities’ fair value, including those due to credit risk, is expected to offset the changes in the fair value of the related financial asset in the income statement The difference between the financial liabilities’ carrying amount and the contractual amount on maturity is £324m (2019: £174m). Barclays PLC Annual Report 2020 Barclays PLC home.barclays/annualreport 371 Notes to the financial statements Other disclosure matters continued 42 Barclays PLC (the Parent company) continued Subordinated liabilities and debt securities in issue During the year, Barclays PLC issued £500m and $1,000m of Fixed Rate Resetting Subordinated Callable Notes, which are included within the subordinated liabilities balance of £7,724m (2019: £7,656m) and redeemed €1,250m Fixed Rate Subordinated Callable Notes. Debt securities in issue of £28,428m (2019: £30,564m) have reduced in the year due to the maturity of positions with subsidiaries as well as the partial buy back of Senior Fixed Rate Notes of €330m and Senior Floating Rate Notes of $776m. Management of internal investments, loans and advances Barclays PLC retains the discretion to manage the nature of its internal investments in 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 Group subsidiaries such as Barclays Execution Services Limited and the US Intermediate Holding Company (IHC). Total equity Called up share capital and share premium Called up share capital and share premium of Barclays PLC is £4,637m (2019: £4,594m). The increase in the year is primarily due to shares issued under employee share schemes. Other equity instruments Other equity instruments of £11,169m (2019: £10,865m) comprises AT1 securities issued by Barclays PLC. AT1 securities are perpetual subordinated contingent convertible securities structured to qualify as AT1 instruments under prevailing capital rules applicable as at the relevant issue date. During the year there has been a new AT1 issuance with principal amount totalling $1,500m (£1,142m) and a redemption of principal amount €1,000m (£831m). For further details, please refer to Note 28. 372 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 43 Related undertakings The 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 2020. 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’ 2020 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 the Group subsidiaries. Wholly owned subsidiaries Note United Kingdom – 1 Churchill Place, London, E14 5HP Aequor Investments Limited Ardencroft Investments Limited B D & B Investments Limited B.P.B. (Holdings) Limited Barclay Leasing Limited Barclays (Barley) Limited (In Liquidation) 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 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 Execution Services 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 PLC Annual Report 2020 J, K A, F, I A F, I B A Notes A Directly held by Barclays PLC B Partnership Interest C Membership Interest D Trust Interest E Guarantor F Preference Shares G A Preference Shares H B Preference Shares I Ordinary/Common Shares in addition to other shares J A Ordinary Shares K B Ordinary Shares L C Ordinary Shares M F Ordinary Shares N W Ordinary Shares O First Preference Shares, Second Preference Shares P Registered Address not in country of incorporation Q Core Shares, Insurance (Classified) Shares R 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 S A Unit Shares, B Unit Shares T Non-Redeemable Ordinary Shares U C Preference Shares, D Preference Shares V Class A Ordinary 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 Common Shares X PEF Carry Shares Y 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 Capital Contribution Shares DD Nominal Shares EE Class A Redeemable Preference Shares FF Class B Redeemable Preference Shares GG A Shares – Tranche I, Premium – Tranche I, C Shares – Tranche II, Premium – Tranche II II D Ordinary Shares Wholly owned subsidiaries Barclays International Holdings Limited Barclays Investment Management Limited Barclays Investment Solutions Limited 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 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 Note Z A, J, K A B B B B B B B I, J, K Wholly owned subsidiaries Cobalt Investments Limited Cornwall Homes Loans Limited CP Flower Guaranteeco (UK) Limited (In Liquidation) 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 Isle of Wight Home Loans 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 (In Liquidation) Naxos Investments Limited North Colonnade Investments Limited Northwharf Investments Limited Northwharf Nominees Limited Radbroke Mortgages UK Limited Note E B B B I, O B I, X Barclays PLC home.barclays/annualreport 373 Notes to the financial statements Other disclosure matters continued 43 Related undertakings continued Wholly owned subsidiaries Real Estate Participation Management Limited Real Estate Participation Services Limited Relative Value Investments UK Limited Liability Partnership Relative Value Trading Limited Roder Investments No. 1 Limited Roder Investments No. 2 Limited RVT CLO Investments LLP Solution Personal Finance Limited Surety Trust Limited Sustainable Impact Capital 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 US Real Estate Holdings No.4 Limited Wedd Jefferson (Nominees) Limited Westferry Investments Limited Woolwich Homes Limited Woolwich Qualifying Employee Share Ownership Trustee Limited Zeban Nominees Limited – Hill House, 1 Little New Street, London, EC4A 3TR Barclays Nominees (Branches) Limited (In Liquidation) Gerrard Management Services Limited (In Liquidation) Lombard Street Nominees Limited (In Liquidation) Ruthenium Investments Limited (In Liquidation) Woolwich Plan Managers Limited (In Liquidation) Woolwich Surveying Services Limited (In Liquidation) – 5 The North Colonnade, London, E14 4BB Leonis Investments LLP – 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 – Logic House, Waterfront Business Park, Fleet Road, Fleet, GU51 3SB The Logic Group Enterprises Limited The Logic Group Holdings Limited – 9, allée Scheffer, L-2520, Luxembourg Barclays Claudas Investments Partnership Barclays Pelleas Investments Limited Partnership Barclays 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. 374 Barclays PLC home.barclays/annualreport Note Wholly owned subsidiaries Note Wholly owned subsidiaries Note B I, Y I, Y B B B B J B, P B, P B, P Brazil – Av. Brigadeiro Faria Lima, No. 4.440, 12th Floor, Bairro Itaim Bibi, Sao Paulo, CEP, 04538-132 Barclays Brasil Assessoria Financeira Ltda BNC Brazil Consultoria Empresarial Ltda 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 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 Barclays Securities Financing Limited Braven Investments No.1 Limited Calthorpe Investments Limited Capton Investments Limited Claudas Investments Limited Claudas Investments Two Limited CPIA Investments No.1 Limited CPIA Investments No.2 Limited Gallen Investments Limited Hurley Investments No.1 Limited JV Assets Limited Mintaka Investments No. 4 Limited OGP Leasing Limited Palomino Limited Pelleas Investments Limited Pippin Island Investments Limited Razzoli Investments Limited RVH 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 Rvh Road, Zhangjiang Hi-Tech Park, Shanghai Barclays Technology Centre (Shanghai) Company Limited (In Liquidation) Germany – TaunusTurm, Taunustor 1, 60310, Frankfurt Barclays Capital Effekten GmbH – Stuttgarter Straße 55-57, 73033 Göppingen Holding Stuttgarter Straße GmbH (In Liquidation) B, P G, H, I F, I I,E E,F F V F, I L Z F, I F, I Z Z Q F, I J, K Guernsey – P.O. Box 33, Dorey Court, Admiral Park, St. Peter Port, GY1 4AT Barclays UKRF No.1 IC Limited Barclays UKRF ICC Limited Barclays Insurance Guernsey PCC Limited – PO BOX 41, Floor 2, Le Marchant House, Le Truchot, St Peter Port, GY1 3BE Barclays Nominees (Guernsey) Limited (In Liquidation) 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 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 – 5th to 12th Floor (Part), Building G2, Gera Commerzone SEZ, Survey No.65, 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) Private Limited 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 –70 Sir John Rogerson’s Quay, Dublin 2 Barclays Finance Ireland Limited Isle of Man – P O Box 9, Victoria Street, Douglas, IM99 1AJ Barclays Nominees (Manx) Limited Barclays Private Clients International Limited –2nd Floor, St Georges Court, Upper Church Street, Douglas, IM1 1EE Barclays Holdings (isle of Man) Limited (In Liquidation) Japan – 10-1, Roppongi 6-chome, Minato-ku, Tokyo Barclays Funds and Advisory Japan Limited Barclays Securities Japan Limited Barclays Wealth Services Limited Barclays PLC Annual Report 2020 Strategic report Shareholder information Governance Risk review Financial review Financial statements 43 Related undertakings continued Wholly owned subsidiaries Note Wholly owned subsidiaries Note Jersey – 2nd Floor, Gaspé House, 66-72 Esplanade, St. Helier, JE1 1GH Barclays Services Jersey Limited – 5 Espalanade, St Helier, JE2 3QA 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 – Estera Trust (Jersey) Limited, 13-14 Esplanade, St Helier, JE1 1EE MK Opportunities GP Ltd Korea, Republic of – A-1705 Yeouido Park Center, 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 Mauritius – C/O Rogers Capital Corporate Services Limited, 3rd Floor, Rogers House, No.5 President John Kennedy Street, Port Louis Barclays Capital Mauritius Limited (In Liquidation) Barclays Capital Securities Mauritius Limited – Fifth Floor, Ebene Esplanade, 24 Cyber-city, Ebene Barclays Mauritius Overseas Holdings Limited Mexico – Paseo de la Reforma 505, 41 Floor, Torre Mayor, Col. Cuauhtemoc, CP 06500 Barclays Bank Mexico, S.A. Barclays Capital Casa de Bolsa, S.A. de C.V. Grupo Financiero Barclays Mexico, S.A. de C.V. Servicios Barclays, S.A. de C.V. Barclays PLC Annual Report 2020 Monaco – 31 Avenue de la Costa, Monte Carlo BP 339 Barclays Private Asset Management (Monaco) S.A.M 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 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 Inmuebles SL. BVP Galvani Global, S.A.U. Switzerland – Chemin de Grange Canal 18-20, PO Box 3941, 1211, Geneva Barclays Bank (Suisse) SA Barclays Switzerland Services SA BPB Holdings SA United States – Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808 Analytical Trade Holdings LLC Analytical Trade Investments LLC Archstone Equity Holdings Inc Barclays Bank Delaware Barclays Capital Derivatives Funding LLC Barclays Capital Energy Inc. Barclays Capital Equities Trading GP 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 Dryrock Funding LLC Barclays Electronic Commerce Holdings Inc. Barclays Financial LLC Barclays Group US Inc. Barclays Insurance U.S. Inc. Barclays Oversight Management Inc. Barclays Receivables LLC Barclays Services Corporation Barclays Services LLC Barclays US CCP Funding LLC Barclays US Funding LLC Barclays US Investments Inc. Barclays US LLC BCAP LLC Crescent Real Estate Member LLC Curve Investments GP S I, DD J, K J, K T T T I, AA B K, M K, M K, M Note C C J C C C C CC J, K B Wholly owned subsidiaries Gracechurch Services Corporation Lagalla Investments LLC Long Island Holding A LLC LTDL Holdings LLC Marbury Holdings LLC Preferred Liquidity, LLC Procella Investments No.2 LLC Procella Investments No.3 LLC Relative Value Holdings, LLC Surrey Funding Corporation Sussex Purchasing Corporation Sutton Funding LLC TPProperty LLC US Secured Investments LLC Verain Investments LLC Wilmington Riverfront Receivables LLC – Corporation Service Company, 80 State Street, Albany, NY, 12207-2543 Barclays Payment Solutions Inc. – Corporation Service Company, 100 Pearl Street, 17th Floor, MC-CSC1, Hartford, CT 06103 Barclays Capital Inc. – 745 Seventh Avenue, New York NY 10019 Alynore Investments Limited Partnership Glenwood Ave, Suite 550, Raleigh, NC, 27608 Barclays US GPF Inc. Equifirst Corporation (In Liquidation) Zimbabwe – 2 Premium Close, Mount Pleasant Business Park, Mount Pleasant, Harare Branchcall Computers (Pvt) Limited BB F, I C B G, H, I C C C G, I C C C C J, K G,H,I, U C C B 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. Other Related Undertakings % Note United Kingdom – 1 Churchill Place, London, E14 5HP Barclaycard Funding PLC PSA Credit Company Limited (In Liquidation) Barclays Covered Bond Funding LLP (In Liquidation) Barclays Covered Bonds Limited Liability Partnership – St Helen’s, 1 Undershaft, London, EC3P 3DQ Igloo Regeneration (General Partner) Limited – 3-5 London Road, Rainham, Kent, ME8 7RG Trade Ideas Limited – 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ Equistone Founder Partner II L.P. Equistone Founder Partner III L.P. Barclays PLC home.barclays/annualreport 75.00 J 50.00 J, L 50.00 50.00 B B 25.00 L, Z 20.00 Z 20.00 35.00 B, Z B, Z 375 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. Notes to the financial statements Other disclosure matters continued 43 Related undertakings continued Other Related Undertakings – Enigma, Wavendon Business Park Milton Keynes, MK17 8LX Intelligent Processing Solutions Limited – 65A Basinghall Street, London, EC2V 5DZ Cyber Defence Alliance Limited – Gate House, Turnpike Road, High Wycombe, Buckinghamshire HP12 3NR GW City Ventures Limited GN Tower Limited – 55 Baker Street, London, W1U 7EU Formerly H 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 – 13-15 York Buildings, London, WC2N 6JU BGF Group PLC – Aurora Building, 120 Bothwell Street, Glasgow, G2 7JS Buchanan Wharf (Glasgow) Management Limited Cayman Islands – PO Box 309GT, Ugland House, South Church Street, Grand Cayman, KY1-1104 Barclays US Holdings Limited Third Energy Holdings Limited 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 Preferred Funding S.à r.l. Preferred Investments S.à r.l. Malta – RS2 Buildings, Fort Road, Mosta MST 1859 RS2 Software PLC Monaco – 31 Avenue de la Costa, Monte Carlo Societe Civile Immobiliere 31 Avenue de la Costa Netherlands – Alexanderstraat 18, 2514 JM, The Hague Tulip Oil Holding BV % Note Other Related Undertakings % Note 19.50 Z 25.00 E, Z 50.00 50.00 K, Z Z 70.32 J,Z,K,L,II 67.42 J,Z,K.L,II 40.18 F, J 24.58 Z 78.00 E 90 J 78.94 F, J, K, Z 70.00 W 96.30 33.33 33.33 R FF FF, I 18.25 Z Portugal Av. Manuel Júlio Carvalho e Costa, no. 15-A, 2750-423 Cascais Projepolska, S.A. (In Liquidation) South Africa – 9 Elektron Road, Techno Park, Stellenbosch 7600 Imalivest Mineral Resources LP Sweden – c/o ForeningsSparbanken AB, 105 34 Stockholm EnterCard Group AB United States of America – Corporation Services Company, 251 Little Falls, Drive Wilmington, DE, 19808 DG Solar Lessee II, LLC DG Solar Lessee, LLC – Corporation Trust Company, Corporation Trust Centre, 1209 Orange Street, Wilmington DE 19801 VS BC Solar Lessee I LLC 24.50 Z 66.63 J, K, Z 40.00 K, Z 75.00 75.00 C, Z C, Z 50.00 C, 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 % Note United Kingdom – 1 Churchill Place, London, E14 5HP Oak Pension Asset Management Limited Water Street Investments Limited Cayman Islands – PO Box 309GT, Ugland House, South Church Street, Grand Cayman, KY1-1104 Hornbeam Limited 00.00 00.00 Z Z 00.00 Z 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. 75.00 Joint Ventures % Note United Kingdom – All Saints Triangle, Caledonian Road, London, N1 9UT Vaultex UK Limited 50.00 30.36 GG, Z 376 Barclays PLC home.barclays/annualreport Barclays PLC Annual Report 2020 This report is printed on Revive 100 Offset, made from 100% FSC® Recycled certified fibre sourced from de-inked post-consumer waste. The printer and the manufacturing mill are both credited with ISO 14001 Environmental Management Systems Standard and both are FSC® certified. The mill also holds EMAS, the EU Eco-label. Revive 100 Offset is a Carbon balanced paper which means that the carbon emissions associated with its manufacture have been measured and offset using the World Land Trust’s Carbon Balanced scheme. Notes The terms Barclays or Group refer to Barclays PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 2020 to the corresponding twelve months of 2019 and balance sheet analysis as at 31 December 2020 with comparatives relating to 31 December 2019. 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; and 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/ investor-relations/reports-and-events/latest-financial-results. The information in this announcement, which was approved by the Board of Directors on 17 February 2021, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020, which contain an unmodified 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 on a Form 20-F with the US Securities and Exchange Commission (SEC) as soon as practicable following their publication. Once filed with the SEC, a copy of the Form 20-F will be available from the Barclays Investor Relations website at home.barclays/annualreport 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 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 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 253 to 258 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 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. Forward-looking statements can be made in writing but also may be made verbally by members of the management of the Group (including, without limitation, during management presentations to financial analysts) in connection with this document. Examples of forward-looking statements include, among others, statements or guidance regarding or relating to the Group’s future financial position, income growth, assets, impairment charges, provisions, business strategy, capital, leverage and other regulatory ratios, capital distributions (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 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. The forward-looking statements speak only as at the date on which they are made. Forward-looking statements may be affected by: changes in legislation; the development of standards and interpretations under IFRS, including 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; the Group’s ability along with government and other stakeholders to manage and mitigate the impacts of climate change effectively; 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 entity within the Group or any securities issued by such entities; direct and indirect impacts of the coronavirus (COVID-19) pandemic; instability as a result of the UK’s exit from the European Union (EU), the effects of the EU-UK Trade and Cooperation Agreement and the disruption that may subsequently result in the UK and globally; the risk of cyber-attacks, information or security breaches or technology failures on the Group’s business or operations; and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Group’s control. As a result, the Group’s actual financial position, future results, capital distributions, capital, leverage or other regulatory ratios or other financial and non-financial metrics or performance measures may differ materially from the statements or guidance set forth in the Group’s forward-looking statements. Additional risks and factors which may impact the Group’s future financial condition and performance are identified in our filings with the SEC (including, without limitation, our Annual Report on Form 20-F for the fiscal year ended 31 December 2020), which are available on the SEC’s website at www.sec.gov. Subject to our obligations under the applicable laws and regulations of any relevant jurisdiction, (including, without limitation, the UK and the US), 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. Barclays is a British universal bank. We deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability, for the common good and the long term. Barclays PLC Annual Report 2020 A detailed review of Barclays’ 2020 performance with disclosures that provide useful insight and go beyond reporting requirements. Barclays PLC Environmental Social Governance Report 2020 An overview of our ESG strategic priorities and performance, reported against a range of quantitative and qualitative indicators. Barclays PLC Climate-related Financial Disclosures 2020 An enhanced report aligning to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in this, the fourth year of disclosure. Barclays PLC Fair Pay Report 2020 An overview of our approach to pay-fairness and how we implement this in our principles and policies through the themes of our Fair Pay agenda. Barclays PLC Diversity and Inclusion Report 2020 An overview of the Group’s approach to building a more inclusive company, including a progress report on each of our five pillars of diversity and inclusion. Barclays PLC Country Snapshot 2020 An overview of our global tax contribution as well as our approach to tax, including our UK tax strategy, together with our country-by-country data. Barclays PLC Pillar 3 Report 2020 A summary of our risk profile, its interaction with the Group’s risk appetite, and risk management. Our Purpose and Values ensure we are able to deliver for all our stakeholders: for our customers and clients, for our colleagues, for society and for our investors. We’re proud to feature some of their stories inside this Report. For further information and a fuller understanding of the results and the state of affairs of the Group, please refer to the Barclays PLC suite of annual reports available at home.barclays/annualreport Registered office: 1 Churchill Place, London E14 5HP © Barclays PLC 2021 Registered in England. Registered No: 48839 Designed and produced by Ensemble Studio Part of FleishmanHillard Visit us at fhensemblestudio.com 

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