6-K

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 18, 2016

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 2015
  2        Barclays PLC Strategic Report 2015
  3        Barclays PLC Pillar 3 Report 2015
  4        Barclays PLC Notice of Annual General Meeting 2016
  5        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 18, 2016     
  

By: /s/ Patrick Gonsalves

 

    

 

 

Patrick Gonsalves

  

Deputy Company Secretary of             Barclays PLC

 


 

 

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   Return to stability

 

 

         

Barclays PLC

Annual Report 2015


How do I use this document?

The diagram below maps the structure

and flow of the Annual Report.

 

 

    

 

 

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Notes

The term Barclays or Group refers to Barclays PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 2015 to the corresponding 12 months of 2014 and balance sheet analysis as at 31 December 2015 with comparatives relating to 31 December 2014. The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of Pounds Sterling respectively; the abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of US Dollars respectively; and the abbreviations ‘m’ and ‘bn’ represent millions and thousands of millions of Euros respectively.

Comparatives pre Q214 have been restated to reflect the implementation of the Group structure changes and the reallocation of elements of the Head Office results under the revised business structure. These restatements were detailed in our announcement on 10 July 2014, accessible at home.barclays/barclays-investor-relations/results-and-reports

References throughout this document to ‘provisions for ongoing investigations and litigation including Foreign Exchange’ mean ‘provisions held for certain aspects of ongoing investigations involving certain authorities and litigation including Foreign Exchange.’

Adjusted profit before tax, adjusted attributable profit and adjusted performance metrics have been presented to provide a more consistent basis for comparing business performance between periods. Adjusting items are considered to be significant but not representative of the underlying business performance. Items excluded from the adjusted measures are: the impact of own credit; provisions for UK customer redress; gain on US Lehman acquisition assets; provisions for ongoing investigations and litigation including Foreign Exchange; losses on sale relating to the Spanish, Portuguese and Italian businesses; impairment of goodwill and other assets relating to businesses being disposed; revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology; and gain on valuation of a component of the defined retirement benefit liability. As management reviews adjusting items at a Group level, results by business, Core and Non-Core are presented excluding these items. The reconciliation of adjusted to statutory performance is done at a Group level only.

Relevant terms that are used in this document but are not defined under applicable regulatory guidance or International Financial Reporting Standards (IFRS) are explained in the Results glossary that can be accessed at home.barclays/results

The information in this announcement, which was approved by the Board of Directors on 29 February 2016, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015, which included certain information required for the Joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission (SEC) and which contained an unqualified audit report under Section 495 of the Companies Act 2006 (which did not make any statements under Section 498 of the Companies Act 2006) have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

These results will be furnished as a Form 20-F to the SEC as soon as practicable following their publication. Once furnished with the SEC, copies of the Form 20-F will also be available from the Barclays Investor Relations website at home.barclays/investorrelations and from the SEC’s website at www.sec.gov

Barclays is a frequent issuer in the debt capital markets and regularly meets with investors via formal road-shows and other ad hoc meetings. Consistent with its usual practice, Barclays expects that from time to time over the coming quarter it will meet with investors globally to discuss these results and other matters relating to the Group.

Forward-looking statements

This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to the Group. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as ‘may’, ‘will’, ‘seek’, ‘continue’, ‘aim’, ‘anticipate’, ‘target’, ‘projected’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘achieve’ or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group’s future financial position, income growth, assets, impairment charges and provisions, business strategy, capital, leverage and other regulatory ratios, payment of dividends (including dividend pay-out ratios), projected levels of growth in the banking and financial markets, projected costs or savings,

original and revised commitments and targets in connection with the strategic cost programme and the Group Strategy Update, rundown of assets and businesses within Barclays Non-Core, estimates of capital expenditures and plans and objectives for future operations, projected employee numbers and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. These may be affected by changes in legislation, the development of standards and interpretations under IFRS, evolving practices with regard to the interpretation and application of accounting and regulatory standards, the outcome of current and future legal proceedings and regulatory investigations, future levels of conduct provisions, the policies and actions of governmental and regulatory authorities, geopolitical risks and the impact of competition. In addition, factors including (but not limited to) the following may have an effect: capital, leverage and other regulatory rules (including with regard to the future structure of the Group) applicable to past, current and future periods; United Kingdom (UK), United States (US), Africa, Eurozone and global macroeconomic and business conditions; the effects of continued volatility in credit markets; market related risks such as changes in interest rates and foreign exchange rates; effects of changes in valuation of credit market exposures; changes in valuation of issued securities; volatility in capital markets; changes in credit ratings of any entities within the Group or any securities issued by such entities; the potential for one or more countries exiting the Eurozone; the implementation of the strategic cost programme; and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Group’s control. As a result, the Group’s actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, and expectations set forth in the Group’s forward-looking statements. Additional risks and factors which may impact the Group’s future financial condition and performance are identified in our filings with the SEC (including, without limitation, our Annual Report on Form 20-F for the fiscal year ended 31 December 2015), which are available on the SEC’s website at www.sec.gov

Subject to our obligations under the applicable laws and regulations of the UK and the US in relation to disclosure and ongoing information, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

Barclays PLC Annual Report 2015      home.barclays/annualreport


    

    

    

 

 

    

 

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The detailed report

These parts of the annual report Disclose detailed information on Barclays and its 2015 performance. Contents meet, and where Insightful, go beyond minimal Regulatory reporting standards.

Corporate governance

Our corporate governance report details the governance processes of Barclays, the reports from each Board committee and presents how the Board support the delivery of our strategy.

 

Governance contents    35
Who we are    36
What we did    39
How we comply    68
Other statutory information    75
People    79
Remuneration report    83

 

Risk report

Our risk report gives insight into the level of risk across Barclays’ businesses and portfolios, the material risks and uncertainties faced and the key areas of management focus.

 

Risk review contents    117
Material existing and emerging risks    119
Risk management    127
Risk performance    143

Financial review

Our financial review details the performance of Barclays, including key performance indicators, and our businesses’ contribution to the overall performance of the Group.

 

Financial review contents    217
Key performance indicators    218
Consolidated summary     
income statement    220
Income statement commentary    221
Consolidated summary balance sheet    223
Balance sheet commentary    224
Analysis of results by business    225

 

 

Financial statements

Our financial statements gives detailed analysis of our statutory accounts, independently audited and providing in-depth disclosure and transparency on the financial performance of the business.

 

Financial statements contents    243
Consolidated financial statements    253
Notes to the financial statements    260

Where can I find out more?

You can learn about Barclays’ strategy, our businesses and performance, approach to governance and risk online, where latest and archived annual and strategic reports are available to view or download.

 

 

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Annual Report

 

home.barclays/annualreport

  
 

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  01


Chairman’s letter

Addressing the issues facing Barclays today…

    

 

 

 

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“Banking is in the eye of a perfect storm. It was in full consciousness of this, that I undertook the role as your Chairman at the end of April, with the strong conviction that we could not only stabilise the situation relatively quickly, but also return the Group to prosperity during my tenure.”

In such an environment it is so easy to become consumed by challenges, market volatility and the short-termism of the financial markets, but this tends to obscure the underlying quality of the Barclays brand and franchise, the genuine and substantive progress that the Group has made in recent years and the potential for the organisation arising from the decisions and actions we are now taking for the future.

Today the Group is smaller, safer, more focused, less leveraged, better capitalised and highly liquid. Comparing 2015 with 2008, we find:

 

§   £2.1trn in assets historically against £1.1trn and declining

 

§   shareholders’ equity was £36.6bn, and is now £54.5bn

 

§   balance sheet leverage (total assets to ordinary shareholders’ funds) was 56 times and is now 20 times and comparable to more highly-rated peers

 

§   shareholders’ equity as a percentage of risk weighted assets (RWAs) was 8.5% and is now 15.2%.

While we will continue this journey towards greater financial strength, the main issue for the Group is no longer capital as some remark, but earnings and returns. Put simply, for the past few years and including last year, we have produced either negligible retained profits or losses before dividends. Going forward, we need to reverse this and generate superior returns out of our franchise. This said, we also needed to take action to preserve and enhance our capital in unpredictable times. To this end, while we declared the full year 2015 dividend in line with guidance, we also decided it would be prudent to scale back dividends in 2016 and 2017, until such time as we can cover them from earnings.

Barclays has a number of industry leading businesses that produce excellent returns, but this is not universal across the portfolio. Personal and Corporate Banking and Barclaycard together produce profits after tax of £3.3bn and a combined return on equity of 13.4%. The other segments however fared less well and produced returns below the Group’s hurdle rate. Barclays Africa profits, although strong in local currency, were significantly impacted by the decline in the Rand and by the UK bank levy, bringing sterling returns down to an after-tax profit of £0.3bn and a return on equity of 8.7%. Also, while doubling over the prior year, the Investment Bank’s profit of £0.8bn generated an improved, but still substandard, return on equity of 5.6%, up from 2.7%.

Our core businesses overall produced a profit before tax of £6.9bn and a return on equity of 9%. While respectable, this of course is below our required return and needs to be improved. On the other hand, this profit was fully eroded by the £1.5bn drag of the non-core portfolio, £4.0bn in litigation and conduct charges relating to historical matters (in addition to the £0.4bn included in the core and non-core business results), and £1.5bn in corporate income taxes contributing to an overall loss for our ordinary shareholders of £0.4bn. Since conduct and related charges are no longer tax deductible, Barclays tax rate for last year was effectively 70%. If the £0.5bn cost of the UK bank levy is added to corporate income taxes, the effective ‘tax’ rate rises to 76%. The extent of the UK tax we bear was reflected in the results of PwC’s 2015 survey of the One Hundred Group, which represents most of the UK’s largest groups and concluded that Barclays paid the greatest amount of UK tax.

Of course with respect to our underlying profitability and the scale of the charges against this, things cannot stay the same. Tough situations like this demand effective action.

New Leadership

As an important starting point, the Board decided that new leadership was required. In July, we announced the departure of Antony Jenkins as Chief Executive and in October the appointment of Jes Staley, like me, a banking veteran. While I was able to exercise executive responsibility in an interim capacity immediately following Antony’s departure, and was able to set a number of initiatives in train, we were particularly fortunate that Jes was able to be active so quickly.

Jes has made good progress in building his new management team. In short order, he has appointed Ashok Vaswani as head of Barclays UK with responsibility for the establishment of the new Ring-Fenced Bank. Jes has also recruited Paul Compton as Chief Operating Officer and C.S. Venkatakrishnan as Chief Risk Officer.

Back to Core

The Board recently reflected on the strategy and situation of the Group and decided that our strategic core was our UK retail and small business franchise, our international Corporate and Investment Banking business largely centred around our trading hubs in London, New York and Asia, and our international credit card businesses. The remainder of the Group was therefore designated non-core, and to be exited, in addition to the continued rundown of the heritage non-core portfolio.

We therefore decided, subject to shareholder and regulatory approval, to take our ownership of Barclays Africa Group Limited to a level where we can achieve accounting and regulatory deconsolidation as soon as this can be executed. We have sold, or are in the process of exiting, the balance of retail banking operations outside the UK. We have also sold, or put up for sale, our international Private Banking businesses other than the UK region, Monaco and Geneva. In the Investment Bank, we withdrew from nine countries, cash equities trading other than in New York and London, all local currency trading outside our major hubs, and certain securitised products trading in the US. The capital released will be used to underpin our capital strength going forward.

 

 

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A New Corporate Structure

Following the statutory decision in the UK to ring-fence UK retail and small business banking by 2019, we decided to bring forward the establishment of the new bank and an application will be made for regulatory approval. When implemented, it will result (pending sell-down of our stake in Barclays Africa Group Limited) in three separate banks that we currently refer to as ‘Barclays UK’, ‘Barclays Corporate & International’ and ‘Barclays Africa’, each of which will have its own board, chief executive, management team and certain operational services. So as to prepare ourselves for this new structure, we are reorganising the divisional structure along these lines. This has the additional benefit of decentralising the very large corporate centre and results in a more streamlined, accountable and lower cost organisation. It also enhances the Group’s strategic flexibility and options going forward.

Underpinning Future Earnings Performance

The decisions to change leadership, to reduce our exposure to non-strategic businesses, as well as implementing our leaner corporate structure should have significant positive earnings and capital outcomes. These are necessary but not sufficient. We are investing in our segments with the highest growth and return prospects, including UK retail banking and Barclaycard. The Investment Bank, even in its more focused form, faces unpredictable market prospects. The Board has agreed a medium-term plan that is designed to produce increased returns in the future, that we will continue to monitor closely. Additionally, Barclays has a heavy overhead structure that needs streamlining. To this end, we have initiated a Group-wide overhead reduction programme, hiring restrictions, and a very limited number of senior salary increases. These should begin to deal with those matters within our control.

Historical Regulatory and Conduct Matters

We continue to be subject to very significant capital and conduct charges by regulators and governments that frankly are not sustainable. They arise understandably from the position that banks engendered in the Global Financial Crisis and from conduct issues that we have been working hard to address. While justified in principle, in practice they have achieved a level that is undermining our transformational efforts, and those of the regulators, to build capital and support economic growth. Banks are seen by many as unpopular and having deep pockets. But those pockets belong to our shareholders, who pay penalties out of current and future earnings that would otherwise build capital.

We are half the size we were a few years ago and the narrowing of our focus as a result of current decisions will make Barclays better capitalized and less globally systemic. But as we shrink the bank, we reduce our ability to pay outsized conduct charges. The charges are not proportionate to our smaller size and ability to pay relative to many of our peers. Our FX fines are an example. We paid one of the highest amounts in penalties of the banks who settled with the government, even though the offense was the same, even though we are by some measures one half the size of other banks that settled, and even though we received acknowledgement for our cultural changes and remediation after our LIBOR settlement. When conduct charges consume our profits, as they have for the past three years, we have no choice but to meet them by shrinking our franchise – selling or closing businesses – which reduces our capacity to support the real economy. A £50m fine or penalty is the equivalent of employing 1,000 fewer employees, closing 100 small regional branches, or foregoing the capacity to lend over £500m to small businesses or consumers. The societal costs of excessive penalties is very real.

EU Referendum

On balance we think it is in the interests of our customers and clients for the UK to remain in the EU. We have modest interests domestically on the continent, but provide significant services to European companies from London. More importantly, we are heavily reliant on a successful UK domestic and international economy and feel this is enhanced through the UK’s membership.

Thank You

Being on a bank board today is not for the faint-hearted. I would therefore like to thank our Board for their contribution to our company. Fortunately, the Barclays name is able to attract people with the finest credentials. I would particularly like to thank Sir David Walker, my predecessor, who retired at our AGM in April. He did an incredible job by providing wise oversight and a stable hand and we are grateful to him. I would once again like to thank Antony Jenkins, our former Chief Executive for all that he did for Barclays. He took over as Chief Executive at an extremely difficult time for the organisation and was able to provide the stability that was necessary and to advance significantly the culture and values of the organisation, much of which had been eroded. Sir Michael Rake, our Senior Independent Director retired at the end of last year after eight years, and Sir John Sunderland at our last AGM after a similar tenure and we are grateful to both for their enormous contribution.

I would particularly like to thank our staff across the organisation for coming every day to serve our customers, without whom we would not have an enterprise. I would also pay respect to our shareholders who have had a pretty miserable time, but who have supported us throughout. Your patience will be rewarded.

A New Beginning

In the eye of the storm it is difficult to sustain or engender faith in the organisation and in its future. For my part, while we continue to be buffeted by historical matters and the political and regulatory environment, I have never lost sight on the end game, the way forward and our eventual success. It has been a very active and decisive year for our company as will be the year ahead. Through decisions already taken, we will quickly reach a more stable and productive foundation.

We are though not without residual challenges, including an uncertain economic environment, as well as further historical regulatory penalties and remedies that will haunt us for some years. We are nevertheless working hard to put these behind us. This will ultimately be achieved although in the interim we would hope for a more proportional attitude from governments and conduct regulators towards banks. However, the conservative assumption, based on our experience, is that any success we do achieve is more likely to arise from our own efforts.

Priorities for the Future

Now that we are getting back to core, our priorities going forward are to:

 

§   generate greater value from our portfolio, including bringing the Investment Bank to returns above the cost of equity and the Group cost-income ratio below 60%

 

§   execute in the least value-destructive way the rundown of our historical and newly designated non-core businesses and assets

 

§   implement the structural reform programme, the creation of the ring-fenced bank and the effective operation of the new decentralised divisional structure

 

§   put historical conduct matters finally behind us

 

§   become a more externally and customer focused company, with a strong performance ethic and underpinned by strong customer, people and community values.

John McFarlane

Chairman

 

 

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Chief Executive’s review

…with a strategy that answers

the business challenges ahead…

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“I am honoured to have been chosen to lead Barclays. It is a huge responsibility, which I do not take lightly. In every part of the Group, I have been impressed and inspired by our colleagues and the work that they do for our customers and clients.”

Our 2015 results show a core business that is fundamentally strong, with franchises that position us well, generating attractive earnings, with excellent prospects for growth, and collectively they already deliver a Return on Tangible Equity which is above our cost of equity. Our principal task is therefore to liberate those businesses from the two major factors which drag them down today.

The first is legacy products and businesses that are neither sufficiently profitable nor strategic for Barclays – our Non-Core Unit. And the second is the continued impact of billions of pounds of litigation and conduct expenses that are largely the product of past failures in culture.

We are going to address both of these matters head on, with the objective of putting most of these issues behind us in 2016. This will be achieved through simplifying our core business, aggressively running down our Non-Core operations, and resolving as soon as practicable our remaining legacy conduct issues, while at the same time promoting a strong values driven culture across the bank that helps to prevent the creation of new ones.

We have made great progress in simplifying Barclays over the last few years by reshaping our balance sheet, strengthening our capital base, and reducing costs.

All of this has been done to move us towards becoming a Group which can generate the returns our shareholders deserve.

But in order to complete our restructuring and deliver for shareholders in a reasonable timeframe, we must take action today.

It is our intention, subject to regulatory and shareholder approvals if and as required, to reduce our interest in Barclays Africa Group Limited (BAGL) to a non-controlling, non-consolidated position over the next two to three years.

This has been a very difficult decision to make. Barclays has been in Africa for over 100 years. We have some excellent franchises across the continent, with a great management team and dedicated colleagues.

But we face a regulatory environment where we carry 100% of the financial responsibility for Barclays Africa, and receive only 62% of the benefits. The international reach of the UK bank levy, the Global

 

What we do

Barclays is a transatlantic Consumer,

Corporate and Investment bank…

Our Goal

…that will become the bank of choice

for our stakeholders…

Our focus

…by providing superior services

and supporting our stakeholders*…

Our strategy

…via a commercially successful

business that generates long-term

sustainable returns.

 

 

*Our strategic performance is measured by our Balanced Scorecard (see page 11)

 

 

Systemically Important Bank (GSIB) buffer, minimum requirement for own funds and eligible liabilities (MREL) and Total Loss Absorbing Capital (TLAC), and other regulatory requirements, present specific challenges to Barclays as owners. The returns Barclays realises from its controlling interest in BAGL are significantly below the 17% Return on Equity reported locally.

Because of these specific challenges, we believe that it is in the best interest of shareholders to reduce our position. Given what is driving this decision, we have flexibility with respect to the pace at which we reduce our ownership and as a result, we will execute this change in our investment opportunistically over the next two to three years.

Reducing our interest to a non-controlling, non-consolidated position will also improve our Common Equity Tier 1 (CET1) ratio, though not until we deconsolidate BAGL as a regulatory matter. In the medium term, that will allow us to invest in the core franchises of Barclays. It also has the positive effect of shrinking our cost base by approximately £2bn, our headcount by around 40,000 and, of course significantly reduces our organisational complexity.

Besides simplifying our business further, we also need to accelerate the separation of our profitable Core businesses from the drag of our Non-Core businesses.

Our Non-Core RWAs started at £110bn two years ago. By the end of 2015 we reduced that to £47bn. As we conclude our restructuring, we are taking the opportunity to exit other marginal businesses and regions, including elements of the Investment Bank in nine countries, our Egyptian and Zimbabwean businesses, Southern European cards and wealth management in Asia. As a result, our Non-Core RWAs rise to

 

 

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approximately £55bn as at the end of 2015. We anticipate those one-time additions will add approximately £600m to underlying Non-Core costs, but we expect to exit the majority of these in the course of 2016.

Our Non-Core businesses act as a significant drag on our Group profitability that must be eliminated as soon as possible.

The Board has therefore decided to adjust our near-term dividend to give us the flexibility to accelerate our exit of Non-Core activities. It is our intention to reduce our dividend to 3 pence, in 2016 and 2017. This will help us accelerate the imperative rundown of Non-Core.

I recognise the importance of paying a meaningful dividend as part of total shareholder returns and am committed to doing so in the future.

But for now, the reduction of the dividend is the right choice. These are hard decisions, but we believe the shareholder value created by getting Non-Core closed will greatly exceed the downside of cutting the dividend for the next two years.

These strategic actions will bring forward the completion of our restructuring and the emergence of a simpler and very profitable Barclays.

We are also changing the way in which we structure Barclays to further simplify the Group and prepare early for UK ring-fencing requirements.

At the heart of Barclays’ strategy is to build on our strength as a Transatlantic Consumer, Corporate and Investment bank, anchored in the two financial centres of the world, London and New York.

Barclays will operate as two clearly defined divisions, Barclays UK and Barclays Corporate & International. Barclays UK will include our leading

 

UK retail bank, our UK consumer credit card business, and play its traditional role as a committed provider of lending and financial services for small businesses up and down the UK.

The business has 22 million retail customers, and almost one million business banking clients. We are one of the country’s leading business banks. We are the second largest wealth manager in the UK, and Barclaycard is the number one card issuer in Britain with close to 11 million UK card customers. Barclays UK will also continue to pioneer innovation in the provision of consumer financial services.

This represents formidable strength. It will ultimately become our UK ring-fenced bank, a resilient British bank, compliant with all regulatory requirements.

Second, Barclays Corporate & International will comprise our market leading Corporate banking business, our Barclaycard operations in Europe and the US, our bulge bracket Investment Bank, and our International Wealth offering.

Barclays Corporate & International has scale in wholesale banking and consumer lending, strength in our key geographies, and good balance in its revenue streams, delivering further resilience.

Barclays Corporate & International will ultimately become our non-ringfenced bank. It will operate as a strong unit within the Barclays Group, and is wholly complementary to Barclays UK. It is a strategically coherent collection of franchises across corporate, investment, and consumer banking, creating a robust and diversified business for us.

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  05


Our approach

...delivered through a simpler

and better structured business...

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We are confident that Barclays Corporate & International will continue to be well capitalised with a balanced funding profile, supporting solid investment grade credit ratings.

In summary then, the future is bright. Both Barclays UK and Barclays Corporate & International already generate double digit Returns on Tangible Equity (RoTE). They are strong financially, and will be as sibling businesses, and shareholders and debt investors in Barclays will benefit from the diversified revenue streams they produce.

We are also simplifying our financial targets for the Group going forward to focus on three key metrics, and will be aiming to achieve these targets in a reasonable timeframe, in order to deliver shareholder value:

 

§   RoTE: As we reduce the Non-Core drag on Group returns, the Group’s RoTE will converge towards the Core RoTE, and achieve attractive returns for shareholders

 

§   CET 1 ratio: We wil run the Group’s CET 1 ratio at 100-150 basis points above our regulatory minimum level

 

§   Cost:Income ratio: We will reduce the Group’s Cost:Income Ratio to below 60%

Going forward, we will also return to normalised financial metrics. Barclays is in the process of emerging from restructuring and our future disclosures will be based on our business divisions – Barclays UK and Barclays Corporate & International. They will no longer include things like ‘cost to achieve’ or ‘Structural Reform Programme charges’. Instead, you will get a simple and clear statutory presentation of our Group’s performance.

Achieving our goals must be realised at the same time as we complete the critically important cultural transformation of the Group.

More than 300 years ago, Barclays was founded by a group of Quakers. Those first Barclays bankers earned the trust of English merchants, and those bankers felt responsible as stewards of that trust. The Bank, early on, built an exceptional reputation for integrity. Barclays became renowned for the principled way it did business.

I joined banking back in 1979, because I was excited to be a part of a respected profession. Being a banker back then was like being a lawyer or a doctor. The practitioners of the profession of banking were skilled at understanding the complex topics of capital, credit, savings and investor returns; and they were highly regarded as they used that knowledge to help consumers, corporations, investors and governments, to navigate, with transparency and clarity, the world of finance. It was a profession because it was moored to a commitment for integrity.

A company that retains the loyalty of its employees solely based on compensation is a company that gambles with its institutional culture. I want Barclays to be a bank where our employees choose to work here because they believe in the institution, and its intrinsically valuable role in society.

This is a mind-set I want to reinvigorate in everyone at Barclays, from branch colleagues working on the high street in Manchester, to the M&A banker in New York.

Banking, at Barclays, will again be a ‘profession’ and it will be up to all of our employees to promote that goal internally, and to find the people

 

 

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Our approach

…that is best suited to our

business environment…

 

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that want to join Barclays because they want to be part of a great profession. The profession of banking.

I look forward to meeting investors at our AGM, and in the course of the next year, and thank you for your support as we continue the work of restoring Barclays to where it should be.

James E. Staley

Group Chief Executive

Barclays is a transatlantic Consumer, Corporate and Investment bank, governed by global and local regulatory standards.

Global economic growth has been modest in recent years, and unprecedented monetary policies, such as Quantitative Easing and near zero and negative interest rates, have been implemented by many Central Banks to stimulate growth. During the second half of 2015 and into 2016, the macroeconomic environment has deteriorated, driven by commodities weakness, particularly oil prices, along with economic uncertainty in China. In the UK, the referendum on EU membership gives rise to political uncertainty. We remain alert to these changes and more, and monitor and manage our risks accordingly.

Regulation continues to direct attention towards capital, liquidity and funding, in order to create a safer banking environment. In 2015, the Financial Policy Committee of the Bank of England clarified the overall capital framework for banks. This has provided greater certainty and allowed us to progress our strategy. Reforms requiring banks to separate certain activities, such as structural reform in the UK and US, continue to be a big focus and have been accounted for in the structure of our revised strategy, as described on page 4.

Conduct issues have hurt Barclays, causing loss of trust among stakeholders. We continue to embed cultural change and improve governance to work to rebuild customer and client trust and market confidence.

Digitalisation trends continue to grow and the power of technology has raised customer and client expectations, resulted in new competitors in the digital space, and increased the challenge of defeating cybercriminals. It has also reduced the cost-to-serve through automation, process improvement and innovation, while making customer experiences faster, more personalised and lower risk.

Without active risk management to address these external factors, our long-term goals could be adversely impacted. Our approach to risk management is outlined on page 127, and material existing and emerging risks to the Group’s future performance are outlined on page 119.

Our strategy continues to evolve to respond effectively to the external environment. Please refer to page 4 for an update on our strategy.

 

 

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Our approach

…and underpinned by our robust

approach to risk management…

 

LOGO

 

 

LOGO

 

To protect Barclays from a volatile and weak external environment, a strong risk capability is needed. At Barclays the Risk teams:

 

§   provide critical risk capabilities, including directing risk appetite and the risk profile
§   set frameworks, policies and standards
§   provide strong and independent second line challenge on a business by business basis
§   lead implementation of critical regulatory risk initiatives.

In the execution of our strategy, some of the risks we face arise as a result of our decisions, and some result from operational processes, or the external environment. We classify risks under five types:

 

§   Credit risk: Financial loss should customers not fulfil contractual obligations
§   Market risk: Earnings or capital impact due to volatility of trading book positions or as the consequence of running a banking book balance sheet and liquidity funding pool
§   Funding risk: Failure to maintain adequate capital and liquidity
§   Operational risk: Cost from human factors, inadequate processes and systems or external events
§   Conduct risk: Detriment through inappropriate judgement in execution of business activities.

In the course of business we identify and assess these risks, determine the appropriate risk response, and monitor the effectiveness of these actions and changes to the risk profile:

 

§   Evaluate: Individuals and teams who manage processes identify and assess the proposed risks
§   Respond: Ensures risks are kept within appetite, the level of risk the Group is prepared to accept while pursuing its business strategy, and where appropriate taking necessary mitigation actions
§   Monitor: Monitoring the risks identified is on-going and proactive, and can often mean re-evaluating risks as well as changing our response.

In 2015, the Risk function and the businesses carried out detailed evaluations of the risks Barclays faces using tools such as stress testing. These risks included lower global energy and commodity prices, a slow down in China’s economic growth, or of any risks from the EU referendum in the UK. We have responded to changing market conditions by tightening lending criteria in riskier areas and re-deploying risk capacity toward sectors offering better returns on risk. Senior management and the Board are actively engaged in monitoring these risks, and provide high-level direction.

Responsibilities for the management of risk and control are aligned to a 3 lines of defence activity-based model:

§   first line of defence responsibilities rest with the colleagues who manage operational or business processes. They are responsible for identifying the related risks, and designing, operating, testing and remediating appropriate controls to manage those risks
§   designing frameworks and policies and providing independent oversight and challenge to ensure compliance constitute the second line of defence role
§   Barclays Internal Audit, the third line, provides independent assurance.

When performed appropriately by all colleagues, these responsibilities ensure that there is a strong risk and control environment at Barclays.

 

 

08  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


Our approach

…to better drive value creation

and sustainable stakeholder return…

 

 

LOGO

 

 

 

LOGO

 

 

As a transatlantic Consumer, Corporate and Investment bank Barclays offers a well-balanced and integrated set of products and services across personal, corporate and investment banking, credit cards and wealth management. We serve individuals, small and large businesses, local authorities, corporations, institutions and governments.

Barclays seeks to satisfy the needs of our customers and clients by offering a well-rounded value proposition, focused on our core strengths, particularly in our UK and US home markets, and thereby deliver a diversified income stream and long-term sustainable returns.

Our business model has been simplified through actions taken over the past two years. It provides us with a stable platform from which to capitalise on the scale and diversity of our businesses and the quality, character and relationships of our people.

The creation of Barclays UK and Barclays Corporate & International further strengthens our value proposition and reinforces the resilient business mix that we enjoy from having an appropriate balance across consumer and wholesale revenue streams.

For example, the scale of our Corporate Banking and Investment Bank franchises serving large, multi-national companies and financial institutions complements that of our market leading consumer businesses across personal banking, wealth management and credit cards. Similarly, our payments solutions offering to businesses and consumers combines our Corporate Banking payments knowledge with our Barclaycard merchant acquiring expertise.

Our international reach and scale mean we have the responsibility – indeed the obligation – following our designation as a GSIB, to work together with our regulators to help reduce risk in the industry and provide a more sustainable banking landscape over the long term.

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  09


Our approach

…through our broad service offer.

 

 

LOGO

 

 

 

LOGO

 

 

Our integrated products and services offer expertise across the customer and client spectrum

Our diverse business model enables us to provide continuing and relevant support across all our businesses to our customers and clients, whatever their stage of life.

For example, for individuals, Barclays offers a safe place to store savings, can help a first-time buyer take their first steps onto the property ladder, give people from a variety of backgrounds the opportunity to grow and manage their wealth, or provide cross-border advice for the affluent for example, helping family members abroad. For businesses it means being ready to help entrepreneurs launch a business, fund its growth, manage payments securely, expand internationally, manage risk effectively, and issue bonds and listed equity shares.

Technology is a critical component of this service offering that benefits customers and clients across the spectrum, regardless of which part of our business they engage with first. Digitalisation and automation of simple banking processes deepens relationships with our customers. For example, automation of account opening and unsecured lending provides increased convenience to personal and corporate customers alike. Similarly, the digitisation of FX transfers and innovative payments solutions enable businesses to achieve their ambitions in the same way that our multi-asset trading platform enables institutional clients to

achieve theirs. These are all examples of the way Barclays adds value and provides benefit to all of our customers and clients through our approach to banking.

 

 

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How we are doing

Our Balanced Scorecard measures progress

and performance against our goal…

 

 

LOGO

 

We have agreed eight key measures categorised into the 5Cs against which our stakeholders can hold us to account.

 

         

Metric

 

   Actual 2014            Actual 2015            Target 2018        
     
LOGO   

Customer and Client

Page 12

  

Personal and Corporate Banking (PCB), Barclaycard and Africa Banking weighted average ranking of Relationship Net Promoter Score® (NPS) vs. peer sets

 

   4th    4th    1st
     

 

Client Franchise Rank: Weighted average ranking of wallet share or customer satisfaction with priority clients in the Investment Bank

 

  

 

5th

  

 

5th

  

 

Top 3

     

LOGO

 

   Colleague Page 13    Sustained engagement of colleagues score    72%    75%    87-91%
     

% women in senior leadership

 

   22%    23%    26%
     

LOGO

 

  

Citizenship 

Page 14

  

Citizenship Plan – initiatives on track or ahead

 

   11/11    10/11    Plan targets
     

LOGO

 

   Conduct Page 15   

Conduct Reputation (YouGov survey)

 

   5.3/10    5.4/10    6.5/10
     

LOGO

 

   Company Page 16   

Adjusted Return on Equity (RoE)

 

   5.1%    4.9%    N/Aa
     

 

Fully Loaded CRD IV CET1 ratio (Capital Requirements Directive IV Common Equity Tier 1)

 

  

 

10.3%

  

 

11.4%

  

 

N/Aa

 

Note
a Please refer to the new financial targets set out in the Chief Executive’s review on page 4.

Gender Barclays Board membership includes four women and ten men, and one woman and nine men on the Group Executive Committee. During 2015 we had a maximum of three women on the Group Executive Committee. Under the Companies Act 2006, Barclays are also required to report on the gender breakdown of our employees and ‘senior managers’. Of our global workforce of 129,400 (66,100 male, 63,300 female), 796 were senior managers (574 male, 222 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.

 

LOGO

In 2015 the Balanced Scorecard was used throughout the organisation and formed part of the framework by which our staff were assessed, with individual performance objectives aligned to the 5Cs.

This year has seen improvement across a number of our metrics, especially our capital strengthening, as measured by the CET1 ratio, and within Colleague. Further work is required in some areas, including RoE.

The Customer and Client Relationship metrics remained stable as a strong performance in corporate banking, combined with improvements in Barclays current accounts, was partially offset by the impact of reshaping our wealth business. Our Client Franchise Rank remained stable in challenging market conditions.

Under Colleague, we have seen an improvement in both the colleague engagement and the gender-diversity in our leadership, with numerous initiatives to promote equality and support our workforce proving successful.

In our Citizenship plan, 10 out of 11 metrics on target shows that we are having a positive impact on the communities in which we operate, with lending to households the only initiative to lose momentum primarily as a result of market and trading conditions.

Conduct also showed a slight improvement on 2014 following a number of actions being taken to improve customer outcomes, although we are below where we would like to be.

Within Company there has been a significant strengthening in the CET1 ratio, however we have plenty of work to do to deliver an acceptable return to shareholders, with RoE slightly down on 2014.

There is still plenty of work to do and we remain focused on improving our balanced performance for colleagues, customers and clients, the wider community and shareholders.

 

 

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How we are doing

…for our Customers and Clients

we aim to be the bank of choice…

 

 

 

LOGO

 

What we are doing

In building customer advocacy we will continue to:

 

§   further invest in our brand and the attractiveness of customer and client propositions

 

§   bring increased accountability to those closer to customers

 

§   innovate through customer relevant technology and the transformation of the branch network

 

§   develop service models tailored to the changing needs of our global customer and client base.

The 2018 target is to be 1st in NPS, and Top 3 in Client Franchise Rank.

 

 

Balanced Scorecard metric

 

   LOGO
      
 
Actual
2015
  
  
    
 
Actual
2014
  
  
   Actual   2013     
PCB, Barclaycard and Africa Banking weighted average ranking of Relationship Net Promoter Score® vs. peer sets      4th         4th       3rda     
Client Franchise Rank: Weighted average ranking of wallet share or customer satisfaction with priority clients in the Investment Bank      5th         5th       N/A     

 

a   Revised due to the creation of PCB as part of the May 2014 Strategy Update. Corporate clients now contribute to the NPS metric, and no longer contribute to the Client Franchise Rank

  

 

How we measure success

 

  

 

§  Commercial success across our businesses depends on the continued endorsement by our customers

  

 

§  Competition for customers and clients has never been stronger. 2015 saw unprecedented levels of switching in our key UK retail markets and intense competition in corporate markets

  

 

§  Relationship NPS ranking provides a simple customer advocacy measure and indicates growth potential across our franchise

  

 

§  A ranking widely used in banking and other industries, it facilitates comprehensive benchmarking, simplifies target setting and identifies best practice, bringing the customer’s voice to the heart of Barclays. It is income-weighted using divisional customer satisfaction

  

 

§  For the investment banking industry, NPS is not as widely measured. Therefore, a ‘Client Franchise Rank’ is calculated by measuring use of our products and services by target clients. It is a revenue-weighted ranking of our global client share across the Investment Bank

  

 

§  Improving our rank with these clients is a key indicator of effectiveness in meeting their needs, supporting delivery of improved returns for Barclays

  
  
  
  
  
  
  
  
  
  
  
  

How we are doing

Relationship NPS

2015 saw improved performance in UK retail markets with increased NPS scores for both Barclaycard UK credit cards and Barclays current accounts. In 2015 we’ve focused on improving key customer experience touch points for our retail customers whether they contact us in branch, over the phone or by online channels. We’ve also launched our Barclays Blue Rewards proposition to UK retail customers and have measured improved perceptions of value as a result. In the UK, Barclaycard has continued to introduce industry leading balance transfer offers and innovative payment plan products.

Elsewhere across our customer franchises we’ve maintained a very strong performance in the corporate banking market where we’ve vied for leadership position among our peers throughout the year. Our NPS ranks for our Wealth business slipped as we exited the US market.

While we have recorded improvement in NPS scores in key markets, acceptable progress towards our 2018 Group target will require us to ultimately outperform our peers – in addition to improving our own scores. We believe we are well placed to achieve this by leveraging technology to accelerate the transformation of customer and client interaction. Transforming the nature of banking globally through innovations such as Barclays Mobile Banking, Pingit, Mobile Cheque Imaging and Video Banking will be fundamental to our success.

Client Franchise Rank

Our ranking of 5th for 2015 provides a strong platform from which to build as we aspire to our goal of being ‘top 3’ with our target clients. We will seek to achieve this goal by focusing on the following key areas:

 

§   further aligning our structure to client needs: As part of the Strategic Review in 2014 we brought Equities and Credit teams together under the same management to provide a more integrated approach. In 2015 we have taken steps to further align teams across Banking and Markets to provide a complete service to clients encompassing primary issuance and secondary trading

 

§   improving client management information: We have invested technology and resources in our management information and analytics that enable us to provide more finely targeted solutions for our clients

 

§   investing in people and conduct: The quality of our people and the way they do business is fundamental to building and maintaining strong relationships with our clients. We are committed to attract and retain the best talent to serve our clients and help them achieve their ambitions. The Investment Bank remains focused on strengthening the Conduct framework, and Conduct Risk training for colleagues is delivered throughout the year.

 

Case study

Barclays has piloted a ground-breaking new service at our branches. Customers with a disability or impairment can now enter their accessibility needs and preferences into an optional free-to-download app, along with their name and a photo of themselves. The data is ‘awoken’ and passed discretely to any participating branch when the customer comes into range of its Bluetooth beacon. A staff member is alerted to the customer’s arrival and can proactively tailor the service they provide, according to the stated wishes, making communication and interaction both easier and more empathetic to both parties. We know how tiresome it can be for some customers to re-articulate their access needs every time they visit the branch, so we used their feedback to drive direction of the design. For further information, please visit www.barclays.co.uk/ beacons

 

 

 

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How we are doing

…creating an environment where our

Colleagues can fulfil their potential…

   LOGO

 

 

 

 

 

What we are doing

 

Our colleagues remain core to success at Barclays, and we remain committed to investing in them and ensuring they are enabled to consistently deliver strong performance over time.

 

Fostering an inclusive and diverse culture where all colleagues can achieve their potential remains a core business focus:

 

§   through diversity, we gain a greater breadth of perspectives

 

§   through inclusion these perspectives feed innovation.

 

In turn, this ensures we deliver services and innovative products that are market leading, enabling our diverse customers to achieve their goals.

 

The 2018 target is for a score of 87-91% in Sustained Engagement of colleagues, and 26% women in senior leadership.

 

 

 

 

Balanced Scorecard metric

     LOGO
        
 
Actual
2015
  
  
    
 
Actual
2014
  
  
  Actual 2013     
  Sustainable Engagement of colleagues score      75%         72%      74%     
  % women in senior leadership      23%         22%      21%     
 

 

To drive our own progress towards gender parity, we continue to measure the number and percentage of women at each level of the organisation. We have seen continued advancement towards our 2018 gender goal of 26% women in senior leadership roles; at 23% by the end of 2015. Female representation across the firm has again increased, sustaining a 1% year on year upward trend since 2012. Sustained Engagement at Barclays is currently 75%, a positive result in light of the ongoing change our organisation experienced in 2015. For further details see the People section on pages 79 to 82.

 

How we measure success

 

Increasing the representation of women in senior roles, and building a robust pipeline of diverse talent remain priorities. Practical talent management tools are in place to deliver tangible change, ranging from our global unconscious bias training programme, to ensuring diversity is reflected in candidate shortlists and hiring panels. Targeted sponsorship and mentoring programmes connect leaders with rising talent, with networks and forums all actively supporting our people to achieve their potential. Collectively our approach aims to contribute to the culture and commitment needed to build greater gender parity.

 

We place emphasis on how committed our colleagues are to working at Barclays, the environment we create to enable our colleagues to do their best work, and our colleagues’ overall well-being within the workplace. These aspects form what we call Sustainable Engagement. We measure progress by asking colleagues how engaged they feel working at Barclays.

    

How we are doing

Women in senior leadership

Achieving gender parity requires a cultural shift so we continue to enable and amplify dialogue with internal and external stakeholders to promote equality. Our Shattering Stereotypes research in 2015 has highlighted key opportunities and barriers to unlocking the economic power of female entrepreneurship. Our Women in Leadership Index continues to enable investors to show their interest in companies with gender-diverse leadership. Internally, we have continued to embed gender parity principles into our core people processes and practices. We have established alumni and returnership programmes to enable women to restart paused careers, while our Women on Boards programme prepares our senior leaders for external non-executive director roles. The diversity of our own Board continues to be a focus, with our recently revised Board Diversity Policy setting out our intention to see female Board representation rise to a 33% minimum by the end of 2020.

Sustainable Engagement

Now in its second year, the global employee opinion survey (Your View) was deployed across the Group in October 2015, with over 100,000 colleagues participating. The survey is in line with our Group-wide approach to measuring employee feedback, and allows us to consistently track progress, measure success and highlight areas for improvement. The survey was more concise and focused this year and provides insight on Sustainable Engagement, colleague alignment to our Values, the working environment and perceptions of Leadership.

With a Sustainable Engagement score of 75%, a 3% increase on the prior year, our colleagues strongly believe in the goals and objectives of Barclays, and would recommend our organisation as a place to work. We remain committed to building on the positive trend we have seen in Sustainable Engagement in 2015, and will use the insights from this year’s survey to sharpen aspects of our people strategy. This includes focusing on how we collectively make the best use of our resources, supporting colleagues with an effective technology infrastructure. In doing so we are creating an environment that both allows our colleagues to thrive professionally, and deliver for Barclays customers.

 

Case study

Working with the United Nations (UN) as one of ten Impact Champion organisations highlights our commitment to achieving greater equality for women. To advance the cultural shift towards gender parity, we became a founding supporter of the UN led ‘HeForShe’ movement. This important campaign unifies efforts, and significantly is enabling men to demonstrate why equality matters to them. Male and female colleagues, including members of the Group Executive Committee, have signed a Barclays ‘HeForShe’ pledge, channelling leadership commitment towards key gender initiatives such as mentoring. Membership of our gender network the Women’s Initiative Network (WiN) has also increased significantly as leaders see the importance of being vocal and visible advocates for gender equality. Since launching the ‘HeForShe’ campaign, 60% of new WiN members have been male. ‘HeForShe’ is an integral aspect of our strategy in enabling women to achieve their full potential at Barclays, and ensuring our communities benefit fully from their talent.

 

 

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How we are doing

…we have a positive impact on the

communities in which we operate…

   LOGO

 

 

 

 

 

What we are doing

 

§  Ensuring that the way we do business is responsible, sustainable, and takes account of wider stakeholder needs

 

§  Contributing to growth by supporting households and businesses

 

§  Supporting our communities by building the skills of young people

 

We met or exceeded 10 of 11 targets set out in the 2012-2015 Citizenship Plan and are developing a new strategy to launch in 2016.

 

 

 

 

Balanced Scorecard metric

     LOGO
        
 
Actual
2015
  
  
    
 
Actual
2014
  
  
  Actual   2013       
  Citizenship Plan –      10/11         11/11      10/11       
  initiatives on track or ahead                           
 

 

Barclays achieved 10 of 11 targets set out in the 2012-2015 Citizenship Plan. For detailed performance on the underlying 2015 Citizenship Plan metrics, please see the Citizenship Data Supplement 2015.

 

We provide further detail on our programmes and a range of case studies on our website at home.barclays/citizenship In addition, we also provide further disclosures aligned to the Global Reporting Initiative G4 guidelines, in the Citizenship Data Supplement 2015 available at home.barclays/annualreport

 

How we measure success

 

Fully integrated with the Balanced Scorecard, the Citizenship Plan included 11 targets to deliver by the end of 2015. A performance summary is available below with more detailed information in the Citizenship Data Supplement 2015.

 

We are now preparing to launch the next chapter in our Citizenship ambitions, which will be even more integrated and with a sharper focus on accelerating shared growth for our business and for society. This next evolution is deeply aligned with our strategy, geographical footprint and strengths.

 

Each of the business units will contribute to our Citizenship commitments with a focus on where they can deliver positive societal impact. We see exciting opportunities to partner across customers, clients, government, suppliers and NGOs to create new solutions that will deliver the greatest social impact and return for our business. The new strategy will be launched in 2016.

 

*Cumulative performance 2012 to 2015, unless otherwise indicated

 

    

How we are doing

The way we do business

Attestation to the Barclays Way code of conduct met target with 99% of employees attesting. We exceeded our target to reduce carbon emissions by 10%, achieving a total reduction of 37.3% against a 2012 baseline, driven by operational energy efficiency initiatives and travel management.

We have continued to see moderate improvement in stakeholder perceptions, based on the results of the Citizenship Reputation (YouGov survey), with our overall score increasing to 5.24/10 (2014: 5.11/10). Supplier payment performance hit 86% on time, ahead of our target of 85%. We have evaluated our reporting requirements under the UK Modern Slavery Act and continue to embed and refine necessary changes to our supplier screening and human rights related policies and practices, prior to reporting in our 2016 disclosures.

Contributing to growth*

As a result of market and trading conditions, we missed our target to deliver £150bn of new and renewed lending to households, providing a total of £141.8bn by the end of 2015 (2014: £107.7bn). We met our target to deliver £50bn of new and renewed lending to SMEs, providing a total of £50.7bn on a cumulative basis (2014: £38.5bn). We assisted in raising £3,366bn of financing for businesses and governments on a cumulative basis (2014: £2,487bn).

We reached over 190,000 participants at SME support events, exceeding our target of 120,000. We also exceeded our target to recruit 2,000 apprentices with a total of 2,263 apprentices at Barclays in the UK (2014: 1,734).

Supporting our communities*

2015 marks the conclusion of Barclays’ 5 Million Young Futures commitment. Between 2012 and 2015, we have invested in programmes to support young people around the world develop vital skills they need to achieve their ambitions. Over this period we have reached more than 5.7 million young people and invested nearly £262m in the community against our cumulative target of £250m. In 2015 alone, we helped to build the enterprise, employability or financial skills of more than 1.5 million young people and invested £63m in the community.

 

 

Case study

 

As Green Bonds continue to mature as a way of financing environmentally beneficial activities, Barclays remains committed to the development of the space.

 

Barclays made a public commitment in 2014 to invest £1bn in Green Bonds within the Group liquidity pool by November 2015. After meeting that goal, we committed to an additional £1bn investment in Green Bonds in December 2015, representing one of the largest investments into this sector to date.

 

We are a signatory to the Green Bond Principles and have been an active underwriter on a variety of Green Bond transactions for corporate, supranational and municipal issuers, raising a total of £1.3bn in 2015.

 

 

 

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How we are doing

…acting with integrity in everything we do…

    

 

 

LOGO

 

 

What we are doing

 

The Group continued to incur the significant costs of conduct matters

 

§  Additional charges were recognised for customer redress including £2.2bn for the cost of PPI remediation

 

§  Resolution of these matters remains a necessary and important part of delivering the Group’s strategy

 

§  There are early signs that we are driving better outcomes for customers from a more thoughtful consideration of our customers’ needs.

 

The 2018 target is for a Conduct Reputation (YouGov survey) score of 6.5/10.

 

 

 

 

Balanced Scorecard metric

    

LOGO

        
 
Actual
2015
  
  
    
 
Actual
2014
  
  
  Actual   2013       
 

Conduct Reputation

(YouGov survey)

     5.4/10         5.3/10      5.2/10       
 

 

We are below where we would like to be for 2015, although overall progress on the measure is in line with our expectations and puts our 2018 targets within reach.

 

How we measure success

 

§  The Conduct measure is developed through a Conduct reputation survey, undertaken by YouGov, across a range of respondents including business and political stakeholders, the media, NGOs, charities and other opinion formers

 

§  The 2015 Conduct score, taken from two surveys, each of 2,000 respondents, comprises questions relating to transparency, employee welfare, quality and customer value as well as trust

    
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      

How we are doing

In 2015 Barclays made progress on its Conduct measure recording a score of 5.4 (2014: 5.3). ‘Operates openly and transparently’, ‘Has high quality products and services’ and ‘Delivers value for money for customers and clients’ have all improved according to audience perception. Performance on two components, ‘Treats staff well at all levels of the business’ and ‘It can be trusted’ have declined slightly.

As a result of increased awareness and early consideration of conduct risk in the business, a number of actions have been taken to improve customer outcomes including:

§  proactive consideration and management of potential customer detriment associated with Barclays’ strategy to simplify its business and products. For example, change programmes monitoring customers subject to multiple changes including platform and online migrations

§  application of more stringent residential mortgage requirements to buy-to-let mortgage applicants, ensuring better lending decisions

§  improvements in key areas such as bereavement and power of attorney and ongoing training to equip staff to support customers in vulnerable circumstances

§  enhanced surveillance monitoring in the Investment Bank identifying and proactively managing activity which appeared to cause unusual market impact

§  separation plans of non-core businesses consider customer outcomes.

In 2016 there will be continued improvements of conduct risk management across governance structures, MI, culture change initiatives, risk management processes and enterprise-wide risk management. There will also be further enhancements to how conduct risk is considered in strategy setting.

 

 

 

 

Case study

 

An Investment Bank client inadvertently elected to earn a lower interest rate of 0.13% (instead of the correct interest rate of 0.30%) on a $100m deposit cash trade. Operations staff identified the mismatch and despite being legally entitled to proceed with the lower interest rate, agreed that the right thing to do was to amend the rate in favour of the client.

 

Barclays have teams in place that constantly monitor such transactions in order to spot operational or system errors. Although Barclays had the right to go ahead and apply the lower interest rate (which would have cost the client £130,000) we instead amended the trade in favour of the client.

 

By putting ourselves in our clients’ shoes, we have elected to achieve our ambitions in the right way. We believe that our customers should be able to trust us to have their best interest at heart as this ensures long term profits through customer loyalty.

 

 

 

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How we are doing

…effectively managing risk to create

sustainable returns for our Company.

 

 

 

LOGO

 

 

 What we are doing

 

We are committed to delivering long-term acceptable returns to shareholders in a sustainable way, while maintaining adequate levels of capital to enable the Bank to operate safely through challenging economic conditions.

 

We will achieve this by prudently optimising the level, mix and distribution to businesses of our capital resources whilst maintaining sufficient capital resources in order to:

 

§   ensure the Group is well capitalised relative to its minimum  regulatory capital requirements set by the PRA and other regulatory  authorities

 

§   support its credit rating

 

§   support its growth and strategic objectives.

 

 

 

 

 

Balanced Scorecard metric

 

   LOGO
        
 
Actual
2015
  
  
    
 
Actual
2014
  
  
   Actual  2013a   
  Fully loaded CRD IV CET1 ratio      11.4%         10.3%       9.1%    
  Return on Equity (Adjusted)      4.9%         5.1%       4.3%    
 

 

Note

a   2013 Return on Equity (Adjusted) has been revised to account for the reclassification of £173m of charges, relating to a US residential mortgage related business settlement with the Federal Housing Finance Agency, to provisions for ongoing investigations and litigation including Foreign Exchange to aid comparability.

  
 

 

How we measure success

 

Fully Loaded CRD IV CET1 ratio

  
 

§  The Fully loaded CRD IV CET1 ratio demonstrates the capital strength and resilience of Barclays. By ensuring we are well capitalised relative to minimum capital requirements of regulatory authorities, we create a safer bank for customers and clients, and all stakeholders through challenging economic conditions.

  
 

 

§  The ratio expresses Barclays’ capital as a percentage of risk weighted assets (RWAs), as defined by the PRA, in the context of CRD IV (an EU Directive prescribing capital adequacy and liquidity requirements), and is part of the regulatory framework governing how banks and depository institutions are supervised.

  
 

 

Adjusted Return on Equity (RoE)

  
 

§  Adjusted RoE measures the organisation’s ability to generate acceptable returns for shareholders.

  
 

 

§  Adjusted RoE is calculated as adjusted profit for the year attributable to ordinary equity holders of the parent divided by average shareholders’ equity for the year excluding non-controlling and other equity interests. It excludes certain items, including those that are significant but not representative of the underlying business performance.

  
    
    
    
    
    
    
    
    
    
    
    
    

How we are doing

Fully loaded CRD IV CET1 ratio

In 2015 the Group’s CET1 ratio increased by 110 basis points to 11.4%. The main driver was a £44bn reduction in RWAs to £358bn, demonstrating continued progress on the Non-Core rundown together with reductions in the Investment Bank. This was partially offset by a decrease in CET1 capital to £40.7bn (2014: £41.5bn). We will continue to reduce RWAs within Non-Core, while looking to allocate capital to RoE enhancing growth opportunities in our Core businesses.

Adjusted Return on Equity

Adjusted RoE in 2015 decreased to 4.9% (2015: 5.1%) as adjusted PBT fell by 2% to £5,403m, driven by a 24% increase in the Non-Core loss before tax to £1,459m as a result of the continued rundown, partially offset by a 3% increase in Core profit before tax to £6,862m. Adjusted RoE for Core was 9.0% (2014: 9.2%).

The Group estimates its cost of equity for 2016 at 10.5%.

 

 

 

 

 

 

 

 

 

 

 

Case study

 

Our Non-Core division is responsible for the divestment of Barclays non-strategic assets and businesses, and is run by a dedicated management team operating within a clear governance framework to rundown the unit while optimising shareholder value.

 

When the Non-Core division was created in May 2014, RWAs were £110bn. By the end of 2015, this had reduced to £47bn as a result of the disposal of Businesses, the rundown and exit of Securities and Loans, and Derivative risk reductions. Key drivers of the decrease in RWAs of £29bn in 2015 were a £10bn reduction in the Derivative portfolio, £9bn reduction in Securities and Loans, and reductions as a result of the sale of the Spanish and UK Secured Lending businesses. The announced sale of the Portuguese and Italian retail businesses in H215, due to be completed in H116, are expected to result in a further £2.5bn reduction in Non-Core RWAs.

 

 

 

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How we are doing

The activity in our business units reflects our

progress in becoming the partner of choice…

 

 

 

 

  LOGO

 

Barclays Group: our 2015 structure, markets and customer type

 

Group structure

 

  

Markets

 

  

   Customer type

 

Personal and Corporate Banking    

§   UK Retail

  

 

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§   Corporate Banking

  

See pages 18-19

 

 

  

§   Wealth

 

  

Barclaycard

 

  

§   UK cards

 

  

 

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§   US cards

  

See pages 19-20

 

  

§   Card businesses in Europe

  
    

§   Business Solutions

 

  

Africa Banking

 

  

§   Retail and business banking, cards

 

  

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§   Corporate and investment banking

  

See pages 21-22

 

 

  

§   Wealth and Investment Management, and Insurance

 

  

Investment Bank

 

  

§   Markets

 

  

 

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§   Banking

  

See pages 22-23

 

 

  

§   Research

 

  

Barclays Non-Core

 

See pages 24

  

§   Principal non-strategic businesses

  

 

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§   Securities and loans, such as non-strategic long dated  corporate loans

  
  

§   Derivatives impacted by regulation

 

  

 

The 2015 performance has been reported in the business units that operated during the year. With a change in structure for 2016, an upcoming restatement document will detail 2015 performance under the new business units.

The following pages provide an insight into what each of the businesses do, the products they provide and markets they serve, and how they look to add value to Barclays’ business model.

How each of our businesses deliver the strategy will differ. For instance, the majority of our colleagues in Personal and Corporate Banking work in our distribution network whereas Africa Banking provides fundamental banking infrastructure to a developing continent. Hence the contribution of each of our businesses will differ to the overall Balanced Scorecard for the Group, as seen on page 11. Therefore the metrics on the following pages demonstrate how each of our businesses contribute in their own individual way. Africa Banking contributes to the Balanced Scorecard of the South African listed entity, Barclays Africa Group Limited.

 

 

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home.barclays/annualreport    Barclays PLC Annual Report 2015  |  17

 


The activity in our business units reflects our progress

in becoming the partner of choice… continued

 

 

 

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  Personal and Corporate Banking

 

“We are succeeding by putting our

  customers and clients at the heart of

  everything we do and by continuing to

  do this we will become the partner of

  choice for the UK Ecosystem.”

 

    Ashok Vaswani

    Chief Executive,

    Personal and Corporate Banking

 

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Personal and Corporate Banking

 

  

          
      Contribution to the Group      2015         2014     
  Income (£m)      8,726         8,828     
  Profit before tax (£m)      3,040         2,885     
  Adjusted RoE (%)      12.1%         11.9%     
  Risk Weighted Assets (£bn)      120.4         120.2     
         

 

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Salford City Council partnership

Our ability and enthusiasm for supporting the wider, non-banking needs of the Council, has led us to become the chosen financial services partner for the Local Authority Sector in the Greater Manchester area.

We worked closely with Salford City Council to understand their specific needs and devised a strategic plan in conjunction with the Council and its partners, focusing on digital skills and driving efficiency by:

 

  §   utilising Barclays Digital Eagles to provide free ‘Code Playground’ and ‘Tea and Teach’ sessions across the City, supporting residents of all ages with building confidence in digital skills

 

  §   providing an easier and more convenient way for residents to pay for Council services by signing Salford City Council up to Pingit, our innovative payment solution

 

  §   collaborating with the Council to develop a secure communication portal, enabling the Council to share information with colleagues in a safe and secure way.

    

Our purpose

Society is facing a digital revolution which is transforming the lives and businesses of our customers and clients. We firmly believe that Barclays has a social and commercial responsibility to help customers and non-customers to embrace the new and ensure that no one is left behind on the digital journey.

How the business is structured and what we provide to the Group

PCB is a powerhouse with the potential to challenge the traditional UK banking landscape.

 

§   Personal Banking: provision of simple and transparent banking products to c.14 million customers, with a focus on transforming customer interactions through automating routine transactions and humanising important moments

 

§   Mortgages: a single, highly automated, industrial strength engine to provide mortgage services to over 1.5 million individuals

 

§   Corporate Banking: an end-to-end proposition and service continuum that supports nearly one million clients, from start-ups and small businesses, through FTSE 100 companies, to partnering with the largest global corporations

 

§   Wealth: a differentiated wealth and investment management business for 35,000 high net worth and ultra-high net worth clients focused on the UK Ecosystem

Using our structure and leveraging advances in technology we can innovate to deliver relevant and differentiated client and customer experiences while driving down costs and improving control.

Environment in which the business operates

We’re in the midst of a digital revolution where everyone now expects and demands services that are easy to access, fast and reliable. Customers expect us to be with them, whenever, wherever and however they choose to transact. That’s why we’re investing in building the capacity to deliver our services digitally and finding ways to redefine how we meet customer expectations. We are restless in the pursuit of finding innovative ways to solve the routine everyday money moments while empowering and training our colleagues to help customers when they need us the most.

Risks to this business model

While executing our strategy we are cognisant that the external market and environment in which PCB operates is constantly changing, with emerging regulation, rapidly evolving competitive landscape and increasing customer expectations.

We are making good progress to adapt and evolve with the changing environment to mitigate against these risks. For example:

 

§   focusing on ensuring operational and business risks are totally understood and appropriately addressed

 

§   reshaping the way we interact with our customers in a way that will drive customer satisfaction and deepen customer engagement

 

§   automating and simplifying processes, controls, systems and products

 

§   driving technological innovation to enable our existing customers to do more with us.

We continue to focus on embedding Conduct Risk awareness across PCB to build on our values-led culture and keep customers and clients at the centre of everything we do, by empowering colleagues to ensure the right outcomes for our customers.

 

 


 

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Review of the year

2015 was a transformational year for PCB. We continued to support growth in the communities in which we operate, helping 17,600 people take their first steps onto the property ladder, lending £3.6bn in Barclayloans and launching a £150m fund to support fast growing technology businesses in the UK.

By innovating and harnessing technology, we are able to provide simple and relevant solutions for our customers and clients. We launched Barclays Blue Rewards providing customers with a simple and inclusive digital rewards proposition, paying cash every month, to recognise and reward their relationship with us. We also created the FX powered by Barclays app, giving users an information-only tool to compare up to the second FX rates and margins.

We continued to use technology to make customers’ lives easier in a number of UK banking firsts. Over 60,000 cheques, totalling over £55m, were processed as digital images through our Mobile Cheque Imaging pilot and through the partnership between Pingit and Camelot, we were able to create the first new payment option for the National Lottery in over a decade.

We were the first UK bank to launch Video Banking, allowing customers to securely carry out their banking through a digital face to face service with our expert colleagues. Our Serve Anywhere iPad technology enabled colleagues to access customer systems remotely in an industry first for any UK retail bank.

We made significant progress in de-risking the business and made a strategic decision to sell Barclays Wealth Americas and transformed the Wealth business with a focus on simplification and innovation in markets where we can compete at scale. In 2015, we were awarded Wealth Manager of the Year at the Global Investor Awards.

We continued to work towards our ambition to become the most inclusive and accessible bank in 2015, reaching over 4,000 Talking ATMs, being the first bank to launch a Sign Video service and launching the Community Driving Licence – a modularised colleague training app to better understand the needs of different customer circumstances.

We are firmly committed to leaving no-one behind as we enter into the digital revolution, with our network of over 15,000 UK Digital Eagles supporting customers and non-customers to build their confidence in digital skills. In 2015 alone, they hosted almost 5,000 Tea and Teach sessions helping those taking their first steps to get online, more than 1,000 Code Playgrounds teaching young people and their parents to code and over 250 Digital Business Clubs supporting small businesses in taking advantage of the opportunities new technology brings. We also continued to help the next generation secure employment and manage their finances more effectively, with the number of young people participating in our LifeSkills programme since 2013 reaching over 1.8 million and almost 3,000 colleagues volunteering to run LifeSkills sessions last year.

 

Barclaycard

 

“We continue to build on our heritage of   innovation, offering a range of market   leading solutions to help consumers make   and retailers take payments.”

 

Amer Sajed

Interim Chief Executive,

Barclaycard

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LOGO

 

Barclaycard

 

       
  Contribution to the Group      2015         2014     
  Income (£m)      4,927         4,356     
  Profit before tax (£m)      1,634         1,339     
  Adjusted RoE (%)      17.7%         16.0%     
  Risk Weighted Assets (£bn)      41.3         39.9     
         

 

LOGO

 

Delighting our customers with free access to credit scores and education

 

When Barclaycard US discovered that more than 60% of the US population does not check their credit score regularly, they realised just how far this was impacting their everyday decisions from renting an apartment to getting a new mobile phone contract. The team made enhancements to their mobile app and servicing website to give customers their FICO® Credit Score; top two key factors affecting it; along with related information for customers to keep in mind.

 

Over three million cardholders in the US are now proactively viewing their FICO® scores with about 60% accessing it monthly and around 35% using our mobile app. Lower rates of delinquency have been observed in customers taking advantage of the service.

 

Based on the positive feedback and engagement from our customers in the US, a similar initiative with a local partner has since been taken up in the UK with free credit score checks for all our UK customers too.

 

®FICO is a registered trademark of Fair Isaac Corporation in the US and other countries.

 

 

 

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The activity in our business units reflects our progress

in becoming the partner of choice… continued

    

 

 

 

LOGO

 

Our purpose

Barclaycard aspires to be the most recommended brand to help consumers buy and clients sell, every day. We provide funding to facilitate payments and lend responsibly to customers and clients based on their needs and our risk appetite. We also enable retailers to accept payments through a range of innovative point of sale solutions.

How the business is structured and what we provide to the Group

Barclaycard serves consumers in both of Barclays’ core geographies, the UK and the US, as well as in Germany and Southern Europe. We also operate in Norway, Sweden and Denmark via our EnterCard joint venture. We provide branded and co-branded consumer cards to our customers, and business solutions to our clients, including commercial cards, payment acceptance and point of sale finance. Our business model is diversified by geography and product line and our scale helps us deliver a strong financial performance through the economic cycle.

Environment in which the business operates

The consumer payments and lending environment is experiencing considerable change, driven by new competitors and technology, consumer behaviour and regulation. Competition from traditional and non-traditional players is intensifying, adding further pressure to an already crowded payments environment. Electronic and mobile commerce are changing consumer expectations, driving a need for a fast and seamless payments experience. Across the payments landscape regulation is challenging existing business models but also enabling increased card acceptance, as cash is replaced by electronic payments.

Many of the trends above provide opportunities for Barclaycard to help its customers and clients achieve their goals. Our future business strategy is focused on opportunities that represent the best interests of our customers and clients and that help us deliver sustainable growth.

Risks to this business model

Managing risk is a critical element of our culture. Barclaycard faces risks every day which, if they crystallise, could negatively impact our business, our customers and clients and our colleagues.

Barclaycard is exposed to a series of risks and threats, including: macroeconomic fluctuations, potential economic shocks, further regulatory changes, fraud, increasingly sophisticated cyber crime and the resilience of our core infrastructure.

We address risk by rigorous consideration of customer outcomes in the way we define and execute our strategy and make decisions. We operate within agreed risk appetites to ensure we maintain the planned risk profile. Our lending strategy is supported by clear target market criteria, ensuring we lend to those for whom credit is suitable.

We also address risk through our diversified business model; by innovating to create new opportunities; by identifying ways to meet changing customer demands in a more efficient way; and by continuing to invest in technology, people and processes.

Examples of innovations/deals this year

Barclaycard achieved numerous industry accolades in 2015.

Our proprietary bPay wearable payments solution secured eight industry awards, including “Best Alternative Payments” at the Card and Payments Awards for UK and Ireland.

Since our deployment of contactless payment across London’s transport network in 2014, over 250 million journeys have been completed using over 8.7m unique cards from 80 countries.

Finally, our US business announced a partnership with JetBlue to launch a new co-brand credit card program in early 2016, adding to our list of prestigious partnerships.

Review of the year

Barclaycard delivered a record performance in 2015. Profit before tax increased 22% to £1,634m. Strong growth was delivered through the diversified consumer and merchant business model with asset growth across all geographies. Cost to income ratio improved to 42% (2014: 43%), while investment in business growth continued. The business focus on risk management was reflected in stable 30-day delinquency rates and improved loan loss rates. This resulted in a return on average equity of 17.7% (2014: 16.0%) and a return on average tangible equity of 22.3% (2014: 19.9%).

Total income increased 13% to £4,927m, driven primarily by growth in US cards and the appreciation of the average USD rate against GBP.

Loans and advances to customers increased 9% to £39.8bn reflecting growth across all geographies.

Customer deposits increased 40% to £10.2bn driven by the deposits funding strategy in the US.

In 2015, the value of transactions increased by 14%, to reach £293bn. We have also maintained the strong customer acquisition trend from previous years, as we welcomed over 4 million new customers and 32,000 new clients in 2015, while reaching an important milestone in Germany of over 1 million customers. We have also continued to improve customer satisfaction by delivering products and services important to our customers, enabling simplification of our proposition and driving digital customer engagement.

We have made further progress in embedding Conduct Risk into our business, by strengthening areas around governance and culture, product design and customer servicing, and embedding a Conduct focused culture throughout our business, thus striving to deliver the right outcomes for our customers and clients.

Building on our commitment to make a positive difference to the communities in which we live and work, 69% of colleagues used Barclays support to volunteer, fundraise or donate. We are also making Barclaycard an even better place to work, with over 93% of our high performing employees retained, 56% of hires internal appointments and 34% of our senior leaders women.

In 2016, we are very excited to mark two significant milestones in our history, celebrating Barclaycard’s 50th anniversary and the 25th year of activity for our German operations. Since launching the UK’s first credit card in 1966, Barclaycard has continued to push the boundaries and challenge the status quo – creating the payment innovations of today and defining the possibilities of how people will pay tomorrow.

 

 

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 Africa Banking

 

“In the third year since the formation of Barclays Africa Group Limited, our strategy execution is on track. We are well positioned to address the Africa growth opportunity, make a positive economic contribution to our communities, and deliver sustainable returns for our shareholders.”

 

 Maria Ramos

 Chief Executive,

 Africa Banking

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  Africa Banking         
  Contribution to the Group      2015         2014      
  Income (£m)      3,574         3,664      
  Profit before tax (£m)      979         984      
  Adjusted RoE (%)      11.7%         12.9%      
  Risk Weighted Assets (£bn)      33.9         38.5      
          

 

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Delivering Shared Growth:

ReadytoWork Initiative

 

In October 2015, we launched ReadytoWork, a pan-Africa employability initiative aimed at empowering young people with the skills they need to successfully transition from basic education into the world of work. ReadytoWork aims at addressing youth unemployment by providing work readiness skills through a free interactive e-learning platform. We rolled out ReadytoWork in Zambia, Seychelles, Botswana, Kenya, Mauritius, Zimbabwe and South Africa, in partnership with several institutions of higher learning.

 

Over 4,500 users have independently registered on the portal, with an additional 64,000 learners across 325 secondary schools in South Africa accessing the curriculum through our partnership with the Gauteng Department of Basic Education.

 

 

 

Our purpose

We are focused on our goal to be the bank of choice in Africa. Our growth strategy is based on a unique competitive advantage – we are an African bank that is fully local, fully regional and fully international.

How the business is structured and what we provide to the Group

Africa Banking is a diversified financial services provider offering an integrated range of products and services across retail and business banking (RBB), credit cards, corporate and investment banking, wealth and investment management and insurance (WIMI). We serve nearly 12 million customers across Africa and have a long-standing presence in 12 countries, including in our largest market South Africa.

Africa Banking is a combination of the results of Barclays Africa Group Limited (BAGL), and Barclays Egypt and Barclays Zimbabwe.

BAGL strategy

BAGL’s strategy is underpinned by four clear themes. First, as an African bank, we invest in growth opportunities on the continent and provide access to the African and global capital markets. Second, as a customer-focused organisation, we aim to ensure customer experience remains our primary focus to make customers’ lives easier and help them prosper. Third, we are simplifying our business to reduce costs and improve efficiency. Finally, we continue to make significant investments in technology and automation.

Our Retail and Business Bank strategy is to transform our leading retail franchise in South Africa, and in our other African markets. We made strong progress on new customer acquisition, improved customer experience, and are investing heavily in mobile and other technologies. In our Business bank, we are improving channel efficiency to serve small businesses and medium corporates. In our Corporate and Investment bank, we completed the roll out of a best-in-class integrated product platform for corporates in all our markets, and are repositioning our Markets business. In our Wealth, Investment Management and Insurance business, we expanded into East Africa, improved performance in our short-term insurance business, and transformed our Wealth and Investment Management business to an advisory-led model.

Environment in which the business operates

Against the backdrop of a slowing global economy, Africa economies are experiencing lower growth rates in part driven by lower commodity prices. In South Africa, our largest market, persistent power shortages and drought have had a significant economic impact. In many African countries, the challenges of job creation and access to quality affordable education, and the need for a more equitable society free of race and gender discrimination, have become more critical. As a major financial services group in Africa, we aim to have positive economic impact and invest in our communities, while delivering sustainable shareholder returns.

The industry in which we operate is highly competitive and dynamic. Mobile and other technologies enable new market entrants and disrupt traditional models, while at the same time the complexity in the operations and technology environments has increased. BAGL continues to make sizeable investments in innovation, data and automation to improve customer experience and increase efficiency. Mobile technology in particular is transforming our distribution channels in line with industry and competitor trends.

Review of the year

Africa Banking 2015 performance was solid and we made further progress on the financial commitments that we set out to the market. Our Cost-to-Income ratio was lower than 2014 as income growth

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  21


The activity in our business units reflects our progress

in becoming the partner of choice… continued

    

 

 

LOGO

 

exceeded sub-inflationary cost growth. Africa Banking RoE of 8.7% and RoTE of 11.7% was lower than 2014, although underlying returns in BAGL increased further. Contribution from the markets outside of South Africa increased, and is now above 20% as these markets grew faster than South Africa. We are currently top 3 by income in four of our largest five markets.

On a reported basis, profit before tax decreased 1% to £979m and total income net of insurance claims decreased 2% to £3,574m. The ZAR depreciated against GBP by 10% based on average rates and by 28% based on the closing exchange rate in 2015 and was again a significant contributor to the movement in the reported results of Africa Banking.

The discussion of business performance that follows is based on results on a constant currency basis unless otherwise stated.

Profit before tax increased 11% reflecting growth in rest of Africa operations of 18% and growth in South Africa of 9%. Good growth was achieved in the identified strategic areas of RBB and Corporate Bank in South Africa, and WIMI, while the corporate business outside South Africa was negatively impacted by higher impairments. Investment Bank trading performance in South Africa was lower as Fixed Income, Currencies and Commodities (FICC) income was impacted by a volatile environment.

Total operating expenses for Africa Banking increased 5% with inflationary pressure, partially offset by savings from strategic cost programmes including restructure of the branch network, increased automation, and property rationalisation.

Loans and advances to customers increased 8% to £29.9bn (reported) driven by strong Corporate and Investment Bank growth, resulting in increased net interest income for African Banking. Customer deposits increased 11% to £30.6bn (reported) reflecting RBB growth.

 Investment Bank

 

 “From our unique position with dual home markets and global reach, we continue to transform the Investment Bank so that we can help our target clients achieve their ambitions.”

 

 Tom King

 Chief Executive,

 Investment Bank

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Investment Bank

 

       
 

 

Contribution to the Group

  

 

 

 

2015

 

  

  

 

 

 

2014

 

  

 
  Income (£m)      7,572         7,588     
  Profit before tax (£m)      1,611         1,377     
  Adjusted RoE (%)      5.6%         2.7%     
  Risk Weighted Assets (£bn)      108.3         122.4     
         

 

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Long-standing relationships with our clients

 

Barclays has had a long-standing relationship with Dell, having advised the Company on a number of capital markets transactions as well as its acquisition of Wyse Technology in 2012. When Dell, together with its owners, Michael Dell, MSD Partners and Silver Lake Partners agreed to acquire EMC Corporation in 2015 for $67 billion, Barclays acted as a financial adviser to Dell and provided financing for the transaction.

 

This landmark transaction, which represents the largest technology M&A transaction to date, will create the world’s largest privately- controlled technology company with an integrated portfolio positioned to address customers’ rapidly changing critical IT needs.

 

Barclays is committed to delivering innovative financial solutions to empower our clients to seize opportunities for growth and tackle the big challenges of the future.

 

 

 

 

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Our purpose

We enable the movement of capital between those who need it, for example to grow their company or build new infrastructure, and those looking to generate a return on investment. In doing so we fund and facilitate global economic growth, helping people to achieve their ambitions.

How the business is structured and what we provide to the Group

Our business is split into three core areas:

 

§   Markets: provides execution, prime brokerage and risk management services across the full range of asset classes including equity and fixed income, currency and select commodity products

 

§   Banking: provides long-term strategic advice on mergers and acquisitions, corporate finance and strategic risk management solutions, and equity and credit origination capabilities

 

§   Research: provides multi-asset class and macro-economic research delivering practical ideas to help our clients make informed investment decisions

Through this range of business activities we can provide Barclays with a diversity of income and risk, while delivering a full spectrum of advisory, financing and market execution services for our corporate, government and institutional clients.

Environment in which the business operates

The investment banking sector continues to change, driven by regulatory evolution, higher capital requirements and changing client demands. This has resulted in significant differences in the strategic responses from industry peers.

The changes we have made following our strategy update in May 2014 have rebalanced our business mix towards core business lines in which we have competitive strengths and can drive higher returns, while ensuring that we continue to provide a holistic service to our target clients. In January 2016 we announced several complementary initiatives to further support the execution of this strategy (e.g. through certain product and country exits). The Investment Bank continues to make progress on earnings, capital and leverage as set out in the strategy update.

Risks to this business model

The market environment remains challenging, marked by uncertain macro conditions and resource constraints. Alongside structural regulatory change, including new capital and leverage requirements, this has put increasing pressure on the Investment Bank’s ability to deliver returns.

Changes resulting from new and impending regulation will continue to impact our business model. In particular, adapting our business framework in response to structural reform will be a key focus over the coming years as we seek to comply with global structural reform plans.

In addition the business continues to face conduct and litigation risk. We continue to strengthen our control environment, evolve our culture and simplify our products in order to minimise these risks.

Examples of innovations/deals this year

During 2015, the Investment Bank executed several transactions that demonstrate its execution capabilities, connectivity to clients and the strength of the franchise. A few notable examples are listed below.

 

§   Barclays acted as a financial adviser to long-term client Teva Pharmaceutical on its $40.5bn definitive agreement to acquire the Actavis generics business from Allergan

 

§   Barclays executed BHP Billiton’s $6.45bn equivalent five tranche, three currency hybrid capital security
§   Barclays executed large strategic trades for clients including a large FX trade off the back of Tesco’s Korean business disposal and the structuring and issue of the largest MXN Development equity certificate acquired by the Mexican Pension Funds

Review of the year

The Investment Bank continues to make progress on its origination led strategy, building on leading positions in its home markets of the UK and US, while driving cost savings and RWA efficiencies. Annual revenues remained resilient at £7.6bn (2014: £7.6bn) and disciplined capital deployment resulted in lower RWAs of £108bn (2014: £122bn). The PBT for the year improved to £1.6bn (2014: £1.4bn).

We have continued to deliver for our clients by advising on some of the most noteworthy transactions of the year and helping institutional clients navigate the evolving markets landscape:

 

§   Maintained number one position in Greenwich Associates’ annual survey of European fixed income investors for the ninth year in a row

 

§   Advised on several prominent deals of the year, including some of the largest transactions in Consumer, Technology and Pharmaceutical sectors

 

§   Named ‘Bond House of the Year’ by IFR magazine in 2015

Through our business activities, we aim to have a positive impact on our colleagues and the broader communities in which we operate. A few notable results in 2015 are listed below:

 

§   Barclays facilitates the flow of capital towards environmentally and socially beneficial activity, with a range of business lines actively involved in delivering solutions across product groups, geographies and industry sectors. For example, the Investment Bank issued more than £5.6bn (at share) of environmental financings that positively contribute to the low carbon economy

 

§   The Investment Bank participates in a three-year rotational apprenticeship programme which runs across a number of areas of Barclays in the UK. Apprentices will receive a degree-level qualification and a permanent role upon completing the programme

 

§   The internal Employee Survey demonstrates the progress we continue to make in transforming the business and culture. The survey results point to significant improvement in sense of personal accomplishment, belief in Barclays’ goals and strategy, and the likelihood of recommending Barclays as a good place to work

The Investment Bank remains focused on strengthening the Conduct framework. The Conduct Risk committee and the relevant sub-committees ensure conduct considerations are firmly embedded in all business and strategic decisions. In-person and online Conduct Risk training for colleagues is delivered throughout the year.

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  23


The activity in our business units reflects our progress

in becoming the partner of choice… continued

 

 

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   Barclays Non-Core

 

 “Barclays Non-Core is responsible for the divestment of Barclays’  non-strategic assets and businesses.”

 

 

 

LOGO

  Non-Core                
  Contribution to the Group     2015         2014    
  Income (£m)     (164)        1,050    
  Loss before tax (£m)     (1,459)        (1,180)   
  Adjusted RoE drag (%)     (5.1%)        (5.4%)   
  Risk Weighted Assets (£bn)     46.6         75.3    

How the business is structured and what we provide to the Group

Barclays Non-Core (BNC) was formed to oversee the divestment of Barclays’ non-strategic assets and businesses, releasing capital to support strategic growth in our Core business.

BNC brings together businesses and assets that do not fit our client strategy, remain sub-scale with limited growth opportunities, or are challenged by the regulatory capital environment. Non-Core assets have been grouped together in BNC, comprising three main elements: Principal Businesses, Securities and Loans, and Derivatives. Several of the businesses managed within BNC are profitable and will be attractive to other owners.

BNC will be reduced over time, through sale or run-off. Reducing the capital and cost base will help improve Group returns and deliver shareholder value.

Criteria for BNC

Two criteria were used to determine which businesses should be placed in BNC:

 

§   Strategic fit: businesses either not client-driven or operate in areas where we do not have competitive advantage

 

§   Returns on both a CRD IV capital and leverage exposure: capital and/ or leverage-intensive businesses, unlikely to meet our target returns over the medium term

At the creation of BNC, almost 80% of BNC RWAs related to the non-core Investment Bank. It included the majority of our commodities and emerging markets businesses, elements of other trading businesses including legacy derivative transactions, and non-strategic businesses. The key non-core portfolios outside the Investment Bank comprised the whole of our European retail business, some European corporate exposures and a small number of Barclaycard and Wealth portfolios.

BNC is run by a dedicated management team operating within a clear governance framework to optimise shareholder value and preserve maximum book value as businesses and assets are divested.

Market environment and risks

To divest BNC successfully we are partly dependent on external market factors. The income from our businesses and assets, the quantum of associated RWAs and finally market appetite for BNC components are all influenced by market environment. In addition, regulatory changes in the treatment of RWAs can significantly impact the ‘stock’ of RWAs.

These factors mean the market environment in which BNC operates can have positive or negative consequences for our planned rundown profile.

BNC maintains a robust risk management framework to mitigate the risks inherent in our businesses and assets. However we may need to take further, currently unforeseen, actions to achieve our rundown objectives which may include incurring additional costs of exit, or a change in direction to our planned rundown trajectory.

Although the emphasis is on bringing down RWAs, reducing costs in BNC is also critical. We are strongly focused on ensuring we reduce both, although this may not always happen simultaneously.

Review of the year

Loss before tax increased 24% to £1,459m driven by continued progress in the exit of businesses, securities and loans, and derivative assets. RWAs reduced £29bn to £47bn including a £10bn reduction in Derivatives, £9bn reduction in Securities and Loans, and Business reductions from the completion of the sales of the Spanish and UK Secured Lending businesses. The announced sales of the Portuguese and Italian retail businesses, which are due to be completed in H116, are expected to result in a further £2.5bn reduction in RWAs.

Total income net of insurance claims reduced to an expense of £164m:

 

§   Businesses income reduced 44% to £613m due to the impact of the sale of the Spanish business and the sale and rundown of legacy portfolio assets

 

§   Securities and Loans income reduced to an expense of £481m primarily driven by fair value losses and funding costs on the ESHLA portfolio, the active rundown of securities, exit of historical investment bank businesses and the non-recurring gain on the sale of the UAE retail banking portfolio in 2014

 

§   Derivatives income reduced 76% to an expense of £296m reflecting active rundown of the portfolios and funding costs

Credit impairment charges improved 54% to £78m due higher recoveries in Europe and the sale of the Spanish business.

Total operating expenses improved 40% to £1,199m reflecting savings from the sale of the Spanish, UAE retail, commodities, and several principal investment businesses, as well as a reduction in costs to achieve, and conduct and litigation charges.

Total assets decreased 36% to £303.1bn with reduced reverse repurchase agreements and other similar secured lending, and lower derivative financial instrument assets.

 

 

24  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


Running the company well

Your Board sets strategic direction and

provides oversight and control…

 

 

LOGO

 

LOGO

 

LOGO

John McFarlane

Chairman

Chairman’s governance overview

“The oversight and constructive challenge provided by the Board is essential to strategic success.”

The Board is responsible to shareholders for creating and delivering sustainable shareholder value by approving the strategic direction of the Group’s businesses. In our pursuit of greater long-term shareholder value, we must maintain the highest standards of corporate governance, which are the foundation on which we manage risk and build the trust of all our stakeholders. The way in which we govern the Group to achieve these standards is set out in our governance framework, described below.

On becoming Chairman in April 2015, I wrote to shareholders setting out the three strategic priorities for the Group: to evolve the strategy to focus on our core segments and markets; to wind down non-core exposures and assets and achieve our target capital levels; and to instil a high performance culture with strong ethical values. To meet these commitments and build a business for the future, your Board has taken decisive action to increase focus, discipline and accountability, as briefly highlighted below.

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  25


Your Board sets strategic direction and provides oversight and control…

continued

    

 

 

 

LOGO

 

Focus on core segments and markets

During 2015, your Board emphasised the need to focus resources on areas that matter to the Group and to exit those that do not provide an appropriate return. We approved the revised strategy to unlock greater value from the Investment Bank. We discussed increasing the pace of exit from Non-Core and during 2015 Barclays shrank non-core assets, disposing of a number of businesses or asset portfolios, with a resulting reduction in RWAs. These disposals included the sales of the Spanish, Portuguese and Italian banking networks, the Index business, FirstPlus mortgages, the Wealth business in the US and UK Secured Lending.

Generate shareholder value

While we recognise the importance of dividends in delivering returns to shareholders, we have decided it would be prudent to scale back dividends in 2016 and 2017. We are focused on improving returns to enable future increases in the dividend and to fund growth. We also progressed a number of options for increasing capital accretion over the level achieved in recent years, including the release of capital from underperforming business areas and a reduction in expenses driven by savings from strategic cost programmes. The benefit from the latter, however, was impacted by the costs of legacy conduct issues. In addition, we explored a number of new ways to improve the cost:income ratio, such as the increased deployment of technology in our core businesses.

Instil a high performance culture with strong ethical values

To ensure we have the right balance of skills and experience to drive the Group’s strategy to completion, we appointed new non-executive Directors during 2015, in addition to the appointment of Jes Staley as the new Group Chief Executive. As Chairman, I strive to instil a performance culture with increased personal accountability to enable the organisation to become more efficient and agile. Progress reports on our cultural transformation during the year revealed that the factors contributing to execution risk mainly derive from fairly simple cultural issues. As a result your Board recommended a high-level single view of the portfolio of key strategic initiatives to manage dependencies, harness potential synergies and increase the speed of completion.

 

LOGO

John McFarlane

Chairman

29 February 2016

 

LOGO   

You can read more about the work of your Board and its Committees in the Governance section on home.barclays/annualreport

Our corporate governance framework

What your Board does and how it does it underpins the delivery of long-term sustainable success. This creates the framework within which the Executive can lead the business and deliver the agreed strategy.

Leadership

Your Board provides challenge, oversight and advice to ensure that Barclays is doing the right things in the right way. Your Board is also attentive to the need to cultivate future leaders and ensure that robust succession plans are in place.

Effectiveness

Your Board requires the right balance of expertise, skills, experience and perspectives to be effective. It also needs to have the right information, at the right time, so that it can engage deeply on how the business is operating, how the Executive is performing and fully understand the risks and major challenges the business is facing. The performance of your Board, its Committees and each of the Directors is scrutinised each year in the Board Effectiveness Review.

Risk management and control

Understanding and managing our risks and continuously improving our controls are central to the delivery of our strategic aims. Your Board’s risk committees play an active role in ensuring that Barclays undertakes well-measured, profitable risk-taking activity that supports long-term sustainable growth. During 2015, we simplified and streamlined the structure of the Board’s risk committees. We disbanded the Board Enterprise Wide Risk Committee and your Board assumed responsibility for oversight of enterprise wide risk. We also revised the responsibilities of the other Board-level risk committees so that the Board Risk Committee took on responsibility for oversight of the capital and financial implications of operational risk.

Remuneration

Your Board seeks to ensure that remuneration decisions are aligned with and support the achievement of long-term value creation.

Engagement

Barclays’ wider societal responsibilities means it is attentive to a broad set of stakeholders. Your Board undertakes regular engagement with shareholders, investors and other stakeholders to maintain strong relationships.

Your Board

John McFarlane (68) Group Chairman

Jes Staley (59) Group Chief Executive; Executive Director

Sir Gerry Grimstone (66) Deputy Chairman and

Senior Independent Director

Mike Ashley (61) Non-executive Director

Tim Breedon (58) Non-executive Director

Crawford Gillies (59) Non-executive Director

Reuben Jeffery III (62) Non-executive Director

Wendy Lucas-Bull (62) Non-executive Director

Tushar Morzaria (47) Group Finance Director; Executive Director

Dambisa Moyo (47) Non-executive Director

Frits van Paasschen (54) Non-executive Director

Diane de Saint Victor (61) Non-executive Director

Diane Schueneman (63) Non-executive Director

Steve Thieke (69) Non-executive Director

 

 

26  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


                

                

                        

 

 

LOGO

 

 

Board diversity

Your Board’s overriding duty is to ensure it is strong and effective, with strong and effective Directors. All appointments to your Board are therefore made on merit, taking into account the collective balance of skills, experience and diversity that the Board requires. Our Board Diversity Policy, which is available at home.barclays, sets out our policy and objectives for achieving diversity on your Board. At the end of 2015, there were four women on your Board (29%), compared to our target of 25% by the end of 2015.

Noting that the latest progress report on women on boards from the Davies Review has suggested a target of at least 33% by 2020, your Board has adopted this new target in its Board Diversity Policy.

 

LOGO    Gender balance

 

   31.12.15       4 Female Directors (29%)
         10 Male Directors (71%)
  

 

31.12.14

  

 

   3 Female Directors (21%)

         11 Male Directors (79%)
  

 

31.12.13

  

 

   3 Female Directors (20%)

         12 Male Directors (80%)
  

 

31.12.12

  

 

   1 Female Director (8%)

         11 Male Directors (92%)

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 with regard to the viability of the Group, including explaining how they have 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 considering the viability of the Group, the Board has carried out a regular and robust assessment of the Group’s risk profile across the five principal risks and the material existing and emerging risks. The material existing and emerging risks considered include those risks that senior management believe could cause the Group’s future results of operations, financial condition and prospects to differ materially from current expectations, including the ability to meet dividend expectations, ability to maintain appropriate levels of capital and meet capital and leverage ratio targets, and achieve stated targets and commitments as outlined in the Strategy section. The assessment also considered the Group’s resilience to the threats to its viability posed by those risks in certain stress scenarios.

In addition to the robust assessment described above, the Board considered management’s working capital and viability report dated 15 February 2016. As part of this report, the Board considered a forecast of Barclays’ Group CET1 ratio trajectory to December 2018, a forecast of the leverage ratio trajectory, the Tier 1 and total capital ratio and the build-up of loss absorbing capacity. The Board also considered the liquidity and funding profile of the Group as expressed by Barclays’ internal liquidity risk appetite (LRA) and regulatory liquidity coverage and stable funding ratios. In addition, the review included an up-to-date assessment of financial risks, including market and credit risk, and a review of operational and conduct risk. The latest internal stress test conducted in February 2016 was also reviewed, including consideration of the potential for management and strategic actions in the event stresses were to materialise. The spot position and forecast trajectory of solvency and liquidity ratios, as well as financial and non-financial risks, were considered in line with risk appetite. The report also included solvency and liquidity forecasts of key legal entities, on a post structural reform basis. The Board and Board Risk Committee frequently review and monitor solvency ratios and the risk profile.

Information relevant to the Board’s assessment of the Group’s viability can be found in the following sections of the Annual Report:

§   pages 119 to 126, which provide details of the material existing and emerging risks that the Board believes could threaten the Group’s business model, future performance, solvency or liquidity;

 

§   pages 143 to 215, which provide a review of the performance of the Group against each of the five principal risks;

 

§   pages 127 to 142, which provide an overview of the Group’s approach to risk management, its control and governance systems and how such risks may be mitigated;

 

§   pages 217 to 241, which review the performance of Barclays, including key performance indicators and the contributions made by each of its businesses to the overall performance of the Group;

 

§   pages 243 to 347, which give a detailed analysis of the statutory accounts and in-depth disclosure of the financial performance of the Group.

In its review of the information outlined above, the Board has been particularly focused on the implementation of structural reform, legacy conduct matters and the impact of a Minimum Requirement for own funds and Eligible Liabilities (MREL). The potential impacts of these risks have been estimated and included within the Medium-Term Plans, and working capital report. The review and analysis of this information enables the Directors to confirm they have a reasonable expectation of the Group’s viability over the next three years. This period covers the period used for the Group’s medium-term capital plans and projections and has been selected as it provides management and the Board sufficient and realistic visibility of the future industry environment. During this projected three year period, the Directors have a reasonable expectation that Barclays will continue to operate and meet its liabilities as they fall due.

In assessing the Group’s viability over the next three years, it is recognised that all future assessments are subject to a level of uncertainty that increases with time and that future outcomes cannot be guaranteed or predicted with any certainty. The Board’s assessment of the Group’s viability over the next three years is also subject to the risk factors highlighted on pages 119 to 126 and in particular those items of focus referenced above, all of which could have an impact on the future performance of Barclays.

 

LOGO  

Read more in the Governance section at home.barclays/corporategovernance

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  27


Running the Company well

…with a relevant and balanced

remuneration framework…

 

 

LOGO

 

 

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2015 incentives

The Board Remuneration Committee’s priorities are to ensure that Barclays pays for sustainable performance, aligns remuneration with risk and delivers a greater proportion of the income we generate to our shareholders.

Performance and pay

The Committee’s 2015 pay decisions took full consideration of financial performance, both on an adjusted and a statutory basis, and non-financial performance including progress towards the 2018 targets within the Balanced Scorecard. The Committee also recognised the need to improve returns to shareholders and to accelerate delivery. We are committed to moving this forward in a manner that is consistent with Barclays’ Values to ensure that legacy events are not repeated.

Although there were improvements in the Core operating businesses with Core adjusted profit before tax up 3%, Group adjusted profit before tax was down 2% to £5,403m for 2015. Group statutory profit before tax was down 8% at £2,073m. The Group’s capital position has continued to strengthen with a CRD IV fully loaded Common Equity Tier 1 (CET1) ratio of 11.4% and a leverage ratio of 4.5% at the end of the year. Cost targets have been met and Barclays Non-Core has made significant progress in reducing its risk weighted assets.

Against this background, the Group incentive pool for 2015 is again significantly lower than in prior years, down by £191m or 10% in absolute terms at £1,669m compared to the incentive pool of £1,860m for 2014.

 

Similarly, the 2015 Investment Bank incentive pool is down 7%, despite the Investment Bank’s adjusted profit before tax increasing by 17%.

Total compensation costs are down 6%, and the compensation to adjusted net income ratio is 37.2%, down from 37.7% in 2014. The Core compensation to adjusted net income ratio is also down at 34.7% (2014: 35.7%).

Risk and conduct

A central feature of our remuneration philosophy is that remuneration must be aligned with risk, and with the conduct expectations of Barclays, our regulators and stakeholders. The Group incentive pool outlined above is after adjustments the Committee has made for both risk and conduct events. In addition to specific risk and conduct events, we also adjusted the incentive pool to take account of an overall assessment of a wide range of future risks, non-financial factors that can support the delivery of a strong conduct culture and other factors including reputation, impact on customers, markets and other stakeholders.

We have a robust process for considering risk and conduct issues as part of individual performance management reviews with outcomes reflected in individual incentive decisions. Individuals who are directly or indirectly accountable for risk and conduct events have had their remuneration adjusted as appropriate. This includes reductions in current year bonus levels and reductions in vesting amounts of deferred awards through the application of malus. Further details can be found on page 89.

 

 

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Summary Remuneration report

The full Remuneration Report can be found on pages 83 to 116. The Remuneration report (other than the part containing the Directors’ Remuneration Policy) will be subject to an advisory vote by shareholders at the 2016 AGM.

Executive team

2015 saw a change in Group Chief Executive. The Company announced on 28 October 2015 that Jes Staley was to become Group Chief Executive with effect from 1 December 2015. He was appointed on a salary of £1,200,000 and Role Based Pay of £1,150,000 commensurate with market pay levels. The Committee approved the grant of a share ‘buy-out’ award to compensate him for an unvested share award granted to him by a previous employer which was forfeited as a result of him joining Barclays. The award was made on terms aligned to the forfeited award. Jes Staley satisfied, at the date of joining, the executive Directors’ shareholding requirement of four times salary through his personal purchase of 2,790,000 Barclays shares.

During the four month period between Antony Jenkins’ departure as Group Chief Executive and Jes Staley starting in the role, John McFarlane served as Executive Chairman. John McFarlane indicated to the Committee that he did not wish his remuneration to be increased during that time and therefore his fee remained unchanged for the period during which he served as Executive Chairman.

The Committee also approved compensation arrangements on Antony Jenkins’ departure as Group Chief Executive during the year. Further details can be found on page 101.

2015 remuneration

The following tables show a single total figure for 2015 remuneration in respect of qualifying service for each executive and non-executive Director together with comparative figures for 2014.

Executive Directors: Single total figure for 2015 remuneration (audited)

 

      

 

Salary

£000

  

  

    

 

Role Based Pay

£000

  

  

    

 

Taxable benefits

£000

  

  

     

Annual bonus

£000

  

  

    

 

LTIP

£000

  

  

    

 

Pension

£000

  

  

 

Total

£000

  

  

           2015         2014             2015             2014           2015         2014              2015           2014         2015         2014             2015             2014            2015          2014   

Antony Jenkinsa

     598         1,100         516         950         89         100          505         1,100         1,494         1,854         197         363         3,399        5,467   

Tushar Morzaria

     800         800         750         750         82         95          701         900                         200         200         2,533        2,745   

Jes Staleyb

     100                 96                 48                                                        33                   277            

Notes

a The 2015 figures for Antony Jenkins relate to the period to 16 July 2015 when he ceased to be a Director, save in the case of the LTIP which relates to the whole performance period.
b The 2015 figures for Jes Staley relate to the period from 1 December 2015 when he joined the Board as Group Chief Executive.

John McFarlane was appointed Executive Chairman from 17 July 2015 to 30 November 2015. Details of his fees are provided on page 31.

Additional information in respect of 2015 remuneration for the executive Directors (audited)

Role Based Pay (RBP)

Executive Directors receive RBP which is delivered quarterly in shares, subject to a holding period with restrictions lifting over five years (20% each year). The value shown in the above table is of shares at the date awarded.

Taxable benefits

Taxable benefits include private medical cover, life and ill health income protection, tax advice, relocation, home leave related costs, car allowance and the use of a company vehicle and driver when required for business purposes and other benefits that are considered minor in nature.

Annual bonus

Annual bonuses are discretionary and are typically awarded in Q1 following the financial year to which they relate. The 2015 bonus awards reflect the Committee’s 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 93 and 94. Jes Staley was not eligible for a 2015 bonus.

Financial (50% weighting)

 

Performance measure

     Weighting          

 

Threshold

25%

 

  

      

 

Maximum

100%

 

  

      

 

2015

Actual

  

  

      

 

2015

Outcome

  

  

Financial

                      

Adjusted profit before tax

     20%           £5,801m           £7,022m           £5,403m           0.0%   

Adjusted costs (ex CTA)

     10%           £16,780m           £15,182m           £16,205m           5.2%   

CET1 ratio

     10%           10.47%           11.34%           11.4%           10.0%   

Leverage ratio

     10%           4.17%           4.72%           4.5%           6.9%   

Total Financial

     50%                                            22.1%   

The approach taken to assessing financial performance against each of the financial measures is based on a straight line outcome between 25% for threshold performance and 100% applicable to each measure for achievement of maximum performance.

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  29


…with a relevant and balanced remuneration framework… continued

 

 

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Balanced Scorecard (35% weighting)

Progress in relation to each of the five ‘Cs’ of the Balanced Scorecard was assessed by the Committee. The Committee took an approach based on a three-point scale in relation to each measure, with 0% to 3% for ‘below’ target, 4% or 5% for ‘met’ target, and 6% or 7% for ‘above’ target progress against a particular Balanced Scorecard component.

 

Balanced Scorecard – 5Cs

     Weighting         Metric     
 
2015
Target
  
  
    
 
2015
Actual
  
  
  

2015

Assessment

  

2015  

Outcome out  

of maximum  

7% for each ‘C’  

Customer and Client

     7%        

PCB, Barclaycard and Africa Banking weighted average ranking of Relationship Net Promoter Score v peer sets

Client Franchise Risk

     4th         4th       Met target   
                    4.0%  
                     5th         5th       Met target     

Colleague

     7%         Sustained engagement of colleagues’ score      82-88%         75%       Below target    2.0%  
                % women in senior leadership      23%         23%       Met target   

Citizenship

     7%         Citizenship Plan – initiatives      11/11         10/11       Below target    3.0%  

Conduct

     7%         Conduct Reputation (YouGov Survey)      5.6/10             5.4/10       Below target    3.0%  

Company

     7%         Adjusted return on equity      5.9%         4.9%       Below target    3.0%  
                CET1 ratio      11.0%         11.4%           Above target   

Total Balanced Scorecard

     35%                                     15.0%  

Personal objectives (15% weighting)

(i) Antony Jenkins: The Committee recognised that during the first half of the year Antony Jenkins showed full commitment to continuing to embed a customer and client focused culture backed by the Barclays Values and to delivering on financial commitments with particular focus on capital accretion, reducing costs and continuing the rundown of Non-Core. The Committee judged that 11% of a maximum of 15% was appropriate.

 

(ii) Tushar Morzaria: The Committee concluded that Tushar Morzaria had delivered a strong personal performance throughout the year, and noted that during the second half of the year (pending Jes Staley’s arrival) this was achieved while discharging considerably increased executive responsibilities. During 2015, Tushar Morzaria continued to drive transformational change, played a significant role in the improvement in the Bank’s capital position and in driving further focus on close and effective cost management. The Committee judged that 13% of a maximum of 15% was appropriate.

Overall summary

The performance assessment for Antony Jenkins resulted in an overall formulaic outcome of 48.1% of maximum bonus opportunity being achieved. Antony Jenkins’ resulting 2015 bonus, pro-rated for service, is £505,000. The formulaic outcome for Tushar Morzaria was 50.1% of maximum bonus opportunity. Tushar Morzaria’s resulting 2015 bonus is £701,000.

60% of each executive Director’s 2015 bonus will be deferred in the form of a share award under the Share Value Plan vesting over three years with one third vesting each year. 20% will be paid in cash and 20% delivered in shares. All shares (whether deferred or not deferred) are subject to a further six month holding period from the point of release. 2015 bonuses are subject to clawback provisions and, additionally, unvested deferred 2015 bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil).

LTIP

The LTIP amount included in Antony Jenkins’ 2015 single total figure is the value of the amount scheduled to be released in relation to the LTIP award granted in 2013 in respect of performance period 2013-2015. Tushar Morzaria and Jes Staley were not participants 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%    13% of award vests for average annual RoRWA of 1.1%   

Average annual RoRWA of 1.6%

   0.21%      0%

Loan loss rate

   30%    10% of award vests for average annual loan loss rate of 75bps   

Average annual loan loss rate of 60bps or below

   53bps      30%

Balanced Scorecard

   20%    Performance was assessed by the Committee to determine the percentage of the award that may vest. Each of the 5Cs in the Balanced Scorecard has equal weighting.    See page 93      9%

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 39% of the maximum number of shares under the total award should be considered for release in March 2016. 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.

 

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2016 remuneration

The introduction of new deferral and LTIP requirements in the Remuneration part of the PRA Rulebook and EBA Guidelines will require some structural changes as to how the approved Directors’ remuneration policy will be implemented in 2016. It is therefore our intent to consult with shareholders over proposed changes once formulated. The following summarises how the approved Directors’ remuneration policy would be implemented in 2016 under the current framework.

 

       Fixed pay         Annual Bonus         Long term incentive plan   
             Salary             Role Based Pay                 Pension         
       £000         £000         £000                     

Jes Staley

     1,200         1,150         396                 Maximum 80% of fixed pay                 Maximum 120% of fixed pay     

 

Tushar Morzaria

     800         750         200             Maximum 80% of fixed pay                 Maximum 120% of fixed pay     

Salary, Role Based Pay, pension and benefits are unchanged from 2015.

Chairman and non-executive Directors: Single total figure for 2015 fees (audited)

 

       Fees         Benefits         Total
     2015         2014         2015         2014         2015       2014  
                   £000                     £000                     £000                     £000                     £000                   £000  

Chairman

                 

John McFarlanea

     628                 11                 639       –  

Sir David Walkerb

     285         750         6         19         291       769  

Non-executive Directors

                 

Mike Ashley

     207         213                         207       213  

Tim Breedon

     232         240                         232       240  

Crawford Gilliesc

     178         91                         178       91  

Reuben Jeffery III

     135         160                         135       160  

Wendy Lucas-Bulld

     358         367                         358       367  

Dambisa Moyo

     152         151                         152       151  

Frits van Paasschen

     88         80                         88       80  

Sir Michael Rakee

     250         250                         250       250  

Diane de Saint Victor

     135         135                         135       135  

Diane Schuenemanf,k

     74                                 74       –  

Sir John Sunderlandg

     60         190                         60       190  

Steve Thiekeh,k

     184         131                         184       131  

Fulvio Contii

             37                               37  

Simon Fraserj

             47                               47  

Total

     2,966         2,842         17         19         2,983       2,861  

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 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 Crawford Gillies joined the Board as a non-executive Director with effect from 1 May 2014.
d The 2014 figure has been updated to include fees received by Wendy Lucas-Bull for her role as Chairman of Barclays Africa Group Limited. The 2015 figure includes fees received by her in 2015 for that role.
e Sir Michael Rake retired from the Board with effect from 31 December 2015.
f Diane Schueneman joined the Board as a non-executive Director with effect from 25 June 2015.
g Sir John Sunderland retired from the Board with effect from 23 April 2015.
h Steve Thieke joined the Board as a non-executive Director with effect from 7 January 2014.
i Fulvio Conti retired from the Board with effect from 24 April 2014.
j Simon Fraser retired from the Board with effect from 24 April 2014.
k Diane Schueneman and Steve Thieke both served in 2015 on the US Governance Review Board, which is an advisory board set up as the forerunner of the board of our US intermediate holding company which will be implemented during 2016. The 2015 figures for Diane Schueneman and Steve Thieke include fees of $37,500 and $75,000 for these roles respectively.

Regulatory developments

The PRA made revisions to the Remuneration part of its Rulebook (formerly the UK Remuneration Code) during 2015 which apply from 1 January 2016. These include the seven, five and three year ‘tiered’ deferral requirements for Senior Managers and different categories of Material Risk Taker (MRT) respectively, and the potential extension of the clawback period to ten years for Senior Managers (under certain circumstances). These changes, which apply globally to Barclays as a UK headquartered bank, further emphasise the competitive disadvantages attributable to the lack of a global level regulatory ‘playing field’.

Further revisions to the Remuneration part of the PRA Rulebook are required during 2016 for the European Banking Authority’s (EBA) final Guidelines on sound remuneration policies. The most significant changes include a prohibition on the payment of dividends on deferred shares and an increase to a one year (from six months) holding period for incentive awards delivered in shares to the large majority of MRTs. The Guidelines apply from 1 January 2017. The application of the Guidelines to UK firms, once confirmed by the PRA and FCA, will contribute to changes to our Directors’ remuneration policy in 2017.

Agenda for 2016

In line with legal requirements, we will be seeking shareholder approval for our Directors’ remuneration policy at the 2017 AGM. As a Committee, we will review our remuneration policy to ensure that future arrangements are fully aligned to our strategy to accelerate delivery to shareholders in a manner consistent with Barclays’ Values and also to meet new regulatory requirements. This will be developed over the coming months and we will engage constructively with shareholders and regulators as we do so.

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  31


Running the company well

…underpinned by solid capital footings.

 

 

 

LOGO

 

 

    

LOGO

 

The financial statements of the business not only allow analysis of the key financial information in a standardised format, but are important to help understand the performance and management of the business.

The key performance indicators (KPIs) used by management to measure our progress are set out on pages 4 to 7 and summarised below. These KPIs focus on the Group’s financial strength, the delivery of sustainable returns and cost management.

    2015   2014  
 Common Equity Tier 1 (CET1) ratio   11.40%   10.30%  
 Leverage ratio   4.50%   3.70%  

 Return on average shareholders’ equity (RoE)

  4.90%   5.10%  

 Operating expenses excluding costs to achieve

  £16,205m       £16,904m  
 Non-Core RWAs   £47bn   £75bn  
 

 

32  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


 

LOGO

 

 

Performance commentary:

2015 results were characterised by further the continued execution of the strategy.

Group capital and leverage ratios continued to strengthen. The fully loaded common equity tier 1 (CET1) ratio increased 110 basis points to 11.4% driven by a reduction in risk weighted assets of £44bn to £358bn. The leverage ratio increased 80 basis points to 4.5% driven by a reduction in leverage exposure of £205bn to £1,028bn.

Strong progress on the rundown of the Non-Core business continued, with a further reduction in risk weighted assets of £29bn to £47bn contributing to the increase in the CET1 ratio. Non-Core leverage exposure decreased to £121bn (2014: £277bn). The announced sales of the Portuguese and Italian retail businesses in H215, due to be completed in H116, are expected to result in a further £2.5bn reduction in Non-Core risk weighted assets. Non-Core period end allocated equity reduced to £7bn (2014: £11bn).

The accelerated rundown of the Non-Core business resulted in a 2% reduction in Group adjusted profit before tax to £5,403m due to a 24% increase in the Non-Core loss before tax to £1,459m.

The Core business performed well reflecting continued strategic progress. This resulted in a 3% increase in profit before tax to £6,862m, with improvements in all Core operating businesses, including Africa Banking on a constant currency basis.

The improved profit before tax in the Core business was driven by positive cost to income jaws across all Core operating businesses. Combined with the increase in average allocated equity of £5bn to £47bn, this resulted in a return on average equity for the Core business of 9.0% (2014: 9.2%) and a the return on average tangible equity of 10.9% (2014: 11.3%). Group adjusted return on average equity was 4.9% (2014: 5.1%).

Driving efficiency remains a significant focus for the Group, with total adjusted operating expenses reducing 6% to £16,998m. Adjusted operating expenses excluding costs to achieve reduced 4% to £16,205m, driven by savings from strategic cost programmes.

Statutory profit before tax reduced 8% to £2,073m after absorbing net losses on adjusting items of £3,330m (2014: £3,246m).

A final dividend for 2015 of 3.5p per share will be paid, resulting in a total 6.5p dividend per share for the year

2015 Adjusting items to income statement

In order to provide a more consistent basis for comparing business performance between periods, management assess performance on both an adjusted and statutory basis. Adjusted measures exclude items considered to be significant but not representative of the underlying business performance and are detailed below.

 

Adjusted profit reconciliation

 

2015 

£m 

 

2014  

£m  

Adjusted profit before tax

  5,403    5,502  

Provisions for UK customer redress

  (2,772)   (1,110) 

Provisions for ongoing investigations and litigation including Foreign Exchange

  (1,237)   (1,250) 

Losses on sale relating to the Spanish, Portuguese and Italian businesses

  (580)   (446) 

Gain on US Lehman acquisition assets

  496    461  

Own credit

  430    34  

Gain on valuation of a component of the defined retirement benefit liability

  429    –  

Impairment of goodwill and other assets relating to businesses being disposed

  (96)   –  

Revision of ESHLA valuation methodology

  –    (935) 

Statutory profit before tax

  2,073    2,256  

 

 

 

 

LOGO

   These financial highlights provide an overview of 2015 performance. For further information on the results of the Group, please see our Financial review on page 217 of the Annual Report 2015 at home.barclays/annualreport

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  33


 

 

    

 

 

 

 

 

34  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


Governance

Contents

 

 

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.

 

 

              

Page  

 

Governance: Directors’ report

 

Who we are

    

§   Board of Directors

  36  
    

§   Group Executive Committee

  38  
    

§   Board diversity

  38  
               

 

What we did in 2015

    

§    Chairman’s introduction

  39  
    

§   Deputy Chairman’s statement

  41  
    

§   Board Audit Committee Report

  42  
    

§   Board Risk Committee Report

  52  
    

§   Board Reputation Committee Report

  57  
    

§   Board Nominations Committee Report

  60  
How we comply   68  
Other statutory information   75  
People   79  
Remuneration report   83  

 

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  35


Governance: Directors’ report

Who we are

Board of Directors1

 

 

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 Board is described below. Full biographies can be accessed online via home.barclays/investorrelations

 

 

LOGO

 

John McFarlane

Chairman

 

Age: 68

Appointed:

1 January 2015

 

     

 

Relevant skills and experience

John is a former CEO of Australia and New Zealand Banking Group Limited with extensive financial services experience across retail, commercial and investment banking, gained both globally and in the UK. John has a proven track record of implementing cost reduction, cultural transformation and driving through strategic change; most recently demonstrated during his time as chairman of Aviva plc. He is also an experienced non-executive director and chairman. John became Chairman at the conclusion of the April 2015 AGM. He became Executive Chairman in July 2015 and held this position until 1 December 2015, when he resumed the role of Chairman.

 

Other principal appointments

Old Oak Holdings Limited; Westfield Corporation;

Chairman, The CityUK

 

Committees

Nom*

 

 

LOGO

 

Jes Staley

Group Chief Executive

 

Age: 59

Appointed:

1 December 2015

 

     

 

Relevant skills and experience

Jes 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, and later advancing to the leadership of major businesses involving equities, private banking and asset management, and ultimately heading the company’s 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 the Board. Jes joined Barclays as Group Chief Executive on 1 December 2015.

 

Other principal appointments

None

 

Committees

None

 

 

LOGO

 

Sir Gerry Grimstone

Deputy Chairman and

Senior Independent Director

 

Age: 66

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 former board positions. Sir Gerry has global business experience across the UK, Hong Kong, 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 principal appointments

Financial Services Trade and Investment Board; The Shareholder Executive

 

Committees

Nom, Rep*

 

LOGO

 

Mike Ashley

Non-executive

 

Age: 61

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 UK’s Ethics Partner.

 

Other principal appointments

ICAEW Ethics Standards Committee; European Financial Reporting Advisory Group’s Technical Expert Group; Chairman, Government Internal Audit Agency; Charity Commission; International Ethics Standards Board for Accountants

 

Committees

Aud*, Nom, Ris

 

 

LOGO

 

Tim Breedon

Non-executive

 

Age: 58

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. Tim’s 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 principal appointments

Marie Curie Cancer Care; Chairman, Apax Global Alpha Limited

 

Committees

Aud, Nom, Rem, Ris*

 

 

LOGO

 

Crawford Gillies

Non-executive

 

Age: 59

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.

 

Crawford intends to retire from his position at Standard Life plc in 2016.

 

Other principal appointments

SSE plc; Control Risks Group Holdings Limited

 

Committees

Aud, Nom, Rem*

 

 

LOGO

 

Reuben Jeffery III

Non-executive

 

Age: 62

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 the Board with insight into the US political and regulatory environment.

 

Other principal appointments

International Advisory Council of the China Securities Regulatory Commission; Advisory Board of Towerbrook Capital Partners LP; Advisory Board of J. Rothschild Capital Management Limited; Financial Services Volunteer Corps; The Asia Foundation

 

Committees

Nom, Ris

 

 

 

1 The composition of the Board is correct as at 29 February 2016.

 

36  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


                    

            

                

 

 

 

LOGO

 

Wendy Lucas-Bull

Non-executive

 

Age: 62

Appointed:

19 September 2013

 

     

 

Relevant skills and experience

Wendy has significant financial services and African banking experience gained through CEO and senior executive roles on the boards of large South African banks, including Barclays Africa Group Limited. As a CEO she has a track record of successful financial turnaround and cultural transformation of a major South African bank. Her expertise in asset management, investment, commercial and retail banking on the continent is invaluable to the Board given its operations in the region.

 

Wendy’s previous experience of leading on a number of conduct-related consultations also provides Barclays with valuable insight into conduct risk issues.

 

Other principal appointments

Chairman, Barclays Africa Group Limited; Chairman, Absa Bank Limited; Chairman, Absa Financial Services; Afrika Tikkun NPC (non-profit); Peotona Group Holdings

 

Committees

Rep

 

 

LOGO

 

Tushar Morzaria

Group Finance Director

 

Age: 47

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, 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 Board he has been a driving influence on the Group’s strategic cost programme and managing the Group’s capital plan, particularly in response to structural reform.

 

Other principal appointments

None

 

Committees

None

 

 

LOGO

 

Dambisa Moyo

Non-executive

 

Age: 47

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.

 

Other principal appointments

SABMiller Plc; Barrick Gold Corporation; Seagate Technology plc

 

Committees

Rem, Rep

 

 

LOGO

 

Frits van Paasschen

Non-executive

 

Age: 54

Appointed:

1 August 2013

 

   

 

Relevant skills and experience

Frits is an experienced director, having held the position of CEO and non-executive director in a number of leading global organisations, most recently as CEO of Starwood Hotels and Resorts Worldwide, Inc. These roles have provided him with both a global business perspective and a clear understanding of key management issues, as well as experience of enhancing customer experience in a retail environment.

 

Other principal appointments

None

 

Committees

Rep

 

 

LOGO

 

Diane de Saint Victor

Non-executive

 

Age: 61

Appointed:

1 March 2013

 

     

 

Relevant skills and experience

Diane holds the roles of executive director, general counsel and company secretary of ABB Limited, a listed international power and automation technologies company. Diane’s legal background, combined with her knowledge of regulatory and compliance requirements, bring a unique perspective to the discussions of the Board and its Committees.

 

Other principal appointments

None

 

Committees

Aud, Rep

 

 

LOGO

 

Diane Schueneman

Non-executive

 

Age: 63

Appointed:

25 June 2015

 

     

 

Relevant skills and experience

Diane joined Barclays after an extensive career at Merrill Lynch, holding a variety of senior roles. Diane brings a wealth of experience in managing global, cross-discipline business operations, client services and technology in the financial services industry. Diane’s experience is a good addition to discussions of the Board and the Board Risk Committee. Diane will also join the Board Audit Committee with effect from 1 March 2016.

 

Other principal appointments

None

 

Committees

Ris

 

 

LOGO

 

Steve Thieke

Non-executive

 

Age: 69

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. Steve also has significant board experience, having served in both executive and non-executive director roles in his career.

 

Other principal appointments

None

 

Committees

Rem, Ris

 

 

Company Secretary

 

       

 

LOGO

 

Lawrence Dickinson

Age: 58

Appointed:

19 September 2002

 

     

 

Relevant skills and experience

Since joining Barclays as a graduate in 1979, Lawrence has worked in a number of roles, including as Chief of Staff to the CEO and as the Private Bank’s Chief Operating Officer. Lawrence is a member and Treasurer of the GC100, the Association of General Counsels and Company Secretaries of the FTSE100. In August 2015 Lawrence also became Group Chief of Staff to the Chairman.

 

 

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

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  37


Governance: Directors’ report

Who we are

Group Executive Committee1

 

 

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 36 and 37.

 

         
LOGO     LOGO     LOGO

 

Michael Harte

   

 

Bob Hoyt

   

 

Thomas King

Chief Operations and     Group General     Chief Executive,

Technology Officer

 

     

Counsel

 

     

Investment Bank

 

LOGO

 

   

LOGO

 

   

LOGO

 

Robert Le Blanc     Jonathan Moulds     Maria Ramos
Chief Risk Officer     Group Chief     Chief Executive,
       

Operating Officer

 

     

Barclays Africa Group

 

         

LOGO

 

   

LOGO

 

   

LOGO

 

Tristram Roberts     Michael Roemer     Amer Sajed
Group Human     Group Head of     Interim Chief
Resources Director     Compliance     Executive,
       

Barclaycard

 

         

LOGO

 

       
Ashok Vaswani        
Chief Executive,        
Personal and        
Corporate Banking        

 

 

1 The composition of the Group Executive Committee is correct as at 29 February 2016.

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

 

 

LOGO

     1      Chairman    1
     2      Executive Directors    2
     3      Non-executive Directors    11
       
       
       
       
       
                 

 

  

Gender balance

 

 

Male: Female

  
10:4     

Length of tenure

(Chairman and non-executive Directors)

 

 

0-3 years

  

9

 

  

LOGO

 

 

3-6 years

  

2

 

  

LOGO

 

 

>6 years

  

1

 

  

LOGO

 

Geographical mix

(Chairman and non-executive Directors)

 

 

UK

5

 

  

LOGO

 

 

Continental Europe

1

 

  

LOGO

 

 

US

4

 

  

LOGO

 

 

Other

  
2   

LOGO

 

 

Industry/background experience

(Chairman and non-executive Directors)a

 

     

 

Financial Services

   10

Political/regulatory contacts

   9

Current/recent Chair/CEO

   8

Accountancy/financial

   2

International (US)

   4

International (Europe)

   4

International (Rest of the World)

   4

Operations and Technology

   1

Retail/marketing

   1

 

Note

a  Individual Directors may fall into one or more categories

  
 

 

38  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


What we did in 2015

Chairman’s introduction

 

 

LOGO

 

The role of any board, and one in which I passionately believe, is to create and deliver long-term, sustainable value.”

Dear Fellow Shareholders

I joined Barclays in January 2015 as a non-executive Director and succeeded Sir David Walker as Chairman following the April 2015 Annual General Meeting (AGM). I would like to extend my thanks and appreciation to Sir David for all that he did for Barclays during his tenure.

This is my first report to you as Chairman and is perhaps not quite the report I anticipated writing when I first took up this role. From 17 July to 30 November 2015, I served as Executive Chairman, the Board having asked me to take on this role on an interim basis following its decision to search for a new Group Chief Executive to succeed Antony Jenkins. I welcome the flexibility afforded to us by the UK Corporate Governance Code that allowed us to operate under these revised governance arrangements for a short period of time and ensure continuity of focus and leadership. I was ably supported by my fellow Directors and by the Group Executive Committee during my period as Executive Chairman and thank them for their individual and collective guidance and input. I was delighted that, under the leadership of Sir Michael Rake, we were able to progress the search for a new Group Chief Executive quickly and welcome Jes Staley to the Board in December 2015, at which point I reverted to my role of non-executive Chairman. Jes has a track record as an outstanding leader and I believe he has the skills and experience to take Barclays forward to deliver improved shareholder returns and reclaim its position as the UK’s pre-eminent bank. Jes and I are already enjoying a constructive and positive time working together.

The role of the Board

The role of any board, and one in which I passionately believe, is to create and deliver long-term, sustainable value. Barclays is a standout brand and has first-class retail, cards, commercial and investment banking businesses, but this has not translated into shareholder value in recent years. To deliver that value sustainably, we need to be much more focused on what is attractive, what we are good at, and where we are good at it. Put simply, we need to create a tangible and compelling reason for our shareholders to invest in us. This has driven the Board’s focus on three priorities during 2015: focus on our core segments and markets; generate shareholder value; and instil a high performance and customer culture, with strong ethical values. You can read more about the Board’s activity in support of these three priorities in the Strategic Report on pages 25 to 27.

Board appointments, performance and succession planning

One of the key aspects of my role as Chairman, and one which was especially important during my tenure as Executive Chairman, is to ensure that Barclays has an effective and cohesive, yet challenging Board, with the optimum balance of experience, skills, expertise and personal attributes. I have sought to promote a culture of integrity and transparency, enabling Board debate that allows diverse perspectives and constructive challenge. Certainly, the Board did not shy away from difficult conversations and decisions during 2015, always with a focus on what was needed to drive forward execution of the strategy to generate sustainable value for Barclays and its shareholders.

The Barclays Board has undergone a significant amount of change in recent years and saw further changes during 2015. In addition to my own appointment, we welcomed Diane Schueneman to the Board in June 2015 and Jes Staley in December 2015. Diane brings valuable operations and technology experience to the Board. Sir David Walker and Sir John Sunderland left the Board in April 2015, following the AGM, with Antony Jenkins leaving the Board in July 2015. Finally, in October 2015, we announced that Sir Gerry Grimstone would succeed Sir Michael Rake as Deputy Chairman and Senior Independent Director with effect from 1 January 2016. Sir Michael retired from the Board at the end of 2015 and I would like to thank him for his dedicated service and commitment over his eight years as a non-executive Director, including being Senior Independent Director since October 2011 and Deputy Chairman since July 2012. Sir Michael offers his own perspective on governance during 2015 on page 41.

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  39


Governance: Directors’ report

What we did in 2015

Chairman’s introduction

 

 

I am also delighted to report that we have met the Board diversity target we set back in 2012, which was that 25% of the Board by the end of 2015 should be women. We have now agreed a new diversity target, which is that 33% of the Board by the end of 2020 should be women, although our overriding principle is that all appointments to the Board are made on merit, taking into account the skills and experience that the Board needs now and may need in the future to support delivery of our strategy.

I am on record as saying that Barclays needs to reduce its internal bureaucracy by becoming leaner and more agile and consequently more effective and the Board and its processes are no exception to this. One of the steps I took on becoming Chairman was to review the Board’s governance structure, with assistance from the Company Secretary, in order to simplify and streamline the principal Board Committees, in particular those Board Committees with responsibility for oversight of risk. As a result, the Board decided to disband the Board Enterprise Wide Risk Committee, with its responsibilities for oversight of enterprise-wide risk being assumed by the Board as a whole. We also concluded that the Board Financial Risk Committee should assume responsibility for oversight of the capital and financial aspects of operational risk, in addition to financial risk, leaving the Board Conduct, Operational and Reputational Risk Committee to focus on conduct and culture, reputational risk and citizenship. The Board Audit Committee continued to focus on the control aspects of operational risk. The Board Committees have subsequently been renamed to more accurately reflect their responsibilities.

As part of our discussions on Board and Board Committee succession planning, membership of each Committee was also reviewed to ensure that it had the right balance of skills, experience and perspectives and also to ensure that individual Directors were not being over-burdened by Committee responsibilities. Board Committees play a vital role in supporting the Board in its oversight of internal control and financial reporting, risk and risk management and reward and remuneration. Each of the Board Committee Chairmen report below on how their committees discharged their responsibilities during 2015 and the material matters each considered. The Board Nominations Committee has continued to play a role in succession planning for Group Executive Committee and senior leadership roles and, having had the opportunity during 2015, as Executive Chairman, to work even more closely with Group Executive Committee members, I was able to bring some fresh perspectives on the talent pipeline and talent management processes. More detail on the Board Nominations Committee’s work on succession planning can be found on page 61.

It is important to periodically obtain an independent perspective on the effectiveness of the Board and particularly so in a year when our conventional Board governance processes were temporarily revised. We have conducted an externally facilitated review of the effectiveness of the Board each year since 2004 and for 2015 we asked Independent Board Evaluation to facilitate that review. I am pleased to advise that the overall outcome of the review was that the Board is operating effectively, although there are some areas that could be enhanced. A report on the evaluation process and the outcomes may be found on pages 64, 66 and 67.

Culture and values

People matter more than anything else in any business: it is a company’s people that make it great, help it stand out from its competitors, and make it an attractive proposition for customers and investors. As a Board, we are responsible for ensuring that Barclays’ people do things – the right things – in the right way by setting the tone from the top, by living Barclays’ culture and values in everything that we do and in the decisions we make, by holding the Group Executive Committee to account for the integrity of our Purpose and Values and by creating a culture in which doing the right thing is integral to the way we operate, globally. In an organisation as large and as complex as Barclays, that can be, and is, a challenge, but we are only too alive to the consequence of getting this wrong. I have personally endorsed our Code of Conduct, The Barclays Way, and the Board Reputation Committee has been monitoring, on behalf of the Board, the progress we are making to embed cultural change.

Shareholder and regulatory engagement

Meaningful engagement with our shareholders and regulators is a key pillar of our approach to corporate governance. We welcome open and constructive discussion with our stakeholders, particularly with regard to governance and succession planning, strategy and remuneration. You can read more about how we have engaged with key stakeholders during 2015 in this report. I also hope to meet with many of our private shareholders at our AGM, which will be held on 28 April 2016. A significant activity during 2015 was our external audit tender, on which we engaged with a number of our major shareholders, and you can read a report from Tim Breedon, who chaired our Audit Tender Oversight Sub-Committee, on page 51.

Looking ahead

2015 has not been without its challenges, but I believe that we now have the leadership in place to take forward execution of our strategy at pace, to deliver on our priorities and generate the long-term sustainable value that will benefit not only Barclays’ shareholders, but society at large.

 

LOGO

John McFarlane

Chairman

29 February 2016

 

 

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What we did in 2015

Statement from Sir Michael Rake

Deputy Chairman until 31 December 2015

 

 

LOGO

 

In asking the Chairman to take on executive responsibilities…we were mindful of the need to ensure that our Board governance arrangements remained effective.”

 

 

 

Board allocation of time (%)

 

               2015       2014
LOGO   1   Strategy formulation and implementation monitoring      56       47
  2   Finance (incl. capital and liquidity)      11       17
  3   Governance and Risk (incl. regulatory issues)      29       32
  4   Other (incl. compensation)      4       4
         
         
         
         
         

Dear Fellow Shareholders

In early July 2015, we announced the departure of Antony Jenkins as Group Chief Executive and the appointment of John McFarlane as Executive Chairman, pending the appointment of a new Group Chief Executive. The non-executive Directors had reflected long and hard on the issue of Group leadership and had concluded that new leadership, bringing a new set of skills, was required to accelerate the pace of execution going forward. These events were extensively reported at the time and, rather than revisit them, I would simply like to reiterate here the Board’s appreciation of Antony’s contribution at what was a critical period for Barclays.

In asking the Chairman to take on executive responsibilities, albeit for an interim period, we were mindful of the need to ensure that our Board governance arrangements remained effective and to maintain an appropriate balance of responsibilities on the Board and in the running of the Company until such time as a new Group Chief Executive was appointed. I wanted to give you my perspective on how we approached that and, in particular, how my role as Deputy Chairman and Senior Independent Director evolved during this time.

First, as Executive Chairman, John McFarlane relinquished his membership of the principal Board Committees on which he served, to ensure they continued to be composed solely of non-executive Directors and without any impediment to their ability to provide independent and constructive challenge to executive management. Specifically, John stood down as Chairman of both the Board Nominations Committee and the Board Reputation Committee and I became Chairman of both committees in his place.

Secondly, I took primary responsibility for the search for a new Group Chief Executive, leading the Board Nominations Committee through this process. As the relationship between the Chairman and Group Chief Executive is pivotal to the effectiveness of the Board, John worked closely with me during this process and his insight and guidance on the skills and qualities we needed in the new Group Chief Executive was invaluable. During the search process, I reported regularly to my non-executive colleagues on the Board on progress and on potential candidates, ensuring that they had the opportunity to provide their views and feedback. You can read more about the search for our new Group Chief Executive on page 65. We announced in late October 2015 that Jes Staley would join the Board as Group Chief Executive with effect from 1 December 2015. John subsequently resumed his chairmanship of the Board Nominations Committee, however, I continued to chair the Board Reputation Committee for the remainder of 2015.

Thirdly, my general interaction with our main stakeholders – our major shareholders and our regulators in the UK and US – increased during the period that John served as Executive Chairman.

Finally, I also maintained close contact with both John and members of senior management to ensure there were no significant issues arising from a governance perspective during this period.

2015 was my last year on the Barclays Board. I joined the Board in January 2008 and served through an eventful and difficult period for both Barclays and the financial services industry as a whole. Barclays announced in October 2015 that I would retire from the Board with effect from 31 December 2015 and I have spent time with my successor as Deputy Chairman and Senior Independent Director, Sir Gerry Grimstone, to ensure a smooth handover. I have been proud to serve on the Barclays Board and wish my fellow Directors continuing success for the future.

 

LOGO

Sir Michael Rake

Deputy Chairman and Senior Independent Director until

31 December 2015

 

 

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Governance: Directors’ report

What we did in 2015

Board Audit Committee report

 

 

 

LOGO

 

“We have continued to play a role in changing the culture and building a greater sense of personal accountability, not just at a senior level within the Group but throughout the organisation, for maintaining the control environment.”

 

Dear Fellow Shareholders

My report for 2014 emphasised the role the Committee has in ensuring that Barclays operates with a strong control environment and, in particular, the role it is playing in changing the culture and building a greater sense of personal accountability, not just at a senior level within the Group but throughout the organisation, for maintaining that control environment. During 2015, with the agreement of the Board and the Board Risk Committee, the Committee assumed primary responsibility for assessing and tracking the progress of embedding the Enterprise Risk Management Framework (ERMF), which is the way in which Barclays approaches enterprise risk management and is the bedrock of our management of internal risk and control. In particular, the Committee was keen to find ways in which the ERMF could be linked to the Group’s assessment of Management’s Control Approach (MCA), both to drive the right behaviours and provide a more objective method of assessing MCA. In terms of specific control issues, an area of focus for the Committee during 2015 was operations and technology, where there are a number of material control issues the Group is addressing. In assessing control issues for disclosure, the Committee has applied similar definitions to those used for assessing internal financial controls for the purposes of Sarbanes-Oxley and has concluded that there are no control issues that are considered to be a material weakness, which would therefore merit specific disclosure. Further details may be found in the Risk Management and Internal Control section on page 72. The Committee also continued to address the significant judgements that need to be made in connection with the Group’s financial statements, primarily those relating to conduct and litigation provisions and the valuations of specific financial instruments, derivative assets and portfolios, particularly those where there is a lack of observable market data. More details of the material matters addressed by the Committee are given in the report below. The Committee also spent time carefully considering the requirements of the new viability statement and confirmed that, as indicated in last year’s report, three years was the appropriate period, as it accorded with the Group’s Medium Term Plan.

 

A significant activity for the Committee during 2015 was the external audit tender, which was conducted by an Audit Tender Oversight Sub-Committee, chaired by Tim Breedon. As I was until 2013 a partner of KPMG, one of the bidding audit firms, I took no part in the external audit tender process, other than providing input to its initial design. Tim Breedon reports separately on the external audit tender process below.

 

  

 

The role of Board Audit Committee Chairman continues to be a full and busy one. During 2015, I had significant interaction with our regulators, meeting with representatives from our UK and US regulators and also participating in trilateral meetings with our auditors and UK regulators. I also took the opportunity to liaise with my fellow audit committee chairmen in other financial services companies, to discuss common issues and share practice, and I met with a group of investors to discuss disclosure issues, in particular with regard to realised profits. I carried on with my practice of meeting with representatives from senior management to discuss specific issues, such as customer complaints or cyber risk, in addition to my regular meetings with the Group Finance Director and Chief Internal Auditor. I also visited Barclays Africa, attending the African chairmen’s conference. I held regular private meetings with my fellow Committee members ahead of Committee meetings to ensure I had a good sense of the matters that concerned them most and likewise met regularly with the lead audit partner of the external auditor.

 

Committee performance

The Committee’s performance during 2015 was evaluated as part of the independently facilitated Board effectiveness review and I am pleased to report that the outcomes were positive. The Committee was regarded as effective and considered to be very thorough and detailed. The review commented on the continuing need to balance the demands of a busy agenda and programme of work with the need to cover issues in appropriate detail. We will also be seeking to strengthen the level of technical accounting experience on the Committee. You can read more about the outcomes of the Board effectiveness review on pages 66 and 67.

 

Looking ahead

Barclays continues to face an unprecedented level of change, driven by both internal and external factors and it will be critical to ensure that a culture of strong control is maintained as the Group implements its strategy and also as it positions itself for structural reform. The Committee will continue to seek to ensure that management maintains its focus on building personal accountability for upholding a strong and effective control environment and is supportive of the pilot programme being implemented in 2016 that will require certain business personnel to spend time working in a control function before being promoted. 2016 will also see the Committee focus on the transition to a new auditor, KPMG, who will become Barclays auditor with effect from the 2017 financial year. We will be seeking to ensure that the quality of the audit performed by the existing auditor, PwC, is maintained until the end of its tenure and that KPMG has completed the steps it needs to undertake to ensure it is fully independent of Barclays and has a strong understanding of the business before it takes up office.

 

LOGO

 

Mike Ashley

Chairman, Board Audit Committee

29 February 2016

 

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Committee composition and meetings

The Committee is composed solely of independent non-executive Directors. Dambisa Moyo retired from the Committee at the end of August 2015 following a review of Board Committee composition and size by the Board, which resulted in the membership of each Board Committee being refreshed. Diane Schueneman was appointed to the Committee with effect from 1 March 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 determined that the Committee would benefit from additional direct accounting and auditing experience and consideration is being given to further appointments to the Committee in order to deepen its expertise in these areas. You can find more details of the experience of Committee members in their biographies on pages 36 and 37.

The Committee met 10 times in 2015 and the chart on page 50 shows how it allocated its time. One meeting was held purely to consider presentations from the three audit firms bidding for the external audit tender and was not attended by Mike Ashley. Committee meetings were attended by management, including the Group Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, General Counsel and Head of Compliance, as well as representatives from the businesses and other functions. The lead audit partner of the external auditor attended all Committee meetings, except the meeting to evaluate the external audit tender proposals, and the Committee held a number of private sessions with each of the Chief Internal Auditor or the lead audit partner, which were not attended by management.

 

Member    Meetings attended/eligible to attend
Mike Ashley*    9/10
Tim Breedon    10/10
Crawford Gillies    10/10
Dambisa Moyo (to 31 August 2015)    6/7
Diane de Saint Victor    7/10

 

* Did not attend the meeting that considered the appointment of a new statutory auditor given that KPMG, where until 2013 he was a partner, was one of the bidding audit firms.
Unable to attend certain meetings owing to prior business commitments. Input was provided to the Committee Chairman prior to the meeting.

Committee role and responsibilities

The Committee is responsible for:

 

§   assessing the integrity of the Group’s financial reporting and satisfying itself that any significant financial judgements made by management are sound

 

§   evaluating the effectiveness of the Group’s internal controls, including internal financial controls and

 

§   scrutinising the activities and performance of the internal and external auditors, including monitoring their independence and objectivity.

 

 

LOGO

 

The Committee’s terms of reference are available at

home.barclays/corporategovernance

 

 

    

 

 

 

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Governance: Directors’ report

What we did in 2015

Board Audit Committee report

 

 

 

 

The Committee’s work

The significant matters addressed by the Committee during 2015 are described below.

Significant financial statement reporting issues

Assumptions and estimates or judgements are an unavoidable and significant part of the financial reporting process and are evaluated carefully by the Committee ahead of the publication of Barclays’ results announcements. The Committee examined in detail the main judgements and assumptions made by management, any sensitivity analyses performed and the conclusions drawn from the available information and evidence, with the main areas of focus during the year set out below. Where appropriate, the Committee sought input and guidance from the external auditor and welcomed its challenge on specific matters. In addition to these main areas of focus, the Committee also covered matters relating to Barclays’ pension scheme, taxation and accounting policy choices.

    

 
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), Packaged Bank Accounts (PBA) and rates provided to certain customers on foreign exchange transactions.   

In debating Barclays’ financial results statements, the Committee examined the provisions held for the costs of customer redress.

 

In respect of PPI, the Committee:

§  analysed the judgements and estimates with regard to the PPI provision, taking into account estimated overturn rates, the estimation policy on missing data, and complaints trend data

§  evaluated Financial Ombudsman Service overturn rates and trends, provisions utilisation, latest flow forecasts and how reasonable high and low end scenarios had been determined in order to assess the range of reasonable possible future costs

§  debated proposed additional provisions and whether the analysis performed by management was consistent with prior periods

§  assessed the Group’s ability to forecast trends in PPI complaints, discussing the levels of uncertainty in the projections

§  debated 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 the potential impact on the future range of provisions arising from the proposed timebar on claims.

   The Committee agreed that an additional provision of £150m should be taken at the first quarter but requested a full review of forecasts for PPI redress for the second quarter 2015. Having assessed the outputs of that review, it agreed to increase the provision at the half year by £600m. Following the review at the third quarter, the Committee concluded that no additional provisions were required but asked management to conduct further review and analysis for the 2015 year end to ensure that provisions were within an acceptable range. In deliberating the analyses presented by management in connection with the 2015 full year results, and considering in particular the potential impact resulting from the FCA’s consultation on introducing a time limit for claims and addressing the Plevin case, the Committee agreed with management’s proposal to increase the provision at the year end by £1,450m. The Committee and management will continue to monitor closely any changes in customer or claims management companies’ behaviour in light of the Plevin case and the proposed timebar.
      With regard to PBA redress, the Committee:   

The Committee endorsed management’s recommendation that an expense of £282m for PBA should be provided for in the first half and agreed it should be disclosed as a separate item in the interim results. Having examined claims trend data, it concluded that no further provisions were required during 2015.

 

     

§  debated the practice of providing for future costs where persistent levels of complaints are received

§  assessed PBA claims experience throughout 2015, examining the level of provisions against forecast volumes and actual claims experience

§  evaluated management’s analysis of complaint levels and trends and the outputs of product reviews.

  
         

 

In relation to redress to certain customers regarding rates provided on foreign exchange transactions, the Committee:

§  examined the results of the internal review conducted by management on foreign exchange transactions

§  evaluated the Group’s proposal for calculating remediation for the customers affected.

 

  

 

The Committee agreed with the proposal to make a provision of £290m in the third quarter and that this provision should be separately disclosed. The remediation is still at an early stage and the Committee noted that there were no significant developments in the fourth quarter. The Committee therefore agreed that no adjustment was required in the provision at the end of 2015.

 

 

 

 

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Area of focus    Reporting issue    Role of the Committee    Conclusion/action taken

Legal, competition and regulatory provisions

(see Notes 27 to 29 to the financial statements).

   Barclays makes judgements in respect of provisions for legal, competition and regulatory matters.   

§  Evaluated advice on the status of current legal, competition and regulatory matters.

§  Assessed management’s judgements and estimates of the levels of provisions to be taken and the adequacy of those provisions, based on available information and evidence.

  

The Committee discussed provisions and utilisation for Foreign Exchange and ISDAFix litigation and agreed that any residual provision should be retained and not released in the first half.

 

Having reviewed the information available to determine what could be reliably estimated, the Committee agreed that the provision at the full year should be set at £1,237m for ongoing investigations and litigation including Foreign Exchange.

 

Further information may be found on pages 303 to 313.

 

Valuations

(see Notes 14 to 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, in particular the Group’s Education, Social Housing and Local Authority (ESHLA) portfolio, which during 2015 represented the most material judgement in view of widening credit spreads on social housing bonds and budget changes impacting social housing portfolios.   

§  Debated fair value balance sheet items. This included evaluating a report from the Valuations Committee, analysing social housing bonds credit spread performance and debating the appropriateness of the valuation model.

§  Assessed how the ESHLA portfolio might be accounted for under IFRS 9.

§  Debated uncollateralised derivatives and differences in pricing ranges and the potential impact on the Group’s financial statements.

§  Examined the significant valuation disparity between the Group and a counterparty in relation to a specific long-dated derivative portfolio.

 

  

The Committee concluded that there should be no change to the fair value approach. It also agreed with management’s recommendation that an additional prudential valuation adjustment of £300m should be made in respect of the ESHLA portfolio, reflecting an increase in credit uncertainty for social housing sector loans arising from some widening of social housing bond credit spreads.

 

The Committee noted that despite attempts by the front office trading team, the Group Finance Director and the Chairman of the Committee, it had not proved possible to gain a complete understanding of the causes of the valuation disparity from the relevant counterparty. Nonetheless, a significant element was understandable in light of the different underlying positions held and the Committee took further comfort from a third party valuation provided in relation to ongoing consideration of restructuring the trades. The Committee concluded that the Group’s valuation methodology was appropriate and also noted that the Group was protected against counterparty credit risk through a collateral escrow arrangement.

 

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 results of the review and stress tests conducted by management of the Group’s exposures to the oil and gas sector in light of the reduction in oil prices.

§  Debated management’s analysis of the emergence and outturn periods for the Barclaycard portfolios.

  

The Committee agreed with the proposed adjustments to emergence and outcome periods and determined that the allowances for credit impairment on loans and advances were appropriate and adequately supported by model outputs.

 

In relation to the oil and gas sector, the Committee determined that the proposed provisions were appropriate but noted that further stress was possible in the event of a prolonged period of lower oil prices.

 

 

 

 

 

 

 

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Governance: Directors’ report

What we did in 2015

Board Audit Committee report

 

 

 

 

 

Area of focus    Reporting issue    Role of the Committee    Conclusion/action taken

Going concern

(see page 78 for further information).

   Barclays is required to confirm that the going concern basis of accounting is appropriate.   

§  Assessed a working capital report prepared by Barclays Treasury, covering forecast and stress tested forecasts for liquidity and capital compared to current and future regulatory requirements, while taking into account levels of conduct and litigation provisioning and possible further provisions that may be required.

 

   After examining forecast working capital, along with Barclays’ ability to generate capital and raise funding in current market conditions, the Committee concluded that Barclays’ liquidity and capital position remained appropriate, that there were no material uncertainties and that the going concern basis of accounting remained appropriate.

Viability

(see page 27 for further information).

   For the 2015 reporting year onwards, the Directors are required to make a statement in the Annual Report as to the longer-term viability of Barclays.   

§  At the request of the Board, evaluated at the year end a report from management that set out the view of Barclays’ longer-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 Group’s risk profile.

 

   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, although it emphasised the need for the statement to refer specifically to the key risks to viability, in particular those outside the Group’s direct control.

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.   

§  At the request of the Board, assessed, via discussion with and challenge of management, whether disclosures in Barclays’ published financial statements were fair, balanced and understandable, taking into account comments received from investors and others.

§  Evaluated reports from the Disclosure Committee on its assessment of the content, accuracy and tone of the disclosures.

§  Sought and obtained confirmation from the Group Chief Executive and Group Finance Director that they considered the disclosures to be fair, balanced and understandable.

§  Evaluated the outputs of Barclays’ Turnbull assessments and Sarbanes- Oxley s404 internal control process.

§  Established via reports from management that there were no indications of fraud relating to financial reporting matters.

§  Assessed disclosure controls and procedures.

§  Requested that management report on and evidence the basis on which representations to the external auditors were made.

 

  

Having assessed 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 were appropriate in ensuring that those statements were fair, balanced and understandable.

 

In assessing Barclays’ financial results statements, the Committee requested that certain amendments were made to disclosures on litigation and also provided input on other key disclosure items, including the US Wealth disposal, guidance on Barclays Non-Core, adjusting items, dividends and outlook statements. It also debated the proposed statements to be made by the Chairman and Group Chief Executive, suggesting amendments.

 

The Committee concluded that the disclosures and process underlying the production of the 2015 Annual Report and Financial Statements were appropriate and recommended to the Board that the 2015 Annual Report and Financial Statements are fair, balanced and understandable.

 

 

 

 

 

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Other significant matters

Other matters addressed by the Committee focused on the effectiveness of Barclays’ internal controls, the performance and effectiveness of the internal audit function, the performance, objectivity and independence of the external auditor, PricewaterhouseCoopers LLP (PwC) and the arrangements being made to ensure that the incoming auditor, KPMG LLP (KPMG), achieves full independence prior to commencing the Barclays’ audit. The most significant matters 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 72 and 73.

   The effectiveness of the control environment in operations and technology (O&T) and the status and remediation of any material control issues.   

§  Evaluated on a regular basis, the O&T control environment, including the status of any open material control issues, emerging risks and closed control issues, taking the opportunity to directly challenge and question functional leaders.

§  Scrutinised the status of specific material control issues and their associated remediation plans, including in particular those relating to access management, security of secret and confidential data, cyber risk, IT infrastructure and application issues and third party supplier management.

§  Debated any slippage to remediation programmes and whether this was a cultural indicator of the Group’s approach.

§  Conducted a deep dive on security of secure and confidential data control issues, discussing in particular the cultural changes that the businesses needed to make.

§  Assessed the threat presented by cyber risk, including the impact of any confirmed cyber attacks.

§  Debated the progress of remediation of third party supplier management control issues, including the potential impacts of the Group’s focus on cost management and of decentralisation.

 

  

Having assessed the status of material control issues and their remediation, the Committee suggested that resilience should be elevated as a material control issue and requested a deep dive. The deep dive has been scheduled for early 2016. The Committee also requested further updates on cyber risk and third party supplier management, both of which are scheduled to take place in early 2016.

 

The Committee requested a deep dive on access management control issues, which took place during 2015.

     The effectiveness of the business control environment, including the status of any material control issues and the progress of specific remediation plans.   

§  Assessed individual reports on the control environment in PCB, Barclaycard, Barclays Africa and US Investment Banking operations, including questioning directly the heads of those businesses.

§  Debated the importance of maintaining an effective control environment as the Group decentralises certain functional activities.

 

   The Committee requested, and received, an update on decentralisation and its potential impact on the Group’s control environment.
     The progress being made on embedding the ERMF to support a strong and effective internal control environment.   

§  Assessed the results of a self-assessment pilot exercise conducted by the principal business units, as the first line of defence.

§  Evaluated a proposal for a revised approach to the internal control attestation process to link it to the ERMF.

§  Deliberated on the challenge of embedding conduct risk management as part of the ERMF.

§  Debated the effectiveness of the systems being used to support risk and control assessments by the first line of defence.

§  Focused on the need for effective challenge by the second line of defence.

§  Debated what metrics could be used to provide line of sight to control issues and whether a more objective approach to MCA ratings could be developed.

 

   The Committee suggested to management that the assessment of MCA ratings could be more closely aligned to the ERMF. It subsequently considered and approved a proposal to align the MCA and ERMF, recommending that this be implemented with effect from 1 January 2016. The Committee requested further work on the revised approach to the internal control attestation process, so that the revised approach could be implemented for the 2015 year end attestation. The Committee asked for a further update on the effectiveness of the challenge by the second line of defence once all risk and control assessments had been completed. This update is scheduled to be provided in early 2016.

 

 

 

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Governance: Directors’ report

What we did in 2015

Board Audit Committee report

 

 

 

 

 

Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken
     The adequacy of the Group’s arrangements to allow employees to raise concerns in confidence without fear of retaliation and the outcomes of any substantiated cases.   

§  Debated the enhancements made to the Group’s whistleblowing framework, including changes in the team, communications to employees and re-publication of the Raising Concerns Policy.

§  Evaluated the level of substantiated cases and trends in reporting.

  

The Committee welcomed the steps that had been taken to strengthen the Group whistleblowing team and to enhance awareness and visibility across the Group of whistleblowing processes and the Raising Concerns Policy. It asked for more granular reporting to be made to the Committee, including ensuring that any cases of retaliation were clearly highlighted and that Barclays Africa incidents were reported to the Committee on the same basis as the rest of the Group. This information is now being received.

 

To enable an assessment of effectiveness, the Committee asked for Barclays’ processes to be benchmarked against its peers. It was subsequently presented with the results of the benchmarking exercise and concluded that Barclays’ processes were appropriate.

 

Internal audit    The performance of internal audit 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.   

§  Focused on how to accelerate the remediation of any control weaknesses and the importance of having a culture of closing issues effectively, including debating a new approach to audit issues management, which requires issues to be remediated within six months of identification, with any extension to that time period requiring the approval of a member of the Group Executive Committee.

§  Evaluated progress of the internal audit plan for 2015 and debated the plan for 2016, including assessing the proposed internal audit coverage and key control themes identified.

§  Assessed internal audit resources and attrition levels.

§  Debated the outcomes from Barclays Internal Audit’s annual self-assessment.

  

The Committee supported the approach to enforcing even greater accountability and ensuring greater visibility at Group Executive Committee and senior management level of the remediation of control issues and audit issues management. It confirmed its agreement to the key control themes identified by internal audit, although it asked for execution risk to be covered specifically. The Committee approved changes to internal audit’s methodology and the approach to audit coverage and issues validation, which has been implemented from 1 January 2016. The Committee asked for internal audit reports to comment as a matter of course on the effectiveness of both first and second lines of defence when evaluating their audit findings. Having assessed internal audit’s reports on a regular basis, the Committee confirmed completion of the internal audit plan for the first half of 2015 and approved the plan for the second half of the year, including approving the resources requested. It also approved the plan for the first half of 2016. In view of the Group’s focus on cost management, the Committee asked for an assessment of the impact on the internal audit plan of any proposed headcount reductions and for this to be reported to the Committee along with any revised plan. The Committee was content with the outcomes of the self-assessment of internal audit performance, although requested an update on the quality assurance programme, which will be provided in 2016.

 

 

 

 

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Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken
External audit    The work and performance of PwC, including the maintenance of audit quality during the period of transition to a new auditor.   

§  Convened a separate session with the key members of the PwC audit team to discuss the 2015 audit plan and agree areas of focus.

§  Assessed regular reports from PwC on the progress of the 2015 audit and any material issues identified.

§  Debated the draft audit opinion ahead of 2015 year end.

 

The Committee was also briefed by PwC on critical accounting estimates, where significant judgement is needed.

  

The Committee approved the audit plan and the main areas of focus, including impairment, valuations, conduct redress provisions, litigation and regulation and IT systems and controls. The Committee asked PwC to comment on the Group’s reconciliations processes and how they compared to other financial institutions.

 

Read more about the Committee’s role in assessing the performance, effectiveness and independence of the external auditor and the quality of the external audit below.

 

     The external audit tender, which was conducted during 2015, and the arrangements for the transition to a new auditor.   

§  Received regular updates from the Audit Tender Oversight Sub-Committee on the progress of the audit tender.

§  Convened a special meeting to evaluate final presentations from the three audit firms who responded to the request for proposal.

§  Assessed and endorsed the proposed process to ensure that KPMG was independent by 1 July 2016.

  

The Committee decided to look further at potential reputation risk before making a recommendation to the Board. Having done so, it concluded on two firms for recommendation to the Board for consideration, indicating its preferred option of KPMG. In July 2015, Barclays announced the appointment of KPMG as its statutory auditor with effect from the 2017 financial year.

 

Read more about the external audit tender and the processes in place to ensure KPMG’s independence below.

 

 

The Committee also covered the following matters:

§  ensured it was updated on the implementation of IFRS 9, including the work under way to develop the Group’s approach, project status, resourcing and employee training. The Committee requested, and received, a specific briefing session on IFRS 9, covering the key assumptions and judgements that will be required

§  debated the Group’s plan for recovery and resolution and the process by which it was developed, including assessing the forward-looking trigger indicators

§  tracked progress of plans to ensure an attestation could be made to the Group’s regulators with regard to financial crime controls

§  assessed status reports on the Group’s controls around client assets and encouraged management to ensure that complexity, and the associated compliance costs, was taken into account when deciding which products to be offered

§  evaluated regular reports on regulatory issues

§  approved revisions to its terms of reference and recommended them to the Board for approval

§  approved a revised Group Retail Impairment Policy.

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 Group’s 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 2015, the Committee:

§  approved the terms of the audit engagement letter and associated fees, on behalf of the Board, having scrutinised the results of Barclays’ formal evaluation of PwC. More information on the formal evaluation is provided below

§  appraised PwC’s approach to key accounting judgements and how they were communicated and agreed with management and the Committee

§  recognising that PwC, and its predecessor firms, has been Barclays’ external auditor since 1896 and that it had been more than 10 years since the external audit was last tendered, conducted an external audit tender, identified KPMG as the preferred candidate for appointment as Barclays’ new auditor and made a recommendation to the Board. Details of the audit tender process, which was overseen by the Audit Tender Oversight Sub-Committee, can be found on page 51

§  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 services that PwC provided to Barclays. Following the appointment of KPMG as auditor from 1 January 2017, the Committee also commenced oversight of new non-audit service engagements with KPMG in recognition of the potential threats to independence. Read more about non-audit services below

§  instructed Barclays Internal Audit to undertake a review of a sample of non-audit services provided by PwC to ensure that the final deliverables aligned to the scope of work approved by the Committee. No concerns were identified by this review

§  evaluated and approved revisions to the Group Policy on Employment of Employees from the Statutory Auditor and ensured compliance with the policy by regularly assessing reports from management detailing any appointments made

§  analysed the results of the inspection of PwC by the Financial Reporting Council’s Audit Quality Review Team and confirmed support for the actions PwC proposed to take to address areas identified for improvement

§  assessed the draft report to the PRA prepared by PwC regarding its detailed audit work on specific topics, in particular, impairment.

PwC’s performance, independence and objectivity during 2015 were formally assessed at the beginning of 2016. A questionnaire incorporating best practice recommendations from a number of professional and governance bodies, and taking account of key findings from the 2014 review, was completed by key stakeholders across the Group. The questionnaire was designed to evaluate PwC’s audit process in its entirety and addressed matters including the quality of planning and communication, technical knowledge, the level of scrutiny and challenge applied and PwC’s understanding of the business. The subsequent report provided empirical data on which the Committee assessed PwC. It also reflected specific comments made by respondents, giving the Committee a valuable insight into management’s views. The Committee was particularly interested in assessing whether audit quality was being maintained throughout the period of transition to a new auditor. The results of the evaluation confirmed that both PwC and the audit process were effective. Having considered the results of the evaluation, the Committee recommended to the Board and to shareholders that PwC should be reappointed as the Group’s auditors at the AGM on 28 April 2016, noting that this would be PwC’s final year as Group auditor.

 

 

 

 

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Governance: Directors’ report

What we did in 2015

Board Audit Committee report

 

 

 

Non-audit services

In order to safeguard the auditor’s independence and objectivity, Barclays has in place a policy setting out the circumstances in which the auditor may be engaged to provide services other than those covered by the Group audit. The 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 Group’s auditor) should only be performed by the auditor in certain, controlled circumstances. The Policy sets out those types of services that are strictly prohibited and those that are allowable in principle. Any service types that do not fall within either list are considered by the Committee Chairman on a case by case basis, supported by a risk assessment provided by management.

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 auditor’s own internal ethical standards and does not pose any threat to the auditor’s independence or objectivity.

All requests to engage the auditor are assessed by independent management before work can commence. Requests for allowable service types in respect of which the fees are expected to meet or exceed the above 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.

During 2015, 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. Two requests were declined in 2015 (2014: two). On a quarterly basis, the Committee scrutinised details of individually approved and pre-approved services undertaken by the auditor in order to satisfy itself that they posed no risk to the auditor’s independence, either in isolation or on an aggregated basis. A breakdown of the fees paid to the auditor for non-audit work can be found in Note 42 on page 338, with non-audit fees representing 23.5% (2014: 25.7%) of the audit fee. Significant categories of engagement undertaken in 2015 included:

 

§   attest and assurance services required by regulators in connection with reviews of internal controls including reviews of the suitability of design and operating effectiveness of controls related to custody of securities and funds within Barclays Wealth Americas

 

§   tax compliance services in respect of assignments initiated pre-January 2011 in connection with Barclays international and expatriate employees, involving co-ordination and filing of statutory tax returns, social security applications and additional compliance filings

 

§   transaction support on secured funding transactions, including the provision of audits required by the Bank of England and the issue of comfort letters

 

§   provision of advice and market insight in respect of regulatory requirements relating to remuneration structure, incentive funding and risk adjustment and remuneration reporting.

Independence of KPMG

Following the appointment of KPMG as Barclays’ auditor with effect from 1 January 2017, the Committee was concerned to ensure that KPMG obtained independence from Barclays during 2016, enabling it to familiarise itself with Barclays and receive a structured, formal handover from PwC. In order to ensure KPMG’s independence, and to allow the Committee to assess whether any non-audit work being conducted by KPMG in the meantime is appropriate, both in terms of type and scale, Barclays is in the process of exiting any current relationships or assignments that may prevent KPMG obtaining independent status and

has implemented procedures to manage the types of relationships and assignments that KPMG provides going forward. In particular, KPMG is not permitted to provide any service that may continue beyond mid-2016 if it has potential to cause independence issues. Since October 2015, the Committee has required all new engagements to be considered in light of the Policy and is maintaining oversight of them on the same basis as for the current auditor. The Committee has reserved the right to decline any proposed engagement with KPMG.

The fees paid to KPMG for non-audit work during 2015 were £38m. Significant categories of engagement undertaken in 2015 included:

 

§   international tax compliance services for expatriate employees of Barclays, including expatriate tax returns, tax counselling, tax equalisation, international social security and other employment tax issues

 

§   independent approved person review (s.166) of interest rate swaps to small businesses, covering the sale of interest rate hedging products to retail customers

 

§   the building of an internal lean self-sufficiency capability to support end-to-end value stream improvements of core business processes within Group Operations and Technology

 

§   assistance in the establishment and running of the programme management office associated with the African brand migration project

 

§   support in the implementation of the Group conduct risk programme

 

§   support with the development of the anti-money laundering programme and the provision of related advice

 

§   support for Barclaycard in the assessment and restructuring of its pricing model

 

§   review and remediation of know your customer documentation requirements for Barclays politically exposed persons and special focus clients in the US, UK, Switzerland, Monaco, India, Singapore and Hong Kong

 

§   support for the development and embedding of the Basel II-compliant models in Spain.

The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014

Barclays intends to comply 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.

Board Audit Committee allocation of time (%)

 

                   2015         2014   

 

LOGO

 

 

 

 

1

 

  

 

 

Control Issues

  

 

 

 

18

 

  

  

 

 

 

24

 

  

    2      Business control environment      16         10   
    3      Financial results      27         42   
    4      Internal audit matters      7         8   
    5      External audit matters (including external audit tender)      26         11   
    6      Other (including governance and compliance)      6         5   
         
         
         

 

 

 

 

 

 

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Governance in Action – external audit tender

 

As indicated in last year’s Annual Report, Barclays decided to undertake an external audit tender in 2015, with a view to replacing our external audit firm from the 2017 financial year onwards. This was done to conform with the auditor rotation requirements of the final statutory audit services order published in October 2014 by the UK’s Competition and Markets Authority, which took effect in January 2015.

 

In December 2014, we established an Audit Tender Oversight Sub-Committee, to oversee the external audit. I was asked to chair the Sub-Committee and Crawford Gillies and Colin Beggs, Chairman of the BAGL Audit Committee, were the other members. The tender process completed in summer 2015 and the Board announced in July 2015 that it had appointed KPMG as Barclays Auditor with effect from the 2017 financial year.

 

One of the Sub-Committee’s key objectives was to ensure that the selection process was efficient, fair, effective, open and transparent. It established and published the following weighted key assessment criteria: Audit Quality (50%), Cultural Fit (20%), Corporate Fit (15%) and Experience (15%). No fee information was available to the Board Audit Committee before the recommendation was finalised. Three levels of governance were implemented to manage and support the process.

 

     

Timeline and key activities

 

LOGO

 

   
 

Governance body

 

  

Purpose

 

         
 

 

Core Audit Tender

Team

  

 

§  Assist the audit firms to put the best solution forward for consideration.

§  Conduct a detailed assessment of the audit firms following the design approved by the Audit Tender Oversight Sub-Committee.

 

         
 

 

Audit Tender Oversight

Sub-Committee

  

 

§  Agree objectives and desired outcomes for the audit tender.

§  Approve the design of the audit tender process.

§  Construct and agree a shortlist of firms to be asked to participate.

§  Oversee the implementation of the audit tender process.

 

         
 

 

Board Audit Committee

  

 

§  Recommend to the Board, from at least two potential candidates, the preferred firm to be appointed.

 

         
 

 

A number of firms were invited to participate in the audit tender, including firms outside the ‘Big 4’ auditors. We published key information on the tender in a timely manner, including making the request for proposal available on Barclays’ website. We also wrote to our major shareholders, setting out the process and details of the tendering audit firms, which we considered essential to transparency. Enhanced compliance procedures were established. We then undertook a broad and structured evaluation of each firm through site visits and workshops with the tendering firms, covering all the major businesses of the Group, the control functions and specific audit exercises, which were also attended by members of the Board Audit Committee. Ongoing feedback was provided to the tendering audit firms through a single point of contact in order to ensure that each was given the best chance possible of putting forward a credible proposal to the Board Audit Committee.

 

At the conclusion of the audit tender process, the Board Audit Committee was able to recommend to the Board the preferred firm to be appointed, from two shortlisted firms. All tendering firms met the minimum thresholds set by the Audit Tender Oversight Sub- Committee and, following a full assessment of the proposals and detailed questioning of the audit firms, KPMG was identified as the preferred firm, based on audit quality, evaluation scores and its extensive experience of auditing banks. Mike Ashley and Sir Michael Rake, both former partners of KPMG, took no part in the evaluation process or the Board Audit Committee’s recommendation and both recused themselves when the Board discussed and approved the appointment.

 

Tim Breedon

Chairman, Audit Tender Oversight Sub-Committee

 

         
                        

 

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Governance: Directors’ report

What we did in 2015

Board Risk Committee reporta

 

 

 

      

LOGO

 

“In 2016 the Committee will continue to supervise the level and deployment of risk appetite, as well as the Group’s funding and capital position, as we respond to regulatory requirements and our expectations of continued volatility in external conditions.”

 

Dear Fellow Shareholders

 

Over the past year, the Board Risk Committee reviewed management’s responses to a range of external challenges. These included a slowdown in China and other emerging markets, falling oil and commodity prices, as well as some industry trends toward more aggressive lending terms in certain core markets, including UK property and international leveraged finance. Risk appetite, as well as country, sector and individual exposures, were carefully monitored to ensure that business activity and limits appropriately reflected external risks. We were pleased to see impairment remain broadly flat on 2014 levels and within planning expectations, despite increasingly challenging conditions in some markets.

 

A key activity for the Committee is recommending risk appetite to the Board and monitoring performance against the agreed appetite on its behalf. The context in which we set our Medium Term Plan (MTP) and risk appetite for 2015 was based on our assessment of our key markets, including risk factors arising from the near term geopolitical, macroeconomic and market environment and the potential for further conduct and litigation charges. Matters for particular focus were the UK housing market, where new mortgage regulations, a potential rise in interest rates, the growth in the buy-to-let market and ongoing high levels of household debt were expected to have an impact; continuing economic and political uncertainty in Europe; weak economic prospects for South Africa; and the potential effects of ongoing weakness in oil prices. 2015 risk appetite and risk triggers were set to position Barclays conservatively given this environment. During 2015, significant stress in emerging markets and economies became evident, underpinned by a slowing in the Chinese economy and resultant market volatility. Consequently, Barclays took early action to reduce its risk appetite to emerging markets, particularly Africa, and also remained vigilant to the potential impacts arising from a downturn in economic growth, indebtedness generally and further weakness in capital markets.

 

At the end of 2014, the Committee asked for a review of the Group’s process for setting risk appetite and during 2015 approved a revised methodology that takes a scenario-based approach, with stress testing as the basis of the risk appetite framework. This revised methodology was used to set risk appetite for 2016, with the Committee also approving the stress testing themes, the severity of the proposed stress and the financial constraints.

 

Note

a   The name of the Committee changed from the Board Financial Risk Committee in June 2015

  

Another key area of focus during 2015 was the structural reform programme, where the Committee was asked by the Group Chairman to oversee progress of the planning process, particularly with regard to structural options, their capital and liquidity implications and the potential risks for the Group, its customers and for the financial system. Now that the programme has moved into its implementation phase, the Board will directly oversee programme execution, although the Committee will continue to exercise oversight of capital and liquidity aspects, including assessing capital on a legal entity basis. From July 2015, the Committee also assumed oversight responsibility for operational risk, agreeing to focus on the financial and capital aspects of operational risk, while the Board Audit Committee oversees the control aspects.

 

The role of Board Risk Committee Chairman is not confined to the Committee’s regular meetings. During 2015, I continued to have significant interaction with our regulators, meeting regularly with representatives from our UK and US regulators. I held regular meetings with the Chief Risk Officer and members of his senior management team, with Barclays Treasurer and the Chief Operating Officer. I also liaised closely with the Chairman of Board Audit Committee, particularly on those matters where the remit of the two committees might overlap, including with regard to the implementation of the Enterprise Risk Management Framework and operational risk issues.

 

Committee performance

 

The Committee’s performance during 2015 was evaluated as part of the independently facilitated annual Board effectiveness review and I am happy to report that the outcomes were positive. The Committee was regarded as effective and as taking a thorough and detailed approach to its responsibilities. The main area identified for improvement was ensuring that the papers presented to the Committee strike the right balance between providing data for information and providing insight and analysis to encourage greater debate and I will be working with the Chief Risk Officer and Barclays Treasurer to address this during 2016. You can read more about the outcomes of the Board effectiveness review on pages 66 and 67.

 

Looking ahead

 

The Committee expects its areas of focus for 2016 to be guided by the ongoing level of change faced by the Group as it implements its strategy and executes the structural reform programme, with a particular focus on capital and liquidity management across legal entities. We will also continue to monitor and react to 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.

 

 

LOGO

 

Tim Breedon

Chairman, Board Risk Committee

29 February 2016

      

 

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Committee composition and meetings

The Committee is comprised solely of independent non-executive Directors. Following a review by the Board during 2015 of Board Committee composition, Dambisa Moyo stepped down from the Committee with effect from 31 August 2015 and Diane Schueneman joined the Committee with effect from 1 September 2015. Details of the skills and experience of the Committee members can be found in their biographies on pages 36 and 37.

The Committee met seven times in 2015, with two of the meetings held in New York. Two additional meetings were held at short notice for the sole purpose of considering and approving revised risk limits in connection with specific transactions and, with the consent of the Committee Chairman, were not attended by all Committee members. The chart on page 56 shows how the Committee allocated its time during 2015. Committee meetings were attended by management, including the Group Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, Barclays Treasurer and General Counsel, as well as representatives from the businesses. Representatives from the external auditor also attended meetings.

Member      Meetings attended/eligible to attend   
Tim Breedon      7/7   
Mike Ashley      7/7   
Reuben Jeffery III*      5/7   
Dambisa Moyo (to 31 August 2015)*      3/5   
Diane Schueneman (from 1 Sept 2015)      2/2   
Steve Thieke*      5/7   
* with the consent of the Chairman did not attend the two meetings held at short notice to consider specific transaction limits

Committee role and responsibilities

The Committee’s responsibilities include:

 

§   recommending to the Board the total level of financial and operational risk the Group is prepared to take (risk appetite) to create long-term shareholder value

 

§   monitoring financial and operational risk appetite, including setting limits for individual types of risk, e.g., credit, market and funding risk

 

§   monitoring the Group’s financial and operational risk profile

 

§   ensuring that financial and operational risk is taken into account during the due diligence phase of any strategic transaction and

 

§   providing input from a financial and operational risk perspective into the deliberations of the Board Remuneration Committee.

 

LOGO  

The Committee’s terms of reference are available at

home.barclays/corporategovernance

 

 

The Committee’s work

The significant matters addressed by the Committee during 2015 are described below:

 

Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken
Risk appetite, i.e. the level of risk the Group chooses to take in pursuit of its business objectives.    The methodology for calculating the level of risk appetite.   

§  Requested a review of the Group’s risk appetite process and methodology and debated proposals from management to move to a scenario-based stress testing approach.

§  Evaluated the proposed MTP stress test, agreeing on a scenario involving a global recession from an economic slowdown in China.

§  Debated the severity of the scenario and how it would apply across the Group’s main markets of the UK, US and South Africa and how it aligned to regulatory stress tests.

  

The Committee challenged the parameters proposed by management and asked for a parameter to be linked to PBT. It also asked for early consideration to be given to the impact of IFRS 9 on the Group’s risk appetite and stress testing assumptions. This work is under way and will be reported to the Committee in the first half of 2016. Given the change in methodology, the Committee requested early sight of the design and outputs as the new risk appetite process was implemented, resulting in a workshop being held in December 2015. All non-executive Directors were invited to attend the workshop.

 

Stress testing, i.e. testing whether the Group’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic stress.

 

   The Group’s stress testing exercises, including scenario selection and constraints, the results and implications of stress tests, including stress tests run by the Bank of England (BoE), and regulatory feedback on the methodology and results.   

§  Debated proposals from management to move to a scenario-based risk appetite setting approach and approved a change to the Group’s methodology.

§  Assessed the progress of the BoE stress test and evaluated the preliminary results, including discussing any potential areas of sensitivity.

 

   The Committee approved the stress test results for submission to the BoE. It subsequently evaluated the BoE stress testing results and feedback from the BoE on the stress test.

 

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  53


Governance: Directors’ report

What we did in 2015

Board Risk Committee report

 

 

 

 

Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken
Structural reform, i.e. the progress of structural reform, including the challenges to execution.    The impact of structural reform on the Group’s principal risks, including the impact on capital and liquidity for individual Group legal entities and the potential overall impact on the safety and soundness of the UK financial system.   

§  Debated structural reform and the impact on the capital and liquidity flightpaths for individual legal entities, in particular, the prospective credit rating of Barclays Bank PLC in the structural reform structure.

§  Evaluated the respective impacts on capital, liquidity and on the general safeness and soundness of the Group of different ring fence bank (RFB) structures.

  

The Committee recognised the design and implementation challenges of the programme and supported management in proposing structures and perimeters that best ensured the safety and soundness of all elements of the Group. It requested a workshop on structural reform to provide the Committee with an in-depth view of the key challenges. The workshop was held in December 2015 and all non-executive Directors were invited to attend.

 

Liquidity and funding, i.e. having sufficient financial resources available to enable the Group to meet its obligations as they fall due.    Compliance with regulatory requirements and internal liquidity risk appetite (LRA).   

§  Assessed on a regular basis liquidity performance against requirements.

§  Debated the credit ratings of Barclays PLC and Barclays Bank PLC and potential market reaction to a ratings downgrade following removal of sovereign support notching.

§  Questioned the cost of additional liquidity and asked for options to reduce the cost to be considered.

 

   The Committee ensured that management had in place options to manage any impact on liquidity of a ratings downgrade. It agreed that the cost of maintaining surplus liquidity was appropriate.

Capital and leverage,

i.e., having sufficient capital resources to meet the Group’s regulatory requirements, maintain its credit rating and support growth and strategic options.

 

   The flightpath to achieving required regulatory and internal targets and capital and leverage ratios.   

§  Debated on a regular basis, capital performance against plan, tracking the capital flightpath, any challenges/headwinds and regulatory developments.

§  Evaluated options to maximise capital and capital ratios in order to meet regulatory and market expectations.

 

   The Committee supported the forecast trajectory and the actions identified by management to manage the Group’s capital position.
Country risk, i.e. the levels of risk the Group is prepared to take in specific countries.    The potential impact on the Group’s risk profile of political instability and economic weakness in South Africa, one of its main markets.   

§  Debated economic conditions in South Africa and the future outlook.

§  Examined the actions already taken to manage risks, improve controls and asset quality and develop triggers for additional action in the event of further macro deterioration.

§  Monitored the impact on South Africa of the slowdown in China and the fall in commodity prices.

  

The Committee sought additional information around the actions that had been taken to manage the risk profile in South Africa, including the impact of the actions taken to date. It requested a deep dive on the risk profile of the South African business, inviting the South African business heads to present on the actions that had been taken and how the business was positioned for a further economic downturn, including the impact of a further country rating downgrade.

 

 

 

 

 

 

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Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken
Political and economic risk, i.e. the impact on the Group’s risk profile of political and economic developments and macroeconomic conditions.    The potential impact on the Group’s risk profile of political developments, such as the UK general election and budget statement, the potential exit of countries from the Eurozone, and weakening macroeconomic conditions, such as disruption and volatility in financial markets.   

§  Assessed the potential impact of the UK general election and steps that could be taken to manage any market volatility.

§  Evaluated the potential risks arising from a general macroeconomic slowdown and from financial markets disruption, including the global impact of the economic slowdown in China.

§  Assessed global consumer indebtedness indicators and the potential impact of rising consumer debt on the Group’s risk profile.

§  Debated the Group’s Eurozone exposures in the context of the potential break-up of the Eurozone in the event of a Greek exit and assessed the Group’s levels of redenomination risk in the Eurozone.

 

   The Committee asked management to evaluate macroeconomic conditions and market indicators to inform the strategic plan and risk appetite proposals for 2016, so that the Group is positioned appropriately.

Retail credit risk,

i.e. UK property market, interest rate risk.

   The potential overheating of the UK housing market, particularly in London and the South East and the Group’s risk appetite for and management of sectors such as the buy-to-let sector.   

§  Debated UK property market indicators and conditions, particularly in the high loan to value (LTV) and the buy-to-let markets and potential economic and political risks to that market.

§  Evaluated the Group’s lending criteria and its approach to assessing customers on affordability.

§  Assessed the potential impact of an increase in interest rates on customers, including how customers had been stress tested and assessed against affordability criteria.

 

   The Committee encouraged management to continue to take a conservative approach to UK mortgage lending in the buy-to-let market and emphasised the need to keep risks and exposures within agreed appetite.

Specific sector risk,

i.e. the Group’s risk profile in sectors showing signs of stress, such as the oil sector.

   The Group’s exposures to the oil and commodities sectors in light of the price weakness and volatility in these sectors during 2015.   

§  Regularly assessed the Group’s exposures to the oil sector, including assessing steps taken with regard to the credit strategy for the sector, how the portfolio was performing and whether this was in line with expectations.

§  Evaluated the Group’s exposures to the commodities sector and actions taken to identify any names at risk and reduce exposures.

 

   The Committee supported the actions that had been taken by management to manage the Group’s risks and exposures to the oil and commodities sectors. It requested a stress test to assess the impact of further (and longer) oil price weakness on the Group’s lending portfolio, including indirect exposure.

Operational Risk

From 1 July 2015, the Committee took responsibility for oversight of the capital and financial aspects of operational risk.

   The Group’s operational risk capital requirements and any material changes to the Group’s operational risk profile and performance versus risk appetite.   

§  Evaluated operational risk capital and debated the potential for an increase in regulatory operational capital requirements.

§  Debated whether Barclays advanced status for calculating operational risk capital should be retained.

§  Tracked operational risk key indicators via regular reports from the Head of Operational Risk.

 

   The Committee focused its oversight of operational risk on the financial and capital implications, debating in particular the potential impact of regulatory operational risk requirements.

 

 

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  55


Governance: Directors’ report

What we did in 2015

Board Risk Committee report

 

 

                    
Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken    
 

Risk governance,

i.e. the capability, governance and controls that the Group has over the management of risk.

   The development of a scorecard to assist the Committee in assessing risk capability across the Group; further enhancement to the limit framework and governance of leveraged finance; the actions being taken to enhance controls and governance around risk models.   

§  Requested development of a risk capability scorecard.

§  Regularly debated conditions in the leveraged finance market, tracking market indicators and the Group’s risk exposures and assessing the limit framework for leveraged finance and underwriting, including proposed changes to the framework to strengthen controls.

§  Assessed the progress of enhancements to risk models controls and governance, including the role of the Group’s Independent Validation Unit.

§  Evaluated revisions proposed to the ERMF.

 

  

The Committee approved the approach to the risk capability scorecard and requested a formal annual assessment of capability, with the option of an external assessment every three years. The Committee approved a revised limit framework for leveraged finance transactions and approved underwriting limits in general. The Committee concluded that good progress had been made on enhancing the controls and governance around risk models and asked management to focus on improving the quality of models and data quality further. The Committee also recommended the revised ERMF to the Board for approval.

 

   
 
Remuneration    The scope of any risk adjustments to be taken into account by the Board Remuneration Committee when making remuneration decisions for 2015.   

§   Evaluated the Risk function’s view of performance, which informed remuneration decisions for 2015.

  

The Committee supported the Risk function’s view of 2015 risk performance and endorsed the report that had been submitted to the Board Remuneration Committee.

 

The Remuneration Report on pages 83 to 116 includes more detail on how risk is taken into account in remuneration decisions.

 

   

 

 

In addition, the Committee also covered the following matters in 2015:

 

§  regularly tracked the utilisation of risk appetite and evaluated the Group’s risk profile

 

§  evaluated the impact of the Swiss franc revaluation on the Group’s electronic trading systems and asked for any lessons learned to be applied to other electronic platforms

 

§  debated risk related matters arising from regulatory assessments and the actions needed to address any specific issues raised

 

§  approved regulatory submissions, including the Individual Capital Adequacy Assessment Process and the Individual Liquidity Adequacy Assessment

 

§  assessed and debated a report on its own performance during 2014, including considering whether its remit should be revised to cover operational risk and assessing the degree of challenge and support and value it provided to the Risk function

 

§  discussed and agreed on its own training needs, resulting in two workshops being held in 2015, one on risk appetite and one on structural reform, with a further briefing session on the impact of IFRS 9 planned for 2016

 

§  approved amendments to its terms of reference to reflect its revised remit and to ensure they remained in line with best practice and

 

§  discussed and agreed its specific responsibilities for the oversight of operational risk, focusing on the capital and financial impacts, leaving the Board Audit Committee to oversee operational risk control issues.

    Board Risk Committee allocation of time (%)    
                      2015    2014    
   

 

LOGO

  1   Risk profile/risk appetite    43    57  
        (including capital and liquidity management)        
      2   Key risk issues    31    19  
      3   Internal control/risk policies    11    11  
      4   Other (including remuneration and    15    13  
        governance issues)        
               
               
               
   

LOGO

   Read more about Barclays’ risk management on pages 127 to    
       142 and in our Pillar 3 Report, which is available online at home.barclays/annualreport    
          
                    
                    
                    
                    
                    
                    
                    
                    
                    
 

    

 

 

                                  

 

56  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


    

What we did in 2015

Board Reputation Committee reporta

 

 

 

LOGO

 

‘The Committee’s responsibilities were reshaped during 2015 to focus on three main pillars: conduct and compliance; reputation; and citizenship.’

 

 

Dear Fellow Shareholders

The Board Reputation Committee underwent a period of change during 2015, in terms of both a reassessment of Board Committee responsibilities and membership. John McFarlane succeeded Reuben Jeffery III as Chairman of the Committee in March 2015 and, following John’s appointment as Executive Chairman in July 2015, the Board asked me to assume the role of Committee Chairman, a position I held until my retirement from the Board at the end of December 2015.

 

The Committee’s responsibilities were reshaped during 2015 to focus on three main pillars: conduct and compliance; reputation; and citizenship. Culture and conduct are the bedrock of the organisation and, with the right culture, much of Barclays’ exposure to conduct risk can be reduced. To this end, the Committee has continued to focus on these issues, assessing progress against plans for embedding our conduct risk programme and implementing cultural change throughout the Group. We assessed deep-dive reports into conduct risk within key businesses, such as Barclays Africa and the Cards business, and evaluated the findings of a report by Air Marshal Sir David Walker, commissioned by management to give an independent view on whether we are making progress with cultural change. I am pleased to report that, although there is more to be done, progress on both has been good and there is strong commitment throughout the Group to embedding the necessary changes.

 

The Committee also tracked the exposure of Barclays, and the financial sector generally, to reputational risks. Reputational risk is a risk type that is constantly evolving, with potential new risks emerging while we are implementing controls to manage identified risks. Consequently, we have taken a thematic approach to identifying our key reputational risks and have ensured that we look ahead to identify emerging risks enabling us to mitigate them early. You can read more on pages 61 and 62 about the significant matters addressed during the year.

      

 

Committee performance

As part of the annual Board effectiveness review the performance of the Board’s committees was considered and I am pleased to report that the Committee is considered to be effective. The Committee is relatively new and areas for improvement included continuing to refine its agenda, particularly with regard to compliance and conduct risk, and ensuring that it does not duplicate the work of other Board Committees. Please turn to the report of the Board effectiveness review on pages 66 and 67 for more details.

 

Looking ahead

My successor, Sir Gerry Grimstone, will be assessing the areas of focus for the Committee in 2016 and I wish him and the Committee well for the future.

 

LOGO

 

Sir Michael Rake

Chairman, Board Reputation Committee until 31 December 2015

 

Committee composition and meetings

The Committee comprises independent non-executive Directors, with the exception of Wendy Lucas-Bull, who the Board has decided to deem as non-independent for the purposes of the UK Corporate Governance Code, owing to her position as Chairman of Barclays Africa Group Limited. During 2015, there were a number of changes to the membership of the Committee, which are set out in the table below.

 

The Committee met four times during 2015 and the chart on page 59 shows how it allocated its time. Committee meetings were attended by management, including the Group Chief Executive, Chief Internal Auditor, Chief Risk Officer, General Counsel, Group Corporate Relations Director and the Heads of Compliance, Conduct Risk and Operational Risk, as well as representatives from the businesses and other functions.

 

     Member    Meetings attended/eligible to attend
     Reuben Jeffery III (Chairman and member to 31 March 2015)    1/1
     John McFarlane (Chairman from 1 April 2015 – 16 July 2015)    2/2
     Sir Michael Rake (Chairman and member from 17 July 2015 – 31 December 2015)    2/2
     Mike Ashley (to 31 August 2015)    2/2
     Tim Breedon (to 31 August 2015)    2/2
     Wendy Lucas-Bull    4/4
     Dambisa Moyo    4/4
     Diane de Saint Victor    4/4
     Sir John Sunderland (to 23 April 2015)    1/1
     Frits van Paasschen (from 1 September 2015)    2/2
    

 

Committee role and responsibilities

The principal purpose of the Committee is to:

 

§  ensure, on behalf of the Board, the efficiency of the processes for identification and management of conduct and reputational risk and

 

§  oversee Barclays’ Citizenship Strategy, including the management of Barclays’ economic, social and environmental contribution.

 

Until the end of June 2015, the Committee also had responsibility for oversight of operational risk. Following a review by the Board of its governance arrangements, responsibility for the oversight of the capital and financial aspects of operational risk was reallocated to the Board Financial Risk Committee, which was renamed the Board Risk Committee. The Board Audit Committee oversees the control aspects of operational risk.

 

     LOGO  

The Committee’s terms of reference are available at

home.barclays

 

Note

a   Formerly called the Board Conduct, Operational and Reputational Risk Committee

 

        

 

home.barclays/annualreport    Barclays PLC Annual Report 2015  |  57


Governance: Directors’ report

What we did in 2015

Board Reputation Committee report

 

 

 

The Committee’s work

The significant matters addressed by the Committee during 2015 are described below:

 

Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken
Conduct risk    Progress on embedding the conduct risk management framework, focus on specific conduct risks and continued reduction of customer complaint levels.   

§  Continued its monitoring of the conduct risk programme via quarterly reports from management.

§  Specifically assessed the status of the conduct risk programmes in Barclays Africa and across the Cards business.

§  Monitored regulators’ views of Barclays’ conduct risk management and reporting via updates from management.

§  Assessed progress made in reducing numbers of complaints, including those escalated to the Financial Ombudsman Service.

 

   The Committee welcomed the progress made in embedding the conduct risk programme and requested more visibility of the status of specific conduct risks. It encouraged management to continue to apply lessons learned from past events to prevent similar events occurring now or in the future. It was content with the progress made in embedding conduct risk in Barclays Africa, but encouraged greater simplification of the governance structures and communication. It also encouraged management to do more to reduce the number of complaints.

Operational risk

(to July 2015)

   The management of Barclays’ operational risk profile and exposure to significant operational risks.   

§  Monitored Barclays’ operational risk profile via quarterly reports from management.

 

§  Evaluated management’s strategy for addressing cyber risk and monitored its progress.

 

§  Assessed Barclays’ exposure to technology risk and examined plans to resolve identified control issues by the end of the year.

  

The Committee focused its attention on emerging risks and those to which the Group’s exposure was increasing. It supported tactical and strategic actions proposed by management to mitigate the Group’s risks, including endorsing management’s strategy for addressing cyber risk. The Committee also satisfied itself that progress in managing technology risk was good and there was a healthy focus on embedding the right culture.

 

Reputational issues    Ensuring that Barclays anticipates, identifies and manages reputational issues that may impact it or the industry now or in the future.   

§  Tracked Barclays’ exposure to reputational risks via twice-yearly management reports.

§  Examined the effectiveness of the current reputation risk framework, including assessing case studies on specific reputational matters.

 

   The Committee took a thematic approach to its assessment of reputational risks and guided management in its approach to managing them. It satisfied itself as to the effectiveness of the reputation risk framework.

 

 

 

 

 

58  |  Barclays PLC Annual Report 2015    home.barclays/annualreport


 

 

 

 

 

                    
Area of focus    Matter addressed    Role of the Committee    Conclusion/action taken    
 
Cultural change    The progress being made on embedding of cultural change.   

§  Evaluated the outputs of an independent review by Air Marshal Sir David Walker.

§  Assessed an industry-wide report by the Group of Thirty (G30) into banking conduct and culture and how Barclays’ practices benchmarked against the best practices and suggestions outlined in that report.

  

The Committee endorsed Air Marshal Sir David Walker’s report, which confirmed its view that progress had been good but that there was more to do to achieve the cultural change required. It encouraged management to continue to prioritise progress on cultural change. The Committee also concluded that many of the actions Barclays had taken in response to the Salz Review recommendations had aligned its practices with those proposed in the G30 report.

 

   
 
Citizenship    The delivery of the 2015 Citizenship Plan and development of a Shared Growth Plan for 2016-2018.   

§  Tracked progress against the current 2015 Citizenship plan via six-monthly reports from management.

§  With the current Citizenship Plan coming to completion, evaluated the proposed Shared Growth Plan for 2016-2018.

  

The Committee noted that all targets in the 2015 Citizenship Plan had been met or exceeded, with the exception of our new and renewed household lending target, which had not been possible to achieve owing to market and trading conditions. It endorsed the 2016-2018 Shared Growth Plan, particularly the proposal to link the plan to Barclays’ core purpose and values and to focus on employability skills.

 

Read more about Barclays’ approach to citizenship on page 14.

 

   
 

The Committee also covered the following matters:

 

§  assessed progress of the programme to implement enhanced controls in the Investment Bank over conflicts of interest between Barclays and third parties

 

§   evaluated outcomes of regulatory thematic reviews of conduct issues and controls

 

§   evaluated the levels of attestation by colleagues globally to The Barclays Way, the Group’s code of conduct

 

§  assessed the status of specific remediation programmes being implemented by the business

 

§  provided input to the Board Remuneration Committee on conduct and reputation issues to be taken into consideration for 2015 remuneration decisions

    Board Reputation Committee allocation of time (%)    
                   2015       2014    
   

 

LOGO

 

  1   Citizenship      6       2    
      2   Reputational issues      13       7    
      3   Culture, conduct and compliance      57       52    
      4   Operational risk      19       33    
      5   Other      6       6    
                 
                 
                 
                 

 

§  tracked progress against the Compliance function’s business plan, including updates on resourcing and attrition levels

 

§  monitored progress of Barclays’ plans for compliance with the Volcker Rule (restrictions on proprietary trading and certain fund investments by banks operating in the US)

 

§   assessed and discussed a report on the Committee’s performance during 2014

 

§   approved revisions to its terms of reference and recommended them to the Board for approval and

 

§   considered and approved Group Compliance Policies.

                      LOGO      Read more about Barclays’ risk management on pages 127 to 142 and in our Pillar 3 Report, which is available online at home.barclays/annualreport    
                   
                   
                   
                   
                   
                   
                   
                   
                   
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