UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
March 30, 2017
Barclays PLC
(Names of Registrant)
1 Churchill Place
London E14 5HP
England
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F
Indicate by check mark whether the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1):____
Indicate by check mark whether the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7):____
EXHIBIT INDEX
Exhibit No. |
Description | |||
1 | Barclays PLC Annual Report 2016 | |||
2 | Barclays PLC Strategic Report 2016 | |||
3 | Barclays PLC Pillar 3 Report 2016 | |||
4 | Barclays PLC Notice of Annual General Meeting 2016 | |||
5 | Barclays PLC Letter to Shareholders regarding resignation of PricewaterhouseCoopers as auditors | |||
6 | Barclays PLC Proxy Cards |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BARCLAYS PLC | ||||
(Registrant) | ||||
Date: March 30, 2017 | ||||
By: /s/ Garth Wright
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Garth Wright | ||||
Assistant Company Secretary of Barclays PLC |
Building the bank
of the future
Barclays PLC | ||
Annual Report 2016 |
Whats inside this report |
The Strategic Report
An overview of our 2016 performance, a focus on our strategic direction, and a review of the businesses underpinning our strategy.
Completing the restructuring of Barclays
02 Chairmans letter 04 Chief Executives review
06 Operating environment 08 Our business model 10 Our strategy 13 Risk management 16 Our key performance indicators
A review of our operational performance
26 Barclays UK 28 Personal Banking 29 Barclaycard Consumer UK 30 Wealth, Entrepreneurs and Business Banking
32 Barclays International 34 Corporate and Investment Bank 35 Consumer, Cards and Payments
36 Non-Core and Africa
Overview of governance and
38 Governance overview 41 Viability statement
42 Our culture and our people 44 Remuneration framework 48 Financial performance
For shareholder information and contact details see page 375.
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The Detailed Report |
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Within the Annual Report, these disclosures inform of Barclays 2016 performance.
The content meets, and where insightful, goes beyond minimal regulatory reporting standards. |
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Governance |
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Governance contents |
49 | |||||||
Who we are | 51 | |||||||
What we did | 54 | |||||||
How we comply | 84 | |||||||
Other statutory information | 91 | |||||||
People | 95 | |||||||
Remuneration report | 99 |
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Risk review |
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Risk review contents |
134 | |||||||
Material existing and emerging risks | 136 | |||||||
Risk management | 145 | |||||||
Risk performance | 163 | |||||||
Supervision and regulation | 229 | |||||||
Financial review |
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Financial review contents |
237 | |||||||
Key performance indicators | 238 | |||||||
Consolidated summary income statement | 240 | |||||||
Income statement commentary | 241 | |||||||
Consolidated summary balance sheet | 242 | |||||||
Balance sheet commentary | 243 | |||||||
Analysis of results by business | 244 | |||||||
Financial statements |
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Financial statements contents |
267 | |||||||
Consolidated financial statements | 277 | |||||||
Notes to the financial statements | 284 | |||||||
The Strategic Report was approved by the Board of Directors on 22 February 2017 and signed on its behalf by the Chairman.
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Report of the Auditor The Auditors report on the full accounts for the year ended 31 December 2016 was unqualified, and their statement under section 496 (whether the Strategic Report and the Directors report are consistent with the accounts) of the Companies Act 2006 was unqualified.
Notes, Non-IFRS performance measures and forward-looking statements Barclays management believes that the non-IFRS performance measures included in this document provide valuable information to the readers of the financial statements. This document also contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to the Group. For full details on Notes, Non-IFRS performance measures, and forward-looking statements used within this document, please see the back cover.
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Barclays PLC Annual Report 2016 | home.barclays/annualreport |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 1 |
Chairmans letter
While much is yet to be done, business restructuring
will largely be completed in 2017...
Summary
Today the Group is smaller, safer, more focused, less leveraged, better capitalised and highly liquid, with the customer at the centre of the business. The sale of Africa, the settlement of legacy conduct matters and the exit of Non-Core will improve this significantly going forward.
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For further information, see home.barclays/annualreport |
2016 was pivotal for Barclays, which is engaged in one of the largest restructurings in history.
Jes Staley has had an impressive first year. Initially, he set out a new strategic agenda for the Group as a leading UK and transatlantic bank, with the customer at its heart, placing it at the forefront of our industry, and re-embracing banking as a profession.
Under his leadership, the Core business was redefined and reorganised in preparation for structural reform, together with plans to bring its returns above hurdle rates. It was decided to exit Africa and accelerate the reduction in Non-Core. The senior management team was strengthened with key internal and external appointments, and plans put in place to achieve successful structural reform in the UK and the US, as well as a major medium-term initiative to embrace digital technology, to upgrade our systems architecture, to become fully cyber ready and improve our control effectiveness.
While much is yet to be done, including the full transfer of business to the UK ring-fenced bank during the first half of 2018, business restructuring will largely be completed in 2017, and subject to the future impact of a number of legacy conduct issues, this should allow the Group to return to a good and more stable financial performance in 2018, and possibly in the late months of 2017.
The year itself saw external surprises, including the decision by the UK to exit the EU, a consequent decline in Sterling, as well as a new political climate emerging in the UK and the US. We also faced regulatory pressure to increase capital levels, and the need to improve further our control effectiveness and corporate culture.
Notwithstanding such pressures, Im pleased with the progress that we have made. The Group implemented its geographic refocus around the UK and North America, while retaining international coverage for our clients. The business was reorganised into Barclays International (corporate/investment banking and international consumer) and Barclays UK (local consumer, small business, UK wealth and credit cards) in preparation for structural reform and to leverage the core competitive advantages of the Group. New senior management joined in Risk, Corporate and Investment Banking and Operations and Technology, and a new Group Executive Committee was constituted, with Jes investing heavily in its cohesion and effectiveness.
Overall, the Group returned to bottom-line profitability in the year, with attributable profits up £2.0bn and with basic earnings per share of 10.4p. Capital was strengthened, and the Common Equity Tier 1 ratio improved by 100bps to 12.4%. The Cost: Income ratio improved from 84% to 76%.
The Core business had a good year with attributable profit doubling to £3.4bn, together with an equivalent improvement in Return on Tangible Equity to 8.4% and basic earnings per share of 20.5p.
This was offset significantly by the £1.9bn loss (11.3p per share) associated with the run down of Non-Core, which saw its risk weighted assets reduce by 41% to £32bn with transactions announced in France, Italy, Spain, Portugal and in Asia. Given this progress, we now expect the run down of Non-Core to be completed six months earlier than planned, at the end of the first half of 2017. This will leave an anticipated residual £25bn of RWAs that will be re-absorbed by the Core businesses.
2 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
A major decision was made to sell down our 62% shareholding in Barclays Africa Group Ltd (BAGL) and the process began with a reduction to just over 50%. This investment became non-viable economically under current regulatory capital rules, and the UK bank levy. BAGL had a reasonable year in 2016, although profits were slightly down on 2015. Our shareholding benefitted from an improvement in the exchange rate and an increase in its stock price.
From these statistics, we can see the merits of improving further the Core return, the elimination of the drag from Non-Core, the sale of Africa, and further progressing the resolution of historical conduct matters.
It is worth stepping back to remind shareholders of the enormous changes that are taking place at Barclays. At our peak in 2008 we had:
§ | £2.1trn in assets against £1.2trn today, down over 40% and declining |
§ | shareholders equity was £36.6bn, and is now £58.4bn, up 60% |
§ | balance sheet leverage (total assets to ordinary shareholders funds) was a stretched 56 times, and has been reduced to 21 times |
§ | shareholders capital as a percentage of risk weighted assets was 8.5% and is now almost double at 16%. |
Today therefore, the Group is smaller, safer, more focused, less leveraged, better capitalised and highly liquid, with the customer at the centre of the business. The sale of Africa, the settlement of legacy conduct matters and the exit of Non-Core will improve this significantly going forward.
Despite this progress, significant challenges remain. The interest rate and growth environment remains subdued in our core markets. Our Core business overall is still operating below our cost of equity. In the near term, we need to exit Non-Core and complete the sale of Africa at the best financial outcome possible. UK and US structural reform also needs to be implemented, with a major event involving the transfer of business from Barclays Bank PLC to the ring-fenced bank. A number of potentially material legacy conduct matters need to be resolved at acceptable cost. A way forward to capture the opportunity and mitigate the risk of the UKs exit from the EU needs to be found, depending on the final international agreement. Finally, we need to reach our required regulatory capital and desired control levels. I am confident we have the capacity to work our way through these.
Looking forward therefore, a great deal has changed at Barclays and much will change going forward. We are a major full-service player in the UK, have leadership in several important segments and are the digital banking leader. We also have a major corporate, investment banking and cards presence in the US. For example, our cards and consumer and payments businesses there, now produce more revenues than our equivalent UK business. We also retain a focused international presence to serve our customers internationally and bring overseas customers to our core markets.
12.4%
Common Equity Tier 1 ratio
2016 CET1 ratio up 100bps vs 2015 (2015: 11.4%)
£58.4bn
Shareholders equity
2016 shareholders equity up 7% vs 2015 (2015: £54.5bn) |
This foundation gives us a new beginning and subject to the resolution of legacy conduct matters and the satisfactory execution of the near-term agenda. I genuinely believe we can see the light at the end of the tunnel. Restructuring will largely be completed in 2017, and subject to legacy matters, this should allow the Group to return to a good and more stable financial performance in 2018, and possibly in the late months of 2017. This augurs well for completion of the turnaround at Barclays, for future value creation, and at the appropriate time, a reconsideration of the dividend.
I would like to take this opportunity to thank our Board for their contribution to our company. I am also grateful for the enormous progress made by our senior management team, and thank our staff across the organisation for coming every day to serve our customers, without whom we would not have an enterprise. Finally, I would pay respect to our shareholders for their ongoing patience and support.
John McFarlane |
Chairman |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 3 |
Chief Executives review
...positioning ourselves for growth while delivering
a positive impact on society.
Summary
We will stay wedded to a fundamental principle of finance: earn and maintain the trust of your customers and clients. Just as 327 years ago when we were founded, Barclays will be known for the way in which we do business, the integrity with which we operate, having a positive impact on society, and delivering shareholder value.
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For further information, see home.barclays/annualreport |
A year ago we laid out our intention to accelerate the restructuring of Barclays and refocus our business as a transatlantic, consumer, corporate and investment bank, anchored in the two financial capitals of the world, London and New York.
I am pleased to report that the strategic actions we have undertaken in 2016 have allowed us to make strong progress against this agenda, including: reorganising our business into Barclays UK and Barclays International; renewing our commitment to operate a leading global corporate and investment bank; reducing our stake in Barclays Africa, over time, to a non-consolidated level; and accelerating the run down of our Non-Core assets.
Barclays UK and Barclays International are doing well, our Corporate and Investment Bank has solidified its position in the bulge bracket, our Non-Core run-down is ahead of schedule, and we expect to close that unit in the middle of 2017. We are also on track to complete the planned sell-down of our Barclays Africa stake to a non-consolidated level in due course. Certain legacy conduct issues remain and we intend to make further progress on them.
In short, we have accomplished a lot in a year, and I am thankful to each and every one of our colleagues who have made this possible. Their efforts mean that, in 2017, we can begin to move on from the restructuring of Barclays, shifting our focus solely to the future, and in particular to how we can generate attractive, sustainable, and distributable, returns for you, our shareholders.
This means increasing management focus on Barclays UK and Barclays International, the future of your firm. Together, they encompass a diverse set of market-leading consumer and wholesale businesses. From retail and business banking operations and our merchant acquiring business in the UK; to our corporate and investment banking and cards businesses in the US. Barclays UK and Barclays International are diversified by product, by customer and client, by currency and by geography. We deliver everything from institutional advisory to international cards and payments; from equity capital markets to corporate lending; from macro markets execution to mortgages.
We have accomplished a lot in a year, and I am thankful to each and every one of our colleagues who have made this possible. Their efforts mean that, in 2017, we can begin to move on from the restructuring of Barclays, shifting our focus solely to the future, and in particular to how we can generate attractive, sustainable, and distributable, returns for you, our shareholders.
It is worth noting that just over half of our income in 2016 was from our consumer businesses, and just under half from our wholesale businesses. This balance between the two is a huge strength for Barclays, giving us opportunities for growth across a wide waterfront, and resilience in earnings if one side of the mix comes under pressure. I firmly believe that this model gives us the capacity to generate strong sustainable returns for you, our shareholders, through any cycle, especially with the reinvestment capacity we expect to generate through cost savings from the single core operational foundation that we are building.
4 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Operational and technological strength is going to be a key competitive advantage for any global bank in the future. And so our intent is to build Barclays on a foundation of world class core operations and technology. This will strengthen our core processes, provide our businesses with the ability to use data in new and innovative ways, allowing us to fundamentally rethink the way we run Barclays, and how we serve our customers and clients. Upon this foundation, we can generate efficiency from scale while at the same time ensuring that we deliver world-class customer experience which is key to driving loyalty and long-term growth.
As we complete the restructuring of our bank we will stay wedded to a fundamental principle of finance: earn and maintain the trust of your customers and clients. Just as 327 years ago when we were founded, Barclays will be known for the way in which we do business, the integrity with which we operate, having a positive impact on society, and delivering shareholder value.
We will do that through providing great service, as well as playing our full part in the communities in which we live and work. I am very proud in particular of how, following the EU referendum last June, Barclays continued to be a constructive partner to our customers and clients, and to the Government, as we dealt with the initial impact of that decision.
We stayed truly open for business throughout 2016, lending £3.6bn to small and medium-sized businesses in the UK. We wrote nearly £19bn of mortgages to almost 90,000 households across the country, including to over 18,000 first-time buyers. We processed some £260bn of payments for consumers and businesses in the UK, with £1 in every 3 spent on cards going through our systems. We enhanced our customers experiences, by introducing market-leading innovations like voice security, contactless cash, a new direct investing platform, and our collect cash management service for businesses.
I was particularly proud when we became the first major UK bank to run TV advertising on how people can protect themselves from fraud. We also helped to up-skill 1.7 million people through a range of regional partnerships and our LifeSkills programme. More than 43,000 colleagues also contributed 212,000 hours of time volunteering for a range of charities and causes.
Our people, and their commitment to Barclays customers and clients, are the reason why I have such confidence in our capacity to realise our potential as a company. Regardless of role or location, seniority or business unit, I am continually amazed by the talent that we have within Barclays and the dedication people show to this institution. That dedication is one of the companys strongest assets, and it is because of it that bright years lie ahead for our bank. I look forward to discussing this future with you when we meet at our AGM.
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James E. Staley |
Group Chief Executive |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 5 |
Operating environment
Our decision making considers developments
in the external environment...
Summary
As a consumer, corporate and investment bank with operations around the world, Barclays is impacted by a wide range of macroeconomic, political, regulatory and accounting, technological, social and environmental developments. We continue to live in a period of significant change and uncertainty, which requires us to be vigilant in our review and assessment of the operating environment and as nimble as possible in the delivery of our strategy.
Global economic growth has been modest in recent years and 2016 was characterised by ongoing uncertainty with periods of volatility in global markets and a continuation of the low interest rate environment. A low growth, low interest rate environment makes income growth more challenging.
We experienced significant developments in the global political environment in 2016, including the UKs vote to leave the EU in June and the presidential election in the US in November. Significant policy uncertainty remains around the implications of these events and there is further potential political change in 2017 with several major European countries holding elections. We remain alert to the risks, including those posed by policy-induced disruptions of global trade and investment, as well as the impact of current and potential geopolitical tensions. However, we do not see these events impacting the broad direction of our strategy set out in March 2016 to be a leading transatlantic bank with global reach.
Over recent years a significant objective of change in financial regulation has been to create a stronger banking environment through enhancing capital, liquidity and funding in the sector. A sounder banking environment has been further supported by an increased focus on stress testing, with the UK regulatory authorities completing their third comprehensive stress testing of the sector in November 2016. A key element of the regulatory agenda, known as Structural Reform, requires banks to ring-fence certain activities and these requirements, particularly in the UK and US, were reflected in our strategy update in March 2016. The implementation of these changes requires significant focus and we continue to execute our approach in accordance with regulatory timelines. An additional consideration relates to future accounting changes, specifically the introduction of IFRS9 in 2018 which will see significant change in the accounting for impairment.
Regulatory scrutiny around conduct remains in sharp focus and we continue to embed a conduct-focused culture across the organisation, through the delivery of our strategy, in order to drive positive outcomes for all our stakeholders. We are also working to put legacy conduct issues behind us and the FCAs proposed deadline of the end of June 2019 for PPI complaints, although not yet confirmed, is a significant development.
Technological change continues at pace, significantly impacting customer expectations and leading to the ongoing review of established banking operating models and systems.
One of the key benefits of digitisation and the growth in mobile banking has been improved customer and client experiences as transactions and interactions become faster and more convenient.
However, the rapid speed of innovation also presents challenges. We have seen agile, digital players entering the market while new avenues for increasingly sophisticated fraudulent and criminal activity have been created. We continue to develop new technology and invest in digital and mobile capabilities to improve and differentiate our offering, while remaining constantly vigilant to, and investing in, fraud prevention, cyber risk, IT security and the appropriate management of data.
6 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
During 2016 there has been activity to further the financial sectors understanding of the potential financial, operational and strategic implications of climate change. In addition, there has been an increase in the level of interest in companies responses to climate change, largely driven by the ratification of the UN Climate Change Conference requirements and publication of draft recommendations by the Financial Stability Boards Taskforce on Climate-related Financial Disclosures for annual reports.
Developments in the external environment present both opportunities and risks. Without active risk management to address these external factors our long-term goals could be adversely impacted. Our approach to risk management and material existing and emerging risks to the Groups future performance are outlined in the Risk Review section on page 137. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 7 |
Our business model
we create value for our stakeholders and deliver
broader economic benefits to society
8 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 9 |
Our strategy
...where success for us is to be a leading,
diversified, transatlantic bank.
Summary
Our goal is to become the bank of choice by providing superior services to customers and clients and supporting our stakeholders via a commercially successful business that generates long-term sustainable returns.
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The strategy of Barclays PLC Group is to build on our strength as a transatlantic consumer, corporate and investment bank, anchored in our two homes markets of the UK and US, with global reach. Our two clearly defined divisions, Barclays UK and Barclays International, provide diversification by business line, geography and customer, enhancing financial resilience and helping to contribute to the delivery of consistent returns through the business cycle. We have a strong core business with exciting prospects, well positioned to deliver long-term value for our shareholders.
Consistent with the objective of delivering long-term sustainable value for all our stakeholders, we have developed our Shared Growth Ambition our approach to citizenship and the sustainability of the business model we operate. The aim is to make decisions and do business that provides our clients and customers, and the communities which we serve, with access to a prosperous future.
The delivery of our strategy is underpinned by the energy, commitment and passion of our people, and we are clear on our common purpose: to help people achieve their ambitions, in the right way. Our shared values inform the way we work and how we act, guiding the choices we make every day.
Building the Barclays of the future In March 2016 we announced the following actions to materially progress our restructuring and lay the foundations for increased stability and improved performance:
§ the creation of two clearly defined divisions, Barclays UK and Barclays International, consistent with the regulatory requirements of ring-fencing in the UK
§ the sell-down of our 62.3% stake in Barclays Africa Group Limited (BAGL) to a non-controlling, regulatory deconsolidated, position
§ a one-time increase to Barclays Non-Core, with a plan to accelerate the run down.
The priorities that emerged from our March 2016 announcement can be broadly summarised as:
§ simplifying our core business
§ accelerating the run down of our Non-Core operations
§ continuing to address our remaining legacy conduct issues and improving our control environment.
Simplifying our core business Our two divisions represent a balanced business mix that we believe helps to enhance our resilience to developments in the external environment, while remaining focused on helping our customers and clients achieve their ambitions.
Barclays UK is our UK consumer and business bank differentiated by scale and proven digital capability. Barclays UK will become the ring-fenced bank for the UK during 2018, providing transactional, lending and investment products and services to over 24 million Personal, Wealth and Business Banking customers and clients. For further information on Barclays UKs performance, please see page 26. |
10 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Barclays International is our diversified transatlantic wholesale and consumer bank which will be housed within Barclays Bank PLC, the future non-ring-fenced bank. We seek to compete in markets where we have the competitive advantage and provide best-in-class service to our clients and customers. On 1 July 2016 our US Intermediate Holding Company (IHC) became operational, as part of Barclays International. For further information on Barclays Internationals performance, please see page 32.
Our objective is to maintain solid investment grade ratings for our rated entities.
Barclays UK and Barclays International will be supported by a Group Service Company, a subsidiary which houses the majority of Barclays Group Functions and the Chief Operating Office, which includes Operations and Technology.
Further details on the structure of the Group under Structural Reform can be found in the Supervision and Regulation section on page 236.
We are also reducing our stake in Barclays Africa Group Limited to a non-controlling, regulatory deconsolidated position, subject to required approvals. Having completed the first sell-down, to 50.1%, in 2016, we expect to continue to reduce our ownership and will execute this change in our investment responsibly.
Accelerating the run down of our Non-Core operations
Our Non-Core businesses act as a significant drag on Group profitability and exiting these businesses will enable us to focus on a simplified Group, centred on our key areas of strength. Over the year we have continued to run down our Non-Core business, reducing risk weighted assets and strengthening our Common Equity Tier 1 ratio in the process.
We have made strong progress in executing our strategy and are fully committed to the early closure of Non-Core in June 2017. For further details please refer to the Non-Core Performance Review on page 36.
Continuing to address remaining legacy conduct issues and improving our control environment
We are working hard to resolve our remaining legacy conduct matters as soon as is practical, while improving our control environment.
We aspire to be one of the worlds most respected and well-regarded banks. We put our customers and clients at the heart of everything we do and seek to strengthen trust in the profession of banking, using transparency and integrity to engender the trust of our customers, clients and wider society.
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 11 |
Our strategy
where success for us is to be a leading,
diversified, transatlantic bank.
12 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Risk management
We balance risk against opportunity
Summary
Risk management at Barclays is directed and overseen by the independent Risk Management function. The functions primary roles are to define the level of risk taking for the Group in normal and stressed economic conditions and to oversee that business activities are undertaken to be consistent with these levels.
For further information, see home.barclays/annualreport |
The Risk Management function is accountable to the CEO and the Risk Committee of the Board. In 2016, Barclays financial condition and our results were subject to various external developments, including market volatility related to the UKs vote to leave the EU in June, as well as reflationary expectations related to the US elections in November. In 2017, we will continue to monitor the external environment, including: macro-economic risks in the UK and Europe, heightened risk of global reflation and the possible end of central bank quantitative easing, as well as ongoing regulatory developments.
Barclays engages in activities which entail risk taking, every day, throughout its business. The firm is vulnerable to credit losses in its lending and banking transactions. It experiences gains and losses from market risk in its traded positions. It is subject to treasury risk (including liquidity, leverage and capital gains or losses) in its financial management. Many important activities are managed and controlled through models, which introduce risk in themselves. Across its business, the firm is subject to operational risks, including from fraud, and process or technology failure. Our reputation is important when it comes to trust in the firms integrity and competence. In addition Barclays may, in its activities, create conduct risk in relation to its customers, clients and the markets in which it operates. Lastly, Barclays faces the risk of being penalised for not meeting its legal obligations.
The firm sets a risk appetite based on current and anticipated exposures, and views on the evolution of markets and the economy in normal and stressed conditions. In effect, the risk appetite is designed to measure the amount of market volatility and stress the firm can withstand, while still meeting its financial goals and regulatory requirements. This enables the Risk function to set, monitor and enforce appropriate risk limits.
The overall governance of Risk is defined in an Enterprise Risk Management Framework (ERMF), which describes how Barclays identifies and manages risk. The framework defines the Principal Risks to which the firm is subject to (see table overleaf). Model risk, reputation risk and legal risk are newly classified as Principal Risks in the latest version of the ERMF, reflecting the heightened importance of these risk types in the current environment. Other risks may also arise from time to time, for example, the firm is also subject to political and regulatory risks. While these risks are not considered Principal Risks, they are also subject to the principles set out in the ERMF and overseen by Risk Management.
The firm sets a risk appetite based on current and anticipated exposures, and views on the evolution of markets and the economy in normal and stressed conditions.
All colleagues have a specific responsibility for risk management under a Three Lines of Defence model. The First Line includes customer and client-facing colleagues and supporting functions. The role of the first line is to identify and manage risks. The Risk and Compliance functions form the Second Line. They set and monitor compliance with the rules and limits needed to stay within risk appetite. Finally, Internal Audit is the Third Line, who provide assurance to the Board on the effectiveness of risk management. The ERMF also sets out Risk governance principles and committee structures. The ERMF is approved by the Board.
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Risk management
We balance risk against opportunity
Principal Risks are overseen by a dedicated Second Line functiona
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Risks are classified into Principal Risks, as below
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How risks are incurred/managed
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Credit Risk |
The risk of loss to the firm from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the firm, including the whole and timely payment of principal, interest, collateral and other receivables.
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We incur credit risk when we lend money, e.g. to individual customers (including mortgages, credit cards and personal loans), small and medium-sized businesses, loans to large companies; and from derivatives contracts.
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Market Risk |
The risk of loss arising from potential adverse changes in the value of the firms 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.
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We incur market risk via trading activities with clients and via the liquid assets Barclays holds to ensure we can meet our short-term obligations.
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Treasury and Capital Risk |
Liquidity Risk: The risk that the firm is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.
Capital Risk: The risk that the firm has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the firms pension plans.
Interest Rate Risk in the Banking Book: The risk that the firm is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities.
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We can incur liquidity risk in the event of severe financial market disruptions or Barclays idiosyncratic events that impede the banks ability to secure funding.
Capital risk is mainly due to large unexpected losses, which can arise, e.g., from economic or market events or fines. Changes in regulations can also affect the assessment of capital adequacy.
Interest rate risk arises because assets, such as loans to customers, and liabilities, such as deposits, carry different interest rates. Losses can occur when interest rate changes affect the performance of assets and liabilities differently. Interest rates have different impacts on assets and liabilities due to contractual differences, e.g. fixed vs floating interest rate profiles.
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Operational Risk
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The risk of loss to the firm from inadequate or failed processes or systems, human factors or due to external events (e.g. fraud) where the root cause is not due to credit or market risks.
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Operational risks are inherent in the firms activities, and can arise, e.g. from fraud, process or technology failures.
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Model Risk |
The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports.
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Model risk is incurred through model misuse and poorly designed/implemented models.
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Reputation Risk
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The risk that an action, transaction, investment or event will reduce trust in the firms integrity and competence by clients, counterparties, investors, regulators, employees or the public.
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Reputation risk is managed by maintaining a positive and dynamic culture within Barclays, ensuring that we act with integrity, enabling strong and trusted relationships to be built with customers and clients, colleagues and broader society.
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Conduct Risk
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The risk of detriment to customers, clients, market integrity, competition or Barclays from the inappropriate supply of financial services, including instances of wilful or negligent misconduct.
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All colleagues are responsible for the management and mitigation of conduct risk. The Compliance function sets the minimum standards that are required to ensure this risk is managed and provide oversight to ensure these risks are effectively managed and escalated where appropriate.
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Legal Risk
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The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements. |
The Group conducts diverse activities in a highly regulated global market and therefore is exposed to the risk of fines and other sanctions relating to the conduct of its business. The Group General Counsel and the Legal function support colleagues to mitigate legal risk.
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Note a Legal risk is overseen by the Group General Counsel and the Legal function, which are not part of the Three Lines of Defence.
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14 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
In 2016, markets experienced three distinct phases of volatility. At the start of the year, fears of a slowdown in China led to a sharp decline in global interest rates and equity markets. Mid-year, closer to home, the UKs vote to leave the EU led not just to volatility in financial markets but also drove a steep decline in Sterling to levels not seen in 30 years. Moreover, the referendum has sparked fears, which still persist, of resultant real weakness in the UK economy. Toward the end of the year, US election results buoyed international equity markets, and sparked rate rises on the anticipation of global reflation. The firm has aimed to prudently manage its exposures to financial markets over the last year, consistent with our risk appetite and engagement in global financial markets. The results of the UK referendum and the US elections will likely be felt over 2017 and beyond, and require continued care in managing the firms exposures, not just in financial markets but in credit portfolios. In addition to financial risk, the firm continues to monitor its risk processes and operational risks closely.
Focus areas in 2016 have included credit risk, with a management review of the UK and US cards portfolio impairment modelling leading to process enhancements, and operational risk focus areas including technology and information security. The number of well-publicised instances of cyber-attacks and related fraud has been increasing in both scope and size, placing a greater need to increase protection. Barclays also continues to pay careful attention to the management of conduct and reputational risks (please see pages 160 and 161).
All colleagues have a specific responsibility for risk management under a Three Lines of Defence model.
The firm continues to respond to evolving regulatory requirements, including in relation to IFRS9, stress testing, UK Structural Reform, and the institution of the Intermediate Holding Company (IHC) in the US. These changes require considerable risk management effort and monitoring (please see material existing and emerging risks outlined in the Risk Review section on page 137). In particular, IFRS9 implementation is expected to result in higher impairment loss allowances that are recognised earlier, on a more forward-looking basis and on a broader scope of financial instruments. Finally, in 2016, the firm commenced the re-organisation of the risk management function by legal entity. This is being done in compliance with the requirements of Structural Reform and to support the IHC.
In summary, the scale, complexity and requirements of Risk Management have been steadily increasing since the financial crisis of 2008-2009, and will continue to do so. At the same time, the market and economic environment are showing greater signs of flux, after a relatively long period of improving credit conditions and quiescent volatility. The combination of these factors will likely pose important challenges for Risk Management in 2017.
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C.S. Venkatakrishnan Chief Risk Officer
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home.barclays/annualreport | Barclays PLC Annual Report 2016 | 15 |
Our key performance indicators
and positive outcomes for our stakeholders
are integral to our long-term strategic success.
Summary
In 2013, we introduced a Balanced Scorecard to allow delivery of our strategy to be measured over a five-year time horizon. As we are now approaching the end of this period, we believe that a revised approach to measuring financial and non-financial performance, aligned to the strategic update announced on 1 March 2016, is more appropriate.
We comment in this section on our performance against the Balanced Scorecard in 2016, and introduce the revised performance measurement framework that we will use going forward to assess progress against our strategy.
In 2016, the Balanced Scorecard was used by the organisation as part of its performance management framework, to assess our performance against nine specific metrics that were designed to allow progress against our strategy to be measured. These metrics were aligned to five categories: Company, Customer and Client, Colleague, Citizenship and Conduct. In revising our approach to performance measurement going forward, we have kept elements of the Balanced Scorecard consistent, such as the objective of delivering positive outcomes for all our stakeholders and many of the metrics, but broadened the scope of the evaluation to produce a more detailed and informed reflection of how we are delivering against our strategic objectives.
Overall in 2016, the majority of these Balanced Scorecard metrics remained broadly stable, with the exception of our CET1 ratio and the percentage of women in senior leadership, both of which improved. Below you will find a summary of our performance in 2016 against the each of the Balanced Scorecard categories.
Company: our financial metrics were revised within the Balanced Scorecard at the beginning of 2016 when we announced our intention to simplify our financial targets for Barclays PLC Group to focus on three key metrics. We aligned our focus to Return on Tangible Equity, from Return on Equity, taking on board the feedback from our stakeholders and aligning ourselves to how many of our peers report their returns. We are also committed to the continued management of our cost base, as a proportion of income, and incorporated Cost: Income ratio as a new metric. Finally, we continue to focus on our CET1 ratio, by driving the capital strength and resilience of Barclays and ensuring a safer bank for all of our stakeholders. Further detail on how we performed against our financial metrics under our revised performance measurement framework can be found on page 19.
Delivery of 2016 Barclays PLC Group performance against our Balanced Scorecard
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Primary metrics | 2014 Actual | 2015 Actual | 2016 | 2018 Target | ||||||||||||||||||||
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Companya | Return on Tangible Equity | Excluding notable itemsb | 5.9% | 5.8% | 4.4% | N/A | |||||||||||||||||
Including notable items | (0.3%) | (0.7%) | 3.6% | |||||||||||||||||||||
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Cost: Income ratioc | Excluding notable itemsb | 70% | 69% | 72% | N/A | |||||||||||||||||||
Including notable items | 81% | 81% | 74% | |||||||||||||||||||||
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Common Equity Tier 1 ratio | 10.3% | 11.4% | 12.4% | N/A | ||||||||||||||||||||
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Customer and Client |
Net Promoter Score (NPS) | 4th | 4th | 4th | 1st | ||||||||||||||||||
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Client Franchise Rank (CFR)
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5th
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5th
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5th
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Top three
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Colleague | Sustained engagement of colleagues score | 72% | 75% | 75% | 87-91% | ||||||||||||||||||
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% of women in senior leadership
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22%
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23%
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24%
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26%
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Citizenship | Citizenship Plan | 11/11 | 10/11 | 8/10 | Plan targets | ||||||||||||||||||
initiatives on track or ahead of plan
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Conduct | Conduct Reputation | 5.3/10 | 5.4/10 | 5.4/10 | 6.5/10 | ||||||||||||||||||
(YouGov survey)
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Note: |
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a New Company targets were introduced on 1 March 2016. The Adjusted Return on Equity metric was replaced with Return on Tangible Equity and the Cost: Income ratio was introduced. |
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b Notable items comprise provisions for UK customer redress of £1bn (2015: 2.8bn), a £615m (2015: £nil) gain on disposal of Barclays share of Visa Europe Limited, and an own credit loss of £35m (2015: gain of £430m). |
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c Cost: Income ratio for the Balanced Scorecard expressed as total operating expenses of the Group, including Africa, divided by the total income of these businesses (both excluding notable items).
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16 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Customer and Client: despite improvements to our NPS across most consumer businesses, our ranking of 4th relative to our peer group remained the same, as improvements continued across the industry. We focused on making further enhancements to customer journeys and strengthening the level of engagement we have with customers, while continuing to offer innovative products and services that meet their needs. We were pleased that our Client Franchise Rank remained flat on 2015, demonstrating the strength of our banking and markets franchises in our home markets of the UK and US, despite the execution of our strategic realignment announced on 1 March 2016. Further detail on how we delivered positive outcomes for Customers and Clients under our revised performance measurement framework can be found on page 20.
We remain resolutely focused on creating an environment in which our colleagues feel enabled to fulfil their potential.
Colleague: we saw an improvement in the gender diversity of our leadership, with initiatives to promote diversity proving successful. Our colleague engagement remained constant despite some significant organisational change. We remain resolutely focused on creating an environment in which our colleagues feel enabled to fulfil their potential. Further detail on how we delivered positive outcomes for Colleagues under our revised performance measurement framework can be found on page 22. |
Citizenship: previously, performance was measured against 11 metrics embedded in the 2015 Citizenship Plan, which has now been completed. In June 2016, Barclays launched the Shared Growth Ambition and we have developed new metrics as part of the evolution of our performance measurement framework. 2016 is a transition year in moving to our new approach, with distinct performance frameworks for Barclays Group (excluding Africa) and Barclays Africa.
For Barclays Group (excluding Africa), performance was assessed against six initiatives: three reflecting the new Shared Growth Ambition focus areas of access to financing, access to financial and digital empowerment and access to employment; and three initiatives that are consistent with the previous Citizenship Plan, namely Barclays Way training, carbon emissions reduction and payment of our suppliers on time. We exceeded our objectives on all six of these initiatives in 2016 (see page 23 for more detail).
Barclays Africa has a Citizenship strategy that is closely aligned, but focused on four regionally specific objectives. In 2016, Barclays Africa delivered strong performance on investment in education and SME financing, both of which were on track for 2016. However, performance on two initiatives in Africa was off-track due to external challenges which impacted the delivery of planned employability and financial inclusion interventions, and resulted in an overall Group score of 8/10 for Citizenship on the Balanced Scorecard.
Conduct: our Conduct Reputation measure was flat on 2015, at 5.4/10, as stakeholder audience perceptions weakened slightly across the components of the Conduct measure, with the exception of Has high quality products and services. While below our expectations, overall performance on the Conduct reputation measure remains stronger than two of the three prior years and reflects our ongoing commitment to promoting a positive conduct and values-based culture. In 2016, the Group continued to incur significant costs in relation to litigation and conduct matters and resolution of these matters remains a necessary and important part of delivering the Groups strategy, together with an ongoing commitment to improve oversight of culture and conduct. As we transition to our revised performance measurement framework (see page 18 for more detail), how we behave through our conduct and culture underpins our objective of achieving positive outcomes for all our stakeholders and is embedded across the organisation. | |||
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Supporting the UK economy Barclays added £8.5bna in economic benefit to the UK through our employment, supply chain and purchasing power, which creates a positive ripple throughout the economy. This is a bigger benefit than the entire UK pharma, IT or aviation industry.
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Note a From April 2015 to March 2016.
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home.barclays/annualreport | Barclays PLC Annual Report 2016 | 17 |
Our key performance indicators
and positive outcomes for our stakeholders
are integral to our long-term strategic success.
Revised performance measurement framework
Evolving our approach to measuring progress towards our strategic goals and delivering positive outcomes for all our stakeholders.
In line with our objective of delivering a simplified bank, focused on delivering long-term sustainable value for all our stakeholders through the strategic actions announced on 1 March 2016, we are now evolving our approach to performance measurement to reflect better the way in which management monitors the performance of the Group. The framework incorporates a balance of key financial performance metrics, while broadening our approach to strategic non-financial measures, and represents an evolution from the Balanced Scorecard that has been used since 2013.
Our revised approach retains a similar focus on achieving positive outcomes for our key stakeholders. However, rather than focusing on a few narrowly defined targets to measure our performance, the revised approach allows for a more holistic assessment, and provides a better reflection of our progress towards the strategic goals of the organisation.
The revised approach will support the sustained delivery of our strategy over the medium to long-term and will influence executive remuneration from 2017. Our strategic success is intrinsically linked to the positive impact we have on all our stakeholders and society as a whole.
Financial performance metrics
The financial metrics are aligned to Barclays PLC Group Financial Targets: Group Return on Tangible Equity (RoTE) to converge with Core RoTE; Cost: Income ratio below 60%; and CET1 ratio 150-200bps above the minimum regulatory level, and will be reported quarterly as part of our financial results. Achieving these three targets within a reasonable timeframe is consistent with our aim of generating long-term sustainable returns for the shareholders of Barclays PLC Group.
Strategic non-financial performance measures
Non-financial measures remain an important element of how we evaluate our strategic performance, in achieving our ambition of delivering a sustainable business for all our stakeholders. We focus on the impact we make on our customers and clients, colleagues, and the benefit we bring to society via our new citizenship strategy our Shared Growth Ambition. These measures are underpinned by how we behave towards all our stakeholders, through our conduct and our culture.
To assess our performance, we draw on a broad range of information sources that are aligned to our management reporting framework, including internal management reports and external measures, ensuring a balanced view. As our management reporting framework develops, the sources may also evolve, but we will retain a consistent approach, with quantitative and qualitative evaluation to provide context to the performance assessment.
18 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Financial performance metrics |
Key outcomes we will look to achieve include:
Achieving Barclays PLC Group financial targets within a reasonable timeframe, consistent with our aim of generating long-term sustainable returns for the shareholders
How we measure success
Current financial targets that we aim to achieve within a reasonable timeframe:
§ | Group Return on Tangible Equity (RoTE) to converge with Core RoTE |
§ | Cost: Income ratio below 60% |
§ | CET1 ratio 150-200bps above the minimum regulatory level. |
How and why we are renewing our approach
On 1 March 2016, we set out three financial targets to allow shareholders to track our progress towards our strategic objectives. Our revised approach aligns our financial performance metrics to the Barclays PLC Group targets, which are reported quarterly in line with our financial results.
How we are doing
3.6%
Group Return on Tangible Equity
(2015: (0.7%))
8.4%
Core Return on Tangible Equity
(2015: 4.8%)
RoTE measures our ability to generate acceptable returns for shareholders. It is calculated as profit after tax attributable to ordinary shareholders, divided by average shareholders equity for the year, excluding non-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill.
Group RoTE increased to 3.6% (2015: (0.7%)) predominately reflecting the significantly lower impact of notable items in 2016, as profit before tax increased 182% to £3,230m. Notable items totalled a net loss before tax of £420m (2015: £3,330m) comprising provisions for UK customer redress of £1,000m (2015: £2,772m), a £615m (2015: £nil) gain on disposal of Barclays share of Visa Europe Limited and an own credit loss of £35m (2015: gain of £430m). Excluding notable items, Group RoTE was 4.4% (2015: 5.8%).
Core RoTE increased to 8.4% (2015: 4.8%), or 9.4% (2015: 11.2%) excluding notable items, on an average tangible equity base that was £4.2bn higher at £41.0bn. While we expect Group and Core RoTE to converge over time, Group RoTE in 2016 was significantly impacted by the loss before tax of £2,786m (2015: £2,603m) incurred by Non-Core as its run-down was accelerated.
76%
Cost: Income ratio
(2015: 84%)
Cost: Income ratio measures operating expenses as a percentage of total income, and is used to gauge the efficiency and productivity of our business.
Group Cost: Income ratio reduced to 76% (2015: 84%) primarily as a result of lower litigation and conduct charges, as total operating expenses declined 12% to £16,338m. Group Cost: Income ratio, excluding notable items, was 73% (2015: 70%), with the increase primarily driven by negative income in Non-Core reflecting the acceleration of the run-down. Core Cost: Income ratio, excluding notable items, was 61% (2015: 62%), as Core income increased by 7% to £22,035m, while total operating expenses increased by 6% to £13,507m. We are on track to achieve our Group target of below 60% over time.
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 19 |
Our key performance indicators
and positive outcomes for our stakeholders
are integral to our long-term strategic success.
12.4%
Common Equity Tier 1 (CET1) ratio
(2015: 11.4%)
The CET1 ratio is a measure of the capital strength and resilience of Barclays. The Groups 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 minimum regulatory and stressed capital requirements; support the Groups risk appetite, growth and strategic options, while seeking to maintain a robust credit proposition for the Group and its subsidiaries.
The ratio expresses Barclays capital as a percentage of risk weighted assets (RWAs), as defined by the PRA, in the context of Capital Requirements Directive IV (CRDIV - an EU Directive prescribing capital adequacy and liquidity requirements), and is part of the regulatory framework governing how banks and depository institutions are supervised.
The Groups CRD IV fully loaded CET1 ratio increased to 12.4% (2015: 11.4%) due to an increase in CET1 capital to £45.2bn (2015: £40.7bn), driven largely by profits generated during the year. This was partially offset by an increase in RWAs to £366bn (2015: £358bn), driven by the appreciation of US Dollar, Euro and South African Rand against Sterling.
We have increased our expected end-state management buffer from a 100-150bps range to 150-200bps above the minimum regulatory level, providing 400-450bps buffer to the Bank of England stress test systemic reference point. On this basis we currently expect our end-state CET1 ratio to be in a range of 12.3-12.8% and we remain confident in our capital trajectory.
For full details of our financial performance, please refer to the financial statements from page 267. |
Strategic non-financial performance measures: Customer and Client |
Key outcomes we will look to achieve include:
§ | Building trust with our customers and clients, such that they are happy to recommend us to others |
§ | Successfully innovating and developing products and services that meet their needs |
§ | Offering suitable products and services in an accessible way, ensuring excellent customer and client experience. |
How we measure success
Progress towards these outcomes is informed by a number of sources including internal dashboards, regular management reporting materials and external measures, ensuring a balanced review of performance. Evaluation includes, but is not limited to:
§ | Net Promoter Scores (NPS)1 |
§ | Client rankings and market shares |
§ | Complaints performance |
§ | Lending volumes provided to customers and clients. |
How and why we are renewing our approach
These measures build on the previous Balanced Scorecard metrics for Customer and Client, defined as Relationship NPS and Client Franchise Rank. Our revised approach allows for a broader consideration of how well we are serving our customers and clients, including our complaints performance and the volume of lending we have provided to support consumers and businesses, as well as examples of innovation.
20 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
How we are doing
In 2016, we focused on delivering excellent customer and client experience, by offering innovative products and services to meet their needs in an appropriate and accessible way, while also promoting fair, open and transparent markets. Although our NPS increased across many of our businesses, customer expectations also continued to increase, meaning continual improvements to our customer journeys across our businesses are necessary. And while the repositioning of our CIB involved challenging strategic choices to reduce our activities in certain products and geographies, our client rankings and market shares demonstrate the strength of our proposition in our home markets of the UK and US. Complaints reduction remains a priority and we have more work to do, as can be seen from our position in the FCA complaint tables in the UK2. This is a key focus area for management as part of our ongoing commitment to improve our oversight of conduct.
Net Promoter Scores1
Relationship NPS (RNPS) across Barclays UK in 2016 reached a high of +13, an increase of 6 points compared to 2015, with more customers advocating our brands across key product categories, notably UK current accounts and UK credit cards. The continuous improvements we made to customer journeys through automation, digitisation and omni-channel capabilities were reflected in an average increase of five Transactional NPS (TNPS) points, with particularly strong scores in Barclays Mobile Banking and Pingit. Our Barclaycard International business also continued to have strong RNPS, driven by a clear focus on advocacy and improvements in our products and digital experience. Despite minor improvements to our NPS in business banking, we are intently focused on improving customer experience in 2017 to meet and exceed industry benchmarks. We are placing particular focus on our TNPS for business banking telephony and complaints, which are below expectations.
Client rankings and market shares
In Barclays International, within the Corporate and Investment Bank, we ranked in 2016: 5th by fee share, up from 6th in 2015, across our UK and US home markets in M&A, equity and debt capital markets and syndicated loan transactions (Dealogic) and 4th based on 2016 Global Fixed Income market share (Greenwich Associates). Among our largest UK corporate clients, 90% considered the service they receive from Barclays to be good, very good or excellent, broadly stable with 2015 (Charterhouse3).
Complaints
Underlying complaint volumes in Barclays UK reduced by 11% as a result of our ongoing focus on improving customer journeys. However, with PPI complaints increasing by 16%, total Barclays UK complaint volumes were up 1% year on year in 2016. Barclays International complaints increased 8%, mostly in our consumer business, driven by 6% growth in US credit card average open accounts, although complaints per account still remain close to an all-time low.
Lending volumes
Barclays is an important provider of financial services to UK businesses we provided around £70bn of loans, up 6%, and just over £3.6bn to SMEs, demonstrating our commitment to supporting growth in the UK. We also extended or renewed mortgage facilities worth nearly £19bn, up 8% year on year, to nearly 90,000 UK households. Building on the success of our digital consumer loan offering to existing customers, we recently became the first UK bank to offer instant business lending via a mobile app. And we processed one third of all payments made in the UK, through customer spending and our merchant acquiring network.
In 2016 we focused on delivering excellent customer and client experience, by offering innovative products and services to meet their needs in an appropriate and accessible way.
Making customers and clients lives easier
We are making our customers and clients lives much easier through pioneering innovation. For example, Barclays will be the first UK bank to offer a contactless mobile withdrawal service of up to £100 with the tap of a smartphone. We also launched our new online direct investing service (Smart Investor) and are the first high street bank to provide fully integrated banking and investments via online banking. Barclaycard also continued to lead in innovation, being the first of our competitors to launch a proprietary contactless Android capability through its app.
We also offered initiatives to help high-growth businesses flourish for example, our Barclays Eagle Labs provided innovation hubs for pioneering businesses in bank branches around the UK (see case study on page 28). Our UK credit cards Specialist Support team won the Vulnerable Customer Support Initiative Award at the 2016 Collections and Customer Service Awards; testament to the significant work we have done to provide the best possible experience to customers in difficult situations.
Our customers and clients are at the heart of our purpose and strategy. For further information on our customer propositions provided via our two core divisions, Barclays UK and Barclays International, please refer to pages 26 to 35.
Notes
1 | NPS is a ranking widely used in banking and other industries that facilitates comprehensive benchmarking and identifies best practice. Relationship NPS is measured at a business level, whereas Transactional NPS is measured for key customer journeys. |
2 | FCA reporting methodology changes were implemented for the second half of 2016, with reporting to commence from the end of February 2017. |
3 | Charterhouse Research Business Banking survey, 804 interviews with businesses in the UK turning over £25m-£1bn in 2016. Data is weighted to be representative of the UK business market. Percentage rating for overall service of bank named as main bank. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 21 |
Our key performance indicators
and positive outcomes for our stakeholders
are integral to our long-term strategic success.
|
Strategic non-financial performance measures: Colleague |
Key outcomes we will look to achieve include:
Promoting and maintaining:
§ | A diverse and inclusive workforce in which employees of all backgrounds are treated equally and have the opportunity to be successful and achieve their potential |
§ | Engaged and enabled colleagues |
§ | A positive conduct and values-based environment. |
How we measure success
Progress towards these outcomes is informed by a number of sources including internal dashboards, regular management reporting and external measures, ensuring a balanced review of performance. Evaluation includes, but is not limited to:
§ | Diversity and Inclusion statistics |
§ | Employee sustainable engagement survey scores |
§ | Conduct and culture measures. |
How and why we are renewing our approach
These measures build on the previous Balanced Scorecard Colleague metrics, the sustainable engagement of colleagues and proportion of women in senior leadership. Our revised approach allows for broader consideration of the extensive initiatives at Barclays that promote a diverse and inclusive environment where colleagues are engaged and enabled, while maintaining a positive conduct and values-based culture.
Although this is evidence of good progress, we continue to strengthen our gender pipeline and enable women to fulfil their career aspirations.
Supporting our employees We provide 2m hours of training to our employees. |
How we are doing
In 2016, we received positive external recognition for our work towards promoting a diverse workforce, with initiatives ongoing across each of our diversity pillars. At the same time, engagement of our colleagues remained stable overall, with opportunities identified to enable our colleagues to deliver excellent performance. We also made solid progress in embedding a positive conduct and values-based environment which will continue to evolve into 2017 and beyond.
For further information on our People, please see page 95.
Diversity of our workforce and inclusion of our colleaguesa
In 2016 we remained committed to increasing the diversity of our workforce, with increased female representation at all levels remaining a key focus on our Board this remained at 31% (2020 target of 33%). Across our senior leadership, female representation was 24% (2018 Women in Leadership goal of 26%). Following the recommendations from the Hampton Alexander Review, from 2017, we will publish the combined number of women on the Group Executive Committee and their direct reports, which was 25% at the end of 2016 (2020 target of 33%). In addition, in 2016 we increased female graduate hires to 39% from 31% in 2014.
Although this is evidence of good progress, we continue to strengthen our gender pipeline and enable women to fulfil their career aspirations, through activity such as: the 2016 Barclays Global Women in Leadership summit, promoting Dynamic Working, our Encore! Returnship Programme, our HeForShe campaign and the Barclays Womens Initiatives Network.
The other pillars of our global Diversity and Inclusion strategy are:
§ | Disability: Barclays Able to Enable Apprenticeship Programme launched in 2016 along with the Business Disability Forum awarding Barclays a score of 98%, the highest company rating in the history of the index |
§ | LGBT: Our Spectrum Allies programme includes over 7,000 colleagues supporting our LGBT agenda |
§ | Multicultural: 30% of our apprentices identify as Black, Asian and Minority Ethnic, 19% points above the national apprenticeship average |
§ | Multigenerational: Barclays Armed Forces Transitioning, Employment and Resettlement (AFTER) programme with nearly 400 ex-military hires since 2010. |
External recognition from organisations such as Stonewall, The Times Top 50 Places to Work for Women, 100% on the Human Rights Campaign Corporate Equality Index and a Working Mother Medias Top Employer for Women, confirms the progress we have made. In 2017, we will focus on our multicultural agenda through the launch of our Embracing Us Campaign and partnerships with organisations including the Wall Street Project and Race for Opportunity.
Note
a | Under Companies Act 2006, we are also required to report on the gender breakdown of our employees and senior managers a narrower scope than our Women In Senior Leadership definition. Of our global workforce of 119,300 (60,100 male, 59,200 female), 756 were senior managers (531 male, 225 female), which include Officers of the Group, certain direct reports of the Chief Executive, heads of major business units, certain senior Managing Directors, and directors on the boards of undertakings of the Group, but exclude individuals who sit as directors on the Board of the Company. |
22 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Engaged and enabled colleagues
Engaged employees are critically important as they are more likely to remain at and recommend Barclays, and deliver beyond the day to day requirements of their role. By promoting internal mobility and career development, we hope to not only attract talented individuals, but retain them. In 2016 we launched our Apply Within internal mobility campaign, increasing our rate of internal hiring to 48%, from 37% at the end of 2015 (excluding Africa).
This year our annual Your View employee opinion survey became a quarterly pulse survey (excluding Africa) allowing for more real-time feedback on how it feels to work at Barclays. At the end of 2016, sustainable engagement of our colleagues remained stable at 75%. Areas of particular strength from the survey included: colleagues feeling proud of the contribution Barclays makes to the community and society (88% favourable, up 3% points on 2015) and employees feeling respected regardless of their job (83% favourable, up 4% points on 2015).
Areas of opportunity include removing the obstacles people face in doing their jobs well and ensuring people have the necessary tools and resources to achieve excellent performance (both 52% favourable). To address this we continue to look at ways to improve the simplicity and efficiency of our systems, tools and resources to drive a culture of excellence.
A positive conduct and values-based culture
Fostering the right culture at Barclays is critical to our success and we continue to build a positive conduct and values-based culture through initiatives aimed at strengthening the profession of banking. The Lets talk about how performance management campaign, launched this year, supports the behaviours that underpin our values and reinforces the importance that we place on measuring and rewarding both what our employees deliver and how they deliver.
During 2016, we developed a culture measurement framework, anchored in our values, to manage and measure progress in embedding a positive conduct and values-based culture. The initial results demonstrate that we have been particularly successful in continuing to embed Stewardship and Integrity through focus on innovation and citizenship and by creating an environment where colleagues feel increasingly safe to speak up (81% favourable, up 6% points on 2015); and are unafraid to report unethical behaviour (first reported outcome 86% favourable). In addition, Service and Respect remain strong with 83% of colleagues agreeing with the proposition that Barclays is truly focused on achieving good customer and client outcomes and 89% of colleagues agreeing that Leaders at Barclays support diversity in the workplace. Excellence remains our biggest opportunity for improvement with 36% of colleagues agreeing that Barclays has been successful in eliminating obstacles to efficiency.
Strategic non-financial performance measures: Citizenship |
Key outcomes we will look to achieve include:
§ | Making decisions and doing business that provides our clients, customers, shareholders, colleagues and the communities which we serve with access to a prosperous future, through our Shared Growth Ambition |
§ | Proactively managing the environmental and societal impacts of our business. |
How we measure success
Progress towards these outcomes is informed by an assessment against our Shared Growth Ambition. These are supplemented by internal dashboards and external measures. Evaluation includes, but is not limited to:
§ | Delivery against our Shared Growth Ambition |
§ | Colleague engagement in Citizenship activities |
§ | External benchmarks and surveys. |
How and why we are renewing our approach
Since 2012, we have measured progress against initiatives in our four-year Citizenship plan. In June 2016, we launched our new plan, the Shared Growth Ambition.
Our long-term aim is to create and grow a collection of products, services and partnerships that improve the lives of people in the communities which we serve, while providing the commercial return our shareholders deserve.
We are moving away from setting narrow targets for our Shared Growth Ambition, as we focus more on impact and use a broader range of quantitative and qualitative indicators to assess performance. We will continue to have targets for carbon emissions reduction and training on the Barclays Way. We aim to enhance the impact of our Shared Growth Ambition over time and may expand our assessment to include additional measures in future years.
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LifeSkills Since 2013, 3.6m young people have participated in the programme, gaining real-world experiences for a better future.
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Our key performance indicators
and positive outcomes for our stakeholders
are integral to our long-term strategic success.
How we are doing
We exceeded our own objectives on all six initiatives in the first year of our Shared Growth Ambition. Performance was ahead of plan against our internal milestones for three initiatives around access to financing, access to digital and financial empowerment and access to employment. We also exceeded our 2016 targets for Barclays Way training, carbon emissions reduction and payment of suppliers on time.
Access to financing: We continued to deliver innovative financing solutions for areas including renewable energy, water and low carbon technologies; social infrastructure; development institutions; and small business financing. Barclays delivered £21.1bn in financing for selected social and environmental segments across our business lines. This included a range of green bond transactions for corporate, supranational and municipal clients as well as lending facilities for renewable energy projects. For further information, please see our Environmental, Social, Governance (ESG) Supplement 2016 available at home.barclays/annualreport
Access to financial and digital empowerment: Inclusive financial systems are key to achieving economic and societal progress, but there can be several barriers to access. We believe digital offerings can help break down these barriers. We helped empower around 249,000 people in 2016 through initiatives such as Barclaycard Initial for those with a limited credit history; our Digital Eagles network, who are specially trained Barclays employees working to provide free technology support to customers and non-customers; and the continued development of learning platforms such as Financial Wings and Digital Wings.
Access to employment: In the 21st century new jobs are increasingly coming from fast-growing small businesses and entrepreneurs, which require support to scale up. Barclays is committed to working on both the supply and demand side enhancing supply by helping people gain access to skills, and facilitating demand by supporting entrepreneurs to drive job creation. We helped upskill over 1.7 million people in 2016, driven by a range of regional partnerships and our LifeSkills programme. We also launched Unreasonable Impact in partnership with Unreasonable Group, focused on scaling ventures that solve environmental and societal problems. The first cohorts in the UK started in September and in the US in November 2016, with Asia launching in 2017.
Business conduct and environmental impact
The Barclays Way outlines the Purpose and Values which govern our way of working across our business globally. It constitutes a reference point covering all aspects of colleagues working relationships. 99.6% of our colleagues completed annual training on The Barclays Way in 2016 (Target: above 97%).
We reduced carbon emissions by 15.8% against the 2015 baseline, making good progress against our new target of 30% reduction by 2018. We also achieved 88% on-time payment by value to our suppliers (Target: 85%).
Engaging our colleagues
Our people are Barclays greatest ambassadors, contributing time, skills and expertise to create a positive and sustainable societal impact. In 2016 more than 43,000 colleagues participated in a range of causes, contributing over 212,000 hours, donating a total of almost £25m, including Barclays matched funding.
We reduced carbon emissions by 15.8% against the 2015 baseline, making good progress against our new target of 30% reduction by 2018.
Benchmarking our performance
In 2016, we improved our performance and maintained membership of both the Dow Jones Sustainability Index series, where our score increased by 2 percentage points to 84%, and the FTSE4Good Index series, with an absolute score of 3.9/5, up from 3.6 in 2015.
Further detail on policies, including Barclays Group Statement on Modern Slavery, can be found on our website at home.barclays/citizenship |
We also provide disclosures on key initiatives aligned to the Global Reporting Initiative guidelines, in the Environmental, Social, Governance (ESG) Supplement 2016 available at home.barclays/annualreport
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Performance review
Barclays UK
Summary
Our aim at Barclays UK is to help people move forward. We do this by creating meaningful relationships with our customers, offering them relevant products and services, and by using our leading data and analytic capabilities to ensure suitability and delivery of excellent customer experience.
During 2018, Barclays UK will become the ring-fenced bank for the UK, continuing to provide transactional, lending and investment products and services to over 24 million Personal, Wealth and Business Banking customers and clients, via a separate legal entity.
Ashok Vaswani is the CEO for Barclays UK and |
Market and environment in which the division operates 2016 was a year in which a number of significant events took place, such as the UKs vote to leave the EU and the presidential election in the US both of which impacted our customers and our operating environment.
In addition, the UK retail banking environment is increasingly competitive and dynamic, and is experiencing significant regulatory and technological change. The speed of change and innovation is expected to continue to accelerate with the introduction of new data regulations, such as the Open Banking Standards. Unfortunately, we are also seeing significant growth in sophisticated cyber-fraud.
Customer expectations are also increasing. Our customers want prompt responses to their banking requirements. They want their transactions to be accurate and efficient, yet still have that personalised support during key moments in their lives.
Barclays UK has a tremendous opportunity to grow our business and generate sustainable returns by building meaningful relationships with the 24 million customers we currently do business with. By innovating and harnessing technology we are able to provide simple and relevant solutions for our customers and clients, build sustainable revenue flows, structurally remove cost and achieve prudent, balanced growth within our risk appetite.
We achieve this through:
§ leveraging our data capabilities to identify when our customers need solutions e.g. SmartBusiness, our first big data product providing SMEs with key information, metrics and insights to help them grow their business
§ enhancing functionality on mobile and internet banking to enable customers to undertake all their routine transactional banking quickly and easily. Over 9.5 million of our customers are digitally active
§ building the Direct Bank. We have built capabilities, such as voice recognition and video banking, which allow us to interact with our customers 24/7, increase capacity, and have more meaningful interactions with our customers
§ tailoring services, such as pre-selecting existing banking customers for a Barclaycard, providing instant digital fulfilment and personalised experience through Barclays Mobile Banking
§ providing fully-integrated banking and investments with new, sophisticated digital platforms with a range of helpful tools, planners and information to help customers make informed decisions and take control of their investments
§ giving customers and clients market data they need to make personalised choices across business, property, education or investment by using our annual Barclays UK Prosperity Map or through our Unlock Britain campaign
§ keeping our customers and clients safe with increased focus and investment in tackling cyber-fraud.
We are also leading the digital revolution with our colleagues, working hand in hand with our communities, and helping our customers feel comfortable in the digital environment by introducing them to our Digital Eagles and our Digital Wings initiatives.
Barclays UK provides diversification to the Group with our balance of products and services in the UK banking sector. This diversification helps protect revenue flows in the changing environment, and allows us to remain close to our customers for all their banking needs.
Risks to the operating model We monitor the market environment closely in particular the effect of low interest rates, the expected growth in credit and unsecured lending, and adjust our financial and economic assumptions in a considered manner. As a large UK retail bank, we are cognisant of the credit risk
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faced through our lending. Our conservative risk profile for lending through products such as mortgages and credit cards, is continually monitored to ensure our exposure is aligned to our risk appetite.
Barclays UK is the largest contributor to margin-led income for the Group. Our focus on pricing discipline, reflected in our stable net interest margin in recent years, and our structural hedge programme investing in interest rate swaps to provide a smoothing effect on interest rate step changes have both provided protection against adverse changes in the interest rate environment in 2016, and will continue to do so going forward, albeit the beneficial impact of the structural hedge will decline over time.
We are committed to ensuring continued growth of the UK business, and are developing our product offering and services to suit customers needs, in their local environments. We understand the challenges posed by significant technological change and know it is essential that we stay relevant and provide up-to-date solutions for our customers. The pace of development also means a changing set of risks; from data integrity to continuity of service. We ensure our contingency systems are pressure-tested to ensure there is no disruption to customer service. Cyber-risk is a continuing concern, and we have invested heavily in cyber-crime prevention, working very closely with the UK government and other providers to create a secure digital environment.
We want to ensure we can put past conduct issues behind us, and have continued to de-risk and simplify our product portfolio.
You can read more about changes in regulation, and risks to the business in the Risk section and the Supervisory and Regulation sections in the Annual Report.
Business highlights One of our highlights of 2016 has been the creation of Barclays UK and an even greater focus on transforming how we interact with our customers and use data to identify opportunities to meet their needs.
In 2016, Barclays UK RoTE excluding notable items was 19.3% (2015: 21.1%), as profit before tax decreased 5% to £2,587m driven by an increase in credit impairment charges, partially offset by a reduction in total operating expenses. Including notable items, reflecting provisions for UK customer redress, RoTE was 9.6% (2015: (0.3%)). We have seen strong deposit growth, a stable net interest margin and prudent growth in loans and advances, focused on remortgage and lower loan-to-value segments, and unsecured loans to existing customers.
We now have 5.7 million registered users on Barclays Mobile Banking. On average, customers come into our mobile app 31 times a month, an indication of deep engagement. |
This year, we launched automated valuations for home purchases, shaving four to five days off processing time and transforming both the colleague and customer experience. Weve also introduced Mortgage Agreement in Principle in 338 branches, allowing a customer to obtain a mortgage decision in less than 15 minutes. We are also offering bespoke mortgage products for Premier customers. Overall, our mortgage business is seeing significant sustainable growth.
We have focused on automating the end-to-end customer journey across all parts of our business, which is resulting in improved customer experience, reduced costs and a double-digit drop in customer complaints. We have made it easier for business clients to open accounts and borrow money from us with digital on-boarding, the Solicitor Portal a dedicated portal for managing the end-to-end business lending journey and pre-approved limits. Business Instant Lending has reduced cycle times for customers requesting unsecured loans of less than £25,000, from five days to a matter of minutes.
We have also launched an exciting new product for SMEs. SmartBusiness is a data analytics tool that allows a business to know its monthly sales, annual debit card transactions, year-on-year sales, or average transaction values in a simple snapshot, using all of our debit card and credit card data for that business. We believe providing these analytics to small businesses will help move their business forward.
We are delivering on significant opportunities in UK Cards, both by providing credit cards to existing current account customers, leveraging what we have learnt in digital delivery of consumer lending, and by extending programmes like SmartSpend and Features Store to all UK Cards customers.
Pingit, our app where you can undertake a transaction whether or not you are a Barclays customer, now has 3.2 million registered users. Its companion app is our reference tool, Cloudit, which allows all correspondence with the bank to be stored on a customers personal cloud.
We are the only bank in Europe to have launched video banking, rolling it out at scale, and encrypting the process. And were the first bank in the UK to introduce contactless cash a completely new way for our customers to withdraw cash, using contactless technology.
We have made significant changes to our business in 2016, and I am confident that in 2017 we will continue on our path of innovation and growth.
Ashok Vaswani CEO, Barclays UK |
Barclays UK operational model
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Performance review
Barclays UK
Personal Banking
Summary
Personal Banking provides simple and transparent banking products to around 16 million customers, helping them to anticipate and fulfil their financial needs. This can range from opening a first bank account as a young person to managing finances in retirement, or from everyday insurance to buying a home.
A core element of our Personal Banking business is to use technology to automate transactions, enabling us to interact with customers about what is important to them, when and how they want.
The scale and reach of Personal Banking offers a unique opportunity to help people move forward, with confidence, in an increasingly dynamic and changing financial environment.
We are continuing to transform our customer experience, by building innovative technology to make banking easier. This more efficient technology also allows our colleagues more time to spend with customers, all of which positions us well for the future.
Our focus is, therefore, on delivering an outstanding experience for our customers, our colleagues and the communities in which we operate. We believe in building relationships that show we understand individual and collective circumstances to such a degree that we can provide a solution that is both relevant and meaningful. We offer choice and flexibility in how to meet the different needs of our diverse customer base and we are proud to be the first UK bank to launch voice security and secure video banking.
Discovering the value of connecting customers with other people within their communities has proved to be a great success. Our branches are providing spaces for Incubators and Barclays Accelerator projects, for Digital Eagle sessions and also Eagle Labs not only educating customers on new and different technologies, but providing them with space to meet, collaborate, network and build on ideas.
Our innovative technology is industry leading and we are award-winners for our work on intuitive products and ways of banking that suit customer needs. Launching such a broad combination of products, services and convenient ways to conduct everyday banking has meant, however, that we continue to see counter transactions decline. Nevertheless, we have evolved our physical estate and invested in areas such as Newcastle, with our new city centre branch, and also redesigned our Fenchurch Street and Hanover Square branches in London, to better suit the banking needs of the communities there. Our highly-automated consumer lending business to existing customers is growing fast, making Barclays the biggest digital unsecured personal lender in the UK.
Significant improvements have been made to the customer experience, by looking at the end-to-end experience from our customers viewpoint. This is an ongoing programme, but has already resulted in a double-digit drop in customer complaints, as well as helping to lower costs and improve control.
Rewarding customers loyalty has been a focus for 2016. Blue Rewards, including cashback, Premier Exclusives and the launch of welcome gifts for first-time homebuyers, are good examples of this. We wanted to create moments that stand out for our customers, and to make their lives easier by simplifying our processes. This supports our ambition to build better relationships with our customers at all levels.
We are continuing to transform our customer experience by building innovative technology to make banking easier.
We have improved the support we offer the communities we serve, making it easier for students and young professionals to open an account. In addition, we are continuing our support to military personnel to improve their access to banking.
We are creating an environment for our colleagues that inspires them to be passionate and empathetic and that makes them feel empowered to find solutions for our customers in turn, helping our customers move forward and achieve their financial ambitions.
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Barclaycard Consumer UK
Summary
Barclaycard Consumer UK is a leading credit card provider in the UK.
We are a responsible lender and help consumers fund purchases by providing credit based on their credit history, ability to afford credit and our risk appetite. We enable consumers to pay in the way that suits them by card, online, mobile or using a wearable device, including Barclaycard Contactless Mobile and Apple Pay.
We are customer focused and invest in people, processes and future technologies in order to continue to play a leading role in the industry and help our customers move forward every day.
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In 2016, Barclaycard celebrated its 50th anniversary, having launched the first credit card in the UK in 1966. We have been responsible for many firsts from company credit cards through Chip & PIN to contactless, mobile payments and most recently our range of wearable payment options. As Barclays is the only major UK card issuer and payment acceptance provider, we are in a unique position to shape the payments landscape, make businesses more successful and give people greater control over their money.
In UK Cards, we offer three core credit card products. Our Barclaycard Initial credit card is aimed at customers who are looking for a first credit card, or have a limited credit history, and helps them to build a credit profile. Our Barclaycard Platinum card offers promotional savings on balance transfers and purchases for borrowers with good credit history. Alternatively, shoppers can earn reward points everywhere they shop with our Barclaycard Freedom Rewards credit card. All our products are underpinned by terms and conditions that have received the Plain English Crystal Mark.
Every Barclaycard comes with additional features and benefits, including ways to manage accounts online and on the go with the Barclaycard App. We offer free Experian Credit Scores and a range of entertainment benefits. We also give support to consumers by providing guides on how to protect themselves from fraud, how they can protect their purchases and what to do if they have money worries.
Were continuously looking for ways to improve the customer experience we deliver. We track our Transactional Net Promoter Score (TNPS) after customer interactions and use social media as a way to get feedback from our customers and improve our processes. Since UK Cards was brought under the Barclays UK structure in March, we have been looking for ways to enhance the services we provide to our joint customers. For example, Barclays customers can now apply for a Barclaycard through the Barclays Mobile Banking app, with guaranteed pre-approvals for eligible customers.
The unsecured lending and consumer payments markets continue to experience considerable change, driven by new entrants, new technologies, changing consumer expectations and behaviour. We are continuing to invest in new technology and to develop pioneering new products and services for our consumers, for example we launched proprietary contactless Android capability through our app, six months ahead of our nearest competitor.
We are pleased to have won a number of awards, acknowledging the market-leading products and services we offer our consumers. We won Best Overall Credit Card Provider at the Money Pages Personal Finance Awards 2016/17. In addition, we have won awards for our support for vulnerable customers and our use of social media.
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Performance review
Barclays UK
Wealth, Entrepreneurs and Business Banking
Summary
Barclays wealth offering delivers a truly holistic wealth management service that includes domestic private banking, wealth planning, trust and fiduciary services, investment management and brokerage.
Business Banking supports over one million clients, across the UK, run and grow their business, from start-ups to mid-sized businesses. Our model is relationship-based and digitally-driven.
We aim to allow clients to access the products they need, in the way they want online, mobile or by working with a Relationship Manager. We put our clients at the heart of our business, delivering the service they need, in the way they choose.
Wealth Overview
In our Wealth business, our bankers provide overall advice to our clients and co-ordinate access to specialists within Wealth and the wider Barclays UK division. Clients benefit from our expertise in personal banking, credit cards, business banking and digital innovation.
A sharp focus on our fundamental business drivers in Wealth, throughout 2016, has resulted in strong underlying asset growth, generating both sustainable income growth and an improvement in our Cost: Income ratio.
We have continued to enhance our Wealth client experience in 2016, most notably with the launch of the Barclays Mobile Banking for Wealth app, which introduced innovative features, such as historical performance analysis, benchmark comparison functionality and asset class drilldowns.
We have reduced our risk by refocusing our Wealth business on our core markets in the UK. The overall wealth market remains stable and we anticipate that it will remain competitive. We feel the business is relatively insulated from the effects of FinTech on traditional financial services, as our clients have a preference for personal service and human interaction.
Business Banking Overview
We provide coverage for clients across the UK at every stage of their business cycle in every industry, delivering distribution models which match clients needs and sophistication. We serve our clients through a relationship-based and digitally-driven model, combining an on-the-ground and direct relationship model with unique digital solutions. A number of innovations were launched in 2016, including instant lending online, and on mobile, plus on-demand cash pick-up. We are the only UK bank to offer these services.
In 2016, we launched new tools for our Business Banking colleagues bringing relevant, up-to-date industry information together in one place, enhancing our service to clients through deeper insights and understanding.
The Industry Knowledge Hub, for example, brings together 150 client-shareable industry snapshots, external industry news, industry marketing and thought leadership into one easily-accessible place for colleagues. We are looking to continue enhancements to the platform in 2017, including the ability for colleagues to personalise their industry reports and bookmark their most used reports.
We ensure a strong focus on conduct and customer outcomes through creating a secure and controlled environment and have mobilised comprehensive and experienced teams to monitor, anticipate and resolve issues.
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home.barclays/annualreport | Barclays PLC Annual Report 2016 | 31 |
Performance review
Barclays International
Summary
Barclays International is a diversified transatlantic, wholesale and consumer bank which will be housed within Barclays Bank PLC, the future non-ring-fenced bank. We seek to compete in markets where we have the competitive advantage and scale to provide best-in-class service to our clients and customers. We seek to maintain and further our position as a leading provider of financial services to corporates, institutions and individuals.
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Market and environment in which the division operates In 2016, heightened political uncertainty in both of our home markets, caused significant volatility in capital markets and material movements in currency markets, particularly in Sterling.
In spite of this, the environment in which we are operating in is more stable than it has been for a number of years. The implications of a number of post-crisis regulations on the business models of banks, in particular investment banks, have become clearer through 2016 as a number of key regulations have either taken effect or been clarified. As part of complying with Section 165 of the Dodd-Frank Act, Barclays and other large foreign banking organisations operating in the US were required to establish a US Intermediate Holding Company (IHC) by 1 July 2016. The IHC is an umbrella holding company for the Banks US subsidiaries, and is subject to Federal Reserve prudential standards to ensure safety and soundness, particularly around capital, liquidity and risk management. Barclays IHC became operational on 1 July 2016 and its key subsidiaries include Barclays Capital Inc. (US broker-dealer) that operates key investment banking businesses and Barclays Bank Delaware that operates Barclaycard US.
The implementation of our strategy, which is in-line with the UK ring-fencing regulations, has resulted in the creation of Barclays International as a sister division to Barclays UK under the Barclays PLC Group umbrella. Barclays Bank PLC, the future non-ring fenced banking entity, will continue to house the Barclays International division.
Supported by the newly created Group Service Company, Barclays International is reliant on the support of internal operations and technology to maximise efficiency for customers and clients and meet the requirements of our regulators. In a dynamic environment we need to be setting trends, by using forward-looking technology and adapting quickly and proactively to the evolving regulatory and market conditions.
For example, in the payments space, technological evolution, regulation and consumer behaviour is driving disruption, which is likely to transform the way in which consumers and businesses transact.
Barclays International encompasses the following businesses:
§ Corporate and Investment Bank (CIB)
§ Consumer, Cards and Payments (CC&P)
These businesses combine to form a diversified, yet highly complementary portfolio of businesses that has proved to be resilient in a year of significant uncertainty and change. We consciously focus our efforts and resources on products, sectors and geographies where we have a meaningful competitive advantage.
Our dual home markets, in the UK and US, anchor our business in the two most important global financial centres and two of the most resilient western economies.
Barclays International brings together a portfolio of businesses serving consumers, SMEs, corporates and institutional investors. On the consumer side, Barclaycard International provides consumers with credit cards and lending. In Private Bank & Overseas Services, we provide banking, investment and wealth management services across the client continuum, globally. For SMEs and corporates, we enable payment acceptance, commercial card payments and point-of-sale finance. Through our CIB, we also serve corporates by providing advice on raising new equity or debt capital, and support our institutional investors by enabling them to trade stocks and bonds.
Our business model in Barclays International, especially CIB, is dependent upon client relationships and the services that we provide to these clients. Armed with these financial tools, we help our clients execute their business strategies and grow their businesses. This may result in capital raised to build a new production centre and in turn, create employment as well as product creation for pension funds to invest in. | |
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Risks to the operating model
Global volatility and macroeconomic uncertainty in some markets remains a risk. While the UKs vote to leave the EU does not change our overall strategic objectives, we realise that it will add complexity in the shorter term to our operations in the EU.
The volume and reach of regulatory change continues to require significant attention and presents a number of challenges in the medium term. However, we have demonstrated our ability to react early to regulatory changes, and the impact they have on our operating environment, often turning challenges into competitive advantages.
Data and technology drive benefits for our customers and clients. The importance of complying adequately with data protection laws and protecting this information from increasingly sophisticated criminals remains at the forefront of our operations.
The frequency and reach of cyber-attacks has markedly increased, and financial institutions, such as Barclays, are obvious targets for malicious cyber-activity. We are very focused on ensuring our cyber-defences stay ahead of the increasingly sophisticated threats that we face.
In addition, preparing the business for structural reform continues. Barclays International is now operating as a separate segment within the Group, but a number of execution milestones remain before we achieve the Groups target state structure. We are very conscious of ensuring that our clients and customers face the minimum possible disruption from this transition.
We continue to strengthen our resilience to conduct risk and are working to put legacy conduct issues behind us.
Business highlights
Barclays International RoTE was 8.0% (2015: 9.5%), excluding notable items, as profit before tax decreased 3% to £3,747m driven by increased credit impairment charges and increased operating expense. This was partially offset by strong income growth, including the benefit from the appreciation of the US Dollar and the Euro against GBP. On a statutory basis, RoTE was 9.8% (2015: 7.2%).
Barclays has taken a leadership role in Blockchain technology in the banking sector, together with enhancements in data analytics, cyber-security and innovative identification and verification techniques. This has enabled us to utilise innovation to deliver improved client service.
We became the first organisation in the world to use a Blockchain-enabled trade transaction to transfer original shipping documentation. The initiative helped the client complete a process that usually takes 10 days in just 4 hours, mostly due to allowing for paperless exchange of documents, full transparency through the supply chain and mitigation of financial crime risks. For further information refer to the case study on page 7.
Transparency and the intelligent use of data has been a key focus. We continued to roll out the SPECS platform across Barclays. SPECS provides buy-side traders with an online portal to view, verify and request changes to client order handling settings. It meets requirements for greater control, transparency, trade analytics and a consolidated view of order settings.
Our payments expertise and dedication to our customers and clients has enabled us to retain and grow relationships with partners and clients such as American Airlines, in US Cards, and TfL, through our payment acceptance proposition, as well as launching new partnerships such as with JetBlue Airways. In addition, we expanded our lending offering with new personal loans launched in the US and Germany and a new partnership with Apple on the iPhone upgrade programme in the UK.
We have made encouraging progress in fraud and cyber-protection in 2016, and will continue to focus on this critical area. For instance, in the Corporate Bank we have introduced cutting-edge malware and remote attack detection solutions and introduced a new PIN Pad reader and Barclays Biometrics reader in the UK, to tackle PIN capture fraud.
The services we offer to our customers and clients have been recognised by industry awards: International Financing Review (IFR) magazine named Barclays its house of the year for North America high-yield bonds, Americas loans and Sterling bonds in its 2016 review of the year. Our research platform ranked third for Developed Markets Research across Equities and Fixed Income in the Institutional Investor 2016 survey, reflecting alignment with our transatlantic strategy. In addition, we won Best Investment Bank Western Europe in the 2016 Euromoney
Awards for Excellence.
Tim Throsby
President, Barclays International and Chief Executive Officer,
Corporate and Investment Bank
Barclays International operational model
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 33 |
Performance review
Barclays International
Corporate and Investment Bank
Summary
The CIB offers wholesale banking products and services to corporate and institutional investor clients. The business is anchored around our two home markets two of the largest capital markets in the world. We have adapted early to regulatory and markets changes, positioning the business to retain our position as a leading European CIB.
The creation of Barclays International has helped us to better align our businesses so that we now present a single integrated view of Barclays to our corporate and institutional clients through our CIB and deliver synergies to the business. The CIB offers clients a full service capability through its two divisions:
§ | Banking offers long-term strategic advice on mergers and acquisitions, corporate finance and strategic risk management solutions, equity and credit origination capabilities, coupled with lending and transaction banking products |
§ | Markets provides execution, prime brokerage and risk management services across the full range of asset classes, including equity and fixed income and currency products. |
We have extensively simplified our CIB over the past three years, making challenging strategic choices to reduce our activities in certain products and geographies, to better position the business for the regulatory and market conditions that we now face. In spite of the heightened political uncertainty that we have seen through 2016, the environment that we are operating in is more stable than it has been for a number of years, and we are beginning to see the positive implications of making early strategic decisions on our CIB business model. We aim to retain our position as a leading European CIB, competing with the US-domiciled banks in our chosen products and markets.
As part of our Banking division, we aim to help clients large and small, improve performance and enable businesses to grow. We review individual business needs to offer bespoke solutions suited to particular business objectives. For example, through our asset finance operations, Barclays can be an enabler in the transition to greener operations through financing more efficient manufacturing sites and green supply chains. We support lending to high growth businesses who typically have difficulty accessing bank finance, as well as through larger infrastructure project finance, where we have supported the financing of over 500 Mega Watts of clean energy in the UK and Ireland in 2016, equivalent to powering c.220,000 homes per annum.
Further information can be found in the case study below, and in the ESG supplement available at home.barclays.com/annualreport
Performance
Our Banking business had a strong performance in 2016 gaining share, particularly in our home markets of the UK and US where we ranked 5th by fee share for all clients in M&A, equity and debt capital markets and syndicated loan transactions in 2016 (Dealogic). This momentum helps us retain and hire talented individuals and further develop our relationships with our corporate client base. Landmark transactions that we have closed in 2016 include:
§ | financial advisor to Teva Pharmaceutical in its acquisition of Allergans generic drug business |
§ | joint bookrunner on the two largest US leveraged loan financings of 2016 for Dell and Avago |
§ | active joint bookrunner and global coordinator in the second-largest corporate investment grade bond offering ever, ABInBevs M&A IG Bond financing. |
Markets income increased compared to 2015 with strong performances in the underlying businesses. Credit income benefitted from a strong performance in fixed income flow credit and emerging markets businesses, which benefitted from increased market volatility and client demand. Macro income benefitted from an increase in activity post the UKs vote to leave the EU and US elections. These performances were partially offset by a decrease in Equities, reflecting the simplification of the EMEA business and lower client activity in Asia.
34 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Consumer, Cards and Payments
Summary
Consumer, Cards and Payments is the consolidated reporting structure for Barclaycard International and the Private Bank and Overseas Services.
Barclaycard International provides branded and co-branded consumer credit cards and lending to our customers and business solutions to our clients, globally.
Private Bank and Overseas Services provides banking, investment and wealth management services to over 163,000 clients, globally.
Barclaycard US
Our core co-brand and branded credit card business in the US has continued to grow strongly; we remain the ninth-largest issuer by balances, growing 14% over the last year. We have strengthened our relationship with existing partners, for example signing a major deal with American Airlines, and have launched a new partnership programme with JetBlue Airways. Our Barclaycard brand continues to get stronger in the US; with our Barclaycard Arrival Plus World Elite MasterCard winning the Best Travel Credit Card for Frequent Fliers by MONEY® Magazine.
Our successful online retail deposits business has reached US$11bn, supporting our overall funding strategy in the US. In November we launched a personal loans offering, further diversifying our product mix.
Barclaycard Business Solutions
Barclaycard provides payment acceptance, commercial payments and point-of-sale finance solutions to all client segments in the UK. We are a leading provider in all areas, including being the second-largest payment acceptance provider in Europe by volume.
Among our achievements this year, we have launched market-leading business card propositions, developed full omni-channel capabilities including strong data security features, and partnered with Apple to help launch their Apple iPhone Upgrade.
Our large corporate portfolio continued to grow, with a number of major new client wins and retentions, including TfL, Greggs and Centrica.
Barclaycard Germany and EnterCard
This year, Barclaycard Germany celebrated its 25th anniversary and now serves over 1.1 million customers. With a share of 34%, Barclaycard Germany is the leading issuer for revolving credit cards in Germany by outstanding balances. In the instalment loans market, Barclaycard Germany has a strong challenger position with a growth rate of 15% and 1% share. Innovative products and features such as the fully digital Express-Kredit or the Equal Payment Plan, as well as continued customer focus, drive exceptional customer satisfaction rankings, with the business leading the market for credit cards and in the top two for loans, respectively.
We also provide cards and lending in Norway, Sweden and Denmark via our EnterCard joint venture.
Travis Perkins PLC
| ||||
Travis Perkins PLC, a leading company in the builders merchant and home improvement markets, was looking for a unified customer payments platform across its different brands. It wanted to work with a partner that would reduce the complexity of managing and maintaining a highly secure, diverse payments environment, while allowing the flexibility to innovate and explore new customer interactions.
Barclaycard Business Solutions was able to provide a true omni-channel payments platform that offers single point management across multiple brands and channels, from online pay pages to in-store points of sale. The implementation has already seen Travis Perkins PLC benefit from increased card payment security and protection of its brand, as well as cutting transaction response times by up to 94%.
| ||||
For further information, see | ||||
the-logic-group.com/cp/case-studies | ||||
Private Bank
The Private Bank strategy going forward is to deliver personalised banking, investment and wealth management solutions to high net worth and ultra high net worth individuals, providing full access to complex and innovative products and services across Barclays platforms. Clients are supported by a dedicated Private Banker and team of investment and wealth specialists. In addition, the Private Bank facilitates access to Barclays Corporate and Investment Bank full suite of products and services. The Private Bank is now even more focused on our core competencies and poised to grow, demonstrated by strong underlying asset and income growth in 2016.
Overseas Services
With a full suite of banking, credit, investment and wealth management operations principally in the Isle of Man, Jersey and Guernsey, our Overseas Services business supports client types that stretch across the client continuum, personal to corporate. Overseas Services is the gateway to the wider Barclays Group, providing offshore capabilities and expertise. The business delivered solid results in 2016, with strong liability growth, coupled with continued focus on cost management, resulting in a strong Cost:Income ratio and returns in 2016.
Supporting our communities
Building on our commitment to make a positive difference to the communities in which we live and work, we delivered a number of successful initiatives across Barclaycard International in 2016. In the UK, we have launched a major new partnership with The Princes Trust, helping young people build their skills and confidence, and have won The Princes Trust Service to Young People Award for corporate volunteering. In the US and Germany we have been supporting start-ups through our programmes with West End Neighbourhood House and our Social Impact Lab incubator respectively, and helping individuals develop essential coding skills through our Apps Camp programme and partnerships with Tech Impact and Delaware State University.
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 35 |
Performance review
Non-Core and Africa
Non-Core
Summary
The Non-Core run-down is a key driver of the simplification of Barclays, helping to improve Group returns and deliver value for shareholders. After our accelerated progress in 2016, we now intend to close Non-Core six months early at 30 June 2017.
Non-Core was formed in 2014 to oversee the divestment of Barclays non-strategic assets and businesses, releasing capital to support strategic growth in our Core businesses. Non-Core brought together businesses and assets that did not fit our strategy, remained sub-scale with limited growth opportunities, or were challenged by the regulatory capital environment.
Non-Core is run by a dedicated management team operating within a clear governance framework to optimise shareholder value as businesses and assets are divested. It maintains a robust risk management framework to mitigate the risks inherent in our businesses and assets, as well as our divestiture and run-down processes. The clearly defined objectives for Non-Core are to bring down RWAs, reduce the ongoing operational cost base and simplify the residual portfolio and risks in preparation for their return to Core.
To divest Non-Core successfully we are partly dependent on external factors that can impact our planned run-down profile. For instance, the income from our businesses and assets, the quantum of associated RWAs and finally market appetite for Non-Core components are all influenced by the market environment. In addition, our ability to complete divestitures depends on regulatory approvals in various jurisdictions and regulatory changes in the treatment of RWAs can impact our stock of RWAs.
2016 was an important year for Non-Core as RWAs were reduced by 41% to £32bn, preparing the division for reintegration into the Core in 2017. The loss before tax increased to £2.8bn, reflecting the acceleration of the run-down during the year, where significant progress was made across all three components of Non-Core. Business RWAs were reduced by £4bn, with the completion of the sales of Barclays Risk Analytics and Index Solutions, the Asia Wealth and Investment Management business, the Southern European cards business, and the Italian retail business. We also made good progress in the run-down of Derivatives, reducing RWAs by £10bn, and Securities & Loans by £3bn respectively.
Given the progress made in 2016, we intend to close Non-Core six months early at 30 June 2017, with c.£25bn of RWAs, meaning that we will have reduced Non-Core RWAs by c.£85bn in just over three years. We expect Non-Core losses in 2017 to be significantly lower than in 2016, with further reductions thereafter once the remaining assets are reabsorbed back into the Core where they will continue to be managed down.
Africa
Summary
As part of the strategic review on 1 March 2016, Barclays announced its intention to sell down its stake in BAGL to a level that would permit regulatory deconsolidation.
Barclays Africa Group Limited (BAGL) is a leading pan-African diversified financial services provider headquartered in South Africa, with meaningful operations across the continent (Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania, Uganda and Zambia), and is listed on the Johannesburg Stock Exchange.
During 2016, we sold a 12.2% stake, reducing our previous 62.3% holding to 50.1%. Further sell-down to a level that will permit regulatory deconsolidation is expected, and it is currently the Boards intention to maintain a minority shareholding and a commercial relationship with BAGL. Both would need to be consistent with the aim of achieving regulatory deconsolidation.
BAGL is represented in Barclays accounts through Africa Banking. Africa Banking represents BAGL accounts converted to GBP, in addition to Barclays goodwill on acquisition and Head Office allocations that are deemed to be incrementally incurred as a consequence of Barclays operations in Africa, such as the UK bank levy. For clarity, the income statement is provided on page 257. As Africa Banking meets the requirements for presentation as a discontinued operation, the results are presented as two lines in the Group income statement, representing profit after tax relating to our 50.1% stake, and the 49.9% portion attributable to the non-controlling interests in BAGL. This can be seen in the Group income statement on page 277.
Barclays and BAGL have been working closely together to plan and prepare for the successful separation and migration of BAGLs operations from the Barclays Group while Barclays assesses sell-down options, both on and off-market. This work has culminated in the agreement of terms for transitional services and supporting arrangements with BAGL, the details of which have been submitted to relevant regulators as part of a request for approval for Barclays to sell down to below a 50% holding.
A successful regulatory deconsolidation of BAGLs operations will lead to further simplification for the Group, resulting in CET1 ratio uplift and will constitute a further step towards focusing on our core transatlantic consumer, corporate and investment bank operations.
|
Details on the performance of BAGL can be found at | |
barclaysafrica.com |
36 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 37 |
Governance overview
Our shared values guide the choices we make every day
Summary
A comprehensive corporate governance framework is vital it helps ensure that your investment in Barclays is protected, while at the same time recognising the interests of our wider stakeholders.
For your Board, 2016 was a year of continued focus on execution and managing through a period of change. Our Group Chief Executive Officer, Jes Staley, completed his first full year in the role and the momentum that has been achieved under his leadership over a relatively short period has been notable. During this time, he has articulated a clear strategy for the future and put together an executive management team that is focused on delivering that strategy and generating sustainable returns for our shareholders. A comprehensive corporate governance framework is vital in supporting executive management in its execution of strategy and in driving long-term sustainable performance. It helps ensure that your investment in Barclays is protected, while at the same time recognising the interests of our wider stakeholders.
Supporting strategy execution
The Boards agenda during 2016 was focused on overseeing and supporting executive management in delivering on Barclays strategic objectives. You will read elsewhere in this report of the progress that has been made with the performance of our Core business, with the accelerated run-down of the Non-Core businesses and with the sell-down of our holding in Barclays Africa. As a Board, we also spent a considerable amount of our time on Structural Reform, in particular the project to separate our retail banking operations into an independent legal entity within the Barclays Group. This is a significant and far-reaching change to Barclays operating structure. In tracking the progress of implementation, your Board debated the risks and challenges across the stakeholder spectrum, including the potential impacts on shareholders, employees, clients and customers. Structural Reform will also have a profound impact on the way in which the Barclays Board itself operates, especially in terms of how it interacts with the boards of the newly-established legal entities and with regard to talent management and succession planning for executive management and board appointments across the Barclays Group.
Personal accountability is a central tenet of our culture, enabling us to achieve the highest standards of performance and deliver value for our customers and clients. It is also key to ensuring that trust finds its way back into banking and therefore underpins our long-term success.
It is during such periods of transformational change that leadership and good governance are more important than ever. The challenge was heightened during 2016 by the result of the UKs referendum on its membership of the EU. Your Board spent time assessing Barclays contingency plans and evaluating the potential impact of the UK exiting the EU on each of Barclays businesses. This included the possible consequences for capital, operations and regulation, along with the impact for employees, clients and customers. Of course, the precise terms of the UKs exit from the EU and the long-term effects are not yet known and will only become clear over time. However, our strategy remains focused on building on our strengths as a transatlantic consumer, corporate and investment bank, anchored in the UK and the US.
38 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Culture, values and accountability
As Chairman, an important part of my role is to promote the highest standards of corporate governance in Barclays and to ensure that this is supported by the right culture, values and behaviours from the top down. The implementation in March 2016 of the UKs Senior Managers Regime introduced new regulatory standards for individual accountability and conduct, which align closely with our established purpose, culture and values. Personal accountability is a central tenet of our culture, enabling us to achieve the highest standards of performance and deliver value for our customers and clients. It is also key to ensuring that trust finds its way back into banking and therefore underpins our long-term success.
John McFarlane
Chairman
22 February 2017
Your Board
|
||
John McFarlane |
Group Chairman | |
Jes Staley | Group Chief Executive; Executive Director | |
Mike Ashley | Non-executive Director | |
Tim Breedon | Non-executive Director | |
Mary Francis | Non-executive Director | |
Crawford Gillies | Non-executive Director | |
Sir Gerry Grimstone | Deputy Chairman and Senior Independent Director | |
Reuben Jeffery III | Non-executive Director | |
Tushar Morzaria | Group Finance Director; Executive Director | |
Dambisa Moyo | Non-executive Director | |
Diane de Saint Victor | Non-executive Director | |
Diane Schueneman | Non-executive Director | |
Steve Thieke | Non-executive Director |
Board diversity gender balance
| ||||||
|
For further information, see pages 39 to 133
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home.barclays/annualreport | Barclays PLC Annual Report 2016 | 39 |
Governance overview
Our shared values guide the choices we make every day
Summary
A snapshot of how Barclays complies with the requirements of the UK Corporate Governance Code (the Code) is set out below.
Compliance with the UK Corporate Governance Code
Leadership
There is clear division of responsibilities between the Chairman, who runs the Board, and the Group Chief Executive, who runs the Groups business. Individual roles on the Board and their responsibilities are set out in Barclays Charter of Expectations.
The Senior Independent Director, Sir Gerry Grimstone, provides a sounding board for the Chairman, acts as an intermediary for the other Directors when necessary and is available to shareholders if they have concerns that have not been addressed through the normal channels.
The Board has set out Barclays culture, values and behaviours in Barclays Purpose and Values and The Barclays Way, which are embedded throughout the Group.
Directors are expected to provide rigorous and constructive challenge on matters that, owing to their strategic, financial or reputational implications or consequences, are considered significant to the Group.
Effectiveness
The skills, knowledge and experience needed for an effective Board are recorded on a skills matrix, which is used by the Board Nominations Committee to inform Director recruitment, induction and on-going development.
The composition of principal Board Committees meets the independence criteria of the Code and there is appropriate cross-membership to further promote effectiveness.
10 of 13 Directors are independent non-executive Directors (77%), while the Chairman was independent on appointment.
At the end of 2016, there were four women Directors (31%), compared to our target of 33% by 2020.
The Board Nominations Committee regularly considers Board and senior management succession plans.
Appointments to the Board are made via a formal, rigorous and transparent process, based on merit, taking into account the skills, experience and diversity needed on the Board in the context of Barclays strategic direction.
All Directors are expected to commit sufficient time to fulfil their duties to Barclays. In 2016, Directors attendance at scheduled Board meetings was 98% and across the scheduled Board Committee meetings was an average of 98%.
The Board assesses its effectiveness and that of its Committees and the individual Directors annually in a process that is externally facilitated by an independent third party.
Directors are subject to re-election each year by shareholders at the Annual General Meeting (AGM).
Barclays Charter of Expectations sets out responsibilities for providing the Board with accurate, timely and high-quality information necessary for it to fulfil its duties.
Accountability
The Board is responsible for setting Barclays Risk Appetite, i.e. the risks it is prepared to take in the context of achieving Barclays strategic objectives.
Barclays Enterprise Risk Management Framework is designed to identify and set minimum requirements in respect of the main risks to achieving the Barclays strategic objectives and to provide reasonable assurance that internal controls are effective.
The Board conducts robust assessments of the principal risks facing Barclays, including those that would threaten its business model, future performance, solvency or liquidity. It reports on this in the annual Viability statement (opposite).
The Directors also review the effectiveness of the Groups systems of internal control and risk management.
The Board has put in place processes to support the presentation to shareholders of fair, balanced and understandable information.
The Board Audit Committee, comprising independent non-executive Directors, oversees the effectiveness of Barclays internal and external auditors.
Remuneration
The Board Remuneration Committee, comprising independent non-executive Directors, sets overarching Group remuneration policy and approves the remuneration arrangements of the Chairman, the executive Directors and other senior executives.
The Board Remuneration Committee seeks the views of Barclays major shareholders on remuneration matters. This engagement is meaningful and contributes directly to the decisions it makes.
Barclays reward framework is simple and transparent and is designed to support and drive business strategy and long-term success.
To ensure alignment with shareholder interests, a significant part of performance-related pay is delivered through Barclays shares.
Unvested deferred remuneration is subject to malus. Clawback also applies to any variable remuneration awarded to PRA Material Risk Takers after 1 January 2015.
Engagement
The Chairman and Senior Independent Director, together with other Board representatives and the Company Secretary, hold meetings with investors focusing on corporate governance matters.
The Chief Executive and Group Finance Director present quarterly results briefings and the Group Finance Director holds briefings for equity and debt sellside analysts.
Regular engagement with Barclays brokers ensures that the Groups strategy and performance is being communicated effectively and provides a better understanding of investor views.
The Board receives feedback on investor relations activity, along with regular reports of changes in holdings of substantial shareholders and reports on share price movements.
A number of events are held throughout the year to maintain an open dialogue with investors, of which the AGM is the most important.
40 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Viability statement
While the financial statements and accounts have been prepared on a going concern basis, the UK Corporate Governance Code requires the Directors to make a statement in the Annual Report regarding the viability of the Group, including explaining how they assessed the prospects of the Group, the period of time for which they have made the assessment and why they consider that period to be appropriate.
In light of the analysis set out below, the Board has assessed the Groups 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 timeframe is used in managements Working Capital and Viability Report (WCR) dated 16 February 2017. 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 timeframe has also been chosen because:
§ | it is within the period covered by the Groups future projections of profitability, cash flows, capital requirements and capital resources; |
§ | it is also within the period over which regulatory and internal stress testing is carried out and in the current environment it is necessary for the Board to ensure confidence in the Group is maintained over the shorter term; and |
§ | as a consequence of the unparalleled level of regulatory change in the financial services industry, a three year timeframe is appropriate. |
The Directors are satisfied that this period is sufficient to enable a reasonable assessment of viability to be made.
In making their assessment the Board has:
§ | carried out a regular and robust assessment of the Groups risk profile and material existing and emerging risks. Notable among these are risks which senior management believe could cause the Groups future performance (i.e. results of operations or financial condition) to differ materially from current expectations, including the ability to meet dividend expectations, maintain minimum levels of regulatory capital and meet solvency targets (including capital, leverage and total loss absorbing capacity including TLAC/MREL) over the period of the assessment; |
§ | reviewed how those risks are managed and controlled (see below and also further detail provided on pages 146 to 162); |
§ | considered the WCR which provides an assessment of forecast CET1, leverage ratio, Tier 1 and total capital ratios, as well as the build-up of MREL up to 2022; |
§ | reviewed the Groups liquidity and funding profile, particularly Barclays internal liquidity risk appetite (LRA) and regulatory liquidity coverage ratios; |
§ | considered the Groups viability under specific internal and regulatory stress scenarios (further details below); |
§ | considered the stability of the major markets in which it operates, the risks posed by the simplification of the business model and regulatory changes; |
§ | reviewed the statutory accounts and the in-depth disclosure of the financial performance of the Group; |
§ | considered the Groups medium term plan (MTP); and |
§ | reviewed the legal, competition and regulatory matters set out in Note 29 to the financial statements on pages 330 to 338. |
Conduct, capital and operational risks are controlled and managed in line with the Enterprise Risk Management Framework and the relevant Principal Risk Frameworks. Executive management set a Risk Appetite for the Group, which is then approved by the Board. The second line set limits, within which the first line are required to operate. Management and the Board then oversee the associated Risk Profile.
In relation to regulatory change, the firm has a fully resourced project team, dedicated to understanding and implementing changes required by Structural Reform.
Particular risks to viability identified by the Board are detailed below. These have been chosen on the basis of their ability to impact viability over the timeframe of the assessment. In some instances, however, the risks exist beyond this timeframe:
§ | legacy conduct matters and the potential risk of fines and other sanctions; |
§ | the cost and scale of regulatory change in the financial services industry, including the implementation of structural reform, which could impact ratings, alter the behaviour of depositors and affect the ability of the firm to maintain appropriate capital and liquidity ratios; and |
§ | evolving operational risks (notably cyber security, technology and resilience) and potential impact on operations and/or payment systems. |
The Board has also considered the Groups viability under specific internal and regulatory stress scenarios.
The latest internal stress test conducted in Q4 2016 (which was concluded on 16 February 2017) considered the potential impacts of:
§ | a severe global recession; |
§ | decelerating growth in China and emerging markets; |
§ | UK housing market weakness; and |
§ | a significant and sustained fall in commodity prices. |
Litigation matters and remediation/redress are assessed as part of the stress testing process. Capital risk appetite and LRA were set at a level which would enable the Group to withstand the stress scenario, based on expected financial performance. Management also identified actions, including cost reductions and withdrawal from lines of business, available to restore the Group to its desired capital flightpath under a range of operating environments.
The Group-wide stress testing framework also includes reverse stress testing techniques which aim to identify and analyse the circumstances under which the Groups business model would no longer be viable, leading to a significant change in business strategy and to identify appropriate mitigating actions. Examples include extreme macroeconomic downturn (severely adverse) scenarios, or specific idiosyncratic events, covering both operational risk (e.g. cyber attack) and capital/liquidity events.
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 Boards assessment of the Groups viability.
The Board also reviewed external regulatory stress test results which are designed to assess the resilience of banks to adverse economic developments and ensure that we have robust forward looking planning processes for the risks associated with our business profile. Barclays was not required to submit revised capital plans as a result of these tests.
The Boards assessment of the Groups viability over the next three years is subject to material existing and emerging risks highlighted on pages 137 to 144. Future events, such as the crystallisation of any of these risks may require the Board to review dividend policy.
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 41 |
Our culture and our people
and the energy, commitment and passion
of our colleagues enhances our success
Summary
We recognise that fostering the right culture at Barclays is critical to our success and we want to play a leading role in defining the future of banking, restoring trust and respect for our profession.
|
We are four years into a cultural change journey at Barclays and we have a clear set of values that guide how we work and how we act. We are continuing to make progress to further embed and sustain a values-based culture through initiatives aimed at strengthening the profession of banking. We recognise that fostering the right culture at Barclays is critical to our success and we want to play a leading role in defining the future of banking, restoring trust and respect for our profession. We have placed continued focus on the importance of a values-based culture and with that in mind, conduct, culture and values were established as part of our key strategic priorities for the year. Throughout 2016 we have launched a number of initiatives to foster the right culture at Barclays and we developed a culture measurement framework, anchored in our values, to measure and manage progress in embedding a values-based culture across the organisation. We also seek to share across different parts of the business the initiatives that are having a positive impact on our culture and engagement of our employees.
Having constructive and empathetic conversations with customers reflect our continued focus on a values-based culture.
To ensure we constantly review and reappraise to see what is working, in 2016 the annual Your View survey became a quarterly pulse survey (excluding Africa), providing colleagues the opportunity on a more regular basis to say what they are experiencing and how it feels to work at Barclays. In the third quarter of the year, we surveyed 50% of all colleagues and the remaining 50% were surveyed in the fourth quarter. Starting from 2017, each quarter, 25% of colleagues (excluding Africa) will be invited to take part in Your View.
The Your View results have continued to measure Sustainable Engagement and this year we have been provided with more regular snapshots. The quarterly results were then aggregated at the end of the year into an overall annual picture of engagement. At the end of 2016, Sustainable Engagement of our colleagues has remained stable year-on-year at 75%. The quarterly results of the Your View survey and the indicators and insights from our culture measurement framework help us to assess what we are doing well and guide and focus management action as required across our businesses and functions. Each quarter the results are analysed in depth and our senior leadership teams across the businesses and functions work to identify relevant actions that will continue to foster a culture that builds the Barclays of the future. The results from the Your View survey, and the insights from the quarterly indicators within the culture measurement framework, evidence that we continue to make strong progress in embedding a values-based culture across the bank.
Apply within, our internal mobility programme, and the Lets talk about how performance management campaign, both launched this year, are initiatives that support the behaviours that underpin our values. The Lets talk about how campaign reinforces the importance that we place on both what our employees deliver and how they deliver. A new event launched this year, sponsored by the Group CEO, this was a step forward in developing the next generation of enterprise leaders who actively contribute towards rebuilding the profession of banking through their own leadership and their influence of others. By bringing together high potential senior leaders from across our businesses and functions we seek to strengthen collaboration and an enterprise-wide perspective amongst our senior leaders to deliver improved solutions and products for our customers and clients. |
42 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Our Wellbeing programme; Barclays Shared Growth Ambition which focuses on access to employment, access to financial and digital empowerment and access to financing; as well as the Conversation Framework and Empathy Diagnostic launched in Barclays UK to support colleagues in having constructive and empathetic conversations with customers, reflect our continued focus on a values-based culture that ensures we do the right thing for our customers and clients.
Tristram Roberts Group Human Resources Director |
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home.barclays/annualreport | Barclays PLC Annual Report 2016 | 43 |
Remuneration framework
so our remuneration is reflective
of the way we do business.
Summary
The Committee remains focused on aligning our pay to performance and setting pay at a level which allows us to attract, retain and motivate, but is no more than necessary to ensure that we accelerate the delivery of shareholder value. The inherent tension between these important considerations continues to be a key component of the Committees deliberations.
2016 represented a year of strong progress against our strategy. The Committees deliberations on the 2016 incentive pool reflected Group performance and strategic delivery in both the Core and Non-Core businesses. We reached the decision that an overall Group incentive pool of £1,533m, down slightly from £1,544m in 2015, is appropriate notwithstanding strong 2016 delivery. This level of incentive pool also absorbs the material adverse impact of foreign exchange movements through the year, which more than offset the impact of reductions in staff numbers in the year.
The Core compensation to net income (excluding notable items) ratio decreased from 34.0% in 2015 to 32.7% in 2016 excluding the impact of deferral changes, increasing slightly to 34.7% including the impact of these changes. At a Group level, the ratio increases to 40.2% (2015: 37.7%) driven by Non-Core as it continues to be run down.
From 2016, a change in the recognition timing of deferral costs, together with a harmonisation of deferral levels across the Group, will result in improvements to the Groups operational flexibility going into 2017 and beyond. Further information on deferral changes can be found on page 104.
We will be seeking shareholder approval for a new Directors remuneration policy at the 2017 AGM. More details can be found on page 45.
During 2017, the Committee will continue to focus on ensuring that remuneration is aligned to the delivery of our strategy and sustainable shareholder returns. The Committee will also continue to monitor the competitiveness of our remuneration in the light of recent regulatory changes by the PRA, FCA and EBA. We will also continue to progress further our agenda to address pay inequality, which is in line with the proposals in the Governments Green Paper on Corporate Governance Reform.
The Committee is grateful for the feedback received from our larger shareholders on our remuneration proposals and values the insight the discussions provide.
Crawford Gillies
Board Remuneration Committee (Chairman)
We continue to focus on aligning reward and performance |
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Barclays Group incentive pool |
||||
2010 £3,484m 2011 £2,578m 2012 £2,168m 2013 £2,378m 2014 £1,860m 2015 £1,544m 2016 £1,533m |
||||
Note The 2015 number has been restated from £1,669m to reflect the treatment of Africa Banking as a discontinued operation. The 2010-2014 numbers have not been restated. |
||||
Distribution of 2016 total remuneration to Group employees by banding 364 £1m+ 11,962 £100k-£1m 39,990 £25k-£100k 33,989 £0-25k |
||||
Note |
||||
The number of employees paid above £1m is slightly down year on year on a constant currency basis (364 in 2016 vs. 369 in 2015).
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44 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Directors remuneration policy
Barclays new Directors remuneration policy is subject to shareholder approval at the 2017 AGM on 10 May 2017 and, if approved, is intended to apply immediately, for three years to the date of the 2020 AGM. The new policy has evolved from the existing policy and has been updated for regulatory changes, and simplified where possible.
Full details of our Directors remuneration policy can be found on pages 108 to 120 |
The key changes to the policy can be summarised as follows:
Key changes
|
||
Fixed pay |
§ Fixed Pay introduced, replacing salary and Role Based Pay § Fixed Pay delivered 50% in cash and 50% in shares (subject to 5 year holding period lifting pro-rata) § Fixed Pay will not change during the policy period for either of the current executive Directors § Pension allowance retained at current levels, but limited to 10% of Fixed Pay for new hires
| |
Variable pay |
§ Bonus and Long Term Incentive Plan (LTIP) combined for regulatory deferral purposes | |
Performance measures |
§ Bonus: Financial measures ³ 60% | |
§ LTIP: Financial measures ³ 70% | ||
Delivery |
§ Any bonus deferral vests in equal tranches between the third and seventh anniversary of award | |
§ LTIP performance is tested at end of 3 year performance period and vests in equal tranches between the third and seventh anniversary of award
| ||
Shareholding requirement |
§ Requirement increased to 200% of Total fixed pay (i.e. Fixed Pay plus Pension) within 5 years from the date of appointment (from 400% of salary to equivalent of 457% of salary for CEO) | |
§ New requirement to hold shares worth 100% of Total fixed pay (or pro-rata thereof) for 2 years post-termination | ||
Employment contracts
|
§ For new hires, asymmetry for notice periods removed i.e. 6 months from the Company and 6 months from the Director (from 12 months from the Company and 6 months from the Director)
|
2017 remuneration
The following summarises how the Directors remuneration policy would be implemented in 2017 assuming the new policy is approved by shareholders.
Fixed Pay | Annual bonusa | LTIPa | ||||||
Jes Staley |
£2,350,000 | Maximum 80% of Total fixed pay | Maximum 120% of Total fixed pay | |||||
Tushar Morzaria |
£1,650,000 | Maximum 80% of Total fixed pay | Maximum 120% of Total fixed pay | |||||
plus competitive benefits and pension |
Note
a Total fixed pay is defined as Fixed Pay plus Pension.
2016 remuneration
The following tables show a single total figure for 2016 remuneration in respect of qualifying service for each executive and non-executive Director together with comparative figures for 2015.
Executive Directors: Single total figure for 2016 remuneration (audited)
|
Salary £000 |
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Role Based Pay £000 |
|
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Taxable benefits £000 |
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Annual bonus £000 |
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LTIP £000 |
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Pension £000 |
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Total £000 |
| ||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
Jes Staleya | 1,200 | 100 | 1,150 | 96 | 169 | 48 | 1,318 | | | | 396 | 33 | 4,233 | 277 | ||||||||||||||||||||||||||||||||||||||||||
Tushar Morzaria | 800 | 800 | 750 | 750 | 44 | 82 | 854 | 701 | 1,008 | | 200 | 200 | 3,656 | 2,533 |
Note
a The 2015 figures for Jes Staley relate to the period from 1 December 2015 when he joined the Board as Group Chief Executive.
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 45 |
Remuneration framework
so our remuneration is reflective
of the way we do business.
Additional information in respect of each element of pay for the executive Directors (audited)
Role Based Pay (RBP)
Executive Directors received RBP which was delivered quarterly in shares, subject to a holding period with restrictions lifting over five years (20% each year). The value shown is of shares at the date awarded.
Taxable benefits
Taxable benefits include private medical cover, life and ill health income protection, tax advice, relocation, car allowance, the use of a Company vehicle and driver when required for business purposes and other benefits that are considered minor in nature.
Annual bonus
The 2016 bonus awards reflect the Committees assessment of the extent to which the executive Directors achieved their Financial (50% weighting) and Balanced Scorecard (35% weighting) performance measures, and their personal objectives (15% weighting). A summary of the assessment against the performance measures is provided below. For more information please see pages 121 and 122.
Financial (50% weighting) | ||||||||||||||||||||||
Performance measure |
Weighting | |
Threshold 25% |
|
|
Maximum 100% |
|
|
2016 Actual |
|
|
2016 Outcome |
| |||||||||
Profit before tax (excluding notable items) |
20% | £3.45bn | £4.20bn | £3.65bn | 9% | |||||||||||||||||
Costs (excluding notable items) |
10% | £14.6bn | £13.7bn | £15.3bn | 0% | |||||||||||||||||
CET1 ratio |
20% | 11.1% | 11.6% | 12.4% | 20% | |||||||||||||||||
Total financial |
50% | 29% |
Balanced Scorecard (35% weighting)
Progress in relation to each of the 5Cs of the Balanced Scorecard was assessed by the Committee. The Committee took a similar approach as for 2015 i.e. based on a three-point scale in relation to each measure, with 0% to 2% for below target, 3% or 4% for a met target, and 5% to 7% for above target progress against a particular Balanced Scorecard component. Based on this approach, the Committee agreed an 18% outcome out of a maximum of 35%.
Personal objectives (15% weighting)
(i) | Jes Staley: The Committee concluded that Jes Staley had delivered a very strong performance throughout the year. By the end of 2016, a clear new strategy was firmly embedded and a new Core organisational structure consistent with structural reform has been implemented. The Core businesses have performed well, delivering improved profitability and cost income efficiency. At the same time significant progress has been made in exiting the Non-Core businesses. Jes Staley has demonstrated strong leadership, strengthened the management team and has instilled a more effective performance ethic and culture within the organisation. Given his very strong performance, the Committee judged that 13% of a maximum of 15% was appropriate. |
(ii) | Tushar Morzaria: The Committee concluded that Tushar Morzaria had delivered an outstanding performance in 2016. In doing so, the Committee noted the role provided by Tushar Morzaria in reshaping the business and in particular, recognised his contribution in the significant progress in exiting Non-Core, resulting in a reduction of £22bn in Risk Weighted Assets and his focus in delivering an organisation with a significantly higher CET1 ratio and lower Cost: Income ratio. In doing so, it was also noted that Tushar Morzaria has continued to develop very strong working relationships with shareholders, investors and regulators, while also improving the performance delivery within the Finance Functions. Given his exceptional personal performance during 2016, the Committee judged that 14% of a maximum of 15% was appropriate. |
Overall summary
In aggregate, the performance assessment for Jes Staley resulted in an overall formulaic outcome of 60% of maximum bonus opportunity being achieved. The resulting bonus is £1,318,000 of which 70% is deferred under the Share Value Plan and will vest in five equal tranches from the third to seventh anniversary (subject to the rules of the Share Value Plan as amended from time to time).
In aggregate, the performance assessment for Tushar Morzaria resulted in an overall formulaic outcome of 61% of maximum bonus opportunity being achieved. The resulting bonus is £854,000 of which 60% is deferred under the Share Value Plan and will vest in five equal tranches from the third to seventh anniversary (subject to the rules of the Share Value Plan as amended from time to time).
46 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
LTIP
The LTIP amount included in Tushar Morzarias 2016 single total figure is the value of the amount scheduled to be released in relation to the LTIP award granted in 2014 in respect of performance period 2014-2016 (by reference to Q4 2016 average share price). Jes Staley was not a participant in this cycle. The performance achieved against the performance targets is as follows.
Performance measure | Weighting | Threshold | Maximum vesting | Actual | % of award vesting | |||||
Return on risk weighted assets (RoRWA) |
50% | 23% of award vests for average annual RoRWA of 1.08% |
Average annual RoRWA of 1.52% |
0.33% | 0% | |||||
Loan loss rate | 20% | 7% of award vests for average annual loan loss rate of 70bps |
Average annual loan loss rate of 55bps or below |
50bps | 20% | |||||
Balanced Scorecard | 30% | Performance against the Balanced Scorecard was assessed by the Committee to determine the percentage of the award that may vest between 0% and 30%. Each of the 5Cs in the Balanced Scorecard has equal weighting. | See page 123 | 14% |
The Committee was also satisfied that the discretionary underpin in respect of the underlying financial health of the Group based on profit before tax was met, and accordingly determined that 34% of the maximum number of shares under the total award should be considered for release in March 2017. After release, the shares are subject to an additional two year holding period.
Pension
Executive Directors are paid cash in lieu of pension contributions. This is market practice for senior executives in comparable roles.
Chairman and non-executive Directors: Single total figure for 2016 fees (audited)
Fees | Benefits | Total | ||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | |||||||||||||||||
Chairman |
||||||||||||||||||||||
John McFarlanea |
800 | 628 | 1 | 11 | 801 | 639 | ||||||||||||||||
Sir David Walkerb |
| 285 | | 6 | | 291 | ||||||||||||||||
Non-executive Directors |
||||||||||||||||||||||
Mike Ashley |
207 | 207 | | | 207 | 207 | ||||||||||||||||
Tim Breedon |
220 | 232 | | | 220 | 232 | ||||||||||||||||
Mary Francisc |
29 | | | | 29 | | ||||||||||||||||
Crawford Gillies |
195 | 178 | | | 195 | 178 | ||||||||||||||||
Sir Gerry Grimstoned |
250 | | | | 250 | | ||||||||||||||||
Reuben Jeffery III |
120 | 135 | | | 120 | 135 | ||||||||||||||||
Wendy Lucas-Bulle |
64 | 358 | | | 64 | 358 | ||||||||||||||||
Dambisa Moyo |
135 | 152 | | | 135 | 152 | ||||||||||||||||
Frits van Paasschenf |
35 | 88 | | | 35 | 88 | ||||||||||||||||
Diane de Saint Victor |
118 | 135 | | | 118 | 135 | ||||||||||||||||
Diane Schuenemang,h |
232 | 74 | | | 232 | 74 | ||||||||||||||||
Steve Thiekeh |
221 | 184 | | | 221 | 184 | ||||||||||||||||
Sir Michael Rakei |
| 250 | | | | 250 | ||||||||||||||||
Sir John Sunderlandj |
| 60 | | | | 60 | ||||||||||||||||
Total |
2,626 | 2,966 | 1 | 17 | 2,627 | 2,983 |
Non-executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays.
The Chairman is provided with private medical cover and the use of a Company vehicle and driver when required for business purposes.
Notes
a | John McFarlane joined the Board as a non-executive Director with effect from 1 January 2015 and as Chairman from 24 April 2015. The 2015 total includes non-executive Director fees of £78,000 for the period from 1 January 2015 to 24 April 2015. |
b | Sir David Walker retired from the Board with effect from 23 April 2015. |
c | Mary Francis joined the Board as a non-executive Director with effect from 1 October 2016. |
d | Sir Gerry Grimstone joined the Board as a non-executive Director from 1 January 2016 and succeeded Sir Michael Rake as Senior Independent Director and Deputy Chairman with effect from 1 January 2016. |
e | Wendy Lucas-Bull retired from the Board with effect from 1 March 2016. Figures include fees received by Wendy Lucas-Bull for her role as Chairman of Barclays Africa Group Limited. |
f | Frits van Paasschen retired from the Board with effect from 28 April 2016. |
g | Diane Schueneman joined the Board as a non-executive Director with effect from 25 June 2015. |
h | Diane Schueneman and Steve Thieke both served in 2016 on the US Governance Review Board, which was an advisory board set up as the forerunner of the board of our US intermediate holding company which was established during 2016. They each subsequently joined the board of the US intermediate holding company on its formation. The 2015 figures for Diane Schueneman and Steve Thieke included fees of $37,500 and $75,000 respectively for their roles on the US Governance Review Board. The 2016 figures include fees of $138,000 and $150,000 respectively for their roles on the US Governance Review Board and the board of the US intermediate holding company. In addition, Steve Thieke waived fees of $63,000. |
i | Sir Michael Rake retired from the Board with effect from 31 December 2015. |
j | Sir John Sunderland retired from the Board with effect from 23 April 2015. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 47 |
Financial performance
Our strategy is on track with good progress in 2016.
Summary
2016 reflected good operational performance of Barclays UK and Barclays International reflecting the benefits of diversification across customers and clients, geographies and products.
The Core business generated a RoTE excluding notable items of 9.4% (2015: 11.2%) on a £4bn increased average allocated tangible equity base of £41bn. The Core business also generated positive cost: income jaws and we intend to continue to reduce the Groups structural cost base, targeting a Group cost: income ratio of less than 60% over time. The accelerated Non-Core run-down resulted in a reduction in RWAs of £22bn to £32bn resulting in the decision to close the unit six months ahead of plan on 30 June 2017. Capital ratio progression towards end state requirements of 150bps to 200bps above the minimum regulatory level was strong with a CET1 ratio of 12.4% (December 2015: 11.4%), largely reflecting profit generation in the period.
2016 | 2015 | |||||
Common Equity Tier 1 (CET1) ratio |
12.4% | 11.4% | ||||
Cost: income ratio |
76% | 84% | ||||
Return on average tangible shareholders equity (RoTE) |
3.6% | (0.7%) | ||||
Total operating expenses |
£16,338m | £18,536m | ||||
Non-Core RWAs |
£32bn | £54bn |
Group performance
§ | Return on average tangible shareholders equity was 3.6% (2015: (0.7%)) and basic earnings per share was 10.4p (2015: (1.9p)) |
§ | Profit before tax increased to £3,230m (2015: £1,146m). The Group performance reflected good Core results while being impacted by the Non-Core loss before tax of £2,786m (2015: £2,603m) and provisions for UK customer redress of £1,000m (2015: £2,772m). The appreciation of average USD and EUR against GBP positively impacted income and adversely affected impairment and operating expenses |
§ | Total income decreased 3% to £21,451m as Non-Core income reduced £1,776m to a net expense of £1,164m due to the acceleration of the Non-Core run-down, while Core income increased 6% to £22,615m driven by Barclays International |
§ | Credit impairment charges increased £611m to £2,373m including a £320m charge in Q316 following the management review of the UK and US cards portfolio impairment modelling. This resulted in a 11bps increase in the loan loss rate to 53bps |
§ | Total operating expenses reduced 12% to £16,338m reflecting lower litigation and conduct charges. This was partially offset by the non-recurrence of the prior year gains of £429m on the valuation of a component of the defined retirement benefit liability, increased structural reform implementation costs, and a £150m charge in Barclays International in Q316, relating to a reduction in the real estate footprint which will generate savings in future periods. Operating expenses also included a £395m additional charge in Q416 relating to 2016 compensation awards |
§ | The effective tax rate on profit before tax decreased to 30.7% (2015: 100.3%) principally as a result of a reduction in non-deductible charges |
§ | Profit after tax in respect of continuing operations increased to £2,237m (2015: loss of £3m). Profit after tax in relation to the Africa Banking discontinued operation decreased 6% to £591m as increased credit impairment charges and operating expenses were partially offset by income growth |
§ | Notable items totalled a net loss before tax of £420m (2015: £3,330m) comprising provisions for UK customer redress of £1,000m (2015: £2,772m), a £615m (2015: £nil) gain on disposal of Barclays share of Visa Europe Limited and an own credit loss of £35m (2015: gain of £430m) |
Group capital and leverage
§ | The fully loaded CRD IV CET1 ratio increased to 12.4% (December 2015: 11.4%) reflecting an increase in CET1 capital of £4.5bn to £45.2bn, despite RWAs increasing by £7bn to £366bn |
| The increase in CET1 capital was largely driven by profits of £2.1bn generated in the period, after absorbing the impact of notable items. Other favourable movements included the currency translation reserve as a result of the appreciation of all major currencies against GBP |
| The increase in RWAs was principally due to the appreciation of ZAR, USD and EUR against GBP and business growth, which more than offset RWA reductions in Non-Core |
48 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Governance
Our corporate governance processes and the role they play in supporting the delivery of our strategy, including reports from the Chairman and each of the Board Committee Chairmen.
Directors report
|
Page | |||
UK Corporate Governance Code | § Index to disclosures | 50 | ||
Who we are | § Board of Directors | 51 | ||
§ Group Executive Committee | 53 | |||
§ Board diversity
|
53 | |||
What we did in 2016 | § Chairmans introduction | 54 | ||
§ Board Audit Committee report | 58 | |||
§ Board Risk Committee report | 68 | |||
§ Board Reputation Committee report | 73 | |||
§ Board Nominations Committee report
|
77 | |||
How we comply
|
84
| |||
Other statutory information
|
91
| |||
People
|
95
| |||
Remuneration report
|
99
|
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 49 |
Governance: Directors report
UK Corporate Governance Code index to disclosures
The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.
The UK Corporate Governance Code
The UK Corporate Governance Code (the Code) is not a rigid set of rules. It consists of principles (main and supporting) and provisions. The Listing Rules require companies to apply the main principles and report to shareholders on how they have done so.
You can find our disclosures as follows:
Page | ||||||
Leadership | Every company should be headed by an effective board which is collectively responsible for the long-term success of the company. | Board of Directors Composition of the Board | 51 to 52 87 | |||
| ||||||
There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the companys business. No one individual should have unfettered powers of decision. | Roles on the Board | 85 | ||||
| ||||||
The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. | Roles on the Board | 85 | ||||
| ||||||
As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy. | Roles on the Board | 85 | ||||
| ||||||
Effectiveness | The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively. | Board of Directors | 51 to 52 | |||
| ||||||
There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. | Appointment and re-election of Directors | 80 | ||||
| ||||||
All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively. | Attendance Time commitment |
86 87 | ||||
| ||||||
All directors should receive an induction on joining the board and should regularly update and refresh their skills and knowledge. | Induction, Training and development | 87 | ||||
| ||||||
The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. | Information provided to the Board | 88 | ||||
| ||||||
The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. | Review of Board and Board Committee effectiveness | 81 | ||||
| ||||||
All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. | Roles on the Board Appointment and re-election of Directors |
85 80 | ||||
| ||||||
Accountability | The board should present a fair, balanced and understandable assessment of the companys position and prospects. | Strategic report Risk management Viability statement, going concern | 1 to 48 145 to 162 41, 80 | |||
| ||||||
The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems. | Risk management and internal control | 88 to 89 | ||||
| ||||||
The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting, risk management and internal control principles, and for maintaining an appropriate relationship with the companys auditors. | Board Audit Committee report | 58 to 67 | ||||
| ||||||
Remuneration | Executive directors remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied. | Remuneration report | 99 to 133 | |||
| ||||||
There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration. | Remuneration report | 99 to 133 | ||||
| ||||||
Relations with shareholders | There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. | Stakeholder engagement | 89 to 90 | |||
| ||||||
The board should use general meetings to communicate with investors and to encourage their participation. | Stakeholder engagement | 89 to 90 | ||||
|
50 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Governance: Directors report
Who we are
Board of Directors
Board of Directors
| ||
Barclays understands the importance of having a Board containing the right balance of skills, experience and diversity and the composition of the Board is regularly reviewed by the Board Nominations Committee. The skills and experience of the current Directors and the value they bring to the Barclays Board is described below.
| ||
Full biographies can be accessed online via home.barclays/investorrelations
|
Relevant skills and experience | ||
John McFarlane Chairman
Appointed: 1 January 2015 |
John is a senior figure in global banking and financial services circles and is in his 42nd year in the sector, including 22 years as a main board director, 10 years as a CEO and six years as a chairman. John is Chairman of Barclays PLC and Barclays Bank PLC. He is also a non-executive director of Westfield Corporation and Old Oak Holdings Limited. He is chairman of TheCityUK and a member of the Financial Services Trade and Investment Board and the European Financial Round Table. John was formerly chairman of Aviva plc, where he oversaw a transformation of the company and for a brief period he was also chairman of FirstGroup plc. He was also a non-executive director of The Royal Bank of Scotland plc, joining at the time of the UK government rescue. Prior to that for 10 years he was chief executive officer of Australia and New Zealand Banking Group Ltd, Group Executive Director of Standard Chartered plc and head of Citibank in the UK.
Other current appointments None
Committees Nom*
| |
Jes Staley Group Chief Executive
Appointed: 1 December 2015 |
Relevant skills and experience Jes joined Barclays as Group Chief Executive on 1 December 2015. He has nearly four decades of extensive experience in banking and financial services. He worked for more than 30 years at JP Morgan, initially training as a commercial banker, later advancing to the leadership of major businesses involving equities, private banking and asset management and ultimately heading the companys Global Investment Bank. Most recently, Jes served as Managing Partner at BlueMountain Capital. These roles have provided him with a vast experience in leadership and he brings a wealth of investment banking knowledge to Barclays Board.
Other current appointments None
Committees None
| |
Sir Gerry Grimstone Deputy Chairman and Senior Independent Director
Appointed: 1 January 2016 |
Relevant skills and experience Sir Gerry brings to the Board a wealth of investment banking, financial services and commercial experience gained through his senior roles at Schroders and his various board positions. Sir Gerry has global business experience across the UK, Asia, the Middle East and the US. Sir Gerry has significant experience as a non-executive director and chairman. He is currently the chairman of Standard Life plc, independent non-executive board member of Deloitte LLP and the lead non-executive at the Ministry of Defence.
Other current appointments Financial Services Trade and Investment Board
Committees Nom, Rep*
|
Mike Ashley Non-executive
Appointed: 18 September 2013 |
Relevant skills and experience Mike has deep knowledge of auditing and associated regulatory issues, having worked at KPMG for over 20 years, where he was a partner. Mike was the lead engagement partner on the audits of large financial services groups including HSBC, Standard Chartered and the Bank of England. While at KPMG, Mike was Head of Quality and Risk Management for KPMG Europe LLP, responsible for the management of professional risks and quality control. He also held the role of KPMG UKs Ethics Partner.
Other current appointments ICAEW Ethics Standards Committee; International Ethics Standards Board for Accountants; Chairman, Government Internal Audit Agency; Charity Commission
Committees Aud*, Nom, Ris, Rep
| |
Tim Breedon Non-executive
Appointed: 1 November 2012 |
Relevant skills and experience Tim joined Barclays after a distinguished career with Legal & General, where, among other roles, he was the group chief executive until June 2012. Tims experience as a CEO enables him to provide challenge, advice and support to the Executive on performance and decision-making.
Tim brings to the Board extensive financial services experience, knowledge of risk management and UK and EU regulation, as well as an understanding of the key issues for investors.
Other current appointments Marie Curie Cancer Care; Chairman, Apax Global Alpha Limited; Chairman, The Northview Group
Committees Aud, Nom, Rem, Ris*
| |
Mary Francis CBE Non-executive
Appointed: 1 October 2016 |
Relevant skills and experience Mary has extensive board-level experience across a range of industries. She is a non-executive director of Swiss Re Group and Ensco plc and was formerly Senior Independent Director of Centrica and a non-executive director of the Bank of England, Aviva and Alliance & Leicester. She held senior executive positions in the UK Treasury and Prime Ministers Office and in the City as Director General of the Association of British Insurers. She brings to Barclays strong understanding of the interaction between public and private sectors and skills in strategic decision-making and all aspects of board governance.
Other current appointments Advisory Panel of The Institute of Business Ethics
Committees Rem, Rep
| |
Crawford Gillies Non-executive
Appointed: 1 May 2014 |
Relevant skills and experience Crawford has extensive business and management experience, gained with Bain & Company and Standard Life plc. These roles have provided him with experience in strategic decision-making and knowledge of company strategy across various sectors and geographical locations.
Crawford has also held board and committee chairman positions during his career, notably as chairman of the remuneration committees of Standard Life plc and MITIE Group PLC.
Other current appointments SSE plc; Control Risks International; The Edrington Group Limited
Committees Aud, Nom, Rem*
|
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 51 |
Governance: Directors report
Who we are
Board of Directors
Reuben Jeffery III Non-executive
Appointed: 16 July 2009
|
Relevant skills and experience Reuben has extensive financial services experience, particularly within investment banking and wealth management, through his role as CEO and president of Rockefeller & Co. Inc. and Rockefeller Financial Services Inc. and his former senior roles with Goldman Sachs, including as the managing partner of the Paris office. His various government roles in the US, including as chairman of the Commodity Futures Trading Commission, provides Barclays Board with insight into the US political and regulatory environment.
Other current appointments Advisory Board of Towerbrook Capital Partners LP; Rothschild Capital Management Limited; Financial Services Volunteer Corps; The Asia Foundation
Committees Nom, Ris
| |||
Tushar Morzaria Group Finance Director
Appointed: 15 October 2013
|
Relevant skills and experience Tushar joined Barclays in 2013 having spent the previous four years in senior management roles with JP Morgan Chase, most recently as the CFO of its Corporate & Investment Bank. Throughout his time with JP Morgan he gained strategic financial management and regulatory relations experience. Since joining the Barclays Board he has been a driving influence on the Groups cost reduction programme and managing the Groups capital plan, particularly in response to Structural Reform.
Other current appointments Member of the 100 Group main committee
Committees None
| |||
Dambisa Moyo Non-executive
Appointed: 1 May 2010
|
Relevant skills and experience Dambisa is an international economist and commentator on the global economy, having completed a PhD in economics. Dambisa has a background in financial services and a wide knowledge and understanding of African economic, political and social issues, in addition to her experience as a director of companies with complex, global operations. She served as a non-executive director of SABMiller Plc from 2009-2016.
Other current appointments Chevron Corporation; Barrick Gold Corporation; Seagate Technology plc
Committees Rem, Rep
| |||
Diane de Saint Victor Non-executive
Appointed: 1 March 2013
|
Relevant skills and experience Diane holds the role of general counsel and company secretary of ABB Limited, a listed pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids. Dianes legal background, combined with her knowledge of regulatory and compliance requirements bring a unique perspective to discussions of the Board and its committees.
Other current appointments American Chamber of Commerce in France
Committees Rep |
Diane Schueneman Non-executive
Appointed: 25 June 2015 |
Relevant skills and experience Diane joined Barclays after an extensive career at Merrill Lynch, holding a variety of senior roles, including responsibility for banking, brokerage services and technology provided to the companys retail and middle market clients, and latterly for IT, operations and client services worldwide. She brings a wealth of experience in managing global, cross-discipline business operations, client services and technology in the financial services industry. Diane is a member of the board of Barclays US LLC, Barclays US intermediate holding company.
Other current appointments None
Committees Aud, Ris
| |||
Steve Thieke Non-executive
Appointed: 7 January 2014
|
Relevant skills and experience Steve has significant experience in financial services, in both investment banking with JP Morgan, where among other roles he served as the chairman of the risk management committee, and in regulation, through roles with the Federal Reserve Bank of New York and the Financial Services Authority. He also has significant board experience, having served in both executive and non-executive director roles in his career. Steve is chairman of the board of Barclays US LLC.
Other current appointments None
Committees Ris
| |||
Company Secretary
|
||||
Claire Davies
Appointed: 1 December 2016 |
Relevant skills and experience Claire is a solicitor and a Fellow of the Institute of Chartered Secretaries and Administrators. She has substantial experience in legal, compliance and company secretarial roles gained in-house and in professional services. She was appointed Barclays Group Company Secretary with effect from 1 December 2016, a role she has previously held at Legal & General plc and Lloyds Banking Group plc. More recently, she was Society Secretary at the Co-operative Group. She is a non-executive member of the audit and risk committee of the Department for Business, Energy & Industrial Strategy.
|
Note
The composition of the Board is shown as at 22 February 2017.
Committee membership key | ||
Aud | Board Audit Committee | |
Nom | Board Nominations Committee | |
Rem | Board Remuneration Committee | |
Rep | Board Reputation Committee | |
Ris | Board Risk Committee | |
* | Committee Chairman |
52 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Who we are
Group Executive Committee
Group Executive Committee
| ||||
|
Biographies for Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance Director, who are members of the Group Executive Committee, which is chaired by Jes Staley, can be found on pages 51 and 52.
|
|
|
| ||||||||||
Paul Compton Group Chief Operating Officer
|
Bob Hoyt Group General Counsel
|
Tristram Roberts Group Human Resources Director
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|
| |||||||||||
Mike Roemer Group Head of Compliance |
Amer Sajed CEO, Barclaycard International |
Tim Throsby President, Barclays International and Chief Executive Officer, Corporate and Investment Bank
| ||||||||||
| ||||||||||||
|
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Ashok Vaswani |
C.S. Venkatakrishnan | |||||||||||
CEO, Barclays UK
|
Chief Risk Officer
| |||||||||||
|
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Group Executive Committee meetings are also attended on a regular basis by the Chief Internal Auditor, Sally Clark, and by an ex-officio member, drawn from senior management. The current ex-officio member is Kathryn McLeland, Head of Investor Relations. |
Board diversity
The Board has a balanced and diverse range of skills and experience. All Board appointments are made on merit, in the context of the diversity of skills, experience, background and gender required to be effective.
Balance of non-executive Directors: executive Directors | ||||||||||
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1 |
Chairman |
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1 |
| |||||
2 | Executive Directors | 2 | ||||||||
3 | Non-executive Directors
|
10 | ||||||||
|
Gender balance | ||||
| ||||
Male: Female |
9:4 |
|||
| ||||
Length of tenure | ||||
(Chairman and non-executive Directors) | ||||
| ||||
0-3 years |
6
|
| ||
| ||||
3-6 years |
3 |
| ||
| ||||
6-9 years |
2 |
| ||
| ||||
Geographical mix | ||||
(Chairman and non-executive Directors) | ||||
| ||||
UK |
6 |
| ||
| ||||
US |
3 |
|||
| ||||
Continental Europe |
1 |
| ||
| ||||
Other |
1 |
| ||
|
Industry/background experience | ||||
(Chairman and non-executive Directors)a
|
||||
|
||||
Financial Services |
|
10 (91%) |
| |
Political/regulatory contacts | 11 (100%) | |||
Current/recent Chair/CEO | 3 (27%) | |||
Accountancy/financial | 1 (9%) | |||
International (US) | 3 (27%) | |||
International (Europe) | 1 (9%) | |||
International (Rest of the World) | 3 (27%) | |||
Operations and Technology
|
|
1 (9%)
|
| |
|
Note
a | Individual Directors may fall into one or more categories |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 53 |
Governance: Directors report
What we did in 2016
Chairmans introduction
Strong and effective governance benefits companies and the UK economy more generally, by instilling public confidence and respect for the corporate sector, making the UK an attractive place to do business.
Dear Fellow Shareholders
Welcome to my 2016 corporate governance report. When I think about corporate governance, I inevitably focus on how strong and effective governance acts to provide the necessary checks and balances at the very top of companies, thus supporting better decision-making and accountability. In turn, this benefits companies and the UK economy more generally, by instilling public confidence and respect for the corporate sector and making the UK an attractive place to do business, something that has grown in importance post the EU Referendum. As a bank, gaining this confidence and respect is paramount. Our business is founded on and operates on trust the trust of our customers and clients, our employees and the wider public. Strong and effective corporate governance has a vital role in ensuring that we earn and keep that trust.
What is the role of the Board?
I firmly believe that the role of the Board is to focus on long-term, sustainable value creation. At the heart of our strategy, which we announced in March 2016, is building on our strength as a transatlantic consumer, corporate and investment bank, with global reach. To this end, the Board has provided critical oversight of executive management in developing and delivering this strategy, creating a smaller, simplified bank capable of producing high quality returns for our shareholders on a sustainable basis.
What were the Boards key areas of focus in 2016?
During 2016, the Board focused its activity to support management in delivery of the agreed strategy. A summary of key items considered by the Board can be found on pages 56 to 57. The main areas of Board activity have been on ensuring that we have strong foundations in place by focusing on the performance of our Core businesses, and on completing the restructuring of Barclays by accelerating the run-down of the Non-Core businesses. We also took the difficult, but important, decision to sell-down our holding in Barclays Africa. Progress in these areas is enabling us to build the Barclays of the future. As part of ensuring we are well-positioned, and to meet regulatory requirements, we have aligned our business more closely with our legal entity structure and geographic locations. You can read more about the Boards role in preparing Barclays for Structural Reform in the case study on page 57. We also had to deal with the impacts of the UKs vote to leave the EU and held a special meeting in the days following the EU Referendum result to assess the position for Barclays. You can read more about how we prepared for the EU Referendum in the case study on page 72.
How effective is the Board?
Effective delivery of long-term, sustainable value for shareholders requires an effective Board. It is an important part of my role as Chairman to satisfy myself that the Board both collectively and its individual members operates effectively. Each year, we conduct a self-assessment of our performance, with the aid of an independent facilitator, and you can read a report on the outcomes of the 2016 self-assessment on pages 81 to 83. We also describe the actions we took during 2016 in response to any matters identified for improvement during the 2015 self-assessment. I hope this provides a flavour of how seriously the Board regards this important exercise.
The working relationship between the Board and executive management is, of course, critical to the effectiveness of the Board and I am pleased to report that we enjoy a healthy, constructive relationship, with an appropriate level of creative tension that helps drive productive discussions in the boardroom.
54 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
How did the Board change in 2016?
To be effective, the Board needs the right people and, in particular, it needs to have the right balance and diversity of skills, experience and perspectives. It is important that the composition of the Board brings to bear a broad range of social perspectives and talent on decision-making and that the Board is able to connect with the demographics of Barclays customers and clients and employees. We have a healthy non-executive presence on the Board, which was strengthened further during 2016 with the appointments of Sir Gerry Grimstone as Deputy Chairman and Senior Independent Director and Mary Francis as a non-executive Director. Both are highly-experienced non-executive Directors and add to the depth of experience and talent on the Board. During 2016, Wendy Lucas-Bull and Frits van Paasschen, both non-executive Directors, left the Board and I thank them on behalf of the Board for their service.
In early 2016, we set ourselves a new Board diversity target, which is to have 33% women on the Board by 2020. We currently have 31% women on the Board and are pleased with the progress we are making towards our target. Of course, diversity is not just about gender and although we have not set any other Board diversity targets, such as ethnicity, when it discusses and assesses Board composition and prospective candidates the Board Nominations Committee considers a number of factors before making its recommendations. Ultimately, maintaining the overall effectiveness of the Board is paramount and we maintain the position that all appointments to the Board are made on merit. More information on the Board appointments process can be found on page 80.
How does the Board ensure that high standards of business conduct are maintained?
There can be no argument that to be successful and to create long-term, sustainable value, we must maintain consumer and market trust and confidence. We need to act with transparency and integrity in every interaction we have with all of our stakeholders and this behaviour is integral to the way in which we operate. This is why as a Board we have continued to wholeheartedly support Barclays shared purpose and common values. The Barclays Way, which is endorsed by me, as Chairman, outlines the purpose and values that govern our way of working across our businesses globally. Of course, the challenge we have, in a large organisation such as Barclays, is to ensure that all employees do the right thing day in, day out. To address this challenge, all employees continue to be required to undertake training on The Barclays Way annually, with the Board Reputation Committee tracking completion rates. Additionally, the Board Reputation Committee hears directly from the senior management in each business on how they are addressing any conduct and cultural matters specific to that business, thus holding senior management to account for the values and behaviours in their business. You can read more about the work of the Board Reputation Committee on pages 73 to 76.
How does the Board take account of Barclays wider stakeholders?
Ive referred a number of times to the Boards role in creating and delivering shareholder value in a long-term, sustainable way. This can only be achieved by being acutely alive to the impact that our business decisions might have on our customers, clients, employees and others and by fully understanding and appreciating the wider societal obligations that we have. These issues are important for the Board and the Board Reputation Committee fulfils a vital role on behalf of the Board by monitoring key indicators across the areas of conduct, culture, citizenship and customer complaints. This includes, for example, assessing not only the volumes of customer complaints that we receive, but also the way in which they are handled. It covers assessing the results from regular employee opinion surveys and the actions being taken to address any common issues or themes that arise across the business. It also includes oversight of the delivery of our citizenship strategy, the Shared Growth Ambition, where our long-term aim is to create and grow a collection of products, services and partnerships that improve the lives of people in the communities that we serve. All of this activity can and does support the Boards over-arching objective of delivering sustainable returns for our shareholders.
You can read more about the Shared Growth Ambition at home.barclays/citizenship |
Looking ahead
I expect 2017 to be a pivotal year for Barclays in the delivery of its strategy; a year when we will complete our restructuring and establish ourselves as a bank that is recognised for financial strength, financial transparency, operational stability, underpinned by a values-driven culture. We are incredibly focused and working hard as your Board to engender respect and trust for our Company and the profession of banking, in order to support our customers and clients, to contribute to the UKs reputation as a place to do business and to deliver long-term value to shareholders.
John McFarlane
Chairman
22 February 2017
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 55 |
Governance: Directors report
What we did in 2016
During 2016, the Board focused on a number of specific areas, outlined in the table below, in line with Barclays three strategic goals and five principal risks:
Strategic goals
Have strong foundations in place |
Accelerate the completion of restructuring |
Build the Barclays of the future |
Principal risks
Credit |
Market |
Funding |
Operational |
Conduct |
Board allocation of time (%) | ||||||||||||||||
|
||||||||||||||||
2016 | 2015 | |||||||||||||||
|
||||||||||||||||
|
1 | Strategy formulation and implementation monitoring | 55 | 56 | ||||||||||||
2 | Finance (incl. capital and liquidity) | 17 | 11 | |||||||||||||
3 | Governance and Risk (incl. regulatory issues) | 26 | 29 | |||||||||||||
4 | Other (incl. compensation) | 2 | 4 | |||||||||||||
Strategic Goal | Principal Risks | |||
Strategy formulation and monitoring
|
||||
§ Debated the potential impact of the EU Referendum and the contingency plans being developed. Following the result of the Referendum, discussed and assessed the implications for the UK, the banking sector and for Barclays, including a presentation from a third party on the political aspects and their potential implications |
|
| ||
§ Regularly debated and monitored the progress of Barclays preparations for Structural Reform see the case study on page 57 for further details |
|
| ||
§ Reflected on the position of Barclays Africa in the Barclays Group and its impact on Barclays capital position, deciding to sell-down Barclays holding to a position where Barclays Africa accounting and regulatory de-consolidation could be achieved |
|
| ||
§ Assessed the progress of strategy execution in each of Barclays UK, Barclays Internationals investment bank and corporate business and the Cards business, via presentations from the heads of each business |
|
| ||
§ Monitored the progress of the run-down of Barclays Non-Core via regular presentations from the heads of the Non-Core business |
|
| ||
§ Discussed regular updates from the Group Chief Executive on the progress being made against the Groups execution priorities and received insights on stakeholder issues (including those arising from customers and clients, employees, regulators and governments) and cultural matters, including results from employee opinion surveys |
|
| ||
§ Debated and provided input to management on the formulation of overall Group strategy, including |
|
| ||
the impact of structural change and the creation of new subsidiary legal entities in the Group |
||||
the progress of the sell-down of Barclays Africa, including potential options, costs of separation, potential conduct risks and customer impacts |
||||
the impact of the EU Referendum result, taking into account an assessment of possible political scenarios and the potential impacts on each of Barclays businesses in terms of capital, operations, economics, regulation, clients and customers |
||||
a strategic approach to costs optimisation |
||||
constraints and risks to strategy execution, covering economic assumptions; expected regulatory requirements on capital and solvency ratios at Group and subsidiary legal entity level; anticipated changes to accounting rules; investor expectations; and potential impacts for clients and customers |
||||
potential growth opportunities, covering an assessment of the competitive landscape for Barclays UK, Barclays International and the Cards business; key trends and risks for each business in terms of economics, regulation, customers, employees and technology; near-term focus areas and potential transformational opportunities
|
||||
Finance, including capital and liquidity
|
||||
§ Debated and approved the Groups Medium Term Plan for 2016-2018 and short-term plan for 2016, with a focus on producing increased returns in future |
|
| ||
§ Regularly assessed financial performance of the Group and its main businesses via reports from the Group Finance Director |
|
| ||
§ Reviewed and approved Barclays financial results prior to publication, including approving final and interim dividends |
|
| ||
§ Discussed market and investor reaction to Barclays strategic and financial results announcements, with insights provided by the Head of Investor Relations |
|
| ||
§ Provided input, guidance and advice to senior management on the high-level shape of Barclays 2017-2019 Medium Term Plan and subsequently approved the final plan |
|
|
56 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Strategic Goal | Principal Risks | |||
Governance and risk, including regulatory issues
|
||||
§ Debated and approved 2016 risk appetite for the Barclays Group |
||||
§ Regularly assessed Barclays overall risk profile and emerging risk themes, hearing directly from the Chief Risk Officer and the Chairman of the Board Risk Committee |
||||
§ Evaluated Barclays operational and technology capability, including specific updates on cyber-risk capability and the strategy for infrastructure services. Approved Barclays Internationals investment banks IT and Data Global Strategy |
||||
§ Approved the Groups 2016 Recovery Plan and US Resolution Plan |
||||
§ Held specific meetings with representatives of Barclays UK and US regulators to hear first-hand about regulatory expectations and their specific views on Barclays |
||||
§ Evaluated the status of Barclays risk and control environment and the plans in place to enhance the risk and control framework and approved a revised Enterprise Risk Management Framework (ERMF) |
||||
§ Considered regular updates from the Group General Counsel on the legal risks facing Barclays |
||||
§ Heard regularly from the chairmen of the Boards principal Board Committees on the matters discussed at Board Committee meetings |
||||
§ Received updates from the chairman of Barclays US IHC on matters discussed at its board meetings |
||||
§ Heard directly from representatives of the Banking Standards Board on its assessment of the culture in Barclays and the banking sector as a whole |
||||
Other, including compensation
|
||||
§ Reviewed Barclays Talent Management strategy and the process for succession planning for key executive positions, hearing directly from the Group HR Director and the Chairman of the Board Nominations Committee |
||||
§ Received and debated a presentation from the independent facilitator of the 2016 Board effectiveness review on the outcomes and potential areas of focus for improvement |
The above analysis reflects the ERMF that was in place during 2016.
Governance in Action Preparing for Structural Reform
|
||
Law and regulation in the UK, and associated regulatory rules, require Barclays to separate its retail banking operations into a separate, independent legal entity (known as ring-fencing). Barclays has an internal Structural Reform Programme in place to implement these required changes in the UK. A new UK banking entity is being established as the ring-fenced bank (Barclays UK) and will serve retail and small business customers, as well as UK wealth and credit card customers. Barclays International will continue to serve corporate, institutional and investment banking clients and will also serve international wealth and credit card customers. A Group Service Company will be established to support the revised operating entity structure.
These structural changes will have a material impact on the way in which Barclays operates in future. Consequently, the progress of the Structural Reform Programme featured heavily on the Boards agenda during 2016, given the scale of change required and the potential material risks associated with transitioning to the new structure and with the new structure itself. The Board evaluated progress of the Structural Reform Programme at seven of the eight Board meetings held during 2016, including specifically evaluating the impact of structural change as part of the annual Group strategy Board meeting. Specific matters addressed by the Board included:
§ Structural Reform design and implementation plans, including evaluating any identified risks and challenges; considering regulatory feedback on the plans and the status of actions arising from regulatory engagement; and agreeing the internal accountability framework
§ assessing the progress being made with establishing the new legal entity for Barclays UK, including any necessary regulatory licencing requirements and preparations for the ring-fence transfer scheme
§ monitoring the creation of the Group Service Company, including assessing its design, its board governance structure, its control and oversight framework and the execution milestones to be achieved
|
§ debating the potential implications of Structural Reform on Barclays pension scheme, both in terms of the potential impact on Barclays and on pension scheme members
§ conducting an assessment of the overall conduct risk considerations associated with Structural Reform, focusing on the potential impacts for clients and customers
§ evaluating the work being conducted to address sort-code migration, covering technology planning and implementation and customer impact considerations.
Separately, during 2016, Barclays US businesses were organised under an Intermediate Holding Company (IHC) in order to meet US legal requirements. The IHC became operational from 1 July 2016. The Board was regularly updated on progress of implementation, any risks and challenges and how they were being managed.
Board Committees have supported the Board in overseeing the implementation of Structural Reform on matters that fall directly within their remit. For example, the Board Nominations Committee determined the proposed composition of the boards of the new operating entities and is in the process of identifying and evaluating proposed candidates for appointment to those boards. It also discussed and endorsed a set of Governance Guiding Principles, which will govern the relationship between the parent company and its new operating entities. The Board Risk Committee spends time at each meeting assessing the prospective capital and liquidity impacts of Structural Reform, while the Board Audit Committee has evaluated the potential accounting implications. More information can be found in the individual Board Committee reports on the pages that follow. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 57 |
Governance: Directors report
What we did in 2016
Board Audit Committee report
Change has continued apace and it has been critical to focus on ensuring that the commitment to strengthening the control environment is maintained throughout this transformational period. |
Dear Fellow Shareholders My report to you last year highlighted the significant degree of change that Barclays was facing, driven by its own strategic aims and by the demands of Structural Reform. Change has continued apace and it has been critical for the Committee to focus on ensuring the commitment to strengthening the control environment is maintained throughout this transformational period. Barclays has during 2016 put in place a significantly changed senior management team and my Committee colleagues and I are greatly encouraged by the renewed focus and vigour with which the control environment is being addressed and the sense of personal accountability that we are seeing. A significant development in the fourth quarter of 2016 was the creation of a chief controls office and the appointment of a Chief Controls Officer, which will drive forward the delivery of an enhanced programme designed to strengthen the control environment and remediate any known issues. Although the new controls office structure is in its infancy, I welcome the more strategic approach that is now being taken to embed accountability for a strong control environment into the first line of management. Such is the importance of this programme to Barclays that, for its initial phase, progress on the framework will be reported directly to the full Board. In assessing control issues for disclosure in the Annual Report, the Committee has continued to apply similar definitions to those used for assessing internal financial controls for the purposes of Sarbanes-Oxley. The conclusion we have reached is that there are no control issues that are considered to be a material weakness, which merit specific disclosure. Further details may be found in the Risk management and internal control section on page 88.
Our busy agenda in 2016 continued to include our responsibilities for overseeing the performance and effectiveness of internal and external audit, the main independent assurance mechanisms that serve to protect shareholders interests. The Committee also continued to exercise its responsibilities for ensuring the integrity of Barclays published financial information by debating and challenging the judgements made by management and the assumptions and estimates on which they are based. The exercise of appropriate judgement in preparing the financial statements is critical in ensuring that Barclays reports to its shareholders in a fair, balanced and transparent way. The report that follows sets out details of the material matters considered by the Committee since my last report.
A significant change that the Committee has been overseeing is the transition to KPMG as Barclays statutory auditor, following the audit tender concluded in 2015. I met regularly with the PwC lead audit partner and his KPMG successor during 2016. KPMG has been shadowing the current auditor, PwC, during the 2016 year-end audit and the Committee is already seeing some value from the new perspective provided by KPMG on accounting estimates and policies. You can read more about auditor transition in the case study on page 67.
The introduction in March 2016 of the UKs Senior Managers Regime allocated to me specific prescribed responsibilities for safeguarding the independence of, and overseeing the performance of, the internal audit function, including the performance of the Chief Internal Auditor, in line with regulatory requirements. In practice, little has changed in the way in which I fulfil my responsibilities: I continue to hold regular meetings with the Chief Internal Auditor and members of her senior management team to ensure I am aware of current work programmes and any emerging issues and I also agree the Chief Internal Auditors objectives and the outcomes of her performance assessment. During 2016, the PRA undertook a review of Barclays Internal Audit (BIA) and made a number of recommendations to increase its effectiveness and the Committees monitoring thereof. An action plan has been developed to address these recommendations. The Committee also held a networking event with BIA during 2016, enabling Committee members to meet less formally with senior members of the BIA team.
|
58 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
An additional responsibility I have assumed under the Senior Managers Regime is that of Whistleblowers Champion, a position required by the FCA to be held at Board level. As champion, I have specific responsibility for the integrity, independence and effectiveness of the Barclays policies and procedures on whistleblowing, including the procedures for protecting employees who raise concerns from detrimental treatment. During 2016, I recorded a video message to all employees Group-wide, highlighting my role as Whistleblowers Champion and raising awareness of the policies and procedures we have in place.
I continued to work closely with my fellow Board Committee chairmen during 2016, particularly with the Board Risk Committee chairman on the question of operational risk issues, which each Committee has a role in overseeing. I attended meetings of the IHC audit committee to gain a first-hand insight into the issues being addressed by that committee and have invited its chairman to attend a Committee meeting in early 2017 by way of reciprocating. I met frequently with other members of senior management, including the Group Finance Director, and continued my engagement with Barclays regulators both in the UK and US.
Committee performance
The Committees performance during 2016 was assessed as part of the independently facilitated annual Board effectiveness review. The conclusion of my Board colleagues was that the Committee is regarded as thorough and the Board takes assurance from the quality of the Committees work. The main area identified for improvement was to ensure that the Committee continues to strike an appropriate balance between covering issues in appropriate detail and taking a strategic approach to its oversight and supervision of management. The review also commented on the need to strengthen the depth of financial and accounting expertise on the Committee via new appointments, which is a matter that was already under consideration during 2016, and the need to ensure that the way in which the Committee works with the Board Reputation and Board Risk Committees continues to capture all significant issues effectively while minimising any overlap. I will be seeking to address each of these areas over the coming year. You can read more about the outcomes of the Board effectiveness review on pages 81 to 83.
Looking ahead
The Committee is looking forward to working with both the new Chief Controls Officer and with the new auditor, KPMG, during 2017. In addition to overseeing managements progress on enhancing the control environment, the Committee will be focusing on some significant accounting issues, including the Groups preparedness for the implementation of IFRS9 and the accounting implications of Structural Reform. We will also be closely monitoring the implementation of the action plan to address the recommendations arising from the PRAs review of BIA.
Mike Ashley
Chairman, Board Audit Committee
22 February 2017
Board Audit Committee allocation of time (%) |
| |||||||||||||
|
||||||||||||||
2016 | 2015 | |||||||||||||
|
||||||||||||||
|
1 |
Control issues |
|
23 |
|
|
18 |
| ||||||
2 | Business control environment | 19 | 16 | |||||||||||
3 | Financial results | 36 | 27 | |||||||||||
4 | Internal audit matters | 11 | 7 | |||||||||||
5 | External audit matters (including, in 2015, external audit tender) |
6 | 26 | |||||||||||
6 | Other (including governance and compliance) | 4 | 6 | |||||||||||
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 its needs to fulfil its responsibilities. Its members as a whole have experience of the banking and financial services sector in addition to general management and commercial experience. Diane Schueneman was appointed to the Committee with effect from 18 February 2016, bringing valuable insights into operational and technology risk and controls. Diane de Saint Victor retired from the Committee at the end of May 2016. Mike Ashley is the designated financial expert on the Committee for the purposes of the US Sarbanes-Oxley Act. Although each member of the Committee has financial and/ or financial services experience, the Board has identified that the Committee could be strengthened by the appointment of an additional member with direct accounting and auditing experience. Consideration is being given to further appointments to the Committee in this regard, however, given the impact of Structural Reform, the search for suitable candidates is being addressed in the context of overall Board composition requirements. You can find more details of the experience of Committee members in their biographies on pages 51 and 52.
The Committee met 12 times in 2016 and the chart above shows how it allocated its time. Meetings are generally arranged well in advance and are usually scheduled in line with Barclays financial reporting timetable. Two of the meetings were arranged specifically to provide the Committee opportunity to consider particular issues relevant to the financial statements, such as the viability statement and the proposed deadline for PPI claims. Committee meetings were attended by management, including the Group Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, Chief Operating Officer, General Counsel and Head of Compliance, as well as representatives from the businesses and other functions. In future, the Chief Controls Officer will attend meetings on a regular basis. The lead audit partner of the external auditor attended all Committee meetings and the Committee held a number of private sessions with each of the Chief Internal Auditor or the lead auditor partner, which were not attended by management. From 1 July 2016, the lead audit partner of KPMG also attended meetings as part of the statutory auditor transition process. Representatives from the PRA also attended a meeting during 2016.
Member | Meetings attended/eligible to attend | |||
Mike Ashley | 12/12 | |||
Tim Breedon | 12/12 | |||
Crawford Gillies* | 11/12 | |||
Diane de Saint Victor (to 31 May 2016) | 8/8 | |||
Diane Schueneman (from 18 February 2016) | 9/9 |
* | Did not attend one meeting convened at short notice owing to a prior commitment |
Committee role and responsibilities
The Committee is responsible for:
§ | assessing the integrity of the Groups financial reporting and satisfying itself that any significant financial judgements made by management are sound |
§ | evaluating the effectiveness of the Groups internal controls, including internal financial controls |
§ | scrutinising the activities and performance of the internal and external auditors, including monitoring their independence and objectivity. |
The Committees terms of reference are available at home.barclays/corporategovernance |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 59 |
Governance: Directors report
What we did in 2016
Board Audit Committee report
The Committees work
The significant matters addressed by the Committee during 2016 and in evaluating Barclays 2016 annual report and financial statements, are described on the following pages.
Financial statement reporting issues
The Committees main responsibility in relation to Barclays financial reporting is to review with both management and the external auditor the appropriateness of Barclays financial statements, including quarterly results announcements and half-year and annual financial statements and supporting analyst presentations, with its primary focus being on:
§ | the quality and acceptability of accounting policies and practices |
§ | any correspondence from financial reporting regulators in relation to Barclays financial reporting |
§ | material areas where significant judgements have been made, along with any significant assumptions or estimates, or where significant issues have been discussed with or challenged by the external auditor |
§ | an assessment of whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess Barclays position and performance, business model and strategy. |
Accounting policies and practices
The Committee discussed reports from management in relation to the identification of critical accounting judgements and key sources of estimation uncertainty, significant accounting policies and the proposed disclosure of these in the 2016 Annual Report. Following discussions with both management and the external auditor, the Committee approved the critical accounting judgements, significant accounting policies and disclosures, which are set out in note 1, Significant accounting policies, to the consolidated financial statements. There were no significant changes in accounting policy during the period. During 2016, the Committee was regularly updated on Barclays preparations for the implementation of IFRS9 (Financial Instruments), which is effective from 1 January 2018, including the key technical decisions and interpretations required and Barclays proposed approach
for each. The Committee also considered the accounting implications of Structural Reform and the establishment of the ring-fenced bank. These will continue to be areas of focus in 2017.
Financial reporting regulators and Barclays
During the third quarter of 2016, Barclays received a comment letter from the Corporate Reporting Review Team (CRRT) of the Financial Reporting Council (FRC) in relation to its thematic review of tax disclosures. The comment letter covered the disclosure of uncertain tax provisions in Barclays 2015 annual report and financial statements. The CRRT requested and was provided with additional information in respect of Barclays disclosure of uncertain tax positions, including an advance copy of Barclays enhanced policy for such disclosure (see page 294), and subsequently confirmed in writing that it had closed its enquiries.*
The Committee from time to time considers comment letters from the SEC in relation to its reviews of Barclays Annual Report and other publicly filed financial statements. Such comment letters and Barclays responses are made publicly available by the SEC on its website, www.sec.gov, once it has closed each such review. The Committee sought to ensure that Barclays took due account of the SECs views in its external reporting.
Significant judgements and issues
The significant judgements and issues and actions taken by the Committee in relation to the 2016 annual report and financial statements are outlined below. The significant judgements and issues are broadly comparable in nature to prior years. Each of these matters was discussed with the external auditor during the year and, where appropriate, have been addressed as areas of audit focus in the Auditors Report on pages 269 to 275.
* | The CRRTs review was based on Barclays annual report and financial statements and did not benefit from detailed knowledge of Barclays business or the transactions entered into. The closure of the CRRTs enquiries provides no assurance that Barclays annual report and accounts are correct in all material respects, as the FRCs role is not to verify information but to ensure compliance with reporting requirements. The FRC accepts no liability for reliance on its closure letter from Barclays or any third party, including but not limited to investors and shareholders. |
Area of focus
|
Reporting issue
|
Role of the Committee
|
Conclusion/action taken
| |||
Conduct provisions (see Note 27 to the financial statements). |
Barclays makes certain assumptions and estimates, analysis of which underpins provisions made for the costs of customer redress, such as for Payment Protection Insurance (PPI). |
§ Regularly analysed the judgements and estimates made with regard to Barclays provisioning for PPI claims, taking into account forecasts and assumptions made for PPI complaints and actual claims experience for Barclays and the industry as a whole.
§ Debated the potential impact on the future range of provisions arising from the FCAs proposed timebar on claims and the expected deadline of June 2019, discussing the levels of uncertainty in the projections.
§ Discussed the potential range of outcomes that might arise from the Plevin case (the 2014 UK Supreme Court ruling in Plevin v Paragon Personal Finance Ltd) and whether any increase in provisions was required.
§ Evaluated proposed additional provisions for PPI and whether the analysis performed by management was consistent with prior periods and reflected known trend data and whether Barclays approach was consistent with that taken by industry peers.
§ Assessed provisions for alternative PPI (card protection and payment break plan insurance) and the claims experience compared to the range of reasonable high and low end scenarios that had been determined.
|
The Committee and management continue to monitor closely any changes in customer or claims management companies behaviour in light of the Plevin case and the proposed FCA timebar. Over the course of 2016, having assessed actual claims experience and the potential impact of the proposed timebar and the Plevin case, the Committee agreed to recognise additional provisions of £1,000m in 2016, bringing Barclays total cumulative provisions against the cost of PPI redress and associated processing costs to £8.4bn, of which £2.0bn is remaining. |
60 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Area of focus
|
Reporting issue
|
Role of the Committee
|
Conclusion/action taken
| |||
Legal, competition and regulatory provisions (see Notes 27-29 to the financial statements). |
Barclays is engaged in various legal, competition and regulatory matters. The extent of the impact on Barclays of these matters cannot always be predicted, but matters can give rise to provisioning for contingent and other liabilities depending on the relevant facts and circumstances. The level of provisioning is subject to management judgement on the basis of legal advice and is therefore an area of focus for the Committee. | § Evaluated advice on the status of current legal, competition and regulatory matters.
§ Assessed managements judgements and estimates of the levels of provisions to be taken and the adequacy of those provisions, based on available information and evidence.
§ Considered the adequacy of disclosure, recognising that any decision to set provisions involves significant judgement.
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The Committee discussed provisions and utilisation. Having reviewed the information available to determine what was both probable and could be reliably estimated, the Committee agreed that no additional provision should be made at the full year for ongoing investigations and litigation.
Further information may be found on pages 330 to 338. | |||
Valuations (see Notes 14-18 to the financial statements). |
Barclays exercises judgement in the valuation and disclosure of financial instruments, derivative assets and certain portfolios, particularly where quoted market prices are not available, including the Groups Education, Social Housing and Local Authority (ESHLA) portfolio. | § Evaluated reports from Barclays Valuations Committee, with particular focus on the restructuring of the ESHLA portfolio and its subsequent de-recognition; a valuation disparity with a third party in respect of a specific long-dated derivative portfolio; and an assessment of the impact of negative interest rates on the valuation of derivatives.
§ Considered proposals from the Valuations Committee to revise the valuations approach for the remaining ESHLA portfolio and to revise the approach to the marking of Own Credit.
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The Committee confirmed its agreement to the restructuring and de-recognition of the ESHLA portfolio and concluded that it was a de-recognition event. It noted the lack of progress made in resolving the third-party valuation disparity, which has been outstanding for some time, and satisfied itself on the basis of the information available to it that Barclays valuation methodology remains appropriate. It approved a revision to the model used for valuing the remaining ESHLA portfolio recommended by the Valuations Committee. | |||
Impairment (see Note 7 to the financial statements). |
Where appropriate, Barclays models potential impairment performance, allowing for certain assumptions and sensitivities, to agree allowances for credit impairment, including agreeing the timing of the recognition of any impairment and estimating the size, particularly where forbearance has been granted. | § Assessed impairment experience against forecast and whether impairment provisions were appropriate.
§ Evaluated the appropriateness and timing of the impairment taken in connection with Barclays exposures to the oil and gas sectors, including the impact of single name losses in the oil and commodities sectors.
§ Debated the adjustment in impairment taken in the Cards business for informal forbearance arrangements and the potential impact of changes in emergence modelling.
§ Considered a report from the Group Impairment Committee on the adequacy of loan impairment allowances as at 31 December 2016, including assessing internal and external trends, methodologies and key management judgements.
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The Committee challenged the timing of the oil and gas impairment taken in the half-year results, although confirmed that the provision was adequate. It welcomed the proposal to create a new Group Impairment Committee and enhance the role of the Group Finance function in assessing impairment provisioning. It agreed a post-model adjustment of £250m for impairment in the UK and US Cards businesses during the third quarter of 2016 and obtained clarification on the impairment policy for the Cards business. At the full year, having debated the report from the Group Impairment Committee it confirmed the adequacy of the full year impairment charge of £2.4bn. | |||
Tax (see Note 10 to the financial statements). |
Barclays is subject to taxation in a number of jurisdictions globally and makes judgements with regard to provisioning for tax at risk and on the recognition and measurement of deferred tax assets. | § Evaluated the appropriateness of tax risk provisions to cover existing tax risk.
§ Debated the forecasts and assumptions supporting the recognition and valuation of deferred tax assets.
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The Committee confirmed the tax risk provisions for the full year and the treatment of deferred tax assets. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 61 |
Governance: Directors report
What we did in 2016
Board Audit Committee report
Area of focus
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Reporting issue
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Role of the Committee
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Conclusion/action taken
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Long-term viability (see page 41 for further information). |
The Directors are required to make a statement in the Annual Report as to the long-term viability of Barclays. The Committee provides advice to the Board on the form and content of the statement, including the underlying assumptions. | § Evaluated at year end a report from management setting out the view of Barclays long-term viability. This report was based on Barclays Medium Term Plan (MTP) and covered forecasts for capital, liquidity and leverage, including forecast performance against regulatory targets, outcomes of the stress test of the MTP and forecast capital and liquidity performance against stress hurdle rates, funding and liquidity forecasts and an assessment of global risk themes and the Groups risk profile.
§ Considered the viability statement in conjunction with Barclays risk statements and strategy/business model disclosures.
§ Addressed specific feedback from investors and other stakeholders on viability statements in general.
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Taking into account the assessment by the Board Risk Committee of stress testing results and risk appetite, the Committee agreed to recommend the viability statement to the Board for approval. | |||
Fair, balanced and understandable reporting (including country-by-country reporting and Pillar 3 reporting). |
Barclays is required to ensure that its external reporting is fair, balanced and understandable. The Committee undertakes an assessment on behalf of the Board in order to provide the Board with assurance that it can make the statement required by the Code. |
§ Assessed, via discussion with and challenge of management, including the Group Chief Executive and Group Finance Director, whether disclosures in Barclays published financial statements were fair, balanced and understandable.
§ Evaluated reports from Barclays Disclosure Committee on its assessment of the content, accuracy and tone of the disclosures.
§ Established via reports from management that there were no indications of fraud relating to financial reporting matters.
§ Evaluated the outputs of Barclays internal control assessments and Sarbanes-Oxley s404 internal control process.
§ Assessed disclosure controls and procedures.
§ Confirmed that management had reported on and evidenced the basis on which representations to the external auditors were made. |
Having evaluated all of the available information and the assurances provided by management, the Committee concluded that the processes underlying the preparation of Barclays published financial statements, including the 2016 annual report and financial statements, were appropriate in ensuring that those statements were fair, balanced and understandable.
In assessing Barclays financial results statements over the course of 2016, the Committee specifically addressed and provided input to management on the disclosure and presentation of:
§ Barclays restated financial results, including the allocations to Barclays UK and Barclays International and the separation of the Cards business
§ the sell-down of Barclays holding in Barclays Africa and its classification as held for sale
§ guidance provided to the market on the costs of Structural Reform
§ the Group Finance Directors presentations to analysts
§ alternative performance measures in view of new guidance from the European Securities & Markets Association
§ core performance and headcount
§ operational risk capital and guidance on capital levels
§ the level of segmental reporting.
The Committee recommended to the Board that the 2016 annual report and financial statements are fair, balanced and understandable.
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62 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Other significant matters
Apart from financial reporting matters the Committee has responsibility for oversight of the effectiveness of Barclays internal controls, the performance and effectiveness of BIA and the performance, objectivity and independence of the external auditor. The most significant matters considered during 2016 are described below:
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Internal control Read more about the Barclays internal control and risk management processes on pages 88 and 89. |
The effectiveness of the overall control environment, including the status of any material control issues and the progress of specific remediation plans. |
§ Evaluated and tracked the status of the most material control issues identified by management via regular reports from the Head of Operational Risk and latterly from the Chief Controls Officer.
§ Evaluated the status of specific material control issues and associated remediation plans, including in particular those relating to Security of Secret and Confidential Data; Infrastructure Access Management; Group Resilience; IT Security; Data Governance; Model Risk Management; and Unsupported Infrastructure and Applications, all of which remained open at the end of 2016.
§ Discussed lessons learned from specific control incidents and how these could be applied to Barclays business globally, via an enhanced lessons-learned process.
§ Debated any regulatory reports or other feedback received from regulators on Barclays overall control environment.
§ Assessed the status of the enhancements being made to Barclays risk and control self-assessment (RCSA) process to support disclosures in Barclays annual report.
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The Committee requested enhancements to reporting to make clear where operational risk was outside appetite and the actions being taken. The Committee welcomed the improvements made to the lessons-learned process and proposed that the new Group Controls Committee should play a role in setting standards for lessons-learned exercises and deciding when they should be conducted. The Committee endorsed the work being taken forward, under the leadership of the Chief Controls Officer, to address any feedback from regulators on Barclays control environment, noting that the Board would directly oversee the progress being made to address specific regulatory feedback. The Committee also challenged management to ensure that the RCSA process was sufficiently robust in light of some specific control issues that had emerged after certain RCSAs had been completed. | |||
The effectiveness of the management control approach and control environment in each individual business, including the status of any material control issues and the progress of specific remediation plans. |
§ Assessed individual reports from Barclays UK, Barclays International, the Cards business, Barclays Non-Core operations, Barclays Internationals US investment banking operations and Barclays Africa, including questioning directly the heads of those businesses on their management control approach/culture and control environment, including any specific control issues, resilience issues, the status and progress of any remediation plans or workstreams and plans to enhance the control environment.
§ Tracked plans for implementing revised control governance structures in each business to align with changes in Barclays organisational structure.
§ Provided feedback on the 2016 control objectives for each member of the Group Executive Committee.
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The Committee welcomed the decision by Barclaycard to redirect strategic investment towards enhancing its control environment and to restrict growth in new business while certain control issues, such as fraud levels in the US, were addressed. To make clear the levels of personal accountability expected, the Committee asked for the control objectives for each member of the Group Executive Committee for 2016 to be made more specific, with an emphasis on prioritising control issues. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 63 |
Governance: Directors report
What we did in 2016
Board Audit Committee report
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
The effectiveness of the control environment in the Chief Operating Office (COO) and the status and remediation of any material control issues. | § Scrutinised on a regular basis the COO control environment, taking the opportunity to directly challenge and question functional leaders, including the Chief Operating Officer on the progress of remediation plans.
§ Debated the clarity of accountability and standards of consistency needed, given decentralisation of the business.
§ Addressed the issue of resilience and associated risk appetite, discussing in particular the impact of change on resilience initiatives.
§ Discussed the impact of the proposed sell-down of Barclays holding in Barclays Africa, including any ongoing support requirements on COO-related material control issues. |
The Committee emphasised the need for clear ownership and accountability between the business and COO for technology control issues, which has been addressed via the implementation of the new organisational management structure. In view of the volume of technology and change remediation required, the Committee tasked the Chief Operating Officer with enhancing the processes for self-identification and logging of risk and control issues. The Committee also asked the new Chief Information Officer to conduct a deep dive into Technology control issues, the outputs of which were evaluated by the Committee in the fourth quarter of 2016. The Committee welcomed the improved clarity of the plans to enhance the COO control environment and will receive further regular updates throughout 2017.
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The adequacy of the Groups arrangements to allow employees to raise concerns in confidence without fear of retaliation and the outcomes of any substantiated cases. | § Evaluated the results of benchmarking exercise to compare Barclays processes and case volumes to 40 peer companies.
§ Tracked the progress of the internal campaign to raise awareness among employees on raising concerns.
§ Monitored the trends in reported and substantiated whistleblowing cases, including any information on any instances of retaliation. |
The Committee concluded that Barclays processes were appropriate and in line with peers. It noted that the successful internal campaign had generated an increase in the number of whistleblowing reports, all of which were investigated. Volumes of cases remain proportionate to Barclays size and footprint. The Committee asked management to provide additional detail in its future reports where any whistleblowing investigation was outstanding for more than six months. In future, as Barclays Whistleblowing Champion, the Chairman of the Committee will make an annual report to the Board on whistleblowing matters.
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64 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Area of focus
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Matter addressed
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Role of the Committee
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Conclusion/action taken
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Internal audit |
The performance of BIA and delivery of the internal audit plan, including scope of work performed, the level of resources and the methodology and coverage of the internal audit plan. |
§ Scrutinised and agreed internal audit plans and deliverables for 2016, including agreeing the areas of focus, such as technology, data, change, execution risk, and the resources required.
§ Monitored delivery of the agreed audit plans, including assessing internal audit resources and attrition levels and any impacts on the plan.
§ Debated audit risk appetite and issue validation.
§ Tracked the levels of unsatisfactory audits, including discussing the time taken to issue audit reports and the reasons for any delays.
§ Discussed BIAs assessment of the management control approach and control environment in Barclays UK, Barclays International and the COO.
§ Debated with BIA the possibility of auditing culture.
§ Evaluated the outcomes from BIAs annual self-assessment.
§ Debated feedback received from the PRA on the performance of BIA and discussed the increased regulatory expectations of BIA and the impact on internal audit plans and resources.
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The Committee approved an increase in headcount to ensure appropriate audit coverage of technology and change and agreed an interim audit risk appetite level pending recruitment, subject to the delivery of mitigating actions assigned to the Chief Operating Officer. The Committee emphasised to management that it was not content with the number of unsatisfactory audits and considered setting a target for management. It also asked BIA to disclose in its reports the reasons for any delay in issuing audit reports, along with details of any audit work that was deferred or cancelled. In view of the additional expectations placed on BIA, the Committee requested details of internal audit vacancies, business areas and skills sets and encouraged the Chief Internal Auditor to consider internal transfers and other creative solutions to fill resourcing gaps. It agreed with BIA the action plan to address the recommendations arising from the PRA review of BIAs performance. The Committee confirmed that it was satisfied with the outcomes of the self-assessment of BIA performance, which evidenced that the function generally conforms to the standards set by the Institute of Internal Auditors. It further confirmed that it felt able to reply on the work of BIA in discharging its own responsibilities.
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External audit |
The work and performance of PwC, including the maintenance of audit quality during the period of transition to a new auditor. |
§ Met with key members of the PwC audit team to discuss the 2016 audit plan and agree areas of focus.
§ Assessed regular reports from PwC on the progress of the 2016 audit and any material issues identified, including debating with PwC whether any changes to the audit plan were needed following the UKs vote to leave the EU.
§ Discussed PwCs report on certain control areas and the control environment, including a specific report on controls over access to payment systems requested by the Committee.
§ Discussed the draft audit opinion ahead of 2016 year end.
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The Committee approved the audit plan and the main areas of focus.
Read more about the Committees role in assessing the performance, effectiveness and independence of the external auditor and the quality of the external audit on pages 66 to 67. |
home.barclays/annualreport | Barclays PLC Annual Report 2016 | 65 |
Governance: Directors report
What we did in 2016
Board Audit Committee report
The Committee also covered the following matters:
§ | tracked the progress of specific work being done to enhance Barclays financial crime controls and the deployment of a revised financial crime operating model. The Committee also assessed the Group Money Laundering Officers annual report and was briefed on any issues arising from the publication of the information known as the Panama Papers |
§ | assessed the status of the programme in place to ensure Barclays compliance with client assets regulatory requirements, including approving the annual client assets audit report and discussing the potential impact of Structural Reform on client assets |
§ | evaluated the outcomes of the assessment of the Committees performance and any areas of Committee performance that needed to be enhanced |
§ | reviewed and updated its terms of reference, recommending them to the Board for approval. |
External auditor
PwC, and its predecessor firms, has been Barclays external auditor since 1896. An external audit tender was conducted in 2015, with a view to rotating the external audit firm for the 2017 audit onwards. PwC was not asked to tender. The tender process completed in summer 2015 and the Board announced in July 2015 that it had appointed KPMG as Barclays statutory auditor with effect from the 2017 financial year. Henry Daubeney of PwC has been Barclays senior statutory auditor with effect from the audit for the 2015 financial year. He will be succeeded by an audit partner from KPMG with effect from the audit for the 2017 financial year.
Assessing external auditor effectiveness, auditor objectivity and independence and non-audit services
The Committee is responsible for assessing the effectiveness, objectivity and independence of the Groups auditor, PwC. This responsibility was discharged throughout the year at formal Committee meetings, during private meetings with PwC and via discussions with key executive stakeholders. In addition to the matters noted above, during 2016 the Committee:
§ | 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 and regularly analysed reports from management on the non-audit services provided to Barclays. Read more about non-audit services below |
§ | 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 |
§ | assessed the draft report to the PRA prepared by PwC regarding its detailed audit work on specific topics |
§ | was briefed by PwC on critical accounting estimates, where significant judgement is needed |
§ | assessed any potential threats to its independence self-identified and reported by PwC |
§ | reviewed the report on PwC issued by the FRCs Audit Quality Review team. |
PwCs performance, independence and objectivity during 2016 were formally assessed at the beginning of 2017 by way of a questionnaire completed by key stakeholders across the Group. The questionnaire was designed to evaluate PwCs audit process and addressed matters including the quality of planning and communication, technical knowledge, the level of scrutiny and challenge applied and PwCs understanding of the business. The Committee was particularly interested in assessing whether audit quality was being maintained throughout the period of transition to a new auditor and that the appropriate degree of challenge and scepticism was being maintained. The results of the evaluation confirmed that both PwC and the audit process were effective. In view of the external audit tender conducted in 2015 and the decision to appoint KPMG as Barclays external auditor with effect from the 2017 financial year, PwC will resign as the Groups statutory auditor at the conclusion of the 2016 audit and the Board will resolve to appoint KPMG to fill the vacancy. A resolution to appoint KPMG as auditor will be proposed at Barclays 2017 AGM. PwC will be available at the 2017 AGM to answer any questions.
Non-audit services
In order to safeguard the auditors 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 Group Policy on the Provision of Services by the Group Statutory Auditor (the Policy) applies to all Barclays subsidiaries and other material entities over which Barclays has significant influence. The core principle of the Policy is that non-audit services (other than those legally required to be carried out by the Groups auditor) should only be performed by the auditor in certain, controlled circumstances. The Policy sets out those types of services that are strictly prohibited and those that are allowable in principle. Any service types that do not fall within either list are considered by the Committee Chairman on a case by case basis, supported by a risk assessment provided by management. Since October 2015, the Committee has also required all new engagements of KPMG for non-audit services to be considered in light of the Policy and has maintained oversight of such services on the same basis as for PwC. In particular, KPMG was not permitted to provide any non-audit service that might have continued beyond mid-2016 if it had potential to cause independence issues.
During 2016, the Policy was revised to reflect the FRCs draft Ethical Standard for Auditors published in September 2015, which implemented the EUs revised Statutory Audit Directive. The new Ethical Standard is effective from financial years commencing on or after 17 June 2016, meaning that Barclays must comply with effect from 1 January 2017. However, the Committee decided to early adopt the requirements of the new Ethical Standard from 1 July 2016, to align with the point at which KPMG started its required period of independence. In order to comply with the new Ethical Standard, significant amendments were made to the list of services that are strictly prohibited by the Policy. A number of services being undertaken by PwC or KPMG were required to be exited following adoption of the new Policy, with any exceptions being approved by the Chairman and notified to the Committee.
Under the Policy, the Committee has pre-approved all allowable services up to £100,000, or £25,000 for tax advisory services, however, all proposed work, regardless of the fees, must be sponsored by a senior executive and recorded on a centralised online system, with a detailed explanation of the clear commercial benefit arising from engaging the auditor over other potential service providers. The audit firm engagement partner must also confirm that the engagement has been approved in accordance with the auditors own internal ethical standards and does not pose any threat to the auditors independence or objectivity. All requests to engage the auditor are assessed by independent management before work can commence. Requests for allowable service types in respect of which the fees are expected to meet or exceed the above thresholds must be approved by the Chairman 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. The thresholds were not amended when the Policy was revised in 2016.
66 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
During 2016, all engagements where expected fees met or exceeded the above thresholds were evaluated by either the Committee Chairman or the Committee as a whole who, before confirming any approval, assured themselves that there was justifiable reason for engaging the auditor and that its independence and objectivity would not be threatened. No requests to use PwC were declined in 2016 (2015: two), with one request to use KPMG declined (2015: n/a). On a quarterly basis, the Committee scrutinised details of individually approved and pre-approved services undertaken by PwC and 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 clearly 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 £50,000-£100,000 (or up to £25,000 for tax advisory services) may be regarded as clearly trivial. The Committee undertook a review of pre-approved services at its meeting in December 2016 and satisfied itself that such pre-approved services were clearly trivial in the context of their impact on the financial statements.
The fees paid to PwC for the year ended 31 December 2016 amounted to £49m (2015: £43m), of which £8m (2015: £9m) was payable in respect of non-audit services. Non-audit services represented 20.6% of the statutory audit fee (2015: 24.2%). A breakdown of the fees paid to the auditor for statutory audit and non-audit work can be found in Note 42 on page 362. Of the £8m of non-audit services provided by PwC during 2016, the significant categories of engagement, i.e. services where the fees amounted to more than £500,000, included:
§ audit-related services: additional work to facilitate the transition to KPMG as Barclays statutory auditor
§ transaction support: services provided in connection with the sell-down of Barclays holding in Barclays Africa, including acting as the reporting accountant on the circular issued to Barclays shareholders and providing comfort on associated documentation
§ quality assurance: services performed on behalf of Barclays Africa over work conducted by Barclays in connection with the separation arrangements from Barclays.
The fees paid to KPMG for non-audit work during 2016 were £17.3m (2015: £38m). Significant categories of engagement approved in 2016 included:
§ Audit-related services: services provided in connection with minimum regulatory requirements for audits of benchmark interest rate submissions.
The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 As described in this report, 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.
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Governance in Action Statutory auditor transition
A significant activity for the Committee during 2016 has been overseeing the transition of Barclays statutory auditor from PwC to KPMG. Following the audit tender that concluded in mid-2015, KPMG will become Barclays statutory auditor with effect from the 2017 financial year onwards. The Committee has undertaken activity to manage the transition period to facilitate a smooth handover of responsibilities.
The Committee has overseen the steps required to enable KPMG to achieve independence by 1 July 2016. This included:
§ assigning a dedicated transition team to support operational activities, including progressing a global master services agreement and local jurisdictional agreements
§ agreeing with KPMG the overall plan to achieve independence and assessing regular reports from KPMG on the progress being made
§ monitoring the orderly termination of non-audit services being provided by KPMG to Barclays that would be prohibited when KPMG becomes statutory auditor
§ requiring KPMG to comply from 1 June 2016 with the provisions of the Groups policies relating to the statutory auditor, specifically, The Group Policy on the Provision of Services by the Group Statutory Auditor and the Group Policy on Employment of Employees or Workers from the Statutory Auditor, and requiring management to report to the Committee on any services or appointments undertaken in line with these policies
§ accepting a formal independence letter from KPMG. This included a list of ongoing non-audit services that are deemed permissible and which have been approved in accordance with Barclays policy and confirmation of KPMGs compliance with applicable ethics and independence rules.
Once independence was achieved, the Committee oversaw the handover plan and the transition to business as usual. This included:
§ inviting the lead audit partner of KPMG to attend Committee meetings as part of the process of shadowing PwCs 2016 audit
§ arranging for the lead audit partner of KPMG to attend meetings of the Board Reputation Committee and Board Risk Committee
§ receiving a briefing from KPMG on accounting developments, covering: Impairment and the impact of IFRS9 (Financial Instruments); Valuations; Negative interest rates; Structural Reform; IFRS15 (Revenue from contracts with customers) and IFRS16 (Leases)
§ discussing with KPMG accounting policy interpretations following KPMGs review of Barclays accounting policies
§ assessing regular reports from KPMG on the progress being made with key activities, including building the Barclays audit team and gaining an understanding of Barclays key processes, systems and controls
§ reviewing the report on KPMG issued by the FRCs Audit Quality Review team
§ scheduling a planning meeting between the Committee and KPMG for the second quarter of 2017 to discuss the audit strategy and provide input.
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home.barclays/annualreport | Barclays PLC Annual Report 2016 | 67 |
Governance: Directors report
What we did in 2016
Board Risk Committee report
The Committees focus during 2016 has been driven by a number of key challenges, including emerging economic and political risks, notably those associated with the EU Referendum and the subsequent vote by the UK to leave the EU.
Dear Fellow Shareholders The Committees focus during 2016 has been driven by a number of key challenges. First, Barclays has been implementing its new strategy and executing its Structural Reform Programme, which has some particular implications in terms of capital and liquidity management across Barclays legal entities. Second, there was continued focus on any emerging risks arising in our key markets in the UK, US and South Africa as a consequence of any macroeconomic deterioration or disruption in financial market conditions. Finally, there were the challenges presented by emerging economic and political risks, notably those associated with the EU Referendum and the subsequent vote by the UK to leave the EU.
Considerations for risk appetite for 2016 and the Medium Term Plan (MTP) included credit cycle conditions; the impact of ongoing low commodity prices; a potential slowdown in China; and the likelihood of interest rate rises. Consequently, the recommendation of the risk function, which was endorsed by the Committee, was that a conservative approach to growth should be maintained, with a focus on core products and markets. We expected continued volatility in external conditions and aimed to ensure that the Group was conservatively positioned. Headwinds developed during 2016 with the potential to have a significant first-order impact on Barclays businesses, including heightened economic risk in the UK post the EU Referendum; increased geo-political risk following the US presidential election; and the IAS19 position of Barclays pension scheme, which is vulnerable to market volatility. Other emerging risks with the potential to impact Barclays include interest rate and credit spread movements; UK property price stress; potential transmission impacts of any slowdown in China; and ongoing volatility in oil prices, which remain low. All of these potential risks continue to be actively managed and the risk profile and actions taken are subject to regular oversight by the Committee. In these circumstances, we were pleased with the capital and leverage performance for 2016, although impairment performance was adverse to plan, primarily as a result of one-off effects reflecting managements review of impairment modelling in the UK and US Cards businesses.
In early 2016, Barclays appointed a new Chief Risk Officer, C.S. Venkatakrishnan, an appointment that was recommended to the Board by the Committee. The Committee oversaw the transition, specifically requesting information from the outgoing Chief Risk Officer on the transition plans and handover arrangements and seeking assurance from the new Chief Risk Officer that he had been provided with all of the information needed to enable him to fulfil his responsibilities. The Committee has welcomed the opportunity to work closely with the new Chief Risk Officer during 2016. We have also seen greater emphasis emerge over 2016 on the responsibilities of the first |
line of defence for managing risk in their businesses, with the chief executives of each business attending Committee meetings to present directly to the Committee, with the support of their chief risk officers, on the risk profile of their business and how risk is being managed.
My own responsibilities as Chairman of the Committee were re-emphasised during 2016, with the introduction in March 2016 of the UKs Senior Managers Regime. Under this regulatory regime, I have specific prescribed responsibilities for safeguarding the independence of and overseeing the performance of the risk function, including the performance of the Chief Risk Officer, in line with regulatory requirements. In addition to my regular meetings with the Chief Risk Officer and members of his senior management, I have led the Committee in encouraging the risk function to develop a way of assessing risk management capability, which we have also agreed will be subject to a periodic, external review. The risk function has also been encouraged to develop a way of measuring risk culture across the Group.
During 2016, I continued to liaise closely with the Chairman of the Board Audit Committee, particularly with regard to operational risk issues, where there is some degree of overlap between the remit of the two committees. I also attended a meeting of the risk committee of Barclays US IHC to gain a first-hand insight into the risk issues being addressed by management in that entity. I continued my practice of meeting regularly with other members of senior management and continued to engage with Barclays regulators in the UK and US.
Committee performance The Committees performance during 2016 was assessed as part of the independently facilitated annual Board effectiveness review. I am pleased to report that the conclusion of my Board colleagues was that the Committee is regarded as thorough and effective and that the Board has a high degree of confidence in the diligence and coverage of the Committee. The main area identified for improvement was to ensure that the co-operation and collaboration between the Committee and the Board Audit and Board Reputation Committees continues to capture all significant risk issues effectively. I will be working even more closely with my fellow Board Committee chairmen on this over the coming year. You can read more about the outcomes of the Board effectiveness review on pages 81 to 83.
Looking ahead 2017 will be a key year for Barclays in delivering its strategy, as it completes its restructuring and makes significant steps in implementing the new legal entity structure required under Structural Reform. I expect the Committee to focus on strategic risk, with an emphasis on promoting even greater linkages between strategy formulation and risk management, and ensuring that there is appropriate global oversight of risk across the new Group structure.
Tim Breedon Chairman, Board Risk Committee 22 February 2017 | |
68 | Barclays PLC Annual Report 2016 | home.barclays/annualreport |
Board Risk Committee allocation of time (%) |
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2016 | 2015 | |||||||||||||
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1 |
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Risk profile/risk appetite (including capital and liquidity management) |
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52 |
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43 |
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2 | Key risk issues | 26 | 31 | |||||||||||
3 | Internal control/risk policies | 8 | 11 | |||||||||||
4 | Other (including remuneration and governance issues) | 14 | 15 | |||||||||||
Committee composition and meetings
The Committee is comprised solely of independent non-executive
Directors. Details of the skills and experience of the Committee members can be found in their biographies on pages 51 to 52.